##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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Form 10-K/A

|           |  |                                                                                                                                          
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                                                          
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR
    ENDED DECEMBER 31, 2003.
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee
    Required)                       
|           |  | For the transition period
    from           to           .                                                                              

Commission File
Number 333-20095



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Atrium Companies, Inc.

(Exact name of Registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 75-2642488                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification Number)

3890 West Northwest Highway

Suite 500


Dallas, Texas 75220


(Address of executive offices, including zip
code)


(214) 630-5757

(Registrants telephone number, including
area code)


Securities registered pursuant to
Section 12(b) and (g)of the Act:

None




---

Indicate
by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.    Yes þ         No o

State
the aggregate market value of the voting stock held by
non-affiliates of the registrant  None

Indicate
by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
þ

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

As
of March 30, 2004, the registrant had 100 shares of
Common Stock, par value $.01 per share outstanding.



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##### Table of Contents



Explanatory Note

We are filing this Amendment No. 1 to our
Annual Report on Form 10-K for the fiscal year ended
December 31, 2003 (Form 10-K) as filed
with the Securities and Exchange Commission on March 30,
2004, to correct certain errors. Specifically,

(1) In Item 7 
Managements Discussion and Analysis of Financial Condition
and Results of Operations:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) in the Discussion of Results by
    Reporting Segment, for the Year Ended December 31, 2003
    Compared to the Year Ended December 31, 2002, Windows and
    Doors, Net Sales, the Companys sales growth at its
    aluminum window operations was $9,040, or 5.0%, not $9,510, or
    5.2%, and growth at its vinyl operations was $3,945, or 1.4%,
    not $4,836 or 1.4%; and                                                                                                                                                                                                                     
|
| | (b) in the Discussion of Results by
    Reporting Segment, for the Year Ended December 31, 2002
    Compared to the Year Ended December 31, 2001, Windows and
    Doors, Income From Operations, (i) income from
    operations increased from 8.2% of net sales during 2001, not
    10.1% and (ii) the Company expanded the disclosure of this
    item to attribute the increase to the Companys adoption of
    Statement of Financial Accounting Standards (SFAS)
    No. 142, Goodwill and Other Intangible Assets
    (SFAS 142); and                                                        
|
| | (c) in the Discussion of Results by
    Reporting Segment, for the Year Ended December 31, 2002
    Compared to the Year Ended December 31, 2001,
    Components, Income From Operations, (i) income from
    operations increased $1,542 from $1,765, or 2.3% of net sales,
    not decreased $125 from $3,432 or 4.6% of net sales and
    (ii) the Company expanded disclosure of this item to
    attribute the increase to the Companys adoption of
    SFAS 142 and disclose that the increase was partially
    offset by a decrease in income from operations excluding
    goodwill amortization.

(2) In Item 8  Financial
Statements and Supplementary Data:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) in the Notes to the Companys
    Consolidated Financial Statements, Note 19, Operating
    Segment Information, in the chart containing the
    summarized financial information, Income from Operations,
    for the Year Ended December 31, 2001, (i) Windows and
    Doors was $38,585, not $58,065; (ii) Components was $1,765,
    not $5,099; and (iii) Corporate and Other was a loss of
    $3,888, not a loss of $26,702; and
|
| | (b) in the Notes to the Companys
    Consolidated Financial Statements, Note 21,
    Subsidiary Guarantors, the disclosure has been
    changed to reflect the Parent Companys investment in
    subsidiaries and the Parent Companys equity in income
    (loss) of subsidiaries.                                                                                                                                                      

As described in Notes 19 and 21 to
Consolidated Financial Statements, the Company has restated its
previously reported segment information for 2001 and its
previously reported subsidiary guarantor condensed financial
statements. The restatement had no impact on the Companys
consolidated balance sheets and the related consolidated
statements of operations, of stockholders equity and other
comprehensive income (loss) and of cash flows.

(3) In Item 12  Security
Ownership of Certain Beneficial Owners and Management:



| |                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) in the Beneficial Ownership Table, the
    percentage of shares outstanding held by ATR Acquisition, LLC is
    92.5%, not 93.9%, by Jeffrey L. Kenner, 92.5%, not 93.9%, by
    Justin Maccarone, 92.5%, not 93.9%, by Nathan C. Thorne, 96.4%,
    not 97.8% and all directors and executive officers as a group,
    97.9%, not 99.6%; and
|
| | (b) in footnotes 5, 6 and 7 to the
    Beneficial Ownership Table, the correct share amount in the
    first sentence is 251,453, not 251,654, and in footnote 7,
    the shares owned by ML IBK Positions, Inc. are 10,646, not
    10,446.                                                                                                     

With the exception of conforming changes in other
parts of this Form 10-K and nonmaterial language changes,
this Amendment No. 1 to Form 10-K does not change any
other portion of the Form 10-K.

1



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ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

2003 FORM 10-K


TABLE OF CONTENTS

|                                                  |  |                                                                                           |  |      |    | 
|------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ---- | -- | 
|Item No.                                          |  | Description                                                                               |  | Page
|                                                  |  |                                                                                           |  |     
|PART I                                           
|Item 1.                                           |  | Business                                                                                  |  |      | 4  | 
|Item 2.                                           |  | Properties                                                                                |  |      | 15 | 
|Item 3.                                           |  | Legal Proceedings                                                                         |  |      | 16 | 
|Item 4.                                           |  | Submission of Matters to a
    Vote of Security Holders                                   |  |      | 17 | 
|                                                 
|PART II                                          
|Item 5.                                           |  | Market for Registrants
    Common Equity and Related Stockholder Matters                 |  |      | 17 | 
|Item 6.                                           |  | Selected Financial Data                                                                   |  |      | 18 | 
|Item 7.                                           |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |  |      | 20 | 
|Item 7A.                                          |  | Quantitative and Qualitative
    Disclosures About Market Risk                            |  |      | 31 | 
|Item 8.                                           |  | Financial Statements and
    Supplementary Data                                           |  |      | 33 | 
|Item 9.                                           |  | Changes In and Disagreements
    with Accountants on Accounting and Financial Disclosure  |  |      | 33 | 
|Item 9A.                                          |  | Controls and Procedures                                                                   |  |      | 33 | 
|                                                 
|PART III                                         
|Item 10.                                          |  | Directors and Executive
    Officers of the Registrant                                    |  |      | 33 | 
|Item 11.                                          |  | Executive Compensation                                                                    |  |      | 37 | 
|Item 12.                                          |  | Security Ownership of
    Certain Beneficial Owners and Management                        |  |      | 42 | 
|Item 13.                                          |  | Certain Relationships and
    Related Transactions                                        |  |      | 43 | 
|Item 14.                                          |  | Principal Accountant Fees
    and Services                                                |  |      | 47 | 
|                                                 
|PART IV                                          
|Item 15.                                          |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                       |  |      | 48 | 
|Certification of Chairman, President, and CEO    
|Certification of Executive Vice President and CFO



2



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##### Table of Contents



CAUTIONARY STATEMENTS CONCERNING
FORWARD-LOOKING STATEMENTS

This Form 10-K contains certain
forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) relating to
the Registrant based on beliefs of management that involve
substantial risks and uncertainties. When used in this
Form 10-K, the words anticipate,
believe, estimate, expect,
intend, and similar expressions, as they relate to
us or our management, identify forward-looking statements. Such
statements reflect our current views with respect to the risks
and uncertainties regarding our operations and results of
operations, as well as our customers and suppliers, including
the availability of credit, interest rates, employment trends,
changes in levels of consumer confidence, changes in consumer
preferences, national and regional trends in new housing starts,
raw material costs, pricing pressures, shifts in market demand,
and general economic conditions. Should one or more of these
risks or uncertainties materialize, or should underlying
assumptions or estimates prove incorrect, actual results may
vary materially from those described herein as anticipated,
believed, estimated, expected or intended. In addition to
specific factors described in connection with any particular
forward-looking statement, factors that could cause actual
results to differ materially include, but are not limited to,
those in Item 7A, Quantitative and Qualitative
Disclosures About Market Risk. Other risks besides those
listed in Item 7A also could adversely affect us. We
disclaim any obligation to publicly update or revise any
forward-looking statements.

3



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##### Table of Contents






PART I






|        |         
|------- | --------
|Item 1. | Business

Organizational Structure

Unless we indicate otherwise, references in
this report to we, us, our,
the Company and Atrium Companies mean
Atrium Companies, Inc. and its subsidiaries and
predecessors and references in this report to Atrium
Corporation mean Atrium Corporation, our parent and sole
stockholder.

The table below sets forth each of Atrium
Companys wholly-owned subsidiaries and its date of
inception or acquisition, as applicable.

|           |  |                                                                                                                                                      |                                                                                   |      | 
|---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ---- | 
|           |  | Year of                                                                                                                                             
|Subsidiary |  | Inception/Acquisition(a)                                                                                                                            
|           |  |                                                                                                                                                     
|          |  | Northeast:                                                                                                                                           |                                                                                   |     
|           |  | Atrium Door and Window Company of the Northeast                                                                                                      |                                                                                   | 1996
|           |  |                                                                                                                                                      | (formerly known as Vinyl Building Specialties of
    Connecticut, Inc.            |      | 
|          |  | West Coast:                                                                                                                                          |                                                                                   |     
|           |  | Atrium Door and Window Company  West
    Coast                                                                                                      |                                                                                   | 1997
|           |  |                                                                                                                                                      | (formerly known as H-R Window Supply, Inc.)                                       |      | 
|           |  | Atrium Door and Window Company 
    West Coast is referred to as West Coast.                                                                      |                                                                                   |     
|          |  | Arizona:                                                                                                                                             |                                                                                   |     
|           |  | Atrium Door and Window Company of Arizona                                                                                                            |                                                                                   | 1998
|           |  | Atrium Door and Window Company of Arizona is
    referred to as Arizona.                                                                           |                                                                                   |     
|          |  | Darby:                                                                                                                                               |                                                                                   |     
|           |  | R.G. Darby Company, Inc.                                                                                                                             |                                                                                   | 1998
|           |  | Total Trim, Inc                                                                                                                                      |                                                                                   | 1998
|          |  | Wing:                                                                                                                                                |                                                                                   |     
|           |  | Wing Industries, Inc.                                                                                                                                |                                                                                   | 1998
|          |  | Rockies:                                                                                                                                             |                                                                                   |     
|           |  | Atrium Door and Window Company of the Rockies                                                                                                        |                                                                                   | 1999
|           |  |                                                                                                                                                      | (formerly known as Champagne
    Industries, Inc. and referred to as Champagne) |      | 
|           |  | Atrium Door and Window Company of the Rockies
    is referred to as Rockies.                                                                       |                                                                                   |     
|          |  | Heat:                                                                                                                                                |                                                                                   |     
|           |  | Atrium Vinyl, Inc.                                                                                                                                   |                                                                                   | 1999
|           |  |                                                                                                                                                      | (formerly known as Heat, Inc.)                                                    |      | 
|           |  | Thermal Industries, Inc.                                                                                                                             |                                                                                   | 1999
|           |  |                                                                                                                                                      | Thermal Industries, Inc. is referred to
    as Thermal.                         |      | 
|           |  | Atrium Door and Window Company of the Northwest                                                                                                      |                                                                                   | 1999
|           |  |                                                                                                                                                      | (formerly known as Best Built, Inc.)                                              |      | 
|           |  | Atrium Door and Window Company of the
    Northwest is referred to as Northwest.                                                                   |                                                                                   |     
|           |  | Atrium Vinyl, Inc., Thermal
    Industries, Inc. and Atrium Door and Window Company of the
    Northwest are collectively referred to as
    Heat. |                                                                                   |     

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|           |  |                                                                                                                                                                                                          |                               |      | 
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ---- | 
|           |  | Year of                                                                                                                                                                                                 
|Subsidiary |  | Inception/Acquisition(a)                                                                                                                                                                                
|           |  |                                                                                                                                                                                                         
|          |  | Ellison:                                                                                                                                                                                                 |                               |     
|           |  | Atrium Extrusion Systems, Inc.                                                                                                                                                                           |                               | 2000
|           |  |                                                                                                                                                                                                          | (formerly known as VES, Inc.) |      | 
|           |  | Atrium Extrusion Systems, Inc. and
    Atriums Ellison Windows and Doors division are
    collectively referred to as Ellison. Ellison Windows
    and Doors is referred to as Ellison
    Windows. |                               |     
|          |  | Atrium Funding Corporation                                                                                                                                                                               |                               | 2001
|          |  | Mexico:                                                                                                                                                                                                  |                               |     
|           |  | Atrium Ventanas de Mexico                                                                                                                                                                                |                               | 2002
|           |  | Atrium Servicios de Mexico                                                                                                                                                                               |                               | 2002
|           |  | Atrium Ventanas de Mexico and Atrium Servicios
    de Mexico are collectively referred to as
    Mexico.                                                                                               |                               |     
|          |  | MD Casting:                                                                                                                                                                                              |                               |     
|           |  | MD Casting, Inc.(b)                                                                                                                                                                                      |                               | 2003
|           |  | MD Casting, Inc. is referred to as
    MD Casting.                                                                                                                                                     |                               |     
|          |  | Aluminum Screen:                                                                                                                                                                                         |                               |     
|           |  | Aluminum Screen Manufacturers, Inc.(b)                                                                                                                                                                   |                               | 2003
|           |  | Aluminum Screen Manufacturers, Inc. is
    referred to as Aluminum Screen.                                                                                                                             |                               |     
|          |  | Superior:                                                                                                                                                                                                |                               |     
|           |  | Superior Engineered Products Corporation(b)                                                                                                                                                              |                               | 2003
|           |  | Superior Engineered Products Corporation is
    referred to as Superior.                                                                                                                               |                               |     



---



|    |  |                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Year of inception/acquisition presented for
    currently existing subsidiaries, only.                                                                                
|(b) |  | MD Casting, Aluminum Screen and Superior,
    together with the acquired assets of Danvid Window Company, are
    collectively referred to as the 2003 Acquisitions.

The Company

Atrium, founded in 1948, is a Delaware
corporation based in Dallas, Texas. We are one of the largest
manufacturers and distributors of residential windows and patio
doors in the United States and one of the few such providers
with a national presence. We offer a comprehensive product line
of aluminum and vinyl windows as well as patio doors to leading
national homebuilders, including Pulte, D.R. Horton and
Richmond American, one-step distributors, including Owens
Corning and Ted Lansing, and home center retailers such as The
Home Depot and Lowes. We have steadily generated revenue
and cash flow growth through market share gains, new product
development and operational improvements that have resulted from
vertical integration, operational efficiencies and purchasing
savings from increasing scale. We have also selectively acquired
businesses that strategically add distribution channels,
vertical integration opportunities and provide new product
offerings and entry into new geographic markets.

We have consolidated our brand names into the
flagship Atrium® brand, and the well-known regional
brands of HRTM, DanvidTM,
Superior® and ThermalTM.
Additionally, we utilize multi-branding to alleviate channel
conflict using such other names as Ellison® and
Best Built®. Our full product line of windows and
patio doors enables us to differentiate ourself from our
competitors, leverage multi-channel distribution systems and be
well positioned to benefit from shifts in product preferences.
Regional product preferences exist for aluminum and vinyl
windows and patio doors, and a broad product line is important
to serve a national customer base effectively. We are able to
provide nationwide customers the most suitable material based on
their customers varying regional product preferences.

We have 25 manufacturing facilities and 31
distribution centers strategically located in 22 states and
Mexico. We distribute through multiple channels, including:
(i) one-step distribution through lumberyards

5



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and retail distributors; (ii) home center
distribution to big box retailers; (iii) direct
distribution to large homebuilders, multi-family builders and
remodelers/ contractors and (iv) two-step distribution to
wholesale distributors who subsequently resell to lumberyards
and retail distributors. We believe that our multichannel
distribution network allows us to reach the greatest number of
end-customers and provide nationwide service to those customers.


We are vertically integrated with operations that
include:



| |   |                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The extrusion of aluminum and vinyl lineals,
    which are utilized internally in our fabrication operations or
    sold to third-parties;                                                                                                                                                                               
|
| |  | Blending of vinyl compounds, manufacture of zinc
    die cast hardware and screens;                                                                                                                                                                                                                                      
|
| |  | The manufacture and assembly of window and patio
    door units, including the cutting and insulation of glass, the
    pre-hanging of patio doors, and the sale of such units to
    homebuilders, multi-family builders, remodelers/ contractors,
    home centers, lumberyards, and retail and wholesale distributors;
|
| |  | A turn-key installation program for multi-family
    builders in which we supply and install many of our products,
    including interior/ exterior doors, windows and patio
    doors; and                                                                                                                              
|
| |  | The sale of finished products to homebuilders and
    remodelers/ contractors through company-owned distribution
    centers located across the United States.                                                                                                                                                           

2003 Acquisitions

Miniature Die
Casting.On January 31, 2003, we
acquired substantially all of the assets of Miniature Die
Casting of Texas, L.P. (MD Casting), a zinc die
cast hardware manufacturer located in Fort Worth, Texas,
for approximately $3.3 million in cash, transaction fees of
approximately $.1 million and an additional amount of up to
$.6 million to be paid over three years upon the
achievement by MD Casting of certain financial targets.

Danvid.On
April 1, 2003, we acquired substantially all of the assets
of Danvid Window Company (Danvid), an aluminum and
vinyl window manufacturer located in Dallas, Texas, for
approximately $5.5 million in cash, $.3 million in
transaction fees and the assumption of certain liabilities.

Aluminum Screen.On
October 1, 2003, we acquired substantially all of the
assets of Aluminum Screen Manufacturing Ltd., L.L.P., Aluminum
Screen Products, Inc. and Aztex Screen Products
(collectively, Aluminum Screen), a screen
manufacturer with manufacturing and distribution operations in
Dallas, Houston, Las Vegas, Phoenix and Cuidad Juarez, Mexico,
for $16.5 million in cash, and approximately
$.8 million in transaction fees.

Superior.On
December 31, 2003, we acquired all of the capital stock of
Superior Engineered Products Corporation (Superior),
a manufacturer of windows and other building materials based in
Ontario, California, for $47.5 million in cash,
approximately $.4 million in transaction fees and
$5.0 million in Atrium Corporation stock.

The acquisitions of MD Casting, Danvid, Aluminum
Screen and Superior are consistent with our strategy of
selectively acquiring businesses that principally provide vinyl
window production, new distribution channels, vertical
integration opportunities, additional geographic presence and
additional repair and remodeling volume.

The Transactions

On December 10, 2003, Atrium Corporation,
our parent company, was acquired by a newly formed affiliate of
Kenner & Company, Inc., KAT Holdings, Inc., pursuant to
which KAT Holdings, Inc. merged with and into Atrium Corporation
with Atrium Corporation as the surviving corporation. As a
result of the merger, the investor group described below now
controls the Company and Atrium Corporation.

6



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##### Table of Contents



The acquisition of Atrium Corporation was made by
an investor group led by Kenner & Company, Inc., a New York
based private investment firm, and certain members of our
management, including Jeff L. Hull, our Chairman, President and
Chief Executive Officer. The investor group included: KAT
Holdings, L.P. and KAT Group, L.P., special purpose Kenner
investment partnerships; UBS Capital Americas II, LLC; ML
IBK Positions, Inc. and Merrill Lynch Ventures L.P. 2001 and
management. At the closing of the merger, $12.4 million of
equity securities owned by certain of Atrium Corporations
existing stockholders were exchanged for similar securities in
KAT Holdings, Inc. and the investor group contributed an
additional $251.6 million to KAT Holdings, Inc., including
$251.5 million from ATR Acquisition, LLC, the members of
which are KAT Holdings, L.P., KAT Group, L.P., UBS Capital
Americas II, LLC, ML IBK Positions, Inc. and Merrill Lynch
Ventures L.P. 2001.

In connection with the merger, we renewed our
existing accounts receivable securitization facility for a
period of five years and repaid our existing senior revolving
credit and term loan facilities with a new revolving credit
facility of $50.0 million, which was undrawn at the close
of the merger, and a new $180.0 million term loan facility.
We also issued an additional $50.0 million of 10 1/2%
senior subordinated notes, or add-on notes, and left
the existing $175.0 million of 10 1/2% senior
subordinated notes outstanding. $40.0 million of the new
term loan facility was funded into escrow upon closing of the
merger and was released to fund a portion of the acquisition of
Superior on December 31, 2003.

On November 18, 2003, in connection with the
merger, we received consents from holders representing
approximately 97% of the aggregate principal amount of our
outstanding 10 1/2% senior subordinated notes to:



| |   |                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | waive our obligations under the Indenture to make
    a change of control offer in connection with the merger and
    amend the Indenture to replace the definition of permitted
    holders with certain direct and indirect equity holders of ATR
    Acquisition, LLC and their affiliates,
|
| |  | modify certain restrictions on affiliate
    transactions set forth in the indenture governing the notes; and                                                                                                                                                                                 
|
| |  | allow for the issuance of additional notes.                                                                                                                                                                                                                                                   

Additionally, in connection with the merger,
Atrium Corporation repurchased its outstanding 15% Senior
Pay-In-Kind Notes, with a portion of the cash proceeds of the
equity contribution to KAT Holdings, Inc.

Each of the foregoing transactions, along with
the merger, is referred to herein collectively as the
Transactions.

Competitive Strengths

We believe that we have a competitive advantage
in our markets due to the following competitive strengths:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Leading Market
    Positions.We are one of the largest
    suppliers of residential windows and patio doors in the United
    States with a domestic market share exceeding 7%. Based on our
    estimates, we believe that we have a leading market position in
    the residential aluminum and vinyl window and patio door product
    categories.                                                                                                                                                                                                                                                                     
|
| |  | Strong Brand Name
    Recognition.Our brands are well
    recognized in the building trade and are a distinguishing factor
    in customer selection. The Atrium® brand of windows
    and patio doors has been in existence for over 25 years and
    is recognized for its quality and value. In addition, we believe
    Atrium® is among the most-recognized brand names in
    the aluminum and vinyl window and patio door market segments. We
    believe there are significant opportunities to leverage our
    existing brands by targeting cross-selling opportunities and by
    re-branding certain products.

7



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Complete, High-Quality Product
    Offering.We are one of the few
    suppliers with a comprehensive line of residential aluminum and
    vinyl windows and patio doors in the United States. The ability
    to source windows and patio doors from a single supplier is a
    cost-saving opportunity for national homebuilders and home
    centers. This distribution flexibility and nationwide presence
    distinguishes us as a one-stop solution for
    customers window and patio door needs. Our balance between
    material type is reflected in the following table:

|                                                                                  |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  
|--------------------------------------------------------------------------------- |  | ----------------- | ------- | ----------------- |  |  | --- | - |  | - | ------- |  |  |  | --- | -
|                                                                                  |  |                  
|                                                                                  |  | Year Ended       
|                                                                                  |  |                  
|                                                                                  |  |                   |         |                  
|                                                                                  |  | December 31, 2003 |         | December 31, 2002
|                                                                                  |  |                   |         |                  
|                                                                                  |  |                   |         |                   |  |  |     |  
|                                                                                  |  |                  
|                                                                                  |  | (in thousands)   
|Material Type                                                                     |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  
|Vinyl                                                                             |  | $                 | 299,667 |                   |  |  | 50  | % |  | $ | 289,284 |  |  |  | 54  | %
|Aluminum                                                                          |  |                   | 206,836 |                   |  |  | 35  | % |  |   | 179,702 |  |  |  | 33  | %
|Other products and services, including sales of
    aluminum and vinyl extrusions |  |                   | 91,307  |                   |  |  | 15  | % |  |   | 67,313  |  |  |  | 13  | %
|                                                                                  |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  
|                                                                                  |  | $                 | 597,810 |                   |  |  | 100 | % |  | $ | 536,299 |  |  |  | 100 | %
|                                                                                  |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Multi-Channel Distribution
    Network.We have a multi-channel
    distribution network that includes direct, one-step and two-step
    distribution as well as 31 company-owned distribution
    centers. Our distribution strategy maximizes our market
    penetration and reduces reliance upon any one distribution
    channel for the sale of our products. Furthermore, as a
    manufacturer and distributor of windows and doors for more than
    five decades, we have developed long-standing relationships with
    key distributors in our markets. In each instance, we seek to
    secure a leading distributor in each of our markets. If we
    cannot secure a top-tier distributor in a desired geographic
    market, we will consider the acquisition or start up of our own
    distribution center in that market.
|
| |  | Established and Diversified Customer
    Base.We have developed strong
    relationships with our current customer base, which includes
    over 11,000 active accounts. We have strong relationships with
    some of the leading companies in home and multi-family building,
    including Pulte, D.R. Horton, Richmond American and Summit
    Contractors, and home center retailing, including The Home
    Depot. Our customers are geographically diversified and our
    sales are balanced between the repair and remodeling and new
    construction market segments, which provides increased stability
    to our business and is reflected in the following table:                                                                                                                                                           

|                      |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  
|--------------------- |  | ----------------- | ------- | ----------------- |  |  | --- | - |  | - | ------- |  |  |  | --- | -
|                      |  |                  
|                      |  | Year Ended       
|                      |  |                  
|                      |  |                   |         |                  
|                      |  | December 31, 2003 |         | December 31, 2002
|                      |  |                   |         |                  
|                      |  |                   |         |                   |  |  |     |  
|                      |  |                  
|                      |  | (in thousands)   
|Market Segment        |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  
|Repair and remodeling |  | $                 | 241,097 |                   |  |  | 40  | % |  | $ | 241,418 |  |  |  | 45  | %
|New construction      |  |                   | 356,713 |                   |  |  | 60  | % |  |   | 294,881 |  |  |  | 55  | %
|                      |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  
|                      |  | $                 | 597,810 |                   |  |  | 100 | % |  | $ | 536,299 |  |  |  | 100 | %
|                      |  |                   |         |                   |  |  |     |   |  |   |         |  |  |  |     |  



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Low Cost, Vertically Integrated
    Manufacturer.We believe that we are
    one of the industrys lowest cost providers based on our
    strong operating margins relative to our competitors. Our
    vertically integrated structure enables us to control all facets
    of the production and sale of windows and patio doors,
    eliminating incremental outsourcing costs. For our window and
    patio door products, our integrated operations, including
    extrusion, fabrication and distribution enable us to reduce
    inventory, improve production scheduling and optimize quality
    control.

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Business Strategy

Our goal is to increase revenue growth and
profitability and to strengthen our leadership position in the
residential window and patio door industry through the following
initiatives:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enhance National
    Presence.We will continue to focus
    our core efforts on maintaining and increasing our nationwide
    market share, including enhancing our strong presence in our
    existing high growth markets such as the Southern and Western
    United States. Our acquisitions have helped to further our
    geographic coverage and, we believe, combined with the
    implementation of cross-selling initiatives, will continue to
    facilitate our growth. We also will seek to enhance our
    nationwide capabilities by selectively starting or acquiring
    operations that complement our geographic coverage and product
    offerings.                                                                                                                                                                                       
|
| |  | Extend and Cross-Sell Product
    Offerings.We are taking advantage of
    cross-selling opportunities by marketing vinyl windows and patio
    doors to our traditional aluminum window and patio door
    customers and aluminum windows and patio doors to our
    traditional vinyl window and patio door customers and adding
    additional styles and designs to address specific regional
    product preferences. We also maintain training and incentive
    programs to ensure that our divisional sales forces market our
    complete product line of windows and patio doors.                                                                                                                                                                                                                                                                   
|
| |  | Capitalize on
    Atrium® Brand Name. We
    will seek to continue to leverage the strength of our nationally
    recognized Atrium® brand name that has been in
    existence for over 25 years. We believe that leveraging the
    Atrium® name across our products and on a nationwide
    scale will enhance our brand name recognition. For example, we
    see a significant opportunity in transferring the
    Atrium® brand to recently acquired product lines.
    Furthermore, we will continue trade advertising initiatives to
    maintain our high brand awareness in the industry.                                                                                                                                                                                                                                                            
|
| |  | Continue to Pursue Operational
    Efficiencies.Our team of highly
    experienced managers seeks to achieve improvements by closely
    scrutinizing our operations and applying best practices and
    continuous improvement programs across all of our divisions. We
    have been successful in improving the efficiency and
    productivity of our operations by automating manufacturing
    processes, improving logistics, implementing an integrated
    company-wide information system and successfully integrating
    acquisitions. We continue to analyze additional opportunities to
    improve operational efficiencies, including consolidating and
    expanding our extrusion operations, increasing capacity
    utilization at all of our manufacturing facilities and
    leveraging our size to realize purchasing savings.         
|
| |  | Refine Product Offering to Maximize
    Profitability.We plan to continually
    evaluate our product offering in terms of both customer needs
    and overall profitability. We believe our offering of products
    is diverse enough to satisfy varied regional product preferences
    while at the same time maximizing our profitability. For
    example, we made a decision during 2000 to divest the assets of
    Wing Industries, Inc. (Wing), our wood interior door
    manufacturing unit, and of the Atrium Wood Patio Door Division
    (Wood), our wood patio door manufacturing unit. The
    divestitures resulted in an exit from the low margin commodity
    based business of wood doors, reduced our exposure to the
    sometimes volatile wood materials market and contributed to an
    overall increase in our profitability.
|
| |  | Make Selective Strategic
    Acquisitions.We have successfully
    consummated and integrated twelve acquisitions since 1996, in
    each case lowering operating costs. We intend to take advantage
    of the fragmented market for window and patio door manufacturers
    by acquiring companies that present identifiable cost savings
    opportunities and add to our existing product lines, market
    share and targeted geographic coverage. As we continue our
    acquisition program, we believe we can leverage our experience
    in integrating acquisitions and maximizing cost savings and
    productivity enhancements. Additionally, we believe our size and
    national presence will be attractive to companies looking to
    combine with an industry leader.                                                                      

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Products

We are one of only a few window and patio door
manufacturers that offer a complete product line that consists
of a full range of residential aluminum and vinyl windows and
patio doors. Our complete product line allows us to
differentiate ourselves from our competition, leverage our
multi-channel distribution system and be well-positioned to
benefit from shifts in product preference. As significant
regional product preferences exist among aluminum and vinyl, a
full product line is important to serve a national customer base
effectively.

We estimate that our product mix, as a percentage
of net sales in 2003, 2002 and 2001 is as follows:

|                                                                                 |  |                         |     |      |  |      |     |   |  |  |     |  
|-------------------------------------------------------------------------------- |  | ----------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                                                                 |  |                        
|                                                                                 |  | Year Ended December 31,
|                                                                                 |  |                        
|                                                                                 |  | 2003                    |     | 2002 |  | 2001
|                                                                                 |  |                         |     |      |  |     
|Product                                                                          |  |                         |     |      |  |      |     |   |  |  |     |  
|Windows                                                                          |  |                         | 76  | %    |  |      | 77  | % |  |  | 74  | %
|Patio Doors                                                                      |  |                         | 6   |      |  |      | 8   |   |  |  | 12  |  
|Other products and services, including sale of
    aluminum and vinyl extrusions |  |                         | 18  |      |  |      | 15  |   |  |  | 14  |  
|                                                                                 |  |                         |     |      |  |      |     |   |  |  |     |  
|                                                                                 |  |                         | 100 | %    |  |      | 100 | % |  |  | 100 | %
|                                                                                 |  |                         |     |      |  |      |     |   |  |  |     |  

Windows.We had
approximately $456 million in net sales from the sale of
windows in 2003. We estimate that our net sales from the sales
of windows in 2003 were comprised of 42% from the sale of
aluminum products and 58% from the sale of vinyl products. Our
window products include sliders, single hung, double hung and
casement products and are sold under the Atrium®,
HRTM, DanvidTM,
ThermalTM, Ellison®, Best
Built®, and Superior® brand names, as well
as private label brand names.

The demand for our aluminum and vinyl products
vary by region:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Aluminum
    Aluminum windows are the product of choice in the southern
    United States due to the regions warmer weather and
    value-conscious customers. Aluminum is the most appropriate
    fenestration material for the region because thermal efficiency
    is less important and the product is sold at a lower cost than
    either vinyl or wood.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Vinyl
    Demand for vinyl windows, particularly in colder climates, has
    significantly increased over the last ten years as vinyl windows
    have gained acceptance as a substitute for wood windows. This
    trend has been strengthened as prices for vinyl windows have
    become more competitive with wood products and durability and
    energy efficiency have improved. We entered the vinyl window
    market in mid-1995 and have increased sales of vinyl windows by
    leveraging the Atrium® brand name, leveraging our
    distribution channels and through strategic acquisitions. The
    acquisitions of Bishop (now known as Northeast) in 1996, the
    Western Window Division of Gentek Building Products, Inc.
    (now known as West Coast) in 1997, Heat and Champagne (now known
    as Rockies) in 1999, Ellison in 2000 and the acquisition of
    Superior in 2003 increased our presence in the vinyl window
    business such that sales of vinyl windows represented
    approximately 44% of our total net sales in 2003, as compared to
    approximately 32% of our total net sales in 2000.

Patio Doors.We had
approximately $36 million in net sales from the sale of
patio doors in 2003. Our patio door products are sold under
Atrium® and various other brand names.

Other Products and
Services.We had approximately
$106 million in net sales from the sale of other products
and services in 2003. Our other products include deck and dock
products, patio enclosures and extruded aluminum and vinyl
profiles for a variety of industries, including various
competitors of our window and door fabrication operations. The
deck and dock products are made of vinyl and serve as an
alternative to the more traditional wood counterpart. The
enclosures are custom built to any size and are made from
aluminum and vinyl product. The 2003 acquisitions have expanded
our other products and services by adding screens, steel
security doors, ornamental iron gates and fencing and window
hardware.

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We also offer a turn-key total installation
program for multi-family builders in which we supply and install
exterior, interior and patio doors, moldings, locks, hardware,
wire shelving, bath accessories, plate glass mirrors, toilet
partitions and other products. This concept allows a developer
to transfer the risk associated with retaining reliable work
crews and provides protection from cost overruns. We believe
that developers view this as a value added service.

Sales, Marketing and Distribution

One of the key components of our marketing
strategy is to capitalize on the complementary nature of our
distribution channels. We have a multi-channel distribution
network that includes direct, one-step and two-step distribution
as well as 31 company-owned distribution centers. Our
distribution strategy maximizes our market penetration and
reduces reliance upon any one distribution channel for the sale
of our products. Furthermore, as a manufacturer and distributor
of windows and patio doors for more than five decades, we have
developed long-standing relationships with key distributors in
each of our markets. In each instance, we seek to secure the
leading distributors in each market. If we cannot secure a
top-tier distributor in a desired geographic market, we will
consider the acquisition or start up of our own distribution
center in that market.

We also sell to major home center
retailers.Home centers are important
to us because they target the repair and remodeling market
segment, however they accounted for less than 14% of our total
net sales during 2003 and 2002. One of our goals is to continue
to increase our market share in the repair and remodeling market.

We utilize the following distribution channels:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Direct Distribution (approximately 35% of our
    net sales from the sale of windows and patio doors in
    2003).Direct distribution is the
    selling of our windows and patio doors directly to homebuilders,
    multi-family builders and remodelers/ contractors without the
    use of an intermediary. By selling direct, we are able to
    increase our profit margins while at the same time offer
    builders more favorable pricing.                                                                                                                                                                                                                                                                                                                                                   
|
| |  | One-Step Distribution, Including Home
    Center Sales (approximately 64% of our net sales from the sale
    of windows and patio doors in 2003 with home center sales
    representing approximately 14%).One-step distribution is the selling of our windows and patio
    doors to home centers, lumberyards, retail distributors and
    company-owned distribution centers, which will then sell to
    homeowners, homebuilders and remodelers/ contractors. While it
    is not required that lumberyards and retail distributors carry
    our products on an exclusive basis, it is not unusual for them
    to do so. In addition, they generally purchase based on orders,
    keeping little or no inventory. One-step distribution tends to
    be used most often in metropolitan areas.



| |                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We maintain 31 company-owned distribution
    facilities in key markets where available independent
    distributors are limited or where we have been unable to make
    adequate arrangements with existing distributors. Company-owned
    distribution centers essentially act as one-step distributors.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Two-Step Distribution (approximately 1% of our
    net sales from the sale of windows and patio doors in
    2003).Two-step distribution is the
    selling of windows and patio doors to a wholesale distributor
    who then sells the products to home centers, lumberyards and
    retail distributors. These intermediaries will in turn sell the
    windows and patio doors to homeowners, homebuilders and
    remodelers/ contractors. Wholesale distributors tend to maintain
    product inventory in order to service the needs of their client
    base for small quantities. Two-step distribution is more common
    where customers generally do not require sufficient volume to
    purchase from us directly.

To enhance our market coverage and leverage our
brand equity, we currently market our windows and patio doors
under primarily seven brand names: Atrium®,
HRTM, DanvidTM,
ThermalTM, Ellison®, Best
BuiltTM, and Superior®. Due to the
fact that we enjoy national name recognition at both the
building trade and consumer levels, we have chosen to
consolidate a significant portion of our product line under the
Atrium® name. We are currently in the process of
rolling our Best Built® and Ellison®
brand product lines into the Atrium® brand. We have
completed a transition of our Skotty, Bishop, Champagne,
Masterview, Kel-Starand Gentek brands into the

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Atrium ® brand.
We expect to extend the Atrium® brand to other
products, as well as to appropriate product lines acquired in
the future.


Our promotional efforts to our window and patio
door customers are focused on cooperative advertising programs
which are offered to certain of our major customers. This gives
us exposure in our customers local media, including
newspaper, radio and television, in order to generate sales at
individual locations. We also invest in in-store displays and
kiosks, and product knowledge classes for customers
employees to further generate awareness within the stores.

We market our window and patio door products
through a sales force consisting of approximately
150 company salaried and commissioned sales representatives
and approximately 150 independent commissioned sales
representatives. Each of our divisions is supported by a sales
manager, company sales representatives and independent sales
representatives. The sales managers coordinate sales and
marketing activities among both company and independent sales
representatives. Our company sales representatives focus
primarily on direct sales to homebuilders, multi-family builders
and remodelers/ contractors, while independent sales
representatives sell to home centers, lumberyards and retail and
wholesale distributors. In general, independent sales
representatives carry our window and patio door products on an
exclusive basis, although they may carry other building products
from other manufacturers.

Our full product line has also been an asset to
our sales force, especially when we are exploring a new
distribution channel opportunity. Distributors have come to
recognize that we have a complete line of vinyl and aluminum
windows and patio doors. The distributors frequently do not
purchase the entire range of products since regional tastes vary
and distributors tend to work according to regions. However, we
believe these distributors value our ability to provide these
products should they ever demand them.

We believe that customer service plays a key role
in the marketing process. On-time delivery of products, order
fill rate, consistency of service and flexibility in meeting
changing customer requirements have made it possible for us to
build a large and loyal customer base that includes companies
such as Pulte and D.R. Horton, two of the nations largest
home-builders, and The Home Depot, the nations largest
home center retailer.

Our pricing and product offering strategy focuses
on offering the end consumer lower price points at acceptable
margins. We have executed this strategy in two steps. First, we
have consolidated our product offerings to simplify the overall
offering and reduce inventory levels. Second, we offer the
market good, better and best options within our product offering
that provide customers a price point and product that meets
their needs. Certain of the products in the offering have been
redesigned (with particular emphasis on taking costs out of the
products) in order to have an offering with three distinct price
points. This promotes more trading up to our higher
quality products by the customer and displays a complete product
line.

Operations

We manufacture and sell our windows and patio
doors through a vertically integrated process that includes
extrusion, fabrication and distribution. We realize many
operational and cost benefits from our vertically integrated
window and patio door operations. By extruding aluminum and many
of our vinyl components in-house, we are able to secure a
low-cost, reliable source of extrusions, control product quality
and control inventory levels. The integration of extrusion and
fabrication operations gives us significantly more control over
our manufacturing costs. The acquisitions of MD Casting and
Aluminum Screen during 2003 have further enhanced our vertical
integration strategy. MD Casting is a zinc die casting
operation that provides us and the window and patio door
industry with metal hardware. Aluminum Screen is a supplier of
screens to us and the window and patio door industry. The
acquisitions of Aluminum Screen and MD Casting have allowed us
to achieve significant cost savings by shifting our current
suppliers to our own internal operations. We have also increased
our vertical integration by entering into a partnership
agreement with Aurora Terra LLC, or Aurora, under which Aurora
has constructed a vinyl compounding facility in Welcome, North
Carolina adjacent to our vinyl extrusion and fabrication
facilities and will provide us with vinyl compound, the primary
raw material used in the vinyl extrusion process. The
partnership will allow us to realize significant cost savings by
taking us one step further up the supply chain. We continually
work to

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achieve cost savings through increased capacity
utilization, adoption of best practices, reduction of cost of
raw materials, rationalization of product lines and reduction of
inventory.


We continue to build on what we believe is our
position as one of the industrys lowest cost
manufacturers. Because of the scale of our operations, we are
able to negotiate favorable pricing for our raw materials,
including glass and vinyl. This is an important consideration
because, historically, the total cost of materials typically
comprises approximately 40% to 45% of our total net sales.

We have been manufacturing products in Texas
since 1953 and today have 10 manufacturing facilities in
the state, including our vertically integrated operations. While
solidifying our national presence, we have strategically
established 15 other manufacturing operations nationwide.

Industry Overview

In 2003, construction spending in the United
States totaled over $683 billion. Of this total,
residential spending accounted for approximately
$466 billion. Within the residential construction market,
replacement spending totaled approximately $187 billion. In
2003, new housing starts in the United States totaled
approximately 1.8 million units of which approximately
1.5 million units were single-family homes and
approximately .3 million  units were multi-family
units. Historical residential repair and remodeling expenditures
have demonstrated consistent growth dynamics increasing from
approximately $15 billion to approximately
$187 billion during the period from 1970 to 2003 and
averaging a compound annual growth rate of 8.0%.

Windows.The
domestic window market has grown to approximately
61 million in unit sales in 2003, and has outpaced the
growth in the domestic building materials industry generally.
The residential window industry can be divided into two end-use
segments: new construction, with an estimated 20 million
windows sold in 2003, and repair and remodeling, with
approximately 41 million windows sold in 2003. We believe
that the repair and remodeling segment will continue to
experience strong growth due to the strength of sales of
existing homes and the increase in the average age of homes from
23 years to 29 years in the last decade.

Patio Doors.We
estimate that the residential patio door market has grown to
more than 7 million units in 2003. The residential patio
door industry can be divided into two principal market segments:
new construction and repair and remodeling. We estimate that
patio doors sold to the repair and remodeling segment
constituted 65% of all patio door units sold in the United
States in 2003.

We believe that the window and patio door
industry has experienced significant consolidation in the last
few years. We believe this consolidation trend favors companies
like ours, with nationwide capabilities to service large home
centers and home builders, strong brand names, the ability to
provide a complete product line and economies of scale in
manufacturing, distributing and marketing. In addition to
opportunities presented by consolidation of the industry,
industry growth has been driven by the growth in the home center
retailer category. The home center industry is one of the
fastest growing retail sectors in the United States.

Competition

Despite the recent consolidation, the residential
window and patio door industry remains highly fragmented. With
few exceptions, competitors are privately-owned, regional
companies with annual sales under $100 million. On a
national basis we compete with a few national companies in
different regions, products, distribution channels and price
points, but do not compete against any single company across all
of these areas. We compete with various other companies in
specific regions within each market.

The residential window and patio door industry is
very competitive. Our major competitors for the sale of aluminum
windows and patio doors are Alenco Windows and MI Home
Products, Inc. The market for vinyl windows and patio doors
is comprised primarily of local and regional manufacturers, as
no dominant manufacturer operates on a national basis.
Historically, demand for vinyl windows and patio doors has been
concentrated in the colder regions of the United States. Our
major competitors for the sale of vinyl windows and patio doors
are Silver Line Building Products and Great Lakes Windows (Ply
Gem Industries, Inc.) in the Northeast, Simonton Windows in the
Mid-Atlantic and Southeast and Milgard Manufacturing, Inc.

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(Masco Corp.) and Viking Industries, Inc.
(Pella Corporation) in the Pacific Northwest. In addition, we
compete with a number of regional manufacturers.


Inflation and Raw Materials

During the past several years, the rate of
general inflation has been relatively low and has not had a
significant impact on our results of operations. We purchase raw
materials, including aluminum, glass and vinyl, that are subject
to fluctuations in price that may not reflect the rate of
general inflation. These materials fluctuate in price based on
supply and demand. Historically, there have been periods of
significant and rapid aluminum price changes, both upward and
downward, with a concurrent short-term impact on our operating
margins. We historically mitigated the effects of these
fluctuations over the long term by passing through price
increases to our customers and through other means, such as
hedging activities. The primary raw materials used in the
production of our windows and patio doors are readily available
and are procured from numerous suppliers.

Seasonality

The new home construction market and the market
for external repairs and remodeling in northern climates are
seasonal, with increased related product sales in the second and
third quarters of the calendar year. Although this results in
seasonal fluctuations in the sales of certain of our products,
the overall impact of these fluctuations is mitigated to some
degree by our balanced national presence which reduces our
dependency on a single geographic area.

Cyclicality

Demand in the window and patio door manufacturing
and distribution industry is influenced by new home construction
activity. For the year ended December 31, 2003, we estimate
that approximately 60% of our net sales were related to new home
construction. Trends in the housing sector directly impact our
financial performance. Accordingly, the strength of the
U.S. economy, the age of existing home stock, job growth,
interest rates, consumer confidence and the availability of
consumer credit, as well as demographic factors, such as the
migration of the population within the United States, have a
direct impact on our business. Cyclical declines in new housing
starts may adversely impact our business, and we cannot assure
you that any such adverse effects would not be material.

Employees

We employ approximately 6,100 people, of whom
approximately 6,000 are employed at our manufacturing facilities
and distribution centers and approximately 100 are employed at
our corporate headquarters in Dallas, Texas. Approximately 1,290
of our hourly employees are covered by collective bargaining
agreements. We entered into a three-year collective bargaining
agreement in May 2001 with the Union of Needletrades, Industrial
and Textile Employees (UNITE!) covering such
employees at three manufacturing facilities located in Dallas,
Texas. This collective bargaining agreement expires in May 2004.
We expect to begin negotiations for a new collective bargaining
agreement in late April 2004 and expect to renew the agreement
shortly thereafter. There are no union affiliations with any of
our other divisions or subsidiaries. We believe that our
relationship with our employees is good.

Backlog and Material Customers

We have no material long-term contracts. Orders
are generally filled within 7 to 14 days of receipt. Our
backlog is subject to fluctuation due to various factors,
including the size and timing of orders for our products and is
not necessarily indicative of the level of future sales.

Government Regulation and Environmental
Matters

Our past and present operations and our assets
are subject to extensive federal, state, local and foreign
environmental laws and regulations pertaining to the discharge
of materials into the environment, the handling

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and disposal of wastes, including solid and
hazardous wastes, or otherwise relating to health, safety and
protection of the environment. We do not expect to make any
expenditures with respect to ongoing compliance with these
environmental laws and regulations that would have a material
adverse effect on our consolidated financial position, results
of operations or cash flows. However, the applicable
requirements under the law could change at any time.


The nature of our operations and assets expose us
to the risk of claims under environmental, health and safety
laws and regulations. We cannot assure you that unforeseen
expenditures or liabilities will not be incurred in connection
with such claims. We have been subject to such claims in the
course of our operations, and have made expenditures to address
known conditions in a manner consistent with applicable laws and
regulations. Based on our experience to date, we do not believe
that existing claims will have a material adverse effect on our
consolidated financial position, results of operations or cash
flows. We cannot assure you that the discovery of presently
unknown environmental conditions, changes in environmental,
health and safety laws and regulations or other unanticipated
events will not give rise to unforeseen claims, expenditures or
liabilities.

Trademarks and Patents

Among the various trademarks owned and registered
by us in the United States and Mexico are the following:
Atrium, The Atrium Door, The French Classic, Masterview,
Weatherlokand Superior. Among the various pending
trademark applications filed by us are the following: Quality
by Design, Atrium Windows and Doors,
Energy-Sense, Improving Your View of the Worldand
Pro100. In addition, we own several patents and patent
applications concerning various aspects of window assembly and
related processes. We are not aware of any circumstances that
would have a material adverse effect on our ability to use our
trademarks and patents. As long as we continue to renew our
trademarks when necessary, the trademark protection provided by
them is perpetual. Our patents will expire at various times over
the next 17 years.

Recent Developments

None.






|        |           
|------- | ----------
|Item 2. | Properties

Our operations are conducted at the owned or
leased facilities described below:

|                          |  |                                                    |  |               |         |           |  |  |       | 
|------------------------- |  | -------------------------------------------------- |  | ------------- | ------- | --------- |  |  | ----- | 
|                          |  |                                                    |  | Capacity      |         |          
|Location                  |  | Principal Use                                      |  | (Square Feet) |         | Own/Lease
|                          |  |                                                    |  |               |         |          
|Windows and Doors         |  |                                                    |  |               |         |           |  |  |       | 
|Ontario, California       |  | Fabrication of windows and other building products |  |               | 397,585 |           |  |  | Lease | 
|Welcome, North Carolina   |  | Fabrication of vinyl windows                       |  |               | 376,200 |           |  |  | Lease | 
|Dallas, Texas             |  | Fabrication of aluminum and vinyl windows          |  |               | 342,000 |           |  |  | Lease | 
|Phoenix, Arizona          |  | Fabrication of aluminum and vinyl windows          |  |               | 220,000 |           |  |  | Lease | 
|Carrollton, Texas         |  | Fabrication of aluminum and vinyl windows          |  |               | 211,500 |           |  |  | Lease | 
|Dallas, Texas             |  | Fabrication of aluminum and vinyl windows          |  |               | 200,000 |           |  |  | Lease | 
|Murrysville, Pennsylvania |  | Fabrication of vinyl windows                       |  |               | 166,000 |           |  |  | Lease | 
|Denver, Colorado          |  | Fabrication of vinyl windows                       |  |               | 108,000 |           |  |  | Lease | 
|Pittsburgh, Pennsylvania  |  | Fabrication of deck/dock and patio enclosures      |  |               | 82,100  |           |  |  | Lease | 
|Anaheim, California       |  | Fabrication of vinyl windows                       |  |               | 80,000  |           |  |  | Lease | 
|Bridgeport, Connecticut   |  | Fabrication of vinyl windows                       |  |               | 75,000  |           |  |  | Lease | 
|Yakima, Washington        |  | Fabrication of vinyl windows                       |  |               | 58,000  |           |  |  | Lease | 
|Clinton, Massachusetts    |  | Fabrication of vinyl windows                       |  |               | 31,000  |           |  |  | Own   | 
|New Boston, Texas         |  | Fabrication of aluminum windows                    |  |               | 30,000  |           |  |  | Lease | 
|Tennessee Colony, Texas   |  | Fabrication of aluminum windows                    |  |               | 24,000  |           |  |  | Lease | 

15



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##### Table of Contents



|                           |  |                                                         |  |               |           |           |  |  |       | 
|-------------------------- |  | ------------------------------------------------------- |  | ------------- | --------- | --------- |  |  | ----- | 
|                           |  |                                                         |  | Capacity      |           |          
|Location                   |  | Principal Use                                           |  | (Square Feet) |           | Own/Lease
|                           |  |                                                         |  |               |           |          
|Florence, Alabama          |  | Door pre-hanging; warehouse                             |  |               | 60,000    |           |  |  | Lease | 
|Pittsburgh, Pennsylvania   |  | Distribution of vinyl windows                           |  |               | 68,000    |           |  |  | Lease | 
|Hayward, California        |  | Distribution of windows and other building
    products |  |               | 22,600    |           |  |  | Lease | 
|Hayward, California        |  | Distribution of vinyl windows                           |  |               | 20,400    |           |  |  | Lease | 
|Colorado Springs, Colorado |  | Distribution of vinyl windows                           |  |               | 14,700    |           |  |  | Lease | 
|Portland, Oregon           |  | Distribution of vinyl windows                           |  |               | 10,080    |           |  |  | Lease | 
|Chatsworth, California     |  | Distribution of vinyl windows                           |  |               | 10,000    |           |  |  | Lease | 
|Las Vegas, Nevada          |  | Distribution of aluminum and vinyl windows              |  |               | 7,500     |           |  |  | Lease | 
|Everett, Washington        |  | Distribution of vinyl windows                           |  |               | 6,000     |           |  |  | Lease | 
|Houston, Texas             |  | Distribution of aluminum and vinyl windows              |  |               | 2,500     |           |  |  | Lease | 
|Mexico City, Mexico        |  | Distribution of windows and extrusion                   |  |               | 650       |           |  |  | Lease | 
|Components                 |  |                                                         |  |               |           |           |  |  |       | 
|Wylie, Texas               |  | Extrusion of aluminum                                   |  |               | 205,000   |           |  |  | Lease | 
|Irving, Texas              |  | Fabrication of aluminum screens                         |  |               | 75,000    |           |  |  | Lease | 
|Welcome, North Carolina    |  | Extrusion of vinyl                                      |  |               | 51,300    |           |  |  | Lease | 
|Fort Worth, Texas          |  | Zinc die casting                                        |  |               | 30,000    |           |  |  | Lease | 
|Carrollton, Texas          |  | Extrusion of vinyl                                      |  |               | 25,200    |           |  |  | Lease | 
|Houston, Texas             |  | Fabrication of aluminum screens                         |  |               | 17,500    |           |  |  | Lease | 
|Phoenix, Arizona           |  | Fabrication of aluminum screens                         |  |               | 12,000    |           |  |  | Lease | 
|Juarez, Mexico             |  | Fabrication of aluminum screens                         |  |               | 9,000     |           |  |  | Lease | 
|Las Vegas, Nevada          |  | Fabrication of aluminum screens                         |  |               | 7,000     |           |  |  | Lease | 
|Idle                       |  |                                                         |  |               |           |           |  |  |       | 
|Greenville, Texas          |  | Idle Facility (Sublet)                                  |  |               | 300,000   |           |  |  | Lease | 
|Woodville, Texas           |  | Idle Facility                                           |  |               | 180,000   |           |  |  | Lease | 
|Dallas, Texas              |  | Idle Facility                                           |  |               | 120,000   |           |  |  | Lease | 
|                           |  |                                                         |  |               |           |           |  |  |       | 
|                           |  | Total                                                   |  |               | 3,655,815 |           |  |  |       | 
|                           |  |                                                         |  |               |           |           |  |  |       | 

Additionally, our subsidiary, Thermal
Industries, Inc., leases 21 distribution warehouses in
14 states for vinyl window distribution with sites
averaging 10,738 square feet.

We maintain our corporate headquarters in Dallas,
Texas. This facility provides approximately 19,520 square
feet and is leased for a ten-year term expiring in 2014.

We believe that our manufacturing plants are
generally in good operating condition and are adequate to meet
future anticipated requirements.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are 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 our
consolidated financial position, results of operations or cash
flows.

16



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##### Table of Contents








|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

Not applicable.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

There is no established public trading market for
our outstanding equity securities.

To date, we have not paid any dividends on our
common stock and do not expect to pay any dividends on our
common stock in the foreseeable future.

Equity Compensation Plans

|                                                   |  |                         |        |                      |  |                         |     |  |  |  |       | 
|-------------------------------------------------- |  | ----------------------- | ------ | -------------------- |  | ----------------------- | --- |  |  |  | ----- | 
|                                                   |  |                         |        |                      |  | Number of Shares       
|                                                   |  | Number of Shares to     |        | Weighted-Average     |  | Remaining Available for
|                                                   |  | Be Issued Upon Exercise |        | Exercise Price of    |  | Future Issuance Under  
|                                                   |  | of Outstanding Options, |        | Outstanding Options, |  | Equity Compensation    
|                                                   |  | Warrants and Rights     |        | Warrants and Rights  |  | Plans                  
|                                                   |  |                         |        |                      |  |                        
|Plan Category                                      |  |                         |        |                      |  |                         |     |  |  |  |       | 
|Equity compensation plans approved by stockholders |  |                         | 17,605 |                      |  | $                       | 710 |  |  |  | 5,250 | 
|                                                   |  |                         |        |                      |  |                         |     |  |  |  |       | 



---



|  |                                                                                      
|- | -------------------------------------------------------------------------------------
|* | We do not have equity compensation plans which
    were not approved by stockholders.

2003 Stock Option Plan

Atrium Corporation adopted the Atrium Corporation
2003 Stock Option Plan on December 10, 2003, which provides
for the grant of options to purchase common stock of Atrium
Corporation to our key employees and eligible non-employees. The
stock option plan provides for the grant of options to purchase
up to 14,000 shares of common stock of Atrium Corporation.
Immediately following the consummation of the merger, a total of
8,750 options to purchase shares of common stock of Atrium
Corporation were outstanding under the stock option plan.

Options granted under the stock option plan have
a term of ten years from the date of grant and vest in equal
installments either on the annual anniversary of grant or on the
last day of each month over a period of five years, subject to
continued employment. No option is exercisable until it has
vested.

Upon termination of the optionee for cause or
voluntary termination by the optionee without good reason, all
unvested options are automatically forfeited. Upon a change of
control, as defined in the stock option plan, all outstanding
options issued under the stock option plan shall be
automatically vested and be exercisable in full. Upon
termination of employment of an optionee for any reason or if a
sale of the company, as defined in the stock option plan,
occurs, Atrium Corporation has the right to purchase all or any
portion of the optionees vested options and any shares of
common stock of Atrium Corporation held by the optionee as a
result of the exercise of an option.

The stock option plan provides that, unless
specifically approved otherwise, all options granted are in the
form of nonqualified options, which are options that do not
qualify for favored tax treatment under Section 422 of the
Internal Revenue Code. All options granted to date under the
stock option plan are nonqualified options. Options are not
transferable other than in accordance with the laws of descent
and distribution. All shares of common stock issued upon
exercise of options are subject to a right of first refusal that
provides Atrium Corporation or its designee with the right to
purchase such shares in the event of any proposed transfer
thereof by the optionee.

17



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##### Table of Contents



Replacement Stock Option Plan

Atrium Corporation adopted the Atrium Corporation
Replacement Stock Option Plan on December 10, 2003, which
provides for the grant of options to purchase Atrium
Corporations common stock in replacement of outstanding
options issued under Atrium Corporations previous stock
option plan. The replacement plan provides for the grant of up
to 1,105 options to purchase shares of common stock of Atrium
Corporation, all of which were outstanding as of
December 31, 2003. Options granted under the replacement
plan have a term of ten years from the date of grant, subject to
continued employment, and vest ratably over a period of three
years on the last day of each month during such period. No
option is exercisable until it is vested. These options have an
exercise price of $0.01 per share.

Upon termination of an optionees employment
for any reason or upon sale of the Company, Atrium Corporation
has the right to repurchase all or any portion of the
replacement options held by the optionee.

The replacement plan provides that all options
granted are in the form of nonqualified options, which are
options that do not qualify for favored tax treatment under
Section 422 of the Internal Revenue Code. Replacement
options are not transferable other than in accordance with the
laws of descent and distribution by an optionee, except that
options may be transferred to any optionees family members
or personal representative.

As a condition to the grant of the replacement
options, each holder of a replacement option was required to
execute a buy-sell agreement containing certain repurchase
provisions.

Warrants

In connection with the merger and entry into his
employment agreement, Mr. Hull was granted warrants to
purchase 7,750 shares of Atrium Corporations common
stock. 4,000 of these shares fully vested on February 1,
2004 and were exercised on February 27, 2004 at an exercise
price of $.01 per share. With respect to the remaining
3,750 shares, the warrants vest ratably on a monthly basis
over a five-year period and have an exercise price of
$1,000 per share. Notwithstanding the foregoing, all of the
remaining warrants will immediately vest upon a sale of the
Company, change of control or upon certain other conditions
related to Mr. Hulls employment.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The selected income statement and balance sheet
data set forth below were derived from the audited consolidated
financial statements as described further below. The selected
historical financial data should be read in conjunction with
Managements Discussion and Analysis of Financial Condition
and Results of Operations and the financial statements, related
notes and other financial information included elsewhere in this
Form 10-K.

The operations of Darby-South are included since
its date of acquisition, January 27, 1999, the operations
of Heat and Champagne are included since their date of
acquisition, May 17, 1999, the operations of Ellison are
included since its date of acquisition, October 25, 2000,
the operations of MD Casting are included since its date of
acquisition, January 31, 2003, the operations of Danvid are
included since its date of acquisition, April 1, 2003 and
the operations of Aluminum Screen are included since its date of
acquisition, October 1, 2003. The December 31, 1999
balance sheet data includes our accounts and the accounts of
Darby-South, Heat and Champagne. The December 31, 2000,
2001 and 2002 balance sheet data include the accounts of the
Company, Darby-South, Heat, Champagne and Ellison. The
December 31, 2003 balance sheet data includes

18



---



##### Table of Contents



the accounts of the Company, Darby-South, Heat,
Champagne, Ellison, MD Casting, Danvid, Aluminum Screen and
Superior.


|                                    |                                      |                         |   |         |   |      |   |         |   |      |   |         |   |  |   |         |   |  |   |          |  
|----------------------------------- | ------------------------------------ | ----------------------- | - | ------- | - | ---- | - | ------- | - | ---- | - | ------- | - |  | - | ------- | - |  | - | -------- | -
|                                    |                                      |                        
|                                    |                                      | Year Ended December 31,
|                                    |                                      |                        
|                                    |                                      | 2003                    |   | 2002    |   | 2001 |   | 2000    |   | 1999
|                                    |                                      |                         |   |         |   |      |   |         |   |     
|                                    |                                      |                        
|                                    |                                      | (dollars in thousands) 
|Income Statement Data:              |                                      |                         |   |         |   |      |   |         |   |      |   |         |   |  |   |         |   |  |   |         
|                                    | Net sales                            |                         | $ | 597,810 |   |      | $ | 536,299 |   |      | $ | 517,063 |   |  | $ | 492,303 |   |  | $ | 493,923  |  
|                                    | Income (loss) before income taxes(1) |                         |   | 6,682   |   |      |   | 14,609  |   |      |   | (3,508  | ) |  |   | (75,266 | ) |  |   | 10,795   |  
|                                    | Net income (loss)(1)                 |                         |   | 6,260   |   |      |   | 13,984  |   |      |   | (4,866  | ) |  |   | (74,326 | ) |  |   | 2,218    |  
|Balance Sheet Data (end of period): |                                      |                         |   |         |   |      |   |         |   |      |   |         |   |  |   |         |   |  |   |         
|                                    | Total assets                         |                         | $ | 607,476 |   |      | $ | 488,320 |   |      | $ | 484,207 |   |  | $ | 542,335 |   |  | $ | 484,136  |  
|                                    | Total debt                           |                         |   | 415,192 |   |      |   | 298,025 |   |      |   | 310,554 |   |  |   | 355,348 |   |  |   | 316,711  |  
|Other Data                          |                                      |                         |   |         |   |      |   |         |   |      |   |         |   |  |   |         |   |  |   |         
|                                    | EBITDA(2)                            |                         | $ | 62,244  |   |      | $ | 66,528  |   |      | $ | 62,389  |   |  | $ | (21,816 | ) |  | $ | 53,380   |  
|                                    | Stock compensation expense           |                         |   | 553     |   |      |   | 383     |   |      |   | 582     |   |  |   |        |   |  |   | 128      |  
|Cash Flows provided by (used in):   |                                      |                         |   |         |   |      |   |         |   |      |   |         |   |  |   |         |   |  |   |         
|                                    | Operating activities                 |                         | $ | 33,248  |   |      | $ | 27,089  |   |      | $ | 50,437  |   |  | $ | (4,441  | ) |  | $ | 8,835    |  
|                                    | Investing activities                 |                         |   | (95,044 | ) |      |   | (15,335 | ) |      |   | (10,596 | ) |  |   | (89,780 | ) |  |   | (108,480 | )
|                                    | Financing activities                 |                         |   | 68,378  |   |      |   | (11,870 | ) |      |   | (43,240 | ) |  |   | 97,573  |   |  |   | 100,939  |  



---



|      |                                                                                                                                            
|----- | -------------------------------------------------------------------------------------------------------------------------------------------
|Note: | EBITDA amounts presented above are not pro forma
    for the acquisitions and/or divestitures that occurred during
    the years presented.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In 2003, we incurred special charges of $11,024,
    which caused the reduction in net income. See further discussion
    in Managements Discussion and Analysis of Financial
    Condition and Results of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(2) | EBITDA represents income before interest,
    securitization expense, income taxes and depreciation and
    amortization. While we do not intend for EBITDA to represent
    cash flow from operations as defined by GAAP and we do not
    suggest that you consider it as an indicator of operating
    performance or an alternative to cash flow or operating income
    (as measured by GAAP) or as a measure of liquidity, we include
    it herein to provide additional information with respect to our
    ability to meet our future debt service, capital expenditures
    and working capital requirements. See Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations. We believe EBITDA provides investors and
    analysts in the building materials industry the necessary
    information to analyze and compare our historical results on a
    comparable basis with other companies on the basis of operating
    performance, leverage and liquidity. However, as EBITDA is not
    defined by GAAP, it may not be calculated on the same basis as
    other similarly titled measures of other companies within the
    building materials industry. The reconciliation of net income
    (in accordance with GAAP) to EBITDA is summarized as follows:

|                              |  |                         |        |      |  |      |        |      |  |      |        |   |  |   |         |   |  |   |        | 
|----------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------- | - |  | - | ------ | 
|                              |  |                        
|                              |  | Year Ended December 31,
|                              |  |                        
|                              |  | 2003                    |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                              |  |                         |        |      |  |      |        |      |  |     
|                              |  |                        
|                              |  | (dollars in thousands) 
|Net income (loss)             |  | $                       | 6,260  |      |  | $    | 13,984 |      |  | $    | (4,866 | ) |  | $ | (74,326 | ) |  | $ | 2,218  | 
|Interest expense              |  |                         | 36,218 |      |  |      | 35,901 |      |  |      | 39,950 |   |  |   | 36,967  |   |  |   | 30,460 | 
|Securitization expense        |  |                         | 1,905  |      |  |      | 1,133  |      |  |      | 1,532  |   |  |   |        |   |  |   |       | 
|Income taxes                  |  |                         | 422    |      |  |      | 625    |      |  |      | 1,358  |   |  |   | (940    | ) |  |   | 6,641  | 
|Depreciation and amortization |  |                         | 17,439 |      |  |      | 14,885 |      |  |      | 24,415 |   |  |   | 16,483  |   |  |   | 14,061 | 
|                              |  |                         |        |      |  |      |        |      |  |      |        |   |  |   |         |   |  |   |        | 
|EBITDA                        |  | $                       | 62,244 |      |  | $    | 66,528 |      |  | $    | 62,389 |   |  | $ | (21,816 | ) |  | $ | 53,380 | 
|                              |  |                         |        |      |  |      |        |      |  |      |        |   |  |   |         |   |  |   |        | 

19



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion and analysis should be
read in conjunction with our Consolidated Financial Statements
which appear elsewhere in this Form 10-K.

The Transactions

On December 10, 2003, Atrium Corporation,
our parent company, was acquired by a newly formed affiliate of
Kenner & Company, Inc., KAT Holdings, Inc., pursuant to
which KAT Holdings, Inc. merged with and into Atrium Corporation
with Atrium Corporation as the surviving corporation. As a
result of the merger, the investor group described below now
controls the Company and Atrium Corporation.

The acquisition of Atrium Corporation was made by
an investor group led by Kenner & Company, Inc., a New York
based private investment firm, and certain members of our
management, including Jeff L. Hull, our Chairman, President and
Chief Executive Officer. The investor group included: KAT
Holdings, L.P. and KAT Group, L.P., special purpose Kenner
investment partnerships; UBS Capital Americas II, LLC; ML
IBK Positions, Inc. and Merrill Lynch Ventures L.P. 2001 and
management. At the closing of the merger, $12.4 million of
equity securities owned by certain of Atrium Corporations
existing stockholders were exchanged for similar securities in
KAT Holdings, Inc. and the investor group contributed an
additional $251.6 million to KAT Holdings, Inc., including
$251.5 million from ATR Acquisition, LLC, the members of
which are KAT Holdings, L.P., KAT Group, L.P., UBS Capital
Americas II, LLC, ML IBK Positions, Inc. and Merrill Lynch
Ventures L.P. 2001.

In connection with the merger, we renewed our
existing accounts receivable securitization facility for a
period of five years and repaid our existing senior revolving
credit and term loan facilities with a new revolving credit
facility of $50.0 million, which was undrawn at the close
of the merger, and a new $180.0 million term loan facility.
We also issued an additional $50.0 million of 10 1/2%
senior subordinated notes, or add-on notes, and left
the existing $175.0 million of 10 1/2% senior
subordinated notes outstanding. $40.0 million of the new
term loan facility was funded into escrow upon closing of the
merger and was released to fund a portion of the acquisition of
Superior on December 31, 2003.

On November 18, 2003, in connection with the
merger, we received consents from holders representing
approximately 97% of the aggregate principal amount of our
outstanding 10 1/2% senior subordinated notes to:



| |   |                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | waive our obligations under the Indenture to make
    a change of control offer in connection with the merger and
    amend the Indenture to replace the definition of permitted
    holders with certain direct and indirect equity holders of ATR
    Acquisition, LLC and their affiliates,
|
| |  | modify certain restrictions on affiliate
    transactions set forth in the indenture governing the notes; and                                                                                                                                                                                 
|
| |  | allow for the issuance of additional notes.                                                                                                                                                                                                                                                   

Additionally, in connection with the merger,
Atrium Corporation repurchased its outstanding 15% Senior
Pay-In-Kind Notes, with a portion of the cash proceeds of the
equity contribution to KAT Holdings, Inc.

Each of the foregoing transactions, along with
the merger, is referred to herein collectively as the
Transactions.

GAAP generally provides for the application of
push down accounting in situations where the
ownership of an entity has changed, meaning that the
post-transaction financial statements of the acquired entity
reflect a new basis of accounting. The accompanying data does
not reflect a new basis of accounting pursuant to Staff
Accounting Bulletin (SAB) No. 54
(SAB 54). The guidance in SAB 54 allows
our post-merger financial statements to continue under the
historical basis of accounting because of the existence of
significant outstanding public debt at the time of the merger.

Critical Accounting Policies and
Estimates

Managements discussion and analysis of its
financial condition and results of operations are based
upon our consolidated financial statements, which have been
prepared in accordance with accounting

20



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##### Table of Contents



principles generally accepted in the United
States. The preparation of these financial statements requires
management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. On
an on-going basis, management evaluates its estimates, including
those related to revenue recognition, recoverability of goodwill
and long-lived assets, allowance for doubtful accounts,
inventory reserves, actuarially determined insurance reserves,
deferred taxes and stock-based compensation. Management bases
its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions. Management believes the following critical
accounting policies affect its more significant judgments and
estimates used in the preparation of its consolidated financial
statements.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenue recognition.Our revenue recognition policy is significant because our sales
    are a key component of our results of operations. In addition,
    our revenue recognition determines the timing of certain
    expenses, such as commissions, delivery expense and sales
    returns and allowances. Revenue is recognized from the sale of
    windows and patio doors and related components at the time of
    delivery to the customer. On contracts involving installation,
    revenue is recognized when the installation is complete. We
    offer our customers the right to return products that do not
    function properly or are defective. Estimates are used to derive
    sales returns and allowances, commissions and delivery expense.
    We follow specific and detailed guidelines in measuring revenue.
    However, certain judgments affect the application of our revenue
    policy. Revenue results can be difficult to predict, and any
    shortfall in revenue or delay in recognizing revenue could cause
    our operating results to vary significantly from period to
    period.
|
| |  | Goodwill.We assess
    the impairment of goodwill annually in addition to whenever
    events or changes in circumstances indicate that the carrying
    value may not be recoverable. In assessing the recoverability of
    our goodwill, management must make assumptions regarding the
    estimated cash flows and other factors to determine the fair
    value of the respective assets. If these estimates or their
    related assumptions change in the future, we may be required to
    record an impairment charge. Factors we consider important which
    could trigger an impairment review include the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | Significant underperformance relative to expected
    history or projected future operating results            
|
| |  | Significant changes in the manner of our use of
    the acquired assets or the strategy of our overall business
|
| |  | Significant negative industry or economic trends                                                               



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Allowance for doubtful
    accounts.We maintain an allowance for
    doubtful accounts for estimated losses resulting from the
    inability of our customers to make required payments.
    Additionally, we take into consideration the current financial
    condition of our customers, historical experience and any
    specific customer collection issues we have identified. If the
    financial condition of our customers were to deteriorate,
    resulting in an impairment of their ability to make payments,
    additional allowances may be required.
|
| |  | Inventory reserves.Inventories are valued at the lower of cost (last-in, first-out)
    or market. We provide reserves for estimated obsolescence or
    unmarketable inventory equal to the difference between the cost
    of inventory and the estimated net realizable value using
    assumptions about future demand for our products and market
    conditions. If actual future demand or market conditions are
    less favorable than those projected by management, additional
    inventory reserves may be required.                                      
|
| |  | Self-insurance
    reserves.We are self-insured and
    provide reserves for estimated medical and certain workers
    compensation claims and incurred but not reported claims. We
    take into consideration the status of current and historical
    claims and actuarial calculations of such claims to determine
    the reserve amounts. If current or future claims are higher than
    estimated, additional reserves may be required.                                                                                                                       

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Deferred taxes.We
    establish deferred tax assets and liabilities based on profits
    or losses in each jurisdiction in which we operate. Associated
    valuation allowances reflect our evaluation of the likelihood of
    the recoverability of these assets. Our judgment is based
    primarily on our historical earnings, expected future earnings
    as well as prudent and feasible tax planning strategies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Accounting for Stock-Based
    Compensation.Currently, we follow
    Accounting Principles Board (APB) Opinion
    No. 25, Accounting for Stock Issued to
    Employees (APB 25) and its related
    interpretations for stock options granted to employees. Under
    the recognition and measurement principles of APB 25, we
    are not required to recognize any compensation expense unless
    the market price of the stock exceeds the exercise price on the
    date of grant or the terms of the grant are subsequently
    modified. The Financial Accounting Standards Board
    (FASB) has recently indicated that it expects to
    issue a proposal to change the recognition and measurement
    principles for equity-based compensation granted to employees.
    The proposed rules could be implemented as early as the end of
    the 2004 calendar year. Under the proposed rules, we would be
    required to recognize compensation expense related to stock
    options granted to employees after December 15, 2004. The
    compensation expense would be calculated based on the number of
    options expected to vest and would be recognized over the stock
    options vesting period. If this proposal is passed, we
    would be required to recognize compensation expense related to
    stock options granted to our employees, which may have a
    material effect on our consolidated financial condition or
    results of operations.

Results of Operations (in thousands, except
percentages)

The following table sets forth for the periods
indicated, information derived from our consolidated statements
of operations expressed as percentage of net sales.

|                                                                                                                               |  |                         |       |      |  |      |       |   |  |  |       |   
|------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | --
|                                                                                                                               |  |                        
|                                                                                                                               |  | Year Ended December 31,
|                                                                                                                               |  |                        
|                                                                                                                               |  | 2003                    |       | 2002 |  | 2001
|                                                                                                                               |  |                         |       |      |  |     
|NET SALES                                                                                                                      |  |                         | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | % 
|COST OF GOODS SOLD                                                                                                             |  |                         | 68.3  |      |  |      | 67.2  |   |  |  | 68.6  |   
|                                                                                                                               |  |                         |       |      |  |      |       |   |  |  |       |   
|Gross profit                                                                                                                   |  |                         | 31.7  |      |  |      | 32.8  |   |  |  | 31.4  |   
|OPERATING EXPENSES:                                                                                                            |  |                         |       |      |  |      |       |   |  |  |       |   
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization) |  |                         | 21.5  |      |  |      | 21.7  |   |  |  | 20.9  |   
|Securitization expense                                                                                                         |  |                         | 0.3   |      |  |      | 0.2   |   |  |  | 0.3   |   
|Stock compensation expense                                                                                                     |  |                         | 0.1   |      |  |      | 0.1   |   |  |  | 0.1   |   
|Amortization expense                                                                                                           |  |                         | 0.7   |      |  |      | 0.6   |   |  |  | 2.8   |   
|                                                                                                                               |  |                         |       |      |  |      |       |   |  |  |       |   
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                     |  |                         | 22.6  |      |  |      | 22.6  |   |  |  | 24.1  |   
|Special charges                                                                                                                |  |                         | 1.8   |      |  |      | 0.8   |   |  |  | 0.2   |   
|                                                                                                                               |  |                         |       |      |  |      |       |   |  |  |       |   
|                                                                                                                               |  |                         | 24.4  |      |  |      | 23.4  |   |  |  | 24.3  |   
|                                                                                                                               |  |                         |       |      |  |      |       |   |  |  |       |   
|Income from operations                                                                                                         |  |                         | 7.3   |      |  |      | 9.4   |   |  |  | 7.1   |   
|INTEREST EXPENSE                                                                                                               |  |                         | 6.1   |      |  |      | 6.7   |   |  |  | 7.7   |   
|OTHER INCOME, net                                                                                                              |  |                         |      |      |  |      |      |   |  |  |      |   
|                                                                                                                               |  |                         |       |      |  |      |       |   |  |  |       |   
|Income (loss) before income taxes                                                                                              |  |                         | 1.2   |      |  |      | 2.7   |   |  |  | (0.6  | ) 
|PROVISION FOR INCOME TAXES                                                                                                     |  |                         | 0.1   |      |  |      | 0.1   |   |  |  | 0.3   |   
|                                                                                                                               |  |                         |       |      |  |      |       |   |  |  |       |   
|NET INCOME (LOSS)                                                                                                              |  |                         | 1.1   | %    |  |      | 2.6   | % |  |  | (0.9  | )%
|                                                                                                                               |  |                         |       |      |  |      |       |   |  |  |       |   

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Discussion of Consolidated Results



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared
    to Year Ended December 31, 2002

Net Sales.Net sales
increased by $61,511 from $536,299 in 2002 to $597,810 in 2003,
or approximately 11.5%. The increase in net sales was primarily
the result of the 2003 acquisitions and sales growth at our
vinyl and aluminum window fabrication and aluminum extrusion
operations. Net sales from the 2003 acquisitions were $43,179 in
2003. We also experienced increases of $9,040, or 5.0%, over
2002 from our aluminum window operations due to increased unit
volume with our existing customers. Net sales at our aluminum
extrusion operations increased $4,732, or 11.5%, over 2002 due
to increased volume with new and existing customers. Net sales
at our vinyl window operations increased $3,945, or 1.4%, over
2002 due to increased unit volume with new and existing
customers. This increase occurred despite Lowes
Companies, Inc. shifting certain volume from our North
Carolina operation to a competitor and soft sales due to a
general economic slowdown in certain markets.

Cost of Goods Sold.Cost of goods sold increased from 67.2% of net sales during 2002
to 68.3% of net sales during 2003. Material cost of goods sold
decreased from 39.8% of net sales during 2002 to 39.5% of net
sales during 2003. This decrease was primarily due to the
leveraging of the Companys increased purchasing power and
additional cost savings generated from the expansion of our
vertical integration. The decrease was partially offset by an
increase in the cost of vinyl resins and aluminum. Direct
manufacturing expense increased from 27.4% of net sales during
2002 to 28.7% of net sales during 2003. The increase in direct
manufacturing expense was primarily related to higher insurance
and labor costs.

Selling, Delivery, General and Administrative
Expenses.Selling, delivery, general
and administrative expenses increased $12,432 from $116,364
during 2002 (21.7% of net sales in 2002) to $128,796 during 2003
(21.5% of net sales in 2003). Selling, delivery, general and
administrative expenses from the 2003 Acquisitions were $9,843
during 2003. Selling, delivery, general and administrative
expenses, excluding the 2003 acquisitions, increased $2,589 from
$116,364 during 2002 to $118,953 during 2003. General and
administrative expenses, excluding the 2003 acquisitions,
increased $1,311 from $45,481 during 2002 to $46,792 during
2003, largely as a result of higher insurance costs and an
increase in salary expenses. Delivery expenses, excluding the
2003 acquisitions, decreased from 6.6% of net sales during 2002
to 6.4% of net sales during 2003. We experienced a decrease in
delivery expenses as a result of the use of a new, lower cost
distribution method for a portion of our home center deliveries
and a decrease in leased transportation cost primarily as a
result of a favorable contract renewal. The decrease in delivery
expenses was partially offset by an increase in fuel costs.
Selling expenses, excluding the 2003 acquisitions, remained flat
at 6.6% of net sales. Selling expenses are primarily variable in
nature as a significant portion of these expenses represent
commissions.

Securitization
Expense.Securitization expense
increased $772 from $1,133 in 2002 to $1,905 during 2003. During
2003, securitization expense included $750 of fees associated
with the renewal of our accounts receivable securitization
facility. During 2003 and 2002, securitization expense included
a loss on the sale of accounts receivable of $1,155 and $1,133
respectively, which represented the interest expense and
commitment fee components of the transaction.

Stock Compensation
Expense.Stock compensation expense
increased $170 from $383 during 2002 to $553 during 2003. Stock
compensation expense for 2002 and 2003 included $83 and $253,
respectively, for the repurchase of stock options from current
and former employees and $300 of payments for services rendered
in the form of Atrium Corporation common stock issued to
Ardshiel, Inc., our former equity sponsor.

Amortization
Expense.Amortization expense
increased $789 from $3,410 during 2002 to $4,199 during 2003.
Amortization expense increased primarily due to increased
amortization of software implementation costs.

Special Charges.During 2003, we recorded a special charge of $11,024. The
special charge included $10,059 of expenses associated with the
merger and $965 of additional expenses related to the
divestitures of Wing and our wood patio door division. The
expenses associated with the merger include $6,407 of management
transaction bonuses, $1,615 related to warrants issued to
Mr. Hull, $1,226 related to the

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termination of a consulting agreement with the
former owner of Ellison Windows and $811 for stock option
compensation related to options outstanding prior to the merger.
During 2002, we recorded a special charge of $4,198 for
liabilities associated with the divestiture of Wing, including
$2,553 of exit costs incurred by us on remaining lease
obligations and litigation expenses. We will incur an additional
charge of $2,345 in January 2004 relating to the vesting of
warrants to Mr. Hull.


Interest Expense.Interest expense increased $317 from $35,901 during 2002 to
$36,218 during 2003. Interest expense during 2002 and 2003
included $204 and $3,117, respectively, for the write-off of
deferred financing costs in connection with the prepayment and
retirement of our old senior credit facility. Interest expense,
excluding the write-off of deferred financing costs, decreased
$2,596 from $35,697 during 2002 to $33,101 during 2003 as a
result of reduced debt levels and a decrease in our
weighted-average interest rate, which resulted from the
expiration of our interest rate swap agreements in December of
2002 and November of 2003.

Provision for Income Taxes.Our income tax provision primarily
represents state income tax expense for those jurisdictions
where we do not have available loss carryforwards. We have not
incurred federal income tax expense in 2003 or 2002 as a result
of available net operationing loss carryforwards generated in
prior years. We continue to maintain a full valuation allowance
against our deferred tax assets for net operating losses. Should
we continue to generate taxable income in 2004 and if prospects
for continued profitability are more likely than not beyond
2004, our net operating loss valuation allowance may reverse in
future periods.



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2002 Compared
    to Year Ended December 31, 2001

Net Sales.Net sales
increased by $19,236 from $517,063 in 2001 to $536,299 in 2002,
or approximately 3.7%. The increase in net sales during 2002 was
due to an increase in volume at our aluminum and vinyl window
operations, offset by a decline in sales at the Darby and
aluminum extrusion operations. Net sales at our aluminum window
operations increased $18,898, or 11.8% over 2001. This increase
was primarily due to increased volume to our home center
customers. Net sales at our vinyl window operations increased
$7,423, or 2.6% over 2001. The growth rate at our vinyl window
operations was hindered by soft sales at our Northwest and
Rockies operations due to general economic slowdowns in their
respective markets. The decrease at our aluminum extrusion
operation was virtually all related to declining aluminum
prices, which affect the overall selling price of the extrusion
product, while the decrease at our Darby operations was a result
of softer demand in the multi-family market.

Cost of Goods Sold.Cost of goods sold improved from 68.6% of net sales during 2001
to 67.2% of net sales during 2002. The improvement was primarily
the result of a decrease in material costs as a percentage of
net sales, as material costs decreased from 41.3% of net sales
during 2001 to 39.8% of net sales during 2002. This decrease was
due to our increased purchasing power and the realization of
synergies from acquisitions made in prior years. This
improvement, as a percentage of net sales, was partially offset
by an increase in our LIFO expense of $1,463, as the LIFO
expense during 2002 was $347 compared to a LIFO benefit of
$1,116 during 2001. Direct manufacturing expense remained
relatively flat as a percentage of net sales, increasing from
27.3% of net sales during 2001 to 27.4% of net sales during
2002. Overall, changes in the cost of goods sold as a percentage
of net sales for one period as compared to another period may
reflect a number of factors, including changes in the relative
mix of products sold and the effects of changes in sales prices,
material costs and changes in productivity levels.

Selling, Delivery, General and Administrative
Expenses.Selling, delivery, general
and administrative expenses increased $8,297 from $108,067
during 2001 (20.9% of net sales) to $116,364 during 2002 (21.7%
of net sales). The increase was partially due to an increase in
delivery expense, which increased $4,165 from $31,192 during
2001 (6.0% of net sales) to $35,357 during 2002 (6.6% of net
sales). The increase in delivery expense over 2001 was primarily
related to an increase in the volume of products shipped into
the southern California market resulting in a longer average
distance per truckload, increased fuel prices and the variable
nature of delivery expense. General and administrative expenses
increased $4,034 from $41,447 during 2001 (8.0% of net sales) to
$45,481 during 2002 (8.5% of net sales). The increase in general
and administrative expenses was largely due to higher insurance
premiums, higher professional fees and an increase in salaries

24



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##### Table of Contents



and related payroll expenses offset by a
reduction in bad debt expense. The increase in professional fees
was attributable to the establishment of our new operations in
Mexico, as well as legal fees for the successful defense against
a union organizing effort at one of our facilities. General and
administrative expenses are net of gains on sales of assets of
$1,798 and $221 during 2001 and 2002, respectively. The 2001
gain includes $1,741 from the sale of certain vinyl extrusion
assets while the 2002 gain includes $217 from the sale of an
idle aluminum window manufacturing facility. Selling expense,
which consists primarily of commissions, decreased slightly as a
percentage of net sales from 6.9% during 2001 to 6.6% during
2002. The decrease was due to our ability to leverage our sales
force across a broader selling base.


Securitization
Expense.We securitized our accounts
receivable during the third quarter of 2001. Securitization
expense decreased $399 from $1,532 in 2001 to $1,133 in 2002.
During 2002, securitization expense incurred by us included a
loss on the sale of accounts receivable, which represented the
interest expense and commitment fee components of the
transaction. During 2001, securitization expense of $1,532
included $878 of fees associated with the placement of our
accounts receivable securitization facility and a loss on the
sale of accounts receivable of $654, which represented the
interest expense and commitment fee components of the
transaction.

Stock Compensation
Expense.Stock compensation expense
decreased by $199 from $582 during 2001 to $383 during 2002.
Stock compensation expense during 2001 and 2002 included $282
and $83, respectively, for the repurchase of outstanding stock
options from former employees and $300 of payments for services
rendered in the form of Atrium Corporation common stock issued
to Ardshiel, Inc.

Amortization
Expense.Amortization expense
decreased $11,000 from $14,410 during 2001 to $3,410 during
2002. The decrease was primarily attributable to the
Companys adoption of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets, which eliminates the amortization of goodwill and
subjects it to an annual impairment test. Goodwill amortization
for 2001 was $11,725.

Special Charges.During 2002, we recorded a special charge of $4,198 for
liabilities associated with the divestiture of Wing. The
majority of this special charge is attributable to $2,553 of
exit costs incurred by the Company on the remaining lease
obligations at Wings former facilities. The special charge
also includes $1,645 of litigation expenses. During 2001, we
recorded special charges totaling $1,213, of which $910 related
to the shutdown of our Kel-Star facility and $303 related to
non-capitalizable legal fees incurred to amend our credit
agreement.

Interest Expense.Interest expense decreased by $4,049 from $39,950 during 2001 to
$35,901 during 2002. Interest expense during 2001 and 2002
included $837 and $204, respectively, for the write-off of
deferred financing cost in connection with the prepayment of
debt. Interest expense, excluding the write-off of deferred
financing costs, decreased $3,416 from $39,113 during 2001 to
$35,697 during 2002. The decrease is attributable to reduced
debt level in 2002 as a result of working capital improvements
and the execution of the accounts receivable securitization
facility in August 2001, from which the proceeds were used to
repay a portion of our long-term debt.

Provision for Income Taxes.Our income tax provision primarily
represents state income tax expense for those jurisdictions
where we do not have available loss carryforwards. The decrease
in the effective rate from 2001 primarily results from the
impact of non-deductible goodwill amortization in 2001.
Amortization of goodwill ceased in 2002 as a result of the
adoption of Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets (SFAS 142).

Discussion of Results by Reporting
Segment



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared to
    Year Ended December 31, 2002



| |                   
| | ------------------
| | Windows and Doors:

Net Sales.Net sales
increased by $51,633 from $491,584 in 2002 to $543,217 in 2003,
or approximately 10.5%. The increase was primarily the result of
the 2003 acquisition of Danvid, which provided additional sales

25



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##### Table of Contents



of $38,039, sales growth at our aluminum window
operations of $9,040, or 5.0%, and growth at our vinyl window
operations of $3,945, or 1.4%. The growth at our aluminum window
operations was due to increased unit volume with our existing
customers, while the growth at our vinyl window operations was
due to increased unit volume with new and existing customers,
partially offset by the loss of business with Lowes and
soft sales due to general economic slowdowns in certain markets.


Income from
Operations.Income from operations
decreased from 11.3% of net sales during 2002 to 9.9% of net
sales during 2003. An increase in cost of goods sold from 66.4%
of net sales during 2002 to 68.1% of net sales during 2003 was
partially offset by a slight decrease in selling, delivery,
general and administrative expenses from 22.3% of net sales
during 2002 to 22.0% of net sales during 2003. The increase in
cost of goods sold included an increase in both materials and
direct manufacturing expense, due largely to an increase in the
cost of vinyl resins and aluminum, as well as higher insurance
and labor costs.



| |            
| | -----------
| | Components:

Net Sales.Net sales
increased by $19,465 from $81,451 in 2002 to $100,916 in 2003,
or approximately 23.9%. The increase was primarily the result of
the 2003 acquisitions of Aluminum Screen and Miniature Die
Casting, which provided combined sales of $8,686, and the 2003
acquisition of Danvid, which provided additional sales of $3,359
to our aluminum and vinyl extrusion operations. In addition,
sales at our aluminum extrusion operation, excluding amounts
sold to Danvid, increased $7,426, or 9.8%, over 2002 due to
increased volume with new and existing customers.

Income from
Operations.Income from operations
increased $4,574 from $3,307, or 4.1% of net sales during 2002
to $7,880, or 7.8% of net sales during 2003. The increase was
largely due to the acquisitions of Aluminum Screen and Miniature
Die Casting, which provided combined income from operations of
$1,331, and an increase in income from operations at our
aluminum extrusion operation of $3,035. The increase at our
aluminum extrusion operation was due to a 13.7% increase in
sales. The increase in income from operations as a percentage of
net sales is largely due to increased operating leverage at our
aluminum extrusion operation as a result of the increase in
sales.



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2002 Compared to
    Year Ended December 31, 2001



| |                   
| | ------------------
| | Windows and Doors:

Net Sales.Net sales
increased by $20,329 from $471,255 in 2001 to $491,584 in 2002,
or approximately 4.3%. The increase in net sales during 2002 was
due to an increase in unit volume at our aluminum and vinyl
window operations, offset by a decline in sales to the
multi-family market. Net sales at our aluminum window operations
increased $18,898, or 11.8% over 2001. This increase was
primarily due to increased volume to our home center customers.
Net sales at our vinyl window operations increased $7,423, or
2.6% over 2001. The growth rate at our vinyl window operations
was hindered by soft sales in certain operations due to general
economic slowdowns in their respective markets.

Income from
Operations.Income from operations
increased from 8.2% of net sales during 2001 to 11.3% of net
sales during 2002, which included a decrease in cost of goods
sold from 68.1% of net sales during 2001 to 66.4% of net sales
during 2002 and a decrease in selling delivery, general and
administrative expense from 23.7% of net sales during 2001 to
22.3% of net sales during 2002. The decrease in cost of goods
sold included a decrease in materials from 41.6% of net sales
during 2001 to 40.0% of net sales during 2002, primarily due to
our increased purchasing power and the realization of synergies
from acquisition made in prior years. The decrease in selling,
delivery, general and administrative expenses was primarily
attributable to the Companys adoption of Statement of
Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets
(SFAS 142), which eliminates the amortization
of goodwill and subjects it to an annual impairment test.
Goodwill amortization for 2001 was $9,740. This decrease was
partially offset by an increase in delivery expense, which
increased from 6.1% of net sales during 2001 to 6.6% of net
sales during 2002. The increase in delivery expense was
primarily related to an increase in volume of products shipped
into the Southern California market, resulting in a longer
average distance per truckload.

26



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##### Table of Contents





| |            
| | -----------
| | Components:

Net Sales.Net sales
increased by $6,270 from $75,181 in 2001 to $81,451 in 2003, or
8.3%. The increase was primarily the result of an increase at
our aluminum extrusion operation of $6,185, or 8.9%, which
included a decrease in sales to outside customers of $859 and an
increase to internal customers of $7,044. The increase in sales
to internal customers was due largely to the 11.8% increase in
sales at our aluminum window operations as a result of increased
home center business.

Income from
Operations.Income from operations
increased $1,542 from $1,765, or 2.3% of net sales during 2001
to $3,307, or 4.1% of net sales during 2002. The increase was
primarily attributable to the Companys adoption of
SFAS 142, which eliminates the amortization of goodwill and
subjects it to an annual impairment test. Goodwill amortization
for 2001 was $1,667. The decrease in goodwill amortization was
partially offset by a decrease in income from operations,
excluding goodwill amortization, of $125 made up of a decrease
at our aluminum extrusion operation of $240 and an increase at
our vinyl extrusion operation of $115. The decrease at our
aluminum extrusion operation, despite an 8.9% increase in sales,
was due to the fact that the majority of the sales increase was
the result of overall increases in the price of aluminum. Due to
the nature of how the product is priced to the customer, an
increase in the price of aluminum results in an increase in
sales and material costs, but does not result in higher income
from operations. In fact, an increase in the price of aluminum,
alone, will typically result in a lower income from operations
as a percentage of net sales.

Liquidity and Capital Resources

Cash generated from operations, availability
under our revolving credit facility and availability under our
accounts receivable securitization facility are our principal
sources of liquidity. During 2003, cash was primarily used for
capital expenditures, debt payments and the 2003 acquisitions.
Net cash provided by operating activities was $33,248 during
2003 compared to $27,089 during 2002. The increase was primarily
due to increases in the sale of accounts receivable, partially
offset by increases in working capital. Cash flows used in
investing activities increased from $15,335 during 2002 to
$95,044 during 2003. The increase was primarily due to an
increase in capital expenditures and the 2003 acquisitions. Cash
provided by financing activities increased $80,248 from net cash
used in financing activities of $11,870 during 2002. The
increase was primarily due to the Transactions, including the
refinancing which were partially offset by a net distribution to
Atrium Corporation related to the merger.



| |                
| | ---------------
| | Long-Term Debt:

Long-term debt consists of borrowings under our
credit facility, the senior subordinated notes and capital lease
obligations. Our new credit facility term loan requires
quarterly principal and interest payments. The senior
subordinated notes require semi-annual interest payments only
and are due in May 2009. The capital leases require monthly
principal and interest payments. Our credit facility has an
excess cash flows provision mandating additional
principal payments if certain cash flows targets are met during
the year.

Our new credit facility and senior subordinated
notes require us to comply with certain covenants which, among
other things, include limitations on indebtedness, liens and
further negative pledges, investments, contingent obligations,
dividends, redemptions and repurchases of equity interests,
mergers, acquisitions and asset sales, capital expenditures,
sale-leaseback transactions, transactions with affiliates,
dividend and other payment restrictions affecting subsidiaries,
changes in business conducted, amendment of documents relating
to other indebtedness and other material documents, creation of
subsidiaries, designation of Designated Senior Indebtedness in
respect of the senior subordinated notes, and prepayment or
repurchase of other indebtedness. Our credit agreement requires
us to meet certain quarterly financial tests pertaining to total
leverage, interest coverage, fixed charge coverage and capital
expenditures. As of December 31, 2003, we were in
compliance with all related covenants and expect to maintain
compliance in 2004.

Our new credit facility and senior subordinated
notes contain customary events of default, including, without
limitation, payment defaults, covenant defaults, breaches of
representations and warranties, bankruptcy and insolvency,
judgments, change of control and cross-default with certain
other indebtedness.

27



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We have various letters of credit outstanding
primarily related to certain insurance policies and facility
lease deposits.

Off-Balance Sheet Arrangements



| |                                                 
| | ------------------------------------------------
| | Accounts Receivable Securitization
    Facility:

In connection with our accounts receivable
securitization facility executed in 2001, we formed a special
purpose funding subsidiary to facilitate the sale of pools of
trade receivables. The special purpose entity is consolidated
with us. As a result of the agreement, receivables sold to the
securitization company are not reflected in our consolidated
balance sheet. The securitization company is free to pledge or
exchange its interest. Any receivables not sold to the
securitization company constitute the retained interest in the
receivables portfolio of the special purpose entity. Due to the
short-term nature of the underlying receivables, the net
carrying amount of our retained interest in transferred accounts
receivables as of December 31, 2003 approximates fair value
and is classified as a current asset on our balance sheet. All
of the revenues, expenses and cash flows associated with our
accounts receivable securitization facility have been
incorporated into our financial statements.

At December 31, 2003, we did not have any
other relationships with unconsolidated entities or financial
partnerships, such entities often referred to as structured
finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.
As such, we are not materially exposed to any financing,
liquidity, market or credit risk that could arise if we had
engaged in such relationships.



| |                  
| | -----------------
| | Operating Leases:

We have various outstanding operating leases for
office and manufacturing space, automobiles and machinery and
equipment. We finance the use of certain facilities and
equipment under lease agreements provided by various
institutions. Since the terms of these agreements meet the
definitions of operating lease agreements, the sum of future
lease payments is not reflected on our consolidated balance
sheet. As of December 31, 2003, future minimum lease
payments under these arrangements was approximately $108,061.

Other Capital Resources

In connection with the merger, we entered into a
new credit facility providing for a revolving credit facility in
the amount of $50,000, which includes a $20,000 sublimit for the
issuance of letters of credit and a $10,000 sublimit for swing
line loans. The revolving credit facility has a maturity date of
December 10, 2008. Additionally, we have an accounts
receivable securitization facility of $50,000, which can make
additional funds available to us depending on our accounts
receivable levels. On December 10, 2003, in connection with
the merger, we renewed the accounts receivable securitization
facility for a period of five years.

We had $41,299 of availability under the new
revolving credit facility, net of outstanding letters of credit
totaling $8,701 as of December 31, 2003 and March 29,
2004. At December 31, 2003, we had $10,200 of availability
under the accounts receivable securitization facility and an
additional $8,800 currently unavailable due to borrowing base
limitation, net of securitizations of $31,000. At March 29,
2004, we had $5,300 available under the accounts receivable
securitization facility and an additional $9,700 currently
unavailable due to borrowing base limitations, net of
securitizations of $35,000.

28



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##### Table of Contents



Contractual Obligations

The following table summarizes our contractual
obligations at December 31, 2003, and the effects such
obligations are expected to have on our liquidity and cash flow
in future periods:

|                         |                                             |                                    |   |           |         |           |   |           |        |         |   |        |        |  |   |         |         |  |   |         |         | 
|------------------------ | ------------------------------------------- | ---------------------------------- | - | --------- | ------- | --------- | - | --------- | ------ | ------- | - | ------ | ------ |  | - | ------- | ------- |  | - | ------- | ------- | 
|                         |                                             |                                   
|                         |                                             | Payments Due by Period            
|                         |                                             |                                   
|                         |                                             |                                    |   | Less than |         |           |   | More than
|                         |                                             | Total                              |   | 1 Year    |         | 1-3 Years |   | 3-5 Years |        | 5 Years
|                         |                                             |                                    |   |           |         |           |   |           |        |        
|                         |                                             |                                   
|                         |                                             | (dollars in thousands)            
|CONTRACTUAL OBLIGATIONS: |                                             |                                    |   |           |         |           |   |           |        |         |   |        |        |  |   |         |         |  |   |        
|                         | Long-term debt                              |                                    | $ | 405,058   |         |           | $ | 1,822     |        |         | $ | 3,636  |        |  | $ | 174,600 |         |  | $ | 225,000 |        
|                         | Capital lease obligations                   |                                    |   | 8,478     |         |           |   | 1,480     |        |         |   | 3,408  |        |  |   | 3,590   |         |  |   |        |        
|                         | Non-cancellable operating lease obligations |                                    |   | 108,061   |         |           |   | 13,844    |        |         |   | 22,548 |        |  |   | 13,328  |         |  |   | 58,341  |        
|                         | Aluminum purchase commitments               |                                    |   | 3,796     |         |           |   | 3,796     |        |         |   |       |        |  |   |        |         |  |   |        |        
|                         | Zinc purchase commitments                   |                                    |   | 529       |         |           |   | 529       |        |         |   |       |        |  |   |        |         |  |   |        |        
|                         | Letters of credit                           |                                    |   | 8,701     |         |           |   | 8,701     |        |         |   |       |        |  |   |        |         |  |   |        |        
|                         |                                             |                                    |   |           |         |           |   |           |        |         |   |        |        |  |   |         |         |  |   |        
|                         |                                             | Total contractual cash obligations |   | $         | 534,623 |           |   | $         | 30,172 |         |   | $      | 29,592 |  |   | $       | 191,518 |  |   | $       | 283,341 | 
|                         |                                             |                                    |   |           |         |           |   |           |        |         |   |        |        |  |   |         |         |  |   |        

Capital Expenditures

We had net cash capital expenditures of $18,945
during 2003, compared to $11,157 and $7,984 during 2002. Capital
expenditures during 2003 were largely a result of our continued
efforts to increase efficiency through automation at our various
manufacturing facilities. We expect capital expenditures
(exclusive of acquisitions) in 2004 to be approximately $20,000
and to be primarily used for machinery and equipment to increase
automation and establish new products lines, however, actual
capital requirements may change based on management and
strategic decisions.

Moreover, our ability to meet debt service and
capital expenditure requirements is dependent upon our future
performance which, in turn, will be subject to general economic
conditions and to financial, business and other factors,
including factors beyond our control.

Inflation, Trends and General
Considerations

From 2001 to 2003, inflation has been relatively
low and we believe that inflation has not had a material affect
on our results of operations. We have evaluated and expect to
continue to evaluate possible acquisitions on an ongoing basis
and at any given time may be engaged in discussions or
negotiations with respect to acquisition candidates. Our
performance is dependent to a significant extent upon the levels
of new residential construction, residential repair and
remodeling and non-residential construction, all of which are
affected by such factors as interest rates, inflation and
unemployment. In the near term, we expect to operate in an
environment of relatively stable levels of construction and
remodeling activity. However, increases in interest rates could
have a negative impact on the level of housing construction and
remodeling activity. The demand for our products is seasonal,
particularly in the Northeast and Midwest regions of the United
States where inclement weather during the winter months usually
reduces the level of building and remodeling activity in both
the home improvement and new construction markets. Our lower
sales levels usually occur during the first and fourth quarters
of our fiscal year. Since a high percentage of our manufacturing
overhead and operating expenses are relatively fixed throughout
the year, operating income and net earnings tend to be lower in
quarters with lower sales levels. In addition, the demand for
cash to fund the working capital of our subsidiaries is greater
from late in the first quarter until early in the fourth quarter
of our fiscal year.

29



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Recently Issued Accounting Standards



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

In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections (SFAS 145).
SFAS 145 rescinds SFAS No. 4, Reporting
Gains and Losses from Extinguishment of Debt, requiring
that gains and losses from the extinguishment of debt be
classified as extraordinary items only if certain criteria are
met. SFAS 145 also amends SFAS No. 13,
Accounting for Leases, and the required accounting
for sale-leaseback transactions and certain lease modifications
that have economic effects that are similar to sale-leaseback
transactions. SFAS 145 was adopted by the Company on
January 1, 2003. We expensed $29, $204 and $837 of deferred
financing fees in connection with our excess cash flow payments
during the years ended December 31, 2003, 2002 and 2001,
respectively (see Note 5). We also expensed $3,117 in 2003
related to the refinancing of our previous credit facilities.
The loss associated with the debt retirement has been included
in interest expense on our financial statements. The 2002 and
2001 amounts have been reclassified from extraordinary items to
interest expense pursuant to SFAS 145.



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

In July 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities
(SFAS 146). SFAS 146 requires that a
liability for a cost associated with an exit or disposal
activity be recognized initially at fair value when the
liability is incurred. We adopted SFAS 146 on
January 1, 2003. Adoption of SFAS 146 has not had a
material effect on our consolidated financial position or
results of operations.



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

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



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

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS 150). SFAS 150 broadens
the definition of financial instruments and establishes
standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities
and equity. SFAS 150 also requires that an issuer classify
a financial instrument that is within its scope as an asset or
as a liability. SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003 and
is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. Adoption of
SFAS 150 has not had a material effect on our consolidated
financial position or results of operations.



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

During November 2002, the FASB issued Financial
Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45). FIN 45 generally
requires a guarantor to recognize a liability for obligations
arising from guarantees. FIN 45 also requires new
disclosures for guarantees meeting certain criteria outlined in
the

30



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##### Table of Contents



pronouncement. The recognition and measurement
provisions of FIN 45 are applicable on a prospective basis
for guarantees issued or modified after December 31, 2002.
Adoption of FIN 45 has not had a material effect on our
consolidated financial position or results of operations.




| |                                                                    
| | -------------------------------------------------------------------
| | FIN No. 46 
    Consolidation of Variable Interest
    Entities:

During January 2003, the FASB issued FIN
No. 46 Consolidation of Variable Interest
Entities (FIN 46). FIN 46 is
effective for variable interest entities created after
January 31, 2003 and is required to be adopted for variable
interest entities that existed prior to February 1, 2003 by
December 31, 2003. FIN 46 is an interpretation of
Accounting Research Bulletin No. 51, Consolidated
Financial Statements. FIN 46 requires a variable
interest entity to be consolidated by a company if that company
is subject to a majority of the risk of loss from the variable
interest entitys activities and is entitled to receive a
majority of the entitys residual returns or both. In
December 2003, the FASB issued a revision to FIN 46 to
clarify some of the provisions and to exempt certain entities
from its requirements. Adoption of FIN 46 has not had a
material effect on our consolidated financial position or
results of operations.



| |                                                                     
| | --------------------------------------------------------------------
| | FIN No. 46R 
    Consolidation of Variable Interest
    Entities:

During December 2003, the FASB issued a revision
to FIN 46, FIN No. 46R (FIN 46R), to
clarify some of the provisions and to exempt certain entities
from its requirements. Under the new guidance, special effective
date provisions apply to enterprises that have fully or
partially applied FIN 46 prior to issuance of the revised
interpretation. Otherwise, application of FIN 46R is
required in financial statements of public entities that have
interests in structures that are commonly referred to as special
purpose entities (SPEs) for periods ending
after December 15, 2003. Application by public entities,
other than business issuers, for all other types of variable
interest entities other that SPEs is required in financial
statements for periods ending after March 15, 2004.
Adoption of FIN 46R has not had a material effect on our
consolidated financial position or results of operations.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

We are exposed to market risks related to changes
in interest rates and commodity pricing. We use derivative
financial instruments on a limited basis to hedge economic
exposures. We do not enter into derivative financial instruments
or other financial instruments for speculative trading purposes.



| |                   
| | ------------------
| | Interest Rate Risk

We are exposed to market risk from changes in
interest rates primarily through our investing and borrowing
activities. In addition, our ability to finance any future
acquisition transactions may be affected if we are unable to
obtain appropriate financing at acceptable interest rates. We
manage our borrowing exposure to changes in interest rates by
utilizing a combination of fixed and variable rate debt
instruments. In the past, we have hedged our exposure on a
portion of our variable rate debt by entering into an interest
rate swap agreement to lock in a fixed rate. At
December 31, 2003, approximately 55% of the carrying values
of our long-term debt were at fixed interest rates.

The following table presents principal cash flows
of variable rate debt by maturity date and the related average
interest rate. The interest rates are weighted between the
various loans based on debt outstanding and are estimated based
on implied forward rates using a yield curve at
December 31, 2003.

|                      |  |                        |       |      |  |      |       |      |  |      |       |       |  |            |       |   |  |   |         |   |  |   |         |  |  |   |         | 
|--------------------- |  | ---------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ----- |  | ---------- | ----- | - |  | - | ------- | - |  | - | ------- |  |  | - | ------- | 
|                      |  |                       
|                      |  | Expected Maturities   
|                      |  |                       
|                      |  | 2004                   |       | 2005 |  | 2006 |       | 2007 |  | 2008 |       | Total |  | Fair Value
|                      |  |                        |       |      |  |      |       |      |  |      |       |       |  |           
|                      |  |                       
|                      |  | (dollars in thousands)
|Liabilities           |  |                        |       |      |  |      |       |      |  |      |       |       |  |            |       |   |  |   |         |   |  |   |         |  |  |   |         | 
|Variable-rate debt    |  | $                      | 3,129 |      |  | $    | 3,313 |      |  | $    | 3,382 |       |  | $          | 3,297 |   |  | $ | 174,721 |   |  | $ | 187,842 |  |  | $ | 187,842 | 
|Average interest rate |  |                        | 4.32  | %    |  |      | 5.56  | %    |  |      | 6.45  | %     |  |            | 7.11  | % |  |   | 7.61    | % |  |   |        |  |  |   |        | 

31



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##### Table of Contents





| |                       
| | ----------------------
| | Commodity Pricing Risk

We are subject to significant market risk with
respect to the pricing of our principal raw materials, which
include, among others, PVC resins and compounds, glass, zinc and
aluminum. If prices of these raw materials were to increase
dramatically, we might not be able to pass such increases on to
our customers and, as a result, gross margins could decline
significantly. We manage some of our exposure to commodity
pricing risk through purchasing aluminum and/or zinc forward
commitments. The following is information related to aluminum
and zinc forward commitments at December 31, 2003:

|                                                    |                   |                 |        |                  
|--------------------------------------------------- | ----------------- | --------------- | ------ | -----------------
|Forward commitments, expected to mature during 2004 |                   |                
|                                                    |                   |                
|Aluminum:                                           |                   |                
|                                                    | Contract volumes: |                 |       
|                                                    |                   | Fixed prices    |        | 5,000,000 pounds 
|                                                    |                   | Floating prices |        | 65,465,000 pounds
|                                                    | Contract amount   |                 | $3,796
|                                                    | Fair value        |                 | $4,184
|Zinc:                                               |                   |                
|                                                    | Contract volumes: |                 |       
|                                                    |                   | Fixed prices    |        | 1,080,000 pounds 
|                                                    | Contract amount   |                 | $529  
|                                                    | Fair value        |                 | $614  

Based on historical information, we would expect
to purchase approximately 90,000,000 pounds of aluminum and
1,200,000 pounds of zinc in 2004.

32



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##### Table of Contents








|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The financial statements are listed in the
accompanying Index to Financial Statements on page F-1 of
this report.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Evaluation of Disclosure Controls and
Procedures

An evaluation of the effectiveness of the design
and operation of the Companys disclosure controls
and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended (the
Exchange Act)), was carried out as of
December 31, 2003. This evaluation was made under the
supervision and with the participation of the Companys
management, including its Chief Executive Officer and Chief
Financial Officer. Based upon this evaluation, the
Companys Chief Executive Officer and Chief Financial
Officer have concluded that the Companys disclosure
controls and procedures (a) are effective to ensure that
information required to be disclosed by the Company in reports
filed or submitted under the Exchange Act is timely recorded,
processed, summarized and reported and (b) include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in reports
filed or submitted under the Exchange Act is accumulated and
communicated to the Companys management, including its
Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.

Changes in Internal Controls

There have been no significant changes in the
Companys internal controls or in other factors that have
materially affected or are reasonably likely to materially
affect our internal controls over financial reporting.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The following table sets forth information with
respect to our directors, executive officers and other key
personnel. Executive officers are generally appointed annually
by the board of directors to serve, subject to the discretion of
the board of directors, until their successors are appointed.

|                       |  |     |    |          |  |                                                            
|---------------------- |  | --- | -- | -------- |  | -----------------------------------------------------------
|Name                   |  | Age |    | Position
|                       |  |     |    |         
|Jeff L. Hull           |  |     | 38 |          |  | Chairman, President and Chief Executive Officer            
|Eric W. Long           |  |     | 35 |          |  | Executive Vice President and Chief Financial
    Officer   
|Robert E. Burns        |  |     | 38 |          |  | Executive Vice President and Co-Chief Operating
    Officer
|C. Douglas Cross       |  |     | 48 |          |  | Executive Vice President and Co-Chief Operating
    Officer
|Philip J. Ragona       |  |     | 42 |          |  | Senior Vice President, General Counsel and
    Secretary   
|D.D. Gus Agostinelli |  |     | 58 |          |  | Senior Vice President of Human Resources                   
|Jeffrey L. Kenner      |  |     | 60 |          |  | Director                                                   
|Larry T. Solari        |  |     | 61 |          |  | Director                                                   
|Mark L. Deutsch        |  |     | 44 |          |  | Director                                                   
|Justin S. Maccarone    |  |     | 44 |          |  | Director                                                   
|Nathan C. Thorne       |  |     | 50 |          |  | Director                                                   
|Charles W. Schmid      |  |     | 61 |          |  | Director                                                   

33



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##### Table of Contents



Jeff L. Hullhas
served as Chief Executive Officer of Atrium Corporation and
Atrium Companies, Inc. since 2000 and President and
Director of Atrium Corporation and Atrium Companies, Inc.
since 1999. Mr. Hull has been Chairman since December 2003.
Prior to 2000, Mr. Hull was the Chief Financial Officer of
Atrium Corporation and Atrium Companies, Inc. from 1996.
Mr. Hull also served as Executive Vice President of Atrium
Corporation and Atrium Companies, Inc. from 1998 to 1999,
Secretary of Atrium Corporation from 1998 to 2000, Secretary of
Atrium Companies, Inc. from 1996 to 2000 and Treasurer of
Atrium Corporation from 1998 to 2000 and of Atrium
Companies, Inc. from 1996 to 2000. Prior to joining us,
Mr. Hull was with AmVestors Financial Corporation
(NYSE: AMV) and the accounting/consulting firm of
Deloitte & Touche L.L.P. Mr. Hull is a director of
Shelter Building Products, Inc. Mr. Hull is also a
certified public accountant.

Eric W. Longhas
served as Executive Vice President of Atrium Corporation and
Atrium Companies, Inc. since 2001 and Chief Financial
Officer of Atrium Corporation and Atrium Companies, Inc.
since 2000. Mr. Long served as Secretary and Treasurer for
Atrium Corporation and Atrium Companies Inc. from 2000 through
2002. Mr. Long also served as Corporate Controller of
Atrium Corporation and Atrium Companies, Inc. from 1996 to
2000. Prior to 2000, Mr. Long served as Assistant Secretary
of Atrium Corporation and Atrium Companies, Inc. from 1996
and Vice President of Finance of Atrium Corporation and Atrium
Companies, Inc. from 1999 to 2000. Prior to 1996,
Mr. Long was with Applebees International, Inc.
and the accounting firm of Deloitte & Touche L.L.P.
Mr. Long is a certified public accountant.

Robert E. Burnshas
served as Executive Vice President and Co-Chief Operating
Officer of Atrium Corporation and Atrium Companies, Inc.
since December 2001 and Chief Operating Officer of Aluminum
Operations of Atrium Companies, Inc. since December 2000.
Mr. Burns joined Atrium Companies, Inc. in January 2000 as
Senior Vice President of Operations in which capacity he served
until December 2000. Prior to that, Mr. Burns was Vice
President of Operations of Baldwin Hardware, a division of Masco
Corp. (NYSE: MAS), from March 1996. Prior to joining Masco
Corp., Mr. Burns was a management consultant with Universal
Scheduling Company.

C. Douglas Crosshas served as Executive Vice President
and Co-Chief Operating Officer of Atrium Corporation and Atrium
Companies, Inc. since December 2001 and Chief Operating Officer
of Vinyl Operations of Atrium Companies, Inc. since October
2000. Prior to October 2000, Mr. Cross was President and
Chief Operating Officer of Ellison Windows and Doors since 1988.
Mr. Cross had been with Ellison Windows and Doors since
1985. Prior to that, he was a commercial loan officer with First
Union Bank.

Philip J. Ragonahas
served as Senior Vice President, General Counsel and Secretary
of Atrium Corporation and Atrium Companies, Inc. since
September 2002. Prior to joining us, Mr. Ragona was an
associate with the law firm of Paul, Hastings,
Janofsky & Walker LLP from 1995 to 2002, and with the
law firm of Cahill Gordon & Reindel from 1992 to 1995.
Mr. Ragona is a member of the New York State Bar
Association and the Dallas Bar Association.

D.D. Gus Agostinellihas served as Senior Vice President of
Human Resources of Atrium Corporation and Atrium
Companies, Inc. since March 2002. Mr. Agostinelli also
served as Vice President of Human Resources from January 2001 to
March 2002. Prior to joining us, Mr. Agostinelli was
Principal of DDA Associates from October 1999 to January 2001
and Vice President of Human Resources for Dal-Tile International
from January 1998 to October 1999. Mr. Agostinelli has held
senior level human resources positions with Alcoa Fujikura, Ltd,
PPG Industries and American Can International.

Jeffrey L. Kennerhas served as a Director of Atrium
Corporation and Atrium Companies since December 2003.
Mr. Kenner is President of Kenner & Company, Inc.,
a private equity investment firm, which he founded in 1986.
Prior to founding Kenner & Company, Mr. Kenner was
the President of the leveraged buyout and venture capital
affiliate of another investment firm. Mr. Kenner has
extensive experience in making equity investments in a wide
range of businesses and is an active member of the Board of
Directors of all Kenner & Company portfolio companies.
Prior to his involvement in the investment business,
Mr. Kenner spent 12 years as a management consultant
with Price Waterhouse & Co.

34



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##### Table of Contents



Larry T. Solarihas
served as a Director of Atrium Corporation and Atrium Companies
since December 2003. Mr. Solari is an operating partner
with Kenner & Company, Inc., and also a consultant to
Masco Corporation. Mr. Solari is the past Chairman, Chief
Executive Officer, and founder of BSI Holdings, Inc., the
largest supplier of builder services in North America. BSI was
sold to Masco (NYSE: MAS) in 2001. Prior to starting BSI,
Mr. Solari was Chairman and Chief Executive Officer of
Sequentia Incorporated (a past Kenner & Company
portfolio company), a manufacturer and marketer of panel
products for the building material industry, and President of
the Construction Products Group of Owens Corning, serving the
contracting and global building material retail markets.
Mr. Solari is a Director of Beazer Homes, USA; past
Director and Vice Chairman of Therma-Tru Corporation, a leading
manufacturer of exterior fiberglass doors and a past Kenner
portfolio company; Director of Pacific Coast Building Products;
Director of Aneco Electrical Construction; Director of
Performance Contracting Group; and Director of Trustile
Doors, Inc.

Mark L. Deutschhas
served as a Director of Atrium Corporation and Atrium Companies
since December 2003. Mr. Deutsch is Managing Partner at
Kenner & Company, Inc., which he joined in 1994.
From 1991 to 1993, Mr. Deutsch was a Principal at
Fieldstone Private Capital Group, L.P., an investment banking
firm where he was primarily responsible for developing and
maintaining relationships with leveraged buyout firms and other
financial institutions. From 1986 to 1991, Mr. Deutsch was
a Vice President at BT Securities Corporation, a wholly owned
subsidiary of Bankers Trust (now Deutsche Bank), where he was
responsible for equity investments made by Bankers Trust as a
principal. Previously, Mr. Deutsch was an accountant for
KPMG Peat Marwick. Mr. Deutsch is a current or past
director of Therma-Tru Corporation, BSI Holdings, Aneco
Electrical Construction and Sequentia Incorporated.
Mr. Deutsch is a certified public accountant.

Justin S. Maccaronehas served as a Director of Atrium
Corporation and Atrium Companies since December 2003.
Mr. Maccarone is a Partner at UBS Capital Americas LLC, a
private equity business affiliated with UBS AG. Since joining
UBS Capital in 1993, Mr. Maccarone has overseen and
participated in private equity transactions across a wide
variety of industries including building products, distribution
and logistics, automotive parts and business services. He
currently serves on the Board of Directors of Communications
Supply Corporation and Trussway Holdings, Inc. His previous
Board experience includes Behr Process Corporation, Trident
Holdings, Inc. and Astor Corporation. Prior to joining UBS
Capital Americas LLC, Mr. Maccarone worked at GE Capital
Corporation, specializing in merchant banking and leveraged
finance, and in the leveraged finance group at HSBC/ Marine
Midland Bank.

Nathan C. Thornehas
served as a Director of Atrium Corporation and Atrium Companies
since December 2003. Mr. Thorne is a Managing Director of
Merrill Lynch & Co., Inc. and since 2002 has served as
the President of the Global Private Equity Division of Merrill
Lynch. Mr. Thorne was a Managing Director in the private
equity division of Merrill Lynch from 1994 to 2002.

Charles W. Schmidhas been Chairman and Chief Executive
Officer of TruStile Doors, a custom door manufacturing company,
since 2003, and has been a Partner at CSG Partners since 2001.
Prior to that, Mr. Schmid was Executive Vice President and
a member of the board of directors of Andersen
Windows, Inc. from 1997 to 2001. He has also served as
Executive Vice President of Jostens, President and Chief
Operating Officer of Carlson Companies Marketing and Travel
Groups, Senior Vice President of Marketing and Sales of Miller
Brewing Company, and Executive Vice President of the Seven-Up
Company.

Audit Committee

Our audit committee consists of Jeffrey L.
Kenner (Chairman), Charles W. Schmid and Justin S.
Maccarone. The Companys Board of Directors has determined
that each of Messrs. Kenner, Schmid and Maccarone are
audit committee financial experts as such term is
defined in Item 401(h) of Regulation S-K and that none
of Messrs. Kenner, Schmid and Maccarone are
independent as that term is used in Item 401(h)
of Regulation S-K. However, none of the members of our
Audit Committee are members of management and we believe that
our audit committee has the ability to perform its duties and
functions independently of management.

35



---



##### Table of Contents



Among other functions, our audit committee
monitors:



| |   |                                                              
| | - | -------------------------------------------------------------
| |  | the integrity of our financial statements;                   
|
| |  | our compliance with legal and regulatory
    requirements;   
|
| |  | our public auditors qualifications and
    independence; and
|
| |  | the performance of our public auditors.                      

In addition, our audit committee has the sole
authority to appoint or replace the public auditors, and must
pre-approve all audit engagement fees and terms.

Compensation Committee

Our compensation committee consists of
Larry T. Solari (Chairman), Jeffery L. Kenner,
Justin S. Maccarone and Nathan C. Thorne. The
compensation committee makes recommendations to our board of
directors regarding the following matters:



| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | annual EBITDA and bonus performance standards and
    thresholds for our executive officers and members of our senior
    management;
|
| |  | any amendment, modification or renewal of an
    employment agreement between the Company and an executive
    officer; and          
|
| |  | the administration of our stock option plans and
    defined contribution plans.                                                     

Non-Employee Director Compensation

Each of our non-employee directors receives
annual cash compensation of $25,000. All directors are
reimbursed for any expenses incurred in attending meetings. A
director who is also an employee of Atrium does not receive any
additional compensation for serving as a director.

Code of Ethics

We have adopted a written code of ethics for our
senior financial officers designed to promote honest and ethical
conduct, full, fair, accurate, timely and understandable
disclosure of financial information in our periodic reports to
the SEC, and compliance with all applicable laws, rules, and
regulations. This code of ethics applies to our Chief Executive
Officer, Chief Financial Officer, Controller, and each of the
Chief Financial Officers and Controllers direct
reports. A copy of our code of ethics may be obtained upon
request from our Chief Financial Officer.

36



---



##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Executive Compensation and Other
Information

The following table provides certain summary
information for each of the years ended December 31, 2003,
2002 and 2001, concerning compensation paid to or accrued by us
for or on behalf of our Chief Executive Officer and the four
other most highly compensated persons whose individual combined
salary and bonus exceeded $100,000 during such period:

Annual Compensation

|                            |                               |      |      |           |  |              |         |              |  |                |           |              |  |  |        |   |  |  |       |     |  |  |        |   | 
|--------------------------- | ----------------------------- | ---- | ---- | --------- |  | ------------ | ------- | ------------ |  | -------------- | --------- | ------------ |  |  | ------ | - |  |  | ----- | --- |  |  | ------ | - | 
|                            |                               |      |      |           |  |              |         |              |  | Long-Term      |           |             
|                            |                               |      |      |           |  |              |         |              |  | Compensation   |           |             
|                            |                               |      |      |           |  |              |         | Other Annual |  | Securities     |           | All Other   
|                            |                               |      |      |           |  |              |         | Compensation |  | Underlying     |           | Compensation
|Name and Principal Position |                               | Year |      | Salary($) |  | Bonus ($)(1) |         | ($)(2)       |  | Options (#)(3) |           | ($)(5)      
|                            |                               |      |      |           |  |              |         |              |  |                |           |             
|Jeff L. Hull                |                               |      | 2003 |           |  |              | 425,000 |              |  |                | 5,682,500 |              |  |  | 90,560 |   |  |  | 7,750 |     |  |  | 10,521 |  
|                            | Chairman, President and Chief |      |      | 2002      |  |              |         | 325,000      |  |                |           | 330,000      |  |  |        |  |  |  |       |    |  |  |        |  | 
|                            | Executive Officer             |      |      | 2001      |  |              |         | 300,000      |  |                |           | 275,625      |  |  |        |  |  |  |       |    |  |  |        |  | 
|Eric W. Long                |                               |      | 2003 |           |  |              | 192,500 |              |  |                | 427,192   |              |  |  |       |   |  |  | 1,375 |     |  |  |       |  
|                            | Executive Vice President and  |      |      | 2002      |  |              |         | 185,000      |  |                |           | 88,000       |  |  |        |  |  |  |       | 150 |  |  |        |  | 
|                            | Chief Financial Officer       |      |      | 2001      |  |              |         | 175,000      |  |                |           | 59,063       |  |  |        |  |  |  |       |    |  |  |        |  | 
|Robert E. Burns             |                               |      | 2003 |           |  |              | 232,500 |              |  |                | 417,994   |              |  |  |       |   |  |  | 1,375 |     |  |  | 2,252  |  
|                            | Executive Vice President and  |      |      | 2002      |  |              |         | 225,000      |  |                |           | 115,625      |  |  |        |  |  |  |       | 100 |  |  |        |  | 
|                            | Co-Chief Operating Officer    |      |      | 2001      |  |              |         | 200,000      |  |                |           | 78,750       |  |  |        |  |  |  |       |    |  |  |        |  | 
|C. Douglas Cross            |                               |      | 2003 |           |  |              | 232,500 |              |  |                | 248,392   |              |  |  |       |   |  |  | 1,010 |     |  |  |       |  
|                            | Executive Vice President and  |      |      | 2002      |  |              |         | 225,000      |  |                |           | 106,250      |  |  |        |  |  |  |       | 50  |  |  |        |  | 
|                            | Co-Chief Operating Officer    |      |      | 2001      |  |              |         | 200,000      |  |                |           | 78,750       |  |  |        |  |  |  |       |    |  |  |        |  | 
|Philip J. Ragona(4)         |                               |      | 2003 |           |  |              | 187,500 |              |  |                | 165,000   |              |  |  |       |   |  |  | 300   |     |  |  |       |  
|                            | Senior Vice President and     |      |      | 2002      |  |              |         | 46,250       |  |                |           | 25,000       |  |  |        |  |  |  |       | 300 |  |  |        |  | 
|                            | General Counsel               |      |      | 2001      |  |              |         |             |  |                |           |             |  |  |        |  |  |  |       |    |  |  |        |  | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amount includes bonuses paid in connection with
    the December 2003 transaction. See Certain
    Transactions  Management Closing Bonuses.                                                                                                                                                                                                                                                                                                                                                                
|   
|(2) | Perquisites related to insurance and benefit
    plans, automobile and expense allowances are excluded since the
    aggregated amounts are the lesser of $50,000 or 10% of the total
    annual salary; except for Mr. Hull in 2003, who received
    $3,727 in medical insurance premiums, $3,723 in disability
    insurance premiums, $15,010 in life insurance premiums, $30,600
    in automobile allowance, $35,000 of professional fees
    reimbursement and $2,500 in a 401K matching contribution.
|   
|(3) | All share amounts are for options or warrants of
    Atrium Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(4) | Amounts paid to Mr. Ragona in fiscal 2002
    represent compensation for less than a full years service,
    as he joined the Company in September 2002. No compensation was
    paid to Mr. Ragona in 2001.                                                                                                                                                                                                                                                                                                
|   
|(5) | Amounts represent window products provided to
    each officer free of charge. These amounts are included in the
    respective officers taxable wages.                                                                                                                                                                                                                                                                                                                                                     



|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note: | Section 162(m) of the Internal Revenue Code
    limits the deductibility of employee compensation of publicly
    held corporations that exceed $1 million per officer in any
    one year. Since Atrium Corporation is not publicly traded, this
    provision does not apply to the named officers. Additionally,
    Internal Revenue Code Section 280G limits deductibility of
    certain parachute payments and Section 4999 imposes
    an excise tax of 20% on the employee receiving such parachute
    payments. Prior to the merger, our stockholders approved the
    lump-sum payments to Mr. Hull and Mr. Ellison (see
    Certain Transactions  Consulting Agreement) and we
    believe all payments are deductible for federal income tax
    purposes.

37



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##### Table of Contents



Option Grants During 2003

The following table sets forth option grants to
the named executive officers during the year ended
December 31, 2003.

Individual Grants

|                 |  |            |       |            |  |             |       |            |  |                              |          |         |  |  |          |  |  |  |           |  |  |  |            | 
|---------------- |  | ---------- | ----- | ---------- |  | ----------- | ----- | ---------- |  | ---------------------------- | -------- | ------- |  |  | -------- |  |  |  | --------- |  |  |  | ---------- | 
|                 |  |            |       |            |  |             |       |            |  |                             
|                 |  | Number of  |       | % of Total |  |             |       |            |  | Potential Realizable Value  
|                 |  | Securities |       | Options    |  |             |       |            |  | at Assumed Annual Rates of  
|                 |  | Underlying |       | Granted to |  |             |       |            |  | Stock Price Appreciation for
|                 |  | Options    |       | Employees  |  | Exercise or |       |            |  | Option Term(4)              
|                 |  | Granted    |       | in Fiscal  |  | Base Price  |       | Expiration |  |                             
|Name             |  | (#)(1)(2)  |       | Year       |  | ($/SH)      |       | Date(3)    |  | 5% ($)                       |          | 10% ($)
|                 |  |            |       |            |  |             |       |            |  |                              |          |        
|Jeff L. Hull     |  |            | 4,000 |            |  |             | 22.7% |            |  |                              | 0.01     |         |  |  | 12/10/13 |  |  |  | 6,515,539 |  |  |  | 10,374,930 | 
|                 |  |            | 3,750 |            |  |             | 21.3% |            |  |                              | 1,000.00 |         |  |  | 12/10/13 |  |  |  | 2,358,355 |  |  |  | 5,976,534  | 
|                 |  |            |       |            |  |             |       |            |  |                              |          |         |  |  |          |  |  |  |           |  |  |  |            | 
|                 |  |            | 7,750 |            |  |             | 44.0% |            |  |                              |          |         |  |  |          |  |  |  | 8,873,894 |  |  |  | 16,351,464 | 
|                 |  |            |       |            |  |             |       |            |  |                              |          |         |  |  |          |  |  |  |           |  |  |  |            | 
|Eric W. Long     |  |            | 125   |            |  |             | 0.7%  |            |  |                              | 0.01     |         |  |  | 12/10/13 |  |  |  | 203,611   |  |  |  | 324,217    | 
|                 |  |            | 1,250 |            |  |             | 7.1%  |            |  |                              | 1,000.00 |         |  |  | 12/10/13 |  |  |  | 786,118   |  |  |  | 1,992,178  | 
|                 |  |            |       |            |  |             |       |            |  |                              |          |         |  |  |          |  |  |  |           |  |  |  |            | 
|                 |  |            | 1,375 |            |  |             | 7.8%  |            |  |                              |          |         |  |  |          |  |  |  | 989,729   |  |  |  | 2,316,395  | 
|                 |  |            |       |            |  |             |       |            |  |                              |          |         |  |  |          |  |  |  |           |  |  |  |            | 
|Robert E. Burns  |  |            | 125   |            |  |             | 0.7%  |            |  |                              | 0.01     |         |  |  | 12/10/13 |  |  |  | 203,611   |  |  |  | 324,217    | 
|                 |  |            | 1,250 |            |  |             | 7.1%  |            |  |                              | 1,000.00 |         |  |  | 12/10/13 |  |  |  | 786,118   |  |  |  | 1,992,178  | 
|                 |  |            |       |            |  |             |       |            |  |                              |          |         |  |  |          |  |  |  |           |  |  |  |            | 
|                 |  |            | 1,375 |            |  |             | 7.8%  |            |  |                              |          |         |  |  |          |  |  |  | 989,729   |  |  |  | 2,316,395  | 
|                 |  |            |       |            |  |             |       |            |  |                              |          |         |  |  |          |  |  |  |           |  |  |  |            | 
|C. Douglas Cross |  |            | 135   |            |  |             | 0.8%  |            |  |                              | 0.01     |         |  |  | 12/10/13 |  |  |  | 219,899   |  |  |  | 350,154    | 
|                 |  |            | 875   |            |  |             | 5.0%  |            |  |                              | 1,000.00 |         |  |  | 12/10/13 |  |  |  | 550,283   |  |  |  | 1,394,525  | 
|                 |  |            |       |            |  |             |       |            |  |                              |          |         |  |  |          |  |  |  |           |  |  |  |            | 
|                 |  |            | 1,010 |            |  |             | 5.8%  |            |  |                              |          |         |  |  |          |  |  |  | 770,182   |  |  |  | 1,744,679  | 
|                 |  |            |       |            |  |             |       |            |  |                              |          |         |  |  |          |  |  |  |           |  |  |  |            | 
|Philip J. Ragona |  |            | 300   |            |  |             | 1.4%  |            |  |                              | 1,000.00 |         |  |  | 12/10/13 |  |  |  | 188,668   |  |  |  | 478,123    | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes warrants issued to Mr. Hull. See
    Certain Transactions  Hull Warrants.                                                                                                                                                                                                                                                                                                                                   
|   
|(2) | All warrants and options are for the common stock
    of Atrium Corporation.                                                                                                                                                                                                                                                                                                                                          
|   
|(3) | Options with a strike price of $.01 vest ratably
    on a monthly basis over 3 years or upon a change of
    control, except for 4,000 shares of Mr. Hulls,
    which were fully vested February 1, 2004. Options with a
    strike price of $1,000.00 vest ratably on a monthly basis over
    5 years or upon a change of control.                                                                                 
|   
|(4) | The assumed rates are compounded annually for the
    full terms of the options. The 5% and 10% assumed annual rates
    of compounded stock price appreciation are mandated by the rules
    of the Securities and Exchange Commission. The actual value, if
    any, that an executive may realize will depend on the excess of
    the stock price over the exercise price on the date the option
    is exercised.

38



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##### Table of Contents



Aggregated Option Exercises and
Fiscal-Year-End Option Values

The following table sets forth option exercises
by the named executive officers and value of in-the-money
unexercised options held at December 31, 2003.

|                 |  |              |     |              |  |                        |         |                              |  |                |   |                  |  |  |       |  |  |  |   |  |  |  |           | 
|---------------- |  | ------------ | --- | ------------ |  | ---------------------- | ------- | ---------------------------- |  | -------------- | - | ---------------- |  |  | ----- |  |  |  | - |  |  |  | --------- | 
|                 |  |              |     |              |  |                        |         |                              |  |               
|                 |  |              |     |              |  | Number of Securities   |         |                             
|                 |  |              |     |              |  | Underlying Unexercised |         | Value of Unexercised In-the-
|                 |  | Shares       |     |              |  | Options at FY-End (#)  |         | Money Options at FY-End ($) 
|                 |  | Acquired on  |     | Value        |  |                        |         |                             
|Name             |  | Exercise (#) |     | Realized ($) |  | Exercisable            |         | Unexercisable                |  | Exercisable(1) |   | Unexercisable(1)
|                 |  |              |     |              |  |                        |         |                              |  |                |   |                 
|Jeff L. Hull     |  |              | 500 |              |  |                        | 50,000  |                              |  |                |  |                  |  |  | 7,750 |  |  |  |  |  |  |  | 3,999,960 | 
|Eric W. Long     |  |              | 170 |              |  |                        | 126,575 |                              |  |                |  |                  |  |  | 1,375 |  |  |  |  |  |  |  | 124,998   | 
|Robert E. Burns  |  |              | 200 |              |  |                        | 125,000 |                              |  |                |  |                  |  |  | 1,375 |  |  |  |  |  |  |  | 124,998   | 
|C. Douglas Cross |  |              | 550 |              |  |                        | 134,750 |                              |  |                |  |                  |  |  | 1,010 |  |  |  |  |  |  |  | 134,998   | 
|Philip J. Ragona |  |              |    |              |  |                        |        |                              |  |                |  |                  |  |  | 300   |  |  |  |  |  |  |  |          | 



---



|    |                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Calculated by multiplying the relevant number of
    unexercised options by the difference between the stock price
    for the Companys common stock on December 31, 2003 of
    $1,000.00 per share and the exercise price of the options.



| |                       
| | ----------------------
| | 2003 Stock Option Plan

See Equity Compensation Plans 
2003 Stock Option Plan on page 16 if this report for
a description of the 2003 Stock Option Plan.



| |                              
| | -----------------------------
| | Replacement Stock Option Plan

See Equity Compensation Plans 
Replacement Stock Option Plan on page 17 of this
report for a description of the Replacement Stock Option Plan.



| |           
| | ----------
| | Bonus Plan

We maintain a bonus plan providing for annual
cash bonus awards to certain key employees. Bonus amounts are
based on us meeting certain performance goals established by our
board of directors.



| |                       
| | ----------------------
| | Other Benefit Programs

Our executive officers also participate in other
employee benefit programs including health insurance, disability
insurance, group life insurance, and a 401(k) plan on the same
basis as our other employees.



| |                      
| | ---------------------
| | Employment Agreements



| |         
| | --------
| | Mr. Hull

Mr. Hull has entered into an employment
agreement with us pursuant to which he serves as Chairman, Chief
Executive Officer and President of the Company and Atrium
Corporation. The term of the employment agreement commenced on
December 10, 2003 and terminates on December 31, 2006.
The term is renewable for a series of three-year terms as
mutually agreed to at least 30 days prior to the end of the
then current term. Under the terms of Mr. Hulls
employment agreement, he is entitled to receive an annual base
salary of: $475,000 during the period beginning on
January 1, 2004 and ending on December 31, 2004;
$525,000 during the period beginning on January 1, 2005 and
ending on December 31, 2005 and $600,000 during the period
beginning on January 1, 2006 and ending on
December 31, 2006. Mr. Hulls salary is subject
to increase at the discretion of the board of directors. The
agreement provides that Mr. Hull may receive an annual
target bonus equal to $450,000, $500,000 and $600,000 for the
same respective periods; 50% of which is payable contingent on
achievement of our EBITDA plan and 50% of which is payable
contingent on achievement of certain other performance targets
set by the board of directors. The annual target bonus is
subject to increase at the discretion of the board of directors.

39



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##### Table of Contents



The agreement also provides that we will make
certain additional payments to Mr. Hull in the event:



| |   |                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Mr. Hull is terminated by us without cause;                                                                                                                                                                                      
|
| |  | Mr. Hulls employment is terminated in
    connection with a change of control;                                                                                                                                                  
|
| |  | Mr. Hull terminates his employment for good
    reason; or                                                                                                                                                                       
|
| |  | Mr. Hull remains employed by us on the
    12-month anniversary of a change of control. Mr. Hull will
    be eligible for a retention bonus of $475,000 on
    December 10, 2004, if he is still employed by us on that
    date.

Pursuant to the agreement, Mr. Hull agreed
not to compete with our subsidiaries and us during his
employment with us and for certain specified periods thereafter,
depending on the reason for his termination of employment.



| |         
| | --------
| | Mr. Long

Mr. Long has entered into an employment and
non-competition agreement with us pursuant to which he serves as
our Executive Vice President and Chief Financial Officer.
Mr. Longs employment agreement has a three-year term,
which commenced January 1, 2003. The term is renewable for
a series of three-year terms as mutually agreed to at least
30 days prior to the end of the then current term. Under
the terms of Mr. Longs employment agreement, he is
entitled to receive an annual base salary, as follows: during
the period beginning on January 1, 2003 and ending on
December 31, 2003, $192,500, during the period beginning on
January 1, 2004 and ending on December 31, 2004,
$200,000, and during the period beginning on January 1,
2005 and ending on December 31, 2005, $200,000.
Mr. Longs salary is subject to increase at the
discretion of the board of directors. The agreement provides
that Mr. Long may receive an annual target bonus equal to
$105,000, $110,000 and $125,000 for the same respective periods,
of which 50% will be payable contingent on achievement of our
EBITDA plan and 50% will be payable contingent on achievement of
certain other performance targets set by the board of directors.
The annual target bonus is subject to increase at the discretion
of the board of directors.

The agreement also provides that we will make
certain payments to Mr. Long in the event:



| |   |                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Mr. Long is terminated by us without cause;                                                                                                                                                                                      
|
| |  | of a change of control;                                                                                                                                                                                                          
|
| |  | Mr. Long terminates his employment for good
    reason; or                                                                                                                                                                       
|
| |  | Mr. Long remains employed by us on the
    12-month anniversary of a change of control. Mr. Long will
    be eligible for a retention bonus of $200,000 on
    December 10, 2004, if he is still employed by us on that
    date.

Pursuant to the agreement, Mr. Long agreed
not to compete with our subsidiaries and us for certain
specified periods.



| |          
| | ---------
| | Mr. Burns

Mr. Burns entered into an employment and
non-competition agreement with us pursuant to which he serves as
our Co-Chief Operating Officer. Mr. Burns employment
agreement has a three-year term, which commenced January 1,
2003. The term is renewable for a series of three-year terms as
mutually agreed to at least 30 days prior to the end of the
then current term. Under the terms of Mr. Burns
employment agreement, he is entitled to receive an annual base
salary, as follows: during the period beginning on
January 1, 2003 and ending on December 31, 2003,
$232,500, during the period beginning on January 1, 2004
and ending on December 31, 2004, $240,000, and during the
period beginning on January 1, 2005 and ending on
December 31, 2005, $250,000. Mr. Burns salary is
subject to increase at the discretion of the board of directors.
The agreement provides that Mr. Burns may receive an annual
target bonus equal to $132,500, $140,000 and $150,000 for the
same respective periods, of which 50% will be payable contingent
on

40



---



##### Table of Contents



achievement of our EBITDA plan and 50% will be
payable contingent on achievement of certain other performance
targets set by the board of directors. The annual target bonus
is subject to increase at the discretion of the board of
directors.


The agreement also provides that we will make
certain payments to Mr. Burns in the event:



| |   |                                                         
| | - | --------------------------------------------------------
| |  | Mr. Burns is terminated by us without cause;            
|
| |  | of a change of control; or                              
|
| |  | Mr. Burns terminates his employment for good
    reason.

Pursuant to the agreement, Mr. Burns agreed
not to compete with us and our subsidiaries for certain
specified periods.



| |          
| | ---------
| | Mr. Cross

Mr. Cross entered into an employment and
non-competition agreement with us pursuant to which he serves as
our Co-Chief Operating Officer. Mr. Cross employment
agreement has a three-year term, which commenced January 1,
2003. The term is renewable for a series of three-year terms as
mutually agreed to at least 30 days prior to the end of the
then current term. Under the terms of Mr. Cross
employment agreement, he is entitled to receive an annual base
salary, as follows: during the period beginning on
January 1, 2003 and ending on December 31, 2003,
$232,500, during the period beginning on January 1, 2004
and ending on December 31, 2004, $240,000, and during the
period beginning on January 1, 2005 and ending on
December 31, 2005, $250,000. Mr. Cross salary is
subject to increase at the discretion of the board of directors.
The agreement provides that Mr. Cross may receive an annual
target bonus equal to $132,500, $140,000 and $150,000 for the
same respective periods of which, 50% will be payable contingent
on achievement of our EBITDA plan and 50% will be payable
contingent on achievement of certain other performance targets
set by the board of directors. The annual target bonus is
subject to increase at the discretion of the board of directors.

The agreement also provides that we will make
certain payments to Mr. Cross in the event:



| |   |                                                         
| | - | --------------------------------------------------------
| |  | Mr. Cross is terminated by us without cause;            
|
| |  | of a change of control; or                              
|
| |  | Mr. Cross terminates his employment for good
    reason.

Pursuant to the agreement, Mr. Cross agreed
not to compete with us and our subsidiaries for certain
specified periods.



| |           
| | ----------
| | Mr. Ragona

Mr. Ragona has entered into an employment
and non-competition agreement with us pursuant to which he
serves as our Senior Vice President and General Counsel.
Mr. Ragonas employment agreement has a three-year
term, which commenced September 30, 2002. The term is
renewable for a series of three-year terms as mutually agreed to
at least 30 days prior to the end of the then current term.
Under the terms of Mr. Ragonas employment agreement,
he is entitled to receive an annual base salary of $187,500, as
adjusted. Mr. Ragonas salary is subject to increase
at the discretion of the board of directors. The agreement also
provides that Mr. Ragona may receive an annual target bonus
equal to $100,000 for each annual period, of which 75% will be
payable contingent on achievement of our EBITDA plan and 25%
will be payable contingent on achievement of certain other
performance targets set by the board of directors. The annual
target bonus is subject to increase at the discretion of the
board of directors.

The agreement also provides that we will make
certain payments to Mr. Ragona in the event:



| |   |                                              
| | - | ---------------------------------------------
| |  | Mr. Ragona is terminated by us without cause;

41



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##### Table of Contents





| |   |                                                            
| | - | -----------------------------------------------------------
| |  | of a change of control; or                                 
|
| |  | Mr. Ragonas terminates his employment
    for good reason.

Pursuant to the agreement, Mr. Ragona agreed
not to compete with our subsidiaries and us for certain
specified periods.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

We are a wholly-owned subsidiary of Atrium
Corporation. The following table sets forth certain information
regarding the beneficial ownership of Atrium Corporation common
stock as of March 30, 2004, by each person who beneficially
owns more than 5% of the outstanding common stock of and by the
directors and certain executive officers of Atrium Corporation.
Unless otherwise indicated below, to our knowledge, all persons
listed below have sole voting and investment power with respect
to their shares of common stock of Atrium Corporation.

|                                                                  |                                      |                       |         |                    |  |  |      |  | 
|----------------------------------------------------------------- | ------------------------------------ | --------------------- | ------- | ------------------ |  |  | ---- |  | 
|                                                                  |                                      | Number of Shares      |         | Percentage of     
|Name of Beneficial Owner                                          |                                      | Beneficially Owned(1) |         | Shares Outstanding
|                                                                  |                                      |                       |         |                   
|5% Stockholders:                                                  |                                      |                       |         |                    |  |  |      | 
|ATR Acquisition, LLC                                              |                                      |                       | 251,453 |                    |  |  | 92.5 | 
|                                                                  | c/o Kenner & Company, Inc.           |                       |         |                    |  |  |      |  | 
|                                                                  | 437 Madison Avenue, 36th Floor       |                       |         |                    |  |  |      |  | 
|                                                                  | New York, NY 10022                   |                       |         |                    |  |  |      |  | 
|ML IBK Positions, Inc.(2)                                         |                                      |                       | 10,646  |                    |  |  | 3.9  | 
|                                                                  | Global Private Equity Group          |                       |         |                    |  |  |      |  | 
|                                                                  | 4 World Financial Center, 23rd Floor |                       |         |                    |  |  |      |  | 
|                                                                  | New York, NY 10080                   |                       |         |                    |  |  |      |  | 
|Executive Officers and Directors:(3)                              |                                      |                       |         |                    |  |  |      | 
|Jeff L. Hull(4)                                                   |                                      |                       | 4,313   |                    |  |  | 1.6  | 
|Eric W. Long(4)                                                   |                                      |                       | 121     |                    |  |  | *    | 
|Robert E. Burns(4)                                                |                                      |                       | 121     |                    |  |  | *    | 
|C. Douglas Cross(4)                                               |                                      |                       | 207     |                    |  |  | *    | 
|Philip J. Ragona(4)                                               |                                      |                       | 50      |                    |  |  | *    | 
|D.D. Gus Agostinelli(4)                                         |                                      |                       | 62      |                    |  |  | *    | 
|Jeffrey L. Kenner(5)                                              |                                      |                       | 251,453 |                    |  |  | 92.5 | 
|Larry T. Solari                                                   |                                      |                       |        |                    |  |  | *    | 
|Mark L. Deutsch                                                   |                                      |                       |        |                    |  |  | *    | 
|Justin S. Maccarone(6)                                            |                                      |                       | 251,453 |                    |  |  | 92.5 | 
|Nathan C. Thorne(7)                                               |                                      |                       | 262,100 |                    |  |  | 96.4 | 
|Charles W. Schmid                                                 |                                      |                       |        |                    |  |  | *    | 
|All directors and executives officers as a group
    (12 persons) |                                      |                       | 266,974 |                    |  |  | 97.9 | 

The amounts and percentages of common stock
beneficially owned are reported on the basis of regulations of
the Commission governing the determination of beneficial
ownership of securities. Under the rules of the SEC, a person is
deemed to be a beneficial owner of a security if
that person has or shares voting power, which
includes the power to vote or to direct the voting of such
security, or investment

42



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##### Table of Contents



power, which includes the power to dispose
of or direct the disposition of such security. All persons
listed have sole voting and investment power with respect to
their shares unless otherwise indicated.




---

*     Less than 1%.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes all securities that such person has the
    right to acquire beneficial ownership of within 60 days of
    March 30, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(2) | ML IBK Positions, Inc. is included as a
    5% stockholder because, in addition to its 3.9%
    direct ownership, it also owns 18.6% of the interests in ATR
    Acquisition, LLC, Atrium Corporations majority stockholder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) | The business address for these individuals is
    3890 West Northwest Highway, Suite 500, Dallas, Texas 75220.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(4) | Includes 313, 121, 121, 92, 25 and 12 shares
    of common stock issuable upon exercise of warrants or options
    granted to Messrs. Hull, Long, Burns, Cross, Ragona and
    Agostinelli, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(5) | Represents 251,453 shares owned by ATR
    Acquisition, LLC. KAT Holdings, L.P. and KAT Group, L.P.
    respectively own approximately 46.1% and 0.5% of the interests
    in ATR Acquisition, LLC. Mr. Kenner is President of JLK
    Operations, Inc. which is the general partner of KAT Group,
    L.P. which is the general partner of KAT Holdings, L.P.
    Mr. Kenner is partner in KAT Group, L.P. Voting and
    dispositive power with respect to the shares of Atrium
    Corporations common stock held by ATR Acquisition, LLC is
    collectively shared by KAT Holdings, L.P., KAT Group, L.P.,
    ML IBK Positions, Inc., Merrill Lynch Ventures L.P. 2001
    and UBS Capital Americas II, LLC. Mr. Kenner disclaims
    beneficial ownership of any of the shares owned by ATR
    Acquisition, LLC.                                                                   
|   
|(6) | Represents 251,453 shares owned by ATR
    Acquisition, LLC. Mr. Maccarone is a Partner of UBS Capital
    Americas LLC, the advisor to UBS Capital Americas II, LLC,
    which owns approximately 28.6% of the interests in ATR
    Acquisition, LLC. Voting and dispositive power with respect to
    the shares of Atrium Corporations common stock held by ATR
    Acquisition, LLC is collectively shared by KAT Holdings, L.P.,
    KAT Group, L.P., ML IBK Positions, Inc., Merrill Lynch
    Ventures L.P. 2001 and UBS Capital Americas II, LLC.
    Mr. Maccarone disclaims beneficial ownership of any of the
    shares owned by ATR Acquisition, LLC.                                                                                                                                                                                                                         
|   
|(7) | Represents 251,453 shares owned by ATR
    Acquisition, LLC and 10,646 shares owned by ML IBK
    Positions, Inc. ML IBK Positions, Inc. and
    Merrill Lynch Ventures L.P. 2001 respectively own approximately
    18.6% and 6.2% of the interests in ATR Acquisition, LLC.
    Mr. Thorne is the President of ML IBK Positions, Inc.
    and Merrill Lynch Ventures, LLC which is the general partner of
    Merrill Lynch Ventures L.P. 2001. Voting and dispositive power
    with respect to the shares of Atrium Corporations common
    stock held by ATR Acquisition, LLC is collectively shared by KAT
    Holdings, L.P., KAT Group, L.P., ML IBK Positions, Inc., Merrill
    Lynch Ventures L.P. 2001 and UBS Capital Americas II, LLC.
    Mr. Thorne disclaims beneficial ownership of any of the
    shares owned by ATR Acquisition, LLC and/or ML IBK Positions,
    Inc.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The Stockholders Agreement

Atrium Corporation is party to a stockholders
agreement with ATR Acquisition, LLC and ML IBK
Positions, Inc. Pursuant to the stockholders agreement,
Mr. Hull has been designated Chairman of our board of
directors and of the board of directors of Atrium Corporation in
accordance with his employment agreement. Each of the other
members of our board of directors and the board of directors of
Atrium Corporation have been designated by ATR Acquisition, LLC.
For more information about the composition of our board of
directors see Certain Relationships and Related Party
Transactions  Limited Liability Company
Agreement.

43



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##### Table of Contents



The stockholders agreement contains customary
terms, including terms regarding transfer restrictions, rights
of first offer, tag-along rights, drag-along rights, preemptive
rights with respect to our capital stock and veto rights with
respect to certain corporate actions including but not limited
to:



| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a supermajority consent of the members of ATR
    Acquisition, LLC to approve any sale, merger, or other corporate
    reorganization or restructuring or transfer of control involving
    the Company;
|
| |  | unanimous consent of the members of ATR
    Acquisition, LLC to amend the stockholders agreement, the
    Companys certificate of incorporation, by-laws or other
    organizational documents; and    
|
| |  | unanimous consent of the members of ATR
    Acquisition, LLC to alter the maximum number of directors
    comprising the Companys board of directors.                                                  

Management Agreement

We are party to a management agreement with JLK
Operations, Inc., an affiliate of Kenner &
Company, Inc., for management and financial advisory
services and oversight to be provided to us and our
subsidiaries. Pursuant to the management agreement, we have
agreed to pay to JLK Operations, Inc. an annual advisory
fee of $250,000 plus expenses, payable on a quarterly basis in
advance. Payment of the annual fee under the management
agreement is subject to the terms of our credit and financing
arrangements.

Atrium Corporation paid Kenner &
Company, Inc. and/or its affiliates a one-time transaction
fee of $8.0 million upon consummation of the merger.

In addition, Atrium Corporation paid a
transaction fee of $1.0 million to UBS Capital Americas,
LLC and Merrill Lynch Global Partners, Inc. in connection
with and upon the consummation of the merger.

Limited Liability Company Agreement

ATR Acquisition, LLC has entered into a
limited liability company agreement with KAT
Holdings, L.P., UBS Capital
Americas II, LLC, ML IBK Positions, Inc. and
certain other entities. Pursuant to the limited liability
company agreement, ATR Acquisition, LLC agreed to exercise
its rights under the Atrium Corporation stockholders agreement
to elect to our board of directors and the board of directors of
Atrium Corporation. Two members are designated by KAT
Holdings, L.P., one member is designated by UBS Capital
Americas II, LLC and one member is designated by
ML IBK Positions, Inc. In addition, Mr. Hull was
designated chairman of our board of directors and of the board
of directors of Atrium Corporation and the remaining two members
have been initially designated by KAT Holdings, L.P., but
each of UBS Capital Americas II, LLC and ML IBK
Positions, Inc. are entitled to approve any change thereof.
The limited liability company agreement contains affirmative and
negative covenants and terms regarding transfer restrictions,
rights of first offer, tag-along rights, drag-along rights and
preemptive rights and veto rights with respect to certain
corporate actions, including but not limited to:



| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a supermajority consent of the members of ATR
    Acquisition, LLC to approve any sale, merger, or other corporate
    reorganization or restructuring or transfer of control involving
    the Company;
|
| |  | unanimous consent of the members of ATR
    Acquisition, LLC to amend the stockholders agreement, the
    Companys certificate of incorporation, by-laws or other
    organizational documents; and    
|
| |  | unanimous consent of the members of ATR
    Acquisition, LLC to alter the maximum number of directors
    comprising the Companys board of directors.                                                  

Buy-Sell Agreements

In connection with the merger, Atrium Corporation
entered into buy-sell agreements with Messrs. Hull, Long,
Burns, Cross, and Ragona, together with certain other members of
our management who have been granted options pursuant to the
replacement plan and pursuant to the 2003 plan under which
Atrium Corporation may, upon a sale of the company, as defined
in the buy-sell agreement, or upon the termination of their
employment, repurchase from those persons all or any portion of
the shares of Atrium Corporations

44



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##### Table of Contents



common stock acquired or that could be acquired
upon exercise of such options, and in Mr. Hulls case,
warrants, or shares of common stock or certain common stock
equivalents, as defined in the buy-sell agreements, as otherwise
may have been acquired from Atrium Corporation. The purchase
price for the shares subject to this repurchase will depend on
the circumstances of the repurchase. In the event of a
termination of employment by the employer for cause or by the
employee without good reason, the purchase price will be the
lesser of the purchase price per share, as defined in the
buy-sell agreement, and the fair market value per share, as
defined in the buy-sell agreement, as of the date of such
termination of employment. In the event the termination is for
any reason other than cause or without good reason, the purchase
price per share will be the greater of the purchase price per
share and the fair market value per share. Upon a sale of the
company, Atrium Corporation may repurchase the shares for a
purchase price per share equal to that received by all other
stockholders in connection with a sale of the company.


In addition, the agreements provide that, in the
event that Atrium Corporation does not elect to exercise its
repurchase option, the members of our management party thereto
have the right to require Atrium Corporation to repurchase, upon
a sale of the company or upon any termination of the
stockholders employment for any reason, or as a result of
the employees death or disability, the following equity
securities held by them:



| |   |                                                               
| | - | --------------------------------------------------------------
| |  | all shares of common stock                                    
|
| |  | all vested and unvested options under the
    Replacement Plan
|
| |  | all vested options under the 2003 Plan                        
|
| |  | all vested warrants                                           

In each case the purchase price will be the
purchase price that would have otherwise been payable by Atrium
Corporation had it exercised its repurchase rights as described
above. All payments of purchase price under the buy-sell
agreements by Atrium Corporation are subject to the terms of our
credit and financing arrangements. The buy-sell agreements also
provide certain drag-along rights to Atrium
Corporation and certain tag-along rights to the
stockholder with respect to his or her shares of common stock.

Hull Warrants

In connection with the merger and entry into his
employment agreement, Mr. Hull was granted warrants to
purchase 7,750 shares of Atrium Corporations common
stock. 4,000 of these shares were fully vested on
February 1, 2004 and were exercised on February 27,
2004 at an exercise price of $.01 per share. With respect
to the remaining 3,750 shares, the warrant vests ratably on
a monthly basis over a five-year period and has an exercise
price of $1,000 per share. Notwithstanding the foregoing,
all of the warrants will immediately vest upon a sale of the
Company.

Indemnification Agreements

In connection with the merger, we entered into or
will enter into indemnification agreements with
Messrs. Hull, Long, Burns, Cross, Ragona, Kenner, Solari,
Deutsch, Maccarone, Thorne and Schmid, pursuant to which we will
indemnify them if any of them becomes a party to or other
participant in any threatened, pending or completed action, suit
or proceeding relating to the fact that such person is or was
our director, officer, employee, agent or fiduciary.

Management Closing Bonuses

In connection with the completion of the merger,
we paid closing bonuses to certain members of our management in
an aggregate amount equal to $6,236,070, which included payments
to Messrs. Hull, Long, Burns, Cross and Ragona of
$5,300,000, $326,786, $288,392, $138,392 and $75,000,
respectively.

45



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##### Table of Contents



Consulting Agreement

The Company entered into a consulting,
noncompetition and nonsolicitation agreement with John Ellison,
the former owner of Ellison. The term of the agreement commenced
October 25, 2000, was amended in June 2001 and was
terminated in connection with the merger. Under this agreement,
Mr. Ellison provided the Company with consulting services
with respect to the matters of Ellison, as well as various
strategies for expanding the Companys customer base and
increasing its sales. During the term of his agreement,
Mr. Ellison was to receive payments in the aggregate amount
of $2,600,000 payable in 18 installments of $12,000 each,
on the fifteenth and last day of each month and
150 installments of $16,000 on the fifteenth and last day
of each month beginning on July 31, 2001 and continuing
thereafter to and including October 15, 2007. The Company
paid Mr. Ellison $1,226,000 to terminate the agreement on
December 10, 2003.

Facility Leases and Other Related Party
Transactions

Our subsidiary, R.G. Darby
Company, Inc. is party to a facilities lease agreement with
Mr. R.G. Darby, a former stockholder of Darby and the
father of Mr. Cliff Darby, President of Darby. Pursuant to
the terms of the lease, we pay Mr. R.G. Darby approximately
$26,444 per month. The lease term is 10 years. Rent
expense paid to Mr. R.G. Darby was approximately $317,300
in 2003. Additionally, we lease property on a month-to-month
basis from Mr. Cliff Darby. Amounts paid under this
arrangement were $22,000 in 2003.

Our subsidiary, Thermal Industries, Inc. is
party to two facility lease agreements with, among others, Eric
and Jeanne Rascoe, the parents of David and Todd Rascoe,
President and Vice President, respectively, of Thermal. Pursuant
to the terms of the lease, we pay the landlords an aggregate
total of approximately $13,000 per month. The term of the
lease is four years. Rent expense paid under this lease was
approximately $161,900 in 2003.

Our subsidiary, MD Casting, Inc. is party to
a facilities lease agreement with JLT Realty, LTD, an affiliate
of Jerry Trickel, an employee of MD Casting and the father of
Lyn Trickel, General Manager of MD Casting. Pursuant to the
terms of the lease, we pay JLT Realty approximately
$4,000 per month. The lease term is 5 years. Rent
expense paid to JLT Realty was approximately $44,000 in 2003.

Our subsidiary, Aluminum Screen
Manufacturers, Inc. is party to three facility lease
agreements with Aluma Properties, L.P., an affiliate of Donald
Rauschuber, General Manager of Aluminum Screen. Pursuant to the
terms of the three leases, we pay Aluma Properties an aggregate
total of approximately $27,000 per month. The lease terms
of each of the three leases are 10 years. Rent expense paid
to Aluma Properties under these three leases was approximately
$81,000 in 2003.

Our subsidiary, Superior Engineered Products
Corporation is party to three facility lease agreements with
Corsair Limited Partnership, an affiliate of David Oddo,
President and General Manager of Superior, and is party to an
additional facility lease agreement with Paul and Angeline Oddo,
former shareholders of Superior and the parents of David Oddo.
Pursuant to the terms of the four leases, we pay the landlords
an aggregate total of approximately $147,000 per month. The
lease terms of each of the four leases are 3 years. As the
acquisition occurred on December 31, 2003, there was not
any expense recorded on the Companys financials during
2003.

Mr. Hull reimbursed us in the amount of
$6,600 for personal use of our corporate aircraft in 2003. This
amount represented the actual cost of his personal usage.

46



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##### Table of Contents








|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

Audit and Non-Audit Fees

The table below sets forth the aggregate fees
billed by PricewaterhouseCoopers LLP for audit, audit-related,
tax and other services provided to us in each of the last two
fiscal years.

|                   |       |              |     |      |  |   |     |     | 
|------------------ | ----- | ------------ | --- | ---- |  | - | --- | --- | 
|                   |       |             
|                   |       | For the Year
|                   |       | Ended       
|                   |       | December 31,
|                   |       |             
|                   |       | 2003         |     | 2002
|                   |       |              |     |     
|Audit fees         |       | $            | 307 |      |  | $ | 291 |    
|Audit-related fees |       |              | 240 |      |  |   | 20  |    
|Tax fees           |       |              | 275 |      |  |   | 277 |    
|                   |       |              |     |      |  |   |     |    
|                   | Total |              | $   | 822  |  |   | $   | 588 | 
|                   |       |              |     |      |  |   |     |    



| |           
| | ----------
| | Audit Fees

The aggregate fees billed by
PricewaterhouseCoopers LLP in each of the fiscal years ended
December 31, 2003 and 2002 for professional services
rendered for the audit of our annual financial statements
included in our Report on Form 10-K and review of the
financial statements included in our Quarterly Reports on
Form 10-Q or services that are normally provided by
PricewaterhouseCoopers LLP in connection with statutory and
regulatory filings or engagements for such fiscal years.

The 2003 audit fees consist of $172 for our
annual audit, $44 for our quarterly reviews, $21 for the
quarterly reviews of Atrium Corporation, $35 relating to the
merger, $10 relating to the 2003 acquisitions and $25 for the
audit of Atrium Funding Corporation. The 2002 audit fees consist
of $174 for our annual audit, $42 for our quarterly reviews, $48
for the annual audit and quarterly reviews of Atrium Corporation
and $27 for the audit of Atrium Funding Corporation.



| |                   
| | ------------------
| | Audit-Related Fees

The aggregate fees billed by
PricewaterhouseCoopers LLP in each of the fiscal years ended
December 31, 2003 and 2002 for assurance and related
services that are reasonably related to the performance of the
audit or review of our financial statements, and that are not
reported under Audit Fees above. For the years ended
December 31, 2003 and 2002, these services included audits
of employee benefit plans for $17 and $20, respectively.
Additionally, in 2003, approximately $223 in fees were paid for
services related to registration statements, comfort letters and
other related activities.



| |         
| | --------
| | Tax Fees

The aggregate fees billed by
PricewaterhouseCoopers LLP in each of the fiscal years ended
December 31, 2003 and 2002 for professional services
rendered for tax compliance, tax advice, and tax planning were
$275 and $277, respectively. For fiscal 2003 and 2002, these
services consisted of tax compliance of $161 and $147,
respectively, tax planning and tax advice of $114 and $130,
respectively, with respect to various federal, state and local
tax returns and tax audits.



| |                                         
| | ----------------------------------------
| | Pre-Approval Policies and
    Procedures

The Audit Committee Charter provides that the
Audit Committee of our Board of Directors has the sole authority
and responsibility to pre-approve all audit services and
permitted non-audit services to be performed for us by our
independent accountants and the related fees. The Audit
Committee considers each engagement on a case-by-case basis
according to certain required criteria, including that
(i) the skill set necessary for the engagement should be
unique to our independent accountants and (ii) the
engagement should not involve work that would result in our
independent accountants eventually auditing its own work. The
Audit Committee is updated on these outstanding engagements at
each of its regular meetings. If we anticipate that

47



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##### Table of Contents



the fees for specific engagements may exceed the
amount initially approved by the Audit Committee, the Audit
Committee will consider proposals to increase the fees for such
engagements on a case-by-case basis.





PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a) The following documents are included in
this report:



| |                          
| | -------------------------
| | (1) Financial Statements:



| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | The financial statements are listed in the
    accompanying Index to Financial Statements on page F-1 of this
    report.



| |                                   
| | ----------------------------------
| | (2) Financial Statement Schedules:



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | The financial statement schedules are presented
    beginning on page S-1 of this report.



| |              
| | -------------
| | (3) Exhibits:



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

(b) Reports on Form 8-K

The following reports on Form 8-K were filed
by the Registrant during the fourth quarter:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Current Report on Form 8-K filed pursuant to
    Items 7 and 12 on October 28, 2003 to include, as an
    exhibit, the press release of Atrium Companies, Inc. dated
    October 28, 2003 announcing third quarter earnings.                                                                                                                                                                                                                                                                                                    
|
| | Current Report on Form 8-K filed pursuant to
    Items 7 and 9 on November 5, 2003 to include, as an
    exhibit, the transcript for the conference call held by the
    Company on October 29, 2003 to discuss third quarter
    earnings.                                                                                                                                                                                                                                                                                     
|
| | Current Report on Form 8-K filed pursuant to
    Items 7 and 9 on November 6, 2003 to announce that KAT
    Holdings had signed a definitive agreement for the acquisition
    of Atrium Corporation and to announce that the Company is
    requesting consent for certain proposed waivers and amendments
    to the Indenture dated May 17, 1999.                                                                                                                                                                            
|
| | Current Report on Form 8-K filed pursuant to
    Items 7 and 9 on November 14, 2003 to announce that
    the Company had increased the cash payment to the holders of its
    existing senior subordinated notes if consent was received by
    5:00 p.m. on November 18, 2003.                                                                                                                                                                                                                                                 
|
| | Current Report on Form 8-K filed pursuant to
    Items 7 and 9 on December 3, 2003 to include, as an
    exhibit, the offering memorandum for the add-on notes.                                                                                                                                                                                                                                                                                                                                                                 
|
| | Current Report on Form 8-K filed pursuant to
    Items 7 and 9 on December 3, 2003 to include, as an
    exhibit, the final offering memorandum for the add-on notes to
    incorporate a bond issuance price of $106.78.                                                                                                                                                                                                                                                                                                       
|
| | Current Report on Form 8-K filed pursuant to
    Items 1, 7, and 9 on December 18, 2003 to announce the
    completion of the acquisition by KAT Holdings of the
    Companys parent company, Atrium Corporation and to
    include, as exhibits, the press release announcing the
    acquisition, Agreement and Plan of Merger between KAT Holdings,
    KAT Acquisition Corp., Atrium Corporation and certain equity
    holders and Consent and Amendment No. 1 to Agreement and
    Plan of Merger dated November 6, 2003.

48



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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                       
| | ----------------------
| | ATRIUM COMPANIES, INC.



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

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



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

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

Date: March 30, 2004

Pursuant to the requirements of the Securities
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.

|                                           |  |                                                                                                               |  |               |  | 
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------- |  | ------------- |  | 
|                                           |  |                                                                                                               |  |              
|Signature                                  |  | Capacity                                                                                                      |  | Date         
|                                           |  |                                                                                                               |  |              
|                                          
|/s/ JEFF L. HULLJeff L. Hull               |  | Chairman, President and
    Chief Executive Officer
    (Principal Executive Officer)                         |  | April 8, 2004
|                                          
|/s/ ERIC W. LONGEric W. Long               |  | Executive Vice President and
    Chief Financial Officer
    (Principal Financial and
    Accounting Officer) |  | April 8, 2004
|                                          
|/s/ JEFFREY L. KENNERJeffrey L. Kenner     |  | Director                                                                                                      |  | April 8, 2004
|                                          
|/s/ LARRY T. SOLARILarry T. Solari         |  | Director                                                                                                      |  | April 8, 2004
|                                          
|/s/ MARK L. DEUTSCHMark L. Deutsch         |  | Director                                                                                                      |  | April 8, 2004
|                                          
|/s/ JUSTIN S. MACCARONEJustin S. Maccarone |  | Director                                                                                                      |  | April 8, 2004

49



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##### Table of Contents



|                                       |  |          |  |               |  | 
|-------------------------------------- |  | -------- |  | ------------- |  | 
|                                       |  |          |  |              
|Signature                              |  | Capacity |  | Date         
|                                       |  |          |  |              
|                                      
|/s/ NATHAN C. THORNENathan C. Thorne   |  | Director |  | April 8, 2004
|                                      
|/s/ CHARLES W. SCHMIDCharles W. Schmid |  | Director |  | April 8, 2004

50



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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS

|                                                                                                                                                   |  |      |     | 
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                   |  | Page
|                                                                                                                                                   |  |     
|Atrium Companies, Inc. and
    Subsidiaries                                                                                                        |  |      |     | 
|Report of Independent Auditors                                                                                                                     |  |      | F-2 | 
|Consolidated Financial Statements:                                                                                                                 |  |      |     | 
|Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                                                                   |  |      | F-3 | 
|Consolidated Statements of Operations for the
    years ended December 31, 2003, 2002 and 2001                                                     |  |      | F-4 | 
|Consolidated Statements of Stockholders
    Equity and Other Comprehensive Income (Loss) for the years ended
    December 31, 2003, 2002 and 2001 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001                                                     |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                                                                         |  |      | F-7 | 

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholder of
Atrium Companies, Inc.:

In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, of stockholders equity and other comprehensive
income (loss) and of cash flows present fairly, in all
material respects, the financial position of Atrium Companies,
Inc. (a wholly owned subsidiary of Atrium Corporation) and its
subsidiaries (the Company) at December 31, 2003
and 2002, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

As discussed in Note 4 to the consolidated
financial statements, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities, on January 1, 2001 and Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, on January 1, 2002.

As described in Notes 19 and 21 to the
consolidated financial statements, the Company has restated its
segment information for 2001 and its condensed consolidating
financial information for the periods presented.

PRICEWATERHOUSECOOPERS LLP

Dallas, Texas

March 30, 2004, except as to Notes 19
and 21,


which are as of April 8, 2004


F-2



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS


(dollars in thousands, except share
amounts)


|                                         |                                                                                             |                                            |         |              |         |  |         |         |         | 
|---------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- |  | ------- | ------- | ------- | 
|                                         |                                                                                             | December 31,                               |         | December 31,
|                                         |                                                                                             | 2003                                       |         | 2002        
|                                         |                                                                                             |                                            |         |             
|ASSETS                                  
|CURRENT ASSETS:                          |                                                                                             |                                            |         |              |         |  |         |        
|                                         | Cash and cash equivalents                                                                   |                                            | $       | 7,713        |         |  | $       | 1,131   |        
|                                         | Accounts receivable, net                                                                    |                                            |         | 8,387        |         |  |         | 1,847   |        
|                                         | Retained interest in sold accounts receivable                                               |                                            |         | 24,461       |         |  |         | 25,209  |        
|                                         | Inventories, net                                                                            |                                            |         | 48,989       |         |  |         | 33,712  |        
|                                         | Prepaid expenses and other current assets                                                   |                                            |         | 8,007        |         |  |         | 6,109   |        
|                                         | Deferred tax asset                                                                          |                                            |         | 2,595        |         |  |         | 1,324   |        
|                                         |                                                                                             |                                            |         |              |         |  |         |        
|                                         |                                                                                             | Total current assets                       |         |              | 100,152 |  |         |         | 69,332  | 
|PROPERTY, PLANT AND EQUIPMENT, net       |                                                                                             |                                            | 90,674  |              |         |  | 55,322  |        
|GOODWILL                                 |                                                                                             |                                            | 376,763 |              |         |  | 345,239 |        
|INTANGIBLE ASSETS                        |                                                                                             |                                            | 12,900  |              |         |  |        |        
|DEFERRED FINANCING COSTS, net            |                                                                                             |                                            | 16,298  |              |         |  | 10,293  |        
|OTHER ASSETS, net                        |                                                                                             |                                            | 10,689  |              |         |  | 8,134   |        
|                                         |                                                                                             |                                            |         |              |         |  |         |        
|                                         |                                                                                             | Total assets                               |         | $            | 607,476 |  |         | $       | 488,320 | 
|                                         |                                                                                             |                                            |         |              |         |  |         |        
|                                        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|CURRENT LIABILITIES:                     |                                                                                             |                                            |         |              |         |  |         |        
|                                         | Current portion of notes payable                                                            |                                            | $       | 3,302        |         |  | $       | 6,524   |        
|                                         | Accounts payable                                                                            |                                            |         | 28,036       |         |  |         | 22,535  |        
|                                         | Accrued liabilities                                                                         |                                            |         | 34,261       |         |  |         | 31,442  |        
|                                         |                                                                                             |                                            |         |              |         |  |         |        
|                                         |                                                                                             | Total current liabilities                  |         |              | 65,599  |  |         |         | 60,501  | 
|                                         |                                                                                             |                                            |         |              |         |  |         |        
|LONG-TERM LIABILITIES:                   |                                                                                             |                                            |         |              |         |  |         |        
|                                         | Notes payable                                                                               |                                            |         | 411,890      |         |  |         | 291,501 |        
|                                         | Deferred tax liability                                                                      |                                            |         | 2,595        |         |  |         | 1,324   |        
|                                         | Other long-term liabilities                                                                 |                                            |         | 2,341        |         |  |         | 560     |        
|                                         |                                                                                             |                                            |         |              |         |  |         |        
|                                         |                                                                                             | Total long-term liabilities                |         |              | 416,826 |  |         |         | 293,385 | 
|                                         |                                                                                             |                                            |         |              |         |  |         |        
|                                         |                                                                                             | Total liabilities                          |         |              | 482,425 |  |         |         | 353,886 | 
|                                         |                                                                                             |                                            |         |              |         |  |         |        
|COMMITMENTS AND CONTINGENCIES (Note 16)  |                                                                                             |                                            |        |              |         |  |        |        
|STOCKHOLDERS EQUITY:                    |                                                                                             |                                            |         |              |         |  |         |        
|                                         | Common stock $.01 par value, 3,000 shares
    authorized, 100 shares issued and outstanding |                                            |         |             |         |  |         |        |        
|                                         | Paid-in capital                                                                             |                                            |         | 183,601      |         |  |         | 203,684 |        
|                                         | Accumulated deficit                                                                         |                                            |         | (58,550      | )       |  |         | (64,810 | )      
|                                         | Accumulated other comprehensive loss                                                        |                                            |         |             |         |  |         | (4,440  | )      
|                                         |                                                                                             |                                            |         |              |         |  |         |        
|                                         |                                                                                             | Total stockholders equity                 |         |              | 125,051 |  |         |         | 134,434 | 
|                                         |                                                                                             |                                            |         |              |         |  |         |        
|                                         |                                                                                             | Total liabilities and stockholders equity |         | $            | 607,476 |  |         | $       | 488,320 | 
|                                         |                                                                                             |                                            |         |              |         |  |         |        

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

F-3



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES



CONSOLIDATED STATEMENTS OF
OPERATIONS


For the Years Ended December 31, 2003, 2002
and 2001


(dollars in thousands)


|                                                                                                                                       |  |      |         |      |  |      |         |  |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | -
|                                                                                                                                       |  | 2003 |         | 2002 |  | 2001
|                                                                                                                                       |  |      |         |      |  |     
|NET SALES                                                                                                                              |  | $    | 597,810 |      |  | $    | 536,299 |  |  | $ | 517,063 |  
|COST OF GOODS SOLD                                                                                                                     |  |      | 408,501 |      |  |      | 360,323 |  |  |   | 354,797 |  
|                                                                                                                                       |  |      |         |      |  |      |         |  |  |   |         |  
|Gross profit                                                                                                                           |  |      | 189,309 |      |  |      | 175,976 |  |  |   | 162,266 |  
|                                                                                                                                       |  |      |         |      |  |      |         |  |  |   |         |  
|OPERATING EXPENSES:                                                                                                                    |  |      |         |      |  |      |         |  |  |   |         |  
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |  |      | 128,797 |      |  |      | 116,364 |  |  |   | 108,067 |  
|Securitization expense                                                                                                                 |  |      | 1,905   |      |  |      | 1,133   |  |  |   | 1,532   |  
|Stock compensation expense                                                                                                             |  |      | 553     |      |  |      | 383     |  |  |   | 582     |  
|Amortization expense                                                                                                                   |  |      | 4,199   |      |  |      | 3,410   |  |  |   | 14,410  |  
|                                                                                                                                       |  |      |         |      |  |      |         |  |  |   |         |  
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                             |  |      | 135,454 |      |  |      | 121,290 |  |  |   | 124,591 |  
|Special charges                                                                                                                        |  |      | 11,024  |      |  |      | 4,198   |  |  |   | 1,213   |  
|                                                                                                                                       |  |      |         |      |  |      |         |  |  |   |         |  
|                                                                                                                                       |  |      | 146,478 |      |  |      | 125,488 |  |  |   | 125,804 |  
|                                                                                                                                       |  |      |         |      |  |      |         |  |  |   |         |  
|Income from operations                                                                                                                 |  |      | 42,831  |      |  |      | 50,488  |  |  |   | 36,462  |  
|INTEREST EXPENSE                                                                                                                       |  |      | 36,218  |      |  |      | 35,901  |  |  |   | 39,950  |  
|OTHER INCOME (EXPENSE), net                                                                                                            |  |      | 69      |      |  |      | 22      |  |  |   | (20     | )
|                                                                                                                                       |  |      |         |      |  |      |         |  |  |   |         |  
|Income (loss) before income taxes                                                                                                      |  |      | 6,682   |      |  |      | 14,609  |  |  |   | (3,508  | )
|PROVISION FOR INCOME TAXES                                                                                                             |  |      | 422     |      |  |      | 625     |  |  |   | 1,358   |  
|                                                                                                                                       |  |      |         |      |  |      |         |  |  |   |         |  
|NET INCOME (LOSS)                                                                                                                      |  | $    | 6,260   |      |  | $    | 13,984  |  |  | $ | (4,866  | )
|                                                                                                                                       |  |      |         |      |  |      |         |  |  |   |         |  

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

F-4



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES



CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY


AND OTHER COMPREHENSIVE INCOME
(LOSS)


For the Years Ended December 31, 2003, 2002,
and 2001


(dollars in thousands, except share
amounts)


|                                                                            |                                                                                                  |              |     |         |  |             |   |               |  |               |         |        |  |   |         |        |   |   |        |        |   |   |         |        |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------------ | --- | ------- |  | ----------- | - | ------------- |  | ------------- | ------- | ------ |  | - | ------- | ------ | - | - | ------ | ------ | - | - | ------- | ------ | -
|                                                                            |                                                                                                  |              |     |         |  |             |   | Accumulated   |  |              
|                                                                            |                                                                                                  | Common Stock |     |         |  |             |   | Other         |  | Total        
|                                                                            |                                                                                                  |              |     | Paid-in |  | Accumulated |   | Comprehensive |  | Stockholders
|                                                                            |                                                                                                  | Shares       |     | Amount  |  | Capital     |   | Deficit       |  | Income (Loss) |         | Equity
|                                                                            |                                                                                                  |              |     |         |  |             |   |               |  |               |         |       
|Balance, December 31, 2000                                                  |                                                                                                  |              | 100 |         |  | $           |  |               |  | $             | 196,004 |        |  | $ | (73,928 | )      |   | $ |       |        |   | $ | 122,076 |       
|Capital contribution from Atrium Corporation, net                           |                                                                                                  |              |    |         |  |             |  |               |  |               | 7,248   |        |  |   |        |        |   |   |       |        |   |   | 7,248   |       
|Non-cash stock compensation expense                                         |                                                                                                  |              |    |         |  |             |  |               |  |               | 300     |        |  |   |        |        |   |   |       |        |   |   | 300     |       
|Comprehensive loss:                                                         |                                                                                                  |              |     |         |  |             |   |               |  |               |         |        |  |   |         |        |   |   |        |        |   |   |         |       
|                                                                            | Net loss                                                                                         |              |     |        |  |             |   |              |  |               |         |       |  |   |         | (4,866 | ) |   |        |       |   |   |         | (4,866 | )
|                                                                            | Cumulative effect of change in accounting
    principle, net of tax of $0 (adoption of SFAS 133) |              |     |        |  |             |   |              |  |               |         |       |  |   |         |       |   |   |        | (2,319 | ) |   |         | (2,319 | )
|                                                                            | Net fair market value adjustment of derivative
    instruments, net of tax of $0                 |              |     |        |  |             |   |              |  |               |         |       |  |   |         |       |   |   |        | (5,623 | ) |   |         | (5,623 | )
|                                                                            | Accretion of deferred gain on terminated interest
    rate collars                               |              |     |        |  |             |   |              |  |               |         |       |  |   |         |       |   |   |        | (327   | ) |   |         | (327   | )
|                                                                            |                                                                                                  |              |     |         |  |             |   |               |  |               |         |        |  |   |         |        |   |   |        |        |   |   |         |       
|Total comprehensive loss                                                    |                                                                                                  |              |    |         |  |             |  |               |  |               |        |        |  |   | (4,866  | )      |   |   | (8,269 | )      |   |   | (13,135 | )     
|                                                                            |                                                                                                  |              |     |         |  |             |   |               |  |               |         |        |  |   |         |        |   |   |        |        |   |   |         |       
|Balance, December 31, 2001                                                  |                                                                                                  |              | 100 |         |  |             |  |               |  |               | 203,552 |        |  |   | (78,794 | )      |   |   | (8,269 | )      |   |   | 116,489 |       
|Distribution to Atrium Corporation, net                                     |                                                                                                  |              |    |         |  |             |  |               |  |               | (168    | )      |  |   |        |        |   |   |       |        |   |   | (168    | )     
|Non-cash stock compensation expense                                         |                                                                                                  |              |    |         |  |             |  |               |  |               | 300     |        |  |   |        |        |   |   |       |        |   |   | 300     |       
|Comprehensive income:                                                       |                                                                                                  |              |     |         |  |             |   |               |  |               |         |        |  |   |         |        |   |   |        |        |   |   |         |       
|                                                                            | Net income                                                                                       |              |     |        |  |             |   |              |  |               |         |       |  |   |         | 13,984 |   |   |        |       |   |   |         | 13,984 |  
|                                                                            | Net fair market value adjustment of derivative
    instruments, net of tax of $0                 |              |     |        |  |             |   |              |  |               |         |       |  |   |         |       |   |   |        | 3,829  |   |   |         | 3,829  |  
|                                                                            |                                                                                                  |              |     |         |  |             |   |               |  |               |         |        |  |   |         |        |   |   |        |        |   |   |         |       
|Total comprehensive income                                                  |                                                                                                  |              |    |         |  |             |  |               |  |               |        |        |  |   | 13,984  |        |   |   | 3,829  |        |   |   | 17,813  |       
|                                                                            |                                                                                                  |              |     |         |  |             |   |               |  |               |         |        |  |   |         |        |   |   |        |        |   |   |         |       
|Balance, December 31, 2002                                                  |                                                                                                  |              | 100 |         |  |             |  |               |  |               | 203,684 |        |  |   | (64,810 | )      |   |   | (4,440 | )      |   |   | 134,434 |       
|Non-cash stock compensation expense                                         |                                                                                                  |              |    |         |  |             |  |               |  |               | 300     |        |  |   |        |        |   |   |       |        |   |   | 300     |       
|Cash distribution to Atrium Corporation, net                                |                                                                                                  |              |    |         |  |             |  |               |  |               | (27,379 | )      |  |   |        |        |   |   |       |        |   |   | (27,379 | )     
|Issuance of Atrium Corporation stock for purchase
    of Superior           |                                                                                                  |              |    |         |  |             |  |               |  |               | 5,000   |        |  |   |        |        |   |   |       |        |   |   | 5,000   |       
|Amortization of Atrium Corporation warrants
    included in special charges |                                                                                                  |              |    |         |  |             |  |               |  |               | 1,615   |        |  |   |        |        |   |   |       |        |   |   | 1,615   |       
|Non-cash stock compensation expense included in
    special charges         |                                                                                                  |              |    |         |  |             |  |               |  |               | 381     |        |  |   |        |        |   |   |       |        |   |   | 381     |       
|Comprehensive income:                                                       |                                                                                                  |              |     |         |  |             |   |               |  |               |         |        |  |   |         |        |   |   |        |        |   |   |         |       
|                                                                            | Net income                                                                                       |              |     |        |  |             |   |              |  |               |         |       |  |   |         | 6,260  |   |   |        |       |   |   |         | 6,260  |  
|                                                                            | Net fair market value adjustment of derivative
    instruments, net of tax of $0                 |              |     |        |  |             |   |              |  |               |         |       |  |   |         |       |   |   |        | 4,440  |   |   |         | 4,440  |  
|                                                                            |                                                                                                  |              |     |         |  |             |   |               |  |               |         |        |  |   |         |        |   |   |        |        |   |   |         |       
|Total comprehensive income                                                  |                                                                                                  |              |    |         |  |             |  |               |  |               |        |        |  |   | 6,260   |        |   |   | 4,440  |        |   |   | 10,700  |       
|                                                                            |                                                                                                  |              |     |         |  |             |   |               |  |               |         |        |  |   |         |        |   |   |        |        |   |   |         |       
|Balance, December 31, 2003                                                  |                                                                                                  |              | 100 |         |  | $           |  |               |  | $             | 183,601 |        |  | $ | (58,550 | )      |   | $ |       |        |   | $ | 125,051 |       
|                                                                            |                                                                                                  |              |     |         |  |             |   |               |  |               |         |        |  |   |         |        |   |   |        |        |   |   |         |       

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

F-5



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH
FLOWS


For the Years Ended December 31, 2003, 2002
and 2001


(dollars in thousands)


|                                                         |                                                                                                    |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |         |        |         |        | 
|-------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | 
|                                                         |                                                                                                    | 2003                                                                         |                                                         | 2002                                      |        | 2001   
|                                                         |                                                                                                    |                                                                              |                                                         |                                           |        |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                    |                                                                                                    |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |        
|                                                         | Net income (loss)                                                                                  |                                                                              | $                                                       | 6,260                                     |        |         | $      | 13,984  |        |         | $      | (4,866  | )     
|                                                         | Adjustments to reconcile net income
    (loss) to net cash flows provided by operating activities: |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |         |       
|                                                         |                                                                                                    | Write off of deferred financing costs                                        |                                                         |                                           | 3,146  |         |        |         | 204    |         |        |         | 837    |        
|                                                         |                                                                                                    | Depreciation and amortization                                                |                                                         |                                           | 17,439 |         |        |         | 14,885 |         |        |         | 24,415 |        
|                                                         |                                                                                                    | Non-cash stock compensation expense                                          |                                                         |                                           | 300    |         |        |         | 300    |         |        |         | 300    |        
|                                                         |                                                                                                    | Amortization of deferred financing costs                                     |                                                         |                                           | 2,914  |         |        |         | 2,853  |         |        |         | 2,945  |        
|                                                         |                                                                                                    | Accretion of discount on notes payable                                       |                                                         |                                           | 229    |         |        |         | 206    |         |        |         | 185    |        
|                                                         |                                                                                                    | Amortization of premium on notes payable                                     |                                                         |                                           | (29    | )       |        |         |       |         |        |         |       |        
|                                                         |                                                                                                    | Accretion of gain from interest rate collars                                 |                                                         |                                           |       |         |        |         |       |         |        |         | (327   | )      
|                                                         |                                                                                                    | Amortization of gain from sale-leaseback of
    building                     |                                                         |                                           | (29    | )       |        |         | (41    | )       |        |         | (9     | )      
|                                                         |                                                                                                    | Provision for bad debts                                                      |                                                         |                                           |       |         |        |         | (25    | )       |        |         | 597    |        
|                                                         |                                                                                                    | Loss on sale of receivables                                                  |                                                         |                                           | 492    |         |        |         | 625    |         |        |         | 1,069  |        
|                                                         |                                                                                                    | Non-cash special charges                                                     |                                                         |                                           | 2,965  |         |        |         | 639    |         |        |         | 910    |        
|                                                         |                                                                                                    | Write-down of inventory for shutdown                                         |                                                         |                                           |       |         |        |         |       |         |        |         | 1,010  |        
|                                                         |                                                                                                    | Loss (gain) on sales of assets                                               |                                                         |                                           | 29     |         |        |         | (221   | )       |        |         | (1,798 | )      
|                                                         |                                                                                                    | Changes in assets and liabilities, net of
    acquisitions and divestitures: |                                                         |                                           |        |         |        |         |        |         |        |         |        |        
|                                                         |                                                                                                    |                                                                              | Accounts receivable                                     |                                           |        | (855    | )      |         |        | 2,048   |        |         |        | 1,367   |       
|                                                         |                                                                                                    |                                                                              | Retained interest in sold accounts receivable           |                                           |        | (6,927  | )      |         |        | (4,336  | )      |         |        | 1,632   |       
|                                                         |                                                                                                    |                                                                              | Sale of accounts receivable                             |                                           |        | 10,700  |        |         |        | (7,100  | )      |         |        | 27,400  |       
|                                                         |                                                                                                    |                                                                              | Inventories                                             |                                           |        | (6,122  | )      |         |        | 3,024   |        |         |        | 8,208   |       
|                                                         |                                                                                                    |                                                                              | Prepaid expenses and other current assets               |                                           |        | (1,141  | )      |         |        | (1,040  | )      |         |        | (1,962  | )     
|                                                         |                                                                                                    |                                                                              | Accounts payable                                        |                                           |        | 2,815   |        |         |        | 2,964   |        |         |        | (4,822  | )     
|                                                         |                                                                                                    |                                                                              | Accrued liabilities and other long-term
    liabilities |                                           |        | 1,062   |        |         |        | (1,880  | )      |         |        | (6,654  | )     
|                                                         |                                                                                                    |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |        
|                                                         |                                                                                                    |                                                                              |                                                         | Net cash provided by operating activities |        |         | 33,248 |         |        |         | 27,089 |         |        |         | 50,437 | 
|                                                         |                                                                                                    |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                    |                                                                                                    |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |        
|                                                         | Purchases of property, plant and equipment                                                         |                                                                              |                                                         | (19,331                                   | )      |         |        | (13,107 | )      |         |        | (14,104 | )     
|                                                         | Proceeds from sales of assets                                                                      |                                                                              |                                                         | 386                                       |        |         |        | 1,950   |        |         |        | 6,120   |       
|                                                         | Acquisitions, net of cash acquired                                                                 |                                                                              |                                                         | (71,053                                   | )      |         |        |        |        |         |        |        |       
|                                                         | Other assets                                                                                       |                                                                              |                                                         | (5,046                                    | )      |         |        | (4,178  | )      |         |        | (2,612  | )     
|                                                         |                                                                                                    |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |        
|                                                         |                                                                                                    |                                                                              | Net cash used in investing activities                   |                                           |        | (95,044 | )      |         |        | (15,335 | )      |         |        | (10,596 | )     
|                                                         |                                                                                                    |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                    |                                                                                                    |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |        
|                                                         | Proceeds from issuance of add-on notes, including
    premium                                      |                                                                              |                                                         | 53,438                                    |        |         |        |        |        |         |        |        |       
|                                                         | Proceeds from borrowings under term loans                                                          |                                                                              |                                                         | 180,000                                   |        |         |        |        |        |         |        |        |       
|                                                         | Payments of other notes payable and capital lease
    obligations                                  |                                                                              |                                                         | (47                                       | )      |         |        | (23     | )      |         |        | (251    | )     
|                                                         | Net payments under revolving credit facility                                                       |                                                                              |                                                         |                                          |        |         |        |        |        |         |        | (19,000 | )     
|                                                         | Deferred financing costs                                                                           |                                                                              |                                                         | (12,066                                   | )      |         |        |        |        |         |        | (388    | )     
|                                                         | Scheduled principal payments on term loans                                                         |                                                                              |                                                         | (4,097                                    | )      |         |        | (5,484  | )      |         |        | (5,728  | )     
|                                                         | Additional principal payments on term loans                                                        |                                                                              |                                                         | (120,903                                  | )      |         |        | (7,228  | )      |         |        | (20,000 | )     
|                                                         | Contributions from (distributions to) Atrium
    Corporation, net                                  |                                                                              |                                                         | (27,379                                   | )      |         |        | (168    | )      |         |        | 7,248   |       
|                                                         | Checks drawn in excess of bank balances                                                            |                                                                              |                                                         | (568                                      | )      |         |        | 1,033   |        |         |        | (5,121  | )     
|                                                         |                                                                                                    |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |        
|                                                         |                                                                                                    |                                                                              | Net cash provided by (used in) financing
    activities |                                           |        | 68,378  |        |         |        | (11,870 | )      |         |        | (43,240 | )     
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS |                                                                                                    |                                                                              | 6,582                                                   |                                           |        |         | (116   | )       |        |         | (3,399 | )      
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD           |                                                                                                    |                                                                              | 1,131                                                   |                                           |        |         | 1,247  |         |        |         | 4,646  |        
|                                                         |                                                                                                    |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |        
|CASH AND CASH EQUIVALENTS, END OF PERIOD                 |                                                                                                    | $                                                                            | 7,713                                                   |                                           |        | $       | 1,131  |         |        | $       | 1,247  |        
|                                                         |                                                                                                    |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |        
|SUPPLEMENTAL DISCLOSURE:                                 |                                                                                                    |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |        
|                                                         | CASH PAID DURING THE PERIOD FOR:                                                                   |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |         |       
|                                                         |                                                                                                    | Interest                                                                     |                                                         | $                                         | 29,891 |         |        | $       | 33,996 |         |        | $       | 37,909 |        
|                                                         |                                                                                                    | Income taxes, net of refunds                                                 |                                                         |                                           | 98     |         |        |         | 1,086  |         |        |         | 1,677  |        
|                                                         | NONCASH INVESTING AND FINANCING ACTIVITIES:                                                        |                                                                              |                                                         |                                           |        |         |        |         |        |         |        |         |       
|                                                         |                                                                                                    | Issuance of Atrium Corporation common stock for
    acquisition of Superior  |                                                         |                                           | 5,000  |         |        |         |       |         |        |         |       |        
|                                                         |                                                                                                    | Exchange of assets for note                                                  |                                                         |                                           |       |         |        |         |       |         |        |         | 150    |        
|                                                         |                                                                                                    | Settlement of note receivable for fixed assets                               |                                                         |                                           |       |         |        |         |       |         |        |         | 905    |        

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

F-6



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


(dollars in thousands, except share and pound
amounts)




|   |                                                     
|-- | ----------------------------------------------------
|1. | Organization, Business and Basis of
    Presentation

Atrium Companies, Inc. (Atrium
Companies or the Company) is engaged in the
manufacture and sale of windows, patio doors and various
building materials throughout North America.

The Transactions or Merger

On December 10, 2003, Atrium Corporation was
acquired by a newly formed affiliate of Kenner & Company,
Inc., KAT Holdings, Inc., pursuant to which KAT Holdings, Inc.
merged with and into Atrium Corporation with Atrium Corporation
as the surviving corporation. As a result of the Merger, the
investor group described below now controls the Company and
Atrium Corporation.

The acquisition of Atrium Corporation was made by
an investor group led by Kenner & Company, Inc., a New York
based private investment firm, and certain members of our
management, including Jeff L. Hull, our Chairman, President and
Chief Executive Officer. The investor group included: KAT
Holdings, L.P. and KAT Group, L.P., special purpose Kenner
investment partnerships; UBS Capital Americas II, LLC; ML IBK
Positions, Inc. and Merrill Lynch Ventures L.P. 2001 and
management. At the closing of the Merger, $12,396 of equity
securities owned by certain of Atrium Corporations
existing stockholders were exchanged for similar securities in
KAT Holdings, Inc. and the investor group contributed an
additional $251,604 to KAT Holdings, Inc., including $251,454
from ATR Acquisition, LLC, the unitholders of which are KAT
Holdings, L.P., KAT Group, L.P., UBS Capital Americas II, LLC,
ML IBK Positions, Inc. and Merrill Lynch Ventures L.P. 2001.

In connection with the Merger, we renewed our
existing accounts receivable securitization facility for a
period of five years and repaid our existing senior revolving
credit and term loan facilities with a new revolving credit
facility of $50,000, which was undrawn at the close of the
merger, and a new $180,000 term loan facility. We also issued an
additional $50,000 of 10 1/2% senior subordinated notes, or
add-on notes, and left the existing $175,000 of
10 1/2% senior subordinated notes outstanding. $40,000 of
the new term loan facility was funded into escrow upon closing
of the Merger and was released to fund a portion of the
acquisition of Superior Engineered Products Corporation on
December 31, 2003.

On November 18, 2003, in connection with the
Merger, we received consents from holders representing
approximately 97% of the aggregate principal amount of our
outstanding 10 1/2% senior subordinated notes to:



| |   |                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | waive our obligations under the Indenture to make
    a change of control offer in connection with the merger and
    amend the Indenture to replace the definition of permitted
    holders with certain direct and indirect equity holders of ATR
    Acquisition, LLC and their affiliates,
|
| |  | modify certain restrictions on affiliate
    transactions set forth in the indenture governing the notes; and                                                                                                                                                                                 
|
| |  | allow for the issuance of additional notes.                                                                                                                                                                                                                                                   

Additionally, in connection with the Merger,
Atrium Corporation repurchased its outstanding 15% Senior
Pay-In-Kind Notes, with a portion of the cash proceeds of the
equity contribution to KAT Holdings, Inc.

Each of the foregoing transactions, along with
the Merger, is referred to herein collectively as the
Transactions.

Presentation

GAAP generally provides for the application of
push down accounting in situations where the
ownership of an entity has changed, meaning that the
post-transaction financial statements of the acquired entity
reflect a new basis of accounting. The accompanying data does
not reflect a new basis of accounting pursuant to Staff
Accounting Bulletin (SAB) No. 54
(SAB 54). The guidance in SAB 54 allows our

F-7



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

post-Merger financial statements to continue
under the historical basis of accounting because of the
existence of significant outstanding public debt at the time of
the Merger.

The operations of MD Casting, Inc. (MD
Casting), Danvid Window Company (Danvid) and
Aluminum Screen Manufacturers, Inc. (Aluminum
Screen) are included since their date of acquisition on
January 31, 2003, April 1, 2003 and October 1,
2003, respectively. Superior Window Products Corporation
(Superior) is included in the Companys
consolidated balance sheet as it was acquired on
December 31, 2003. Collectively, the acquisitions of MD
Casting, Danvid, Aluminum Screen and Superior are referred to as
the 2003 Acquisitions. There were no acquisitions in
2002 or 2001 that require pro forma information.

The operations of Atrium Funding Corporation are
included in the Companys consolidated financial statements
since its inception on July 9, 2001 and the operations of
Atrium Ventanas de Mexico and Atrium Servicios de Mexico are
included in the Companys consolidated financial statements
since their date of inception of March 21, 2002.

The following unaudited pro forma information
presents consolidated operating results as though the 2003
acquisitions (see Note 6) had occurred at the beginning of
the periods presented:

|           |  |        |          |           |  |        |         |           |  |  |          |  |  |   |         | 
|---------- |  | ------ | -------- | --------- |  | ------ | ------- | --------- |  |  | -------- |  |  | - | ------- | 
|           |  |        |          |          
|           |  | 2003   |          | 2002     
|           |  |        |          |          
|           |  | Atrium |          | Combined  |  | Atrium |         | Combined 
|           |  | Actual |          | Pro Forma |  | Actual |         | Pro Forma
|           |  |        |          |           |  |        |         |          
|Net sales  |  |        | $597,810 |           |  | $      | 681,887 |           |  |  | $536,299 |  |  | $ | 667,852 | 
|Net income |  |        | 6,260    |           |  |        | 12,582  |           |  |  | 13,984   |  |  |   | 20,697  | 



|   |                                
|-- | -------------------------------
|2. | Significant Accounting Policies



| |                       
| | ----------------------
| | Basis of Consolidation

The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been
eliminated in consolidation.



| |                 
| | ----------------
| | Industry Segment

The Company operates in two principal operating
segments, including the fabrication, distribution and
installation of windows and doors and the manufacture of
component parts for window and door products for the residential
new construction and the repair and remodel markets.



| |                    
| | -------------------
| | Revenue Recognition

Revenue from the sale of windows and doors and
related building products is recorded at the time of delivery to
the customer. On contracts involving installation, revenue is
recognized when the installation is complete. Allowances are
established to recognize the risk of sales returns from
customers and estimates of warranty costs. The Company
classifies any shipping charges to customers as revenues. The
costs of shipping and handling fees are presented in selling,
delivery, general and administrative expenses in the
Companys consolidated statements of operations and were
$39,234, $35,357 and $31,192 for 2003, 2002 and 2001,
respectively.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

The Company considers all highly-liquid
investments with original maturities of three months or less to
be cash equivalents. At December 31, 2003 and 2002, the
Company had $2,774 and $3,342 of checks drawn in excess of bank
balances that were reclassified into accounts payable.

F-8



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                              
| | -----------------------------
| | Concentrations of Credit Risk

Financial instruments, which potentially expose
the Company to concentrations of credit risk, consist primarily
of the Companys retained interest in trade accounts
receivable. The Companys customers are located in all
50 states of the United States and in various countries in
North America. The Company performs ongoing credit evaluations
of its customers financial condition and generally
requires no collateral. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information.
The Company did not have sales exceeding 10% to any single
customer in 2003, 2002 or 2001.



| |            
| | -----------
| | Inventories

Inventories are valued at the lower of cost
(last-in, first-out or LIFO) or market.
Work-in-process and finished goods inventories consist of direct
materials, labor and manufacturing overhead. Inventory costs
include direct materials, labor and manufacturing overhead.
Management believes that the LIFO method results in a better
matching of current costs with current revenues. Under the
first-in, first-out method (FIFO) of accounting,
such inventories would have been approximately $916 higher at
December 31, 2003 and $43 higher at December 31,
2002. The Company writes down its inventory for estimated
obsolescence or unmarketable inventory equal to the difference
between the cost of inventory and the estimated fair market
value based upon assumptions about future demand and market
conditions. A reserve for inventory allowances is included in
raw materials.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Property, plant and equipment is stated at cost
less accumulated depreciation. The Company depreciates the
assets principally on a straight-line basis for financial
reporting purposes over their estimated useful lives, as follows:

|                           |  |             |              | 
|-------------------------- |  | ----------- | ------------ | 
|                           |  | Estimated  
|                           |  | Useful Life
|                           |  |            
|Buildings and improvements |  |             | 20-30  years | 
|Machinery and equipment    |  |             | 3-10 years   | 

Gains or losses on disposition are based on the
net proceeds and the adjusted carrying amount of the assets sold
or retired. Expenditures for maintenance, minor renewals and
repairs are expensed as incurred, while major replacements and
improvements are capitalized.



| |         
| | --------
| | Goodwill

Goodwill represents the excess of cost over fair
market value of net assets acquired. Goodwill is no longer
amortized in accordance with Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets (SFAS 142). In
accordance with SFAS 142, management reviews the carrying
value of goodwill for recoverability based on estimated fair
values of the reporting units in the fourth quarter of each year
or when events or changes in circumstances indicate, in
managements judgment, that the carrying value may not be
recoverable. The fair values of the reporting units were based
upon managements estimate of a multiple of undiscounted
cash flows. The Company considers operating results, trends and
prospects of the Company, as well as competitive comparisons.
The Company also takes into consideration competition within the
building materials industry and any other events or
circumstances which might indicate potential impairment. If
goodwill is determined not to be recoverable, an impairment is
recognized as a charge to operations. Such impairment is based
on the discounted cash flow approach.

F-9



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                   
| | ----------------------------------
| | Valuation of Long-Lived
    Assets

We periodically review the net realizable value
of our long-lived assets, including property, plant and
equipment and definite-lived intangible assets, whenever events
and circumstances indicate an impairment may have occurred. In
the event we determine that the varying value of long-lived
assets is in excess of estimated gross future cash flows for
those assets, we then will write-down the value of the assets to
a level commensurate with a discounted cash flow analysis of the
estimated future cash flows.

Estimated amortization expense of definite-lived
intangible assets for each of the five succeeding years is as
follows:

|           |  |   |        | 
|---------- |  | - | ------ | 
|2004       |  | $ | 1,882  | 
|2005       |  |   | 1,882  | 
|2006       |  |   | 1,882  | 
|2007       |  |   | 1,715  | 
|2008       |  |   | 1,715  | 
|Thereafter |  |   | 3,824  | 
|           |  |   |        | 
|           |  | $ | 12,900 | 
|           |  |   |        | 



| |                           
| | --------------------------
| | Capitalized Software Costs

The Company capitalizes internal employee costs
and external consulting costs associated with implementing and
developing software for internal use. Internal costs capitalized
include payroll and payroll-related costs for employees who are
directly associated with the development, modification and
implementation of the software. External costs include direct
expenses related to consulting and other professional fees
incurred in developing, modifying and implementing the software.
Capitalization of costs occurs upon the completion of the
preliminary project stage and when management believes it is
probable a project will be completed and the software will be
used to perform the function intended. Amortization begins the
period after the software is put into service and is calculated
on a straight-line basis over three years. Management
continually reviews the carrying value and expected
functionality of the accumulated costs for potential impairment.
When it is no longer probable that computer software being
developed will be completed, modified or placed in service, the
assets carrying value will be adjusted to the lower of
cost or estimated fair value.

Unamortized capitalized software costs at
December 31, 2003 and 2002 were $5,247 and $4,345,
respectively, and are included in other long-term assets.
Amortization expense for 2003, 2002 and 2001 was $1,970, $1,629
and $1,359, respectively.



| |                         
| | ------------------------
| | Stock-Based Compensation

At December 31, 2003, the Company had
several stock-based employee compensation plans, which are
described more fully in Note 18. The Company accounts for
these plans under the recognition and measurement principles of
the Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to
Employees, (APB 25) and related
interpretations. Stock-based employee compensation cost, related
to the issuance of stock options is not typically reflected in
the Companys earnings, as all options granted under those
plans usually have an exercise price equal to or in excess of
the estimated fair market value of the underlying common stock
on the date of grant.

As more fully described in Note 18, the Merger
resulted in certain of the previously outstanding options being
purchased from the holders. This resulted in an expense of $811,
which is included in special charges in the statements of
operations. Additionally, the cancellation and issuance of new
options along with the

F-10



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

buy/sell agreements resulted in the majority of
the 2003 option grants warranting variable accounting treatment.

The Financial Accounting Standards Board
(FASB) has recently indicated that it expects to
issue a proposal to change the recognition and measurement
principles for equity-based compensation granted to employees.
The proposed rules could be implemented as early as the end of
the 2004 calendar year. Under the proposed rules, the Company
would be required to recognize compensation expense related to
stock options granted to employees after December 15, 2004.
The compensation expense would be calculated based on the
expected number of options expected to vest and would be
recognized over the stock options vesting period. If this
proposal is passed, the Company would be required to recognize
compensation expense related to stock options granted to its
employees, which may have a material effect on its consolidated
financial position or results of operations.

The following table illustrates the effect on the
Companys reported net income (loss) of $6,260, $13,984 and
$(4,866) for the years ended December 31, 2003, 2002 and
2001, respectively, if the Company had applied the fair value
recognition provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, (SFAS 123)
to stock-based compensation plans and warrants.

|                               |                                                                                                                                 |                            |       |       |       |      |        |      |        |   |        |      |        |  
|------------------------------ | ------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----- | ----- | ----- | ---- | ------ | ---- | ------ | - | ------ | ---- | ------ | -
|                               |                                                                                                                                 | 2003                       |       | 2002  |       | 2001
|                               |                                                                                                                                 |                            |       |       |       |     
|Net income (loss), as reported |                                                                                                                                 | $                          | 6,260 |       |       | $    | 13,984 |      |        | $ | (4,866 | )   
|Adjustments:                   |                                                                                                                                 |                            |       |       |       |      |        |      |        |   |        |     
|                               | Stock-based employee compensation expenses
    included in reported net income, net of related tax effects                      |                            |       | 1,048 |       |      |        | 83   |        |   |        | 282  |       
|                               | Stock-based employee compensation expense
    determined under fair value method for all awards, net of
    related tax effects |                            |       | (155  | )     |      |        | (401 | )      |   |        | (437 | )     
|                               |                                                                                                                                 |                            |       |       |       |      |        |      |        |   |        |     
|                               |                                                                                                                                 | Adjusted net income (loss) |       | $     | 7,153 |      |        | $    | 13,666 |   |        | $    | (5,021 | )
|                               |                                                                                                                                 |                            |       |       |       |      |        |      |        |   |        |     

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



| |                         
| | ------------------------
| | Provision for Warranties

The Company estimates its warranty provisions
based upon an analysis of all identified or expected claims and
an estimated cost to resolve those claims. The estimates of
expected claims are generally a factor of historical claims.
Changes in claim rates, differences between actual and expected
warranty costs could impact warranty obligation estimates.

|                                                                            |                               |      |        |        |   |   |        |      |  
|--------------------------------------------------------------------------- | ----------------------------- | ---- | ------ | ------ | - | - | ------ | ---- | -
|                                                                            |                               | 2003 |        | 2002  
|                                                                            |                               |      |        |       
|Beginning reserve for warranties                                            |                               | $    | (969   | )      |   | $ | (1,226 | )   
|Provision for warranties issued during the period                           |                               |      | (4,277 | )      |   |   | (3,765 | )   
|Provisions for pre-existing warranties (including
    changes in estimates) |                               |      | (128   | )      |   |   | 179    |     
|Acquisitions                                                                |                               |      | (1,680 | )      |   |   |       |     
|Settlements made (in cash or kind) during the
    period                    |                               |      | 4,529  |        |   |   | 3,843  |     
|                                                                            |                               |      |        |        |   |   |        |     
|                                                                            | Ending reserve for warranties |      | $      | (2,525 | ) |   | $      | (969 | )
|                                                                            |                               |      |        |        |   |   |        |     



| |             
| | ------------
| | Income Taxes

The provision for income taxes is based on pretax
income as reported for financial statement purposes. Deferred
income taxes are provided in accordance with the liability
method of accounting for income taxes to

F-11



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

recognize the tax effects of temporary
differences between financial statement and income tax
accounting. The Company is included in Atrium Corporations
consolidated federal tax return. The Companys income taxes
have been presented as if calculated on a stand-alone separate
tax return basis.



| |                    
| | -------------------
| | Forward Commitments

The Company periodically enters into forward
commitments to hedge price variances in certain raw materials.
Changes in the market value of forward commitments are
recognized in income when the effects of the related charges in
the hedged items are recognized.



| |                 
| | ----------------
| | Use of Estimates

The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues
and expenses during the reporting periods. These estimates and
assumptions are based upon the best available information and
are subject to change as conditions within and beyond the
control of the Company change, including but not limited to,
economic conditions, the availability of additional information
and actual experience rates different from those used in the
Companys estimates. Accordingly, actual results could
differ from those estimates. Significant estimates are used in
calculating allowance for bad debt, inventory reserves,
recoverability of goodwill, insurance, including medical and
workers compensation and warranty accruals, and in
recognizing deferred tax assets and liabilities.



| |                  
| | -----------------
| | Advertising Costs

Advertising costs are expensed when incurred and
were $4,057, $4,597 and $3,664, for 2003, 2002 and 2001,
respectively. Advertising expenses that relate to contractual
cooperative advertising allowances and volume rebates with our
customers are recorded as a reduction to net sales in the
consolidated statements of operations. Other advertising
expenditures incurred by the Company are reflected in selling,
delivery, general and administrative expenses in the
consolidated statements of operations.



| |                  
| | -----------------
| | Reclassifications

Certain reclassifications have been made to the
2001 and 2002 balances to conform to the 2003 presentation.



|   |                
|-- | ---------------
|3. | Special Charges



| |           
| | ----------
| | The Merger

In connection with the Merger, the Company
recorded a special charge in the amount of $10,059. The expenses
associated with the Merger include $6,407 related to management
transaction bonuses and associated payroll taxes, $1,615 related
to warrants issued to Mr. Hull, $1,226 related to the
termination of a consulting agreement with the former owner of
Ellison Windows and $811 for stock option compensation related
to options outstanding prior to the Merger. An additional charge
of $2,345 will be incurred in January 2004 relating to the
vesting of warrants to Mr. Hull.



| |                 
| | ----------------
| | Wing divestiture

During 2003, the Company recorded a special
charge in the amount of $739 for liabilities associated with the
divestiture of Wing. The special charge is comprised of $364
lease obligations at Wings former facilities and a
litigation settlement that was $375 higher than initially
anticipated.

F-12



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

During 2002, the Company recorded a special
charge in the amount of $4,198 for liabilities associated with
the divestiture of the assets of Wing. The special charge is
comprised of $2,553 in exit costs incurred by the Company on the
remaining lease obligations at Wings former facilities.
The special charge also includes $1,645 for litigation expenses.

As of December 31, 2003, $4,533 of the
special charge was incurred and has been paid by the Company
against its accrued provisions for the Wing divestiture, leaving
a remaining accrual of $404 for unpaid liabilities.



| |                 
| | ----------------
| | Wood divestiture

During 2003, the Company recorded a special
charge in the amount of $226 for a past workers
compensation claim associated with the divested unit. The entire
$226 is unpaid as of December 31, 2003.



| |                  
| | -----------------
| | Woodville closing

During 2001, the Company recorded special charges
of $1,213, of which $303 related to non-capitalizable legal fees
incurred to amend the Credit Agreement and $910 related to
managements decision to close its Woodville, Texas
facility and merge certain operations into existing operations
at other divisions. Included in the charge of $910 is $389
related to operating leases, $156 related to the write-off of
fixed assets, $94 related to severance and other reserves
totaling $271. During 2002, the Company recorded an additional
$50 related to the Woodville closure in selling, delivery,
general and administrative expenses.

In addition to the above charges, the Company
recorded a special writedown to inventory of $1,010 related to
the closure of the Woodville, Texas facility and the associated
product line rationalization, which is included in cost of goods
sold. Upon closure of the Woodville facility in 2002, the entire
inventory reserve was utilized.

As of December 31, 2003, the Company has a
reserve balance of $82 remaining for the closure of the
Woodville, Texas facility primarily associated with the
remaining lease obligation. As of December 31, 2003, $878
was incurred and has been paid by the Company against its
accrued provisions for the Woodville, Texas facility closing.
The Company does not anticipate additional liabilities related
to the Woodville closure.



|   |                              
|-- | -----------------------------
|4. | New Accounting Pronouncements



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Adoption of SFAS No. 133,
    Accounting for Derivative Instruments and Hedging
    Activities

The Company adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS 133) and the
corresponding amendments on January 1, 2001. In accordance
with the transition provisions of SFAS 133, the Company
recorded a cumulative-effect adjustment as of January 1,
2001 of $2,319 to other comprehensive income. This adjustment
represents the current fair-value of hedging instruments related
to interest rate swap agreements of $2,646 with an offset of
$327 related to the reclassification of deferred gains on
previously terminated interest rate collars. There is no income
tax effect considering there is a full valuation allowance
against deferred tax assets. The Company also has forward
aluminum contracts. However, these are excluded from the scope
of SFAS 133 as they represent normal sales and purchases. At
December 31, 2002, the fair value of the hedging
instruments is a liability of $4,440. The Companys hedging
instruments matured in 2003.



| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | SFAS No. 141, Business
    Combinations, SFAS No. 142, Goodwill and
    Other Intangible Assets

In June 2001, the FASB issued
SFAS No. 141, Business Combinations
(SFAS 141) and SFAS 142. SFAS 141 and
SFAS 142 are effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives are no longer
amortized but are subject to annual impairment tests in
accordance with the statements. Other intangible assets will
continue to

F-13



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 of goodwill during 2001 was $11,725.

The Company completed its initial, transitional
goodwill impairment analysis under SFAS 142 as of
January 1, 2002 and its annual impairment test in the
fourth quarter, and no goodwill impairment was deemed to exist.
In accordance with the requirements of SFAS 142, the
Company reviews goodwill for impairment during the fourth
quarter of each year. Goodwill is also reviewed for impairment
at other times during each year when events or changes in
circumstances indicate an impairment might be present.

The Company would have reported net income of
$7,696 during 2001 if the goodwill amortization of $11,725
included in the Companys net loss of $(4,029), as
reported, had not been recognized.



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

In August 2001, the FASB issued
SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). SFAS 143
addresses financial accounting and reporting obligations
associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. Under SFAS 143, the
fair value of a liability for an asset retirement obligation
covered under the scope of SFAS 143 would be recognized in
the period in which the liability is incurred, with an
offsetting increase in the carrying amount of the related
long-lived asset. Adoption of SFAS 143 has not had a
material effect on the Companys consolidated financial
position or results of operations.



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | SFAS No. 144, Accounting
    for the Impairment or Disposal of Long-Lived
    Assets

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



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

In April 2002, the FASB issued
SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections (SFAS 145).
SFAS 145 rescinds SFAS No. 4, Reporting
Gains and Losses from Extinguishment of Debt, requiring
that gains and losses from the extinguishment of debt be
classified as extraordinary items only if certain criteria are
met. SFAS 145 also amends SFAS No. 13,
Accounting for Leases, and the required accounting
for sale-leaseback transactions and certain lease modifications
that have economic effects that are similar to sale-leaseback
transactions. SFAS 145 was adopted by the Company on
January 1, 2003. The Company expensed $29, $204 and $837 of
deferred financing fees in connection with their excess cash
flow payments during 2003, 2002 and 2001, respectively (see
Note 5). The Company also expensed $3,117 in 2003 related
to the refinancing of its previous credit facilities. The loss
associated with the debt retirement has been included in
interest expense on the Companys financial statements. The
2002 and 2001 amounts had previously been reported as
extraordinary items.

F-14



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

In July 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities
(SFAS 146). SFAS 146 requires that a
liability for a cost associated with an exit or disposal
activity be recognized initially at fair value when the
liability is incurred. The Company adopted SFAS 146 on
January 1, 2003. Adoption of SFAS 146 has not had a
material effect on the Companys consolidated financial
position or results of operations.



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

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



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

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (SFAS 150). SFAS 150 broadens
the definition of financial instruments and establishes
standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities
and equity. SFAS 150 also requires that an issuer classify
a financial instrument that is within its scope as an asset or
as a liability. SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003 and
is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. Adoption of
SFAS 150 has not had a material effect on the
Companys consolidated financial position or results of
operations.



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

During November 2002, the FASB issued FASB
Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45).
FIN 45 generally requires a guarantor to recognize a
liability for obligations arising from guarantees. FIN 45
also requires new disclosures for guarantees meeting certain
criteria outlined in the pronouncement. The recognition and
measurement provisions of FIN 45 are applicable on a
prospective basis for guarantees issued or modified after
December 31, 2002. Adoption of FIN 45 has not had a
material effect on the Companys consolidated financial
position or results of operations.



| |                                                                   
| | ------------------------------------------------------------------
| | FIN No. 46 
    Consolidation of Variable Interest
    Entities

During January 2003, the FASB issued FIN
No. 46 Consolidation of Variable Interest
Entities (FIN 46). FIN 46 is
effective for variable interest entities created after
January 31, 2003 and is required to be adopted for variable
interest entities that existed prior to February 1, 2003 by
December 31, 2003. FIN 46 is an interpretation of
Accounting Research Bulletin No. 51, Consolidated
Financial Statements. FIN 46 requires a variable
interest entity to be consolidated by a company if that company
is subject to a majority of the risk of loss from the variable
interest entitys activities and is entitled to receive a
majority of the entitys residual returns or both. In
December 2003, the FASB issues a revision to FIN 46 to
clarify some of the

F-15



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

provisions and to exempt certain entities from
its requirements. Adoption of FIN 46 has not had a material
effect on the Companys consolidated financial position or
results of operations.



| |                                                                    
| | -------------------------------------------------------------------
| | FIN No. 46R 
    Consolidation of Variable Interest
    Entities

During December 2003, the FASB issued a revision
to FIN 46 (FIN 46R), to clarify some of
the provisions and to exempt certain entities from its
requirements. Under the new guidance, special effective date
provisions apply to enterprises that have fully or partially
applied FIN 46 prior to issuance of the revised
interpretation. Otherwise, application of FIN 46R is
required in financial statements of public entities that have
interests in structures that are commonly referred to as special
purpose entities (SPEs) for periods ending
after December 15, 2003. Application by public entities,
other than business issuers, for all other types of variable
interest entities other that SPEs is required in financial
statements for periods ending after March 15, 2004.
Adoption of FIN 46R has not had a material effect on the
Companys consolidated financial position or results of
operations.



|   |                                          
|-- | -----------------------------------------
|5. | Securitization of Accounts
    Receivable

On July 9, 2001, the Company and certain of
its subsidiaries (collectively the Originators)
entered into an agreement whereby each Originator agreed to sell
on a non-recourse basis, and on an ongoing basis, a pool of
receivables comprising their entire trade receivable portfolio
to a wholly-owned bankruptcy-remote special purpose funding
subsidiary (Atrium Funding Corporation or
AFC) of the Company. AFC is a distinct legal entity
that does not engage in trade or business in order to make
remote the possibility that it would have to file in bankruptcy
or other receivership. In addition, AFC is consolidated for
financial purposes. Certain subsidiaries sell all of their trade
receivables to AFC. AFC entered into an agreement with Fairway
Finance Corp. (the Securitization Company), agented
by BMO Nesbitt Burns, whereby AFC can sell a pro rata share of
the trade receivable portfolio to the Securitization Company for
aggregate payments, subject to a borrowing base and receivable
eligibility. On December 10, 2003, in connection with the
Merger, the Company renewed the Accounts Receivable
Securitization Facility for a period of five years.

Generally, the agreement provides that as
payments are collected from the sold accounts receivable, AFC
may elect to have the Securitization Company reinvest the
proceeds in new accounts receivable. The Securitization Company,
in addition to the right to collect payments from that portion
of the interests in the accounts receivable owned by them, also
has the right to collect payments from that portion of the
ownership interest in the accounts receivable that is owned by
AFC. The facility, which expires December 10, 2008,
requires the Company to comply with various affirmative or
negative covenants and requires early amortization if AFC does
not maintain a minimum equity requirement. The facility also
terminates on the occurrence and failure to cure certain events,
including, among other things, any failure of AFC to maintain
certain ratios related to the collectability of the receivables,
or the Companys failure to maintain long-term unsecured
debt ratios. The Company and AFC were in compliance with all
related covenants as of December 31, 2003 and 2002.

As a result of the agreement, receivables sold to
the Securitization Company are not reflected in the
Companys consolidated balance sheet. The Securitization
Company is free to pledge or exchange its interest. Any
receivables not sold to the Securitization Company constitute
the retained interest in the receivables portfolio of AFC. Due
to the short-term nature of the underlying receivables, the net
carrying amount of the Companys retained interest in
transferred accounts receivables as of December 31, 2003
approximates fair value and is classified as a current asset.

On August 3, 2001, AFC sold a pro rata share
of the trade receivable portfolio for $33,000, leaving a
retained interest of $28,055. Subsequently, additional pools of
receivables were sold. The amount the Company received from the
sale was net of provisions for bad debts and transaction fees,
which included placement fees and professional fees of
approximately $878.

F-16



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company retains the servicing
responsibilities for which it receives an annual servicing fee
of .5% of the securitized accounts receivables. The Company
recognizes no servicing asset or liability because the servicing
fee represents adequate compensation for the services performed.
The servicing fee is eliminated upon consolidation. The table
below summarizes certain cash flow information for the years
ended December 31, 2003, 2002 and 2001:

|                                         |  |      |         |        |  |      |         |        |  |   |         |       
|---------------------------------------- |  | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------
|                                         |  | 2003 |         | 2002   |  | 2001
|                                         |  |      |         |        |  |     
|Proceeds from new securitizations        |  | $    | 564,719 |        |  | $    | 513,245 |        |  | $ | 269,893 |       
|Cash flows received on retained interest |  |      | 211,271 |        |  |      | 269,751 |        |  |   | 109,214 |       
|Proceeds from collections reinvested     |  |      | 541,196 |        |  |      | 522,527 |        |  |   | 222,332 |       
|Net charge-offs of managed receivables   |  |      | 492     |        |  |      | 625     |        |  |   | 1,069   |       
|Actual and expected losses               |  |      | N/A     | (a)(b) |  |      | N/A     | (a)(b) |  |   | N/A     | (a)(b)



---



|    |  |                                                                                                                                                
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | not applicable due to collateral coverage on
    securitizations.                                                                              
|   
|(b) |  | not applicable since fair value of retained
    interest approximates carrying value given the short-term nature
    of underlying receivables.

Managed portfolio data consisted of the following
at December 31:

|                                              |  |      |        |      |  |      |        |  |  |   |        | 
|--------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                              |  | 2003 |        | 2002 |  | 2001
|                                              |  |      |        |      |  |     
|Securitized balances                          |  | $    | 31,000 |      |  | $    | 20,300 |  |  | $ | 27,400 | 
|Retained interest in sold accounts receivable |  |      | 24,461 |      |  |      | 25,209 |  |  |   | 14,373 | 
|Owned receivables                             |  |      | 8,387  |      |  |      | 1,847  |  |  |   | 3,895  | 
|                                              |  |      |        |      |  |      |        |  |  |   |        | 
|Managed receivables                           |  | $    | 63,848 |      |  | $    | 47,356 |  |  | $ | 45,668 | 
|                                              |  |      |        |      |  |      |        |  |  |   |        | 

The delinquency rate, as defined by the
agreement, represents any sold receivables that have aged beyond
60 days past due. The delinquency rate was 2.13%, 1.47% and
2.71% as of December 31, 2003, 2002 and 2001. The
delinquency rate directly affects the Companys borrowing
base limitations. A lower delinquency rate allows the Company to
borrow additional funds from AFC.

The Company incurred costs of $1,905, $1,133 and
$1,532 on the sale of its receivables that have been classified
as a separate line item in selling, delivery, general and
administrative expenses for 2003, 2002 and 2001, respectively.
Expenditures in 2003 were comprised of $1,155 related to the
loss on sale of receivables and $750 for expenses incurred to
extend the accounts receivable securitization facility through
December 2008. Expenditures that were incurred due to the
Companys sale of its receivables in 2002 comprise $1,065
related to the loss on sale of receivables, which represents the
interest expense component of the transaction and $68 for
expenses incurred to amend the accounts receivable
securitization facility from $50,000 to $42,000. Expenditures in
2001 were comprised of $878 of fees associated with the
placement of the securitization and a loss on the sale of
receivables of $654, which represents the interest expense
component of the transaction. Additionally, included in selling,
delivery, general and administrative expenses is $492, $625 and
$1,069 related to the loss on sale of receivables due to the
adjustment to fair value for 2003, 2002 and 2001, respectively.



|   |             
|-- | ------------
|6. | Acquisitions

The 2003 Acquisitions described below have been
accounted for in accordance with SFAS 141 and the results
of their operations are included in the Companys financial
statements from the date of their respective acquisition.

F-17



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |         
| | --------
| | Superior

On December 31, 2003, the Company acquired
all of the outstanding capital stock of Superior Engineered
Products Corporation, a California corporation
(Superior), for a purchase price of $52,500,
including $47,500 in cash and $5,000 in Atrium Corporation
common stock. Transaction fees related to the acquisition of
Superior were $411. Superior, based in Ontario, California, is a
manufacturer of windows and other building materials. The cash
portion of the transaction was funded with $40,000 of term loan
borrowings previously held in escrow and $7,500 borrowed under
the Companys accounts receivable securitization facility.
The purchase price is allocated as follows:

|                              |                      |   |        |        | 
|----------------------------- | -------------------- | - | ------ | ------ | 
|Cash                          |                      | $ | 3,344  |       
|Accounts receivable           |                      |   | 4,591  |       
|Other receivables             |                      |   | 162    |       
|Inventory                     |                      |   | 5,593  |       
|Prepaid expenses              |                      |   | 487    |       
|Deferred tax asset            |                      |   | 208    |       
|Property, plant and equipment |                      |   | 16,312 |       
|Other assets                  |                      |   | 176    |       
|Goodwill                      |                      |   | 12,112 |       
|Intangible assets             |                      |   | 12,900 |       
|Accounts payable              |                      |   | (787   | )     
|Accrued liabilities           |                      |   | (1,979 | )     
|Deferred tax liability        |                      |   | (208   | )     
|                              |                      |   |        |       
|                              | Total purchase price |   | $      | 52,911 | 
|                              |                      |   |        |       



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

On October 1, 2003, the Company completed
the acquisition of substantially all of the operating assets of
Aluminum Screen Manufacturing, Ltd., L.L.P., a Texas registered
limited liability partnership and Texas limited partnership,
Aluminum Screen Products, Inc., a Nevada corporation, and
Aztex Screen Products, L.L.C., an Arizona limited liability
corporation (collectively, Aluminum Screen) for
$16,500 in cash, excluding transaction fees of approximately
$768. Aluminum Screen, a screen manufacturer based in Dallas,
Texas, with additional operations in Houston, Phoenix, Las Vegas
and Ciudad Juarez, Mexico, is a supplier to the window and patio
door industry. The transaction was effected through
Atriums newly-formed subsidiary, Aluminum Screen
Manufacturers, Inc., a Delaware corporation, and was funded
through a combination of

F-18



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

borrowings under both the Companys
revolving credit facility and accounts receivable securitization
facility. The purchase price is allocated as follows:

|                              |                      |   |        |        | 
|----------------------------- | -------------------- | - | ------ | ------ | 
|Accounts receivable           |                      | $ | 938    |       
|Inventory                     |                      |   | 1,785  |       
|Prepaid expenses              |                      |   | 38     |       
|Property, plant and equipment |                      |   | 1,721  |       
|Other assets                  |                      |   | 46     |       
|Goodwill                      |                      |   | 14,625 |       
|Accounts payable              |                      |   | (1,371 | )     
|Accrued liabilities           |                      |   | (514   | )     
|                              |                      |   |        |       
|                              | Total purchase price |   | $      | 17,268 | 
|                              |                      |   |        |       



| |       
| | ------
| | Danvid

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

The aggregate purchase price has been allocated
to the underlying assets and liabilities based upon their
respective estimated fair market values at the date of
acquisition. The excess purchase price over the fair market
value of the assets acquired (goodwill) was $1,668,
the Company also incurred $275 in transaction fees in connection
with the transaction. The purchase price is allocated as follows:

|                              |                      |   |        |       | 
|----------------------------- | -------------------- | - | ------ | ----- | 
|Accounts receivable           |                      | $ | 3,518  |      
|Other receivables             |                      |   | 24     |      
|Inventory                     |                      |   | 1,581  |      
|Property, plant and equipment |                      |   | 2,226  |      
|Other assets                  |                      |   | 1,534  |      
|Goodwill                      |                      |   | 1,668  |      
|Accounts payable              |                      |   | (872   | )    
|Accrued liabilities           |                      |   | (2,590 | )    
|Other long-term liabilities   |                      |   | (1,264 | )    
|                              |                      |   |        |      
|                              | Total purchase price |   | $      | 5,825 | 
|                              |                      |   |        |      



| |           
| | ----------
| | MD Casting

On January 31, 2003, the Company, through
its newly-formed and wholly-owned subsidiary, MD
Casting, Inc. (MD Casting), completed the
acquisition of substantially all of the operating assets of
Miniature Die Casting of Texas, L.P., a Texas limited
partnership, for a purchase price of $3,250, excluding
transaction fees of approximately $144, with an additional
amount of up to $600 to be paid over three years

F-19



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

upon the achievement of certain financial
targets. MD Casting is a zinc die cast hardware manufacturer
located in Fort Worth, Texas. The Company financed the
acquisition through its revolving credit facility.

The aggregate purchase price has been allocated
to the underlying assets and liabilities based upon their
respective estimated fair market values at the date of
acquisition. The excess of purchase price over the estimated
fair value of the net assets acquired (goodwill) was
$3,121. The purchase price is allocated as follows:

|                              |                      |   |       |       | 
|----------------------------- | -------------------- | - | ----- | ----- | 
|Accounts receivable           |                      | $ | 156   |      
|Inventory                     |                      |   | 195   |      
|Property, plant and equipment |                      |   | 929   |      
|Goodwill                      |                      |   | 3,121 |      
|Accounts payable              |                      |   | (224  | )    
|Accrued liabilities           |                      |   | (383  | )    
|Other long-term liabilities   |                      |   | (400  | )    
|                              |                      |   |       |      
|                              | Total purchase price |   | $     | 3,394 | 
|                              |                      |   |       |      



|   |                                    
|-- | -----------------------------------
|7. | Fair Value of Financial Instruments

In accordance with SFAS No. 107,
Disclosures About Fair Value of Financial
Instruments, estimated fair value amounts have been
determined by the Company using available market information and
appropriate valuation methodologies. Due to the fact that
considerable judgment is required to interpret market data to
develop the estimates of fair value, the estimates presented are
not necessarily indicative of the amounts that could be realized
in a current market exchange.

Cash and cash
equivalents The carrying
amounts reported in the balance sheet approximate the fair value.

Notes
payable The fair value of
the Companys notes is based on quoted market prices. The
carrying value of notes payable, other than the Senior
Subordinated Notes, approximate fair value due to the floating
nature of the interest rates. Management estimates that the
Senior Subordinated Notes which have a carrying value of
$226,656 and $173,019 as of December 31, 2003 and 2002, and
are valued at $240,750 and $171,500 as of December 31, 2003
and 2002, respectively, based on quoted market prices.

Forward aluminum
contracts The unrealized
gains and losses are based on quotes for aluminum as reported on
the London Metal Exchange. The Company had forward contracts
with fixed rate prices totaling $3,796 and $2,885 with
unrealized gain of $388 and an unrealized loss of $3 at
December 31, 2003 and 2002, respectively.

Forward zinc
contracts The unrealized
gains and losses are based on quotes for zinc as reported on the
London Metal Exchange. The Company had forward contracts with
fixed rate prices totaling $529 with an unrealized gain of $85
at December 31, 2003.

Interest Rate
Swaps The Company entered
into interest rate swap agreements whereby the Company paid the
counterparties interest at a fixed rate and the counterparties
paid the Company interest at a floating rate equal to the
three-month LIBOR interest rate. The fair value of interest rate
swap agreements are the amount at which they could be settled,
based on estimates obtained from lenders. As of
December 31, 2003, all of the Companys interest rate
swaps have expired.

F-20



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Swaps consisted of the following at
December 31:

|        |                     |      |   |         |   |  |   |         |  
|------- | ------------------- | ---- | - | ------- | - |  | - | ------- | -
|        |                     | 2002 |   | 2001   
|        |                     |      |   |        
|Swap #1 |                     |      |   |         |   |  |   |        
|        | Notional Amount     |      | $ | 100,000 |   |  | $ | 100,000 |  
|        | Fixed Interest Rate |      |   | 6.6625  | % |  |   | 6.6625  | %
|        | Termination Date    |      |   | 11/3/03 |   |  |   | 11/3/03 |  
|        | Fair Value          |      | $ | (4,440  | ) |  | $ | (6,821  | )
|Swap #2 |                     |      |   |         |   |  |   |        
|        | Notional Amount     |      |   |        |   |  | $ | 37,500  |  
|        | Fixed Interest Rate |      |   |        |   |  |   | 6.1475  | %
|        | Termination Date    |      |   |        |   |  |   | 12/9/02 |  
|        | Fair Value          |      |   |        |   |  | $ | (1,448  | )

In December 2001, the Company amended
Swap #2 from a notional amount of $40,000 to a notional
amount of $37,500 in order to maintain hedge effectiveness and
incurred a loss of $184 associated with the amendment, which was
reclassified from other comprehensive loss to interest expense.
Additionally in 2002, the Company amended Swap #2 to a
notional amount of $32,900 in order to maintain hedge
effectiveness. Swap #1 expired in November 2003 and
Swap #2 expired in December 2002.



|   |            
|-- | -----------
|8. | Inventories

Inventories consisted of the following at
December 31:

|                |  |      |        |      |  |   |        |  
|--------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                |  | 2003 |        | 2002
|                |  |      |        |     
|Raw materials   |  | $    | 33,526 |      |  | $ | 22,047 |  
|Work-in-process |  |      | 1,442  |      |  |   | 1,041  |  
|Finished goods  |  |      | 14,937 |      |  |   | 10,667 |  
|                |  |      |        |      |  |   |        |  
|                |  |      | 49,905 |      |  |   | 33,755 |  
|LIFO reserve    |  |      | (916   | )    |  |   | (43    | )
|                |  |      |        |      |  |   |        |  
|                |  | $    | 48,989 |      |  | $ | 33,712 |  
|                |  |      |        |      |  |   |        |  

The change in the LIFO reserve for 2003, 2002 and
2001, resulted in a increase of cost of sales of $873 and $346
and a decrease in cost of sales of $1,116, respectively.
Reduction in inventory quantities resulted in a liquidation of
certain LIFO quantities carried at lower costs prevailing in
prior years as compared with the costs of purchases, the effect
of which increased cost of goods sold by approximately $36 in
2003 and $87 in 2002.

F-21



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                               
|-- | ------------------------------
|9. | Property, Plant, and Equipment

Property, plant and equipment consisted of the
following at December 31:

|                              |       |      |         |         |  |   |         |        | 
|----------------------------- | ----- | ---- | ------- | ------- |  | - | ------- | ------ | 
|                              |       | 2003 |         | 2002   
|                              |       |      |         |        
|Land                          |       | $    | 550     |         |  | $ | 550     |       
|Buildings and improvements    |       |      | 13,923  |         |  |   | 10,844  |       
|Machinery and equipment       |       |      | 110,015 |         |  |   | 65,280  |       
|Construction-in-process       |       |      | 3,839   |         |  |   | 2,471   |       
|                              |       |      |         |         |  |   |         |       
|                              | Total |      |         | 128,327 |  |   |         | 79,145 | 
|Less accumulated depreciation |       |      | (37,653 | )       |  |   | (23,823 | )     
|                              |       |      |         |         |  |   |         |       
|                              |       | $    | 90,674  |         |  | $ | 55,322  |       
|                              |       |      |         |         |  |   |         |       

Depreciation expense was $13,240, $11,476 and
$10,005 in 2003, 2002 and 2001, respectively.

Capital Lease Agreements

On December 31, 2003, the Company entered
into two new capital leases. One lease was financed for $6,570
over 50 months with a guaranteed $1,596 residual payment.
The other new capital lease was financed for $1,273 over
36 months with a guaranteed residual payment of $200. Both
leases are being amortized using a 4.45% interest rate.

Thermal Extrusion Sale

On September 10, 2001, the Company and its
subsidiary, Thermal Industries, Inc., entered into an asset
sale agreement with Royal Group Technologies Limited
(Royal) to sell certain assets of Thermals
vinyl extrusion operation for $3,784. The Company recorded a
gain of $1,741 in the fourth quarter of 2001, net of certain
shut down costs associated with the extrusion operation.
Additionally, the Company entered into a vinyl extrusion supply
agreement with Royal for a period of five years at current
market prices for minimum quantities.

W.P. Carey Sale-leaseback

On November 29, 2001, the Company sold one
of its manufacturing facilities and subsequently leased back the
facility under an operating lease. In connection with the sale,
the Company recorded a gain of $582. Additionally, on
November 18, 1999, the Company sold two of its
manufacturing facilities and subsequently leased back the
facilities under operating leases. In connection with the sales,
the Company recorded a gain of $143. All of these sale-leaseback
gains have been deferred and are being amortized as an
adjustment to rent expense over the terms of the related leases.
Each of these sales were consummated with W.P. Carey and its
affiliates. W.P. Carey is a New York based real estate
investor that is not affiliated with the Company.



|    |                         
|--- | ------------------------
|10. | Deferred Financing Costs

Deferred financing costs relate to costs incurred
in the placement of the Companys debt and are being
amortized using the straight line method over the terms of the
related debt, which range from five to ten years. This method
approximates the effective interest method. Amortization expense
for 2003, 2002 and 2001 was $2,914, $2,853 and $2,945,
respectively, and was recorded as interest expense in the
accompanying consolidated statements of operations.

During 2003, the Company wrote-off $29 of
deferred financing costs in connection with the $1,058
prepayment on the Companys Term Loan A, Term
Loan B and Term Loan C (collectively the Previous

F-22



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Term Loans). In 2002, the Company wrote off
$204 of deferred financing costs in connection with the
prepayment of $6,544 made on the Companys Previous Term
Loans. During 2001, the Company wrote off deferred financing
costs of $837 in connection with a $20,000 prepayment. The
write-downs have been recorded in interest expense in the
statements of operations as a result of the adoption of
SFAS 145. The 2002 and 2001 amounts were previously
recorded as extraordinary items.

In connection with the Merger, the Company
wrote-off $3,117 of deferred financing costs related to the
Previous Credit Facility.



|    |              
|--- | -------------
|11. | Notes Payable

Notes payable consisted of the following at
December 31:

|                                                                                                                                                                                                                                          |                                                                     |      |         |         |   |   |         |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                                                                                                                                                          |                                                                     | 2003 |         | 2002   
|                                                                                                                                                                                                                                          |                                                                     |      |         |        
|$175,000 Senior Subordinated Notes, issued with
    an original discount of $2,632, due May 1, 2009, with
    semiannual interest payments of 10.50% due May 1 and
    November 1                                                         |                                                                     | $    | 175,000 |         |   | $ | 175,000 |        
|$50,000 Senior Subordinated Add-On Notes, issued
    with an original premium of $3,438, due May 1, 2009, with
    semiannual interest payments of 10.50% due May 1 and
    November 1                                                    |                                                                     |      | 50,000  |         |   |   |        |        
|Revolving credit facility                                                                                                                                                                                                                 |                                                                     |      |        |         |   |   |        |        
|$180,000 Term Loan, due December 10, 2008
    with $450 quarterly payments, interest at either the
    administrative agents base rate plus an applicable margin
    or LIBOR plus an applicable margin (3.92% at December 31,
    2003) |                                                                     |      | 180,000 |         |   |   |        |        
|$14,000 Term Loan A, due June 30, 2004
    with $810 quarterly payments, interest at either the
    administrative agents base rate plus an applicable margin
    or LIBOR plus an applicable margin (4.44% at December 31,
    2002)    |                                                                     |      |        |         |   |   | 4,660   |        
|$70,000 Term Loan B, due June 30, 2005
    with $280 quarterly payments, interest at either the
    administrative agents base rate plus an applicable margin
    or LIBOR plus an applicable margin (4.93% at December 31,
    2002)    |                                                                     |      |        |         |   |   | 55,647  |        
|$80,930 Term Loan C, due June 30, 2006,
    with $280 quarterly payments, interest at either the
    administrative agents base rate plus an applicable margin
    or LIBOR plus an applicable margin (5.15% at December 31,
    2002)   |                                                                     |      |        |         |   |   | 64,693  |        
|Other notes payable, including capital lease
    obligations                                                                                                                                                                              |                                                                     |      | 8,536   |         |   |   | 6       |        
|                                                                                                                                                                                                                                          |                                                                     |      |         |         |   |   |         |        
|                                                                                                                                                                                                                                          |                                                                     |      | 413,536 |         |   |   | 300,006 |        
|Less:                                                                                                                                                                                                                                     |                                                                     |      |         |         |   |   |         |        
|                                                                                                                                                                                                                                          | Unamortized discount on $175,000 Senior
    Subordinated Notes      |      |         | (1,752  | ) |   |         | (1,981  | )
|                                                                                                                                                                                                                                          | Unamortized premium on $50,000 Senior
    Subordinated Add-On Notes |      |         | 3,408   |   |   |         |        |  
|                                                                                                                                                                                                                                          | Current maturities of long-term debt                                |      |         | (3,302  | ) |   |         | (6,524  | )
|                                                                                                                                                                                                                                          |                                                                     |      |         |         |   |   |         |        
|                                                                                                                                                                                                                                          | Long-term debt                                                      |      | $       | 411,890 |   |   | $       | 291,501 |  
|                                                                                                                                                                                                                                          |                                                                     |      |         |         |   |   |         |        

Senior Subordinated Notes

On May 17, 1999, the Company issued $175,000
of Senior Subordinated Notes (the Existing Senior
Subordinated Notes) due May 1, 2009. The Existing
Senior Subordinated Notes have a 10.50% stated rate

F-23



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

paid semi-annually and were issued at a discount
of 98.496 to yield 10.75% to maturity. In connection with the
issuance of the Existing Senior Subordinated Notes, the Company
retired its previously outstanding senior subordinated notes and
paid down $15,000 on its Term Loan B.

In connection with the Merger, the Company issued
$50,000 of 10.50% senior subordinated notes (the
Add-On Notes and together with the Existing Senior
Subordinated Notes, the Senior Subordinated Notes)
due on May 1, 2009. The Add-On Notes constitute an
additional issuance of the Existing Senior Subordinated Notes
pursuant to our indenture, dated May 17, 1999, as amended,
under which the outstanding notes were previously issued. The
Add-On Notes were issued at a premium of 106.78 to yield 8.89%
to maturity.

The Senior Subordinated Notes are non-callable
for five years and have redemption prices of 105.25%, 103.50%,
101.75% and 100.00% of the principal amount for the twelve
months beginning May 1, 2004, 2005, 2006, 2007 and
thereafter, respectively.

Credit Agreement

The Company entered into a Credit Agreement (the
Previous Credit Agreement), dated as of
October 2, 1998 as amended and restated as of
October 25, 2000. The Previous Credit Agreement provided
for four separate facilities (the Facilities)
consisting of three term loans (referred to individually as
Term Loan A, Term Loan B and
Term Loan C, and collectively as the
Previous Term Loans) and a revolving credit facility
with a letter of credit sub-facility (the Previous
Revolving Facility, together with the Previous Term Loans,
the Loans). In December 2003, in connection with the
Merger, the Company repaid the Previous Term Loans with the
proceeds from a new term loan facility (the Current Credit
Agreement) described below.

The Previous Revolving Facility was in the amount
of $47,000, of which $10,000 was available under a letter of
credit sub-facility. As of December 31, 2002, no amounts
were outstanding under the Previous Revolving Facility and
letters of credit of $2,752 were outstanding under the letter of
credit sub-facility.

In connection with the Merger, we entered into a
new credit agreement providing for a revolving credit facility
(the Current Revolving Credit Facility) in the
amount of $50,000, which includes a $20,000 sub-facility for the
issuance of letters of credit and a $10,000 sub-facility for
swing line loans and a $180,000 term loan facility (the
Current Term Loan Facility). The Current
Revolving Credit Facility has a maturity date of
December 10, 2008. As of December 31, 2003, no amounts
were outstanding under the Current Revolving Facility and
letters of credit of $8,701 were outstanding under the letter of
credit sub-facility. The Current Revolving Facility has a
maturity date of December 10, 2008.

All amounts outstanding under the Current Credit
Agreement are collateralized by (i) a pledge of all of the
capital stock and intercompany notes of the Company and its
direct and indirect domestic subsidiaries (the Domestic
Subsidiaries) existing on December 10, 2003 or
thereafter and (ii) an interest in substantially all of the
tangible and intangible properties and assets (including
substantially all contract rights, certain real property
interests, trademarks, tradenames, equipment and proceeds of the
foregoing) of Atrium Corporation, the Company and their
respective Domestic Subsidiaries existing on December 10,
2003 or thereafter created or acquired. Atrium Corporation and
each of the Domestic Subsidiaries have unconditionally
guaranteed, on a joint and several basis, all obligations of the
Company under the Current Credit Agreement.

The Previous Term Loans had an excess cash
flows provision mandating additional principal payments if
certain cash flows targets are met during the year. For 2002,
the excess cash flow payment was $1,058, which was paid in
April 2003. In December 2002, the Company voluntarily paid
$6,544 on the Previous Term Loans, which reduced the mandated
excess cash flow payment for 2002 to $1,058. The Current Credit
Agreement also provides for excess cash flows, which will be
paid in 2005.

F-24



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company is required to pay certain commitment
fees in connection with the Current Credit Agreement based upon
the average daily unused portion of the Current Revolving
Facility, certain fees assessed in connection with the issuance
of letters of credit as well as other fees specified in the
Current Credit Agreement and other documents related thereto.

Covenants

The Senior Subordinated Notes and the Current
Credit Agreement require the Company to comply with certain
covenants which, among other things, include limitations on
indebtedness, liens and further negative pledges, investments,
contingent obligations, dividends, redemptions and repurchases
of equity interests, mergers, acquisitions and asset sales,
capital expenditures, sale leaseback transactions, transactions
with affiliates, dividend and other payment restrictions
affecting subsidiaries, changes in business conducted, amendment
of documents relating to other indebtedness and other material
documents, creation of subsidiaries, designation of Designated
Senior Indebtedness in respect of the Senior Subordinated Notes,
and prepayment or repurchase of other indebtedness.
Additionally, the Current Credit Agreement requires the Company
meet certain quarterly financial tests pertaining to total
leverage, interest coverage, fixed charge coverage and capital
expenditures. As of December 31, 2003, the Company is in
compliance with all related covenants, and the Company
anticipates that it will continue to comply in 2004 with the
quarterly financial covenants.

The Current Credit Agreement contains customary
events of default, including, without limitation, payment
defaults, covenant defaults, breaches of representations and
warranties, bankruptcy and insolvency, judgments, change of
control and cross-default with certain other indebtedness.

Debt
Maturities

Principal payments due during the next five years
on long-term notes payable as of December 31, 2003 are as
follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 3,302   | 
|2005       |  |   | 3,492   | 
|2006       |  |   | 3,552   | 
|2007       |  |   | 3,428   | 
|2008       |  |   | 174,762 | 
|Thereafter |  |   | 225,000 | 
|           |  |   |         | 
|           |  | $ | 413,536 | 
|           |  |   |         | 

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

F-25



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                    
|--- | -------------------
|12. | Accrued Liabilities

Accrued expenses and other liabilities consisted
of the following at December 31:

|                                            |  |      |        |      |  |   |        | 
|------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                            |  | 2003 |        | 2002
|                                            |  |      |        |     
|Salaries, wages and related taxes           |  | $    | 11,974 |      |  | $ | 10,255 | 
|Interest                                    |  |      | 3,821  |      |  |   | 4,928  | 
|Current portion of interest rate swap       |  |      |       |      |  |   | 4,440  | 
|Shutdown costs and accrued severance        |  |      | 487    |      |  |   | 871    | 
|Advertising allowances and customer rebates |  |      | 4,291  |      |  |   | 4,103  | 
|Workers compensation reserve               |  |      | 1,915  |      |  |   | 764    | 
|Health insurance reserve                    |  |      | 898    |      |  |   | 800    | 
|Sales, use and property taxes               |  |      | 2,795  |      |  |   | 2,429  | 
|Warranty reserve                            |  |      | 2,525  |      |  |   | 969    | 
|Other                                       |  |      | 5,555  |      |  |   | 1,883  | 
|                                            |  |      |        |      |  |   |        | 
|                                            |  | $    | 34,261 |      |  | $ | 31,442 | 
|                                            |  |      |        |      |  |   |        | 



|    |                                                               
|--- | --------------------------------------------------------------
|13. | Distributions to and Contributions from Atrium
    Corporation

During 2003, the Company distributed net capital
in the amount of $20,383 to Atrium Corporation, of which $27,379
represents the net cash distribution to Atrium Corporation
related to the Merger, and includes $97 of expenses paid by the
Company on behalf of Atrium Corporation. The amount also
includes non-cash expenses of $381 related to stock compensation
expense and $1,615 related to amortization of warrants.
Additionally, $5,000 of stock issued in connection with the
Superior acquisition was contributed to the Company, net of the
above non-cash expenses.

During 2002, the Company distributed capital in
the amount of $168 to Atrium Corporation, of which $124
represented the repurchase of common stock and stock options
from former employees, net of options exercised by current and
former employees, and $45 related to administrative expenses.

During 2001, the Company received a capital
contribution of $10,052 from Atrium Corporation, which
represented the proceeds from the issuance of its common stock.
This amount was contributed to the Company net of transaction
expenses of $1,423 incurred in connection with the registration
of the Atrium Corporation Senior Pay-In-Kind Notes, $862 for
distribution to Atrium Corporation for the repurchase of stock
options from former employees, $492 for distribution to Atrium
Corporation for the repurchase of stock from former employees
and $27 related to administrative expenses.

F-26



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                   
|--- | ------------------
|14. | Federal Income Tax

Temporary differences that give rise to the
deferred income tax assets and liabilities are as follows as of
December 31:

|                                          |                                                            |      |        |         |   |   |        |         |  
|----------------------------------------- | ---------------------------------------------------------- | ---- | ------ | ------- | - | - | ------ | ------- | -
|                                          |                                                            | 2003 |        | 2002   
|                                          |                                                            |      |        |        
|Deferred income tax assets:               |                                                            |      |        |         |   |   |        |        
|                                          | Stock compensation                                         |      | $      | 650     |   |   | $      | 889     |  
|                                          | Accounts receivable                                        |      |        | 600     |   |   |        | 571     |  
|                                          | Inventory cost capitalization and valuation                |      |        | 586     |   |   |        | 606     |  
|                                          | Accrued vacation and bonuses                               |      |        | 903     |   |   |        | 1,743   |  
|                                          | Other accrued liabilities                                  |      |        | 557     |   |   |        | 673     |  
|                                          | Warranty reserve                                           |      |        | 451     |   |   |        | 390     |  
|                                          | Workers compensation reserve                              |      |        | 770     |   |   |        | 307     |  
|                                          | Alternative minimum tax credit carryforwards and
    other |      |        | 418     |   |   |        | 700     |  
|                                          | Swap contract liability                                    |      |        |        |   |   |        | 1,787   |  
|                                          | Net operating loss carryforwards                           |      |        | 27,774  |   |   |        | 27,435  |  
|                                          |                                                            |      |        |         |   |   |        |        
|                                          |                                                            |      | 32,709 |         |   |   | 35,101 |        
|                                          | Valuation allowance                                        |      |        | (11,319 | ) |   |        | (20,365 | )
|                                          |                                                            |      |        |         |   |   |        |        
|                                          | Net deferred tax asset                                     |      |        | 21,390  |   |   |        | 14,736  |  
|                                          |                                                            |      |        |         |   |   |        |        
|Deferred income tax liabilities:          |                                                            |      |        |         |   |   |        |        
|                                          | Depreciation and amortization                              |      |        | (20,742 | ) |   |        | (14,088 | )
|                                          | LIFO reserve                                               |      |        | (648    | ) |   |        | (648    | )
|                                          |                                                            |      |        |         |   |   |        |        
|                                          | Net deferred tax liability                                 |      |        | (21,390 | ) |   |        | (14,736 | )
|                                          |                                                            |      |        |         |   |   |        |        
|Net deferred income tax asset/(liability) |                                                            |      |       |         |   |   |       |        
|Less-current deferred tax asset           |                                                            |      | 2,595  |         |   |   | 1,324  |        
|                                          |                                                            |      |        |         |   |   |        |        
|Long-term deferred tax liability          |                                                            | $    | (2,595 | )       |   | $ | (1,324 | )      
|                                          |                                                            |      |        |         |   |   |        |        

A valuation allowance is required against
deferred tax assets if, based on the weight of available
evidence, it is more likely than not that some of or all of the
deferred tax assets will not be realized. The change in the
valuation allowance is the result of changes in temporary
differences and return to provision adjustments. A valuation
allowance has been recorded against the Companys net
deferred tax asset.

At December 31, 2003, the Company had net
operating loss carryforwards of approximately $81,687, which
begin to expire in 2019. The Company also had $230 of
alternative minimum tax credit carryforwards at
December 31, 2003, which have no expiration date.

The Merger caused an ownership change pursuant to
Internal Revenue Code Section 382. As a result of this
ownership change, the Companys use of its net operating
loss carryforwards subsequent to that date will be subject to an
annual limitation. Management does not believe that this annual
limitation will impact the Companys ability to utilize its
net operating losses during the carryforward period.

F-27



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of the provision for income taxes
are as follows:

|                             |          |              |     |              |  |              |     |     |  |   |       |       | 
|---------------------------- | -------- | ------------ | --- | ------------ |  | ------------ | --- | --- |  | - | ----- | ----- | 
|                             |          | Year Ended   |     | Year Ended   |  | Year Ended  
|                             |          | December 31, |     | December 31, |  | December 31,
|                             |          | 2003         |     | 2002         |  | 2001        
|                             |          |              |     |              |  |             
|Federal income tax provision |          |              |     |              |  |              |     |     |  |   |       |      
|                             | Current  |              | $   |             |  |              | $   |    |  |   | $     |      | 
|                             | Deferred |              |     |             |  |              |     |    |  |   |       |      | 
|State income tax provision   |          |              |     |              |  |              |     |     |  |   |       |      
|                             | Current  |              |     | 422          |  |              |     | 625 |  |   |       | 1,358 | 
|                             | Deferred |              |     |             |  |              |     |    |  |   |       |      | 
|                             |          |              |     |              |  |              |     |     |  |   |       |      
|Provision for income taxes   |          | $            | 422 |              |  | $            | 625 |     |  | $ | 1,358 |      
|                             |          |              |     |              |  |              |     |     |  |   |       |      

Reconciliation of the federal statutory income
tax rate to the effective tax rate, was as follows:

|                                    |  |              |        |              |  |              |        |   |  |   |        |  
|----------------------------------- |  | ------------ | ------ | ------------ |  | ------------ | ------ | - |  | - | ------ | -
|                                    |  | Year Ended   |        | Year Ended   |  | Year Ended  
|                                    |  | December 31, |        | December 31, |  | December 31,
|                                    |  | 2003         |        | 2002         |  | 2001        
|                                    |  |              |        |              |  |             
|Tax computed at statutory rate      |  | $            | 2,339  |              |  | $            | 5,185  |   |  | $ | (935   | )
|State taxes, net of federal benefit |  |              | 274    |              |  |              | 407    |   |  |   | 883    |  
|Amortization of goodwill            |  |              |       |              |  |              |       |   |  |   | 2,679  |  
|Valuation allowance                 |  |              | (2,515 | )            |  |              | (5,203 | ) |  |   | (1,484 | )
|Other items                         |  |              | 324    |              |  |              | 236    |   |  |   | 215    |  
|                                    |  |              |        |              |  |              |        |   |  |   |        |  
|Provision for income taxes          |  | $            | 422    |              |  | $            | 625    |   |  | $ | 1,358  |  
|                                    |  |              |        |              |  |              |        |   |  |   |        |  

For income tax purposes, Internal Revenue
Code Section 197 (IRC section 197)
provides for the amortization of certain intangible assets,
including goodwill, for asset acquisitions occurring after
August 1993. Any resulting difference in the book and tax basis
of these intangibles is reflected as a component of deferred
taxes. Amortization expense related to intangible assets which
do not qualify under IRC section 197 is reflected as
nondeductible amortization in the rate reconciliation.



|    |                
|--- | ---------------
|15. | Related Parties



| |                       
| | ----------------------
| | Stockholders Agreement

Atrium Corporation is party to a stockholders
agreement with ATR Acquisition, LLC and ML IBK
Positions, Inc. Pursuant to the stockholders agreement,
Mr. Hull has been designated Chairman of our board of
directors and of the board of directors of Atrium Corporation in
accordance with his employment agreement. Each of the other
members of our board of directors and the board of directors of
Atrium Corporation have been designated by ATR Acquisition, LLC.
For more information about the composition of our board of
directors see Certain Relationships and Related Party
Transactions  Limited Liability Company
Agreement.

The stockholders agreement contains customary
terms, including terms regarding transfer restrictions, rights
of first offer, tag-along rights, drag-along rights, preemptive
rights with respect to our capital stock and veto rights with
respect to certain corporate actions including but not limited
to:



| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a supermajority consent of the members of ATR
    Acquisition, LLC to approve any sale, merger, or other corporate
    reorganization or restructuring or transfer of control involving
    the Company;
|
| |  | unanimous consent of the members of ATR
    Acquisition, LLC to amend the stockholders agreement, the
    Companys certificate of incorporation, by-laws or other
    organizational documents; and    

F-28



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | unanimous consent of the members of ATR
    Acquisition, LLC to alter the maximum number of directors
    comprising the Companys board of directors.



| |                     
| | --------------------
| | Management Agreement

We are party to a management agreement with JLK
Operations, Inc., an affiliate of Kenner for management and
financial advisory services and oversight to be provided to us
and our subsidiaries. Pursuant to the management agreement, we
have agreed to pay to JLK Operations, Inc. an annual
advisory fee of $250 plus expenses, payable on a quarterly
basis in advance. Payment of the annual fee under the management
agreement is subject to the terms of our credit and financing
arrangements.

Atrium Corporation paid Kenner and/or its
affiliates a one-time transaction fee of $8,000 upon
consummation of the Merger.

In addition, Atrium Corporation paid a
transaction fee of $1,000 to UBS Capital Americas, LLC and
Merrill Lynch Global Partners, Inc. in connection with and
upon the consummation of the Merger.



| |                     
| | --------------------
| | Consulting Agreement

The Company entered into a consulting,
noncompetition and nonsolicitation agreement with John Ellison,
the former owner of Ellison. The term of the agreement commenced
October 25, 2000, was amended in June 2001 and was
terminated in connection with the Merger. Under this agreement,
Mr. Ellison provided the Company with consulting services
with respect to the matters of Ellison, as well as various
strategies for expanding the Companys customer base and
increasing its sales. During the term of his agreement,
Mr. Ellison was to receive payments in the aggregate amount
of $2,600, payable in 18 installments of $12 each, on the
fifteenth and last day of each month and 150 installments of $16
on the fifteenth and last day of each month beginning on
July 31, 2001 and continuing thereafter to and including
October 15, 2007. The Company paid Mr. Ellison $1,226
to terminate the agreement on December 10, 2003.



| |                 
| | ----------------
| | Notes Receivable

Included in prepaid expenses and other current
assets are the following receivables due from related parties
(none of which are executive officers of the Company) at
December 31:

|                           |  |      |    |      |  |   |     | 
|-------------------------- |  | ---- | -- | ---- |  | - | --- | 
|                           |  | 2003 |    | 2002
|                           |  |      |    |     
|Receivables from employees |  | $    | 98 |      |  | $ | 167 | 



|    |                              
|--- | -----------------------------
|16. | Commitments and Contingencies



| |                      
| | ---------------------
| | Employment Agreements

The Company has entered into employment
agreements with several key executives of the Company including
its Chairman, President and Chief Executive Officer, its Chief
Financial Officer, its Co-Chief Operating Officers, its General
Counsel and several Divisional Presidents, Vice Presidents,
General Managers and Sales Managers. The agreements generally
provide for terms of employment, annual salaries, bonuses,
benefits, eligibility for option awards and severance.



| |                 
| | ----------------
| | Operating Leases

The Company has entered into operating lease
agreements for office and manufacturing space, automobiles, and
machinery and equipment with unrelated third parties, and
related parties of the Company. Total rent expense for 2003,
2002 and 2001 was $25,486, $23,683 and $23,197, respectively. Of
these totals, amounts paid to related parties were $626, $456
and $1,665 for 2003, 2002 and 2001, respectively. The

F-29



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Company terminated a lease agreement with a
related party in November 2001, and entered into replacement
lease agreements with an unrelated third party. Future minimum
rents due under operating leases with initial or remaining terms
greater than twelve months are as follows:

|           |  |       |         | 
|---------- |  | ----- | ------- | 
|           |  | Total
|           |  |      
|2004       |  | $     | 13,844  | 
|2005       |  |       | 12,369  | 
|2006       |  |       | 10,179  | 
|2007       |  |       | 7,086   | 
|2008       |  |       | 6,242   | 
|Thereafter |  |       | 58,341  | 
|           |  |       |         | 
|           |  | $     | 108,061 | 
|           |  |       |         | 

Certain lease agreements provide for increased
payments based on changes in the consumer price index.
Additionally, under certain lease agreements the Company is
obligated to pay insurance and taxes.



| |                    
| | -------------------
| | Forward Commitments

The Company has contracts with various suppliers
to purchase aluminum and zinc for use in the manufacturing
process. The contracts vary from one to twelve months and are at
fixed quantities with fixed and floating prices. As of
December 31, 2003, the Company had forward commitments for
65,465,000 pounds of aluminum, of which 5,000,000 pounds were at
fixed prices. The fixed contracts totaled $3,796 for delivery
through December 2004. As of December 31, 2003, the Company
had forward commitments for 1,080,000 pounds of zinc at a fixed
price. The fixed contracts totaled $529 for delivery through
December 2004.



| |              
| | -------------
| | Contingencies

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

The Company is involved in various stages of
investigation and cleanup related to environmental protection
matters, some of which relate to waste disposal sites. The
potential costs related to such matters and the possible impact
thereof on future operations are uncertain due in part to: the
uncertainty as to the extent of pollution; the complexity of
government laws and regulations and their interpretations; the
varying costs and effectiveness of alternative cleanup
technologies and methods; the uncertain level of insurance or
other types of recovery; and the questionable level of the
Companys involvement. The Company was named in 1988 as a
potentially responsible party (PRP) in two superfund
sites pursuant to the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended.

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

F-30



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

approximately 85 that are members of the
sites steering committee. Two main PRPs, Glidden and
Sherwin Williams, account for approximately 46% of all
liability. The Companys costs to date associated with this
site have been approximately $78, with a current credit for
overpayment of $30.

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

The Company owned one parcel of real estate that
requires future costs related to environmental clean-up. The
estimated costs of clean-up have been reviewed by third-party
sources and are expected not to exceed $150. The previous owner
of the property has established an escrow of $400 to remediate
the associated costs. The Company sold this property in
December 1999. The Company has established a letter of
credit of $250 to cover any costs of remediation exceeding the
previous owners escrow. The Company expects a closure
certificate to be issued by January 2005, at which time the
letter of credit will expire. The Company believes the existing
escrow amount is adequate to cover costs associated with this
clean-up.

In connection with the sale of one of the
Companys facilities in December 2002, a $250 escrow
was established. The escrow is receivable upon the Company
obtaining an environmental innocent ownership certification on
the building. The Company is currently in the process of
applying for the certification and expects to be refunded the
entire $250 escrow during 2004.

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



|    |                  
|--- | -----------------
|17. | Other Income, Net

Other income, net consists of the following for
the years ended December 31, 2003, 2002 and 2001:

|                                  |  |      |      |      |  |      |      |   |  |   |      |  
|--------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                  |  | 2003 |      | 2002 |  | 2001
|                                  |  |      |      |      |  |     
|Rental, interest and other income |  | $    | 355  |      |  | $    | 214  |   |  | $ | 364  |  
|Other expense                     |  |      | (286 | )    |  |      | (192 | ) |  |   | (384 | )
|                                  |  |      |      |      |  |      |      |   |  |   |      |  
|                                  |  | $    | 69   |      |  | $    | 22   |   |  | $ | (20  | )
|                                  |  |      |      |      |  |      |      |   |  |   |      |  



|    |              
|--- | -------------
|18. | Stock Options



| |                       
| | ----------------------
| | 2003 Stock Option Plan

Atrium Corporation adopted the Atrium Corporation
2003 Stock Option Plan (the 2003 Plan) on
December 10, 2003, which provides for the grant of options
to purchase common stock of Atrium Corporation to our key
employees and eligible non-employees. The 2003 Plan provides for
the grant of options to purchase up to 14,000 shares of
common stock of Atrium Corporation. Immediately following the
consummation of the Merger, a total of 8,750 options to purchase
shares of common stock of Atrium Corporation were outstanding
under the 2003 Plan.

Options granted under the 2003 Plan have a term
of ten years from the date of grant and vest in equal
installments either on the annual anniversary of grant or on the
last day of each month over a period of five years, subject to
continued employment. No option is exercisable until it has
vested.

F-31



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Upon termination of the optionee for cause or
voluntary termination by the optionee without good reason, all
unvested options are automatically forfeited. Upon termination
of employment of an optionee for any reason or if a sale of the
company, as defined in the 2003 Plan, occurs, Atrium Corporation
has the right to purchase all or any portion of the
optionees vested options and any shares of common stock of
Atrium Corporation held by the optionee as a result of the
exercise of an option.

The 2003 Plan provides that, unless specifically
approved otherwise, all options granted are in the form of
nonqualified options, which are options that do not qualify for
favored tax treatment under Section 422 of the Internal
Revenue Code. All options granted to date under the 2003 Plan
are nonqualified options. Options are not transferable other
than in accordance with the laws of descent and distribution.
All shares of common stock issued upon exercise of options are
subject to a right of first refusal that provides Atrium
Corporation or its designee with the right to purchase such
shares in the event of any proposed transfer thereof by the
optionee.

As a condition to the grant of the options under
the 2003 Plan, each holder of such options was required to
execute an option agreement containing certain repurchase
provisions.



| |                              
| | -----------------------------
| | Replacement Stock Option Plan

Atrium Corporation adopted the Atrium Corporation
Replacement Stock Option Plan (the Replacement Plan)
on December 31, 2003, which provides for the grant of
options to purchase Atrium Corporations common stock in
replacement of outstanding options of our former parent in
connection with the Merger. The Replacement Plan provides for
the grant of up to 1,105 options to purchase shares of common
stock of Atrium Corporation, all of which were outstanding as of
December 31, 2003. Options granted under the Replacement
Plan have a term of ten years from the date of grant, subject to
continued employment, and vest ratably over a period of three
years on the last day of each month during such period. No
option is exercisable until it is vested. These options have an
exercise price of $0.01 per share.

Upon termination of an optionees employment
for any reason or upon sale of the Company, Atrium Corporation
has the right to repurchase all or any portion of the
replacement options held by the optionee. As a condition to the
grant of the replacement options, each holder of a replacement
option was required to execute a buy-sell agreement containing
the repurchase provisions.

The Replacement Plan provides that all options
granted are in the form of nonqualified options, which are
options that do not qualify for favored tax treatment under
Section 422 of the Internal Revenue Code. Replacement
options are not transferable other than in accordance with the
laws of descent and distribution by an optionee, except that
options may be transferred to any optionees family members
or personal representative.



| |              
| | -------------
| | Hull Warrants

In connection with the Merger and entry into his
employment agreement, Mr. Hull was granted warrants to
purchase 7,750 shares of Atrium Corporations common
stock. 4,000 of these shares fully vested on February 1,
2004 and were exercised on February 27, 2004 at an exercise
price of $.01 per share. With respect to the remaining
3,750 shares, the warrant vests ratably on a monthly basis
over a five-year period and has an exercise price of
$1,000 per share. Notwithstanding the foregoing, all of the
remaining warrants will immediately vest upon a sale of the
Company or upon a change control.

F-32



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                   
| | ------------------
| | Prior Option Plans

Prior to the Merger, the Companys employees
participated in the 1998 option plan and the 1998 replacement
plan. Upon the Merger, all such options vested and were either
exercised or cancelled. The activity of these plans is
summarized in the table below.

The following table summarizes the transactions
of the 2003 Plan, the Hull Warrants and the Replacement Plan
(combined) for the year ended December 31, 2003 and the
transactions of the 1998 Plan and the Replacement Plan for the
years ended December 31, 2003, 2002 and 2001:

|                                                        |  |              |        |              |  |              |       |   |  |   |        |  
|------------------------------------------------------- |  | ------------ | ------ | ------------ |  | ------------ | ----- | - |  | - | ------ | -
|                                                        |  | December 31, |        | December 31, |  | December 31,
|                                                        |  | 2003(1)      |        | 2002(1)      |  | 2001(1)     
|                                                        |  |              |        |              |  |             
|Outstanding awards, beginning of period                 |  |              | 9,646  |              |  |              | 9,446 |   |  |   | 11,916 |  
|Granted                                                 |  |              | 17,605 |              |  |              | 591   |   |  |   | 159    |  
|Canceled or expired                                     |  |              | (3,659 | )            |  |              | (305  | ) |  |   | (2,493 | )
|Exercised                                               |  |              | (5,987 | )            |  |              | (86   | ) |  |   | (136   | )
|                                                        |  |              |        |              |  |              |       |   |  |   |        |  
|Outstanding awards, end of year                         |  |              | 17,605 |              |  |              | 9,646 |   |  |   | 9,446  |  
|                                                        |  |              |        |              |  |              |       |   |  |   |        |  
|Weighted average grant-date fair value of awards        |  | $            | 1,000  |              |  | $            | 1,182 |   |  | $ | 1,182  |  
|Weighted average exercise price of awards
    exercised |  | $            | 917    |              |  | $            | 9     |   |  | $ | 9      |  
|Weighted average exercise price of awards granted       |  | $            | 710    |              |  | $            | 1,182 |   |  | $ | 1,182  |  
|Weighted average exercise price, end of period          |  | $            | 710    |              |  | $            | 1,033 |   |  | $ | 1,006  |  
|Awards exercisable, end of period                       |  |              |       |              |  |              | 7,097 |   |  |   | 4,755  |  
|Awards available for future grant                       |  |              | 5,250  |              |  |              | 6,100 |   |  |   | 6,386  |  






|    |                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The number of shares and exercise prices have
    been adjusted for the December 10, 2003 exchange of 11
    existing shares for 10 new shares in Atrium Corporation.

The following table summarizes information about
stock options (including warrants) outstanding at
December 31, 2003:

|                         |  |                     |        |                     |  |          |     |             |  |          |       |  |  |  |   |  |  |  |   | 
|------------------------ |  | ------------------- | ------ | ------------------- |  | -------- | --- | ----------- |  | -------- | ----- |  |  |  | - |  |  |  | - | 
|                         |  |                     |        |                    
|                         |  | Options Outstanding |        | Options Exercisable
|                         |  |                     |        |                    
|                         |  |                     |        | Weighted            |  | Weighted |     |             |  | Weighted
|                         |  |                     |        | Average             |  | Average  |     |             |  | Average 
|                         |  | Number              |        | Remaining           |  | Exercise |     | Number      |  | Exercise
|Range of Exercise Prices |  | Outstanding         |        | Life (months)       |  | Price    |     | Exercisable |  | Price   
|                         |  |                     |        |                     |  |          |     |             |  |         
|Options:                 |  |                     |        |                     |  |          |     |             |  |          |       |  |  |  |   |  |  |  |   | 
|$.01-$999                |  |                     | 5,105  |                     |  |          | 120 |             |  | $        | .01   |  |  |  |  |  |  |  |  | 
|$1,000 or greater        |  |                     | 12,500 |                     |  |          | 120 |             |  | $        | 1,000 |  |  |  |  |  |  |  |  | 
|                         |  |                     |        |                     |  |          |     |             |  |          |       |  |  |  |   |  |  |  |   | 
|                         |  |                     | 17,605 |                     |  |          |     |             |  |          |       |  |  |  |  |  |  |  |   | 
|                         |  |                     |        |                     |  |          |     |             |  |          |       |  |  |  |   |  |  |  |   | 

In 1995, the FASB issued SFAS 123, which, if
fully adopted by the Company, would change the methods the
Company applies in recognizing the cost of the stock based
plans. Adoption of the cost recognition provisions of
SFAS 123 is optional, and the Company has not elected the
provisions of SFAS 123. However, pro forma disclosures, as
if the Company adopted the cost recognition provisions of
SFAS 123 are required by SFAS 123. During 2003, 2002
and 2001, the Company granted only nonqualified stock options
and warrants under the plans. See Note 1 for these pro
forma disclosures.

The fair value of each stock option granted is
estimated on the date of grant using the minimum value method of
option pricing with the following weighted-average assumptions
for grants in 2003, 2002 and 2001: dividend yield of 0.0%;
risk-free interest rate of 6.23%; and the expected life of
5 years. In determining the minimum value
SFAS 123 does not require the volatility of the
Companys common stock underlying the

F-33



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

options to be calculated or considered because
the Company was not publicly-traded when the options were
granted.



|    |                              
|--- | -----------------------------
|19. | Operating Segment Information

The Company is engaged in the manufacture and
sale of windows, doors and various other building materials
throughout North America and is organized within two principal
operating segments, including the Windows and Doors Segment and
the Components Segment. Individual subsidiary companies are
included in each of the Companys two principal operating
segments based on the way the chief operating decision maker
manages the business and on the similarity of products,
production processes, customers and expected long-term financial
performance. In the tables below, Corporate and Other include
corporate overhead costs and certain income and expense items
not allocated to reportable operating segments, including
expenses incurred in connection with the Merger.

The Windows and Doors Segment fabricates,
distributes and installs products primarily for the residential
new construction and repair and remodel markets. The principal
products sold by the segment include vinyl and aluminum windows
and doors. The Components Segment principally manufactures
component parts utilized in the fabrication of aluminum and
vinyl windows and doors, including aluminum and vinyl extrusion,
zinc die-casted hardware and fiberglass and aluminum screens.

The accounting policies of the operating segments
are the same as those described in Note 1 (Summary of
Significant Accounting Policies). The Company evaluates
operating segment performance based on operating earnings before
allocations of corporate overhead costs. All material
intrasegment sales are eliminated within each respective
segment. The income statement impact of all purchase accounting
adjustments, including goodwill and intangible assets
amortization, is reflected in the operating earnings of the
applicable operating segment.

Identifiable assets by operating segment are
those used in operations by each segment. Corporate and Other
assets are principally cash and cash equivalents, deferred tax
assets, certain property, plant and equipment, deferred
financing costs and retained interest in sold accounts
receivable.

In accordance with the adoption of SFAS
No. 142 in 2002, the Company allocated all goodwill and
intangible assets previously included in unallocated assets to
the Companys operating segments. Accordingly, the amounts
for all prior periods have been reclassified to conform to the
2003 presentation.

F-34



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Summarized financial information for the
Companys reportable operating segments is presented in the
tables that follow for each of the three years in the period
ended December 31, 2003:

|                                  |                                     |                                  |         |         |  |                  |         |         |  |   |         |         | 
|--------------------------------- | ----------------------------------- | -------------------------------- | ------- | ------- |  | ---------------- | ------- | ------- |  | - | ------- | ------- | 
|                                  |                                     |                                 
|                                  |                                     | For the Years Ended December 31,
|                                  |                                     |                                 
|                                  |                                     |                                  |         | 2001   
|                                  |                                     | 2003                             |         | 2002    |  | (As Restated)(2)
|                                  |                                     |                                  |         |         |  |                 
|                                  |                                     |                                 
|                                  |                                     | (Amounts in thousands)          
|Net Sales:                        |                                     |                                  |         |         |  |                  |         |         |  |   |         |        
|Windows and Doors                 |                                     | $                                | 543,217 |         |  | $                | 491,584 |         |  | $ | 471,255 |        
|Components                        |                                     |                                  | 100,916 |         |  |                  | 81,451  |         |  |   | 75,181  |        
|Intersegment Eliminations         |                                     |                                  | (46,323 | )       |  |                  | (36,736 | )       |  |   | (29,373 | )      
|                                  |                                     |                                  |         |         |  |                  |         |         |  |   |         |        
|                                  | Consolidated net sales              |                                  | $       | 597,810 |  |                  | $       | 536,299 |  |   | $       | 517,063 | 
|                                  |                                     |                                  |         |         |  |                  |         |         |  |   |         |        
|Income from Operations:           |                                     |                                  |         |         |  |                  |         |         |  |   |         |        
|Windows and Doors                 |                                     | $                                | 53,576  |         |  | $                | 55,665  |         |  | $ | 38,585  |        
|Components                        |                                     |                                  | 7,880   |         |  |                  | 3,307   |         |  |   | 1,765   |        
|Corporate and Other               |                                     |                                  | (18,625 | )       |  |                  | (8,484  | )       |  |   | (3,888  | )      
|                                  |                                     |                                  |         |         |  |                  |         |         |  |   |         |        
|                                  | Consolidated income from operations |                                  |         | 42,831  |  |                  |         | 50,488  |  |   |         | 36,462  | 
|Interest expense                  |                                     |                                  | 36,218  |         |  |                  | 35,901  |         |  |   | 39,950  |        
|Other income (expense), net       |                                     |                                  | 69      |         |  |                  | 22      |         |  |   | (20     | )      
|                                  |                                     |                                  |         |         |  |                  |         |         |  |   |         |        
|Income (loss) before income taxes |                                     | $                                | 6,682   |         |  | $                | 14,609  |         |  | $ | (3,508  | )      
|                                  |                                     |                                  |         |         |  |                  |         |         |  |   |         |        

|                    |  |                        |         |      |  |      |         |  |  |   |         | 
|------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                    |  |                       
|                    |  | December 31,          
|                    |  |                       
|                    |  | 2003                   |         | 2002 |  | 2001
|                    |  |                        |         |      |  |     
|                    |  |                       
|                    |  | (Amounts in thousands)
|Segment Assets:     |  |                        |         |      |  |      |         |  |  |   |         | 
|Windows and Doors   |  | $                      | 445,314 |      |  | $    | 369,016 |  |  | $ | 365,495 | 
|Components          |  |                        | 91,807  |      |  |      | 59,780  |  |  |   | 59,232  | 
|Corporate and Other |  |                        | 70,346  |      |  |      | 59,524  |  |  |   | 59,480  | 
|                    |  |                        |         |      |  |      |         |  |  |   |         | 
|                    |  | $                      | 607,467 |      |  | $    | 488,320 |  |  | $ | 484,207 | 
|                    |  |                        |         |      |  |      |         |  |  |   |         | 
|Segment Goodwill:   |  |                        |         |      |  |      |         |  |  |   |         | 
|Windows and Doors   |  | $                      | 300,567 |      |  | $    | 286,787 |  |  | $ | 286,787 | 
|Components          |  |                        | 66,819  |      |  |      | 49,075  |  |  |   | 49,075  | 
|Corporate and Other |  |                        | 9,377   |      |  |      | 9,377   |  |  |   | 9,377   | 
|                    |  |                        |         |      |  |      |         |  |  |   |         | 
|                    |  | $                      | 376,763 |      |  | $    | 345,239 |  |  | $ | 345,239 | 
|                    |  |                        |         |      |  |      |         |  |  |   |         | 

F-35



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                               |                                            |                        |        |        |  |      |        |        |  |   |        |        | 
|------------------------------ | ------------------------------------------ | ---------------------- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                               |                                            |                       
|                               |                                            | December 31,          
|                               |                                            |                       
|                               |                                            | 2003                   |        | 2002   |  | 2001
|                               |                                            |                        |        |        |  |     
|                               |                                            |                       
|                               |                                            | (Amounts in thousands)
|Depreciation and Amortization: |                                            |                        |        |        |  |      |        |        |  |   |        |       
|Windows and Doors              |                                            | $                      | 12,050 |        |  | $    | 10,555 |        |  | $ | 19,511 |       
|Components                     |                                            |                        | 2,735  |        |  |      | 2,125  |        |  |   | 2,603  |       
|Corporate and Other            |                                            |                        | 2,654  |        |  |      | 2,205  |        |  |   | 2,301  |       
|                               |                                            |                        |        |        |  |      |        |        |  |   |        |       
|                               | Consolidated depreciation and amortization |                        | $      | 17,439 |  |      | $      | 14,885 |  |   | $      | 24,415 | 
|                               |                                            |                        |        |        |  |      |        |        |  |   |        |       
|Capital Expenditures(1):       |                                            |                        |        |        |  |      |        |        |  |   |        |       
|Windows and Doors              |                                            | $                      | 11,678 |        |  | $    | 9,589  |        |  | $ | 2,807  |       
|Components                     |                                            |                        | 2,843  |        |  |      | 2,075  |        |  |   | 4,014  |       
|Corporate and Other            |                                            |                        | 4,424  |        |  |      | (507   | )      |  |   | 1,163  |       
|                               |                                            |                        |        |        |  |      |        |        |  |   |        |       
|                               | Consolidated capital expenditures          |                        | $      | 18,945 |  |      | $      | 11,157 |  |   | $      | 7,984  | 
|                               |                                            |                        |        |        |  |      |        |        |  |   |        |       



---



|    |                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Capital expenditures are net of proceeds from
    sales of assets.                                                                                                                                                                                                                                                           
|   
|(2) | Income from operations in 2001 has been restated
    to correct a mathematical error in the consolidation of separate
    segment data. Income from operations in 2001 as previously
    reported was $58,065, $5,099 and $(26,702) for the Windows and
    Doors, Components and Corporate and Other segments, respectively.



|    |                       
|--- | ----------------------
|20. | Employee Benefit Plans

The Company maintains an employees savings
plan under Section 401(k) of the Internal Revenue Code
(Atrium Plan). The Company makes discretionary
matching contributions equal to 50% of the first 4% of the
employees contribution. The Company contributed $977,
$1,016 and $1,107 during 2003, 2002 and 2001, respectively.



|    |                      
|--- | ---------------------
|21. | Subsidiary Guarantors

The Companys payment obligations under the
Notes are fully and unconditionally guaranteed, jointly and
severally, on a senior subordinated basis, by its wholly-owned
subsidiaries (collectively, the Subsidiary
Guarantees): Atrium Door and Window Company of the
Northeast, Atrium Door and Window Company of Arizona, Atrium
Door and Window Company  West Coast, Atrium Vinyl,
Inc. (formerly known as Heat, Inc.), Thermal Industries, Inc.,
Atrium Door and Window Company of the Northwest (formerly known
as Best Built, Inc.), Atrium Door and Window Company of the
Rockies (formerly known as Champagne Industries, Inc.), Wing
Industries, Inc., R.G. Darby Company, Inc., Total Trim, Inc,
Atrium Extrusion Systems, Inc. (formerly known as VES, Inc.),
Superior Engineered Products Corporation, MD Casting, Inc. and
Aluminum Screen Manufacturers, Inc. (collectively, the
Guarantor Subsidiaries). The following subsidiaries
do not guarantee the Companys Notes: Atrium Funding
Corporation, Atrium Ventanas de Mexico and Atrium Servicios de
Mexico (collectively, the Non-Guarantor
Subsidiaries). The operations and cash flows of all
subsidiaries are presented for; all periods covered except for:
the operations of Superior, which are presented since its date
of acquisition on December 31, 2003; Aluminum Screen, which
are presented since its date of acquisition on October 1,
2003; MD Casting, which are presented since its date of
acquisition on January 31, 2003 and Atrium Ventanas de
Mexico and Atrium Servicios de Mexico, which are presented since
their inception in March 2002. The balance sheet information
includes all subsidiaries as of December 31, 2003 and all
subsidiaries except for Superior, Aluminum Screen and MD
Casting, as of December 31, 2002. In the opinion of
management, separate financial statements of the respective
Guarantor Subsidiaries would not provide additional material
information which would be useful in assessing the

F-36



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

financial composition of the Guarantor
Subsidiaries. None of the Guarantor Subsidiaries has any
significant legal restrictions on the ability of investors or
creditors to obtain access to its assets in event of default on
the Subsidiary Guarantee other than its subordination to senior
indebtedness.

The Notes and the Subsidiary Guarantees are
subordinated to all existing and future Senior Indebtedness of
the Company. The indenture governing the Notes contains
limitations on the amount of additional indebtedness (including
senior indebtedness) which the Company may incur.

Restatement of Parent Company and
Non-Guarantor Data:

The parent company and non-guarantor data, as
previously filed, did not reflect the parent companys
equity in earnings of its subsidiaries. Such amounts have been
restated to reflect equity in earnings of subsidiaries within
the parent company data and eliminated in consolidation. This
change had no effect on the Guarantor information.

The significant changes that impacted the
non-guarantor subsidiaries data are as follows:

|                            |                            |                        |  |   |         |  
|--------------------------- | -------------------------- | ---------------------- |  | - | ------- | -
|                            |                            | December 31,          
|                            |                            | 2003                  
|                            |                            |                       
|Consolidating Balance Sheet |                            |                        |  |  
|                            | Cash and cash equivalents  |                        |  |   |        
|                            |                            | As previously reported |  | $ | (12,475 | )
|                            |                            | Adjustments            |  |   | 1,990   |  
|                            |                            |                        |  |  
|                            |                            | As restated            |  | $ | (10,485 | )
|                            | Total stockholders equity |                        |  |   |        
|                            |                            | As previously reported |  | $ | 12,330  |  
|                            |                            | Adjustments            |  |   | 1,990   |  
|                            |                            |                        |  |  
|                            |                            | As restated            |  | $ | 14,320  |  

F-37



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The significant changes that impacted the parent
company data are as follows:

|                            |                            |                        |  |      |         |   |  |   |         | 
|--------------------------- | -------------------------- | ---------------------- |  | ---- | ------- | - |  | - | ------- | 
|                            |                            |                       
|                            |                            | December 31,          
|                            |                            |                       
|                            |                            | 2003                   |  | 2002
|                            |                            |                        |  |     
|Consolidating Balance Sheet |                            |                        |  |      |         |   |  |  
|                            | Cash and cash equivalents  |                        |  |      |         |   |  |   |        
|                            |                            | As previously reported |  | $    | (27,989 | ) |  |   |         | 
|                            |                            | Adjustments            |  |      | (1,990  | ) |  |   |         | 
|                            |                            |                        |  |      |         |   |  |  
|                            |                            | As restated            |  | $    | (29,979 | ) |  |   |         | 
|                            | Investment in subsidiaries |                        |  |      |         |   |  |   |        
|                            |                            | As previously reported |  | $    |        |   |  | $ |        | 
|                            |                            | Adjustments            |  |      | 122,103 |   |  |   | 38,744  | 
|                            |                            |                        |  |      |         |   |  |  
|                            |                            | As restated            |  | $    | 122,103 |   |  | $ | 38,744  | 
|                            | Total stockholders equity |                        |  |      |         |   |  |   |        
|                            |                            | As previously reported |  | $    | 5,998   |   |  | $ | 96,589  | 
|                            |                            | Adjustments            |  |      | 119,053 |   |  |   | 37,845  | 
|                            |                            |                        |  |      |         |   |  |  
|                            |                            | As restated            |  | $    | 125,051 |   |  | $ | 134,434 | 

|                                      |                                         |                                  |  |      |       |      |  |   |        |  |  |   |        |  
|------------------------------------- | --------------------------------------- | -------------------------------- |  | ---- | ----- | ---- |  | - | ------ |  |  | - | ------ | -
|                                      |                                         |                                 
|                                      |                                         | For the Years Ended December 31,
|                                      |                                         |                                 
|                                      |                                         | 2003                             |  | 2002 |       | 2001
|                                      |                                         |                                  |  |      |       |     
|Consolidating Statement of Operations |                                         |                                  |  |      |       |      |  |   |        |  |  |  
|                                      | Equity in income (loss) of subsidiaries |                                  |  |      |       |      |  |   |        |  |  |   |       
|                                      |                                         | As previously reported           |  | $    |      |      |  | $ |       |  |  | $ |       |  
|                                      |                                         | Adjustments                      |  |      | (462  | )    |  |   | 618    |  |  |   | (108   | )
|                                      |                                         |                                  |  |      |       |      |  |   |        |  |  |  
|                                      |                                         | As restated                      |  | $    | (462  | )    |  | $ | 618    |  |  | $ | (108   | )
|                                      | Net income (loss)                       |                                  |  |      |       |      |  |   |        |  |  |   |       
|                                      |                                         | As previously reported           |  | $    | 6,883 |      |  | $ | 13,303 |  |  | $ | (4,816 | )
|                                      |                                         | Adjustments                      |  |      | (623  | )    |  |   | 681    |  |  |   | (50    | )
|                                      |                                         |                                  |  |      |       |      |  |   |        |  |  |  
|                                      |                                         | As restated                      |  | $    | 6,260 |      |  | $ | 13,984 |  |  | $ | (4,866 | )

F-38



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING BALANCE SHEET

December 31, 2003


|                                                        |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |         |         | 
|------------------------------------------------------- | --------------------------------------------- | ------------------------------------------ | ------- | ------------- | ------- | ------------- | -- | ----------------- | ------ | ------------ | ------- | ------- | ------- | - | -------- | -------- | -------- | - | ------- | ------- | ------- | 
|                                                        |                                               |                                            |         | Non-Guarantor |         |               |    | Reclassification/ |        |             
|                                                        |                                               | Guarantor                                  |         | Subsidiaries  |         | Parent        |    | Eliminations      |        |             
|                                                        |                                               | Subsidiaries                               |         | (As Restated) |         | (As Restated) |    | (As Restated)     |        | Consolidated
|                                                        |                                               |                                            |         |               |         |               |    |                   |        |             
|                                                        |                                               |                                           
|                                                        |                                               | (Dollars in thousands)                    
|ASSETS                                                 
|CURRENT ASSETS:                                         |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|                                                        | Cash and cash equivalents                     |                                            | $       | 45,313        |         |               | $  | (10,485           | )      |              | $       | (29,979 | )       |   | $        | 2,864    |          |   | $       | 7,713   |        
|                                                        | Accounts receivable, net                      |                                            |         | 8,174         |         |               |    | 212               |        |              |         |        |         |   |          |         |          |   |         | 8,386   |        
|                                                        | Retained interest in sold accounts receivable |                                            |         |              |         |               |    | 24,462            |        |              |         |        |         |   |          |         |          |   |         | 24,462  |        
|                                                        | Inventories                                   |                                            |         | 26,463        |         |               |    | 50                |        |              |         | 22,476  |         |   |          |         |          |   |         | 48,989  |        
|                                                        | Prepaid expenses and other current assets     |                                            |         | 3,159         |         |               |    | 133               |        |              |         | 4,715   |         |   |          |         |          |   |         | 8,007   |        
|                                                        | Deferred tax asset                            |                                            |         | 12,621        |         |               |    |                  |        |              |         | 270     |         |   |          | (10,296  | )        |   |         | 2,595   |        
|                                                        |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|                                                        |                                               | Total current assets                       |         |               | 95,730  |               |    |                   | 14,372 |              |         |         | (2,518  | ) |          |          | (7,432   | ) |         |         | 100,152 | 
|PROPERTY, PLANT AND EQUIPMENT, net                      |                                               |                                            | 40,335  |               |         |               | 3  |                   |        |              | 50,336  |         |         |   |         |          |          |   | 90,674  |        
|GOODWILL                                                |                                               |                                            | 197,755 |               |         |               |   |                   |        |              | 179,008 |         |         |   |         |          |          |   | 376,763 |        
|INTANGIBLE ASSETS                                       |                                               |                                            | 12,900  |               |         |               |   |                   |        |              |        |         |         |   |         |          |          |   | 12,900  |        
|DEFERRED FINANCING COSTS, net                           |                                               |                                            |        |               |         |               |   |                   |        |              | 16,298  |         |         |   |         |          |          |   | 16,298  |        
|INVESTMENT IN SUBSIDIARIES                              |                                               |                                            |        |               |         |               |   |                   |        |              | 122,103 |         |         |   | (122,103 | )        |          |   |        |        
|OTHER ASSETS, net                                       |                                               |                                            | 2,220   |               |         |               | 37 |                   |        |              | 8,432   |         |         |   |         |          |          |   | 10,689  |        
|                                                        |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|                                                        |                                               | Total assets                               |         | $             | 348,940 |               |    | $                 | 14,412 |              |         | $       | 373,659 |   |          | $        | (129,535 | ) |         | $       | 607,476 | 
|                                                        |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|                                                       
|LIABILITIES AND STOCKHOLDERS
    EQUITY               
|CURRENT LIABILITIES:                                    |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|                                                        | Current portion of notes payable              |                                            | $       | 1,225         |         |               | $  |                  |        |              | $       | 2,077   |         |   | $        |         |          |   | $       | 3,302   |        
|                                                        | Accounts payable                              |                                            |         | 7,686         |         |               |    | 11                |        |              |         | 17,475  |         |   |          | 2,864    |          |   |         | 28,036  |        
|                                                        | Accrued liabilities                           |                                            |         | 12,218        |         |               |    | 81                |        |              |         | 21,962  |         |   |          |         |          |   |         | 34,261  |        
|                                                        |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|                                                        |                                               | Total current liabilities                  |         |               | 21,129  |               |    |                   | 92     |              |         |         | 41,514  |   |          |          | 2,864    |   |         |         | 65,599  | 
|                                                        |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|LONG-TERM LIABILITIES:                                  |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|                                                        | Notes payable                                 |                                            |         | 206,279       |         |               |    |                  |        |              |         | 205,611 |         |   |          |         |          |   |         | 411,890 |        
|                                                        | Deferred tax liability                        |                                            |         | 12,621        |         |               |    |                  |        |              |         | 270     |         |   |          | (10,296  | )        |   |         | 2,595   |        
|                                                        | Other long-term liabilities                   |                                            |         | 1,128         |         |               |    |                  |        |              |         | 1,213   |         |   |          |         |          |   |         | 2,341   |        
|                                                        |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|                                                        |                                               | Total long-term liabilities                |         |               | 220,028 |               |    |                   |       |              |         |         | 207,094 |   |          |          | (10,296  | ) |         |         | 416,826 | 
|                                                        |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|                                                        |                                               | Total liabilities                          |         |               | 241,157 |               |    |                   | 92     |              |         |         | 248,608 |   |          |          | (7,432   | ) |         |         | 482,425 | 
|                                                        |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|COMMITMENTS AND CONTINGENCIES STOCKHOLDERS
    EQUITY: |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|                                                        | Common stock                                  |                                            |         |              |         |               |    |                  |        |              |         |        |         |   |          |         |          |   |         |        |        
|                                                        | Paid-in capital                               |                                            |         | 86,111        |         |               |    | 21,499            |        |              |         | 183,601 |         |   |          | (107,610 | )        |   |         | 183,601 |        
|                                                        | Retained earnings (accumulated deficit)       |                                            |         | 21,672        |         |               |    | (7,179            | )      |              |         | (58,550 | )       |   |          | (14,493  | )        |   |         | (58,550 | )      
|                                                        | Accumulated other comprehensive loss          |                                            |         |              |         |               |    |                  |        |              |         |        |         |   |          |         |          |   |         |        |        
|                                                        |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|                                                        |                                               | Total stockholders equity                 |         |               | 107,783 |               |    |                   | 14,320 |              |         |         | 125,051 |   |          |          | (122,103 | ) |         |         | 125,051 | 
|                                                        |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        
|                                                        |                                               | Total liabilities and stockholders equity |         | $             | 348,940 |               |    | $                 | 14,412 |              |         | $       | 373,659 |   |          | $        | (129,535 | ) |         | $       | 607,476 | 
|                                                        |                                               |                                            |         |               |         |               |    |                   |        |              |         |         |         |   |          |          |          |   |         |        

F-39



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING BALANCE SHEET

December 31, 2002


|                                                        |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |         |         | 
|------------------------------------------------------- | --------------------------------------------- | ------------------------------------------ | ------- | ------------- | ------- | ------------- | - | ----------------- | ------ | ------------ | ------- | ------- | ------- |  | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                        |                                               |                                            |         |               |         |               |   | Reclassification/ |        |             
|                                                        |                                               | Guarantor                                  |         | Non-Guarantor |         | Parent        |   | Eliminations      |        |             
|                                                        |                                               | Subsidiaries                               |         | Subsidiaries  |         | (As Restated) |   | (As Restated)     |        | Consolidated
|                                                        |                                               |                                            |         |               |         |               |   |                   |        |             
|                                                        |                                               |                                           
|                                                        |                                               | (Dollars in thousands)                    
|ASSETS                                                 
|CURRENT ASSETS:                                         |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|                                                        | Cash and cash equivalents                     |                                            | $       | 26,189        |         |               | $ | (10,540           | )      |              | $       | (17,860 | )       |  | $       | 3,342   |         |   | $       | 1,131   |        
|                                                        | Accounts receivable, net                      |                                            |         | 1,841         |         |               |   | 6                 |        |              |         |        |         |  |         |        |         |   |         | 1,847   |        
|                                                        | Retained interest in sold accounts receivable |                                            |         |              |         |               |   | 25,209            |        |              |         |        |         |  |         |        |         |   |         | 25,209  |        
|                                                        | Inventories                                   |                                            |         | 15,678        |         |               |   | 11                |        |              |         | 18,023  |         |  |         |        |         |   |         | 33,712  |        
|                                                        | Prepaid expenses and other current assets     |                                            |         | 1,985         |         |               |   | 24                |        |              |         | 3,630   |         |  |         | 470     |         |   |         | 6,109   |        
|                                                        | Deferred tax asset                            |                                            |         | 8,316         |         |               |   |                  |        |              |         |        |         |  |         | (6,992  | )       |   |         | 1,324   |        
|                                                        |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|                                                        |                                               | Total current assets                       |         |               | 54,009  |               |   |                   | 14,710 |              |         |         | 3,793   |  |         |         | (3,180  | ) |         |         | 69,332  | 
|PROPERTY, PLANT AND EQUIPMENT, net                      |                                               |                                            | 20,818  |               |         |               | 4 |                   |        |              | 34,500  |         |         |  |        |         |         |   | 55,322  |        
|GOODWILL, net                                           |                                               |                                            | 167,899 |               |         |               |  |                   |        |              | 177,340 |         |         |  |        |         |         |   | 345,239 |        
|DEFERRED TAX ASSET                                      |                                               |                                            |        |               |         |               |  |                   |        |              | 123     |         |         |  | (123    | )       |         |   |        |        
|DEFERRED FINANCING COSTS, net                           |                                               |                                            |        |               |         |               |  |                   |        |              | 10,293  |         |         |  |        |         |         |   | 10,293  |        
|INVESTMENT IN SUBSIDIARIES                              |                                               |                                            |        |               |         |               |  |                   |        |              | 38,744  |         |         |  | (38,744 | )       |         |   |        |        
|OTHER ASSETS, net                                       |                                               |                                            | 1,653   |               |         |               | 3 |                   |        |              | 6,478   |         |         |  |        |         |         |   | 8,134   |        
|                                                        |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|                                                        |                                               | Total assets                               |         | $             | 244,379 |               |   | $                 | 14,717 |              |         | $       | 271,271 |  |         | $       | (42,047 | ) |         | $       | 488,320 | 
|                                                        |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|                                                       
|LIABILITIES AND STOCKHOLDERS
    EQUITY               
|CURRENT LIABILITIES:                                    |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|                                                        | Current portion of notes payable              |                                            | $       | 2,420         |         |               | $ |                  |        |              | $       | 4,104   |         |  | $       |        |         |   | $       | 6,524   |        
|                                                        | Deferred tax liability                        |                                            |         |              |         |               |   |                  |        |              |         | 123     |         |  |         | (123    | )       |   |         |        |        
|                                                        | Accounts payable                              |                                            |         | 6,018         |         |               |   | 24                |        |              |         | 13,151  |         |  |         | 3,342   |         |   |         | 22,535  |        
|                                                        | Accrued liabilities                           |                                            |         | 21,660        |         |               |   | 56                |        |              |         | 9,256   |         |  |         | 470     |         |   |         | 31,442  |        
|                                                        |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|                                                        |                                               | Total current liabilities                  |         |               | 30,098  |               |   |                   | 80     |              |         |         | 26,634  |  |         |         | 3,689   |   |         |         | 60,501  | 
|                                                        |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|LONG-TERM LIABILITIES:                                  |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|                                                        | Notes payable                                 |                                            |         | 181,298       |         |               |   |                  |        |              |         | 110,203 |         |  |         |        |         |   |         | 291,501 |        
|                                                        | Deferred tax liability                        |                                            |         | 8,316         |         |               |   |                  |        |              |         |        |         |  |         | (6,992  | )       |   |         | 1,324   |        
|                                                        | Other long-term liabilities                   |                                            |         | 560           |         |               |   |                  |        |              |         |        |         |  |         |        |         |   |         | 560     |        
|                                                        |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|                                                        |                                               | Total long-term liabilities                |         |               | 190,174 |               |   |                   |       |              |         |         | 110,203 |  |         |         | (6,992  | ) |         |         | 293,385 | 
|                                                        |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|                                                        |                                               | Total liabilities                          |         |               | 220,272 |               |   |                   | 80     |              |         |         | 136,837 |  |         |         | (3,303  | ) |         |         | 353,886 | 
|                                                        |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|COMMITMENTS AND CONTINGENCIES STOCKHOLDERS
    EQUITY: |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|Common stock                                            |                                               |                                            |        |               |         |               |  |                   |        |              |        |         |         |  |        |         |         |   |        |        
|                                                        | Paid-in capital                               |                                            |         | 4,043         |         |               |   | 19,756            |        |              |         | 203,684 |         |  |         | (23,799 | )       |   |         | 203,684 |        
|                                                        | Retained earnings (accumulated deficit)       |                                            |         | 20,064        |         |               |   | (5,109            | )      |              |         | (64,810 | )       |  |         | (14,955 | )       |   |         | (64,810 | )      
|                                                        | Accumulated other comprehensive loss          |                                            |         |              |         |               |   | (10               | )      |              |         | (4,440  | )       |  |         | 10      |         |   |         | (4,440  | )      
|                                                        |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|                                                        |                                               | Total stockholders equity                 |         |               | 24,107  |               |   |                   | 14,637 |              |         |         | 134,434 |  |         |         | (38,744 | ) |         |         | 134,434 | 
|                                                        |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        
|                                                        |                                               | Total liabilities and stockholders equity |         | $             | 244,379 |               |   | $                 | 14,717 |              |         | $       | 271,271 |  |         | $       | (42,047 | ) |         | $       | 488,320 | 
|                                                        |                                               |                                            |         |               |         |               |   |                   |        |              |         |         |         |  |         |         |         |   |         |        

F-40



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING STATEMENT OF
OPERATIONS

For the Year Ended December 31,
2003


|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | ------------- |  | ------------- | ------ | ----------------- |  | ------------ | ------- | - |  | - | ------- | - |  | - | ------- | 
|                                                                                                                                       |  |                        |         |               |  |               |        | Reclassification/ |  |             
|                                                                                                                                       |  | Guarantor              |         | Non-Guarantor |  | Parent        |        | Eliminations      |  |             
|                                                                                                                                       |  | Subsidiaries           |         | Subsidiaries  |  | (As Restated) |        | (As Restated)     |  | Consolidated
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |             
|                                                                                                                                       |  |                       
|                                                                                                                                       |  | (Dollars in thousands)
|NET SALES                                                                                                                              |  | $                      | 225,781 |               |  | $             | 472    |                   |  | $            | 422,592 |   |  | $ | (51,035 | ) |  | $ | 597,810 | 
|COST OF GOODS SOLD                                                                                                                     |  |                        | 150,397 |               |  |               | 445    |                   |  |              | 308,694 |   |  |   | (51,035 | ) |  |   | 408,501 | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|Gross profit                                                                                                                           |  |                        | 75,384  |               |  |               | 27     |                   |  |              | 113,898 |   |  |   |        |   |  |   | 189,309 | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|OPERATING EXPENSES:                                                                                                                    |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |  |                        | 52,649  |               |  |               | 780    |                   |  |              | 75,368  |   |  |   |        |   |  |   | 128,797 | 
|Securitization expense                                                                                                                 |  |                        |        |               |  |               | 1,447  |                   |  |              | 458     |   |  |   |        |   |  |   | 1,905   | 
|Stock compensation expense                                                                                                             |  |                        |        |               |  |               |       |                   |  |              | 553     |   |  |   |        |   |  |   | 553     | 
|Amortization expense                                                                                                                   |  |                        | 1,426   |               |  |               |       |                   |  |              | 2,773   |   |  |   |        |   |  |   | 4,199   | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                             |  |                        | 54,075  |               |  |               | 2,227  |                   |  |              | 79,152  |   |  |   |        |   |  |   | 135,454 | 
|Special charges                                                                                                                        |  |                        | 965     |               |  |               |       |                   |  |              | 10,059  |   |  |   |        |   |  |   | 11,024  | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|                                                                                                                                       |  |                        | 55,040  |               |  |               | 2,227  |                   |  |              | 89,211  |   |  |   |        |   |  |   | 146,478 | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|Income (loss) from operations                                                                                                          |  |                        | 20,344  |               |  |               | (2,200 | )                 |  |              | 24,687  |   |  |   |        |   |  |   | 42,831  | 
|INTEREST EXPENSE                                                                                                                       |  |                        | 18,064  |               |  |               |       |                   |  |              | 18,154  |   |  |   |        |   |  |   | 36,218  | 
|OTHER INCOME (EXPENSE), net                                                                                                            |  |                        | (171    | )             |  |               | (66    | )                 |  |              | 306     |   |  |   |        |   |  |   | 69      | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|Income (loss) before income taxes                                                                                                      |  |                        | 2,109   |               |  |               | (2,266 | )                 |  |              | 6,839   |   |  |   |        |   |  |   | 6,682   | 
|PROVISION (BENEFIT) FOR INCOME TAXES                                                                                                   |  |                        | 501     |               |  |               | (196   | )                 |  |              | 117     |   |  |   |        |   |  |   | 422     | 
|EQUITY IN LOSS OF SUBSIDIARIES                                                                                                         |  |                        |        |               |  |               |       |                   |  |              | (462    | ) |  |   | 462     |   |  |   |        | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|NET INCOME (LOSS)                                                                                                                      |  | $                      | 1,608   |               |  | $             | (2,070 | )                 |  | $            | 6,260   |   |  | $ | 462     |   |  | $ | 6,260   | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 

F-41



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING STATEMENT OF
OPERATIONS

For the Year Ended December 31,
2002


|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | ------------- |  | ------------- | ------ | ----------------- |  | ------------ | ------- | - |  | - | ------- | - |  | - | ------- | 
|                                                                                                                                       |  |                        |         |               |  |               |        | Reclassification/ |  |             
|                                                                                                                                       |  | Guarantor              |         | Non-Guarantor |  | Parent        |        | Eliminations      |  |             
|                                                                                                                                       |  | Subsidiaries           |         | Subsidiaries  |  | (As Restated) |        | (As Restated)     |  | Consolidated
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |             
|                                                                                                                                       |  |                       
|                                                                                                                                       |  | (Dollars in thousands)
|NET SALES                                                                                                                              |  | $                      | 199,150 |               |  | $             | 12     |                   |  | $            | 377,225 |   |  | $ | (40,088 | ) |  | $ | 536,299 | 
|COST OF GOODS SOLD                                                                                                                     |  |                        | 128,240 |               |  |               | 12     |                   |  |              | 272,159 |   |  |   | (40,088 | ) |  |   | 360,323 | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|Gross profit                                                                                                                           |  |                        | 70,910  |               |  |               |       |                   |  |              | 105,066 |   |  |   |        |   |  |   | 175,976 | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|OPERATING EXPENSES:                                                                                                                    |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |  |                        | 48,793  |               |  |               | 979    |                   |  |              | 66,592  |   |  |   |        |   |  |   | 116,364 | 
|Securitization expense                                                                                                                 |  |                        |        |               |  |               | 1,398  |                   |  |              | (265    | ) |  |   |        |   |  |   | 1,133   | 
|Stock compensation expense                                                                                                             |  |                        |        |               |  |               |       |                   |  |              | 383     |   |  |   |        |   |  |   | 383     | 
|Amortization expense                                                                                                                   |  |                        | 1,273   |               |  |               |       |                   |  |              | 2,137   |   |  |   |        |   |  |   | 3,410   | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                             |  |                        | 50,066  |               |  |               | 2,377  |                   |  |              | 68,847  |   |  |   |        |   |  |   | 121,290 | 
|Special charges                                                                                                                        |  |                        | 4,198   |               |  |               |       |                   |  |              |        |   |  |   |        |   |  |   | 4,198   | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|                                                                                                                                       |  |                        | 54,264  |               |  |               | 2,377  |                   |  |              | 68,847  |   |  |   |        |   |  |   | 125,488 | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|Income (loss) from operations                                                                                                          |  |                        | 16,646  |               |  |               | (2,377 | )                 |  |              | 36,219  |   |  |   |        |   |  |   | 50,488  | 
|INTEREST EXPENSE                                                                                                                       |  |                        | 13,240  |               |  |               |       |                   |  |              | 22,661  |   |  |   |        |   |  |   | 35,901  | 
|OTHER INCOME (EXPENSE), net                                                                                                            |  |                        | (133    | )             |  |               | (1     | )                 |  |              | 156     |   |  |   |        |   |  |   | 22      | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|Income (loss) before income taxes                                                                                                      |  |                        | 3,273   |               |  |               | (2,378 | )                 |  |              | 13,714  |   |  |   |        |   |  |   | 14,609  | 
|PROVISION FOR INCOME TAXES                                                                                                             |  |                        | 277     |               |  |               |       |                   |  |              | 348     |   |  |   |        |   |  |   | 625     | 
|EQUITY IN INCOME OF SUBSIDIARIES                                                                                                       |  |                        |        |               |  |               |       |                   |  |              | 618     |   |  |   | (618    | ) |  |   |        | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 
|NET INCOME (LOSS)                                                                                                                      |  | $                      | 2,996   |               |  | $             | (2,378 | )                 |  | $            | 13,984  |   |  | $ | (618    | ) |  | $ | 13,984  | 
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         | 

F-42



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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING STATEMENTS OF
OPERATIONS

For the Year Ended December 31,
2001


|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | ------------- |  | ------------- | ------ | ----------------- |  | ------------ | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                       |  |                        |         |               |  |               |        | Reclassification/ |  |             
|                                                                                                                                       |  | Guarantor              |         | Non-Guarantor |  | Parent        |        | Eliminations      |  |             
|                                                                                                                                       |  | Subsidiaries           |         | Subsidiary    |  | (As Restated) |        | (As Restated)     |  | Consolidated
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |             
|                                                                                                                                       |  |                       
|                                                                                                                                       |  | (Dollars in thousands)
|NET SALES                                                                                                                              |  | $                      | 204,210 |               |  | $             |       |                   |  | $            | 345,631 |   |  | $ | (32,778 | ) |  | $ | 517,063 |  
|COST OF GOODS SOLD                                                                                                                     |  |                        | 130,919 |               |  |               |       |                   |  |              | 256,656 |   |  |   | (32,778 | ) |  |   | 354,797 |  
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         |  
|Gross profit                                                                                                                           |  |                        | 73,291  |               |  |               |       |                   |  |              | 88,975  |   |  |   |        |   |  |   | 162,266 |  
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         |  
|OPERATING EXPENSES:                                                                                                                    |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         |  
|Selling, delivery, general and administrative
    expenses (excluding securitization, stock compensation and
    amortization expense) |  |                        | 47,111  |               |  |               | 1,069  |                   |  |              | 59,887  |   |  |   |        |   |  |   | 108,067 |  
|Securitization expense                                                                                                                 |  |                        |        |               |  |               | 1,663  |                   |  |              | (131    | ) |  |   |        |   |  |   | 1,532   |  
|Stock compensation expense                                                                                                             |  |                        |        |               |  |               |       |                   |  |              | 582     |   |  |   |        |   |  |   | 582     |  
|Amortization expense                                                                                                                   |  |                        | 6,906   |               |  |               |       |                   |  |              | 7,504   |   |  |   |        |   |  |   | 14,410  |  
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         |  
|SELLING, DELIVERY, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                             |  |                        | 54,017  |               |  |               | 2,732  |                   |  |              | 67,842  |   |  |   |        |   |  |   | 124,591 |  
|Special Charges                                                                                                                        |  |                        |        |               |  |               |       |                   |  |              | 1,213   |   |  |   |        |   |  |   | 1,213   |  
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         |  
|                                                                                                                                       |  |                        | 54,017  |               |  |               | 2,732  |                   |  |              | 69,055  |   |  |   |        |   |  |   | 125,804 |  
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         |  
|Income (loss) from operations                                                                                                          |  |                        | 19,274  |               |  |               | (2,732 | )                 |  |              | 19,920  |   |  |   |        |   |  |   | 36,462  |  
|INTEREST EXPENSE                                                                                                                       |  |                        | 15,345  |               |  |               |       |                   |  |              | 24,605  |   |  |   |        |   |  |   | 39,950  |  
|OTHER INCOME (EXPENSE), net                                                                                                            |  |                        | 53      |               |  |               |       |                   |  |              | (73     | ) |  |   |        |   |  |   | (20     | )
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         |  
|Income (loss) before income taxes                                                                                                      |  |                        | 3,982   |               |  |               | (2,732 | )                 |  |              | (4,758  | ) |  |   |        |   |  |   | (3,508  | )
|PROVISION FOR INCOME TAXES                                                                                                             |  |                        | 1,358   |               |  |               |       |                   |  |              |        |   |  |   |        |   |  |   | 1,358   |  
|EQUITY IN LOSS OF SUBSIDIARIES                                                                                                         |  |                        |        |               |  |               |       |                   |  |              | (108    | ) |  |   | 108     |   |  |   |        |  
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         |  
|NET INCOME (LOSS)                                                                                                                      |  | $                      | 2,624   |               |  | $             | (2,732 | )                 |  | $            | (4,866  | ) |  | $ | 108     |   |  | $ | (4,866  | )
|                                                                                                                                       |  |                        |         |               |  |               |        |                   |  |              |         |   |  |   |         |   |  |   |         |  

F-43



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING STATEMENT OF CASH
FLOWS

For the Year Ended December 31,
2003


|                                                         |                                             |                                                         |        |               |         |        |         |              |      |              |         |         |         |   |       |      |      |   |        |          |         |  
|-------------------------------------------------------- | ------------------------------------------- | ------------------------------------------------------- | ------ | ------------- | ------- | ------ | ------- | ------------ | ---- | ------------ | ------- | ------- | ------- | - | ----- | ---- | ---- | - | ------ | -------- | ------- | -
|                                                         |                                             | Guarantor                                               |        | Non-Guarantor |         |        |         |              |      |             
|                                                         |                                             | Subsidiaries                                            |        | Subsidiaries  |         | Parent |         | Eliminations |      | Consolidated
|                                                         |                                             |                                                         |        |               |         |        |         |              |      |             
|                                                         |                                             |                                                        
|                                                         |                                             | (Dollars in thousands)                                 
|CASH FLOWS FROM OPERATING ACTIVITIES                     |                                             | $                                                       | (8,765 | )             |         | $      | (1,654  | )            |      | $            | 43,577  |         |         | $ | 90    |      |      | $ | 33,248 |         
|                                                         |                                             |                                                         |        |               |         |        |         |              |      |              |         |         |         |   |       |      |      |   |        |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                    |                                             |                                                         |        |               |         |        |         |              |      |              |         |         |         |   |       |      |      |   |        |         
|                                                         | Purchases of property, plant and equipment  |                                                         |        | (5,892        | )       |        |         |             |      |              |         | (13,439 | )       |   |       |     |      |   |        | (19,331  | )      
|                                                         | Proceeds from sales of assets               |                                                         |        | 72            |         |        |         |             |      |              |         | 314     |         |   |       |     |      |   |        | 386      |        
|                                                         | Acquisitions                                |                                                         |        | (65,227       | )       |        |         |             |      |              |         | (5,826  | )       |   |       |     |      |   |        | (71,053  | )      
|                                                         | Other assets                                |                                                         |        | (1,819        | )       |        |         | (34          | )    |              |         | (3,193  | )       |   |       |     |      |   |        | (5,046   | )      
|                                                         |                                             |                                                         |        |               |         |        |         |              |      |              |         |         |         |   |       |      |      |   |        |         
|                                                         |                                             | Net cash used in investing activities                   |        |               | (72,866 | )      |         |              | (34  | )            |         |         | (22,144 | ) |       |      |     |   |        |          | (95,044 | )
|                                                         |                                             |                                                         |        |               |         |        |         |              |      |              |         |         |         |   |       |      |      |   |        |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                    |                                             |                                                         |        |               |         |        |         |              |      |              |         |         |         |   |       |      |      |   |        |         
|                                                         | Capital contributions                       |                                                         |        | 46,644        |         |        |         | (247         | )    |              |         | (46,397 | )       |   |       |     |      |   |        |         |        
|                                                         | Proceeds from issuance of add-on notes      |                                                         |        | 26,666        |         |        |         |             |      |              |         | 26,772  |         |   |       |     |      |   |        | 53,438   |        
|                                                         | Proceeds from borrowings under term loans   |                                                         |        | 89,820        |         |        |         |             |      |              |         | 90,180  |         |   |       |     |      |   |        | 180,000  |        
|                                                         | Payments of capital lease obligations       |                                                         |        |              |         |        |         |             |      |              |         | (47     | )       |   |       |     |      |   |        | (47      | )      
|                                                         | Deferred financing costs                    |                                                         |        |              |         |        |         |             |      |              |         | (12,066 | )       |   |       |     |      |   |        | (12,066  | )      
|                                                         | Scheduled principal payments on term loans  |                                                         |        | (2,044        | )       |        |         |             |      |              |         | (2,053  | )       |   |       |     |      |   |        | (4,097   | )      
|                                                         | Additional principal payments on term loans |                                                         |        | (60,331       | )       |        |         |             |      |              |         | (60,572 | )       |   |       |     |      |   |        | (120,903 | )      
|                                                         | Distribution to Atrium Corporation, net     |                                                         |        |              |         |        |         |             |      |              |         | (27,379 | )       |   |       |     |      |   |        | (27,379  | )      
|                                                         | Checks drawn in excess of bank balances     |                                                         |        |              |         |        |         |             |      |              |         |        |         |   |       | (568 | )    |   |        | (568     | )      
|                                                         |                                             |                                                         |        |               |         |        |         |              |      |              |         |         |         |   |       |      |      |   |        |         
|                                                         |                                             | Net cash provided by (used in) financing
    activities |        |               | 100,755 |        |         |              | (247 | )            |         |         | (31,562 | ) |       |      | (568 | ) |        |          | 68,378  |  
|                                                         |                                             |                                                         |        |               |         |        |         |              |      |              |         |         |         |   |       |      |      |   |        |         
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS |                                             |                                                         | 19,124 |               |         |        | (1,935  | )            |      |              | (10,129 | )       |         |   | (478  | )    |      |   | 6,582  |         
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD           |                                             |                                                         | 26,189 |               |         |        | (10,540 | )            |      |              | (17,860 | )       |         |   | 3,342 |      |      |   | 1,131  |         
|                                                         |                                             |                                                         |        |               |         |        |         |              |      |              |         |         |         |   |       |      |      |   |        |         
|CASH AND CASH EQUIVALENTS, END OF PERIOD                 |                                             | $                                                       | 45,313 |               |         | $      | (12,475 | )            |      | $            | (27,989 | )       |         | $ | 2,864 |      |      | $ | 7,713  |         
|                                                         |                                             |                                                         |        |               |         |        |         |              |      |              |         |         |         |   |       |      |      |   |        |         

F-44



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##### Table of Contents



ATRIUM COMPANIES, INC.

CONSOLIDATING STATEMENT OF CASH
FLOWS

For the Year Ended December 31,
2002


|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |         |         |  
|-------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------------- | ------- | ------------- | ------ | ------ | ------- | ------------------ | ----- | ------------ | ------- | ------- | ------- | - | ----- | ----- | ----- | - | ------ | ------- | ------- | -
|                                                         |                                                             | Guarantor                                               |         | Non-Guarantor |        |        |         | Reclassifications/ |       |             
|                                                         |                                                             | Subsidiaries                                            |         | Subsidiaries  |        | Parent |         | Eliminations       |       | Consolidated
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |             
|                                                         |                                                             |                                                        
|                                                         |                                                             | (Dollars in thousands)                                 
|CASH FLOWS FROM OPERATING ACTIVITIES                     |                                                             | $                                                       | 25,540  |               |        | $      | (13,305 | )                  |       | $            | 14,854  |         |         | $ |      |       |       | $ | 27,089 |        
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                    |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|                                                         | Purchases of property, plant and equipment                  |                                                         |         | (5,861        | )      |        |         | (5                 | )     |              |         | (7,241  | )       |   |       |      |       |   |        | (13,107 | )      
|                                                         | Proceeds from sales of assets                               |                                                         |         | 80            |        |        |         |                   |       |              |         | 1,870   |         |   |       |      |       |   |        | 1,950   |        
|                                                         | Other assets                                                |                                                         |         | (1,071        | )      |        |         | (3                 | )     |              |         | (3,104  | )       |   |       |      |       |   |        | (4,178  | )      
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|                                                         |                                                             | Net cash used in investing activities                   |         |               | (6,852 | )      |         |                    | (8    | )            |         |         | (8,475  | ) |       |       |      |   |        |         | (15,335 | )
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                    |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|                                                         | Capital contributions                                       |                                                         |         | 46,786        |        |        |         | 2,025              |       |              |         | (48,811 | )       |   |       |      |       |   |        |        |        
|                                                         | Payments of notes payable and capital lease
    obligations |                                                         |         | (8            | )      |        |         |                   |       |              |         | (15     | )       |   |       |      |       |   |        | (23     | )      
|                                                         | Scheduled principal payments on term loans                  |                                                         |         | (3,380        | )      |        |         |                   |       |              |         | (2,104  | )       |   |       |      |       |   |        | (5,484  | )      
|                                                         | Additional principal payments on term loans                 |                                                         |         | (4,456        | )      |        |         |                   |       |              |         | (2,772  | )       |   |       |      |       |   |        | (7,228  | )      
|                                                         | Distribution to Atrium Corporation, net                     |                                                         |         |              |        |        |         |                   |       |              |         | (168    | )       |   |       |      |       |   |        | (168    | )      
|                                                         | Checks drawn in excess of bank balances                     |                                                         |         |              |        |        |         |                   |       |              |         |        |         |   |       | 1,033 |       |   |        | 1,033   |        
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|                                                         |                                                             | Net cash provided by (used in) financing
    activities |         |               | 38,942 |        |         |                    | 2,025 |              |         |         | (53,870 | ) |       |       | 1,033 |   |        |         | (11,870 | )
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS |                                                             |                                                         | 57,630  |               |        |        | (11,288 | )                  |       |              | (47,491 | )       |         |   | 1,033 |       |       |   | (116   | )      
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD           |                                                             |                                                         | (31,441 | )             |        |        | 748     |                    |       |              | 29,631  |         |         |   | 2,309 |       |       |   | 1,247  |        
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        
|CASH AND CASH EQUIVALENTS, END OF PERIOD                 |                                                             | $                                                       | 26,189  |               |        | $      | (10,540 | )                  |       | $            | (17,860 | )       |         | $ | 3,342 |       |       | $ | 1,131  |        
|                                                         |                                                             |                                                         |         |               |        |        |         |                    |       |              |         |         |         |   |       |       |       |   |        |        

F-45



---



##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

CONSOLIDATING STATEMENTS OF CASH
FLOWS

For the Year Ended December 31,
2001


|                                                         |                                                               |                                           |         |               |         |        |         |              |        |              |        |         |         |   |        |        |        |   |        |         |         |  
|-------------------------------------------------------- | ------------------------------------------------------------- | ----------------------------------------- | ------- | ------------- | ------- | ------ | ------- | ------------ | ------ | ------------ | ------ | ------- | ------- | - | ------ | ------ | ------ | - | ------ | ------- | ------- | -
|                                                         |                                                               | Guarantor                                 |         | Non-Guarantor |         |        |         |              |        |             
|                                                         |                                                               | Subsidiaries                              |         | Subsidiary    |         | Parent |         | Eliminations |        | Consolidated
|                                                         |                                                               |                                           |         |               |         |        |         |              |        |             
|                                                         |                                                               |                                          
|                                                         |                                                               | (Dollars in thousands)                   
|CASH FLOWS FROM OPERATING ACTIVITIES                     |                                                               | $                                         | 26,500  |               |         | $      | (16,984 | )            |        | $            | 40,920 |         |         | $ | 1      |        |        | $ | 50,437 |        
|                                                         |                                                               |                                           |         |               |         |        |         |              |        |              |        |         |         |   |        |        |        |   |        |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                    |                                                               |                                           |         |               |         |        |         |              |        |              |        |         |         |   |        |        |        |   |        |        
|                                                         | Purchases of property, plant and equipment                    |                                           |         | (3,041        | )       |        |         |             |        |              |        | (11,063 | )       |   |        |       |        |   |        | (14,104 | )      
|                                                         | Proceeds from sales of assets                                 |                                           |         | 5,238         |         |        |         |             |        |              |        | 882     |         |   |        |       |        |   |        | 6,120   |        
|                                                         | Other assets                                                  |                                           |         | (1,338        | )       |        |         |             |        |              |        | (1,274  | )       |   |        |       |        |   |        | (2,612  | )      
|                                                         |                                                               |                                           |         |               |         |        |         |              |        |              |        |         |         |   |        |        |        |   |        |        
|                                                         |                                                               | Net cash used in investing activities     |         |               | 859     |        |         |              |       |              |        |         | (11,455 | ) |        |        |       |   |        |         | (10,596 | )
|                                                         |                                                               |                                           |         |               |         |        |         |              |        |              |        |         |         |   |        |        |        |   |        |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                    |                                                               |                                           |         |               |         |        |         |              |        |              |        |         |         |   |        |        |        |   |        |        
|                                                         | Capital contributions                                         |                                           |         |              |         |        |         | 17,732       |        |              |        | (17,732 | )       |   |        |       |        |   |        |        |        
|                                                         | Payments of notes payable                                     |                                           |         | (100          | )       |        |         |             |        |              |        | (151    | )       |   |        |       |        |   |        | (251    | )      
|                                                         | Net borrowings/(payments) under revolving credit
    facility |                                           |         | (7,661        | )       |        |         |             |        |              |        | (11,339 | )       |   |        |       |        |   |        | (19,000 | )      
|                                                         | Deferred financing costs                                      |                                           |         |              |         |        |         |             |        |              |        | (388    | )       |   |        |       |        |   |        | (388    | )      
|                                                         | Scheduled principal payments on term notes                    |                                           |         | (2,309        | )       |        |         |             |        |              |        | (3,419  | )       |   |        |       |        |   |        | (5,728  | )      
|                                                         | Additional principal payments on term notes                   |                                           |         | (14,711       | )       |        |         |             |        |              |        | (5,289  | )       |   |        |       |        |   |        | (20,000 | )      
|                                                         | Contributions from (distributions to) Atrium Corp             |                                           |         |              |         |        |         |             |        |              |        | 7,248   |         |   |        |       |        |   |        | 7,248   |        
|                                                         | Checks drawn in excess of bank balances                       |                                           |         |              |         |        |         |             |        |              |        |        |         |   |        | (5,121 | )      |   |        | (5,121  | )      
|                                                         |                                                               |                                           |         |               |         |        |         |              |        |              |        |         |         |   |        |        |        |   |        |        
|                                                         |                                                               | Net cash provided by financing activities |         |               | (24,781 | )      |         |              | 17,732 |              |        |         | (31,070 | ) |        |        | (5,121 | ) |        |         | (43,240 | )
|                                                         |                                                               |                                           |         |               |         |        |         |              |        |              |        |         |         |   |        |        |        |   |        |        
|NET INCREASE (DECREASE) IN CASH AND CASH
    EQUIVALENTS |                                                               |                                           | 2,578   |               |         |        | 748     |              |        |              | (1,605 | )       |         |   | (5,120 | )      |        |   | (3,399 | )      
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD           |                                                               |                                           | (34,019 | )             |         |        |        |              |        |              | 31,236 |         |         |   | 7,429  |        |        |   | 4,646  |        
|                                                         |                                                               |                                           |         |               |         |        |         |              |        |              |        |         |         |   |        |        |        |   |        |        
|CASH AND CASH EQUIVALENTS, END OF PERIOD                 |                                                               | $                                         | (31,441 | )             |         | $      | 748     |              |        | $            | 29,631 |         |         | $ | 2,309  |        |        | $ | 1,247  |        
|                                                         |                                                               |                                           |         |               |         |        |         |              |        |              |        |         |         |   |        |        |        |   |        |        

F-46



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS ON
FINANCIAL

STATEMENT SCHEDULE


To the Board of Directors and

Stockholder of Atrium Companies, Inc.:


Our audits of the consolidated financial
statements of Atrium Companies, Inc. referred to in our report
dated March 30, 2004, except as to Notes 19 and 21,
which are as of April 8, 2004, appearing in this Annual
Report on Form 10-K also included an audit of the related
financial statement schedule listed in Item 15(a)(2) of
this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements.

PRICEWATERHOUSECOOPERS LLP

Dallas, Texas


March 30, 2004


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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

SCHEDULE II

VALUATION QUALIFYING ACCOUNTS


(Dollars in thousands)


|                                 |  |            |       |                      |  |             |       |               |  |               |   |  |  |   |        |   |  |   |     | 
|-------------------------------- |  | ---------- | ----- | -------------------- |  | ----------- | ----- | ------------- |  | ------------- | - |  |  | - | ------ | - |  | - | --- | 
|                                 |  |            |       |                      |  |             |       |              
|                                 |  |            |       | Column C  Additions |  |             |       |              
|                                 |  |            |       |                      |  |             |       |              
|                                 |  | Column B  |       | (1)                  |  | (2)         |       |               |  |              
|                                 |  | Balance at |       | Charged to           |  | Acquired    |       | Column D     |  | Column E    
|                                 |  | Beginning  |       | Costs and            |  | Through     |       | Deductions   |  | Balance at   
|Column A  Description           |  | of Period  |       | Expenses             |  | Acquisition |       | Write-Offs(a) |  | End of Period
|                                 |  |            |       |                      |  |             |       |               |  |              
|Allowance for doubtful accounts: |  |            |       |                      |  |             |       |               |  |               |   |  |  |   |        |   |  |   |     | 
|Year ended December 31, 2001     |  | $          | 3,510 |                      |  | $           | 1,666 |               |  | $             |  |  |  | $ | (5,023 | ) |  | $ | 153 | 
|Year ended December 31, 2002     |  | $          | 153   |                      |  | $           | (25   | )             |  | $             |  |  |  | $ | (46    | ) |  | $ | 82  | 
|Year ended December 31, 2003     |  | $          | 82    |                      |  | $           |      |               |  | $             |  |  |  | $ | (16    | ) |  | $ | 66  | 



---



|    |  |                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------
|(a) |  | includes write-offs, net of recoveries, and
    adjustment to writedown receivables sold to AFC at fair value.

|                                |  |            |        |                      |  |             |       |            |  |               |        |   |  |   |        |   |  |   |        | 
|------------------------------- |  | ---------- | ------ | -------------------- |  | ----------- | ----- | ---------- |  | ------------- | ------ | - |  | - | ------ | - |  | - | ------ | 
|                                |  |            |        |                      |  |             |       |           
|                                |  |            |        | Column C  Additions |  |             |       |           
|                                |  |            |        |                      |  |             |       |           
|                                |  | Column B  |        | (1)                  |  | (2)         |       |            |  |              
|                                |  | Balance at |        | Charged to           |  | Acquired    |       | Column     |  | Column E    
|                                |  | Beginning  |        | Costs and            |  | Through     |       | D         |  | Balance at   
|Column A  Description          |  | of Period  |        | Expenses             |  | Acquisition |       | Deductions |  | End of Period
|                                |  |            |        |                      |  |             |       |            |  |              
|Income tax valuation allowance: |  |            |        |                      |  |             |       |            |  |               |        |   |  |   |        |   |  |   |        | 
|Year ended December 31, 2001    |  | $          | 18,150 |                      |  | $           | 2,137 | (b)        |  | $             |       |   |  | $ | (1,584 | ) |  | $ | 18,703 | 
|Year ended December 31, 2002    |  | $          | 18,703 |                      |  | $           | 9,193 |            |  | $             |       |   |  | $ | (7,531 | ) |  | $ | 20,365 | 
|Year ended December 31, 2003    |  | $          | 20,365 |                      |  | $           |      |            |  | $             | (2,729 | ) |  | $ | (6,317 | ) |  | $ | 11,319 | 



---



|    |                                                                           
|--- | --------------------------------------------------------------------------
|(b) | includes the cumulative-effect adjustment of
    adoption of SFAS No. 133.

|                             |  |            |       |                      |  |             |       |            |  |               |   |  |  |   |        |   |  |   |       | 
|---------------------------- |  | ---------- | ----- | -------------------- |  | ----------- | ----- | ---------- |  | ------------- | - |  |  | - | ------ | - |  | - | ----- | 
|                             |  |            |       |                      |  |             |       |           
|                             |  |            |       | Column C  Additions |  |             |       |           
|                             |  |            |       |                      |  |             |       |           
|                             |  | Column B  |       | (1)                  |  | (2)         |       |            |  |              
|                             |  | Balance at |       | Charged to           |  | Acquired    |       | Column     |  | Column E    
|                             |  | Beginning  |       | Costs and            |  | Through     |       | D         |  | Balance at   
|Column A  Description       |  | of Period  |       | Expenses             |  | Acquisition |       | Deductions |  | End of Period
|                             |  |            |       |                      |  |             |       |            |  |              
|Inventory allowance:         |  |            |       |                      |  |             |       |            |  |               |   |  |  |   |        |   |  |   |       | 
|Year ended December 31, 2001 |  | $          | 491   |                      |  | $           | 1,181 |            |  | $             |  |  |  | $ | (116   | ) |  | $ | 1,556 | 
|Year ended December 31, 2002 |  | $          | 1,556 |                      |  | $           | 66    |            |  | $             |  |  |  | $ | (1,010 | ) |  | $ | 612   | 
|Year ended December 31, 2003 |  | $          | 612   |                      |  | $           |      |            |  | $             |  |  |  | $ | (48    | ) |  | $ | 564   | 

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##### Table of Contents



ATRIUM COMPANIES, INC. AND
SUBSIDIARIES

EXHIBIT INDEX

|        |    |                         |  |                                                                                                                                                                                                                                                                   
|------- | -- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Exhibits
|        |    |                        
|        | 2  | .1                      |  | Agreement and Plan of Merger, dated as of
    October 27, 2003, by and among KAT Holdings, Inc., KAT
    Acquisition Corp., Atrium Corporation and the Securityholders
    Parties as defined therein(2)                                                          
|        | 2  | .2                      |  | Amendment No. 1 to Agreement and Plan of
    Merger, dated as of November 6, 2003, by and among KAT
    Holdings, Inc., KAT Acquisition Corp., Atrium Corporation and
    the Securityholders Parties as defined in the Agreement and Plan
    of Merger(2)       
|        | 2  | .3                      |  | Certificate of Merger, dated December 10,
    2003, by and among KAT Holdings, Inc. and Atrium Corporation(1)                                                                                                                                                     
|        | 3  | .1                      |  | Amended and Restated Certificate of Incorporation
    of Atrium Companies, Inc.(9)                                                                                                                                                                                
|        | 3  | .2                      |  | Amended and Restated Bylaws of Atrium Companies,
    Inc.(1)                                                                                                                                                                                                      
|        | 4  | .1                      |  | Indenture, dated as of May 17, 1999, by and
    among Atrium Companies, Inc., the Guarantors named therein and
    the State Street Bank and Trust Company(3)                                                                                                     
|        | 4  | .2                      |  | First Supplemental Indenture, dated as of
    October 25, 2000, by and among Atrium Companies, Inc., the
    Guarantors named therein and the State Street Bank and Trust
    Company(7)                                                                          
|        | 4  | .3                      |  | Second Supplemental Indenture, dated as of
    January 24, 2003, by and among Atrium Companies, Inc., the
    Guarantors named therein and the State Street Bank and Trust
    Company(1)                                                                         
|        | 4  | .4                      |  | Third Supplemental Indenture, dated as of
    November 18, 2003, by and among Atrium Companies, Inc., the
    Guarantors named therein and the State Street Bank and Trust
    Company(1)                                                                         
|        | 4  | .5                      |  | Registration Rights Agreement, dated as of
    December 10, 2003, by and among Atrium Companies, Inc., the
    Guarantors named therein, UBS Securities LLC and CIBC World
    Markets Corp.(1)                                                                   
|        | 4  | .6                      |  | Registration Rights Agreement, dated as of
    December 10, 2003, by and among ATR Acquisition, LLC,
    Atrium Corporation and the Investors defined therein(1)                                                                                                  
|        | 4  | .7                      |  | Note Purchase Agreement, dated as of
    December 3, 2003, among KAT Holdings, Inc. and the Issuers
    named therein(1)                                                                                                                                          
|        | 10 | .1                      |  | Stock Purchase Agreement, dated as of
    December 19, 2003, by and among Superior Engineered
    Products Corporation, Paul Oddo, David Oddo and Angeline Oddo,
    Atrium Companies, Inc., Atrium Corporation, and each of the
    Shareholders named therein(4)
|        | 10 | .2                      |  | Employment Agreement dated as of
    December 10, 2003 between Atrium Corporation, Atrium
    Companies, Inc and Jeff L. Hull(1)                                                                                                                                  
|        | 10 | .3                      |  | Employment Agreement, dated as of January 1,
    2003, among Atrium Corporation, Atrium Companies, Inc. and Eric
    W. Long(5)                                                                                                                                   
|        | 10 | .4                      |  | Employment Agreement, dated as of January 1,
    2003, among Atrium Corporation, Atrium Companies, Inc. and
    Robert E. Burns(5)                                                                                                                                
|        | 10 | .5                      |  | Employment Agreement, dated as of January 1,
    2003, among Atrium Corporation, Atrium Companies, Inc. and C.
    Douglas Cross(5)                                                                                                                               
|        | 10 | .6                      |  | Employment Agreement, dated as of
    September 30, 2002, among Atrium Corporation, Atrium
    Companies, Inc. and Philip J. Ragona(5)                                                                                                                            
|        | 10 | .7                      |  | Buy-Sell Agreement, dated December 10, 2003
    between Atrium Corporation and Jeff L. Hull(1)                                                                                                                                                                    
|        | 10 | .8                      |  | Buy-Sell Agreement, dated December 10, 2003
    between Atrium Corporation and Eric W. Long(1)                                                                                                                                                                    
|        | 10 | .9                      |  | Buy-Sell Agreement, dated December 10, 2003
    between Atrium Corporation and Robert E. Burns(1)                                                                                                                                                                 
|        | 10 | .10                     |  | Buy-Sell Agreement, dated December 10, 2003
    between Atrium Corporation and C. Douglas Cross(1)                                                                                                                                                                
|        | 10 | .11                     |  | Buy-Sell Agreement, dated December 10, 2003
    between Atrium Corporation and Philip J. Ragona(1)                                                                                                                                                                

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##### Table of Contents



|        |    |                         |  |                                                                                                                                                                                                                                                                                    
|------- | -- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Exhibits
|        |    |                        
|        | 10 | .12                     |  | Indemnification Agreement, dated as of
    August 31, 2000, between D and W Holdings, Inc.
    and Jeff L. Hull(6)                                                                                                                                                                 
|        | 10 | .13                     |  | Indemnification Agreement, dated as of
    August 31, 2000, between D and W Holdings, Inc.
    and Eric W. Long(6)                                                                                                                                                                 
|        | 10 | .14                     |  | Indemnification Agreement, dated as of
    September 30, 2002, between Atrium Corporation and Philip
    J. Ragona(5)                                                                                                                                                              
|        | 10 | .15                     |  | Indemnification Agreement, dated as of
    October 25, 2000, between Atrium Corporation and
    C. Douglas Cross(6)                                                                                                                                                                
|        | 10 | .16                     |  | Receivable Purchase Agreement, dated as of
    July 31, 2001, among Atrium Funding Corp., Atrium
    Companies, Inc., Fairway Finance Corporation and BMO Nesbitt
    Burns Corp.(8)                                                                                               
|        | 10 | .17                     |  | Purchase and Sale Agreement, dated July 3,
    2001, between the various entities listed on Schedule A thereto
    and Atrium Funding Corp.(8)                                                                                                                                     
|        | 10 | .18                     |  | Amendment No. 1, dated as of July 30,
    2002, to the Receivable Purchase Agreement, dated as of
    July 31, 2001, among Atrium Funding Corp., Atrium
    Companies, Inc., Fairway Finance Corporation and BMO Nesbitt
    Corp.(8)                                              
|        | 10 | .19                     |  | Amendment No. 2, dated as of
    September 23, 2002 to the Receivable Purchase Agreement
    dated as of July 31, 2001 and amended as of July 30,
    2002 among Atrium Funding Corp., Atrium Companies, Inc., Fairway
    Finance Corporation and BMO Nesbitt Corp.(5)            
|        | 10 | .20                     |  | Amendment No. 3, dated as of July 2,
    2003 to the Receivable Purchase Agreement dated as of
    July 31, 2001 and amended as of July 30, 2002 among
    Atrium Funding Corp., Atrium Companies, Inc., Fairway Finance
    Corporation and BMO Nesbitt(1)                        
|        | 10 | .21                     |  | Amendment No. 4, dated as of
    December 10, 2003 to the Receivable Purchase Agreement
    dated as of July 31, 2001 and amended as of July 30,
    2002 among Atrium Funding Corp., Atrium Companies, Inc., Fairway
    Finance Corporation and BMO Nesbitt(1)                   
|        | 10 | .22                     |  | ATR Acquisition LLC, Amended and Restated Limited
    Liability Company Agreement, dated as of December 10, 2003,
    among the Members as defined therein(1)                                                                                                                      
|        | 10 | .23                     |  | Stockholders Agreement, dated as of
    December 10, 2003, among Atrium Corporation and the
    Stockholders as defined therein(1)                                                                                                                                                 
|        | 10 | .24                     |  | Kenner Management Consulting Agreement, dated as
    of December 10, 2003, by and among Atrium Corporation,
    Atrium Companies, Inc. and JLK Operations, Inc.(1)                                                                                                                 
|        | 10 | .25                     |  | Warrant, dated December 10, 2003, issued by
    Atrium Corporation to Jeff L Hull(1)                                                                                                                                                                                               
|        | 10 | .26                     |  | Atrium Corporation Replacement Stock Option Plan,
    dated December 10, 2003(1)                                                                                                                                                                                                   
|        | 10 | .27                     |  | 2003 Stock Option Plan, dated December 10,
    2003(1)                                                                                                                                                                                                                             
|        | 10 | .28                     |  | Credit Agreement, dated as of December 10,
    2003, by and among Atrium Companies, Inc., Atrium
    Corporation, the Guarantors named therein, Canadian Imperial
    Bank of Commerce, UBS Securities LLC, Antares Capital
    Corporation and CIT Lending Services Corporation(1)
|        | 10 | .29                     |  | Security Agreement, dated as of December 10,
    2003, by and among Atrium Companies, Inc., the Guarantors
    named therein and Canadian Imperial Bank of Commerce(1)                                                                                                             
|        | 10 | .30                     |  | Indemnification Escrow Agreement, dated
    December 10, 2003, by and among KAT Holdings, Inc.,
    Ardatrium, L.L.C., and Wells Fargo Bank, N.A.(1)                                                                                                                               
|        | 21 | .1                      |  | Subsidiaries of Atrium Companies, Inc.(1)                                                                                                                                                                                                                                          
|        | 31 | .1                      |  | Certification by Chief Executive Officer Pursuant
    to 17 CFR 240.13a-14, promulgated under the Sarbanes-Oxley Act
    of 2002.(10)                                                                                                                                              
|        | 31 | .2                      |  | Certification by Chief Financial Officer Pursuant
    to 17 CFR 240.13a-14, promulgated under the Sarbanes-Oxley Act
    of 2002.(10)                                                                                                                                              



---



| |     |                                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference from Atrium Companies,
    Inc.s Report on Form 10-K, filed March 30, 2004.                                     
|
| | (2) | Incorporated by reference from Atrium Companies,
    Inc.s Report on Form 8-K, dated December 10,
    2003 and filed on December 18, 2003.

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##### Table of Contents





| |     |                                                                                                                                                               
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) | Incorporated by reference from Atrium Companies,
    Inc.s Report on Form 8-K, dated October 24, 2000
    and filed on November 9, 2000.                     
|
| | (4) | Incorporated by reference from Atrium Companies,
    Inc.s Report on Form 8-K, dated December 31,
    2003 and filed on January 15, 2004.                    
|
| | (5) | Incorporated by reference from Atrium Companies,
    Inc.s Report on Form 10-K, for the fiscal year ended
    December 31, 2002, and filed on March 31, 2003.
|
| | (6) | Incorporated by reference from Atrium
    Corporations Registration Statement on Form S-4,
    dated January 22, 2001, Commission File No. 333-54122.        
|
| | (7) | Incorporated by reference from Atrium Companies,
    Inc.s Report on Form 10-K filed on April 1, 2002.                                                       
|
| | (8) | Incorporated by reference from Atrium Companies,
    Inc.s Report on Form 8-K filed on August 14,
    2001.                                                  
|
| | (9) | Incorporated by reference from Atrium Companies.
    Inc.s Registration Statement on Form S-4, dated
    January 21, 1997, Commission File No. 333-20095.    



|     |                
|---- | ---------------
|(10) | Filed herewith.

E-3