<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC  20549
                                        
                                   FORM 10-Q

       [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934

       [ ]     FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

                                      OR

            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                 OF THE SECURITIES EXCHANGE ACT OF 1934

              FOR THE TRANSITION PERIOD FROM _______ TO _______.


                        COMMISSION FILE NUMBER 0-21159


                            ATRIA COMMUNITIES, INC.
            (Exact name of registrant as specified in its charter)
                                        

             Delaware                                 61-1303738
(State of other jurisdiction of                    (I.R.S. Employer
INCORPORATION OR ORGANIZATION)                    IDENTIFICATION NO.)

       515 West Market Street
            Suite 200
          Louisville, KY                                 40202
(Address of principal executive offices)               (Zip Code)

                                (502) 596-7540
             (Registrant's telephone number, including area code)
                                        
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   Yes  X  No 
                                                ---    --- 
  Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.


          CLASS OF COMMON STOCK            OUTSTANDING AT OCTOBER 27, 1997
          ---------------------            -------------------------------
      Common stock, $.10 par value                23,372,387 shares



                                    1 of 16
<PAGE>
 
                            ATRIA COMMUNITIES, INC.
                                   FORM 10-Q
                                     INDEX
                                        
<TABLE>
<CAPTION>
                                                                                        Page
PART I.  FINANCIAL INFORMATION                                                          ----
<S>     <C>                                                                           <C>
Item 1.  Financial Statements:
 
         Condensed Consolidated Statement of Income  for the quarter and nine months
          ended September 30, 1997 and 1996.............................................   3
 
         Condensed Consolidated Balance Sheet  September 30, 1997 and December 31, 1996.   4
 
         Condensed Consolidated Statement of Cash Flows  for the nine months
          ended September 30, 1997 and 1996.............................................   5
 
         Notes to Condensed Consolidated Financial Statements...........................   6
 
Item 2.  Management's Discussion and Analysis of Financial Condition and
          Results of Operations.........................................................   9
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.....................  15
 
PART II. OTHER INFORMATION
 
Item 6.  Exhibits and Reports on Form 8-K...............................................  15
 
</TABLE>



                                       2

<PAGE>
 
                            ATRIA COMMUNITIES, INC.
                   CONDENSED CONSOLIDATED STATEMENT OF INCOME
       FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                                  (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
 
 
                                                              QUARTER          NINE MONTHS
                                                        ------------------  ------------------
                                                          1997      1996      1997      1996
                                                        --------  --------  --------  --------
<S>                                                     <C>       <C>       <C>       <C>
 
Revenues..............................................  $17,731   $13,038   $48,930   $38,486
                                                        -------   -------   -------   -------
 
Salaries, wages and benefits..........................    7,368     5,253    19,874    14,657
Supplies..............................................    1,679     1,233     4,487     3,683
Rent..................................................      156       114       358       313
Depreciation and amortization.........................    1,840     1,123     4,963     3,748
Non-recurring transactions............................        -         -         -     1,050
Other operating expenses..............................    3,526     2,750     9,695     7,679
                                                        -------   -------   -------   -------
                                                         14,569    10,473    39,377    31,130
                                                        -------   -------   -------   -------
Operating income......................................    3,162     2,565     9,553     7,356
Interest expense......................................      862       966     3,272     2,999
Investment income.....................................   (1,108)     (404)   (2,214)     (513)
                                                        -------   -------   -------   -------

Income before income taxes and extraordinary loss.....    3,408      2003     8,495     4,870
Provision for income taxes............................    1,360       791     3,390     1,924
                                                        -------   -------   -------   -------
Income before extraordinary loss......................    2,048     1,212     5,105     2,946
Extraordinary loss on extinguishment of debt, net of
  income tax benefit..................................        -         -      (199)        -
                                                        -------   -------   -------   -------
    Net income........................................  $ 2,048   $ 1,212   $ 4,906   $ 2,946
                                                        =======   =======   =======   =======
 
Earnings per common and common equivalent share:
 Primary:
   Income before extraordinary loss...................  $  0.09   $  0.10   $  0.27   $  0.27
   Extraordinary loss on extinguishment of debt.......        -         -     (0.01)        -
                                                        -------   -------   -------   -------
    Net income........................................  $  0.09   $  0.10   $  0.26   $  0.27
                                                        =======   =======   =======   =======
 
 Fully diluted:
   Income before extraordinary loss...................  $  0.09   $  0.10   $  0.27   $  0.27
   Extraordinary loss on extinguishment of debt.......        -         -     (0.01)        -
                                                        -------   -------   -------   -------
 
    Net income........................................  $  0.09   $  0.10   $  0.26   $  0.27
                                                        =======   =======   =======   =======
Shares used in computing earnings per common and
 common equivalent share:
   Primary............................................   23,667    12,595    18,826    11,008
   Fully diluted......................................   23,726    12,595    18,990    11,008
 
</TABLE>



                            See accompanying notes.
                                       3

<PAGE>
 
                            ATRIA COMMUNITIES, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEET
                                  (UNAUDITED)
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
 
 
                                                                                     September 30,   December 31,
                                                                                          1997           1996
                                                                                     --------------  -------------
<S>                                                                                  <C>             <C>
                    ASSETS
Current assets:
 Cash and cash equivalents.........................................................       $ 79,617       $ 65,238
 Resident accounts receivable less allowance for loss of $157 - September 30
   and $130 - December 31..........................................................            598            356
 Other.............................................................................          2,280          1,203
                                                                                          --------       --------
                                                                                            82,495         66,797
 
Property and equipment, at cost....................................................        243,237        161,946
Accumulated depreciation...........................................................        (31,568)       (27,426)
                                                                                          --------       --------
                                                                                           211,669        134,520
 
Intangible assets less accumulated amortization of $1,898 - September 30
 and $3,599 - December 31..........................................................          9,950          3,353
Other..............................................................................         11,379          5,112
                                                                                          --------       --------
                                                                                          $315,493       $209,782
                                                                                          ========       ========
 
 
          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable..................................................................       $  2,470       $  2,536
 Salaries, wages and other compensation............................................          1,354          1,163
 Other accrued liabilities.........................................................          3,710          2,686
 Long-term debt due within one year................................................            999         14,825
                                                                                          --------       --------
                                                                                             8,533         21,210
 
Long-term debt.....................................................................        107,207         95,207
Deferred credits and other liabilities.............................................          9,317          4,419
 
 
Stockholders' equity:
 Common stock, $.10 par value; authorized 50,000 shares;
  issued and outstanding  23,372 shares at September 30 and 15,830 at December 31..          2,337          1,583
 Capital in excess of par value....................................................        181,488         85,658
 Retained earnings.................................................................          6,611          1,705
                                                                                          --------       --------
                                                                                           190,436         88,946
                                                                                          --------       --------
                                                                                          $315,493       $209,782
                                                                                          ========       ========
 
</TABLE>



                            See accompanying notes.
                                       4

<PAGE>
 
                            ATRIA COMMUNITIES, INC.
                CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
                                  (UNAUDITED)
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
 
 
                                                                                        1997       1996
                                                                                      ---------  ---------
<S>                                                                                   <C>        <C>
Cash flows from operating activities:
 Net income.........................................................................  $  4,906   $  2,946
 Adjustments to reconcile net income to net cash provided by operating activities:
  Depreciation and amortization.....................................................     4,963      3,748
  Extraordinary loss on extinguishment of debt......................................       332          -
  Non-recurring transactions........................................................         -        750
  Other.............................................................................      (414)       247
  Changes in operating assets and liabilities:
   Accounts receivable..............................................................       (19)      (270)
   Other assets.....................................................................        13        433
   Accounts payable.................................................................    (1,784)       592
   Income taxes.....................................................................      (315)         -
   Other accrued liabilities........................................................       825      1,614
                                                                                      --------   --------
    Net cash provided by operating activities.......................................     8,507     10,060
                                                                                      --------   --------
 
Cash flows from investing activities:
  Purchase of property and equipment................................................   (36,235)    (2,487)
  Acquisition of new businesses.....................................................    (8,000)         -
  Acquisition of American ElderServe Corporation....................................    (8,720)         -
  Investment in joint ventures......................................................    (2,775)         -
  Other.............................................................................      (521)      (172)
                                                                                      --------   --------
    Net cash used in investing activities...........................................   (56,251)    (2,659)
                                                                                      --------   --------
 
Cash flows from financing activities:
  Issuance of long-term debt........................................................     3,953     21,847
  Repayment of long-term debt.......................................................   (33,328)   (17,170)
  Issuance of common stock..........................................................    91,587     52,939
  Net payments to Vencor, Inc.......................................................         -     (4,909)
  Other.............................................................................       (89)     2,396
                                                                                      --------   --------
    Net cash provided by financing activities.......................................    62,123     55,103
                                                                                      --------   --------
 
Change in cash and cash equivalents.................................................    14,379     62,504
Cash and cash equivalents at beginning of period....................................    65,238      2,819
                                                                                      --------   --------
Cash and cash equivalents at end of period..........................................  $ 79,617   $ 65,323
                                                                                      ========   ========
 
Supplemental information:
  Interest payments.................................................................  $  4,645   $  2,374
  Income tax payments...............................................................     3,213      1,675
  Fair value of common stock issued in connection with the acquisition of
   American ElderServe Corporation..................................................     5,195          -
  Assumption of long-term debt through business and community acquisitions..........    27,749          -
 
</TABLE>


                            See accompanying notes.

                                       5
<PAGE>
 
                            ATRIA COMMUNITIES, INC.
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1 - REPORTING ENTITY

  Atria Communities, Inc. ("Atria" or the "Company") is a leading national
provider of assisted and independent living communities for the elderly.  At
September 30, 1997, Atria operated 37 communities located in 17 states with a
total of 3,890 units, including 1,878 assisted living units and 2,012
independent living units.

  In May 1996, the Board of Directors of Vencor, Inc. ("Vencor") authorized
management to establish Atria as a wholly owned subsidiary to operate Vencor's
assisted and independent living business.  As part of that transaction,
management consummated an initial public offering (the "IPO") of 5,750,000
shares of Atria's common stock (including 750,000 shares in connection with the
exercise of the underwriters' overallotment option) in the third quarter of
1996.  At September 30, 1997, Vencor owned 10,000,000 shares, or 42.8%, of
Atria's outstanding common stock.

NOTE 2 - BASIS OF PRESENTATION

  For periods prior to the IPO, the accompanying condensed consolidated
financial statements reflect the operations of the assisted and independent
living business of Vencor that were transferred to Atria at or prior to
completion of the IPO.  These financial statements have been derived from the
consolidated financial statements of Vencor and reflect the operations of Atria
as a separate entity for all periods presented.

  The accompanying condensed consolidated financial statements do not include
all of the disclosures normally required by generally accepted accounting
principles or those normally made in Atria's annual audited financial
statements.  Accordingly, these financial statements should be read in
conjunction with Atria's audited consolidated financial statements for the year
ended December 31, 1996 filed with the Securities and Exchange Commission
pursuant to Atria's Annual Report on Form 10-K.

  The accompanying condensed consolidated financial statements have been
prepared in accordance with Atria's customary accounting practices and have not
been audited.  Management believes that the financial information included
herein reflects all adjustments necessary for a fair presentation of interim
results and all such adjustments are of a normal and recurring nature.

  Prior year amounts have been reclassified to conform with current year
presentation.

NOTE 3 - REVENUES

  Revenues are recognized when services are rendered and consist of resident
fees and fees for other ancillary services.  Agreements with residents are
generally on a month to month basis.  Revenues from management contracts are
recognized in the period earned in accordance with the terms of the management
agreement.

  Substantially all revenues are derived from private pay sources.  A summary of
revenues for the quarter and nine months ended September 30, 1997 and 1996
follows (dollars in thousands):
<TABLE>
<CAPTION>
 
                                    QUARTER          NINE MONTHS
                                ----------------  -----------------
                                 1997     1996     1997      1996
                                -------  -------  -------  --------
<S>                             <C>      <C>      <C>      <C>
Owned and leased communities..  $17,533  $12,965  $48,364   $38,279
Managed communities...........      198       73      566       207
                                -------  -------  -------   -------
                                $17,731  $13,038  $48,930   $38,486
                                =======  =======  =======   =======
 
</TABLE>
 

 



                                       6
<PAGE>
 
                            ATRIA COMMUNITIES, INC.
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  (UNAUDITED)

NOTE 4 - NON-RECURRING TRANSACTIONS
 
  In June 1996, Atria recorded a non-recurring pre-tax charge of $1.1 million in
connection with the settlement of certain litigation involving a minority
partner at one of its communities.

NOTE 5 - SECONDARY STOCK OFFERING

  In July 1997, the Company completed a secondary offering of 6,900,000 shares
of common stock at $14.00 per share (the "Secondary Offering").  The net
proceeds from the Secondary Offering (approximately $91.0 million) are being
used to finance the development and acquisition of assisted living communities
and for general corporate purposes.

NOTE 6 - EARNINGS PER COMMON SHARE

  Shares used in the computation of earnings per common share include 10,000,000
shares of common stock issued to Vencor for its contribution of assets to Atria
and the assumption by Atria of related liabilities and shares of restricted
stock issued at the consummation date of the IPO. In addition, for the quarter
and nine months ended September 30, 1997, the computation also gives effect to
the 5,750,000 shares issued in connection with the IPO; 636,487 shares issued in
connection with the acquisition of the American ElderServe Corporation
("American ElderServe"); 6,900,000 shares issued in connection with the
Secondary Offering; the exercise of stock options and the dilution associated
with the issuance of common stock options.  Share and per share amounts for
periods prior to the IPO are presented on a pro forma basis.

  In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 "Earnings Per Share," which will require Atria to change the current
method of computing earnings per common share and restate all prior periods.
Pursuant to Statement No. 128, Atria is required, among other things, to
calculate primary earnings per common share by December 31, 1997, in such a
manner as to exclude the dilutive effect of common stock options.  The change in
the method of calculation is not expected to have a material impact on
previously reported earnings per common share.

NOTE 7 - AMERICAN ELDERSERVE ACQUISITION

  On April 1, 1997, Atria acquired American ElderServe, an operator of assisted
living communities, for a combination of Atria's common stock, cash and
assumption of debt valued at approximately $30.7 million.  At the time of the
acquisition, American ElderServe operated 12 assisted living communities
consisting of 503 units and also had six additional communities under
construction containing 345 units scheduled to open in 1997.  A summary of the
American ElderServe acquisition follows (dollars in thousands):
<TABLE>
<CAPTION>
 
 
<S>                                      <C>
   Fair value of assets acquired.......  $36,812
   Fair value of liabilities assumed...   22,873
                                         -------
      Net assets acquired..............   13,939
   Fair value of common stock issued...   (5,195)
   Cash received from acquired entity..      (24)
                                         -------
      Net cash paid....................  $ 8,720
                                         =======
</TABLE>

  The purchase price paid in excess of the fair value of identifiable net assets
acquired (to be amortized over 30 years by the straight-line method) aggregated
$5.7 million.



                                       7
<PAGE>
 
                            ATRIA COMMUNITIES, INC.
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                  (UNAUDITED)
                                        
NOTE 7 - AMERICAN ELDERSERVE ACQUISITION (CONTINUED)

  The pro forma effect of the American ElderServe acquisition, assuming that the
transaction occurred on January 1, 1996, follows (dollars in thousands, except
per share amounts):
<TABLE>
<CAPTION>
 
                                                      Nine Months ended
                                                        September 30,
                                                      ------------------
                                                        1997      1996
                                                      --------  --------
<S>                                                   <C>       <C>
  Revenues..........................................   $50,752   $42,457
  Income before extraordinary loss..................     1,673     2,177
  Net income........................................     1,474     2,177
 
  Earnings per common and common equivalent share:
     Primary:
       Income before extraordinary loss.............   $  0.09   $  0.19
       Net income...................................      0.08      0.19
     Fully diluted:
       Income before extraordinary loss.............   $  0.09   $  0.19
       Net income...................................      0.08      0.19
</TABLE>

  Pro forma income for the nine months ended September 30, 1997 includes
non-recurring compensation expense incurred by American ElderServe in connection
with accelerated vesting of certain stock options exercised in conjunction with
the American ElderServe acquisition, the effect of which reduced pro forma net
income by $2.2 million or $0.12 per common share.

  In connection with the American ElderServe acquisition, the Company entered
into an agreement with Elder HealthCare Developers, L.L.C. ("Elder HealthCare"),
a limited liability company owned 10% by Atria and 90% by Assisted Care
Developers, L.L.C. ("Assisted Care Developers"), to develop at least 15 assisted
living communities for the Company in the southeastern United States over the
next three years.  Assisted Care Developers is wholly-owned by George A.
Schoepf, former Executive Vice President of American ElderServe and the brother
of Andy L. Schoepf, the Company's Chief Operating Officer.

NOTE 8 - SUBSEQUENT EVENTS

  In October 1997, the Company completed a $125,000,000 private offering (the
"Convertible Notes Offering") of 5% Convertible Subordinated Notes due 2002 (the
"Notes").  Net proceeds from this offering approximated $121.6 million and will
be used to finance the development and acquisition of assisted living
communities, for working capital and for general corporate purposes.  The Notes
are convertible into shares of the Company's common stock at $20.864 per share
(on or after 90 days following the last date of initial issuance of the Notes),
and may not be redeemed by the Company prior to October 15, 2000.
 
  Additionally, in October 1997, the Company purchased the assets of a
retirement community in Stamford, Connecticut for approximately $14.0 million.
This community was previously owned by Vencor and has been managed by the
Company since April 1997.




                                       8
<PAGE>
 
    ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS
                                        
  Atria is a leading national provider of assisted and independent living
communities for the elderly, operating at September 30, 1997, 37 communities
comprising 3,890 units located in 17 states.  At  September 30, 1997, Atria had
33 assisted living communities comprising approximately 2,318 units under
development, including 17 communities under construction.

PLANNED EXPANSION AND DEVELOPMENT

  Atria intends to expand its business by developing or acquiring 60 to 85
additional assisted living communities consisting of approximately 5,400 to
7,650 units by the year 2000 (including the 33 communities currently being
developed and the communities developed and acquired since the IPO) and
converting at least 750 of its existing independent living units to assisted
living units by the year 2000. The Company will pursue acquisitions in
conjunction with its development efforts in order to cluster assisted living
communities in targeted markets.  The estimated cost to construct, equip or
otherwise acquire such communities could approximate $375.0 to $550.0 million,
which is substantially in excess of the Company's present capital resources.

  The Company currently estimates that the net proceeds from the Secondary
Offering and the Convertible Notes Offering of July 1997 and October 1997,
respectively, together with existing capital resources and financing commitments
under its $200.0 million bank credit facility (the "Credit Facility"), will be
sufficient to fund its development and acquisition program through mid-1999.
Available sources of future capital may include, among other things, equity,
public or private debt and additional bank revolving credits.  However, there
can be no assurance that such financing will be available on terms acceptable to
Atria, nor can there be any assurance that additional financing will not be
required prior to 1999.
 
  Newly opened communities are expected to incur operating losses until
sufficient occupancy levels and operating efficiencies are achieved.  Based upon
historical experience, management believes that a typical community will achieve
its targeted occupancy levels approximately 12 months from commencement of
operations.  Accordingly, Atria will require substantial amounts of liquidity to
maintain the operations of newly opened communities.  In addition, if sufficient
occupancy levels related to newly opened communities are not achieved within a
reasonable period, the results of operations, financial position and liquidity
of Atria could be materially and adversely impacted.

  The statements contained under "Planned Expansion and Development" are
"forward looking statements" within the meaning of the Private Securities
Litigation Act of 1995.  Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements.  Such factors include, among other things: (i) the
successful and timely implementation of the Company's acquisition and
development strategy; (ii) the Company's ability to obtain financing on
acceptable terms to finance its growth strategy and to operate within the
limitations imposed by financing arrangements;  (iii) the cost of completing the
Company's acquisition and development plans; and (iv) other factors referenced  
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996, filed with the Securities and Exchange Commission. The Company does not
undertake to update any forward-looking statement that may be made from time to
time by, or on behalf, of the Company.


                                       9
<PAGE>
 
    ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                       RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
 
 
RESULTS OF OPERATIONS
<S>                                 <C>      <C>     <C>     <C>
A summary of operations follows:
                                        PERCENTAGE OF REVENUES
                                     -----------------------------
                                     THIRD QUARTER    NINE MONTHS
                                     -------------   -------------
                                      1997    1996    1997    1996
                                     -----   -----   -----   -----
Revenues..........................   100.0%  100.0%  100.0%  100.0%
                                     -----   -----   -----   -----
Salaries, wages and benefits......    41.6    40.3    40.6    38.1
Supplies..........................     9.5     9.5     9.2     9.6
Rent..............................     0.9     0.9     0.7     0.8
Depreciation and amortization.....    10.4     8.6    10.1     9.7
Non-recurring transactions........       -       -       -     2.7
Other operating expenses..........    19.8    21.0    19.8    20.0
                                     -----   -----   -----   -----
                                      82.2    80.3    80.4    80.9
                                     -----   -----   -----   -----
Operating income..................    17.8    19.7    19.6    19.1
Interest expense..................     4.8     7.4     6.7     7.8
Investment income.................    (6.2)   (3.1)   (4.5)   (1.4)
                                     -----   -----   -----   -----
 Income before income taxes and
  extraordinary loss..............    19.2    15.4    17.4    12.7
Provision for income taxes........     7.6     6.1     7.0     5.0
                                     -----   -----   -----   -----
Income before extraordinary loss..    11.6%    9.3%   10.4%    7.7%
                                     =====   =====   =====   =====
 
</TABLE>

  Revenues increased 36.0% in the third quarter of 1997 to $17.7 million from
$13.0 million in the third quarter of 1996, and revenues increased 27.1% for the
nine month period of 1997 to $48.9 million from $38.5 million in the same period
a year ago. The increase in the third quarter of 1997 was primarily attributable
to price increases ($600,000), growth in ancillary services ($200,000) and the
acquisition of American ElderServe and newly constructed communities ($3.9
million).  The increase for the first nine months of 1997 was primarily
attributable to price increases ($1.9 million), growth in ancillary services
($500,000) and the acquisition of American ElderServe and newly constructed
communities ($8.0 million).  Same community occupancy was 95.0% and 96.6% for
the third quarter of 1997 and 1996, respectively and 95.2% and 96.1% for the
first nine months of 1997 and 1996, respectively.

  Compensation costs as a percentage of revenues increased in both the third
quarter and nine month periods of 1997 compared to the same periods a year ago.
Increases in such costs resulted primarily from the American ElderServe
acquisition and growth in administrative expenses associated with Atria's
expansion and development program and overhead costs associated with development
communities that opened during 1997.

  In June 1996, Atria recorded a non-recurring pre-tax charge of $1.1 million in
connection with the settlement of certain litigation involving a minority
partner at one of its communities.

  Operating income increased 23.3% to $3.2 million in the third quarter of 1997
compared to $2.6 million in the same period of 1996.  For the nine month period,
operating income grew 29.9% to $9.6 million in 1997 compared to $7.4 million in
1996. Excluding the effect of non-recurring transactions, operating income
increased 13.7% for the nine month period of 1997.  In both the third quarter
and nine month periods, operating income increased primarily as a result of
improved same community operations as well as the American ElderServe
acquisition.  However, operating income in the third quarter and nine month
period was adversely impacted by increased administrative costs incurred in
connection with Atria's expansion and development program.

  Income before extraordinary loss increased 69.0% to $2.0 million in the third
quarter of 1997 compared to $1.2 million for the same period a year ago, and
73.3% to $5.1 million for the first nine months of 1997 from $2.9 million for
the same period last year.  Excluding the effect of non-recurring transactions,
income before extraordinary loss grew 42.8% for the nine month period of 1997 as
compared to the same period a year ago. The improvement was primarily
attributable to growth in operating income and a reduction in net interest
expense primarily as a result of the Secondary Offering.

                                       10
<PAGE>
 
    ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                       RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS  (CONTINUED)

  For periods prior to the IPO, certain allocations and estimates have been made
by management in the consolidated financial statements to present the historical
financial position and results of operations of Atria as a separate entity.
Upon consummation of the IPO, Atria became contractually obligated to pay Vencor
for certain centralized management and administrative services underlying such
historical allocations and estimates. The operating results of Atria include
corporate costs and expenses of Vencor aggregating $93,000 and $157,000 for the
three months ended September 30, 1997 and 1996, respectively, and $323,000 and
$457,000 for the respective nine month periods.  Management believes that these
allocations reasonably reflect the proportional costs incurred by Vencor on
behalf of Atria.

LIQUIDITY AND CAPITAL RESOURCES

  Net cash provided by operations totaled $8.5 million and $10.1 million for the
nine months ended September 30, 1997 and 1996, respectively.  Cash flows from
operations decreased primarily as a result of reductions in trade accounts
payable.

  Net cash used in investing activities totaled $56.2 million and $2.7 million
for the nine months ended September 30, 1997 and 1996, respectively.  Atria's
investing activities included capital expenditures related to the development of
new communities and expansion of existing operations totaling $36.2 million and
$2.5 million for the respective periods.  In addition, Atria acquired two
communities for $8.0 million and American ElderServe for a combination of $8.7
million cash, common stock and assumption of debt during 1997.

  Net cash provided by financing activities totaled $62.1 million and $55.1
million for the nine months ended September 30, 1997 and 1996, respectively. The
1997 amount includes the net proceeds of approximately $91.0 million from the
Secondary Offering, offset by the payment of $33.3 million of long-term debt
assumed which includes, among other things, the repayment of $14.4 million in
the American ElderServe acquisition, resulting in the extraordinary loss on
extinguishment of debt, net of income taxes, of $199,000, and the repayment of
the $14.0 million note payable to Vencor.

  The Company's working capital totaled $74.0 million at September 30, 1997,
compared to  $45.6 million at December 31, 1996. The increase in working capital
resulted principally from the net proceeds received from the Secondary Offering
offset by the cost of acquisitions during such period, including the repayment
of long-term debt, continued development and cost of expansion activities. In
connection with its expansion and development plans, the Company maintains the
Credit Facility.  At September 30, 1997, available borrowings under the Credit
Facility approximated $113.0 million.

  Capital expenditures related to acquisitions of existing communities,
construction of new communities and expansion and improvement of existing
communities could approximate $100.0 to $110.0 million in 1997. Additionally,
Atria is committed to finance the development costs of its joint venture with
Elder HealthCare Developers through the Credit Facility.  The Company does not
anticipate such commitment will exceed $10 million in 1997.  Although management
believes that cash flows from operations, the proceeds from the Secondary
Offering and Convertible Notes Offering and available borrowings under the
Credit Facility are sufficient to meet these capital needs, Atria will require
substantial additional financing to continue its growth plans beyond mid-1999.
The Company currently has under development 33 sites for new assisted living
communities, 17 of which are under construction.  At September 30, 1997, the
additional cost to complete and equip the 17 communities under construction
approximated $45.0 million.

  Atria plans to retain future earnings to finance the growth of its business
rather than to pay cash dividends.  Payment of cash dividends in the future will
depend on the financial condition, results of operations and capital
requirements of Atria as well as other factors deemed relevant by the Board of
Directors.  The Credit Facility also prohibits Atria from paying cash dividends.

  The Credit Facility contains financial covenants and other restrictions that:
(i) require Atria to meet certain financial tests; (ii) require that there be no
change of control of Atria; (iii) limit, among other things, the ability of
Atria and certain of its subsidiaries to borrow additional funds, dispose of
certain assets and engage in mergers and other business combinations; (iv)
prohibit distributions to Atria's stockholders; and (v) require that Vencor own
at least 30.0% of Atria's common stock.

                                       11
<PAGE>
 
    ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                       RESULTS OF OPERATIONS (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES  (CONTINUED)

Vencor has guaranteed for four years certain borrowings by Atria under the
Credit Facility in amounts up to $100.0 million in the first year following the
IPO, declining to $75.0 million, $50.0 million and $25.0 million in each
respective year thereafter.  Atria was in compliance with all debt covenants at
September 30, 1997.

                                       12
<PAGE>
 
   ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                       RESULTS OF OPERATIONS (CONTINUED)

                   CONDENSED CONSOLIDATED STATEMENT OF INCOME
                                  (UNAUDITED)
         (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICAL DATA)
<TABLE>
<CAPTION>
 
                                                         1997 QUARTERS
                                             ----------------------------------
                                              FIRST        SECOND       THIRD    NINE MONTHS
                                             --------  --------------  --------  ------------
<S>                                          <C>       <C>             <C>       <C>
   Revenues................................  $14,217         $16,982   $17,731       $48,930
                                             -------         -------   -------       -------
 
   Salaries, wages and benefits............    5,660           6,846     7,368        19,874
   Supplies................................    1,290           1,518     1,679         4,487
   Rent....................................       39             163       156           358
   Depreciation and amortization...........    1,388           1,735     1,840         4,963
   Non-recurring transactions..............        -               -         -             -
   Other operating expenses................    2,786           3,383     3,526         9,695
                                             -------         -------   -------       -------
                                              11,163          13,645    14,569        39,377
                                             -------         -------   -------       -------
   Operating income........................    3,054           3,337     3,162         9,553
   Interest expense........................    1,182           1,228       862         3,272
   Investment income.......................     (753)           (353)   (1,108)       (2,214)
                                             -------         -------   -------       -------
   Income before income taxes and
     extraordinary loss....................    2,625           2,462     3,408         8,495
   Provision for income taxes..............    1,047             983     1,360         3,390
                                             -------         -------   -------       -------
   Income before extraordinary loss........    1,578           1,479     2,048         5,105
   Extraordinary loss on extinguishment....
    of debt, net of income tax benefit.....        -            (199)        -          (199)
                                             -------         -------   -------       -------
       Net income..........................  $ 1,578         $ 1,280   $ 2,048       $ 4,906
                                             =======         =======   =======       =======
   Earnings per common and common
     equivalent share:
     Primary:
      Income before extraordinary loss.....  $  0.10         $  0.09   $  0.09       $  0.27
      Extraordinary loss on
       extinguishment of debt..............        -           (0.01)        -         (0.01)
                                             -------         -------   -------       -------
       Net income..........................  $  0.10         $  0.08   $  0.09       $  0.26
                                             =======         =======   =======       =======
     Fully diluted:
      Income before extraordinary loss.....  $  0.10         $  0.08   $  0.09       $  0.27
      Extraordinary loss on
       extinguishment of debt..............        -           (0.01)        -         (0.01)
                                             -------         -------   -------       -------
       Net income..........................  $  0.10         $  0.07   $  0.09       $  0.26
                                             =======         =======   =======       =======
   Shares used in computing earnings per
     common and common equivalent share:
     Primary...............................   15,987          16,660    23,667        18,826
     Fully diluted.........................   15,987          16,825    23,726        18,990
 
   Average occupancy.......................     94.6%           87.9%     88.7%         90.1%
   Number of communities at end of period..       25              40        37
   Number of units at end of period........    3,226           3,977     3,890
</TABLE>

                                       13
<PAGE>
 
   ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                       RESULTS OF OPERATIONS (Continued)

                   Condensed Consolidated Statement of Income
                                  (UNAUDITED)
         (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICAL DATA)
<TABLE>
<CAPTION>
 
                                                             1996 QUARTERS
                                               --------------------------------------  
                                                FIRST     SECOND    THIRD     FOURTH     YEAR
                                               --------  --------  --------  --------  --------
<S>                                            <C>       <C>       <C>       <C>       <C>
 
   Revenues..................................  $12,611   $12,837   $13,038   $13,360   $51,846
                                               -------   -------   -------   -------   -------
   Salaries, wages and benefits..............    4,677     4,727     5,253     5,204    19,861
   Supplies..................................    1,227     1,223     1,233     1,341     5,024
   Rent......................................      100        99       114        40       353
   Depreciation and amortization.............    1,312     1,313     1,123     1,312     5,060
   Non-recurring transactions................        -     1,050         -         -     1,050
   Other operating expenses..................    2,434     2,495     2,750     2,915    10,594
                                               -------   -------   -------   -------   -------
                                                 9,750    10,907    10,473    10,812    41,942
                                               -------   -------   -------   -------   -------
   Operating income..........................    2,861     1,930     2,565     2,548     9,904
   Interest expense..........................      982     1,051       966     1,288     4,287
   Investment income.........................      (48)      (61)     (404)     (926)   (1,439)
                                               -------   -------   -------   -------   -------
   Income before income taxes................    1,927       940     2,003     2,186     7,056
   Provision for income taxes................      761       372       791       863     2,787
                                               -------   -------   -------   -------   -------
   Net income................................  $ 1,166   $   568   $ 1,212   $ 1,323   $ 4,269
                                               =======   =======   =======   =======   =======
   Earnings per common and common
     equivalent share (a):
     Primary:
       Income from operations excluding
       non-recurring item....................  $  0.11   $  0.11   $  0.10   $  0.08   $  0.40
       Non-recurring transactions............        -     (0.05)        -         -     (0.05)
                                               -------   -------   -------   -------   -------
       Net income............................  $  0.11   $  0.06   $  0.10   $  0.08   $  0.35
                                               =======   =======   =======   =======   =======
     Fully diluted:
       Income from operations excluding
       non-recurring item....................  $  0.11   $  0.11   $  0.10   $  0.08   $  0.40
       Non-recurring transactions............        -     (0.05)        -         -     (0.05)
                                               -------   -------   -------   -------   -------
       Net income............................  $  0.11   $  0.06   $  0.10   $  0.08   $  0.35
                                               =======   =======   =======   =======   =======
   Shares used in computing earnings per
    common and common equivalent share (a):
     Primary.................................   10,095    10,095    12,595    15,924    12,226
     Fully diluted...........................   10,095    10,095    12,595    15,924    12,226
 
   Average occupancy.........................    95.7 %     95.4%     96.2%     97.0%     96.1%
   Number of communities at end of period....       22        22        22        21
   Number of units at end of period..........    3,022     3,022     3,022     2,942
</TABLE>
(a)  Share and per share amounts for periods prior to the IPO are presented on a
pro forma basis.

                                       14

<PAGE>
 
       ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable.



                          PART II.  OTHER INFORMATION
                                        

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

  (A)   EXHIBITS:

EXHIBIT NO.  DESCRIPTION

  4.1        Amendment No. 4 to Credit Agreement dated as of September 29, 1997
             among Atria Communities, Inc., as borrower, the lending
             institutions named therein, PNC Bank, National Association as
             Administrative Agent, PNC Bank Kentucky, Inc., as Managing Agent,
             and National City Bank of Kentucky, as Documentation Agent.
             
 27          Financial Data Schedule (included only in filings submitted under
             the Electronic Data Gathering Analysis Retrieval system).

  (B)  REPORTS ON FORM 8-K:

       The Company did not file a Current Report on Form 8-K during the quarter
ended September 30, 1997.

                                       15
<PAGE>
 
                                   SIGNATURES

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


                                             ATRIA COMMUNITIES, INC.



Date:   October 30, 1997                        /s/ W. PATRICK MULLOY, II
------------------------                   -------------------------------------
                                                  W. Patrick Mulloy, II
                                           President and Chief Executive Officer



Date:   October 30, 1997                           /s/ J. TIMOTHY WESLEY
------------------------                   -------------------------------------
                                                     J. Timothy Wesley
                                                 Chief Financial Officer,
                                              Vice President of Development
                                                       and Secretary
                                               (Principal Financial Officer)

                                       16