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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

Commission File Number: 333-54122

Atrium Corporation

1341 W. Mockingbird Lane, Suite 1200W, Dallas, Texas 75247, (214) 630-5757

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

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

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

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ATRIUM CORPORATION

FORM 10-Q

INDEX

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ATRIUM CORPORATION

CONSOLIDATED BALANCE SHEETS

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

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ATRIUM CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

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

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ATRIUM CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

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

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ATRIUM CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND

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

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ATRIUM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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ATRIUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Basis of Presentation

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

      The unaudited consolidated financial statements of the Company for the three and six months ended June 30, 2003 and 2002, and financial position as of June 30, 2003 and December 31, 2002 have been prepared in accordance with generally accepted accounting principles for interim financial reporting, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

      These consolidated financial statements and footnotes should be read in conjunction with the Company’s audited financial statements for the fiscal year ended December 31, 2002 included in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on March 31, 2003. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. The results of operations for any interim period are not necessarily indicative of the results of operations for a full year.

2.     Stock-Based Compensation

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

      The following table illustrates the effect on the Company’s reported net income (loss) if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-based Compensation,” to stock-based compensation plans and warrants.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.     New Accounting Pronouncements

      During January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 provides guidance for companies having ownership of variable interest entities, typically referred to as special purpose entities, in determining whether to consolidate such variable interest entities. FIN 46 has immediate applicability for variable interest entities created after January 31, 2003 or interest in variable interest entities created after that date. For interests in variable interest entities obtained prior to February 1, 2003, FIN 46 becomes effective on July 1, 2003. The Company does not believe adoption of FIN 46 will have a significant effect on its consolidated financial position or results of operations.

      In April 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS  149”). SFAS 149 amends and clarifies the accounting and reporting for derivative contracts, including hedging instruments. The amendments and clarifications under SFAS 149 generally serve to codify the conclusions reached by the Derivative Implementation Group, to incorporate other FASB projects on financial instruments, and to clarify other implementation issues. SFAS 149 becomes effective prospectively for derivative contracts entered into or modified by the Company after June 30, 2003. The Company does not expect that the implementation of SFAS 149 will have a material effect on its consolidated financial position or results of operations.

      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to the Company’s existing financial instruments effective July 1, 2003. The Company does not expect that the adoption of this statement will have a material impact on its financial statements.

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

4.     Adoption of New Accounting Pronouncements

      In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). SFAS 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Under SFAS 143, the fair

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

value of a liability for an asset retirement obligation covered under the scope of SFAS 143 would be recognized in the period in which the liability is incurred, with an offsetting increase in the carrying amount of the related long-lived asset. The Company adopted SFAS 143 on January 1, 2003. Adoption of SFAS 143 did not have a significant impact on the Company.

      In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”). SFAS 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” requiring that gains and losses from the extinguishment of debt be classified as extraordinary items only if certain criteria are met. SFAS 145 also amends SFAS No. 13, “Accounting for Leases,” and the required accounting for sale-leaseback transactions and certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS 145 was adopted by the Company on January 1, 2003. Adoption of SFAS 145 has not had a significant effect on the Company.

      In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized initially at fair value when the liability is incurred. SFAS 146 was adopted by the Company on January 1, 2003. Adoption of SFAS 146 did not have a significant effect on the Company.

      During November 2002, the FASB issued FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 generally requires a guarantor to recognize a liability for obligations arising from guarantees. FIN 45 also requires new disclosures for guarantees meeting certain criteria outlined in the pronouncement. The recognition and measurement provisions of FIN 45 are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The Company’s consolidated financial statements have not been affected as a result of adopting this pronouncement.

5.     Inventories

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.     Notes Payable

      Notes payable consisted of the following:

      The senior subordinated notes (the “Notes”), senior payment-in-kind notes (the “PIK Notes”) and credit agreement require the Company to meet certain financial tests pertaining to total leverage, senior leverage, interest coverage and fixed charge coverage. As of June 30, 2003, the Company was in compliance with all related covenants.

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

      Interest on the Company’s PIK Notes accrues at a rate of 15%, except under the following two conditions: If a default occurs as defined by the agreement, and remains uncured or, if the ratio of total consolidated indebtedness to consolidated cash flow of the Company commencing with March 2002 is greater than 3.75x, then the rate shall increase to 17%. The interest rate will return to 15% upon curing of a default or upon the ratio being equal to or less than the 3.75x limit. The interest rate on the PIK Notes increased to 17% in April 2002 as a result of the ratio not being met. The interest on the PIK Notes will continue to accrue at 17% until the default clears.

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

7.     Contingencies

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

      On June 26, 2003, the Colorado state court granted preliminary approval of a settlement agreement between the named plaintiffs, the Company and Champagne to resolve all claims in the class action lawsuit. Under the terms of the proposed settlement agreement, which is subject to final approval of the Colorado state court, Champagne’s insurance carriers will pay $18.475 million into a settlement fund that will be used to compensate the approximately 4,500 class members, either through a one-time liquidated payment or through a payment that would be used by class members for the repair and replacement of windows. In addition, Champagne will offer to sell a fixed number of replacement windows to the class members at a reduced price from Champagne’s retail list price, which reduced price shall in no event be below Champagne’s manufacturing cost. Neither the Company nor Champagne will pay any cash to the class members under the proposed settlement agreement. Under the terms of the proposed settlement agreement, all class members will release Atrium Companies and Champagne from any liability arising from any claims asserted or that could have been asserted by the plaintiffs in this litigation, including any claims associated with the Imperial window. In addition, as part of the proposed settlement, co-defendant Ryland Homes has agreed to withdraw with prejudice its cross-claim against Champagne. The hearing for final approval of the settlement agreement is scheduled for September 9, 2003.

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

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

      Atrium Companies is a PRP at the Chemical Recycling, Inc. or “CRI” Superfund site in Wylie, Texas. The Company is a very small contributor at the CRI site, being assigned approximately 2.788% of the damages based on its waste volume at the site. The site was a solvent reclamation facility, and the Company sent paint waste to the site for recycling. The site has soil and groundwater contamination. Major removal actions have occurred and a Work Plan for Risk Assessment/ Feasibility Study was submitted to the Environmental Protection Agency (“EPA”) in October 1996. According to the studies performed by the site’s steering committee, affected groundwater has not migrated off-site. According to the EPA general counsel in charge of the site, the site is low priority compared to other sites in the region. There are 115 PRP’s at this site with approximately 85 that are members of the site’s steering committee. Two main PRP’s, Glidden and Sherwin Williams, account for approximately 46% of all liability. The Company’s costs to date associated with this site have been approximately $78.

      The second site is the Diaz Refinery site in Jackson County, Arkansas. There is no documentation linking Atrium Companies to the site. In connection with a De Minimis Buyout Agreement, the Company paid $11 to exclude itself from future liability. Because of the lack of documentation linking Atrium Companies to the site and the De Minimis Buyout Agreement, it is not expected that the Company will incur any additional costs. Records indicate that, through agreements with the site’s steering committee and the Arkansas Department of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Pollution Control (the “ADPCE”), the Company will not receive any orders or be allocated further costs for continuing work because the Company does not have a volume contribution assigned to the site (because of the lack of records showing it used the site). The facility was a solvent recovery, supplemental fuel blending and hazardous waste facility from the mid 1970s to 1988, resulting in impacted soil and groundwater. In 1995, the ADPCE approved a work plan and no further requirements have been assigned. Additionally, monitoring actions were completed in 2000 and no further activities have occurred since then.

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

      Atrium Companies owned one parcel of real estate that requires future costs related to environmental clean-up. The estimated costs of clean-up have been reviewed by third-party sources and are expected not to exceed $150. The previous owner of the property has established an escrow of $400 to remediate the associated costs. The Company sold this property in December 1999. Atrium Companies has established a letter of credit of $250 to cover any costs of remediation exceeding the previous owner’s escrow. The Company believes the existing escrow amount is adequate to cover costs associated with this clean-up.

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

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

8.     Wing Divestiture and Woodville Closing

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

9.     Acquisitions

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

      The acquisition was accounted for in accordance with SFAS No. 141, “Business Combinations” (“SFAS 141”). The aggregate purchase price has been allocated to the underlying assets and liabilities based upon their respective estimated fair market values at the date of acquisition. The excess of purchase price over the estimated fair value of the net assets acquired (“goodwill”) was $2,960. The results of MD Casting’s

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

operations were included in the Company’s financial statements beginning on February 1, 2003. The purchase price allocation is as follows:

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

      The acquisition of Danvid was accounted for in accordance with SFAS 141 and the results of the acquired business were included in the Company’s consolidated financial statements beginning on April 1, 2003. The aggregate purchase price has been allocated to the underlying assets and liabilities based upon their respective estimated fair market values at the date of acquisition. The excess purchase price over the fair market value of the assets acquired (“goodwill”) was $1,219, the Company also incurred $173 in transaction fees in connection with the transaction. The purchase price allocation is as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11.     Atrium Corporation Financial Information

Condensed Balance Sheets

Condensed Statements of Operations

Condensed Statements of Operations

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Statements of Cash Flows

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Certain Forward-Looking Statements

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

Results of Operations

      The operations of the Company are cyclical in nature and generally result in increases during the peak building season which coincides with the second and third quarters of the year. Accordingly, results of operations for the second quarter and first six months of 2003 are not necessarily indicative of results expected for the full year.

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

      Net Sales. Net sales increased by $13,629 from $148,181 during the second quarter of 2002 to $161,810 during the second quarter of 2003. The increase in net sales was primarily the result of the 2003 acquisitions and sales growth at the Company’s aluminum extrusion operation, offset by a decline in net sales at the Company’s vinyl window and Darby operations. Net sales from the 2003 acquisitions were $14,109 for the second quarter. Net sales at the Company’s aluminum extrusion operation increased $1,557, or 14.9%, over the prior year due to increased volume with new and existing customers. Net sales at the Company’s vinyl operations decreased $976, or 1.2%, from the prior year as a result of lower volume in the East related to Lowe’s Companies, Inc. shifting certain volume to a competitor. Sales at the Company’s Darby operation declined as a result of softer demand in multi-family sales.

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

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

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      Overall, changes in the cost of goods sold as a percentage of net sales for one period as compared to another period may reflect a number of factors, including changes in the relative mix of products sold and the effects of changes in sales prices, material costs and changes in productivity levels.

      Selling, Delivery, General and Administrative Expenses. Selling, delivery, general and administrative expenses increased $1,965 from $30,959 (20.9% of net sales during the second quarter of 2002) to $32,924 (20.3% of net sales during the second quarter of 2003). Selling, delivery, general and administrative expenses for the 2003 acquisitions were $2,605 during the second quarter. Selling, delivery, general and administrative expenses, excluding the 2003 acquisitions, decreased $641 from $30,959 during the second quarter of 2002 to $30,318 during the second quarter of 2003. General and administrative expenses, excluding the 2003 acquisitions, decreased $259 from $12,358 during the second quarter of 2002 to $12,099 during the second quarter of 2003 due to the Company’s ability to manage its overhead more efficiently and the closure of the Company’s Kel-Star facility. The improvement to general and administrative expenses, were partially offset by higher insurance premiums. Delivery expenses, excluding the 2003 acquisitions, were 6.3% of net sales both for the second quarter of 2003 and 2002. Although delivery expenses were unchanged as a percent of sales from prior year, the Company experienced a decrease in their leased transportation costs as a result of a favorable contract renewal, this benefit was offset by higher fuel prices. Selling expenses, excluding the 2003 acquisitions, decreased as a percent of net sales from 6.3% during the second quarter of 2002 to 6.1% during the second quarter of 2002 due to modifications in the Company’s commission structure. Selling expenses are primarily variable in nature.

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

      Securitization Expense. Securitization expense decreased $22 from $298 in the second quarter of 2002 to $276 in the second quarter of 2003 and decreased $42 from $554 during the first six months of 2002 to $512 during the first six months of 2003. Securitization expense incurred by the Company represents the losses on the sales of the Company’s accounts receivable, which includes both the interest expense and commitment fee components of the transaction.

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

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

      Special Charge. During the second quarter of 2002, the Company recorded a special charge in the amount of $3,948 for liabilities associated with the divestiture of the assets of Wing. The majority of the special charge is attributable to $2,859 of exit costs incurred by the Company on the remaining lease obligations at Wing’s former facilities. The special charge also included $1,089 for litigation expenses. As of June 2003, the Company still has an accrual of $339 for unpaid liabilities related to the Wing special charge.

      Interest Expense. Interest expense decreased $68 from $11,295 during the second quarter of 2002 to $11,227 during the second quarter of 2003 and decreased $259 from $22,419 during the first six months of 2002 to $22,160 during the first six months of 2003. The decrease was due to reduced debt levels and the expiration of one of its interest rate swap agreements in December of 2002. The decrease was partially offset by an interest rate increase on the Company’s PIK Notes from 15% to 17% in April 2002 (see Note 6).

Liquidity and Capital Resources

      Cash generated from operations, availability under Atrium Companies’ revolving credit facility and availability under Atrium Companies’ accounts receivable securitization facility are the Company’s principal sources of liquidity. During the first six months of 2003, cash was primarily used for capital expenditures and for the acquisitions of Danvid and MD Casting. Net cash provided by operating activities was $28,236 during the first six months of 2003 compared to $6,008 during the first six months of 2002. The increase in cash provided by operating activities is largely due to an increase in amounts borrowed against Atrium Companies’ accounts receivable securitization facility offset by an increase in cash provided by changes in working capital. Net cash used in investing activities during the first six months of 2003 was $19,043 compared to $8,048 during the first six months of 2002. The increase in cash used in investing activities was primarily due to the acquisition of Danvid and MD Casting during 2003. Cash used in financing activities during the first six months of 2003 was $2,351 compared to $2,891 in cash provided by financing activities during the first six months of 2002. The decrease in cash provided by financing activities was primarily due to a reduction of net borrowings under the revolving credit facility, offset by higher principal payments on the term loans.

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

Other Capital Resources

      Atrium Companies’ credit agreement, as amended, provides for a revolving credit facility in the amount of $47,000, which includes a $10,000 letter of credit sub-facility. The revolving credit facility has a maturity date of June 30, 2004. Additionally, Atrium Companies has an accounts receivable securitization facility, which can make additional funds available to the Company depending on certain borrowing base levels. On July 3, 2003, the receivables purchase agreement was amended, at the Company’s discretion, to increase the size of the accounts receivable securitization facility from $42,000 to $50,000.

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

Capital Expenditures

      The Company had cash capital expenditures (net of proceeds from sales) of $7,428 during the six months of 2003 ($3,559 during the second quarter of 2003) compared to $6,448 during the first six months of 2002 ($3,158 during the second quarter of 2002). Capital expenditures during these periods were a result of the Company’s effort to increase plant capacity and to increase efficiency through automation at its various manufacturing facilities. The Company expects capital expenditures (exclusive of acquisitions) in 2003 to be approximately $15,000, however, actual capital requirements may change based on management and strategic decisions.

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

New Accounting Pronouncements

      During January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 provides guidance for companies having ownership of variable interest entities, typically referred to as special purpose entities, in determining whether to consolidate such variable interest entities. FIN 46 has immediate applicability for variable interest entities created after January 31, 2003 or interest in variable interest entities created after that date. For interests in variable interest entities obtained prior to February 1, 2003, FIN 46 becomes effective on July 1, 2003. The Company does not believe adoption of FIN 46 will have a significant effect on its consolidated financial position or results of operations.

      In April 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 amends and clarifies the accounting and reporting for derivative contracts, including hedging instruments. The amendments and clarifications under SFAS 149 generally serve to codify the conclusions reached by the Derivative Implementation Group, to incorporate other FASB projects on financial instruments, and to clarify other implementation issues. SFAS 149 becomes effective prospectively for derivative contracts entered into or modified by the Company after June 30, 2003. The Company does not expect that the implementation of SFAS 149 will have a material effect on its consolidated financial position or results of operations.

      In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatorily redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to the Company’s existing financial instruments effective July 1, 2003. The Company does not expect that the adoption of this statement will have a material impact on its financial statements.

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Adoption of New Accounting Pronouncements

      In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”). SFAS 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Under SFAS 143, the fair value of a liability for an asset retirement obligation covered under the scope of SFAS 143 would be recognized in the period in which the liability is incurred, with an offsetting increase in the carrying amount of the related long-lived asset. The Company adopted SFAS 143 on January 1, 2003. Adoption of SFAS 143 did not have a significant effect on the Company.

      In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”). SFAS 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” requiring that gains and losses from the extinguishment of debt be classified as extraordinary items only if certain criteria are met. SFAS 145 also amends SFAS No. 13, “Accounting for Leases,” and the required accounting for sale-leaseback transactions and certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS 145 was adopted by the Company on January 1, 2003. Adoption of SFAS 145 has not had a significant effect on the Company.

      In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized initially at fair value when the liability is incurred. SFAS 146 was adopted by the Company on January 1, 2003. Adoption of SFAS 146 did not have a significant effect on the Company.

      During November 2002, the FASB issued FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 generally requires a guarantor to recognize a liability for obligations arising from guarantees. FIN 45 also requires new disclosures for guarantees meeting certain criteria outlined in the pronouncement. The recognition and measurement provisions of FIN 45 are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The Company’s consolidated financial statements have not been affected as a result of adopting this pronouncement.

Market Risk

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

      On November 1, 2000, Atrium Companies entered into a $100,000 interest rate swap agreement to limit the effect of changes in interest rates on long-term borrowings. Under the agreement, the Company pays interest at a fixed rate of 6.66% on the notional amount and receives interest therein at the three-month LIBOR on a quarterly basis. This swap expires in November 2003. The fair value of this swap is a liability of $1,906, which is included in accrued liabilities.

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

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls

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

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PART II. OTHER INFORMATION

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

      (a) Exhibits

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

      (b) Reports on Form 8-K — None

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SIGNATURES

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

	ATRIUM CORPORATION
	(Registrant)

	By:	/s/ JEFF L. HULL

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

Date: August 14, 2003

	By:	/s/ ERIC W. LONG

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

Date: August 14, 2003

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ATRIUM CORPORATION

EXHIBIT INDEX

E-1