Atlas Second Quarter 2013 Review

Report for the Quarter Ended June 30, 2013

Progress continued at Atlas Capital Resources LP (the “Fund”) during the second quarter as evidenced by positive operating momentum at our portfolio companies, the creation of a new platform business and the completion of an important financing in a challenging environment. Our portfolio companies generally showed improvement and we remain optimistic about our ability to grow value in each of our companies in conjunction with our talented management partners. In June, we concluded the purchase of Twin Rivers Paper Company (“Twin Rivers”), a specialty paper and wood products company that operates three facilities in New Brunswick, Canada and Maine. Just after the end of the second quarter, Detroit Renewable Energy (“DRE”) closed on an offering of bonds through the Michigan Strategic Fund, which will finance the remaining elements of DRE’s capital plan as well as the construction of an expansion of the Detroit Thermal district heating pipeline to enable us to serve a major, new industrial customer under a long-term contract. Also shortly after quarter end, Wood Resources entered into a binding agreement to sell its Southeast business, which includes Chester Wood Products and Moncure Plywood, to Boise Cascade Company (NYSE: BCC), a leading wood products manufacturer and building materials distributor in North America.

Soundview Paper Holdings LLC’s (“Soundview’s”) sales pipeline continued to expand, particularly in the private label segment, suggesting further improvements in performance in the second half of 2013. Forest Resources turned in another strong quarter, benefitting from selling price increases and favorable fiber prices, while Phoenix Services reported its most profitable quarter in the company’s seven year history. Erickson Framing Holdings LLC (“Erickson”) continued the positive trends established soon after our purchase of the company in October 2012.

We continue to be encouraged by trends in the broader economy. In the United States, growth appeared to accelerate as the second quarter progressed and lenders have become somewhat more accommodating. Europe was less fortunate; while its economic decline may have been arrested, at least temporarily, there appears to be little on the continent from which to draw encouragement. Slower growth continued in China, moderating input costs of a number of commodities consumed by our companies. Capital is increasingly available and domestic monetary policy remains expansionary, sustaining historically low costs of debt for now, although expectations of a less accommodating Fed have already increased the cost of longer-term borrowings. Among the industrial sectors most relevant to the “Atlas Economy”, the U.S. construction industry continues to recover toward more normalized levels of activity, improving the prospects for Bridgewell, Erickson, Wood, RedBuilt and the newly acquired Twin Rivers. We believe we remain in an environment that will be supportive of our portfolio companies and will continue to generate acquisition opportunities.

Finally, we are happy to announce Atlas’ most important accomplishment during the second quarter. Our Partner, Jake Hudson, became a father with the birth of a beautiful baby girl, Rosalia Dean Hudson. Congratulations to Eliza and Jake, and to Rosalia — a warm welcome to the Atlas Family!

Wishing you a good summer.

Regards,
Andrew Bursky
Managing Partner
To contact Andy by e-mail, please click here

Timothy Fazio
Managing Partner
To contact Tim by e-mail, please click here

 



ACQUISITION OF TWIN RIVERS

As previously announced, we acquired Twin Rivers on June 6, 2013 in partnership with Blue Wolf Capital Partners LLC (“Blue Wolf”). Twin Rivers is an integrated manufacturer of lumber and specialty packaging, label, and publishing paper products. The company employs approximately 1,200 individuals and operates a paper mill located in Madawaska, Maine, a pulp mill and cogeneration plant located in Edmundston, New Brunswick, and a lumber mill located in Plaster Rock, New Brunswick.

We began reviewing the situation in April 2012 and through extensive diligence with a team of Atlas Operating Partners, we grew comfortable with our thesis that Twin Rivers was well-positioned to become a leading player in the lightweight specialty paper market. By the end of 2012, we had identified two critical pathways to unlocking value at Twin Rivers; restructuring the balance sheet and rightsizing of the cost structure.

The paper mill operation in Madawaska, Maine consists of five paper machines producing up to 380,000 tons per year of lightweight specialty packaging, publishing and label papers. While certain of Twin Rivers’ paper grades are at risk of secular decline such as financial printing and directory papers, we believe that demand for approximately 75% of Twin Rivers’ diverse, specialty product portfolio will remain stable over the long-term. Examples of paper grades produced by Twin Rivers with growth rates that we anticipate will remain in-line with or exceed GDP include packaging papers servicing the food service, retail food and consumer household goods markets, label papers used in point-of-sale transactions and publishing papers for pharmaceutical inserts. The unique combination of internal sulfite pulp production and certain attributes specific to the company’s paper machines enables Twin Rivers to produce light basis-weight papers not easily replicated by other North American competitors, creating a defensible market position. Approximately 5% of production is sold to customers in Canada and the remaining 95% of paper sales are in the United States.

The pulp mill operation is located in Edmundston, New Brunswick directly across the St. John River (and the U.S.-Canada border) from Madawaska. The pulp mill has 270,000 tons of sulfite pulp capacity and 110,000 tons of groundwood pulp capacity. Production of both the sulfite and groundwood mills is 100% captive and shipped to the paper mill through an underwater, cross-border pipeline. The Edmundston operation also has a 45MW biomass cogeneration plant onsite. The Edmundston operation provides 100% of the steam and electricity required by the Madawaska paper mill and sells excess power at a profit to the local grid operated by NB Power – the primary electrical utility in the Province of New Brunswick.

The lumber mill operation is located in Plaster Rock, New Brunswick, approximately 60 miles from Edmundston. This facility produces dimension lumber and studs for residential and commercial construction applications. Production capacity is currently 150 million board-feet (“Mmfbm”), but the mill has only produced in the 120-130 Mmfbm range under Brookfield’s ownership. We have identified a pathway to optimize these assets and improve the company’s wood procurement strategy so that production capacity can be increased to approximately 200 Mmfbm. Over 75% of the lumber produced at the Plaster Rock facility is sold into the United States. We believe that we are acquiring Twin Rivers at an excellent point in time. We have established a detailed cost reduction plan that we began implementing on June 6. In addition to reducing costs, we have identified a number of highly attractive capital projects.

We are excited about the opportunity at Twin Rivers and believe that it is well-positioned for the future.

 



ASG

Mike Ukropina
Chief Executive Officer

ASG is a leading global creative services and packaging provider to the consumer products and electronic media industries. Atlas formed ASG by acquiring the AGI media packaging business of MeadWestvaco Corporation and combining it with the Shorewood Packaging business (“Shorewood”) purchased from International Paper Company (“IP”).

ASG had an aggregate RIR of 1.1 during the second quarter of 2013. ASG’s Asia division (“ASG Asia”) had an excellent quarter in terms of safety performance with a perfect 0.0 RIR and no lost time incidents. This is the second consecutive quarter of perfect safety performance for Asia. The North America division (“ASG NA”) had 1 lost time incident and an RIR of 1.2, while the Europe division (“ASG Europe”) had a disappointing 4 lost time incidents and an RIR of 1.9. ASG’s Mexico division (“ASG Mexico”) continued its trend of improving safety since the buyout of our former JV partner in the second quarter of 2012, and had no lost time incidents and an RIR of 1.1 during the quarter.

ASG NA demonstrated significant improvement in year over year profitability as a result of cost reductions and capacity rationalization that management has been implementing since combining AGI with Shorewood on January 1, 2012. ASG NA’s sales team continued to make progress during the quarter, winning new business that will begin to impact results over the next six to nine months and successfully launching a Customer Relationship Management system. The Creative Services division also had a good quarter, winning new business from major clients. Much work remains to be done, but the overall results for ASG NA during the second quarter of 2013 relative to the second quarter of 2012 are encouraging.

ASG Europe had another tough quarter. Contributing to the weak performance was an uninspiring slate of studio releases of major movie and game titles, general European economic conditions and lower than anticipated volume for certain products. There were some positive developments on the sales front, including the hiring of a new sales and marketing director and good wins by the sales team in the important consumer products segment, including the opening of 14 new accounts. Continuing to manage ASG Europe’s cost structure and capacity in order to stay ahead of revenue declines in media remains a top priority of the ASG Europe team.

ASG Mexico’s second quarter was another strong one. Revenue and profitability were both well ahead of the second quarter of 2012. Highlights of the quarter include achieving ISO certification and renewing ASG Mexico’s ChoC and G7 Master printer certifications; hiring two new sales reps and launching the ASG Mexico brand at a major tradeshow in Mexico City. ASG Mexico is well-positioned for continued growth in its market.

ASG Asia also delivered strong growth in both revenue and profitability in the quarter. These results reflect solid performance in both the domestic and overseas segments. Highlights include the smooth startup of rigid box capabilities and the formation of a global sourcing team. We are very encouraged by the performance of our growth businesses in Mexico and Asia. We believe that ASG Mexico and ASG China will be strong drivers of value creation for ASG in quarters and years ahead.

 



BRIDGEWELL RESOURCES LLC

James Toya
Chairman

Kyle Burdick
President

Bridgewell supplies a variety of construction products, utility supplies, wood products, food ingredients and crop inputs, together with logistics services, to suppliers and customers globally. Bridgewell commenced operations on March 1, 2010, when it acquired certain assets of the Trading Division of North Pacific Group Inc. out of a Federal receivership.

During the second quarter of 2013, the company sustained its world-class safety standard of 0.0 Recordable Incident Rate (“RIR”), a record that the company has maintained since formation.

In the second quarter, Bridgewell delivered improved financial performance. The improved perfomance is largely attributable to i) the elimination of slow moving inventory in the International Wood Products division that compressed margins in 2012 and ii) the successful execution of a strategy implemented by the Contactor Direct division (“CD”) to manage the volatility of raw material prices. Beginning in 2013, management implemented a strategy to reduce exposure to raw material volatility. This strategy has resulted in greater profitability and stability of those earnings; however, it has required a significant investment in working capital. In the second quarter, division and corporate management continued to develop mechanisms to diminish the amount of working capital consumed while sustaining the risk mitigation initiative.

Management has implemented several risk management tools to further enhance the credit process and limit the company’s exposure to bad debts.

Bridgewell continues to make strides in several Key Performance Indicators (“KPIs”) that we use to track the business. One KPI used to track trader efficiency is “Sales Expense/Gross Profit”, a percentage measurement of the total selling expense (including compensation, benefits, travel, entertainment and other selling related expenses) relative to the gross profit generated in the business. This metric improved in the quarter, indicating improved sales efficiency.

Bridgewell will continue to make significant investments to grow its business, both in the form of new traders and expansion into new geographic and product markets, which may lead to depressed financial performance in the short term. We have also begun to explore strategic bolt-on acquisitions as a means of leveraging the company’s infrastructure and capabilities, accelerating growth and further diversifying Bridgewell’s end markets. We remain excited by the potential of Bridgewell and believe the company is well-positioned to take advantage of the growth prospects available to it in both domestic and international markets.

 



DETROIT RENEWABLE ENERGY LLC

Steve White
Chairman and Chief Executive Officer

Detroit Renewable Energy (“DRE”) owns a group of infrastructure assets providing the City of Detroit and surrounding municipalities with safe, reliable and cost-effective solutions for clean energy and waste disposal.

We are pleased to report that DRE had no recordable incidents during the second quarter across all of its business units. On a TTM (Trailing Twelve Months) basis, we posted a 1.4 RIR. Our managers continue to emphasize the Atlas safety culture as we strive to achieve world-class safety performance across all of our businesses.

In the second quarter of 2013, DRE generated improved revenue and profitability relative to the same quarter in the prior year. While encouraging, the company’s results still fell short of our expectations. This was primarily due to continued inconsistent boiler reliability at DRP which resulted in higher employee costs, maintenance and repair spending. Despite extraordinary effort by our team at DRP, we have failed to achieve the progress we anticipated regarding boiler reliability over the past quarter. What has become clear is that the last step necessary to move to the level of consistent operational performance that delivers acceptable profitability will require a continuation of expanded capital spending for the next several quarters.

 



ERICKSON FRAMING HOLDINGS LLC

Robert Quinonez
Chief Operating Officer

Erickson is a leading construction services and pre-fabricated building products company that provides turn-key framing services, framing packages, trusses and other products to builders and developers. Erickson’s primary geographic markets include Arizona, Northern California and the greater Reno, NV area. Atlas acquired Erickson in October 2012.

Erickson reported an RIR of 10.5 in the second quarter of 2013. While these results are disappointing and well below our expectations, they represent a significant improvement over pre-acquisition performance and second quarter 2012 RIR of 20.2. Three of four Erickson divisions are showing year-over-year improvement in safety, with Erickson’s two largest divisions, Arizona Framing (“AZ Framing”) and California Framing (“CA Framing”, which includes the Nevada Framing operations), showing the largest improvements. The safety improvement is somewhat encouraging, having occurred in the second quarter when the business began to ramp up for its busy season by hiring and training new employees. The third quarter represents Erickson’s busiest quarter and therefore will be the largest challenge to safety performance.

During the second quarter, Erickson announced several changes in leadership, including the departure of CEO Jim Chamberlin. Robert Quinonez (known to all of us as “BQ”), a 30-year veteran of Erickson and leader of AZ Framing, was named Chief Operating Officer. BQ will continue to lead the implementation of the Erickson Turnaround Plan. In California, Tim Henderson was promoted to Vice President of CA Framing. Like BQ, Tim is a multi-decade veteran of Erickson. Leading the financial team is Erickson’s new CFO, Rich Gallagher. While new to Erickson, Rich spent his prior 15 years running the financial function for the Southwest division of Pulte Homes, a perennial top-five U.S. homebuilder. We are excited to have Rich join Erickson and the broader Atlas family.

Erickson’s second quarter performance outpaced our investment thesis and represented a sizeable improvement over the prior year. This improvement notwithstanding, we remain focused on the Erickson Turnaround Plan to achieve near-term profitability. The housing market recovery remains a popular topic in the news, especially in Erickson’s core markets of Arizona, California and Nevada. While Erickson is benefiting from this recovery, our experience suggests that the recovery has been more fully realized in housing prices than new construction volume. Even so, Erickson is seeing year-over-year volume improvements in all core markets and expects the pricing pressure to drive increased volumes in quarters ahead.

AZ Framing continues to outperform its plan, having operated profitably in the quarter. We expect that strong pricing and disciplined bidding will result in strong performance at AZ Framing. The CA Framing operation continues to improve, but much work remains to be done. Erickson’s door molding and millwork business (“DSI”) services many of the same homebuilder customers as AZ Framing; however, due to lesser competition in the door business, many major homebuilders will use DSI even if AZ Framing does not service their framing business. DSI continued to operate profitability and was largely successful in implementing price increases which are expected to take effect in July and August.

While still early in the Erickson investment, we believe Erickson is positioned to perform strongly during its peak season in its first year under Atlas ownership. This is a testament to management and their steadfast commitment to take Erickson “back to the future”, returning to the operating approach that delivered the success that it experienced in previous decades. We remain focused on the touchstones of the Erickson Turnaround Plan: operating safely, focusing on profitable work instead of market share, and driving operational efficiency through training and incentives.

 



FINCH PAPER LLC

Deba Mukherjee
President and Chief Executive Officer

Finch, located in upstate New York, is a leading producer of premium uncoated printing papers. Finch operates an integrated paper mill utilizing on-site sustainable energy resources, including biomass and hydroelectric power and also manages more than 160,000 acres of Adirondack forests for the Nature Conservancy.

In May, Finch appointed a new President and CEO, Deba Mukherjee. Prior to joining Finch, Deba served in a variety of progressively senior roles for P.H. Glatfelter, including most recently as President of their nearly $1 billion specialty paper business. He has begun setting in motion a plan to transform Finch Paper as the company continues its journey to world class safety, introduces new specialty products into its portfolio, and improves the key process indicators that will drive financial performance.

On the safety front, Finch’s YTD recordable incident rate (RIR) was 2.24 compared to a year end rate of 1.84 and a Q2 2012 rate of 1.84. YTD Lost Time Days Away rate (LTDA) was 1.25 vs. a year end 2012 rate of 0.46 and a Q2 2012 rate of 0.23.

Results in Q2 2013 were impacted by continued weak domestic demand that has been exacerbated by increased imports, resulting in downward pricing pressure. According to the June 2013 report of the American Forest & Paper Association, six month shipments of uncoated free sheet declined by an overall 4.4% from the first six months of 2012. The weak demand also is impacting market pricing, as RISI is reporting a 4.5% drop in offset price since the beginning of the year.

Financial results for Q2 2013 were largely impacted by selling price, as Finch saw an 11% drop in selling price compared to Q2 2012. This was driven by a combination of continued erosion of our opaque product, as well as pricing pressure in our opaque, cut size, and offset business. In the future, our new strategy will result in a more diverse product mix, reducing the volatility in our average selling price and mitigating the continued erosion of our opaque product line.

Operations were significantly impacted by a mill-wide power outage in early June, affecting machine efficiency.

 



FOREST RESOURCES LLC

Larry Richard
President and Chief Executive Officer

Forest Resources LLC (“Forest”) had one lost time incident and six total recordable incidents during Q2 2013. The DART (Days Away/Restricted/Transferred) rate for Q2 2013 was .6 compared to the 1.8 industry average. Forest’s TRR (Total Recordable Rate) for Q2 2013 was 3.5 compared to the 3.2 industry average. Unfortunately, this quarter’s safety performance reversed a long positive trend in the incident rates for Forest. We are particularly focused on safety awareness and culture at our mills where most of the recent incidents occurred.

Compared to the same quarter in the prior year, Forest’s Q2 2013 financial performance improved. The improvement was largely attributable to selling price increases and favorable fiber prices. Orders and pricing remain strong in Hartford City Paper’s end markets. Ivex Specialty Paper’s primary product, crepe paper for the sewn bag industry, saw continued strong sales increases over Q2 2012 despite market pressure from product substitution. Ivex began focusing on new product development with their expanded product capabilities resulting from the recently installed calendar stack. Shillington Box sales volume and profitability increased in Q2 2013 over Q2 2012. Reduced manufacturing costs, driven by the use of lighter weight purchased corrugated sheets, and improved operating efficiency were instrumental in maintaining Shillington’s profitability.

The North American folding carton market strengthened in the second quarter over a very soft 2012. Strathcona Paper’s production and sales volumes were down in Q2 2013 compared to Q2 2012 due to unscheduled mechanical downtime. Price increases for coated recycled board have been announced for the third quarter and Strathcona’s results should improve accordingly. Boehmer Box Q2 order volumes, revenues, and profitability are all up significantly year-over-year. The second quarter has seen a high level of quoting and customer development at Boehmer Box, which should continue to result in new business.

Containerboard markets remain stable and fiber prices are expected to seasonally rise above current levels for the third quarter. The recently depressed waste paper export markets are strengthening, which could hurt Forest. Further, new containerboard capacity coming into the market is starting to impact waste paper pricing in Strathcona Paper’s northeast market. Several newsprint producers are repurposing their assets and entering the containerboard markets.

All of the above notwithstanding, both the containerboard and folding carton/CRB markets are expected to continue to improve in the third quarter due to price increases in both sectors, which should have a positive impact on earnings.

 



THE PANGBORN GROUP

Henrik Krabsen Jensen
President and Chief Executive Officer

The Pangborn Group had zero lost time injuries year-to-date June 2013. In Q2, we continued our communication initiatives regarding safety focus and awareness.

The implementation of our Continuous Improvement/Lean projects gained further traction in Q2 2013 and we are beginning to realize operational and financial improvements throughout the company as a result of these efforts. During the second quarter, we increased our focus on the implementation of Continuous Improvement/Lean in our German facilities.

Q2 2013 developed as we had expected with proportionally higher equipment sales and lower aftermarket sales, compared to prior periods. Based upon our current backlog and several improvement activities, we expect higher sales and improved financial performance in the second half of the year.

Market conditions in North America and China were favorable in Q2 2013. The European market continued to show secular weakness, but we were able to book some important new equipment orders. Our efforts in the Russian market paid off and we won a significant equipment order that will help us to strengthen our position and brand in Russia. Our activities to expand general market opportunities resulted in three new orders from South Africa. Throughout the quarter we continued our efforts to expand our product portfolio. Finally, the establishment of our new manufacturing facility in Beijing, China is on schedule and will be operational by year end.

 



PHOENIX SERVICES INTERNATIONAL LLC

R. Douglas Lane
President and Chief Executive Officer

Phoenix Services International LLC (“Phoenix Services” or the “Company”) reported an OSHA recordable rate of 2.6 for the quarter ended June 30, 2013, which compares to the quarter ended June 30, 2012 rate of 1.9 and the national slag industry standard of 5.0.

In Q2 2013, the Company reported its most profitable quarter in its 7 year history.

Phoenix Services is under contract to provide Mill Services at 40 sites around the world. The Company continues to integrate mill sites from its 2012 French acquisition. Results continue to improve and the acquired sites are beginning to add revenue-generating services at existing sites. In Poland, the Company’s ferrochrome operation began operations in July. Construction of the scrap yard in Galati Romania continues, and is expected to be complete by year-end. Also in Europe, the plant startup at Gent is scheduled for late July, which is ahead of schedule. The Company was awarded a contract for additional work at Gent. In South Africa, the slag plant at Scaw Metals is operational and running ahead of plan. We believe that our flexibility to operate with existing equipment and site conditions while developing a site to our standards makes us a better option for steel mills seeking to change service providers.

Phoenix continues to benefit from positive macro-economic trends in the steel sector. According to the World Steel Association, global steel production for the first five months of 2013 was up 2.2% relative to the first five months of 2012. While it is worth noting that the Company’s results are not strictly correlated to the results of the steel industry, these statistics are consistent with the Company’s experience.

Phoenix continues to focus on operational excellence and attractive growth opportunities and has the capitalization needed to execute its plans. The Company is actively bidding work and we remain extremely optimistic about the prospective performance and growth at Phoenix Services.

 



REDBUILT LLC

Kurt Liebich
President and Chief Executive Officer

Safety remains the core value for RedBuilt. As the business grows, our safety culture will provide the foundation for broader success. The quarterly and YTD recordable incident rate of 2.5 is above our historical average of < 2.0. A renewed focus on incident investigation and sharing of best practices related to safety will help to drive the rate of incidents down to world class levels. As we enter the busy time of the year, safety training and on-boarding of new employees will be critical for our operations team.

RedBuilt’s market opportunity and financial performance for the second quarter was consistent with the comments that we made in our first quarter letter to investors. In our first quarter letter, I commented that “we believe we will continue to experience an improvement in the overall level of construction activity.” Additionally, I said that “Our biggest current challenge is pushing pricing structure to mitigate the highly volatile raw material markets that we are experiencing. Because of the 90-120 day lag in delivery cycle, we will not realize the benefit of these pricing moves until late Q2.” Both of these comments played out in the second quarter of 2013.

The level of commercial activity continues to improve, slowly but steadily. Following an unexpected dip in design activity in April, the AIA’s Architecture Billings Index (“ABI”) moved back into growth territory in May. Architecture firms have reported growth in nine of the past 10 months, suggesting that the climate for nonresidential building projects is gaining strength as the planning pipeline becomes more active. YTD core commercial quoting activity has increased 17% over last year, and bookings (projects sold) have increased 19% year-over-year.

Our two primary raw materials (veneer and OSB) escalated rapidly through the end of the first quarter and then started to accelerate downward. Veneer has dropped 16% from its April high, and has settled back down to where it was trading at the beginning of 2013. OSB on the other hand, peaked in late March, 15% above December levels, and has now dropped over 50%, to the point where it is currently trading at levels similar to June 2012.

Net sales improved in the quarter compared to the prior year. We expect margins to improve as raw material costs continue to decline.

We remain optimistic about the opportunities for 2013 at RedBuilt. Business activity is improving, and we expect to garner the benefit of the combination of aggressive price increases as well as lower raw material costs in the second half of the year.

 



SOUNDVIEW PAPER COMPANY LLC

George Wurtz
President and Chief Executive Officer

Soundview, headquartered in Elmwood Park, New Jersey, manufactures and distributes bath tissue, towel, napkin and facial products made from recycled and virgin fiber to retailers such as grocery stores, drug stores, office supply and dollar store chains, as well as to wholesale distributors, food service and janitorial supply companies. Soundview commenced operations on April 21, 2012 when it acquired the equity and debt of Marcal Paper Mills, LLC.

Year to date June 2013, the Company experienced an RIR of 2.0, an improvement over the 2012 RIR of 3.7, pro forma for the Putney acquisition. Soundview New Jersey showed steady improvement with a year to date RIR of 0.7, down from 1.8 during 2012, and concluded the second quarter with 119 continuous safe work days. Soundview Vermont’s year to date safety performance exhibited significant improvement with an RIR of 7.4 relative to a 2012 RIR of 13.0. Nonetheless, these results remain unacceptable and management is working aggressively to drive safety metrics to levels consistent with the New Jersey location.

In the second quarter of 2013, Soundview generated improved revenue and profitability. The second quarter’s improvement over the prior year is due to increased sales in New Jersey, more favorable raw material costs and the inclusion of Soundview Vermont in the financial statements. On the operations front, Soundview has continued to maintain lean staffing levels while improving productivity. In the fiber division, management completed its process diagnostics and has identified achievable cost savings that could yield more than 10% in reduced costs over time via capital expenditures and operational improvements. In its paper division, Soundview has been able to increase parent roll production while reducing inventory levels.

The revenue engine has performed well relative to the prior year, with converted sales up for the quarter. Soundview’s Private Label segment continued to be a significant focus area and several positive developments were experienced during the quarter. Away From Home segment sales are also picking up, with shipments delivered to 23 new accounts during the second quarter. Finally, in the At Home segment, after a slow start in 2013 the Company picked up new distribution, all of which should ship in the third quarter.

Management is in the process of securing a more permanent capital structure and is in discussions with several lenders. Other areas of focus include tightening controls and procedures, improving business intelligence and accountability, and evaluating IT to develop a strategy for the future.

In other longer term initiatives, management continues to prepare for less favorable cost environments. Soundview continues to move forward with plans to build a Combined Heat and Power cogeneration plant to produce both steam and electricity for the New Jersey facility.

We remain excited by the continued growth and operational improvements taking place at Soundview as well as the long-term prospects for the company. With our team of experienced management partners leading a group of motivated employees, Soundview is well-positioned to take further advantage of its strengthening market position and physical proximity to one of the most densely populated markets in North America.

 



TWIN RIVERS

Tim Lowe
Chief Executive Officer

Twin Rivers is an integrated manufacturer of lumber and specialty packaging, label, and publishing paper products. The Company operates a paper mill located in Madawaska, Maine, a pulp mill and cogeneration plant located in Edmundston, New Brunswick, and a lumber mill located in Plaster Rock, New Brunswick.

We assembled a world-class team to implement the turnaround at Twin Rivers. Leading this effort is Tim Lowe, who was named CEO and a member of the Board of Directors immediately after the transaction closed. He joined Atlas after serving in a variety of general management capacities for Domtar and other major industry players. Tim was previously our Management Partner and CEO of Northern Pulp where he planned and implemented a turnaround in a setting quite similar to that at Twin Rivers. Wayne Gosse joined Twin Rivers as CFO. Wayne spent the majority of his career with Neenah Paper and previously served as CFO of Northern Pulp during Atlas’ ownership. Jean-Pierre Grenon, an experienced operator who previously led sawmill operations for Domtar, has joined Twin Rivers as VP of Forestry and Sawmill Operations. Rounding out the senior management team is Adam Levy, a member of the Atlas Operations Team who is a seasoned NY-based restructuring executive with over 15 years of experience. Adam joined Twin Rivers as Chief Restructuring Officer. These individuals played meaningful roles during our lengthy due diligence process and, as a result, assumed their new roles immediately upon our acquisition with a keen understanding of the opportunities and challenges facing Twin Rivers.

During the due diligence process, we learned of the company’s poor historical safety record and management has taken immediate steps towards creating a safe work environment for every Twin Rivers employee. In June, the company’s Safety Leadership Team conducted a gap analysis of the existing safety management system in order to create a road map for change.

In our first month of ownership, Twin Rivers performed strongly. Much of the recent financial improvement has been driven by the lumber mill operation, as a resurgent U.S. housing market has led to increased lumber demand and improved pricing.

Several exciting product trials are currently underway and management is in the process of vetting the existing pipeline of opportunities to expand into new paper grades. We continue to believe that Twin Rivers has a unique set of assets well-positioned to meet growing demand for lightweight packaging and label grades.

Our management team has recently engaged a leading third-party firm to conduct customer surveys that will help the company refine its approach to developing new products and serving key customers. We believe that addressing these legacy issues will lead to tremendous opportunities for Twin Rivers.

Jean-Pierre Grenon and the rest of our Forestry team also visited with Provincial officials in order to review our request for an additional allocation of Crown land.Twin Rivers will require the incremental allocation in order to satisfy the fiber demands of ramping up a third shift. This endeavor will not only increase production and enablethe sawmill to capitalize on continued strength in U.S. construction markets, it will also create much needed jobs for the local Plaster Rock community.

Atlas will continue to work closely with management to address and resolve labor, operational, marketplace and financial issues as well as other balance sheet restructuring efforts. In the early days of a turnaround, the surprises tend to come quickly. We are looking forward to finalizing the labor negotiations in a favorable fashion so that we can begin to make the capital investments and accelerate the operational changes necessary to achieve stability and ultimately, to create a Performance Organization.

 



WOOD RESOURCES LLC

Richard Yarbrough
Chairman

Kurt Liebich
President and Chief Executive Officer

Wood Resources LLC’s (the “Company”) safety performance during the second quarter diminished slightly over the same period last year. The recordable incident rate (RIR) for Q2 2013 was 2.1 compared to a RIR of 1.9 during the same period in 2012.

Shortly after quarter end, Wood Resources entered into a binding agreement to sell its Southeast business, which includes Chester Wood Products and Moncure Plywood, to Boise Cascade Company (NYSE: BCC), a leading wood products manufacturer and building materials distributor in North America. The sale is expected to be completed by the end of the third quarter. This is an excellent outcome for our employees and investors alike and I personally want to thank all of our stakeholders for their support and dedication.

Second quarter 2013 financial results were significantly improved from the same period last year, with revenues and profitability both increasing compared to the same quarter in the prior year. These results were primarily driven by improved pricing on commodity products as well as increased production and sales volumes.

During Q2 2013, Wood Resources Southeast delivered another quarterly record of revenue, sales and production volumes and profitability. Increases in fiber, resin and other commodity costs were offset by a relentless pursuit of mill productivity which resulted in greater throughput. A competitively low “All-in-Cash” cost structure was the outcome.

Olympic Panel Products’ continued efforts focused on increasing capacity utilization resulted in a profitable Q2 2013. Even though sales and production volumes fell short of expectations, both increased when compared to Q2 2012.

Looking forward, we expect product demand and supply to return to a period of tighter balance through the remainder of 2013 as mills (including our own) take seasonal maintenance shutdowns.

 



OUR ATLAS FOUNDATION PARTNER

CREATE COMMON GOOD

Tara Russell
Founder and CEO

Create Common Good uses food to change lives and build healthy communities. Our vision is a healthy community where people have access to empowerment opportunities, quality employment, self-sufficiency, and access to healthy food. We provide job training and employment to vulnerable populations by offering food products and services the market needs. Create Common Good (CCG) is a social enterprise: a non-profit/business model. We differ from other nonprofits in that our goal is to build a sustainable business model over the next five years that does not rely solely on grants and donations to fuel our growing impact model.

The Second Quarter of 2013 was a busy one for CCG. In May, CCG finished construction and successfully moved into our new production kitchen and operations space. In addition, May and June have been heavy sales months, filling the pipeline with potential.

Now in our expanded production kitchen facility, we are aggressively marketing to daily foodservice customers—restaurants, schools, corporate cafeterias, and hospitals. We are focused on three primary product lines: wet and dry base products, prepared food items, and produce items. We’re finding the bulk of our new customer interest lies in wet-based food products where product consistency and quality are hard to control with our customers’ existing staffing. School lunch will be a significant staple business for us through this scaling season, providing much needed consistent volume. In June, CCG also launched our monthly gourmet Supperclub where 30-36 guests can experience a memorable, intimate 3-course meal in-the-kitchen and learn more about CCG.

CCG is working to broaden the types of vulnerable individuals being served through our job training programs. We will continue to serve refugee populations, but are also now working with abused women, former addicts, incarcerated individuals, health and welfare clients, and more. Ninety-five percent of our graduates have been placed into jobs upon completion of our programs.

CCG’s farms have gotten off to a late start with late May snow and unpredictable weather. CCG is feeding our CSA weekly veggie share customers and hosting a large number of volunteers and youth interns who are enjoying a social enterprise leadership development program. Staffing at the farms remains challenging, and the future viability of the farms will be dependent upon CCG’s scaling food production.