Atlas First Quarter 2011 Review

A Report to our Partners, Investors, Employees and Friends

We are pleased to report that our family of businesses posted strong operating and financial results in Q1 2011, continuing the robust performance in the 2nd half of 2010. Safety performance continued to trend below a Recordable Incident Rate of 2.0. Notably, AGI Amaray North America, Bridgewell, Detroit Thermal, Hamtramck Energy Services, Hartford City Paper, Ivex Specialty Paper, Moncure Plywood, Northern Pulp, Pangborn Group, RedBuilt and Shillington Box operated in Q1 without a recordable incident. However, as aggregate safety performance did not improve from Q4 2010 levels, we must continue to refine and focus our safety efforts in the months ahead.

In Q1 2011, much of the effort of our team in Greenwich, our Operating Partners and our managers was aimed at improving the operations of our business units. In particular, we devoted significant resources to transforming our most recent acquisitions, Bridgewell, AGI Media and Detroit Renewable Energy, into “Performance Organizations,” i.e., enterprises that substantially exceed the operating results of their peers and deliver sustained excellent returns on their invested capital. While we have a long way to go, we are seeing signs of significant progress in the key performance indicators (KPIs) that we monitor daily. We appreciate all of the hard work our employees at each of these companies have contributed throughout this intense initial period of our ownership.

We and our managers had to make some tough decisions in Q1 to drive improved operating performance. Forest Resources announced the shutdown of its Joliet, Ill., paper mill. Joliet has struggled with operating issues resulting from its lack of scale and age of equipment over the last several years, which resulted in losses at the facility. After numerous efforts to create a profitable business in Joliet, we determined that the responsible course of action required closing the facility. The benefit of this closure for Forest Resources is that the mill’s most profitable grades of paper will be transferred to Hartford City Paper, which will enhance its profitability. AGI North America also consolidated its Jacksonville, Ill., facility into its Melrose Park, Ill., operation to better calibrate its production capacity to a smaller North America media packaging market. This action also will result in a significant improvement in profitability for AGI. Both of these closures resulted in job losses and we are sensitive to the disruption and difficulty that this has caused employees and their families. However, we are comforted by knowing that our tough decisions will result in better prospects for the nearly 2,000 current employees of Forest and AGI.

In Q1, from a macroeconomic standpoint, we continue to observe the significant impact that growth in China and other developing countries is having on our businesses. For example, this dynamic is increasing sales and quoting activity for Pangborn Group’s shot blast equipment and driving higher sales for Bridgewell. To further advantage ourselves in these markets, both Bridgewell and Pangborn Group have established a presence in China and we anticipate that our capacity to conduct business in China will increase significantly in the coming months. We also are looking at ways our other businesses can advantage themselves from this continued growth trend. On the other hand, significant demand growth also results in higher prices for many raw materials that our businesses consume, including resin, oil, chemicals and wastepaper, which may pressure margins looking forward.

We announced a very significant event for Atlas in Q1 — the sale of Northern Resources, our business that owns Northern Pulp, a 280,000-ton-per-year pulp mill and 425,000 acres of merchantable timberland in Nova Scotia. The buyer is Paper Excellence — a major Canadabased manufacturer of pulp that is associated with Asia Pulp & Paper, the largest paper and tissue manufacturer in Asia. The sale closed on May 12th.

In general, we are long-term holders of our businesses. We believe greater value is created by reinvesting in businesses and management teams that we have confidence in rather than by constantly buying and selling. Our long-term orientation allows us to leverage our industry knowledge and the strengths of our businesses to find and execute on additional internal and external investment opportunities in the sectors in which we participate. This reliance on industry expertise and proven management partners has been fundamental to achieving systematically high risk-adjusted returns on our capital.

We had no plan to sell Northern Resources, but we were approached by Paper Excellence with an unsolicited proposal that made good sense for all of Northern Resources’ stakeholders. The sale was a terrific financial outcome for our investors and it also ensures the long-term viability of Northern Resources in a brutally competitive and volatile market, providing security for employees and their retirement plans. Paper Excellence has significant technical and financial resources, which will allow it to expand the capacity of the mill and to manage through pricing cycles, and a captive market for all of Northern Pulp’s production.

We are very proud of what we accomplished at Northern Resources. We acquired anoperationally challenged business that was in danger of being shutdown. We worked closely with multiple constituencies — including the local union, the Province of Nova Scotia and other stakeholders — to facilitate operational changes that enabled improved performance and the creation of a “Performance Organization” culture. As a testament to our success, as of May 12th, Northern Pulp had gone 259 days without a recordable safety incident.

We would like to thank Dr. John Hamm, the Chairman of Northern Resources; our senior management team at Northern Resources: Wayne Gosse, Tim Lowe, Don Breen, Bob Bagdon and Mike McLarty; and Operating Partners Charlie Stinnett and Lee Bingham, for their hard work and dedication in transforming Northern Resources into a long-term competitive business. We also would like to thank our friends at Central National-Gottesman for expertly marketing all of Northern Pulp’s production throughout the period of our ownership. Lastly, we want to recognize the tremendous contribution our partner in Northern Resources, Blue Wolf Capital, made to the success of this adventure.

We appreciate your hard work and support.

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.


AGI Media
Tony Garnish, Chief Executive, AGI Europe
Mark Caines, Chief Executive, AGI North America

AGI Media (“AGI”) is a leading global creative services and packaging provider to the filmed entertainment, video game, music, technology, telecom and personal care industries. The Company operates through a network of eight print facilities, five plastics facilities and six Creative Service Division offices located throughout the U.S., Europe and Australia. AGI was formed through the acquisition of the AGI Media packaging businesses of MeadWestvaco Corporation (“MWV”), which were acquired by Atlas in September 2010.

Our first six months of ownership of AGI have been marked by strong financial performance and important progress in addressing some of the key challenges facing the business. The Q1 performance exceeded expectations, notwithstanding the headwinds AGI’s plastics businesses faced in the form of rising resin prices driven by the escalating price of oil. We are very pleased with both the reduction of debt since the closing of a new debt financing in November and the company’s excellent liquidity position.

AGI made a number of significant operational strides since our acquisition that set the stage for financial improvement in the balance of the year and beyond. We are focused on building AGI into a Performance Organization, and a critical enabler is the creation of a world-class safety culture. One of the positive legacies of prior ownership under MWV is a company-wide focus on safety that continues to produce excellent results.

Finally, we have strengthened the support provided to Company management by adding Operating Partners Tom Costello, Michael Goodrich and Richard Gozon to the AGI Board. Mr. Costello is the former CEO of the Xpedx division of International Paper, Mr. Goodrich is the former Chairman and CEO of BE&K Inc., and Mr. Gozon is the Chairman of AmerisourceBergen and former Executive Vice President of Weyerhaeuser. We and the AGI management team are very pleased that these talented Operating Partners with global experience have agreed to join the team.


Bridgewell Resources LLC
Kyle Burdick, President

Bridgewell Resources LLC (“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 in March 2010, when it acquired certain assets of the Trading Division of North Pacific Group Inc. (“North Pacific”) out of a Federal receivership.

As we have previously communicated, upon acquisition we set out to address the challenges facing Bridgewell in a systematic fashion. We engaged a deeply experienced group of our Operating Partners to serve on Bridgewell’s Board of Managers and to augment the management  team. Our immediate focus was to stabilize the Company, build the analytics to focus on the KPIs, re-establish key trading relationships with vendors and customers who were impacted by the receivership and, ultimately, return Bridgewell to growth.

During the fourth quarter of 2010, Bridgewell continued its world-class safety record of zero recordable incidents, a record that the Company has been able to maintain since inception. In addition, Q4 saw a great deal of activity to prepare the Company for growth in 2011. During this seasonally slow quarter (the Company generally shows its strongest revenue in the second and third calendar quarters), the Company turned its attention toward culture change, aggressive recruiting efforts, new customer acquisition and expansion of trade credit.

One of the key tasks as a company emerges from a bankruptcy or receivership is to re-engage the management team and reignite the “winning” culture of a Performance Organization. In Bridgewell’s case, we are fortunate that its managers and traders know what success looks like; they were part of divisions of North Pacific that were profitable up until the moment of receivership. The expansion efforts undertaken by Bridgewell are beginning to bear fruit. At the end of Q1, revenue in backlog had grown to approximately $51 million from $34 million at the end of 2010.

We remain excited by the potential of Bridgewell and believe the Company is well-positioned to take advantage of the growth prospects available to us in both domestic and international markets. We believe that, as the traders in whom the Company has invested establish their books of business and increase their productivity, the operating leverage of these investments relative to our largely fixed cost structure will drive profitability and returns on capital employed to attractive levels consistent with the predecessor company’s historic performance.


The Pangborn Group
Henrik Jensen, President and Chief Executive

Capital Equipment Resources LLC, d/b/a the Pangborn Group, had one lost-time injury in Q1 2011. In the last six months, we passed safety inspections by government regulators and trade unions in both Germany and Italy, and we completed our People Based Safety training program for all employees in the United States. In Q1 2011, we began a new initiative to improve our safety manuals and signs on our machines, as well as incorporating safety improvements into the engineering designs of our machines.

North American and European Union markets gradually strengthened throughout 2010 and these improvements have continued and even accelerated in early 2011. Asian markets are strong and we are pursuing many new equipment opportunities in China.

We expect that aftermarket orders will continue to exceed prior-year levels and that the prospects for new equipment orders will remain strong. For 2011, we already have 90% of full-year budgeted equipment sales in backlog.


Detroit Renewable Energy
Steven White, Chairman

Detroit Renewable Energy LLC (“DRE”) owns a group of assets critical to the supply and distribution of renewable energy, as well as the management of solid waste, in the City of Detroit.

The operating units of DRE are (i) Detroit Thermal, LLC (“DT”), a district energy business that provides efficient heat to most of the buildings in the Detroit central core; (ii) Detroit Renewable Power LLC (“DRP”), an EFW (energy-from-waste) facility that processes and combusts up to 3,300 tons per day of municipal solid waste (including most of the solid waste generated in Detroit), the heat value of which is used to produce electricity that is sold to the local utility and steam that is sold to DT; and (iii) Hamtramck Energy Services (“HES”), which provides operating and maintenance services to several GM plants, primarily in the Detroit area. DRE was formed through the simultaneous acquisitions of DT, the Greater Detroit Resource Recovery Facility, and other related assets in November 2010.

The complexity of the transaction, which required us to manage and resolve environmental, operational, technical, political and union issues, provided a pathway to purchase the subject assets, notwithstanding the appetite of many institutional investors for infrastructure businesses.

We believe that the linkage of the DRE businesses under common ownership, together with our commitment to revitalize the assets, creates an opportunity to build significant long-term value. DRE is committed to providing the City of Detroit and surrounding municipalities with safe, reliable and cost-effective solutions for clean energy and waste disposal, utilizing its essential infrastructure assets.

Upon consummation of the complex set of transactions that formed DRE, our team of Operating Partners and managers hit the ground running. Steve White joined us as Chairman of the Board of DRE in November. Steve is a former Managing Director of Morgan Stanley and co-head of its infrastructure finance group, having led approximately $1 billion of financings for the Detroit municipality. His credibility and familiarity with multiple constituencies in Detroit already has been very helpful to DRE. In November, we also added key members to the management team, including Paul Maier, who is serving as President of DRP, and Jim Royce, who joined us as CFO for DRE. Both Paul and Jim have worked closely with us in the past as members of the senior management team of former Atlas portfolio company Michigan Seamless Tube. We have confidence in their capabilities and we are excited that they have joined us in these senior roles.

On the business development front, DRE has begun to systematically analyze every building in downtown Detroit that could be served by the DT steam loop as a means of beginning a targeted campaign to bring new customers onto the system. In addition, the leadership team at HES had a very busy quarter, securing new business at additional GM facilities, which will grow revenue.

And DRE’s community outreach program got into full swing in Q1 as DRE leadership met with many of DT’s customers and other members of the Detroit community.


Finch Paper LLC
Joseph F. Raccuia, President and Chief Executive

Finch Paper LLC continues to work diligently toward improving safety performance. As we have begun the second year of a five-year safety plan, all Finch employees, including the Senior Leadership Team, are engaged in procedures to ensure Finch will achieve our goal of meeting and sustaining world-class safety.

Industry shipments of uncoated free sheet were down year-over-year in Q1. Finch’s overall volume has remained strong, including growth in our value-added segments, despite overall market weakness. Market pricing continues to be challenged due to excess capacity, yet Finch’s average net selling price per ton increased in Q1.

Production in the paper mill and pulp mill was exceptional in Q1. Finished production during the quarter arguably was the best performance in the Mill’s history, considering the industry trend toward lower basis weights. This efficiency gain is a direct result of process standardization and continuous improvement implemented across our entire facility.

We remain optimistic about the remainder of 2011 despite secular decline in our industry. Finch will be focused on implementing and executing several initiatives that we believe will drive additional improvements in safety, productivity, product mix, strategic sourcing, go-to-market strategies and cost reduction.


Forest Resources LLC
Larry Richard, President and Chief Executive

Forest Resources LLC (“Forest”), which includes our majority interest in CanAmPac, had no lost-time incidents and one recordable incident during Q1 2011. Boehmer Box achieved 43 consecutive months of no losttime injuries as of the end of Q1.

Hartford City Paper, our recycled medium mill, maintained a high production level during Q1.

Volume at Peoria, our specialty grade mill, remained on target, serving a niche market for crepe paper and ticket stock products. Forest announced the permanent closure of its Joliet facility, which will be completed in Q2. The scale and age of the Joliet facility rendered it non-competitive during our tenure, as cycle average fiber margins compressed and it became extremely difficult to achieve sustainable profitability. Shillington Box’s cost-reduction program was instrumental in maintaining margin in a very price-competitive box market. Kraft paper manufacturers have announced price increases for Q2; however, containerboard markets have remained stable.

Sales at CanAmPac’s wholly owned subsidiaries, Strathcona Paper and Boehmer Box, remained strong. The coated recycled board market in Canada is sensitive to the strong Canadian dollar, which increases competitiveness of U.S. manufacturers. Coated recycled board producers announced price increases for Q2.

Consolidations and permanent mill closures are continuing to occur as the market adjusts to the slowly recovering economy. Industry-wide inventories remain at historic low volumes; demand is slowly increasing, but only over the low levels of 2010. Continued discipline will be required by major producers to maintain market balance and support the anticipated price increases.


Phoenix Services International LLC
Doug Lane, President and Chief Executive

Phoenix Services reported an OSHA recordable rate of 3.4 for the 12 months ended March 2011, 32% below the national slag industry standard of 5.0. In Q1 2011, Phoenix Services also reported its most profitable quarter in its 4-year history.

The Company’s prospects remain strong and will be aided by the anticipated restart of the Sparrows Point, Md., steel mill in May, where the Company performs a variety of contractual services, including slag handling, scrap recovery and scrap yard management. Further, during Q1 2011, Phoenix Services began its slag bank operations in Johnstown, Pa., and its mill services operation in Georgetown, S.C., both of which are exceeding forecast profitability.

The domestic steel industry capacity utilization rate increased to 75% by the end of March 2011 from a cyclical low of 34% in December 2008. The current capacity utilization rate remains below the 25-year average of 82%, as well as below the post-consolidation restructured domestic steel industry average of 85% from 2002 to 2008. Increased steel production across our portfolio of steel mill clients will continue to benefit Phoenix Services.

The Company is exploring a host of additional opportunities, predominantly in North America and Europe, and has the capitalization needed to execute its growth plans. We remain extremely optimistic about the continuation of strong performance and growth at Phoenix Services.


RedBuilt LLC
Kurt Liebich, President and Chief Executive

The U.S. commercial construction industry reached a cyclical bottom in Q1 2010, and for the last 18 months, the industry and RedBuilt’s operating performance has been “bouncing on bottom.”

Despite the dismal operating conditions and resulting financial performance, RedBuilt is seeing the early signs of a modest recovery in the commercial construction market. We are hopeful that the worst is behind us, and that we will realize the benefit of the improving U.S. economy.

Our diversification efforts also are beginning to create value. We have developed new business in western Canada, and we have developed a recurring stream of business in Australia. We expect these international markets to contribute to year-over-year growth in 2011. While the general economic conditions have been bleak for commercial construction, we anticipated a long and slow recovery with the prospect of a period of continued losses when we acquired the assets that formed RedBuilt in 2009. At the end of Q1 2011, on a consolidated basis, RedBuilt and its parent company had substantial free liquidity.


Wood Resources LLC
Richard Yarbrough, President and Chief Executive
Eric L. Larsen, Vice President, Finance

The Company’s commodity business, Chester Wood Products, led our performance. Although demand was weak throughout most of Q1, slight improvements by the second week of March enabled modest increases in product pricing. Moncure produced and shipped more product in Q1 2011 than in any quarter since Q2 2008. Moncure Plywood’s furniture business was relatively flat compared to the prior quarter, but its diversification strategy resulted in increased production and shipments of pine products. Moncure’s exemplary safety performance continued with no incidents for the quarter, extending its zero-incident record to 14 months.

Abnormally adverse weather conditions throughout the U.S. not only affected demand for the Company’s products in January and February, but the unusually cold and snowy weather also affected operational performance and created transportation issues for our Carolina mills.

Underlying demand is still weak across most of the company’s product lines as construction spending continues to lag.

To read more about Atlas Holdings, please visit our website.