Atlas First Quarter 2012 Review

A report to our Partners, Investors, Employees and Friends

The first quarter’s domestic economic activity ticked down to 2.2% from the somewhat surprising GDP growth rate of 3.0% in Q4 2011. Glimmers of optimism periodically appear in the construction market, but until housing demonstrates a sustained recovery, the derivative impact on employment, consumer confidence and family balance sheets will constrain the rebound. Despite continued uncertainty, the first quarter of 2012 was a good one for most industries in which we participate and for the Atlas companies as well. We saw a continuation of recent trends in portfolio company operations, as each of our businesses reported much improved performance over the prior year.

Progress continued in safety performance in Q1 2012. The efforts of all members of the Atlas family resulted in an aggregate OSHA recordable incident rate (“RIR”) of 1.64 for the quarter. For comparison, the average RIR was 2.24 in 2010 and 1.94 in 2011. As performance continues to improve, we recognize that further progress toward world-class safety becomes even more challenging. World-class safety (RIR<1.00) is achieved and sustained by only a very small percentage of businesses. Notably, Bridgewell Resources, Detroit Renewable Energy, Ivex Specialty Packaging, the Pangborn Group, Shillington Box Company, and Strathcona Paper operated throughout Q1 2012 without a recordable incident.

Atlas kicked off our Atlas CI/Lean initiative in the quarter. This initiative is designed to formalize our Continuous Improvement (“CI”) efforts and bring a suite of more standardized tools to the disparate CI activities underway at each of the Atlas companies. We believe that with additional focus, providing certain key tools and training and raising the visibility of each company’s program to Board of Directors level, we can accelerate the impact of our CI efforts and create workplace cultures of personal empowerment and excellent performance. We look forward to sharing our progress with you on this important undertaking in future reports.

We are also pleased to report our most recent acquisition, Marcal Paper Mills, which we acquired through a new platform company, Soundview Paper LLC (“Soundview”). A more detailed description of the Soundview transaction is included below. We are most fortunate to be partnering with George Wurtz and his team. George is an exceptional executive with enormous experience in the tissue sector. In addition, Operating Partners Harry Barber, Lee Bingham, Joseph Broz, David Critchfield, David Diamond and Karl Meyers bring a remarkable amount of expertise and experience to this endeavor – and they are not lacking in youthful energy.

Among the important highlights of the first quarter, AGI-Shorewood acquired the minority interest of our Mexican joint venture in March 2012, consolidating our control of the business in this important growth market. AGI-Shorewood also completed a successful re-financing of our U.S. business with Wells Fargo which provides the business ample liquidity and flexibility. Bridgewell completed the expansion of its credit facility in the quarter. An important enabler of Bridgewell’s growth is continued access to capital through low-cost, asset-based financing.

We continue to see a healthy flow of incoming deals. The current environment of uncertainty and unease in Europe, slower growth in China and financial market volatility should be conducive to the creation of opportunities. In addition, most of our portfolio businesses are at a level of stability such that we can consider “tuck-in” acquisitions that can leverage our companies’ existing infrastructure, market presence or customer base. We look forward to reporting to you on our first half performance in early August, including the first results from our newest portfolio company, Soundview. Until then, thank you for your interest and continued 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



Special Section:
Soundview Paper LLC

In April 2012, we announced the acquisition of Marcal Paper Mills, LLC (“Marcal”) through a newly formed company, Soundview Paper LLC (“Soundview”). Soundview, headquartered in Elmwood Park, New Jersey approximately 15 miles northwest of New York City, produces tissue products for consumer use and for office and other commercial use. Product offerings include bath tissue, towels, napkins and facial tissue. Soundview currently sells under several brand names including Marcal®, Marcal Pro®, Small Steps®, Snow Lily®, Bella®, Aspen® and others. Soundview also services private label customers in both the Away from Home and At Home markets. The Soundview tissue mill is fully integrated and includes de-inking, tissue production and tissue converting operations Soundview’s capability to manufacture from both recycled materials and virgin pulp positions the company to provide a complete spectrum of products to customers.

We have studied the tissue sector for years and we have investigated several opportunities, including the recent Everett tissue manufacturing complex of Kimberly-Clark last fall and Marcal in late 2007 when Marcal was in a Chapter 11 bankruptcy proceeding. In late 2011, we were approached by an advisor to Marcal’s former owner who recognized our expertise in the sector and was aware of our earlier interest in the company. After extensive diligence in which we brought together our Operating Partners in the sector and a terrific team of Management Partners, Atlas was able to strike a deal. Ultimately, we bought an attractive business in 2012 for an even more attractive price than was possible in 2007. As is typical for Atlas, the purchase was funded with substantial excess liquidity and with a conservative capital structure that will provide Soundview’s management team with the time and flexibility they need to maximize the probability for success.

We are excited to have concluded the Marcal purchase and we are very optimistic about the long-term prospects for Soundview for several reasons:

World Class Team Assembled. We have partnered with a highly accomplished team to run the company. Soundview is led by George Wurtz as Chief Executive Officer, John McLean as Senior Vice President—Sales & Marketing and Tim Crawford as Senior Vice President—Operations & Technology, all of whom have specific industry experience in their functional and leadership roles at Georgia-Pacific, the largest integrated tissue manufacturer in North America.

Attractive Purchase Price. Soundview is acquiring Marcal for a substantial discount to the historical average amount paid per ton of acquired tissue capacity in M&A transactions over the past five years. Competitors have announced capacity expansions ranging in cost from $2,933 up to $7,143 per ton, significantly above the per ton purchase price for Marcal.

Attractive Industry Fundamentals. The tissue sector, unlike most of the sectors within the pulp and paper industry, is growing at a rate about equal to population growth or 1% - 2% annually. Because of underlying market growth and Marcal’s modest market share, executing Management’s plan would only require increasing market share by a very small amount.

Competitive Asset Base. Marcal has two high performing tissue machines, each with significantly above average trim widths (width of tissue produced) and maximum speeds as compared to other North American and East Coast tissue producers. The speed and size of the machines will aid Soundview’s efforts to become one of the low cost producers in the market.

Favorable Environment with the State of New Jersey. We believe New Jersey’s pro-growth policies create an environment in which we can save and eventually grow Marcal. A series of capital projects designed to increase operational efficiency and improve energy costs are being planned which will improve the company’s health and eventually grow the business and increase our workforce.

Great Location. Marcal has an excellent geographic position in close proximity to the major Northeast markets as well as favorable freight costs to the Southeast relative to its Northeast competitors. Marcal is the most freight-advantaged mill in terms of access to the New York City market and remains average relative to all East Coast mills when shipping as far as Tampa, Florida.



Mike Ukropina
Chief Executive Officer

AGI-Shorewood is a leading global creative services and packaging provider to the consumer products, electronic media and tobacco industries. Atlas formed AGI-Shorewood by acquiring the AGI media packaging business of MeadWestvaco Corporation and combining it with the Shorewood Packaging business acquired from International Paper. The combined enterprise is known as AGI-Shorewood.

AGI-Shorewood Europe achieved an RIR of 1.24, a 50% improvement over the first quarter of 2011. Global Gravure/Asia had an RIR of 1.20 and North America had a disappointing quarter with an RIR of 3.05. While there were a number of important safety achievements during the first quarter, including the granting of the International Safety Award from the British Safety Council to Europe’s Slough, UK facility, the safety performance in North America is disappointing and will remain a key area of focus during the coming months.

The first quarter of 2012 was an exceptionally busy one for AGI-Shorewood. This was the first quarter the two predecessor businesses operated as one. The quarter saw solid sales in global consumer goods, Asian tobacco and in North America, where large media releases boosted first quarter results. European softness in the quarter resulted from disappointing media sales attributable in part to a lack of major titles being released, slower than expected Blu-ray growth and a slow quarter for one of Europe’s largest customers. EBITDA strength in the quarter was driven by higher margins in the consumer markets, lower costs for the tobacco business as well as realized cost savings from synergies and operational improvements in North America and Europe that were well ahead of plan.

AGI-Shorewood enjoyed a number of noteworthy operational achievements during the quarter. The company’s global gravure operations demonstrated significant progress on its Lean manufacturing initiatives, and completed the installation and start-up of a new state-of-the-art press in Danville, VA (a facility which received the “Outstanding Supplier in 2011” award from one of its largest customers). We also received important vendor recognition at our Kunshan, China facility, which was awarded the “Best Quality 2011” and “Best Operation” from one of its top customers, Mary Kay Cosmetics.

While substantive progress was made in Q1, challenges remain. AGI-Shorewood is an industry leader in terms of global reach and capabilities in the specialty packaging sector. Management’s challenge is to apply this resource in a fashion that maximizes sustainable returns. In this regard, the need to marshal the talent of our people across existing creative, production and fulfillment resources, to leverage customer relationships across products and geographies, and to further diversify our mix into the consumer products sector is acute, given the continuing pressures on the entertainment media business.



James Toya

Kyle Burdick

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. During the first quarter of 2012, the company sustained its world-class safety record of zero recordable incidents, a record that the company has maintained since formation.

While the first quarter is traditionally a seasonally slow period for the industries that Bridgewell serves, the company exceeded our expectations for the quarter, generating substantially higher revenues and EBITDA compared to the same quarter in 2011. The strong performance in the quarter was paced by several large utility pole export orders in Bridgewell’s Utility and Construction division, along with strength in the Mats division.

Bridgewell continues to invest heavily in traders and related support infrastructure as the primary engine of its growth strategy. Sales in Backlog, a Key Performance Indicator used to track near-term revenue trajectory as well as trader activity, has continued to grow. Bridgewell ended the quarter with Sales in Backlog up 21% from the end of the fourth quarter, evidencing that the company’s investment in traders is fueling continued growth.

We anticipate Bridgewell will continue to make significant investments in its growth, both in the form of new hires and expansion into new geographic and product markets. Further, we have begun to explore strategic acquisitions as a means to leverage the company’s infrastructure and capabilities, accelerate growth and further diversify 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.



Steve White
Chairman and Chief Executive Officer

Detroit Renewable Energy LLC (“DRE”) owns a group of infrastructure assets providing Detroit, MI, and surrounding municipalities with safe, reliable and cost-effective solutions for renewable energy and waste disposal. We are pleased to report that for the third straight quarter, DRE achieved a 0.0 RIR (i.e., no recordable incidents). Our managers continue to emphasize the Atlas safety culture as we strive to achieve world-class safety performance across all of our businesses.

The potential for DRE is best observed during the winter heating season, when demand for steam heating from Detroit Thermal is greatest, and DRE shifts its “energy mix” to higher valued steam. Despite a record warm winter in Detroit, DRE achieved substantially improved EBITDA in Q1 2012 relative to the same period last year as a result of improved reliability at its energy-from-waste facility. In addition, each of DRE’s operating units achieved their controllable KPI targets in Q1 2012.

As mentioned in prior letters, Detroit Renewable Power (“DRP”) completed upgrades to two of its three boilers in Q4 2011, which has resulted in improved reliability in Q1 2012. DRP will complete the upgrade to its third boiler in the second half of 2012, solidifying the foundation for sustained reliability. DT experienced unseasonably warm weather during the first quarter; there were only 2,420 Heating Degree Days (a measure of heating requirements) in Detroit in Q1 2012, approximately 25% below the average Heating Degree Days of 3,206 in the prior three year’s first quarters. DT closed on one new customer and purchased the vast majority of its steam requirements from DRP as a result of improved system reliability.



Joseph F. Raccuia
President and Chief Executive Officer

Finch is a leading producer of premium uncoated printing papers. Finch operates an integrated paper mill utilizing on-site sustainable energy sources, including biomass and hydroelectric power. Finch also manages more than 160,000 acres of Adirondack forests for The Nature Conservancy. We are now entering the third year of our five-year plan to achieve world class safety performance and we are pleased to report that further progress was made in Q1 2012. Our YTD RIR was 1.37 compared to a yearend rate of 2.42 and a Q1 2011 rate of 3.39.

Our segment of the paper industry continues to be adversely impacted by overcapacity, driven by declining demand as a result of digital technology. However, attractive returns can be generated in declining markets so long as the market leaders exhibit discipline. Recent announcements regarding mill closures are encouraging and will help the supply/demand balance going forward. Appleton announced the permanent closure of its West Carrollton, OH mill in the first quarter and Mohawk and Wausau have also made decisions to rationalize their capacities. In March and April 2012, industry wide price increases were announced as we continue to face high chemical, energy and transportation costs driven by the cost of oil.

During the quarter we added key individuals to our leadership team. Atlas Operating Partner Tim Lowe joined us to serve as Chief Operating Officer and Rob Baron was named Chief Financial Officer. Both individuals bring expertise and skillsets that will be enormously beneficial to Finch in quarters and years ahead. We remain keenly focused on managing what we can control, utilizing our key performance metrics and influenced by our Continuous Improvement initiatives. We are optimistic about improved financial performance for the remainder of 2012.



Larry Richard
President and Chief Executive Officer

Forest, inclusive of its now wholly owned Canadian subsidiaries, Boehmer Box Company and Strathcona Paper (collectively “Forest”) had no lost time incidents and four total recordable incidents during Q1 2012. Forest’s RIR for Q1 2012 was 2.5 compared to the 3.2 industry average.

Financial performance at Forest remains strong, aided by lower fiber costs and higher prices for Forest’s finished products. Hartford City Paper achieved an increased production level during the first quarter and orders and pricing remain strong in end markets. Volume at Ivex Specialty Paper (“Peoria”), our specialty grade mill, increased significantly in the first quarter of 2012. Peoria’s primary product, crepe paper for the sewn bag industry, remains under pressure from product substitution. Accordingly, Peoria continues to focus on product development. Shillington Box produced similar volumes in Q1 2012 as in Q1 of 2011.

The North American folding carton market softened in the first quarter of 2012. Reflecting the softness in the folding carton market, Q1 sales volumes at Boehmer Box are down year-over-year. Strathcona Paper, which produces clay-coated-recycled board (“CRB”) for folding carton converters, also experienced reduced production and sales volumes in Q1 2012 compared to Q1 2011. Nonetheless, EBITDA for Q1 2012 was higher than Q1 2011, a result of CRB price increases during late 2011 that have held in 2012.

Containerboard markets remain stable and fiber prices are expected to remain close to current levels for the second quarter. The folding carton and CRB markets are expected to improve in the second quarter. Consolidations and permanent mill closures are continuing to occur as the market adjusts to the slowly recovering overall economy.



Henrik Krabsen Jensen
President and Chief Executive Officer

The Pangborn Group designs and markets shotblast surface preparation equipment and provides aftermarket replacement parts and services internationally. The Pangborn Group had zero lost time injuries in Q1 2012. In the period, we continued our initiatives to improve our safety manuals and increased safety training and awareness for our field employees who visit customer sites. Regarding Continuous Improvement, we have started to develop our CI/Lean strategies and we are currently defining three Lean projects that we will focus on in 2012.

In Q1 2012, we reported higher revenues and EBITDA relative to the same period last year, positively impacted by increased aftermarket sales. Market conditions in all major regions are still favorable. Price competition on equipment is challenging, but we booked business at reasonable margins in Q1 2012 and better margins than 2011. In Q1 2012, we booked a significant equipment order from one of the biggest steel groups in China. This new order will be an important reference for the Pangborn Group and we expect it will create more opportunities to sell equipment to the steel industry in China. Our planned sales and marketing activities in India, Brazil and Russia are on track and we are working on several projects that we hope will be realized in 2012.



R. Douglas Lane
President and Chief Executive Officer

Phoenix provides mission-critical steel mill services to premier steel clients. Phoenix reported an RIR of 2.1 for the twelve month period ended March 31, 2012, which compares favorably to the rate of 3.4 for the twelve months period ended March 31, 2011 and the steel industry standard of 3.6.

Phoenix continues to report profitable results and has seen a material jump in sales and EBITDA, which is partly attributable to the successful acquisition and integration of certain assets from Gagneraud Industrie. We have also spent significant time digesting new sites that began operations in the first quarter. At ArcelorMittal’s Burns Harbor facility, one of the largest steel complexes in North America, we are working to install our proprietary crushing and sorting plant. We believe our plant will provide greatly improved throughput relative to the prior provider. At our South African plants, we are also working to install proprietary equipment. Despite relying heavily on contract crushing in South Africa, our performance has earned us the opportunity to bid on several other South African facilities. We are also excited to announce a new contract with Nucor Corp at their Marion, OH facility. Nucor is the 11th largest global steel manufacturer and we are excited to have them as a client. Phoenix will continue to bid other Nucor facilities.

Phoenix received an excellence award from The American Society of Engineers Mid-Atlantic Region for our work in developing slag for use in the neutralization of heavy metals in harbor dredging. While we pursue new business, we remain focused on working hard every day at our existing sites. The company continues to focus on operational excellence and attractive growth opportunities and has the capitalization needed to execute its plans. We remain extremely optimistic about future performance and growth.



Kurt Liebich
President and Chief Executive Officer

RedBuilt is a leading national provider of structural roof and floor system solutions for commercial buildings and an innovator of patented engineered wood products. Redbuilt’s safety performance for the first quarter of 2012 was an RIR of 1.6 and a trailing twelve month average of 1.2. While this is a commendable record for industrial manufacturing businesses, Redbuilt continues to strive for world class safety performance indicated by an RIR of under 1.0 through Continuous Improvement programs and a relentless focus on safety. While the level of residential and commercial construction remains weak by historical standards, all of RedBuilt’s key performance indicators suggest that we are in the early stages of a modest recovery.

Quoting activity in our core commercial business (which is an indicator of the amount of opportunity in the marketplace) has increased over the comparable period last year. More importantly, bookings (signed work) have increased and our order file is significantly greater than at this point in 2011. Overall, we are encouraged by the level of business activity in the first quarter, and we are currently on pace to deliver growth in 2012.

Because of seasonality in the construction industry, the first quarter is always the most difficult, although this year we experienced a relatively mild winter across the country. Net sales, gross margin and EBITDA increased in Q1.



Bill Corbin

Richard Yarbrough
President and Chief Executive Officer

Wood Resources is a producer and distributor of engineered wood panels for industrial and commercial customers, operating manufacturing and distribution facilities in Washington, the Carolinas and Florida. Safety during the quarter was a disappointment with five recordable incidents resulting in a RIR of 2.5. This was an improvement over the prior year Q1, but was the second consecutive quarter with increased incidents.

Q1 2012 financial results were notably improved relative to the same quarter of 2011. The primary driver of the improved performance was an increase in panel pricing for the Company’s commodity products. We are cautiously optimistic as we enter the second quarter, given that supply and demand are very close to being balanced. We believe the supply channels have not been able to achieve the usual inventory replenishment in preparation for the building season. If end use demand improves more than we expect, the industry will have very little ability to respond with new supply (at least in the short term) and price pressure could be much stronger.

Chester Wood Products operated well; production volumes and labor productivity continued to excel, contributing to lower all-in cash costs. Pricing for the commodity products produced at Chester continued to climb from Q4 2011 levels as the markets adjusted to the closure of three Georgia Pacific plywood mills in November 2011. Moncure Plywood continued to produce steady financial results in Q1 2012 and exceeded sales levels as compared to Q1 2011. Demand for the specialty panels manufactured by Olympic Panel Products saw slight improvement, allowing for Olympic to increase production and sales volume. Orders were strong enough that by the end of the quarter, Olympic had added one additional press crew.

The Company’s mills continue to improve their cost structures with targeted capital expenditures to reduce maintenance spending and improve operating uptime, which increases production volume and lowers costs. We plan to be ready to operate effectively no matter what market conditions prevail.



IN MEMORIAM: Ted Kennedy, 1930 – 2012

On Tuesday May 8, Atlas lost its mentor and friend, Ted Kennedy. Ted was an Atlas Operating Partner, a distinguished engineer and an accomplished business leader. Perhaps most significantly, Ted was a man of enormous character whose moral clarity set a standard for all of us.

Ted was an understated leader who achieved tremendous success by virtue of great intellect, vision, a wonderful sense of humor and an innate understanding of the needs of those around him. We are far better at what we do as a result of knowing Ted and appreciating his lifelong commitment to workplace safety, training and upgrading workplace skills and proactive programs to identify and recruit women and minorities into the engineering and construction business. We have been incredibly fortunate to have had the opportunity to learn from Ted and we will miss him immensely.