Atlas Second Quarter 2012 Review

A report to our Partners, Investors, Employees and Friends

The domestic economy downshifted in the last half of the second quarter, evidenced by a growing amount of data as well as by our own experience across the family of Atlas companies. The economic recovery of 2012 can hardly be characterized as robust. It appears that the continued pressure on domestic consumer spending resulting from the near-jobless recovery, unresolved and growing structural stress in Europe, greater evidence of slowing growth in China and the uncertainty created by the pending Presidential election are conspiring to build bigger headwinds to economic expansion. One sector that seems to be finally improving is the construction market, particularly residential construction. Atlas companies demonstrated continued progress in the second quarter of 2012, although the slowing of what had been modest growth in the domestic economy is creating greater concern for future quarters.

Progress continued in safety performance in Q2 2012. The efforts of all members of the Atlas family resulted in an aggregate OSHA recordable incident rate (“RIR”) of 1.26 for the quarter compared to 1.52 in the prior quarter. For comparison, the average RIR was 2.24 in 2010 and 1.94 in 2011. Notably, AGI-Shorewood Asia, Bridgewell, Detroit Thermal, Hamtramck Energy Services, Ivex Specialty Packaging, Moncure Plywood, the Pangborn Group, Shillington Box Company, and Strathcona Paper operated throughout Q2 2012 without a recordable incident.

Our second quarter has been marked by several key events. We closed the acquisition of Soundview Paper Company LLC, and Soundview’s deeply experienced management team led by George Wurtz has already started a long list of operational improvements and marketing initiatives. Detroit Renewable Energy LLC completed the last of its major boiler overhauls, an achievement that provides the foundation for improved operating performance. Finally, our investments in Bridgewell, RedBuilt and Wood Resources began to benefit from the early stages of recovery in the construction markets.

We look forward to reporting to you on our third quarter performance in November. Until then, we thank you for your interest and continued support.

Andrew Bursky
Managing Partner
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Timothy Fazio
Managing Partner
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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 in September 2010 and combining it with the Shorewood Packaging business acquired from International Paper in January 2012. The combined enterprise is known as AGI-Shorewood.

AGI-Shorewood achieved improved safety performance during the second quarter relative to the first quarter in all divisions except Shorewood de Mexico (“SDM”). The North America division recorded an RIR of 1.4 with no lost work days while the Europe and Global Gravure/Asia divisions each had RIR’s of 0.4 during the quarter. SDM recorded an RIR of 2.3 during the quarter. This poor safety performance is reflective of the fact that the labor force in Mexico was only recently incorporated into AGI-Shorewood following the March 31 buyout of our former joint venture partner. Other notable safety achievements during the quarter included reaching 44 consecutive months without a recordable incident at our Danville, VA plant, 12 consecutive months without a recordable incident in Kunshan, China; and receiving ISO18001 H&S accreditation by two of our European plants.

It has now been six months since AGI and Shorewood were combined into a single company. Our management partners at AGI-Shorewood, led by Mike Ukropina, have executed effectively. The combination of the businesses is complete and a significant portion of the planned integration and consolidation benefits have been realized, achieved while avoiding a major disruption to the company or its customers. The merger of these businesses has been a complicated undertaking because of the carve-out of Shorewood from International Paper infrastructure, the combination of Shorewood with AGI (which itself was recently carved out) and the fact that AGI and Shorewood have been tenacious competitors for many years.

Financial results are consistent with our expectations and indicative of excellent progress on integration and costsavings initiatives. During the quarter, our new gravure line in Danville, VA became fully operational and qualified by its major customers. Smiths Falls, Canada made its first shipments of a proprietary, new product co-developed with a major food company – a testament to the culture of innovation and quality embedded within AGI-Shorewood. In addition, the hiring of new Vice Presidents of Sales and Customer Service and three new sales representatives will enhance our ability to drive top-line growth.

Performance for the first half of the year is seasonally weaker than the second half, when the company’s media related customers have their strongest selling period. Additionally, macroeconomic uncertainty in the European region continued to weigh on overall demand, and the weakness was exacerbated by an absence of major movie titles released during the quarter. With the bulk of the restructuring initiatives and cost reductions executed during the first half of the year and with the holiday selling season about to commence, AGI-Shorewood should be well positioned during the second half of 2012.

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 second quarter of 2012, the company sustained its world-class safety record of zero recordable incidents, a record that the company has maintained since formation. Bridgewell showed a marked improvement in financial performance in the second quarter and first half relative to the same periods in the prior year. Steadily improving trends in construction markets, both commercial and residential, contributed to improved results in several Bridgewell divisions. The performance in the quarter was highlighted by strong revenue growth, continued strength in Bridgewell’s Utility and Construction division, and a pick-up in the Domestic Wood Products division as a result of increasing sales in panel and flooring products and increased margins in hardwood lumber and millwork products. While the company continues to invest heavily in growth initiatives, solid balance sheet management has enabled Bridgewell to fund its revenue growth with available liquidity under its credit facility.

We anticipate Bridgewell will continue to make significant investments in growth, both in the form of new hires and expansion into new geographic and product markets, which will tend to depress financial performance in the short term. 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 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 renewable energy and waste disposal. We were disappointed to have experienced one recordable incident during the second quarter after having gone three consecutive quarters without an incident. Our RIR is 0.3 on a trailing-twelve-month basis, which is exemplary by industry standards, and we continue to strive to achieve world-class safety performance.

We are pleased to report that as of this letter, Detroit Renewable Power (“DRP”) has completed the upgrade of its third boiler. This “three to make two” operating posture is a pathway to a very high and consistent level of operational reliability and improved financial performance. In the second quarter, we also made substantial progress recruiting critical operations talent at DRP.

We initiated service to the newly-developed Woodward Gardens apartment complex in the second quarter, a result of the strong sales efforts of Detroit Thermal’s team. We are excited about a number of new business opportunities available to DRE resulting from its unique core competencies in the district energy, energy services and waste industries.

Joe Raccuia
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. We are now half way into the third year of our five-year plan to achieve world class safety performance and are pleased to report that our year to date RIR was 1.84 compared to a year-end rate of 2.42. Furthermore, Finch employees’ continued focus on safety led to zero lost time days away for Q2 2012.

We saw dramatic improvements in our EBITDA in Q2 compared to the same quarter last year as a result of actions taken at the end of 2011, despite a difficult market environment. According to a June 2012 report by the American Forest & Paper Association, Q2 shipments of uncoated free sheet across the industry declined by an overall 4% from 2011. The impact of this decline was evident to Finch in our premium and opaque grades, but we were able to partially mitigate the decline through our specialty niche focus. Our continuous improvement initiatives and performance metrics implemented during previous quarters have improved our ability to manage costs. We remain optimistic about our financial performance for the remainder of 2012.

Larry Richard
President and Chief Executive Officer

Forest, inclusive of its wholly owned Canadian subsidiaries, Boehmer Box Company and Strathcona Paper, had two recordable incidents during Q2 2012. Forest’s RIR for Q2 2012 was 1.3 compared to the 3.2 industry average.

Forest’s financial results were aided by favorable fiber and energy prices. Hartford City Paper increased its production level nearly 9% during the second quarter relative to the same period in 2011. Orders and pricing remained strong in HCP’s end markets. Production at Ivex Specialty Paper (“Peoria”), our specialty grade mill, increased 11% relative to the same period in 2011, although Peoria’s primary product, crepe paper for the sewn bag industry, remains under pressure from product substitution. Accordingly, Peoria continued to focus on new product development. Shillington Box increased sales volume in Q2 2012 compared to Q2 of 2011 and reduced manufacturing costs as a result of operating efficiencies. Strathcona’s EBITDA for Q2 2012 was higher than Q2 2011, a result of lower fiber and energy input costs. Reflecting the softness in the folding carton market, Q2 sales volumes and net revenues at Boehmer Box were down year-over-year.

Containerboard markets are stable and fiber prices are expected to remain close to current levels for the third quarter. The folding carton and CRB markets are expected to modestly improve in the third quarter. Consolidations and permanent mill closures are continuing to occur as the market adjusts to the slowly recovering overall economy. Continued discipline by major producers is expected to maintain production/demand balance.

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 year to date as of June 2012. In Q2, we continued our initiatives regarding safety focus and awareness. Regarding Continuous Improvement/Lean, we have developed our strategies, conducted Lean training for our employees, and made progress on the three projects that we are focusing on in 2012.

Market conditions in North America and Asia are still favorable, while Europe is beginning to show signs of a slowdown. In Europe, quoting activity remains robust, but customers are hesitating to commit to purchase orders. However, our activities in the BRIC countries, especially China, are resulting in many new equipment orders. Our planned sales and marketing activities in India, Brazil and Russia are on track and we are working on several projects that we expect will be realized in 2013. For the remainder of 2012, we have a healthy equipment backlog to ship and we have begun to load our backlog for shipment in 2013.

R. Douglas Lane
President and Chief Executive Officer

Phoenix reported an OSHA recordable rate of 2.0 for the twelve month period ended June 30, 2012, which compares favorably to the rate of 5.0 for the twelve month period ended June 30, 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.

We continue to spend significant time digesting new sites that began operations in the first quarter. At ArcelorMittal’s Burns Harbor facility, the largest steel complex in North America, we are working to install our proprietary crushing and sorting plant. Our South African plants were installed on schedule and are running smoothly. Installing proprietary plants is important and a key differentiator in our business. We believe our patented plants provide an advantage relative to competition. Operations at the Nucor Marion, OH facility began in the second quarter. As a top 15 global steel manufacturer, Nucor represents an important new client for our business. Significantly, Nucor recently awarded us a second contract at their Hickman, AR plant, which is one of their largest steel complexes.

We remain focused on working hard every day on our existing business. Our management continues to focus on operational excellence. We remain extremely optimistic about the prospective 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. The RedBuilt associates continue to work safely. Year to date, we experienced one recordable injury, and our RIR has dipped to less than 1.0.

RedBuilt continues to experience improved market conditions. While construction activity has not yet returned to historical norms, we do believe that the worst is behind us, and we expect to see continued gradual improvement through the remainder of 2012. The improvement in commercial construction activity varies by region and market segment. Typically, regions that did not experience the housing bubble (the Midwest) are performing better than areas that lived through a dramatic boom and bust cycle. California, which is RedBuilt’s largest market, remains weak by historical standards. Projects that are funded by the public sector (schools) remain stagnant, and given the pressure on state and local government budgets, the outlook remains uncertain. Historically, light commercial construction lags the residential construction market by 18 months. So, with the housing market beginning to show signs of life, RedBuilt should begin to experience the positive momentum that is driven by housing’s cyclical recovery.

As markets begin to improve and our sales volume increases, we are finally beginning to realize the operating leverage in our business. Given the overall level of business activity, our current order file, and improved margins, we expect that the second half of the year will be better than the first.

George Wurtz
President and Chief Executive Officer

Soundview Paper, based in Elmwood Park, New Jersey, manufactures and distributes tissue, towel, napkin and facial products made from recycled and virgin materials 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 in April 2012. During the two months ended June 30, 2012, Soundview experienced an RIR of 1.98. Since the acquisition, the team has instituted a number of initiatives, including a zero tolerance safety infraction policy, housekeeping measures and workflow improvements to continuously improve the safety culture of the organization.

Soundview is in the early stages of intense management activity designed to stabilize operations, improve facilities and operating processes, focus information flows on timely reporting of Key Performance Indicators (“KPIs”) and establish new and higher expectations among all employees. Energy and raw material costs remain at historically low levels, which provide wind at our back to effect the organizational change and marketing reorientation needed, while maintaining positive cash flow. Our marketing efforts have begun in earnest. These efforts will take time, but we’ve seen preliminary success as a major private label customer selected Soundview for its premium private label product. In addition, management is looking into opportunities to improve the yields in raw material procurement through modest capital improvements. In May, Soundview received a tax credit allocation from the State of New Jersey through the Grow NJ program which will reimburse Soundview for up to $25 million of qualified capital investments to improve the cost structure of the business. Investing in approaches to reduce Soundview’s energy cost structure will position the company well for the inevitable rebound in energy prices.

We are excited by the potential of Soundview and believe the company is well-positioned to take advantage of significant growth opportunities, capitalizing on our proximity to the most densely populated market in North America, our broad manufacturing capabilities and excess converting capacity.

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 performance during the second quarter improved from first quarter 2012 with an RIR of 1.4 compared to 2.5 last quarter, and 2.4 in the second quarter of 2011. Moncure, our hardwood mill in North Carolina, continued on a superb trend and led the way with no recordable incidents. Olympic Panel Products, our west coast specialty overlay mill, achieved an RIR of 1.7 during the second quarter, and an RIR of 2.6 YTD, which represent the best quarterly safety results in Olympic history.

Second quarter 2012 results were significantly better than the same period last year. The primary driver continues to be improved panel pricing for the Company’s commodity products. Chester Wood Products in South Carolina and Moncure Plywood operated effectively within an improving marketplace. With nearly one billion square feet (3/8 basis, annualized) of industry capacity curtailed in the Southeast U.S. during late 2011 and a major fire at a modern export mill in Chile in December, North American prices showed steady improvement. Commodity panel demand remains in balance with current supply levels.

Chester Wood Products operated with record production volume in the second quarter. EBITDA was just shy of the previous record established in the second quarter of 2010 even though quarterly unit pricing was lower. The mill benefited from lower wood costs and continuously improving efficiencies. Moncure Plywood also turned in a record production performance in the quarter. Operating efficiency continued to improve and resulted in record low quarterly cash costs. The specialty panel market demand for Olympic continued to strengthen through the second quarter, allowing prices to be pushed upward. Olympic’s financial results, however, were negatively affected by rapidly rising fiber cost due to continued pressure from log exports, and unanticipated disruptions in global supply chains for certain critical materials.

Looking forward to the third quarter, we expect demand for commodity panels to remain balanced with current supply. Although pricing will fluctuate with week to week demand, we do not believe that the overall pricing will vary substantially from that realized in Q2.