Atlas Industrial Services LLC (Phoenix Services LLC) – Q4 Review 2009

Doug Lane, President and Chief Executive Officer

Phoenix continues to display operational excellence and provide outstanding value to customers, and its prospects for continued growth are strong.

The three-year-old business provides on-site services to steel mills, including slag handling, metal recovery, equipment rental and a variety of other related services. Despite its youth, Phoenix commands 16% of the domestic steel services market.

Phoenix now provides services at 10 locations in the U.S. and will launch international operations in 2010.  It has in excess of $800 million in future revenues under contract and is pursuing additional opportunities in Egypt, Mexico, Spain and Italy, having already won contracts for future startups at four locations – in Alabama, Ohio, Pennsylvania and Romania – in 2009.  The $50 million in new capital that Phoenix secured from Olympus Partners in 2009 will facilitate this rapid expansion.  The global annual steel mill services market is approximately $30 billion, providing Phoenix Services ample room to continue its growth trajectory.

Capital Equipment Resources LLC – Q4 Review 2009

Ken Dickson, President and Chief Executive Officer

Recession-level cost management, including a reduction of more than $2 million in salaries and wages, allowed CER to operate at break even levels throughout 2009, even as the company struggled with the impact of market-driven revenue declines of 40%.  CER is a leader in the shot blast industry, designing, manufacturing and assembling equipment that cleans and prepares metal surfaces and providing aftermarket parts and service to its installed equipment base.  This global base now includes more than 5,000 machines installed at major manufacturers including Ford, GM, Boeing, John Deere and Kohler.

Customers drastically curtailed capital expenditures throughout 2009.  Requests for quotes on new machines dropped 50%.  Customers used their equipment less frequently, resulting in reduced orders for repair parts.

CER is planning for a slow recovery and revenue growth in 2010, with a more rapid pace of improvement forecast in 2011.  CER anticipates a recovery in high-margin aftermarket parts sales first, followed by an increase in purchases of new equipment.  Management expects to gain market share, driven by its new Genesis wheel product technology, increased sales coverage with new agents and representatives, and the development of more synergies between Pangborn and the Othello Group, whose acquisition in 2009 doubled CER’s earnings and revenue.

The addition of Othello – three leading wheel blast and surface preparation equipment providers in Europe – established Pangborn as the third-largest wheel blast company in the world, broadened CER’s international scope and offered greater access to growth markets in eastern Europe and Asia.  By relying on CER and Othello’s existing corporate leadership and experience, CER was able to close the deal without adding significant incremental costs.

In 2010, the businesses will continue to pursue synergistic opportunities for integration of technology, purchasing and marketing functions.  CER’s strong focus on cost management and building global share through aggressive marketing and development of new product technology also will continue.  With opportunities emerging in Asia and other developing areas of the world, CER has positioned itself as a strong global player whose substantial intrinsic value will become apparent as markets recover.

Finch Paper LLC – Q4 Review 2009

Joseph F. Raccuia, President and Chief Executive Officer

Finch Paper, a manufacturer of premium uncoated free sheet paper sold throughout North America, experienced a year of significant milestones in 2009.

Among the highlights: Finch welcomed a new chief executive, Joe Raccuia; further broadened its management expertise with the addition of Chief Financial Officer John Kvocka and Vice President of Supply Chain Management Mark McCoy; and introduced a new go-to-market strategy, opening new channels and new markets for its products.  Finch’s agility helped it thrive, enabling quick shifts from premium to commodity paper production in response to price fluctuations and customer demand.

Notwithstanding a market-wide 20%+decline in demand for uncoated printing papers, Finch set monthly sales records, increased its operational EBITDA (earnings before interest, taxes, depreciation, and amortization) by 20% and repaid approximately $25 million of debt.

In just seven bargaining sessions, Finch successfully negotiated a new labor contract with the United Steelworkers, reversing a history of tense management-labor relations. Its continuous improvement program resulted in reductions in energy, raw materials and personnel costs. In recognition of its strides in productivity gains, Finch was awarded the 2009 Pulp & Paper International (PPI) Award for efficiency improvements.

In Q4, Finch completed significant reinvestments to improve the efficiency and output of its paper machines. A heightened focus on internal communications through weekly newsletters, all-hands meetings and new television monitors mounted in key areas of the mill helped broaden Finch employees’ knowledge of the company’s direction, strategy and competition and reinforce its performance-based culture.

Roger A. Dziengeleski, Vice President of Continuous Improvement and External Operations, the company’s senior forester and a 33-year employee, was chosen as the incoming President of the 13,000-member Society of American Foresters (SAF), the world’s largest association of professional foresters.

Finch is optimistic about 2010. Market conditions have stabilized through a combination of more consistent demand and capacity closures, leading to modest improvements in product pricing. Finch’s 2010 budget contemplates continued cost reductions and greater efficiencies through a focus on operational planning, energy management, sourcing management and product mix optimization.  With a largely unleveraged balance sheet, Finch is well-positioned to take advantage of internal and external opportunities for growth and improvement.

Forest Resources LLC – Q4 Review 2009

Larry Richard, President and Chief Executive Officer

Forest Resources, which manufactures corrugated packaging papers and boxes, folding cartons, specialty papers and clay-coated recycled boxboard at six facilities in the U.S. and Canada, was challenged in 2009 by general volume reductions by its U.S. customers.

Despite the challenging environment, the Canadian packaging operations achieved record production and profitability in 2009.  Boehmer Box net sales climbed throughout the year, as Canadian food packaging markets were strong compared to the general economy.  Boehmer Box’s key achievements include solidifying a strategic partnership with Loblaws, Canada’s largest food distributor; realizing increased value from its Continuous Improvement Program; and installing a new press which will come online in 2010, further strengthening its market position.  Management expects that increased sales volumes should offset the impact of forecast price reductions.  Boehmer Box also recorded a remarkable safety milestone of 30 months without a lost time accident, a streak that has continued into 2010.

Strathcona Paper achieved excellent financial performance in 2009 by improving operating efficiency, increasing production volume and continuing to provide superior service to its long-standing base of customers.  Strathcona Paper experienced strong demand in the first half of 2009 and also benefited from a weak Canadian dollar and low raw materials costs.  However, these positive trends are unlikely to persist in 2010, creating a more challenging market environment.

The markets for Forest Resources’ U.S. industrial packaging products fell dramatically late in 2008, with the residual effects impacting performance in 2009. Operating rates for Shillington Box, Hartford City Paper, Ivex Packaging and Ivex Specialty climbed above 90 percent briefly in the summer, but were below 80 percent for most of the year.  Volume increases are expected in 2010, particularly in the second half of the year, but the marketplace remains challenging.

In the aggregate, we expect 2010 to be more challenging for Forest Resources because of a stronger Canadian dollar and increases in raw material costs, particularly recycled fiber.  While our management teams remain optimistic that price increases will help offset increases in materials and supplies, they will continue to focus on cost reduction and productivity improvements to drive results.

Northern Pulp Nova Scotia Corp. – Q4 Review 2009

Wayne Gosse, Chief Executive Officer

The northern bleached softwood kraft pulp market hit bottom in the Spring of 2009 and many weaker competitors permanently shut their mills or temporarily curtailed operations. But Northern Pulp and its 230 employees produced and sold 250,000 metric tons of bleached softwood kraft from the company’s Pictou pulp mill in Abercrombie Point, Nova Scotia – 70% of which was sold to the U.S. and Canadian markets and a smaller percentage to Europe.

In 2009, Northern Pulp began to implement its Continuous Improvement Program, with a focus on mill reliability, oil and chemical consumption and fiber costs.  The company reduced labor and benefits costs by negotiating a voluntary early retirement package and salary and benefits modifications.  It also reduced fiber costs, negotiated key pulp sales contracts, replaced a critical effluent pipeline on schedule and within budget, and locked in $28 million in green-energy credits from the Canadian government.  This government grant is required to be spent on energy efficiency, renewable energy and environmental improvement programs at the mill, and must be used by March 31, 2012.  Northern Pulp is studying the value creation potential of green energy generation, as well as other in-plant improvement projects.

In 2010, the company will focus on improving safety performance with a goal of achieving world-class status.  In addition, Northern Pulp will use its Continuous Improvement Program to improve mill reliability and increase daily production while continuing to drive down the cost of production. The company also is working with the Province of Nova Scotia on a variety of new initiatives with the assistance of Board member and Atlas Operating Partner, Dr. John Hamm.

RedBuilt LLC – Q4 Review 2009

Kurt Liebich, President and Chief Executive Officer

The launch of RedBuilt – formerly a division of Weyerhaeuser – was a highlight of 2009 for Atlas.  RedBuilt is a nationwide supplier of roof trusses and floor joists, along with additional specialty products for construction. RedBuilt has a well-established reputation for providing high-quality service and just-in-time delivery, which reduces construction costs, ties up less capital and results in fewer delays and errors for the builder.  The company is led by an exceptionally entrepreneurial management team, which oversees an experienced sales and engineering force.  RedBuilt has 235 employees and four manufacturing and assembly operations.

Coincident with the sale in August, operations were restructured to dramatically reduce costs, creating a leaner, more efficient company that generated positive EBITDA (earnings before interest, taxes, depreciation, and amortization) during Atlas ownership in 2009, despite exceptionally weak market conditions.  The business had been losing approximately $1 million a month in 2009 prior to our purchase.

The most brutal commercial construction market in history will continue to depress demand in 2010, but the RedBuilt business is stable.  It benefits from a lean, highly variable cost platform. Once markets recover, RedBuilt is positioned to prosper as the dominant and only national player in its market sector. For the next 12 months, RedBuilt will continue to focus on managing costs and preserving liquidity, fighting to win every job in its core commercial business, and on continued improvements in its safety record.  In this area, RedBuilt management has left little room for improvement, ending 2009 with only one recordable incident, an outstanding performance.

This year, RedBuilt also plans to reintroduce a series of industrial products – scaffold planks and concrete-forming materials – and compete in new market segments, including hotel/motel and multi-family construction.  The company, headquartered in Boise, Idaho, also plans to compete in new geographic areas, particularly targeting Japan and western Canada.

Wood Resources LLC – Q4 Review 2009

Richard Yarbrough, President and Chief Executive Officer

Wood Resources, a producer and distributor of engineered wood panels for industrial and commercial customers, weathered the worst market for its products since at least 1982, and perhaps since World War II.  Housing construction reached a 45-year low.  Industrial markets were weak and commercial construction declined precipitously.

Wood Resources businesses operate in the State of Washington, the Carolinas and Florida.  Olympic Panel Products LLC in Shelton, WA, produces specialty overlay plywood for concrete forms, signage and panels for roll-up truck doors.  Moncure Plywood LLC in Moncure, NC, and Chester Wood Products LLC in Chester, SC, manufactures plywood for the furniture and construction industries.

All of Wood Resources’ facilities achieved increases in man-hour production efficiency through reductions in overhead and labor costs in 2009.  The management of Moncure and Chester was consolidated under the leadership of Operating Partner Richard Baldwin, and the synergy provided value to both mills. Moncure was successful in diversifying its product line, adding sanded pine and platforms, which enabled the business to operate profitably in the second half of the year.  Moncure reached agreement on a three-year contract with the International Association of Machinists and Aerospace Workers in March.  The mill significantly improved its safety record, with not a single recordable accident since March 2009.

Olympic improved its per-unit cash cost to levels that, despite a market-driven, 35% reduction in volume year-over-year, the business generated profit. Olympic remains the premier supplier of overlay panels in the U.S., and its market leadership was further expanded in 2009 when Ainsworth, its largest North American competitor, was permanently shuttered.

Chester remains a world-class commodity panel mill and is well-positioned to capitalize on a strengthening market.  Its low-cost advantage and integration with Moncure will help ensure its long-term strategic value.

The second half of 2009 yielded positive financial results for Wood Resources, which we anticipate will carry over into 2010.  Most economists are predicting a modest increase in housing starts and repair and remodeling activity. Improved demand, coupled with very low inventory levels in the supply chain, should support more stable pricing and volumes throughout the year.

The operating focus at all of Wood Resources’ facilities will remain on safety performance, production efficiency, aggressive product and market development to fill capacity at Wood Resources’ specialty operations, and selective capital spending to solidify competitive position and support operating reliability.