Bridgewell Resources LLC – Q2 Review 2010

Kyle Burdick, General Manager

Bridgewell Resources LLC is the newest addition to the Atlas family and Atlas’ eighth platform company. Bridgewell, with 134 associates, operates out of its corporate headquarters in Tigard, Oregon, and four other sales offices, and utilizes 130 warehouse and storage locations throughout the United States and Canada. The company is currently comprised of five divisions:

Utility & Construction Division. U&C is the nation’s largest independent distributor of wood poles. U&C trades and distributes treated wood poles and pilings, crane mats, bridge kits, sign posts, guard rails and railroad ties to electric and telephone companies, distributors, contractors and foreign buyers.

Food & Agriculture Division. F&A trades and distributes conventional bakery ingredients, oils, canned goods, lentils and a full line of organic products to food manufacturers and food service distributors, primarily in the Pacific Northwest, as well as feed and seed products and mineral-based soil amendments/fertilizers across the United States and internationally.

Domestic Wood Products. DWP trades and distributes quality hardwood, softwood and industrial products for furniture and cabinet manufacturers, flooring manufacturers and distributors and manufacturers of other consumer and industrial products throughout the United States and Canada.

International Wood Products. IWP imports and exports quality hardwood, softwood and industrial products for customers and suppliers around the world.

Lumber & Panel Products. L&P trades commodity lumber and structural panel products (oriented strand board and plywood) throughout the United States and Canada.

Bridgewell’s first four months of operations were focused on reviving a business that had been weakened from lack of liquidity in 2009, followed by the damage caused by the receivership of its former parent company, North Pacific Group. Upon acquisition, Bridgewell’s immediate focus was to launch the new enterprise, establish new supplier credit, rebuild damaged customer relationships and maintain internal infrastructure. The company has made significant progress on a number of key initiatives launched immediately upon closing the transaction, including introducing the company to the marketplace, reacquainting customers and suppliers with the value-added services that Bridgewell provides, restoring customer relationships that were lost or severely damaged during the receivership, and developing new accounts.

Bridgewell’s primary focus over the next 90 days is on increasing sales and continuing to build trade credit. Although in the near term the U.S. economy — with high unemployment, low housing starts, and high levels of uncertainty — makes this a very challenging operating environment, we expect improved operating performance in Q3 and solid results in 2011.

Capital Equipment Resources LLC – Q2 Review 2010

Mike Thuon, Chief Financial Officer

Capital Equipment Resources LLC (CER) designs and markets shotblast surface preparation equipment and provides aftermarket replacement parts and services. North American and European markets continued to strengthen in Q2 2010, benefitting from a sustained, moderate economic recovery.

Asian markets appear to be ahead of other world markets in terms of improvement, and CER is pursuing many new equipment opportunities in China. Aftermarket service and spare-part orders have increased in all markets, and overall by 10% on a consolidated basis over 2009 levels, which is an indication of higher production and utilization of machines by customers. New machine orders continued to be slow, but inquiries and requests for proposals rose by approximately 20% in the first six months of 2010 compared to the last six months of 2009. Overall, it appears that shotblast equipment users are experiencing improved business levels in 2010 over 2009, but that many companies are still waiting to invest in new production equipment. Based upon CER’s experience from prior recessions, the recovery in capital equipment orders for new machines lags behind the improvement in the general economy.

The positive aftermarket trends from Q1 2010 continued into Q2 as utilization of customer machines in CER’s installed base accelerates. In the United States, the company’s Pangborn unit experienced bookings of aftermarket parts orders throughout Q2 at 24% above budget and 12% above the prior quarter. In Europe, the company’s three subsidiaries also experienced improving market conditions in aftermarket parts orders, exceeding budget and the prior quarter by 21% and 32%, respectively.

While optimistic about the continued improvement of the worldwide economies in the second half of 2010, CER remains cautious and focused on cost control and liquidity. CER has taken significant steps to reduce costs and remain prepared to take further cost reduction actions if necessary as the market dictates. In the meantime, the company is making a renewed push to integrate with and capitalize on the breadth of products and knowledge gained with the acquisition of the European companies, and CER is making a concerted effort to expand its geographic market coverage with new manufacturer’s representatives and agents.

Finch Paper LLC – Q2 Review 2010

Joseph F. Raccuia, President and Chief Executive Officer

Finch Paper LLC is a leading producer of premium uncoated printing papers, manufacturing more than 250,000 tons per year from its integrated pulp and paper mill. Founded in 1865 in Glens Falls, New York, Finch’s uncoated free sheet paper is used in financial printing, annual reports, brochures, books, direct mail and other applications that demand high levels of print quality. Finch also manages approximately 161,000 acres of Adirondack forestland owned by The Nature Conservancy. All of the company’s products utilize a percentage of Adirondack forest-derived wood fiber. Finch papers have earned the most respected responsible forestry certifications from the world’s forestry certification groups.

Finch continues to achieve significant improvements in safety performance. The company established a five-year plan to move its Recordable Incident Rate (RIR) and its Lost Time Incident Rate (LTI) to world-class levels of 1.00 and 0.50 respectively, and Finch has already attained these milestones.

While current market activity remains weak in the North American paper industry, recent evidence suggests that the uncoated free sheet market is holding up relatively well, with year-to-date shipments up 1.1% over 2009 levels. The recent price hikes in uncoated free sheet should enable improved performance in the second half of 2010.

Finch’s pulp mill remains a bright spot as it experienced consistent performance improvements through the period. However, operating difficulties in Finch’s paper mill led to lower than anticipated paper production volume for Q2. On the positive side, efforts to reduce energy consumption contributed to a 29% decrease in total energy costs and helped reduce variable cost of production.

The near-term demand outlook for the uncoated market remains flat, with the fall seasonal uptick dependent upon overall economic conditions. We anticipate an increase in net selling price and paper production during the remainder of 2010 as the company continues to focus on improvements in its production process, sourcing of raw materials and product mix.

Forest Resources LLC – Q2 Review 2010

Larry Richard, President and Chief Executive Officer

Forest Resources LLC is a holding company engaged in manufacturing industrial and food packaging products, including recycled corrugated medium, clay-coated boxboard, kraft, crepe and specialty packaging papers, as well as corrugated boxes and folding cartons, at six facilities in the U.S. and Canada.

Forest began 2010 facing a very challenging market, driven by higher fiber costs and a strong Canadian dollar. However, in Q2 containerboard producers implemented two price increases sufficient to cover unprecedented fiber cost increases, and as fiber cost relief began to emerge late in Q2, more normal margins have been restored.

Forest addressed the market challenges in its U.S. Mill Division with aggressive cost control initiatives and adjusted production to match increasing customer demand. Mill Division sales experienced stronger demand driven by low customer inventories and tight mill capacity. Costs for the domestic mills’ fiber increased during the period as the economic slowdown negatively impacted generation of waste paper and foreign exports drove up costs. CanAmPac’s (Strathcona Paper and Boehmer Box) revenues remained strong but profitability was impacted by the same fiber cost pressures as the Mill Division. The strong Canadian dollar increases competitiveness of U.S. coated recycled board manufacturers and pressured earnings at Strathcona Paper in Q2. Cost-reduction programs across all business units and operating efficiency improvements contributed positively to EBITDA, and remain a companywide focus.

Major producers have announced Q3 price increases for both coated recycled board and containerboard. Industry-wide, inventories remain at historic low volumes and demand is increasing, but only modestly. With fiber costs moderating, a proposed third price increase in less than one year will be difficult for box buyers to accept. Continued discipline will be required by major producers to maintain production/demand balance for this to succeed. Margins returned to “cycle average” levels at the end of Q2, so even without a successful third price increase, we anticipate a stronger performance during the second half of 2010.

Northern Resources Nova Scotia Corp. (Parent of Northern Pulp Nova Scotia Corp.) – Q2 Review 2010

Wayne Gosse, President, Northern Resources Nova Scotia Corp.
Tim Lowe, Chief Executive Officer, Northern Pulp Nova Scotia Corp.

Northern Pulp Nova Scotia Corporation owns and operates a Northern Bleached Softwood Kraft (NBSK) pulp mill in Pictou County, Nova Scotia. In the first half of 2010, NPNS experienced improved pulp market pricing and mill reliability. Pulp prices continued to rise throughout the period as world pulp supply tightened, reflecting the global economic recovery, increased demand from China and supply disruptions due to the earthquake in Chile. On the mill reliability front, production volumes have vastly improved from year ago periods as a result of the company’s Continuous Improvement initiatives. Through the first half of 2010, NPNS averaged production of 777 air-dried metric tons (ADMT) per day compared to 621 ADMT per day in 2009.

The company achieved excellent safety performance in the first half, with a Recordable Incident Rate of 1.38. In addition, the remaining two modules of the SAFESTART program were rolled out during the quarter. NPNS also continued its focus on improving reliability of its operations and achieved a record production month in June at 816 ADMT per day with several days during the quarter in the 900 ADMT per day range. Daily production averaged 796 ADMT for the quarter and is forecast to average in excess of 800 tons per day during the second half of the year. Under the leadership of Tim Lowe, mill personnel have worked tirelessly on improving daily production rates and have achieved great success.

During the quarter, lumber markets rebounded briefly but quickly dropped off again by quarter’s end. As a result, reduced sawmill operating rates continued, resulting in high wood fiber cost and significant fiber inventory management issues as chip inventories stayed well below targeted levels. Cost for wood fiber is expected to increase once again in Q3. On the Continuous Improvement front, work continued on a number of cost-saving initiatives identified under the mill’s Continuous Improvement Program. The annual major maintenance shutdown was executed safely during the quarter, on time and on budget.

Finally, significant progress was made in the quarter on advancing the engineering design of the various mill projects to be funded under the Federal Government’s Pulp & Paper Green Transformation Program, through which NPNS has been granted approximately C$28 million. This effort included the design of a renewable energy project to be submitted in response to a request for proposal by Nova Scotia Power. The company also made a concerted effort to proactively celebrate the work that Northern Pulp has been doing to benefit local communities. It also announced the creation of a new Forest Research Program in collaboration with Dalhousie University; broad subjects of study will include forest ecosystem function, carbon storage and sequestration, climate change and Acadian Forest pre-condition.

Phoenix Services International LLC – Q2 Review 2010

Doug Lane, President and Chief Executive Officer

Phoenix Services LLC provides mission-critical steel mill services to premier steel clients, including ArcelorMittal, Gerdau and Severstal. The company had its most profitable quarter in its history. The increase in profitability is largely attributable to the ramping of operations at ArcelorMittal’s Indiana Harbor-West complex and increasing steel production across the industry, including the client steel mills of Phoenix Services.

The company is continuing to realize the impact of spreading corporate infrastructure over an expanding revenue base. For the year-to-date period ended June 30, 2010, Phoenix Services’ corporate expense represented 7.3% of revenues. For the same period of 2009, corporate expense represented 14.9% of revenues.

The company continues to grow rapidly and has expanded its operations internationally, having recently initiated mill services for ArcelorMittal’s Galati, Romania mill. Phoenix Services is currently exploring a host of additional opportunities, predominantly in North America (including Mexico) and Eastern Europe, and has the “dry powder” provided by the refinancing completed in Q1 2010 to execute its growth plans. We remain extremely optimistic about the continuation of strong performance and growth at Phoenix Services.

RedBuilt LLC – Q2 Review 2010

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 engineered wood structural systems are used in the construction of schools, hospitals, banks, multifamily residences, restaurants and hotels, as well as all other types of commercial construction. RedBuilt’s sales are primarily in the continental United States, with additional business in Hawaii, Alaska and now Canada and Japan. As a secondary matter, RedBuilt also sells niche commercial applications including concrete forms, scaffold planks and other ancillary industrial products.

While the company’s sales are small compared to the entire commercial construction industry, RedBuilt is the dominant supplier of engineered wood commercial structures and operates at higher margins than competing commercial structure providers due chiefly to its large, experienced, industry-leading consultative sales and engineering team.

RedBuilt continued to experience a very difficult operating environment in Q2 2010. Both the residential and commercial construction industries in the United States remain very weak, and while the markets appear to have stabilized, the amount of construction activity is leveling off near the trough of the cycle. Additionally, during the quarter, the cost of RedBuilt’s primary raw materials (OSB and veneer) increased by roughly 25% on average from Q1 2010. While this raw material price increase was short-lived, it had an impact on Redbuilt’s gross margins.

We do not expect any improvement in the fundamentals of the U.S. commercial construction industry for the balance of this year; however, RedBuilt expects its financial performance to improve significantly. This improvement will be driven by several factors. First, during Q2, RedBuilt raised prices to offset the increase it had experienced in raw material costs. Second, the rapid run-up in raw material costs was not sustainable, and by the end of Q2, these costs had free-fallen to the levels of early Q1. Third, the company has completed a capital project at its Stayton facility that will lower its manufacturing costs and open access to new industrial markets (primarily scaffold plank and concrete forming). Finally, the company has received the requisite code approvals to export product into Canada and Japan, creating the ability to grow the business in these new geographic segments.

RedBuilt has many difficult quarters ahead, but we remain confident that we have positioned the company to weather the storm and to create value when the recovery in the construction industry begins to emerge.

Wood Resources LLC – Q2 Review 2010

Richard Yarbrough, President and Chief Executive Officer

Wood Resources is a producer and distributor of engineered wood panels for industrial and commercial customers, operating in Washington, the Carolinas and Florida. Q2 2010 saw significant positive momentum in the markets served by Wood Resources. Notwithstanding the challenging economy, Wood Resources generated its best quarterly performance since the business was established in 2003.

The company’s commodity business, Chester Wood Products, led its financial performance, with product pricing 25% above that of Q1. Strong demand early in the quarter extended the order backlog and Chester took advantage by pushing production volume to the highest levels realized under our ownership.

Moncure Plywood recovered from Q1 operational difficulties and substantially increased production to meet increased demand. Moncure has historically produced exclusively hardwood plywood for the upholstered furniture industry; however, the mill has been focused on adjusting its product mix to diversify its business. Although furniture still remains an important market for Moncure, almost one-third of sales are now other specialties, including sanded pine, platforms and ply-form. In Q2 2010, these products benefitted from improved pricing and helped Moncure generate its best quarterly performance since Q2 2006. Safety performance at Moncure was exemplary, with no incidents for the quarter and only one incident in the last five quarters.

Olympic Panel Products, our overlay plywood facility, continued its trend of stable performance.  Inventory rebuilding in its distribution network generated improved demand throughout the quarter, allowing the highest level of production since Q3 2008.

We are anticipating commodity plywood prices to remain approximately at current levels during Q3, well below pricing achieved in Q2 2010, before normal seasonal declines in Q4. Although operating results are not expected to repeat the record set in Q2, Wood Resources anticipates continued positive operating results above our 2010 operating plan.

Finally, we want to welcome Bill Corbin as the new Chairman of the Board of Wood Resources. Bill has been a Director of the company since 2008 after having retired as Executive Vice President of Weyerhaeuser Corporation, where he was responsible for the wood products operations.