Aep Industries, Inc. Business Information, Profile, and History

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History of Aep Industries, Inc.

AEP Industries, Inc. is a leading worldwide manufacturer of multipurpose flexible plastic packaging films, both general and specialty. These more than 15,000 types of films are used in the packaging, transportation, beverage, food, automotive, pharmaceutical, chemical, electronics, construction, agriculture, and textile industries. AEP's manufacturing operations, producing over one billion pounds of film per year, are located in 11 countries in North America, Europe, and the Asia/Pacific region.

Private Startup Firm: 1970--86

AEP was founded in 1970 by Brendan Barba and his uncle, David J. McFarland, with Barba taking the positions of president and chief executive officer. He later also took the post of chairman of the board. McFarland became executive vice-president, secretary, and treasurer in 1974 and retired in 1989. The company, based in Moonachie, New Jersey, originally specialized in film-grade low-density polyethylene. The recessionary, high-inflation 1970s were a difficult decade for business, but AEP introduced Herculon films, which were difficult-to-manufacture products based on its own proprietary compounding, blending, and processing technology. The development of these films enabled AEP to save money on the costs of its resin supplies in a fragmented field noted for intense competition and low profit margins.

AEP opened a factory in Moonachie in 1973, a second in Matthews, North Carolina, in 1977, and a third in Los Angeles in 1978, with total capacity in 1980 of 34,000 metric tons. About 40 percent of all its products were Herculon films. The product line included trash bags; construction and agricultural films; clarity sheeting; shrink and stretch films; pallet covers; other low-density polyethylene bags, tubing, and sheeting; high-density polyethylene grease-proof liners; industrial packaging; and merchandise bags and specialties. AEP provided film in widths ranging from one inch to 12 feet and printed bags in up to six colors. All shipping was being done in company-owned trucks, with distribution over a 500-mile radius.

In 1982 AEP Industries initiated a program to penetrate the specialty and premium market, where profit margins were higher. AEP's net sales increased from $36.84 million in fiscal 1982 (the year ended October 31, 1982) to $62.4 million in fiscal 1986. Net income rose from $1.06 million to $2.76 million. With the opening of a 25-million-pound plant in Waxahachie, Texas, in 1985, the company now had total capacity of more than 125 million pounds and claimed to be the largest independent film processor in the United States. In 1986 AEP became a public company, raising $11.18 million in net proceeds by selling about one-third of its outstanding common stock at $11 a share.

At this time AEP's main products included a wide assortment of packaging materials, such as carton and drum liners; bundle film used to package small containers, periodicals, and other products; furniture and mattress covers; shrink pallet covers; textile and carpet wrappers and bags; sheeting materials; and a variety of other packaging films. The company also was producing heavy-duty films used in the construction industry as moisture and insulating barriers and mulch films used to cover crop fields in order to achieve more efficient plant growth. Additional products included nursery film used to cover greenhouses, embossed film lamination-grade and high-clarity film for special applications, and a variety of industrial wrapping materials. Specialty and premium items accounted for about 11 percent of total sales in fiscal 1986. The company had about 4,800 customers, none of them representing over two percent of sales.

Raising the Bar: 1987--98

AEP Industries' technicians had begun working by this time on a new generation of high-strength stretch films, a recent and fast-growing market used mostly for wrapping pallets of merchandise; that offered cost and other advantages over shrink films or strapping. Production of stretch films began in 1988, with concentration on the ultra-high-performance grade and no production of the standard grade. By now the company had one of the most varied product lines available from a single source as well as national distribution, which distinguished it from more than 90 percent of the 300 or so companies in its field. AEP's net sales passed $100 million in fiscal 1988, when it earned record net income of $4.06 million. New records of $120.96 million and $5.33 million, respectively, were established in fiscal 1989.

In 1989 AEP Industries purchased Design Poly Bag Corp. for stock from its shareholders, who included Barba and McFarland. The company acquired the stretch-film business of Princeton Packaging Inc. in December 1990 for $8.16 million. Production capacity reached 209 million pounds of extruded polyethylene film in fiscal 1990. Film gauge ranged from one to ten mils, with one mil being .001 inches. AEP's proprietary agricultural polyethylene white-on-white films were being used in the South, where sunlight is intense. Plants grew through the film, and the reflective properties of the white-on-white material prevented them from burning. A similar black film was being used in the North to conduct heat. AEP moved its headquarters from Moonachie to South Hackensack, New Jersey, and the Los Angeles plant to Chico, California, about this time.

By the end of 1992 the average annual production capacity of AEP Industries' plants exceeded 290 million pounds. Its extrusion equipment could produce and print film sheets up to 40 feet wide. Specialty products, a category including industrial stretch film, now accounted for about 38 percent of total sales. Foreign sales were becoming significant, although still comprising less than six percent of the total. AEP added a plant in Alsip, Illinois, in 1994 and broke ground on a 300,000-square-foot, $16.4 million facility in Wright Township, Pennsylvania, in 1995. Operations in Moonachie were transferred to this plant in 1996.

Fiscal 1993 through 1995 were banner years for AEP Industries, with net sales rising from $153.31 million to $242.89 million and net income from $6.88 million to $13.49 million over this period. In October 1996 AEP acquired the packaging division of Borden, Inc. from investment firm Kohlberg, Kravis, Roberts & Co. for about $280 million and 2.4 million shares of stock, thereby raising its long-term debt from $81.5 million to $328 million. This purchase established AEP as the largest manufacturer of polyvinyl chloride (PVC) food wrap and polyethylene stretch film in North America. The major Borden lines included PVC stretch films for packaging of seats, poultry, and produce; PVC-based food wrap films in cutter boxes and in perforated rolls for institutions; polyethylene-based stretch wrap films for utilizing pallet loads; oriented polypropylene (OPP) films for flexible packaging of salted snacks, confectionery, and baked goods; polypropylene films for processed cheese products; and rigid containers and trays.

Borden entered the plastics packaging field in 1957, when it began making polyvinyl chloride in two plants. It ranked 14th among North American film and sheet makers in 1995, but its operations were worldwide, with about $300 million of its $625 million in sales in Europe, $250 million in North America, and $75 million in the Asia/Pacific region. Based in North Andover, Massachusetts, the plastics packaging division was operating plants making Resinite PVC-based films there and in Griffin, Georgia; Gainesville, Texas; Edmonton, Alberta, and West Hill, Ontario. It was also making OPP Proponite film at a second plant in North Andover. In Europe, Borden had three plastics packaging plants in France and the Netherlands; two in England; and one each in Belgium, Italy, and Scotland. There were two each in Australia, New Zealand, and South Africa. A Japanese plant was a joint venture with Hitachi Chemical Company Ltd.

Following the acquisition, AEP closed the Borden plant making Resinite PVC films in North Andover. The second Proponite plant was sold in 1999 for $13.3 million, and the South African operation was sold in 1998 for $1.3 million. In 1998 AEP sold all five of Borden's former oriented polypropylene (OPP) film units for producing rigid containers and trays to Applied Extrusion Technologies for net proceeds of $13.9 million. In 1998 AEP was the packaging industry's largest provider of supermarket, processor, and food-service films. The Stretch Film Division ranked first in sales and capacity in North America, with production of more than 255 million pounds.

In North America, AEP was manufacturing Resinite (PVC) food wrap in Griffin for the supermarket, consumer, institutional, and industrial markets, offering a broad range of products with about 45 different formulations. These films were used for packaging of fresh red meats, poultry, fish, fruits and vegetables, and bakery products. This facility was also manufacturing dispenser (cutter) boxes containing PVC food wrap for sales to consumers and institutions. AEP was manufacturing a broad range of industrial films in North America, generally custom-designed, including sheeting, tubing, and bags. It was also manufacturing a family of high-performance stretch wrap for wrapping and securing palletized products for shipping.

AEP's European Resinite Division was manufacturing polyvinyl chloride food wrap in cutter boxes and perforated rolls at three plants. The European Flexibles division was manufacturing flexible packaging and converted films used in the food-processing and pharmaceutical industries and polyethylene-based stretch wrap for wrapping and securing pallet loads. The Italian plant, Fabbrica Italiana Articoli Plastici (FIAP), was manufacturing PVC food wrap, unplasticized PVC twist wrap, and converted and printed films. Unplasticized PVC twist wrap was being used to wrap candles, candies, and similar products as a low-cost substitute for cellophane. AEP's Asia/Pacific operations resembled its North American and European operations, with the same variety of films produced in Australia and New Zealand. The 50 percent joint venture, Hitachi Chemical Filtec Inc., was supplying PVC food wrap to the Japanese market.

Entering the New Millennium

In 2000 AEP Industries was making over 15,000 types of multipurpose and flexible packaging films to meet any type of application in almost any combination of tensile strength, thickness, shrinkability, toughness, surface friction, sealability, permeability, transparency, and clarity, in every existing form&mdash⁄eeting, tubing and cut, rolled or perforated bags. Polyvinyl chloride wrap, industrial films, stretched (pallet) wrap, and other products and specialty films were being produced in North America, Europe, and the Asia/Pacific region. Printed and converted films providing flexible packaging to consumer markets were being produced in Europe and the Asia/Pacific region. During 1999 North America accounted for 61 percent of sales, Europe for 28 percent, and the Asia/Pacific region for 11 percent. There were 22 plants in 11 countries in 1999. In 2000 the number of plants rose to 27: 11 in North America, nine in Europe (all of which were in Western Europe); and seven in Asia and the Pacific.

AEP Industries' net sales peaked at $709.07 million in fiscal 1997 and declined with the sale of the OPP units; the 1999 total was $670.05 million. Net income peaked with the fiscal 1995 figure of $13.49 million. After deducting a $5.51 million charge for discontinued operations, the company had net income of only $263,000 in fiscal 1998, a result it attributed mainly to the Asian financial crisis. AEP took a charge of $18.97 million for the discontinued OPP operations in fiscal 1999 and had a net loss of $14.5 million for the year. The long-term debt was $302 million at the end of fiscal 1999. In January 2000 Borden, Inc. owned 32.4 percent of AEP's common stock. EGS Partners owned 23.9 percent, and Barba owned 17.5 percent.

Principal Subsidiaries: Design Poly Bag Corp.; Rhodes Plastics Corp.

Principal Operating Units: Asia/Pacific Group; FIAP Group; Flexibles Group; Industrial Products Division; Polyvinyl Chloride; PROformance Films Group; Resinite Division; Resinite Group; Stretch Film Division.

Principal Competitors: Bemis Co., Inc.; Bonar Packaging Inc.; Flex Products Inc.; Tekron Corp.

Chronology

• Key Dates:

• 1970: Company is founded by Brendan Barba and David J. McFarland.
• 1973: Company opens its first factory in Moonachie, New Jersey.
• 1986: AEP becomes a public company, selling one-third of its stock.
• 1988: AEP begins producing ultra-high-performance stretch films.
• 1992: Specialty products, including stretch film, account for 38 percent of sales.
• 1995: Net income peaks at $13.49 million in this fiscal year.
• 1996: AEP greatly expands its scope by acquiring Borden, Inc.'s packaging division.