NEWS

by Maureen Flanagan

From modest beginnings, Erie Plastics Corporation has become a nationally recognized leader in manufacturing custom injection molded plastic packaging components. Based in Corry, PA, Erie has achieved increasing revenues from a solid base of diversified multi-national customers that include Procter & Gamble, Gillette, Wyeth Pharmaceuticals, Coca-Cola/Minutemaid and Alcoa. In 1996 the company purchased an existing facility and made plans to consolidate, streamline and expand its manufacturing and warehousing operations. The company explored all the options to actualize its expansion plan and decided to move forward with mezzanine financing from American Capital Strategies, Ltd. (NASDAQ:ACAS). As its financial partner, American Capital provided $10 million in senior subordinated debt with warrants.

"Erie Plastics is on its way to a dramatic expansion," said Paul C. "Hoop" Roche, Erie Plastics President and CEO. "Relocating to a new 465,000 square foot facility for corporate offices, warehouse and manufacturing space enables the company to bring more value to our existing customers and nurture new relationships."

The relocation to the new facility provides more than two and a half times more manufacturing space plus additional warehouse and office space, and also supplies footage for future growth. Through the expansion, the company can consolidate operations, increase efficiencies, and lower costs. In addition to Pennsylvania, Erie also operates facilities in Massachusetts, and Ohio, employing more than 450 workers.

"American Capital is pleased to partner with Erie," said American Capital Principal Joe Bute. "We not only had the financial resources to support Erie's growth strategy, but worked to structure the transaction to the satisfaction of Erie's management. This is the second S-Corporation growth financing American Capital completed in the second quarter of 1999," Bute added.

Established in 1960, Erie Plastics designs and injection molds custom plastic packaging for consumer products in four markets. Household cleaners and detergents is its largest market, primarily for brand names sold by P&G. The company utilizes tooling and technology for well-recognized closure designs, such as liquid detergent bottles with pour spouts sold to P&G. Erie's personal care products division, representing almost a quarter of its sales, provides packaging components for such products as Right Guard, Soft and Dri, Head and Shoulders and Prell shampoos. Gillette is the largest customer in this market segment. The company also has a growing food and beverage division, accounting for 17% of revenues, with customers that include Alcoa, Coca-Cola and other well-known beverage companies, plus a pharmaceutical division that has served Wyeth Pharmaceutical Company for more than 20 years as well as other drug manufacturers.

The plastic molding business has historically been a major industry in Erie PA, where the process was perfected during the World War II era. Today some 10,000 molders operate in the United States, most of which are small shops or molding divisions within larger companies. The fragmentation of the industry reflects the wide array of applications for injected molded plastic components.

Erie has distinguished itself from its competitors through its value-added services and state-of-the-art high-speed molding operations. The company builds long-term partnerships with core customer groups, investing in the equipment necessary to produce custom designed packaging. Its sophisticated operations integrate high-tech engineering and product development services through an on-site "Innovation Center." Erie is constantly expanding its capability for product design, development, prototyping, and related services. In the past two years, in fact, the company implemented more than 10 new or improved products for its customers.

Erie's President, P.C. "Hoop" Roche, son of the company's co-founder, has been involved with building the company from bottom to top. (In 1991, Roche bought out the interests of his two brothers to become the sole owner.) In the 1980s the company shifted from broad-based customer services to concentrate operations on a selected number of customers, utilizing high-volume packaging for consumer products. In the 1990s, Erie focused on building its engineering and technical expertise to increase its value-added business with its core customers. The next step in the company's long-term growth plan - to improve operations, update equipment and increase efficiencies -- was the new facility.

Responding to Erie's need for a financial partner, American Capital provided just the financing package that Erie was seeking. The financing allowed Erie to retire an existing line of credit and replace it with $10 million in subordinated debt. American Capital's prompt response met Erie's needs and allowed the transaction to move ahead quickly and efficiently.

With capital resources exceeding $275 million, American Capital provides $3 million to $20 million in financing to support middle market companies in need of capital for acquisitions, growth, ESOP buyouts, management buyouts, liquidity and restructurings. Erie Plastics is American Capital's first investment in the packaging industry and its second recent investment in a western Pennsylvania company. In the second quarter of 1999, American Capital invested $16.5 million in Tube City, Inc., a diversified steel mill services company based in Glassport, PA.

Erie's growth financing increases production capacity at the company and will likely lead to the creation of new jobs in the region. It also puts the company on track for expanding into other geographic regions with new molding facilities and development centers as well as for developing proprietary products and new manufacturing and product technologies. Through its creative problem solving, engineering and technical expertise, and cost-effective manufacturing, Erie seeks to be the sole source supplier to major multi-national consumer product companies in its markets.