Olson’s Plastic Unit Files for Chapter 11 to Buy Time

Olson Industries, a maker of plastic packages based in Sherman Oaks, has weathered a lot the last four years.

A family feud resulted in a shedding of the company’s egg operations. There was pressure on the company to quit using environmentally damaging materials once used in making plastic packages for McDonald’s and in egg cartons. In addition, since 1986, prices have more than doubled for polystyrene, the resin that Olson uses in making packages.

Last week, Dolco Packaging Corp., a wholly owned subsidiary that is virtually the company’s entire operation, filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. Olson said it did not file under its name because all of its business operations are conducted through Dolco.

Larry E. Rembold, president and chief executive of Dolco, said the company hopes that the filing will give it the breathing room it needs to renegotiate with creditors and work its way out of financial problems. He said the firm, which has 650 employees and five plants nationwide, is continuing to operate smoothly.

Problems had been building for some time. Dolco lost $220,000 on sales of $18.8 million in the first quarter that ended March 31, the company said. In the same period, the parent company lost $663,000 on revenue of $19.1 million.

Cash Flow Strained

According to the bankruptcy filing, Dolco’s assets total $44.7 million and exceed its liabilities of $32.5 million. The company said its cash flow was strained by meet payments on its debt.

The largest unsecured creditor, according to bankruptcy records, is Dow Chemical, the giant chemical maker based in Midland, Mich., that supplies resins to the company. Dow is owed nearly $5 million, according to court records. Second on the list is Huntsman Chemical Corp., a Salt Lake City, Utah, chemical company that is owed $618,106. Neither Dow nor Huntsman representatives could be reached for comment.

Big changes started taking place at Olson in early 1986, when the brothers who founded the company--C. Dean Olson and H. Glenn Olson--effectively split it. Dean Olson took most of the company’s Western egg operations, while Glenn Olson retained a controlling interest in what was the more profitable plastics-packaging business.

One of Olson Industries’ problems has been paying down its debt. The company sold its remaining egg operations and used the money to help trim debt. But those sales didn’t bring as much as expected because of softness in the egg business, so the debt remained high.

As of March 31, Olson Industries was in violation of loan covenants because its net worth was below a specified level and because of its cash flow problems, according to company filings with the U.S. Securities and Exchange Commission.

Debt Due in 4 Years

Much of that debt, Rembold said, is due in four years. He said the company hopes to renegotiate the loans to spread payments over a longer period of time.

Olson’s stock price also plunged as its problems worsened. In 1987 alone, it fell 76% to $6.50 a share. As of Friday, it was selling for $1.38 a share.

Another cost that Olson incurred last year was some $1 million it spent to stop using chlorofluorocarbons at its plants; that chemical is widely believed to seriously damage the Earth’s ozone layer. The conversion was finished at the end of 1988 and also disrupted operations.

James Wilen, head of Wilen Management Corp., an investment advisory firm in suburban Baltimore, and an investor in Olson, blames the company’s problems almost entirely on the high resin prices, which soared from 26 cents a pound in 1986 to 58 cents this year. Wilen blames the chemical industry, which he said has succeeded in forming something of a “mini-OPEC” in raising prices together.

“The chemical producers have wreaked havoc in this industry,” Wilen said.

But Wilen said that because Olson’s overhead is low, the result of consolidation and divestitures, the company is likely to become highly profitable when resin prices drop. He said that is likely to happen as manufacturing capacity increases, especially when new chemical plants come on line in the early 1990s.