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Daily Trouble
October 26, 1999

Ogden Co.

Ticker: (NYSE: OG)
Phone: 888-643-3612
Website: www.ogdencorp.com
Price (10/25/99): $8 3/4

By Rick Aristotle Munarriz (TMF Edible)

How Did it Find Trouble?

Energy powers the world. Energy fuels Ogden, too. Yet Ogden had become a multi-headed beast. Why was a company that was faring so well in the energy sector making a foray into aviation services and opening up themed restaurants, water parks, and an Argentinean casino resort hotel?

Ogden was, and is, a major player in environmental services that include the conversion of trash into fuel. Shareholders over the past year probably feel they put the money in the wrong end. Fuel in. Trash out.

Ogden finally decided to end its odd conglomerate ways. It contacted Goldman Sachs in March to help it spin off its aviation and entertainment subsidiaries. The plan made sense. Wall Street would be able to properly value the promising prospects of its energy offerings without these peculiarly diverse appendages.

Unfortunately, the market wasn't ready to pay up for Ogden's non-core holdings. As operational fluctuations rattled the company's fiscal results, the company decided that spinning off its aviation and entertainment divisions was not the solution. They would have to be sold outright.

Wall Street isn't patient. As Ogden tried to line up suitors for its non-energy business, it also had a hard time lining up believers in the stock itself. The faith gauge has been running on empty as shares of Ogden have burned up two-thirds of their value in recent months.

Business Description

Ogden's energy business includes power plants, waste to energy conversion, water treatment, and other environmental services.

The company has also become the largest independent player in aviation services, contracting work at airports worldwide.

Entertainment? With mostly local attractions like water parks, theaters, restaurants, and amusement centers, the company also provides food service operations for entertainment facilities.

Financial Facts

Income Statement
12-month sales: $1,692.4 million
12-month income: $80.0 million
12-month EPS: $1.59
Profit Margin: 4.7%
Market Cap: $469 million

Balance Sheet
Cash: $244.0 million
Current Assets: $810.0 million
Current Liabilities: $621.8 million
Long-term Debt: $1,935.2 million

Ratios
Price-to-earnings: 5.5
Price-to-sales: 0.3

How Could You Have Seen it Coming?

"The year 1998 saw Ogden cope successfully with a turbulent and volatile global economy and yet finish the year with milestone achievements," wrote CEO Richard Ablon in the 1998 annual report.

He was right in the sense that earnings bulked up to $1.70 a share, from $1.49 in 1997. All three business segments reported record bottom-line results. However, sales dipped for the company.

At the time, all was not perfect. Ogden's entertainment business was losing out during the NBA lockout (the company manages and/or services eight different basketball arenas). And, looking ahead, the company was expecting growth in risky overseas ventures like airport services in Hong Kong and Argentina as well as another casino resort in South Africa.

The geographical diversification into riskier real estate was certainly not for the timid. An even scarier move was the company going ahead with Tinseltown Studios, a celluloid-themed restaurant concept, at a time when Planet Hollywood was falling apart.

Where to From Here?

Ablon's vision for 1999 was cut short. He resigned last month.

The sudden shift in strategy -- to rid itself of non-energy assets entirely -- has not been welcome news to shareholders, and Ogden is already paying the price. It had to back out of its planned purchase of Volume Services, a food service competitor with $400 million in annual sales. In calling off the deal, Ogden is out $10 million that it now owes Volume Services for backing out.

But that is pocket change for a company mired in crumbling fundamentals. After 1998's "milestones," the company has gone in reverse. Earnings have fallen every quarter this year.

Only its energy business is showing signs of life, and it is now being sandbagged by the other subsidiaries until a buyer is found.

While today the company is probably looking ripe to vulture investors, it remains to be seen what kind of financial shape the company will be in after it has freed itself from its non-energy shackles. With almost $2 billion in debt the company has some high hurdles to clear in interest payments, and the ideal situation will find Ogden getting fair prices on its assets and using the funds to pay down the debt load.

Because, as bad as things appear now, they can always right themselves with a few handshakes. After all, Ogden knows how to convert waste into energy.

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