THE TIMES 100: THE BEST COMPANIES IN CALIFORNIA : REGIONAL PROFILES : SMALL WORLDS : Orange County Firms Win Specialized Markets

For young, publicly held companies in Orange County, finding a small place in the corporate world can lead to big riches.

Dozens of local firms have become national and world leaders in small markets, making Orange County one of the nation’s hottest spots for small business. And they dominate those markets with as little as $100 million in sales, according to county economists and statistics from The Times 100 survey.

AST Research, for instance, is the industry leader in manufacturing add-on memory boards for IBM compatible personal computers. Archive is the nation’s leading maker of computer back-up tape drives. Armor All Products is the top maker of car appearance-care products. Bergen Brunswig is the second largest U.S. drug wholesaler. Gradco is the world’s largest supplier of sheet feeders and collators for copiers and printers. National Education is the world’s largest vocational training company. And with 338 retail outlets nationwide, Clothestime in Anaheim has carved out a discount market in clothing for young women.

The list goes on.

“And the real gold in the hills of Orange County are the private companies getting ready to go public,” said Jeffrey Kilpatrick, president of Newport Securities in Costa Mesa. “Their number is probably unequaled in the country.”

FileNet in Costa Mesa, for instance, is a 5-year-old firm that went public in July and quickly sold out its $25-million offering. It is the pioneer and leader in using an optical disk device to copy and store documents--the cutting edge of the often heralded “paperless” office.

Figures from The Times 100 survey and other sources highlight the diversity, prosperity and small size of the county’s publicly held companies:

* Nine county-based companies, representing a cross-section of industries, are among the first 50 firms in The Times 100 list, a healthy representation in a state with so many stand-out corporate performers.

* Overall profits from continuing operations were skewed by four big money losers--FCA, Care Enterprises, ICN Pharmaceuticals and the county’s largest firm, Fluor Corp., which may have turned the corner with a profitable first quarter this year. Without those four, the county’s public firms did quite well--posting $379 million in profits from continuing operations. With the big losers, however, the companies sank into red ink by $214.5 million.

* None of the top six companies in shareholder returns--all with two-fold to five-fold increases over the last 15-month period--ranked among the biggest 25 county firms in revenues. Bridgford Foods, a manufacturer and distributor of snack foods, was on top with a 272% return--even though it rang up only $56.5 million in sales last year.

* The market value of a number of small companies, such as Armor All Products with $108 million in sales, often exceeded that of larger companies, such as Bergen Brunswig with $3.4 billion in sales. On April 4, Armor All’s market value was nearly $100 million higher than Bergen Brunswig’s, and its ratio of market value to book value was almost triple that of its giant neighbor.

The Times survey, which included a review of Orange County’s 143 largest publicly held companies, indicates that county-bred companies tend to be concentrated in a few industries, said Kevin Colosimo, a partner in MZ Group, the San Francisco consulting firm that conducted the study.

The biggest concentration is in high technology, which accounts for 28% of the firms. It is followed by heavy industry--primarily Smith International--with 11%, health services with 9%, bio-tech and biomedical firms with 8% and financial services with 7%.

Those numbers, though, exclude such known quantities as the large financial services industry made up mostly of banks, savings and loans and hundreds of mortgage companies, all of which are private or too small to be included in The Times 100 survey.

More importantly, the concentration of county firms does not take into account the county’s biggest source of revenue--aerospace and defense. Such firms as Rockwell International, Hughes Aircraft, McDonnell Douglas and Ford Aerospace are among the county’s biggest employers and haul in most of the federal defense funds spent in the county. But they are based elsewhere.

No major county-based firm is classified in the aerospace or defense industry, yet it is probably the only single industry in which a major cutback in federal spending could significantly affect the county’s economy, said James Doti, dean of the Chapman College School of Business in Orange.

The emphasis on emerging companies and new enterprises is so great that sometimes the area’s graybeards get overlooked. They, too, have prospered by carving out niches for themselves.

First American Financial in Santa Ana, for instance, was the nation’s biggest title insurer until two other title companies merged in 1986. The 99-year-old firm hasn’t missed paying an annual cash dividend since 1909. And 31-year-old Downey Savings & Loan in Costa Mesa, recognized by industry insiders as one of the best-run S&Ls; in the nation, is the largest owner-developer of neighborhood shopping centers in California, an unusual niche for a home lender.

Like most financial institutions, Downey’s stock is selling low compared to the company’s value as stated on its books. Analysts suggest that the industry’s overall performance still appears to be too susceptible to interest-rate swings, causing general investor wariness.

A well-capitalized Downey, however, has tremendous unrealized value, said analyst Michael Abrahams of Bateman Eichler, Hill Richards, a Los Angeles brokerage. Downey valued its real estate holdings on Dec. 31 at $182 million, but Abrahams estimated the market value at $280 million to $300 million. That would make the S&L; book value worth $7.75 a share to $9.69 a share over its current book value of $17.25 a share.

Many Orange County-based companies are poised to reap great rewards during the next major growth cycle.

“The engine that will propel Orange County’s economic growth through the year 2000 is international trade,” said economist James Doti. “Those industries most likely to grow rapidly with international trade are aerospace and high-tech, particularly microcomputers, telecommunications, process control instrumentation, office automation and bio-tech and bio-medical products.”

Such firms as 18-year-old Western Digital already are pushing their products overseas. The Irvine-based computer parts maker recently announced plans to open its fifth manufacturing facility overseas--this one in Seoul, South Korea.

About 50% of its revenue is from offshore sales, and company executives expect that percentage to go up in the next few years.

“The country is part of a worldwide market, and people must recognize it,” said Roger W. Johnson, the company’s chairman. “By doing business around the world, we increase jobs in Orange County. . . . You do what you need to do to compete or you don’t play.”

ORANGE COUNTY TOP 15 / REVENUE

1987 revenue % change Rank Company ($ millions) from 1986 1 Fluor Corp. 3,924.5 -16 2 Bergen Brunswig 3,376.0 10 3 Financial Corp. of America 2,976.3 -11 4 Western Digital 462.5 66 5 First American Financial-Calif. 415.0 13 6 National Education 378.9 53 7 Far West Financial 370.0 7 8 FHP Intnl. 367.5 39 9 Carl Karcher Enterprises 355.2 13 10 Micro D 352.5 59 11 Transcon 328.5 -4 12 MAI Basic Four 321.0 14 13 Wynn’s Intl. 312.9 2 14 Pacificare Health Systems 301.5 80 15 Community Psychiatric Centers 285.3 23

ORANGE COUNTY REVENUE GROWTH

2-year 1987 1987 compnd. rev. revenue income(loss) Rank Company growth % ($ millions) ($ millions) 1 Micro D 72 352.5 5.495 2 Western Digital 62 462.5 42.782 3 Covington Technologies 51 81.0 0.004 4 Ropak Corp. 46 69.0 1.577 5 National Education 44 378.9 3.575 6 Diceon Electronics 42 111.1 9.535 7 ICN Pharmaceuticals 39 121.0 (30.813) 8 Comarco 36 77.4 (10.122) 9 Pacific Scientific 35 157.0 4.447 10 Gradco Systems 32 76.2 2.728 11 For Better Living 29 78.5 2.484 12 SPI Pharmaceuticals 28 74.6 10.140 13 First Amer. Fin.-Calif. 26 415.0 32.412 14 Archive Corp. 24 88.8 5.846 15 Silicon Systems 22 81.8 2.845

ORANGE COUNTY TOP STOCK PERFORMERS

Stock Stock Cash Total price price divid. Rank Company return 4/4/88 12/31/86 paid 1 Bridgford Foods 272 14.50 3.92 0.07 2 Computer Automation 257 12.50 3.50 0.00 3 MSI Data Corp. 113 23.75 11.13 0.00 4 Nichols Institute 110 10.50 5.00 0.00 5 ABI Amer Businessphones 106 8.75 4.25 0.00 6 Armor All Products 101 21.25 10.75 0.40 7 Smith Intl. 89 8.50 4.50 0.00 8 Micro D 89 8.25 4.38 0.00 9 Varco Intl. 86 4.88 2.63 0.00 10 Fluor Corp. 62 18.50 11.50 0.10 11 MAI Basic Four 55 17.00 11.00 0.00 12 Cimco 39 14.25 10.25 0.00 13 Trimedyne 38 15.88 11.50 0.00 14 Fluorocarbon 38 16.25 12.00 0.28 15 National Education 34 23.75 17.75 0.00

ORANGE COUNTY TOP 15 / MARKET VALUE

4/4/88 Market value Book value Market as Rank Company ($ millions) ($ millions) % of book 1 Fluor Corp. 1,458.0 531.7 274 2 Community Psych. Cntrs. 986.1 325.1 303 3 National Education 581.7 100.2 581 4 Armor All Products 444.3 71.8 619 5 Western Digital 404.5 201.9 200 6 Bergen Brunswig 346.9 188.7 184 7 MAI Basic Four 250.3 78.1 320 8 Smith Intl. 194.6 132.3 147 9 Carl Karcher Enterprises 165.8 109.2 152 10 Diceon Electronics 164.6 44.6 369 11 Downey S&L; 144.9 185.3 78 12 FileNet Corp. 139.8 58.3 240 13 First Amer. Fin.-Calif. 130.2 136.6 95 14 ICN Pharmaceuticals 126.3 129.2 98 15 AST Research 113.1 99.1 114

ORANGE COUNTY TOP 15 / ABSOLUTE PROFITS

Change 1987 income in income Rank Company ($ millions) ($ millions) 1 Community Psychiatric Centers 60.0 8.7 2 Western Digital 42.8 22.2 3 Downey S&L; 33.2 (24.0) 4 First American Fin.-Calif. 32.4 2.8 5 MAI Basic Four 22.8 5.9 5 Far West Financial 21.8 (1.3) 7 J.M. Peters Co. 21.4 16.2 8 Armor All Products 18.6 1.6 9 Smith Intl. 16.3 165.4 10 Bergen Brunswig 15.9 (4.8) 11 AST Research 13.0 (14.1) 12 SPI Pharmaceuticals 10.1 3.4 13 Westcorp 9.7 (1.5) 14 Diceon Electronics 9.5 2.6 15 Comprehensive Care 9.5 (2.6)