1988 The Year in Review : Milestones : Some of Orange County’s major business stories in 1988

What a way to start a year.

Jan. 4 was the first business day of 1988, and it wasn’t pretty for a couple of Orange County enterprises.

For starters, the J.W. Robinson Co. announced that it would close its Anaheim Plaza store, the smallest in sales volume and productivity of the Southern California retail chain.

And on that same day, Great Earth International of Tustin agreed to scale back its advertising at the behest of the Federal Trade Commission, ending claims that some of its products helped users lose weight, build muscle and heal more easily.

Closed doors and questionable business practices were themes sounded throughout the year.

Plant closings cost the county more than 3,000 jobs in 1988. Fifteen members of burger magnate Carl N. Karcher’s family were accused by the government of insider trading, while Care Enterprises and Irvine Ranch Farmers Market filed for bankruptcy.

Federal regulators closed two insolvent savings and loans with a record pay-out of $1.35 billion. And the Federal Bureau of Investigation raided five local lending firms as part of an international effort to shut down an allegedly crooked lending scheme.

Home prices hit ungodly heights, locking more Orange County residents out of the housing market than ever before. And Hughes Aircraft’s Ground Systems Group in Fullerton lost a $3.6-billion contract to modernize the nation’s air traffic control system.

But the news wasn’t all bad.

In fact, 1988’s unfortunate events fell against a backdrop of robust employment and relative prosperity. Unemployment fell as low as 2.9% four times and spent the entire year beneath the 4% rate considered by economists to constitute full employment.

Total economic activity in the county reached a record $59.7 billion, up 50% since 1984. Median family income hit $45,176, up more than 60% since 1983. And about 27,000 jobs were created last year, contributing to total new employment of more than 256,000 jobs in the last 5 years.

For every company that closed its doors, literally dozens of new businesses sprang up, primarily in the retail and service industries. The year ended with an estimated 88,000 companies doing business in the county--more than 95% of them with fewer than 50 employees.

But not all of the activity involved little firms.

American Stores Co., parent company of Alpha Beta supermarkets and Sav-On Osco drugstores, moved its corporate headquarters to Orange County from Salt Lake City. And Western Digital unveiled plans to build a $70-million computer chip-manufacturing plant in Irvine by September, 1989.

After a couple of dismal years, Fluor Corp., the international engineering and construction giant, found the road to recovery and stayed on it. And Smith International flexed its oily muscles during its first year out of bankruptcy, with a return to profitability.

Still, allegations of dishonesty, charges of fraud and heavy scam sentences scarred

the business landscape in a kind of miniature version of the woes on Wall Street. Consider:

- Brian J. Callahan, a young Prudential-Bache stockbroker, was fired from his job at the Anaheim brokerage house for his alleged involvement in an insider stock-trading scandal involving a Business Week column.

Callahan allegedly traded on information garnered from the magazine’s “Inside Wall Street” column. The information reportedly came from a client of Callahan’s who had access to the magazine’s page proofs before the periodical hit the newsstands.

- Joel Fisch, the patriarch of a family of precious-metals swindlers that once operated in Orange County, was sentenced to 25 years in prison. Fisch had pleaded guilty to cheating 1,600 would-be investors out of $8.7 million.

His sentence, which included an order to pay $8.7 million in restitution to his victims, was called one of the stiffest in the country for a boiler-room (telephone sales) operation.

- The Securities and Exchange Commission filed a civil suit alleging that Carl N. Karcher, his brother, Donald Karcher, and their wives tipped some of their relatives in advance to news about falling profits at Anaheim-based Karcher Enterprises in 1984, enabling them to sell stock before prices plunged. The family denied the accusations.

Five months after the suit was filed, a federal judge ruled that Karcher’s son, Carl Leo Karcher, had engaged in illegal insider stock trading. He was ordered to repay the $10,500 that he had saved by selling debt securities 4 days before the company’s earnings decline was made public. The lawsuit against the other family members is pending.

- Five Orange County firms and a Costa Mesa storage facility were raided by dozens of police officers and FBI agents. The officers were investigating the firms--along with two in Los Angeles and two in England--for allegedly operating an illegal advance-fee scheme.

Under such a scheme, a firm tells a potential borrower that it can help him obtain a loan. Through a network of other companies, the borrower ends up paying assorted fees in advance--as much as $100,000--to get the loan processed. After paying the fees, the borrower learns of complications that kill the loan.

Belly-up was the position of choice for Care Enterprises and Irvine Ranch Farmers Market--firms that filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.

Based in Tustin, Care Enterprises owns or operates 103 nursing homes across the nation, including 46 in Southern California.

Five months after the firm filed for bankruptcy, four of its officials were the target of criminal charges for allegedly providing substandard care at a skilled nursing home in Playa del Rey.

Irvine Ranch found out the hard way that the charms of Chinese pea pods and other pricey veggies were wearing thin. After months of not paying the bills, the upscale grocery chain with 11 Southern California locations filed for bankruptcy.

The company owed $17.5 million to more than 200 creditors. Marc J. Winthrop, the chain’s attorney, insisted that most of the stores had been successful and that the chain’s problems stemmed from “very high start-up costs from an aggressive expansion program.”

Other food fights broke out periodically throughout the year, as muscle builder Heidi Miller skirmished with franchisees over management of her Frogen Yozurt empire. She didn’t do much better with one of her firm’s suitors, either.

Miller signed a pending agreement to be acquired by New York-based Steve’s Homemade Ice Cream. But an earlier suitor, Johnston Foods, filed a lawsuit accusing the Laguna Hills confection chain of fraud and deceit. Johnston is seeking damages of $5.6 million.

And American Stores’ luck ran out soon after the firm moved to Orange County. The retail company owns Alpha Beta supermarkets, which initiated a merger with the competing Lucky grocery chain.

But U.S. District Judge David V. Kenyon decided that combining the two would “substantially lessen competition” in Southland supermarket circles and ordered an antitrust trial before the merger could be completed.

And plant doors slammed shut throughout the year, as manufacturers moved on to cheaper pastures.

Weiser Lock Co., one of Orange County’s largest employers, announced that it will phase out its Huntington Beach manufacturing operation and lay off about 1,100 employees. Company President James Conners said the decision was based in part on the high costs of doing business in the Southern California coastal area.

Soon after posting its best production month in company history, Xidex Corp., a maker of computer disks, surprised its 825 employees by announcing that it would shut down its Irvine plant and lay off all workers.

“Just when we thought we were the champion boxer in the ring, we were knocked out,” one worker said after handing in his company ID badge.

In addition, Rockwell International closed its Collins Defense Communications facilities in Santa Ana, eliminating 534 jobs.

And Smith International, one of the nation’s leading oil well equipment makers, said it would close its Irvine drill bit plant and move its headquarters to Houston. Nearly 490 jobs will be affected as the firm moves out of Orange County after 52 years. The announcement came 6 months after Smith reported its first quarterly operating profit since 1985.

Smith wasn’t the only company to reverse a trend of operating problems in 1988. Fluor Corp. reported profits of $56

million for its 1988 fiscal year, more than double the $26.6 million posted in 1987. A resurgence in capital spending by several key industries helped the Irvine engineering and construction firm to overcome several years of blight.

“Any way you slice it, orders are strong, profitability is springing back and the outlook remains the best it has been in years,” said one analyst who follows Fluor.

Fluor’s profits were not the only thing to go through the roof in 1988. The median price of an existing single-family home in ultra-expensive Orange County hit $204,000 in the second quarter of the year. That boosted Orange County past New York and Honolulu and made the area the priciest home market in the nation.

But it didn’t stop there. Frenzied home buyers drove the median price up to $234,934 in September--a record high. At the same time, the number of families that could afford this median-priced home dropped to fewer than 1 in 5.

And how did S&Ls; and banks account for themselves in 1988? The good news was that Orange County’s 39 independent banks posted combined net income of $18.5 million in the second quarter. Their combined 6-month profit nearly equaled the county banking industry’s earnings for all of 1987 combined.

That performance came on the heels of an announcement that the county’s banks had posted earnings of $27 million for 1987, marking the first profitable year for the county’s banking industry since deregulation in 1982.

And with the help of $281.1 million from the federal government, Downey Savings & Loan took over the operations of troubled Butterfield Savings & Loan in Santa Ana, one of the biggest insolvent thrifts still in business at the time.

Mixed reviews went to the Robert M. Bass Group’s decision to take over American Savings & Loan, a troubled thrift operating out of an Irvine headquarters. The deal, which should save jobs, has yet to be consummated.

As part of the agreement, regulators are to provide $2 billion in assistance and assume 30% ownership of the revived S&L.; Unfortunately, American is still losing money.

Now for the bad news.

Federal regulators reached into the government’s pockets to return a record $1.35 billion to depositors of two insolvent Orange County financial institutions, a move that severely drained the $3-billion nationwide fund that insures customer accounts at savings and loans.

Government officials closed American Diversified Savings Bank and North America Savings & Loan, both of Costa Mesa, after trying unsuccessfully to peddle them to other institutions.

And the county’s savings and loans posted a combined loss of $12.2 million for the third quarter of 1988, a significant improvement over the $318.3-million loss recorded during the first 6 months of the year.

While they are still losing money, their performance is vastly better than it was in 1987. Federal Home Loan Bank Board figures released earlier this year showed that Orange County’s S&Ls; posted a combined loss for 1987 of $920 million.

Orange County had several entries in the hostile bid department of 1988’s merger mania. For starters, MSI Data Corp. of Costa Mesa successfully fended off a hostile

takeover attempt by rival Telxon Corp., an Akron, Ohio, maker of hand-held business terminals.

But while beating back Telxon, MSI lost its independence. MSI agreed to be acquired by Symbol Technologies of Long Island, N.Y., one of its largest suppliers, in a deal valued at $142 million.

MAI Basic Four, however, is still in the thick of a takeover attempt, and will not take “no” for an answer from target Prime Computer, a major manufacturer of minicomputers. Prime has strongly resisted MAI’s $20-a-share bid and has enacted a series of takeover defenses.

But MAI is undaunted.

“We’re going to be successful,” said William B. Patton, MAI’s president. “We’re not going to be deterred by what is happening.”

What will happen in 1989? Stay tuned for details.

Feb. 25: Management of AFG Industries announces plans to take the Irvine glassmaking giant private. One month later, founder R.D. Hubbard moves the firm to Fort Worth.

March 18: A study shows that Orange County banks posted combined earnings of $27 million for 1987, marking the first profitable year for the county’s banking industry since deregulation in 1982.

March 28: Care Enterprises, a major nursing home chain, files for protection from its creditors under federal bankruptcy laws.

April 1: A study shows that Orange County savings and loans posted their biggest annual combined loss ever in 1987: $920 million.

April 6: Rockwell International announces that it will close its Collins Defense Communications facilities in Santa Ana and eliminate 534 jobs.

April 14: The Securities and Exchange Commission files a civil suit accusing hamburger baron Carl N. Karcher, 14 family members and an employee of illegal insider stock trading.

April 19: Western Digital announces plans to build a $70-million computer chip manufacturing plant in Irvine.

June 6: Federal regulators close American Diversified Savings Bank and North America Savings & Loan and begin a record $1.3-billion pay-out to depositors.

July 27: Hughes Aircraft’s Ground Systems Group in Fullerton loses a $3.6-billion contract to revamp America’s air traffic control system after spending 4 years and $250 million in its bid.

Aug. 5: Weiser Lock, one of Orange County’s largest employers, announces that it will phase out its Huntington Beach manufacturing operation and lay off 1,100 people.

Aug. 11: The National Assn. of Realtors announces that Orange County’s median home price is the top in the nation for the first time. The price tag for an existing, single-family home reaches a whopping $204,000.

Sept. 29: A federal judge in Los Angeles temporarily blocks the Alpha Beta-Lucky supermarket merger and orders a trial to see if the merger violates federal antitrust laws.

Oct. 13: Xidex Corp., a maker of computer disks, announces that it will shut down its Irvine plant and lay off its 825 employees immediately.

Oct. 25: Smith International, one of the nation’s leading oil well equipment makers, announces that it will close its Irvine drill bit plant and move its headquarters to Houston, eliminating 490 Orange County jobs.

Dec. 13: Fluor Corp. reports profits of $56 million for its 1988 fiscal year, more than double the $26.6 million posted in 1987.