THE TIMES 100 : THE BEST PERFORMING COMPANIES IN CALIFORNIA : REGIONAL PROFILES : Volatile Crowd : Orange County Has Some of the Worst and Best Performers

Reflecting the area’s business diversity and volatility, Orange County companies pop up all over the Times 100 rankings, turning in some of the best--and worst--performances of the year.

Publicly traded companies based in Orange County filled 15 of the top 100 slots for two-year return on equity--up from 12 last year. Only three county firms were dropped from the list, while six made their inaugural appearances.

And five county firms were on the top 100 for sales, 21 found their way into the top 100 for two-year sales growth and 10 were among the state’s 100 largest public company employers.

On the downside, two of the biggest losses statewide for 1988 were posted by Transcon Inc. of Orange and General Automation of Anaheim.

Transcon, a nationwide trucking firm whose financial performance was hurt by an economic slump that swept the industry, lost $24 million, ranking 13th on the state list of the 25 biggest losses. The company’s falling finances caused investors to sell in droves, dropping its stock price-to-sales ratio on April 3, 1989, to only 3.7% and winning it the dubious distinction of fourth place on the “Wall Street Forlorn” list.

General Automation, a financially struggling Anaheim computer firm that recently was acquired by a British electronics firm, reported a loss of $12 million, good for 21st place on the list of the 25 largest losses.

Other losers included Diceon Electronics in Irvine, with a 12-month stock price decline of 69%--the sixth-biggest drop statewide--and ICN Pharmaceuticals of Costa Mesa, whose $108 million market value was only 79% of book value, ranking it 15th on the statewide list of lowest-priced companies.

Three local companies didn’t make the Times 100 list for return on equity again this year, where the minimum to qualify was 15.3% over the past two years:

* Clothestime Inc., the Anaheim retail women’s clothing chain, dropped out of 11th place because of a loss in 1988.

* AST, an Irvine computer and computer peripherals firm, blamed falling profits in a softening market for its fall from 17th place last year.

* For Better Living, a San Juan Capistrano mini-conglomerate involved in magazine publishing, construction and the manufacture of precast concrete and plastic goods--including burial vaults--was dumped from 41st place, also because of a 1988 loss.

But Orange County firms accounted for far more positives than negatives, and of the 146 public companies in the county, two really stole the show: FHP International Corp., a Fountain Valley health maintenance organization that bucked an industry trend and posted soaring sales and profits, and Fluor Corp., an Irvine-based international engineering and heavy construction firm that staged an awe-inspiring comeback.

At a time when many other HMOs have been racked by plummeting profits and rising costs, abandoned by shareholders and verbally assaulted by stock analysts, FHP made an impressive debut on The Times 100 list for return on shareholder equity.

The company took 11th place with a 40.3% return over the two-year period, its $16.5 million income representing a 138% increase from 1987. FHP also reported $503.5 million in sales--narrowly missing a spot on the Sales 100 list, which cut off at $504.4 million.

The FHP secret, according to Chairman Robert Gumbiner, is that unlike many HMOs that contract with independent physicians and hospitals to serve their clients, FHP has its own medical staff, laboratory, hospital and clinic. The company--run as a nonprofit organization until bought by its management in 1986 for $38.6 million--last posted a loss in the fourth quarter of 1977.

“When your doctors are independent, you have joint ventures with doctors who don’t want to be in a joint venture with you,” Gumbiner said in a recent interview. The few HMOs that are doing as well as FHP, he said, “are the ones that started many years ago for the purpose of providing better health care and better health care management.”

Investors have recognized the company’s value, too.

FHP’s stock price more than doubled in the 12 months ended April 3, 1989, climbing 137.7% to $22.875 a share from $9.625 and earning the company fourth place on the statewide “Charging Ahead” list on stock appreciation. FHP also scored high in investor popularity, with its April 3, 1989, market value of $230.3 million, more than six times its book value of $35.7 million.

Among all publicly traded companies in Orange County, FHP was second in stock price appreciation, ninth in market value, and 12th in profit and two-year average sales growth.

At Fluor, the picture was almost as pretty.

1988 brought a $56.4-million profit--on its face a not-so impressive 1.1% of total revenue of $5.1 billion but a long climb back from the $75.3-million operating loss for 1987. The turnaround was accomplished during a two-year period that saw the company pare its payroll, divest itself of its money-losing mining operations and complete a shift from oil refinery work into less energy-dependent fields.

Fluor was the state’s top non-bank turnaround of the year, No. 3 on the statewide “Born Again” list.

An analysis of Orange County’s public companies and their movement on (and off) the various statewide and regional lists prepared by MZ Group of San Francisco shows that “there is an awful lot of activity compared with other areas of the state,” said Kevin Colosimo, MZ Group vice president.

James Doti, acting president of Chapman College in Orange and an economist who closely tracks the county’s economy, said MZ Group’s findings “aren’t surprising. The dynamic nature of the businesses in Orange County mirror the dynamism of the county itself. Until 1970, this was largely a bedroom community, so the incredible growth of the economy here comes from firms that have not had a long life span. They are firms that are on the cutting edge of high technology and research. Many of those that get started don’t make it, but the ones that do often make it big.”

Underscoring that volatility, 40% of the top 15 Orange County companies in revenue, absolute profit and market value were new to the local lists this year, and 87% of the top 15 county-based stock performers were new. The county’s biggest and best-performing companies came from a wide variety of fields, including computers, computer products, defense, heavy construction, wholesale and retail foods, pharmaceuticals, health care, finance, insurance, business services, transportation, home building and scientific instruments.

“It is a dynamic place, with a lot of small, growth-oriented businesses at one end and a small cadre of larger businesses at the top,” Colosimo said.

Indeed, there are an estimated 63,000 businesses headquartered in Orange County, plus 17,000 branch locations of companies that are headquartered elsewhere. Of the total of 80,000 stores, offices and factories, 96% have no more than 25 employees, while 64% have five or fewer workers, according to Contacts Influential, a regional marketing information service.

That diversity and the presence of a few large companies to balance the myriad smaller firms is what helps to give the county’s business community a degree of economic health almost unparalleled in the rest of Southern California.

The financial performance of most of the county’s public companies “was flat, especially with weakness in the high-tech sector,” Colosimo said. “But with that weakness in the mid- and small-tier companies came a rebound by the big firms.”

Total profits for the county’s public companies in 1988 were $634.6 million, almost double the $320.4 million reported for 1987. But, Colosimo said, the Fluor turnaround alone accounted for almost 9% of the 1988 profits. And the county’s 10 largest public companies reported $387.1 million in profit--or 61% of the total--while statewide the profits of the top 10 businesses represented only 34% of the total for all publicly traded firms.

Other Orange County highlights from The Times 100 lists include:

* Like FHP, which debuted on the Times 100 well up in the rankings, two other newcomers were in the top 25. CMS Enhancements, a Santa Ana computer peripherals manufacturer, made its debut on the Times 100 for return on equity well up in the rankings. Its profits of $2.3 million in 1988 and $1.7 million in 1987 combined with a relatively small equity base to land CMS in 14th place statewide. And Armor All Products, the Irvine automotive appearance products maker, ranked 19th. The company launched a major product-line expansion last year and also acquired a big competitor to become the nation’s largest manufacturer of automotive vinyl and rubber preservatives and auto waxes and washing solutions.

* Tumbling profits caused Western Digital, Diceon Electronics, SPI Pharmaceutical, Downey Savings & Loan and First American Financial Corp. to drop considerably in the return on equity rankings. But operating losses weren’t always the culprit. Downy’s profit dip was caused largely by a change in accounting rules for S&Ls;, and much of First American’s came from an embezzlement.

* Beckman Instruments, one of the largest companies in the county until acquired by SmithKline Corp. in 1984, found spots on several Times 100 lists this year after regaining its independence in 1987, when 16% of its stock was sold publicly by what now is SmithKline Beckman.

ORANGE COUNTY REVENUE LEADERS

Orange County-based companies ranked by revenue.

1988 revenue % change Rank Company ($ millions) from 1987 1 Fluor Corp. 5,132.5 31 2 Bergen Brunswig Corp. 3,486.4 3 3 Beckman Instruments Inc. 770.3 11 4 Western Digital Corp. 768.3 66 5 First American Financial 631.4 1 6 FHP International Corp. 503.5 37 7 Standard-Pacific 463.7 32 8 National Education Corp. 457.5 21 9 Far West Financial Corp. 429.4 16 10 Pacificare Health Systems 424.9 41 11 Carl Karcher Enterprises* 421.7 15 12 MAI Basic Four Inc. 420.8 31 13 JM Peters Co. 414.3 46 14 AST Research Inc. 412.7 100 15 Community Psychiatric Centers 347.4 22

*See exceptions, page 38.

ORANGE COUNTY PROFIT LEADERS

Orange County-based firms ranked by profit from continuing operations.

1988 Change income in income Rank Company ($ millions) ($ millions) 1 Community Psychiatric Centers 70.8 10.8 2 Fluor Corp. 56.4 131.7 3 National Education Corp. 46.1 42.6 4 Western Digital Corp. 43.0 0.2 5 Beckman Instruments Inc. 42.5 5.0 6 JM Peters Co. 38.1 16.7 7 Bergen Brunswig Corp. 32.9 17.0 8 Downey Savings & Loan 29.0 (4.2) 9 Armor All Products Corp.* 25.6 3.3 10 MAI Basic Four Inc. 24.5 1.6 11 Carl Karcher Enterprises* 18.9 7.1 12 FHP International Corp. 16.5 9.6 13 AST Research Inc. 15.1 2.0 14 Silicon Systems Inc. 12.7 9.8 15 First Amer. Financial Corp. 12.3 (20.2)

*See exceptions, page 38.

ORANGE COUNTY MARKET VALUE LEADERS

Orange County-based firms ranked by stock market valuation.

4/3/89 market value Book value Rank Company ($ millions) ($ millions) 1 Fluor Corp. 1,778.7 601.7 2 Community Psych. Centers 1,219.8 382.3 3 Beckman Instruments Inc. 641.3 232.1 4 National Education Corp. 589.5 184.9 5 Bergen Brunswig Corp. 485.4 219.4 6 Armor All Products Corp.* 402.7 87.3 7 Standard-Pacific 358.1 210.2 8 Western Digital Corp. 333.2 255.0 9 FHP International Corp. 230.3 35.7 10 Carl Karcher Enterprises* 224.3 57.4 11 Downey Savings & Loan 179.9 210.0 12 First Amer. Financial Corp. 153.7 147.5 13 Medstone International Inc. 132.7 16.8 14 Archive Corp. 129.2 72.0 15 Viratek Inc. 124.6 7.0

Market as Rank % of book 1 296 2 319 3 276 4 319 5 221 6 461 7 170 8 131 9 646 10 391 11 86 12 104 13 789 14 180 15 1,774

*See exceptions, page 38.

ORANGE COUNTY STOCK LEADERS

Orange County-based firms ranked by percent gain in stock price.

% change 4/3/89 4/3/89 stock stock stock Rank Company price price price 1 Pacificare Health Systems 175.8 22.75 8.25 2 FHP International Corp. 137.7 22.88 9.63 3 Gradco Systems Inc.* 96.6 14.50 7.38 4 Bridgford Foods Corp. 91.4 18.50 9.67 5 ICN Biomedicals Inc. 88.6 10.38 5.50 6 Archive Corp. 75.5 10.75 6.13 7 Carl Karcher Enterprises* 66.1 25.75 15.50 8 Alpha Microsystems 64.7 7.00 4.25 9 Nichols Institute 52.4 16.00 10.50 10 SPI Pharmaceuticals Inc. 41.9 11.00 7.75 11 Standard-Pacific 41.3 13.25 9.38 12 Amplicon Inc. 36.5 17.75 13.00 13 Cimco Inc.* 33.3 19.00 14.25 14 Ropak Corp. 33.3 9.00 6.75 15 Wynn’s International Inc. 29.5 26.88 20.75

*See exceptions, page 38.

ORANGE COUNTY REVENUE GROWTH LEADERS

Orange County-based firms ranked by two-year average annual sales growth.

2-year avg. 1988 1988 annual sales revenue income(loss) Rank Company growth % ($ millions) ($ millions) 1 CMS Enhancements Inc. 91.9 151.5 2.30 2 Western Digital Corp. 65.8 768.3 42.96 3 Nichols Institute 61.2 90.7 2.81 4 Fluorocarbon Co. 59.8 249.8 9.85 5 Pacificare Health Systems 59.4 424.9 6.34 6 AST Research Inc. 54.8 412.7 15.07 7 Diceon Electronics Inc. 47.4 140.7 9.85 8 Microsemi Corp. 47.0 83.7 2.48 9 Pacific Scientific Co. 45.0 180.9 (4.66) 10 Gradco Systems Inc.* 43.7 113.9 5.64 11 Westcorp 42.1 232.5 12.24 12 FHP International Corp. 37.9 503.5 16.48 13 SPI Pharmaceuticals Inc. 37.4 115.9 10.24 14 Ropak Corp. 36.6 88.8 2.92 15 National Education Corp. 36.0 457.5 46.14

*See exceptions, page 38.