The Times 100 : The...

Ask Orange County executives what makes the local economy tick, and they’ll tell you about real estate, and medical products, and hospitals, and high tech.

But the hottest new arrival on the Orange County business scene is a low-tech apparel company that owes its success to the surfing set. By establishing itself as the style leader in surf wear, Quiksilver Inc. has rocketed to 18th place on The Times 100 list, which ranks companies according to average return on equity over a two-year period.

Quiksilver’s performance wasn’t quite strong enough to vault it past FHP International, a health maintenance organization that paced the county’s pack of medical services companies and topped all local firms in return on equity for the second straight year.

And even in a county that has few billion-dollar corporations and relies on growth-oriented companies for its dynamism, Quiksilver is small fry. With $70 million in sales last year and earnings of $7 million, it’s among the smallest of the 17 Orange County firms on The Times 100 list.

Yet the Costa Mesa company has made a national name for itself by combining innovative fashions with tight cost controls and shrewd marketing. Its surfboard-strewn headquarters and shorts-and-T-shirts dress code belie its devotion to conventional corporate priorities, and Quiksilver expects to maintain “strong, double-digit growth” in earnings and revenues, according to Chairman John C. Warner.

Warner and Robert B. McKnight Jr., founder and president--who’s certainly the only Orange County executive to bear the title Director of Groovology on his office door--acknowledge that Quiksilver must move carefully. The label’s cachet among hard-core surfers--and the loyalty of the surf shop retailers that serve them--would be endangered by pell-mell expansion.

But the company still has plenty of room to grow. “Less than 20% of our business is in non-coastal markets,” noted Warner, a former department store executive who was brought in to head the company in 1987. Quiksilver is also extending its product reach far beyond surfing shorts to include ski clothes and many kinds of casual street-wear.

“They have a lot of opportunities for new products, especially for the women’s market,” said Frank Podbelsek, an analyst with Paine Webber. “They could get additional income from licensing for things like sunglasses and sneakers. They’ve got a good style, and good demand, and they’ve got the momentum for another year of 30% to 35% growth.”

It might be more difficult for Quiksilver’s earnings to continue to grow faster than revenues--the key to its excellent return-on-equity performance in 1988 and 1989. Quiksilver stands out for its ability to generate high returns while expanding sales at an explosive 53.4% annual rate, catapulting it into the No. 22 spot on The Growth 100 list and to the top of the Orange County revenue growth rankings.

Among the local companies that nearly matched Quiksilver in sales growth were Nichols Institute, a medical laboratory services company; Varco International, an oil-drilling equipment manufacturer, and the recently revitalized personal computer vendor AST Research. But only Nichols, which has grown primarily through acquisitions, made The Times 100 return-on-equity list, taking the last spot.

Similarly, the county’s largest firms couldn’t equal the performance of more nimble entrants like Quiksilver and Covington Development Group, a small home builder whose dramatic turnaround during the past two years--made possible by the divestiture of an unsuccessful building materials unit--lifted it to second in the county in return on equity.

Among the heavy hitters, Fluor Corp., with revenue of nearly $6.3 billion, didn’t make The Times 100 profitability list despite recording its second consecutive year of strong earnings. Western Digital Corp., which edged close to the $1-billion mark in sales, had a poor year profit-wise and slipped out of the rankings.

Allergan and Beckman Instruments--the two medical products companies spun off from SmithKline Beecham PLC--were also among the county’s top five in revenue, but they didn’t qualify for The Times 100 because they hadn’t been publicly traded for the previous two years. Pharmaceutical and videotape wholesaler Bergen Brunswig edged into 96th place in return on equity.

James Doti, director of business forecasting at Chapman College in Orange, said the strength of smaller firms in the county is no coincidence. “Until the 1970s, the Orange County economy consisted of a few aerospace firms and theme parks,” he noted. “It takes time for the smaller, younger, dynamic companies to develop.”

Although the new-found diversity of the Orange County economy makes it difficult to generalize, Doti said, the area is especially attractive to firms that provide sophisticated products and services. That’s because the appeal of Orange County living draws highly skilled technical and financial people to the area while making it difficult to recruit production workers, he said.

This trend is evident by the large percentage of medical and technology companies among Orange County’s best performers. The category includes health maintenance organizations FHP International and PacifiCare Health Services and dental-care firm Safeguard Health Enterprises; the mental-health and drug-treatment firm Community Psychiatric Centers; the insurance carrier Unicare Financial Corp., and computer-peripheral vendors CMS Enhancements, Archive Corp. and Emulex Corp.

And companies such as Furon Corp., which makes rubber and plastic seals, and fast-food giant Carl Karcher Enterprises can draw on local management talent, even though most of their operations are elsewhere.

Reliance on small, fast-growing companies can cut both ways, of course, and Orange County has had its share of falling stars. Notable among them were National Education Corp., the Irvine educational services firm that placed 62nd on The Times 100 list for 1988 but lost $29.3 million last year, largely because of severe problems at a Chicago company it acquired.

ICN Pharmaceuticals, No. 86 on The Growth 100 list for 1988, lost $86.7 million in 1989 as a result of a failed effort to market an antiviral drug as an AIDS treatment, and ranked ninth on the “Nose Dive” list that ranks companies by absolute dollar change from profit to loss.

Circuit-board manufacturer Diceon Electronics and paper-handling equipment vendor Gradco Systems Inc. also recorded losses after making The Times 100 last year, and Downey Savings & Loan suffered a profit decline. And even some of 1989’s best performers--such as Armor All Products and Archive Corp.--may have difficulty maintaining their pace.

ORANGE COUNTY PROFIT LEADERS

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

1989 Change income in income Rank Company ($ millions) ($ millions) 1 Fluor* 108.5 52.1 2 Community Psychiatric Centers* 72.0 1.2 3 Allergan 57.3 (15.4) 4 Bergen Brunswig* 47.6 14.8 5 Beckman Instruments 41.9 (0.6) 6 Chesapeake Industries 40.1 40.8 7 Western Digital* 34.3 (8.6) 8 J.M. Peters 29.8 (8.9) 9 Armor All Products* 25.1 (2.0) 10 FHP International* 22.0 5.6 11 Carl Karcher Enterprises* 18.7 (2.1) 12 Archive* 15.3 5.6 13 Downey Savings & Loan 13.6 (15.3) 14 First American Financial 13.5 1.2 15 Emulex* 13.3 4.1

* See exceptions, page 46.

ORANGE COUNTY REVENUE LEADERS

Orange County-based companies ranked by overall revenue.

1989 revenue % change Rank Company ($ millions) from 1988 1 Fluor* 6,277.6 22 2 Bergen Brunswig* 3,923.2 13 3 Western Digital* 992.1 29 4 Allergan 806.9 7 5 Beckman Instruments 785.9 2 6 First American Financial 699.4 9 7 FHP International* 699.1 39 8 Pacificare Health Systems* 646.2 52 9 Carl Karcher Enterprises* 503.0 13 10 AST Research* 456.5 11 11 Standard-Pacific 443.9 -9 12 National Education 400.8 -12 13 MAI Basic Four 396.9 -6 14 Downey Savings & Loan 383.3 16 15 Furon* 332.2 33

* See exceptions, page 46.

Source: MZ Group. Certain historical data is from Standard & Poor’s Compustat Inc.

ORANGE COUNTY REVENUE GROWTH LEADERS

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

2-year avg. 1989 annual sales revenue Rank Company growth % ($ millions) 1 Quiksilver* 53.4 70.7 2 Nichols Institute 53.3 129.7 3 Varco International 52.2 85.2 4 AST Research* 48.9 456.5 5 Microsemi* 48.7 103.5 6 Western Digital* 46.5 992.1 7 Pacificare Health Systems* 46.4 646.2 8 Archive* 42.9 181.4 9 CMS Enhancements 41.4 200.4 10 Westcorp 39.8 317.9 11 Furon* 38.0 332.2 12 FHP International* 37.9 699.1 13 Amplicon* 36.6 137.9 14 Fidelity National Financial* 30.3 163.0 15 Fluor* 26.5 6,277.6

1989 income (loss) Rank ($ millions) 1 7.002 2 4.774 3 2.365 4 (7.469) 5 (8.885) 6 34.324 7 10.859 8 15.320 9 4.804 10 9.252 11 10.257 12 22.034 13 5.209 14 4.912 15 108.484

* See exceptions, page 46.

MZ Group: certain historical data is from Standard & Poor’s Compustat Inc.

ORANGE COUNTY STOCK LEADERS

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

% change 4/10/90 4/10/89 stock stock stock Rank Company price price price 1 AST Research 172.9 20.13 7.38 2 Pacesetter Homes 143.8 9.75 4.00 3 Varco International 108.8 8.88 4.25 4 Quiksilver 102.9 26.38 13.00 5 Fluor 88.2 44.00 23.38 6 Printronix 83.0 12.13 6.63 7 Bridgford Foods 72.6 21.00 12.17 8 Nichols Institute 70.2 13.50 7.93 9 Pacificare Health Systems 58.3 19.00 12.00 10 Fidelity National Financial 44.4 9.75 6.75 11 Filenet 39.8 14.50 10.38 12 FHP International 32.7 16.50 12.44 13 Safeguard Health Enterprises 31.0 6.88 5.25 14 Downey Savings & Loan 27.8 14.38 11.25 15 ICN Biomedicals 24.3 10.75 8.65

ORANGE COUNTY MARKET VALUE LEADERS Orange County-based firms ranked by stock market valuation.

4/10/90 market value Book value Market as Rank Company ($ million) ($ million) % of book 1 Fluor Corp* 3,510.9 720.4 487 2 Community Psych. Centers* 1,088.7 387.0 281 3 Allergen 1,015.3 445.4 228 4 Bergen Brunswig* 841.5 390.9 215 5 Beckman Instruments 497.8 268.8 185 6 FHP International* 410.4 109.7 374 7 Standard-Pacific 382.5 258.9 148 8 Western Digital* 350.3 302.1 116 9 Armor All Products* 308.8 98.8 312 10 AST Research* 237.1 108.8 218 11 Downey Savings & Loan 232.0 219.4 106 12 Varco International 226.5 61.0 372 13 Pacificare Health Systems* 217.1 43.8 495 14 Carl Karcher Enterprises* 170.1 75.5 225 15 Quiksilver* 159.4 21.5 741

* See exceptions, page 46.