THE TIMES 100 : THE BOTTOM LINE : Top Turnarounds: How Some California Companies Did It : They went from loss to profit in a year. Behind the numbers lie some major overhauls.

A lot can happen in a year. A large, debt-ridden bank can pull in its purse strings and go from a nine-figure loss to a nine-figure gain. A computer hardware maker on the verge of collapse can introduce a popular disk drive that puts it on its feet.

First Interstate Bancorp and Maxtor Corp. were among California’s top corporate turnarounds last year, based on the margin between their financial losses in 1991 and profit in 1992.

Some of these success stories, however, are not all the statistics first suggest. Department store owner Carter Hawley Hale’s billion-dollar pivot from one year to the next was almost entirely a paper gain, the result of a bankruptcy reorganization. On the flip side, eye care products maker Allergan Inc.’s $65.8-million deficit in 1991 was the result of a onetime charge during an otherwise respectable year.

Here are California’s top 10 turnaround companies, ranked according to their change from loss to profit in one year, as compiled by STAR Services, a San Francisco business research firm:

1) Carter Hawley Hale Stores, the Los Angeles-based parent of the Broadway department store chain, reported a profit of $855.4 million in 1992 versus a loss of $170.1 million in 1991.

At first glance, 1992 looks like a good year for Carter Hawley--but the company actually spent most of it in bankruptcy. It filed for Chapter 11 reorganization in February, 1991, and emerged from bankruptcy in October, 1992.

“We feel a bit uncomfortable leading the list of turnaround companies,” said spokesman Bill Dombrowski. “Our revenue for the year was relatively flat. We’re still a long way from where we want to be.”

Dombrowski noted that the apparent gain was due in large part to “fresh-start accounting,” in which a company undergoing reorganization can bring assets such as real estate up to current value on its books.

2) Los Angeles-based First Interstate Bancorp reported a profit of $282.3 million in 1992 versus a loss of $288.1 million in 1991.

First Interstate’s about-face followed an aggressive overhaul in which the company consolidated the management of its banks, laid off 7,000 employees, sold non-core businesses, reduced its burden of problem loans and disposed of unprofitable properties it had foreclosed on.

“We took time to analyze our problems and then we faced them head-on,” said Chief Executive Edward M. Carson. “We were forced to make some very difficult decisions. It was clear we had to reduce our staff materially--that was our biggest cost, next to interest expense.”

3) Santa Clara-based National Semiconductor Corp., which makes integrated circuits for personal computers and other electronics gear, reported a profit of $99.2 million in 1992 versus a loss of $150.4 million in 1991.

After four years of big losses, National Semi appointed new top management, which drastically shaved overhead. The company took a $149.3-million charge in 1991 as it trimmed its number of manufacturing sites worldwide to nine from 14 and eliminated 10,000 jobs to bring its work force to 23,000.

“At the same time, we were able to increase revenue,” said Don Macleod, chief financial officer. “Sales per employee have improved from $51,000 in 1990 to $85,000 in 1992.”

4) Seagate Technology, a Scotts Valley disk drive maker, reported a profit of $222.9 million in 1992 versus a loss of $11.1 million in 1991.

CEO Alan Shugart, who founded Seagate in 1979, credits the company’s rebound to three key factors: a price war among computer makers in late 1991 that boosted computer sales and, consequently, demand for hard disk drives; a commitment to introducing new products more quickly, and a new management team that emphasizes employee morale.

“We communicate with our employees better now--we don’t run the company like an army anymore,” Shugart said. “As a result, our employees are more productive and efficient.”

5) Irvine-based Allergan Inc., which makes eye care and skin care products, reported a profit of $105.8 million in 1992 after a loss of $61.4 million in 1991.

Allergan took a $164-million write-off in 1991 after it sold its contact lens business in North and South America. But sales increased steadily, reaching $897.7 million in 1992.

“The onetime charge to earnings was part of our strategy of ensuring that our resources are directed to the parts of our business where the opportunity for growth is the greatest,” said William C. Shepherd, president and chief executive.

6) Maxtor Corp., a San Jose company that designs and manufactures hard disk drives, reported a profit of $89 million in 1992 versus a loss of $65.8 million in 1991.

Laurence R. Hootnick, president and chief executive, attributed his company’s “amazing turnaround” to the management team that took over in mid-1991. The company has doubled spending for product development to speed the introduction of technology advances, Hootnick said.

7) Alza Corp., a Palo Alto pharmaceutical company that specializes in skin patches, reported a profit of $72.2 million in 1992 versus a loss of $62.1 million in 1991.

Alza reported that a onetime charge of $103.3 million after it bought Palo Alto-based Bio-Electro Systems put it in the red in 1991. Without the charge, Alza would have shown a profit of $37.7 million--still only half its 1992 earnings.

Increased demand for Alza’s hypertension medication helped boost sales from $162.3 million in 1991 to $250.5 million last year. Also, in late 1991 the company introduced Nicoderm, a nicotine patch that caught on quickly with smokers trying to kick the habit.

8) Cupertino-based Tandem Computers Inc., which makes large computers used by banks and other companies, reported a profit of $58.6 million in 1992 versus a loss of $66.5 million in 1991.

Chief Executive David J. Rynne said that after last year’s big deficit, Tandem’s management “made the decision to change in fundamental ways.” The changes included consolidating international sales offices and closing two manufacturing plants. It also slashed about 700 jobs, reducing its work force to 10,600.

“This is not a good time for the computer hardware business, particularly people who build large-scale systems,” Rynne said. “But by continuously improving our performance, we went from a negative year to a clearly profitable year.”

9) Cadence Design Systems, a San Jose-based manufacturer of software used to design integrated circuits, reported a profit of $55.4 million in 1992 versus a loss of $22.4 million in 1991.

Cadence’s loss in 1991 was due to a onetime charge of $49.9 million, taken after it merged with Valid Logic Systems Inc., a supplier of printed circuit boards. The merger made Cadence the largest competitor in its field and bolstered its position in Europe, where Valid Logic had a strong presence. Revenue rose to $435 million in 1992 from $392 million in 1991.

“Today we are considered for every large contract in our industry,” said spokesman Michael Busselen. “We’re just too big to ignore.”

10) Los Angeles-based Teledyne Inc., which makes aviation and electronics products, reported a profit of $45.9 million in 1992 versus a loss of $25.4 million in 1991.

Teledyne embarked on a restructuring last year that included the sale of 22 subsidiaries and reduced its worldwide payroll by 7,000 positions, to 31,000 employees.

The year could hardly be remembered as a good one for Teledyne, however. Several of its subsidiaries have been under investigation since 1989. Abuses allegedly included bilking the government on defense contracts and illegally exporting zirconium, which can be used to make bombs. The company paid a $17.5-million fine in 1992 to settle criminal charges against its Teledyne Relays units.

Born Again

Companies ranked by absolute change from loss to profit in one year.

Change ’92 income ’91 income in income Rank Company ($ millions) ($ millions) ($ millions) 1 Carter Hawley Hale 855.4 -170.1 1,025.5 2 First Interstate Bancorp 282.3 -288.1 570.4 3 National Semiconductor 99.2 -150.4 249.6 4 Seagate Technology 222.9 -11.1 234.0 5 Allergan Inc. 105.8 -61.4 167.2 6 Maxtor Corp. 89.0 -65.8 154.8 7 ALZA Corp. 72.2 -62.1 134.2 8 Tandem Computers Inc. 58.6 -66.5 125.0 9 Cadence Design Systems 55.4 -21.7 77.1 10 Teledyne Inc. 45.9 -25.4 71.3

Source: STAR Services. Certain historical data is from Standard & Poor’s Compustat Inc.