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Most Companies Don’t Fear War Will Spoil Business

Most Companies Don’t Fear War Will Spoil Business By JACQUELINE FOX Staff Reporter From fruit distributors to footwear manufacturers, executives at several of the San Fernando Valley’s largest companies say, despite an unsettled economy and jitters on Wall Street over a pending war in Iraq, they are not making any significant adjustments to their day-to-day business plans. In fact, the only real sign of a holding pattern may come from the travel and tourist markets, noted in the Los Angeles Economic Development Department’s (LAEDC) annual economic forecast, released Feb. 13. “We have an indication every day how our business is doing, and the information we are getting tells us we are looking at a good year ahead,” said Steven Nichols, chairman and president of Westlake Village-based K-Swiss Inc., a sport shoe and apparel manufacturer. Nichols agreed that a softening in retail sales over the next few quarters is likely, but added that his orders so far are remaining strong. “We’ve already secured orders for the next five months out, so our futures business is excellent,” Nichols said. K-Swiss’s year-end numbers, released Feb. 13, show domestic orders increased 42.9 percent to $147.6 million as of Dec. 31, 2002, compared to $103.3 million for 2001. Orders on hand covering the next five months also increased 43.1 percent to $21.2 million compared to $14.8 million at this time last year. “Really the one imponderable for us is, had economic and political conditions been different, would we have done better?,” Nichols said. Travel advisories may put a hold on international travel for workers at Sherman Oaks-based Sunkist Growers Inc., but the company carried out two significant capital expenditures in 2002, despite uncertainties on both Wall and Main streets. Sunkist recently completed a multi-million upgrade program at its Tipton, Calif. plant. The company installed a new system designed to take the bitterness out of fruit the company can’t sell whole but sets aside for the juice markets. In addition, Sunkist also renovated the entire third floor of its Valley headquarters in December, complete with modernization of its executive conference rooms and office suites. “We are proceeding as normal,” said Michael Wootton, senior vice president of corporate relations. He didn’t disclose the cost of the renovation project. “The only thing that we are watching are any types of travel advisories that are being issued so that we can make decisions about sending our personnel overseas,” said Wootton. Even the fear of energy prices skyrocketing in the first few months after a war breaks out doesn’t seem to be having much of an impact. “There’s just been too much speculation on whether prices will or won’t climb, or how high they might get, to make up some sort of business plan based on energy costs,” says Keith Field, director of communications for Chatsworth-based electric products manufacturer, Capstone Turbine Corp. In fact, said Field, during the summer of rolling blackouts that never really came in 2001, the company over-prepared, and paid for it. “There have certainly been business decisions made based on these issues, but with us, we expected enormous results in the blackouts of 2001,” said Field. “But when those never materialized all of a sudden an enormous amount of proposals we had were going by the way side. We geared up to basically address what everybody was planning for but it didn’t pan out.” According to the LAEDC report, the first six months of 2003 will show few signs of an economic recovery, partially due to the war and its impact on retail spending, but, because the war is expected to be short-lived, the economy is expected to begin making a turnaround by the end of the year. “Certainly the war has some businesses very nervous, they don’t know what to expect,” said Jack Kyser, the LAEDC’s chief economist. “But I think where you are going to see significant downturns is in the retail and service sectors. Expect to see a sharp drop in business because people will stay home. This is what happened in 1990. Nobody shopped, nobody traveled.” None of the companies polled by the Business Journal said they had armed service reserves threatening to leave holes in their staff rosters, and none said there were any plans for layoffs. And that would also back up what the LAEDC is predicting: unemployment figures for Los Angeles County are expected to drop from 6.7 percent to 6.6 percent by December. Even those who will admit to having some jitters, or feeling the jitters of some of their customers, say business plans that were on the table six months ago are still on the table today. “I think generally speaking, there is some impact, because people are holding off until we know what (an effect) a potential war could have on business, and what the potential of terror strikes may be,” said Fred Boyer, chief operating officer for Simi Valley based Qualstar, which manufactures electronic data systems. “But, from our standpoint, we are continuing to invest in research and development.” The company did see a 16.2 percent dip in revenues for the second quarter of FY 2003 ending Dec. 31, dropping from $10 million to $8.4 million, blamed on weakened economic conditions, however, not the prospect of war. Boyer said the one thing keeping the company in a comfort zone is the fact that it is debt free. “We have a big bank and we have no debt,” he said. “We continue to reinvest where other companies who may not have as strong a balance sheet as us may not be as confident.” In fact, the company’s expenditures on research and development for the second quarter grew to $934,000, or 11.1 percent of revenues, up from $521,000, or 5.2 percent of revenues for the same period the previous year.

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