Private Plane Business Takes Off in Aftermath of Sept. 11 Aviation: Charter plane business recoups losses since rough 2000. By JACQUELINE FOX Staff Reporter Post-Sept. 11 airport security mandates, longer lines at ticket and baggage counters, fare increases and what many have characterized as an overall decline in the quality of business travel services are prompting more executives to buy or charter their own jets to avoid tie-ups at commercial airports. And San Fernando Valley companies are benefiting, despite a slow economy and what appears to be a widespread aversion on the part of much of the public to travel this year. Van Nuys-based The Air Group Inc., launched in 1980, buys, sells, manages and charters corporate aircraft out of the Van Nuys Airport. According to the company’s CEO and co-founder, Jon Winthrop, prior to Sept. 11, Air Group was looking at a 30-percent decline in sales from 2000, primarily due to the weakened economy and cutbacks in corporate travel relating to the dot-com bust. But by December 2001, all but about 8 percent of the lost business had been recaptured, said Winthrop. By January of this year, sales exceeded revenues for the same month in 2001 by as much as 22 percent. Even small operators, such as Visionair Inc., which has only three jets in its fleet, are making plans for growth. The eight-year old company, also based at Van Nuys, is preparing to purchase a fourth jet to add to its fleet some time this year. “The events of Sept. 11, no question, have changed the way the world will travel forever,” Air Group’s Winthrop said. “And we are certainly seeing the positive impact of those changes.” To accommodate the growth, Air Group has added 15 jets to its fleet since November of last year, bringing the total number of planes it has available to 54. The company has 167 employees, 110 of them pilots. It also provides in-flight crews for charters of nine or more passengers and a full-service ground maintenance crew. Interestingly enough, despite the conservative mode corporate spending has slipped into, Winthrop says acquisition revenues have outpaced charter activity, an indication many view ownership as a solid long-term investment not likely to be outdone by the commercial airlines any time in the near future. “The charter business is generally improving since 2001, primarily because those sales are economically driven,” said Winthrop, “but the biggest spike for us has been in acquisitions. We typically manage about eight acquisitions a year. But in our best year for acquisitions, which was actually during the slowdown of the economy in 2000, we did 10 acquisitions, which is where we are right now at mid-year. We project, if the trend continues, to do about 15 for 2002.” Fred Thomas, president of Chatsworth-based Aaron, Thomas & Associates, is a political consultant who travels frequently. He recently spent $3,800 to take three clients from Van Nuys to Arizona. As he tells it, the four were in their seats, airborne, down on the ground and in a waiting car (provided by Air Group) in all of about 45 minutes. Oh, and they managed to get a little work done on the way. “We all took the same view that we’d still be sitting at a terminal back at LAX in that period of time, had we flown commercial,” said Thomas. “I’m definitely sold on the concept. I was just trying it out and the whole experience was not only very positive for myself and my clients, but it turned out to be a very productive flight because we were able to get so much accomplished in a 24-hour turnaround.” Thomas said he has no plans yet to purchase his own plane but, aside from when he’s traveling alone, intends to charter on a regular basis from here on out. “Although things have improved since 9/11, it’s still a little annoying dealing with the delays in the airports,” said Thomas. “My time is worth a lot to me and I only have so much of it to invest, and what I calculate it to be worth makes the cost of the charter inconsequential. They spoiled us rotten. And that made a lasting impression on my clients too.” Big commercial airlines took a serious hit in the months immediately following the attacks and, despite receiving some federal assistance, they clearly continue to struggle to regain earnings and full-fare passengers, particularly first-class business travelers. Last year, for example, UAL Corp., parent company of United Airlines, sank about $84 million into plans for its own corporate jet division, a project that never got off the ground. On June 28, Standard & Poor’s lowered its corporate credit and other ratings on five large U.S. carriers, including UAL, which dipped from a B-plus to a B due to disappointing revenue projections. “The pace and strength of the revenue recovery for large U.S. airlines has weakened, prolonging losses and further eroding their weakened balance sheets,” said S & P; credit analyst Phillip Baggaley. His report went on to state that business traffic remains soft, reflecting a cyclical downturn but also “an acceleration of existing trends unfavorable to the large hub-and-spoke carriers.” Visionair co-owner Joe Ware said, “From what we’ve seen, there are a lot of planes on the market right now, which indicates that there’s a lot of activity in the corporate travel business. When there’s a lot of airplanes on the market, prices are soft. Part of the reason we haven’t been expanding is we haven’t staffed up. But yes, there has been an increase in both charter business and fractional ownership sales (where as many as eight people can co-own one jet) and we will be expanding.” Or not. Although Winthrop declined to name names, he said Air Group has its eye on some of its smaller competitors and is planning a number of acquisitions over the next year to raise the capital he needs to take his company public. “We really need to probably consolidate a couple of companies,” said Winthrop. “Equity markets tell us we need to be earning $150 million in order to do that and we anticipate hitting the $80-to-$84 million mark by the end of the year.” He said Chicago, where the company currently has an office, will likely be the biggest target market for expansion. Air Group also has operations in San Francisco, Orange County, Santa Barbara, Denver, St. Louis, New York and Honolulu.

Effects House Concentrates on Theme Parks By CARLOS MARTINEZ Staff Reporter Canoga Park-based special effects house WonderWorks Inc. has signed a $100 million contract to design and build attractions for a Paris theme park. The company will develop a number of attractions at Snow Valley Park featuring movie special effects similar to those at Universal Studios Hollywood along with spaceship mockups and other scale models. “It’s going to be our biggest project ever, using tons of material and thousands of hours of labor,” said Brick Price, WonderWorks president and its co-founder, along with his wife Laura. The company will also build the park’s Space and Science Center over the next four years, featuring a series of model spaceships and aircraft. The contract calls for the construction of full-size replicas of the Space Shuttle and the Apollo space capsule for the 190,000-square-foot center. The project marks the latest in a series of theme park deals for the firm known primarily for its work in films like “Star Trek: The Motion Picture” and its sequels, “Blade Runner,” “Deep Impact” and “Armageddon.” It comes as WonderWorks continues to move away from manufacturing miniatures for film special effects, its core business for almost 25 years. That segment of the business has seen a steady decline as Hollywood turns away from miniatures in favor of computer-generated graphics. At about the same time the Paris deal was signed, the company, in a joint venture with Los Angeles-based Vertex Productions Inc., agreed to design a water park for a hotel being built in Milwaukee by SouthSeas Island Resorts. Just five years ago, most of WonderWorks’ revenue came from film work with its theme park business accounting for around 20 percent of sales. Last year, WonderWorks grossed $6 million with 75 percent of its revenue coming from its theme park activities. Revenues this year should increase to about $20 million, with half of that from the Paris deal. In the mid-1990s, the company began to land contracts with a number of high-profile clients like Universal Studios Hollywood and the Disney MGM Studios theme park in Florida. “In 1995 we signed a contract to design and build five major attractions in a theme park in Shanghai in China … That gets out in the trades pretty quick, and that’s when the ball started rolling,” Palmer said. So far this year, WonderWorks has begun work on attractions in theme parks in Korea and Japan. The company’s push into the theme park business is a natural progression, said Price, who founded the company in 1977 after working for years with other effects firms. “We found we could do the same work we did on films for theme parks with equal success,” he said. The company’s current work isn’t new, having built scale models in the 1970s and ’80s for the National Aeronautics and Space Administration. John Palmer, Price’s partner in the firm, said the move into theme park work has helped the company stabilize its revenue by providing a hedge against downturns in the film industry. “If we build a shuttle, it doesn’t matter if it’s for a film, a museum or a rock concert,” he said. “That’s one of the reasons we’ve been able to survive when other companies haven’t.” During its first year, the company grossed $150,000 and nearly went bankrupt. “There were a lot of things we didn’t know about. Workers compensation, health insurance, a bond, all kinds of things,” Price said. But by its third year, the firm had its first big-time contract with “Star Trek” creator Gene Roddenberry. WonderWorks was tapped to build several scale models, including a new version of the Starship Enterprise for the 1979 “Star Trek: The Motion Picture.” Although the business continued to develop more film work through the 1980s, it also landed a deal to design and build an interactive laser game at a theme park in Japan. That was just the beginning. The entry into theme park work proved valuable when business ground to a halt during the 1987 writers’ strike. Dan Curry, special effects supervisor for “Star Trek: The Next Generation” and later “Star Trek” television series and movies, said, “I always considered that a very wise business plan because of the change in technology in the motion pictures area.” “At least 70 percent of what used to be done with miniatures has gone away and it’s all part of an evolution that started about 10 years ago,” Curry said. Curry, who now works on the Star Trek spin-off “Enterprise,” said his show relies primarily on computer-generated graphics for its space vehicles and its outer space sequences. Over the last few years, WonderWorks has worked on projects at the Smithsonian Institution’s Air and Space Museum in Washington D.C.; a Mercury space capsule display at the Ronald Reagan Presidential Library in Simi Valley; and spaceships and related displays for the Challenger Center in Georgia. It built a full-size mockup of the Confederate submarine, the CSS Hundley, and replicas of rooms occupied by the submarine captain and his crew at the Civil War Naval Museum in Georgia. “I had all kinds of qualms about them at first because they were movie people, but they came well recommended and I’m glad we got them,” said Bruce Smith, executive director of the naval museum. “It wasn’t us just giving them the keys to the place, but they really allowed us to participate and encouraged us to do so with ideas and suggestions.” One attraction features a ship’s cabin fitted with sound effects and hydraulics that rock it as bombs explode during a Civil War naval battle. The realism is enhanced as visitors watch a filmed sequence of a battle projected onto a screen through a ship’s window. Meanwhile, the company has begun work on several new miniature buildings for a theme park in South Korea, which features small-scale versions of famous structures. “It will give people a chance to feel and see what those buildings are really like,” Price said. Among the buildings are 1/24th-scale versions of Egyptian and Aztec pyramids, the Eiffel Tower, the Statue of Liberty and the World Trade Center’s Twin Towers.

Conejo Office Vacancy Gap May Take Some Time to Fill Real Estate by Shelly Garcia The other day, a Web site I frequently visit called multexinvestor.com published yet another story about the elusive economic recovery. The author, a financial analyst named Rick Wayman, wrote, “Forget about a V- or U-shaped recovery; instead, think Grand Canyon.” His theory was that things will get better, but not before we climb up and down a lot of rocks. That is exactly what we’re seeing in the local real estate community, even if most brokers are reluctant to take that point of view. What they’ll tell you is, they are starting to see “activity.” What they mean is there are some clients actually taking their phone calls. Prognostications, after all, are in the eye of the beholder, which brings me to the outlook for Conejo Valley. One of the most vibrant office leasing markets over the past two or three years, the Conejo Valley had a vacancy rate of about 14.5 percent as of the first quarter of the year. (Things may have gotten a little worse since then, but the second quarter data is not yet in.) For the sake of comparison, vacancies were about half that a year ago. The Conejo market was so strong, developers were encouraged to construct about 900,000 square feet of new office space in 2001 and, in fact, Conejo Valley absorbed 428,000 square feet during that year, according to figures compiled by Daum Commercial Real Estate Services. But any enthusiasm developers may have had for the Conejo Valley office market was quashed in the first quarter when net absorption went into negative territory to the tune of 25,000 square feet. Chad Jacobson, Daum’s vice president for research and marketing services, said it will take all of 2001 to absorb the space constructed last year. That sounded a little optimistic to me, so I asked for a second opinion. “We’re not going to see single-digit vacancy numbers until the end of 2003,” said Tom Dwyer, a broker with CB Richard Ellis. Dwyer says he tracks tenants seeking space in the Conejo Valley pretty closely. By his count, there are currently 52 tenants looking for space of 5,000 square feet and more, or about 1 million square feet of demand. But many of those tenants already occupy offices in the Conejo Valley and they would be trading one space for another. “That only gives us 600,000 square feet of net absorption if all 52 tenants sign today,” said Dwyer. “It still doesn’t carry all the empty space.” I went back to Jacobson, who, it turns out, really meant to say the space won’t be leased up this year, an idea that got oversimplified in the translation by the PR guy writing the press release. “It’s going to take at least through the end of 2002,” Jacobson clarified. “It will probably lead into 2003, first or second quarter, before all that space is absorbed.” That still left me with a prognostication gap of about six months, so I consulted a third source. “As the economy tends to pick up, we’re going to see activity that we can’t anticipate now,” said Tom Festa, a Grubb & Ellis broker who does a lot of work in Conejo and thought I was being negative. “You don’t need that many transactions to get the space leased.” So who’s right? It seems to me that the ones with the right idea are the developers and landlords, who in Conejo, as in other parts of the San Fernando Valley, have resisted giving away the store because business slowed down (or dried up, depending on how you look at it). I’m told that even in Conejo, a newer, more prestigious market than many in the rest of the Valley, there are concessions to be had – a few months of free rent or a company name on the building, even for smaller tenants. No one knows better than the developers and landlords how scarce tenants are in the current market. They also know, this too will change, but they are not counting the days until it does. They’re just climbing over the rocks, one at a time. Studio City Center Sold A private investment group has acquired Studio City Place, a shopping center at 11239 Ventura Blvd. The 108,110-square-foot center sold for more than $21 million. The seller, Studio City Associates LLC, has owned the complex since 1993. They were represented in the sale by David J. Ickovics and Stacy Vierheilig-Fraser, brokers with Charles Dunn Co. Inc. Dunn’s Hamid Soroudi represented the buyer, 11239 Ventura LLC. Allstate Moves In Allstate Insurance Co. inked a deal for 30,000 square feet of office space at Warner Center Corporate Park, a CarrAmerica Realty Corp. property at DeSoto Avenue and Burbank Boulevard. The value of the lease transaction was not disclosed. Dean Chandler, Jeff Morgan, David DeFore and Jack Weber of CB Richard Ellis represented Allstate. CarrAmerica senior vice president Andy Fishburn represented the landlord. Conejo Condo Deal A suite of office condominiums in Thousand Oaks was sold to Boardwalk Investments LLC in two transactions totaling $1,893,525. Boardwalk Investments, a property management company that does business as The Emmons Co., will occupy about half of the 10,000-square-foot property. The sellers will occupy the remaining space. Alexander, Clayton, Marrow and Wilson, a law firm, which had owned the majority of the property, will remain as tenants in about 4,000 square feet of space. Michael Slater and Tom Dwyer, brokers with CB Richard Ellis, represented Boardwalk Investments. Senior reporter Shelly Garcia can be reached at (818) 676-1750, ext. 14 or by e-mail at [email protected].

Zen and the Art of Economic Engine Maintenance Concentration: Valencia Gateway has attracted 1,200 businesses. By SHELLY GARCIA Senior Reporter What drives the economy? To be sure, it is employment, paychecks that fuel consumer spending, which in turn pumps money back into the economy. But the idea of lifetime employment has gone the way of the buggy whip. Across the country, payrolls at large corporations have been declining. Hundreds of thousands of jobs generated by the dot-com boom have disappeared. A big payroll alone doesn’t cut it anymore; just ask any of the 20,000 workers caught in the Enron debacle. “Business is about generating numbers,” said Thomas I. White, Hilton professor of business ethics and director of the Center for Ethics and Business at Loyola Marymount University, “but it’s also about recognizing that people’s employment is based on this. The economic vitality of communities is based on this, and a very basic sense of ethics requires you to say, ‘If my actions are going to have a significant impact, I have to take that into account.'” To White, economic engines are companies that are part of their communities. They identify real needs, fill them using responsible strategies and report their results with honesty and integrity. Others say an economic engine needn’t be a company at all. It might be a labor pool of skilled workers, a cluster of educational institutions that train a workforce or a place that draws residents and, as a result, attracts business. “Business will come to an attractive environment because it wants to recruit good people,” said Daniel Blake, director of the San Fernando Valley Economic Research Center at Cal State Northridge. Valencia Gateway attracted many of its 1,200 current businesses because its developer, Newhall Land and Farming Co., offered not just sites to locate factories, R & D; and office facilities, but because it also offered a community of skilled residents that could staff those facilities. To date, those businesses employ 40,000 workers and job opportunities at Valencia Gateway are, in turn, fueling home sales at Stevenson Ranch at a rate of eight or nine a week. At the most basic level, economic engines fill needs the larger the market for that need, the more revenue produced and the more workers employed. Westlake Village-based Dole Food Co., the No. 1 banana brand in North America, with $4.5 billion in annual volume and 59,000 employees worldwide, fills one of the most basic of needs food. Kaiser Permanente Medical Group in Panorama City and Woodland Hills, the Valley’s largest private employer with 5,300 workers and 800,000 HMO members, is another case in point. But large, established companies, the kinds that employ the most workers and leave the largest footprints in their communities, are not always the most efficient engines for a locale. “Large corporations in the United States and the world have lost jobs for the last 15 years, and the economic driver in the U.S. has been job creation by new, fast-growing companies,” said Bill Cockrum, finance professor at UCLA’s Anderson School of Management. “Corporations get rigid, ossified, bureaucratic. Once they do, they stop being entrepreneurial. They stop taking risks. They worry about resources instead of opportunities.” Entrepreneurial companies, by comparison, operate in emerging markets where demand is on the rise. Their focus is on identifying opportunities and meeting needs, not cutting costs. Such companies have dominated the landscape of the Valley since the departure of the aerospace and defense industries in the last decade. Indeed, today’s Valley is driven by a diverse group of small and mid-sized businesses that, when combined, generate a far greater number of jobs than any of the behemoths can muster individually. According to data from Info USA, provided by CSUN’s Economic Research Center, 62,209 of the Valley’s total of 65,665 businesses, each employs less than 50 workers. Smaller companies are more likely to become the kinds of innovators that can move the economy forward, especially the current one struggling with too much supply and too little demand. “What’s going to be needed is something that’s a real productivity developer outside what we already have now,” said Gerald Celente, an author, trend forecaster and director of The Trends Research Institute in Rhinebeck, N.Y. “That means outside of retail, auto, technology as we know it. You need new inventions. It has to be a wild card. It may come through the entrepreneurial (sector), but only if it’s something new and really different.” Some of those innovations are underway in the Valley. Amgen Inc.’s Epogen is the first drug of its kind to treat anemia. IPC-The Hospitalist Co. is on the cutting edge of a new medical subspecialty that, in the early going at least, has been found to save money and improve care. The 10 gigabit Ethernet, under development at companies such as Vitesse Semiconductor and Internet Machines Inc., is a next-generation communications technology. Engines that produce a skilled labor force can often outlive the industries that created them, as happened when the Valley’s economy shifted from aerospace and defense. Those industries left behind a trained labor force that became the engine that fueled the emergence of the 101 Technology Corridor and the multi-media industry. “So, part of what happened in the 1990s as the Cold War ended and the demand for aerospace declined (is that) other businesses took up the slack,” Blake said. “When an industry subsides, usually something will replace it if you have a rich, diverse, skilled labor base in the area.”

Valley Forum: What Drives the Valley Economy? It’s hard to put your finger on what exactly drives the San Fernando Valley economy. It is large corporations and small family-owned stores, towering office buildings and mini-strip malls, entertainment conglomerates and one-person companies. However, everybody has his or her own opinion of what’s most important. So, the San Fernando Valley Business Journal asks: What is the most important industry or business sector in the San Fernando Valley economy? Bill Ross Senior Account Executive LA Tel Van Nuys Entertainment and technology industries are two very important sectors. There are many businesses involved in production and post-production in this community. Although telecommunications has taken a hit, there are still heavy software companies in the Valley, and good opportunities are still out there. Alan Unger Certified Financial Planner Financial Counsel Inc. Calabasas In the Woodland Hills area, there are many large insurance companies like Health Net and Blue Cross. This shows that the financial services industry is integral, from the standpoint of dollars and employment opportunities. Further east, the entertainment industry shows its importance. But overall, small businesses are still what make the Valley economy work, since there’s so many of them. What would make it easier is if we had a decent public transportation system to encourage more industries to place their roots in the San Fernando Valley. Cody Cluff President Entertainment Industry Development Corp. Hollywood The San Fernando Valley continues to serve as an incubator for the emerging technologies that are revolutionizing the motion picture industry; many talented businesses call the Valley home. The convergence of technology and filmed entertainment is already changing how we produce and distribute movies. Jack Feldman President/CEO First Commerce Bank Encino The most important business sector in the San Fernando Valley economy is in personal services. This includes the doctors, lawyers and CPAs. There are so many of them that occupy the various office buildings in the community, and because there are so many of them, this draws business to the Valley, which enables all other businesses to thrive.

WellPoint Earnings Grow With Acquisition Strategy Corporate Focus By JACQUELINE FOX Staff Reporter At mid-year, Thousand Oaks-based WellPoint Health Networks is making analysts look smart as their predictions of sales and profit growth in 2002 appear to be coming true. Largely due to a recent spike in same-store member enrollment and a round of healthy acquisitions over the last couple of years, shares of WellPoint’s stock skyrocketed earlier this month. WellPoint was trading at $83.49 on June 21. The day of a 2-for-1 stock split on March 18, one share cost $60.75. Net income for 2001 was $414.7 million on revenues of $12.2 billion, compared to $342.3 million net income on revenues of $9.0 billion in 2000. Total membership in health plans jumped from 10.1 million in 2001 to 13 million in 2002. Finally, first-quarter net income is up 46 percent to $141 million, or 97 cents a share, from $96.5 million, or 74 cents a share, in the same quarter of 2001. “They’ve got two things going for them,” said Greg Crawford with Fox-Pitt, Kelton in San Francisco. “First off, they have had a series of some key acquisitions, such as the Blue Cross/Blue Shield buys in 2000. But they have also been experiencing solid same-store growth numbers. And we are starting to see some of the patterns that the company has been so good at here in California being duplicated with success at Blue Cross and Blue Shield of Georgia.” Earlier this year, WellPoint acquired MethodistCare Inc. and Methodist Health Insurance Company, the managed care subsidiaries of Houston-based Methodist Health Care System. The former entities now operate under UNICARE Health Plans of Texas Inc. and UNICARE Health Insurance Company of Texas. UNICARE, WellPoint’s national operating unit, now serves roughly 423,000 members in Texas alone a significant boost for the company’s product portfolio in the state. Still, Dave Colby, executive vice president and CFO, tried to downplay the impact of the acquisitions, saying the key to WellPoint’s growth is the wide variety of products that can be tailored to meet the needs of a customer, whether it employs 50 people or 5,000. “What really has fueled our growth has been our same-store performance, not so much the acquisitions,” said Colby. The acquisitions have allowed the company to offer more programs, he said, that customers are taking advantage of. Crawford, however, put emphasis on the acquisitions. “The acquisitions have been successful and the expansion process has been strong,” he said. “WellPoint has had a long history of developing flexible products, and they are able to roll out new products in new markets much faster than their competitors seem to be able to.” He said the acquisition of Blue Cross and Blue Shield of Georgia in 2000 was particularly important: Membership enrollment there grew by 7.3 percent for the year ending March 31, 2002. In California, enrollment jumped 10.5 percent for the same period. The cloud on the horizon could be escalating costs. Nursing shortages, growing interest in unionization among health care workers, prescription cost hikes and expensive new technologies may soon compel providers like WellPoint to raise rates to their customers, who in turn pass them on to employees. Many in the industry are predicting providers will increase rates by as much as 25 percent over the next year. Colby said increases are inevitable, but WellPoint should be able to keep it at no more than 10 percent. “The rate increases come with more options, and that’s what we are seeing people want,” he said. “Rates are going up because our customers want what they want.” Crawford agreed that WellPoint will probably control costs better than others, largely because of its great market share and its ability to offer multi-tiered medical packages. “We are back in another era of medical cost inflation,” said Crawford. “But because WellPoint is so flexible, they are in tune with what the market wants. They have also mastered the art of deductible design and are able to offer less expensive products, so I’m not worried about their future earnings and increases. People are attracted to their model.” Summary Business: Managed health care provider Headquarters: Woodland Hills CEO: Leonard D. Schaeffer Market Cap: $ 12.5 billion Dividend Yield: N/A* Total Liabilities: $ 5.3 billion P/E: 25.0 Long-Term Debt: $ 838 million *WellPoint does not pay dividends.

On Reseda Blvd., Merchants Sell Moong Dal, Not Sizzle Economic Engines of the Valley By SHELLY GARCIA Senior Reporter You won’t find a Starbucks, a Jamba Juice or a Western Bagel along the stretch of Reseda between Sherman Way and Nordhoff Street. In fact, you would be hard-pressed to find a single national chain anywhere around here. Business along this stretch spanning parts of the communities of Reseda and Northridge has remained pretty much the same for half a century. Reseda Boulevard has been the local business hub for residents of the Central Valley since its citizens sent their steeds galloping down the boulevard on Stampede Day. That may not make Reseda Boulevard a powerhouse on the San Fernando Valley’s economic scene, but its role in the local community has remained unchanged. Take Joyce’s Coffee Shop at Reseda and Raven, a local eatery that has survived for more than 40 years. Joyce herself passed away about a year ago, but the restaurant’s ownership had changed hands several times even before her death. “Regulars that’s how we stay in business,” said Dee Glodis, Joyce’s waitress. “There’s a guy who comes in here twice a day and he’s been coming here for 20 years.” Proprietors and workers from neighboring establishments all eat at Joyce’s. They send their customers there as well. The current owner, Rafael Vasquez, had worked at Joyce’s for 16 years when its last owner decided to retire and he bought in. “We have customers coming here for three generations,” he said. “They feel at home.” North of Nordhoff, shoppers can find Ross Dress for Less or Big 5 but to the south, the offerings are considerably different. And while the area’s role in the local economy hasn’t changed much, the locals have changed a lot. The area is a hodgepodge of Latino, Middle-Eastern, Indian and Asian ethnic groups, nearly all of them represented in the current business community. One big banner hanging outside A-1 Produce and Veggie Lovers Deli, a grocery and restaurant that opened about four months ago, announces that the store carries kosher foods. Alongside it, another banner says, “Se Habla Espanol.” Inside, shoppers of many different backgrounds shop for native foods, spices and produce from nearly every corner of the world: Chin Chin Milk Tea, Nihari Spice Mix, Moong Dal lentils and winter melon. “See these refried beans?” said owner Somi Rehil to a visitor. “A lot of Jewish people like this. We sell it to kosher customers.” The store’s deli serves freshly made sambhar soup, a combination of vegetables and lentils and jalebi, a kind of doughnut made with garbanzo beans, sugar and sweet spices. Everything is strictly vegetarian no meat, no meat byproducts, no animal fats a feature that pleases Muslims, Hindus and kosher Jews, whose meat intake is restricted by dietary laws. “We come for produce and tea,” said Ari M., a Chatsworth resident who has been coming to A-1 at least once a week since it opened. “We’re of Middle Eastern decent, so there are things that are to our liking.” Shoppers along Reseda Boulevard can select textiles for saris at several different locations, eat at a handful of Vietnamese restaurants or choose from a large selection of Farsi-language videos at Aryan Market, a kind of Afghani general store that also carries textiles, large sacks of flour and incense. Vallarta Markets, a Latino grocery chain, just opened off Chase Street. While many shopkeepers are settling here to tap into the growing ethnic market, Tricia Hendrix opened her hair styling business, It’s All About You, about three years ago hoping to capitalize on the college crowd at Cal State Northridge. “Being on Reseda close to CSUN, I figured we’d get good business here,” said Hendrix, as she braided a customer’s hair one a recent morning. “I expected a little more but, yeah, it’s been nice.” Not all business owners along Reseda Boulevard have been as successful. The vast majority of the businesses along the four-block stretch at the intersection of Reseda Boulevard and Sherman Way are closed, victims of high crime, low sales or both. Recent certification as a Business Improvement District has done nothing to change that. The glass storefront of Knick Knacks, just north of Sherman Way, has been broken twice by vandals, a neighboring storeowner said. A sign on the window of The Bookie Joint, a book store two doors down, announces the shop is for sale. Ali Saghar, owner of Aria Catering, which sits between the two shops, has been robbed three times in the two years since he opened here. “It’s not safe. It’s too dangerous,” he said. Saghar would move, he said, if his business required customers to come to him. But his kosher catering company delivers outside the area, and being on Reseda Boulevard has its advantages. The rent is cheap, labor is plentiful and the location is close to the freeway. “A lot of Jewish people live south of Ventura,” Saghar said. “My business is kosher catering, and it is very easy to connect with them from here.”

Syncor Inc. Acquired by Cardinal Health By CARLOS MARTINEZ, Staff Reporter On the morning of June 14, Woodland Hills-based Syncor International Inc. announced it was pulling the plug on its medical imaging business. That was followed two hours later by the announcement that the company that has based its recent growth strategy on acquisitions was being acquired itself. Drug wholesaler Cardinal Health Inc. of Ohio has agreed to acquire Syncor, the largest nuclear medicine distributor in the world. Syncor’s move to dump its series of stand-alone medical imaging clinics ends its efforts at diversifying its business and returns the company to its successful core nuclear medicine business, this time as a division of Cardinal Health. In a deal valued at about $867 million, Cardinal Health will assume Syncor’s $202 million debt and issue stock to pay for the purchase price. Syncor shareholders will receive 0.52 shares of Cardinal Health for each share of Syncor stock. The day of the acquisition announcement, Syncor’s Nasdaq-traded stock rose 12 percent, or $3.24, to $31.45, and Cardinal’s stock dropped 1 percent, or 41 cents, to $61.94. Syncor closed June 21 at $32.88; Cardinal closed June 21 at $64.56. For nearly 20 years, Syncor has made and distributed radioactive compounds used for diagnostic or therapeutic purposes, allowing doctors to treat patients without surgery. Prior to the acquisition announcement, Syncor said it would sell its Comprehensive Medical Imaging division which operates 67 medical imaging centers, including 24 in Southern California, five of those in the San Fernando Valley. The centers offer MRIs, X-rays, CT scans, mammograms and ultrasounds. Although the centers were consistent with the company’s diversification strategy and boosted revenue, they proved expensive to acquire, costing on the average more than $2 million apiece. In divesting its imaging unit, Syncor puts an end to its four-year-old diversification efforts that sought to improve revenue and grow a business that had been dedicated solely to radiopharmaceuticals. The company said that for the current quarter, it would take an after-tax charge of between $22 million and $24 million related to the potential divestiture. “They got in that business to diversify the company and they wanted to really grow it, but they ran into some capital problems and in the end they didn’t think it would fit their operation,” said Andrew Speller, an analyst with AG Edwards & Sons Inc. For the quarter ending March 31, operating income for the company’s imaging unit dropped slightly from the same quarter a year earlier, from $4.5 million to $4.1 million. Its core pharmaceutical business showed an operating income increase of $4 million, going from $19.8 million to $23.8 million. During the quarter, the imaging unit reported a slight increase in revenue, going from $38.5 million in the same period last year to $40 million, while its pharmacy business grew from $133.3 million to $164.1 million. “We will now concentrate on our radiopharmaceutical business,” said Syncor CEO Robert G. Funari. “Our growth has been principally in the use of medicine in heart disease, but we see growing use of nuclear medicine in the treatment of cancer.” Last year, Syncor’s overall sales increased by 23 percent over a year earlier, with $37.9 million in net income on sales of $774.7 million, compared to $29.5 million in net income on $629.4 million in sales in 2000. The company also operates Syncor Overseas Ltd., offering radiopharmacy and medical imaging services in Europe, Asia, Africa, Latin America and Australia. Robert Walter, Cardinal Health chairman and CEO, said during a conference call last week that Syncor’s large distribution network of 150 nuclear pharmacies serving more than 7,000 clinics and hospitals was the key reason for the purchase. “It will allow us to expand our growth potential to our customers,” Walter said. Speller said, “Cardinal wants to be number one or number two in all the businesses they operate, and in radiopharmaceuticals they were number three, which didn’t sit too well with them. “So this makes them number one.” It was unclear how the merger would affect Syncor’s relationship with Bristol-Myers Squibb Co., responsible for 42 percent of Syncor’s sales last year. Syncor distributes Bristol-Myers’ Cardiolite, a compound that uses radiation to measure levels of blood flow in and around the heart in what is called cardiac perfusion imaging. Lawrence Marsh, an analyst with Lehman Brothers Holdings Inc., said the deal would likely not change Syncor’s dealings with the drug company. Walter said he plans to meet soon with Bristol-Myers officials, but would not elaborate further. “The discussions that we would intend to have with Bristol-Myers would be of a different nature than what Syncor has talked with them in the past,” he said. Syncor’s contract with Bristol-Myers expires at the end of 2003. Syncor distributes a variety of other products, including Iodine 123, used to detect thyroid disorders, and FDG, a compound used in positron emission tomography, an imaging system used to evaluate heart disease and several forms of cancer. Other questions about how the merger will affect Syncor’s workforce remain unanswered. Syncor employs 4,100 people in facilities around the world, about 250 at its Woodland Hills headquarters. According to an internal memo distributed to Syncor employees last week, no layoffs have been approved, although they could take place after an internal study is completed to determine whether job duplications were taking place. “We haven’t yet decided where we could contract and where we could expand,” Walter said. Syncor’s headquarters would remain in Woodland Hills for the time being, according to the memo. Funari said he and other senior management staff have agreed to stay on through a transition period. “We both recognize the value of our people and we want to minimize the impact of all this on all of our employees,” he said. AG Edwards’ Speller said Cardinal’s move to acquire Syncor took him by surprise. Nevertheless, he felt it would ultimately benefit both companies. “In the end, Syncor shareholders will be really happy with Cardinal Health because they’re going to have a bigger platform than they had before, and deeper pockets,” he said. Like Syncor, Cardinal’s strategy has been growth through acquisition. Since February 1999, Cardinal has acquired 32 companies, mostly in the medical surgical equipment field. In February, it closed a $2.2 billion acquisition of Ohio-based pharmaceutical distributor Bindley Western Industries Inc. It is in the middle of a $200 million purchase of New Jersey-based Boron, LePore & Associates, a firm that conducts medical conferences and provides marketing services. Lehman Brothers’ Marsh said the deal will further entrench Syncor in the nuclear medicine market. “It’s a great fit for the two companies,” he said.

Boulevard Still Defies Both Definition, Beautification Traffic: Even in the 1950s, Ventura Boulevard was the busiest street in the Valley. By JACQUELINE FOX Staff Reporter Stretching 18 miles from Universal City to Calabasas, Ventura Boulevard is the San Fernando Valley’s main artery and commercial thoroughfare. Along one of the oldest continuously traveled routes in Southern California are roughly 7,000 restaurants, retail shops and small businesses, many sandwiched between clusters of high-rises filled with high-tech firms, film production companies and well-heeled attorneys. A large percentage of The Boulevard’s smaller businesses are owned by immigrants. Others are in the hands of natives who can trace their Valley roots back two and even three generations. And, there is every conceivable type of business to be found: from teashop to tattoo parlor, the diversity is exactly what most experts say gives the street its staying power. And, even if there is a high turnover rate among many businesses, The Boulevard refuses to completely surrender to trends in other communities where window shopping has become the preferred activity for “date night” and pasta and lattes the culinary mainstay. Once a dirt road and a stretch of the famed El Camino Real, The Boulevard served as the connecting pathway for Spanish missionaries on their quest to construct the state’s 21 missions and convert American Indians to Christianity. Traversing The Boulevard today can be a maddening affair. Traffic has become so thick, a few months ago Mayor James Hahn deployed white-gloved officers to some of The Boulevard’s busiest intersections to help ease the congestion. But without the traffic, the eclectic array of coffee shops, one-of-a-kind boutiques, upscale food markets, sushi bars, delis, drug stores and auto repair shops, it wouldn’t be The Boulevard. And it wouldn’t be on the Business Journal’s list of 25 Economic Engines of the Valley. While new businesses spring up along The Boulevard every month, real commercial growth, for the most part, ended a while ago. With the exception of one vacant lot just east of De Soto Avenue, there isn’t much raw land left to develop. And what land there is doesn’t come cheap: the rate at which businesses come and go is a reflection of both the rising costs of commercial real estate along The Boulevard and the difficulty small businesses have staying afloat these days. “The number of small businesses that start up and fold along Ventura Boulevard is absolutely staggering,” said William Malin, founder of Venturaboulevard.com, a business registry site and link to other Valley-related sites on the World Wide Web. Malin said roughly 25 percent of the businesses that signed on to the site when it was established in 1996 no longer exist. Most understand that The Boulevard is really a string of unrelated commercial pockets, each reflecting, to a large degree, the different tastes and cultures of those who live in the surrounding neighborhoods. Because the automobile and The Boulevard remain intrinsically linked, somehow the street refuses to be transformed into another Old Town Pasadena. Residents living near The Boulevard may frequent certain businesses in their neighborhoods but, for the most part, said Malin, there is not a lot of strolling going on. People come for a reason. Then, as fast as traffic allows, they get out. “Ventura Boulevard isn’t a destination,” said Malin. “This is something that the business improvement districts have been trying to do for years, but it just isn’t that kind of place. It’s a place you use to get to other places. On Melrose Avenue, in Los Angeles, you park your car and you go walking. Here, you get to where you want to go by car and then you move on.” “We are trying to create a culture that may not exist,” said accountant Dale Jacobs, a partner with Sandler, Powell, Jacobs & Berlin in Tarzana. “We’ve improved security, the streets are clean, but I don’t think people want to get out of the car. It seems to have become Main Street of the Valley. But I think the Valleyite isn’t going to walk The Boulevard and window shop. They’ll walk the malls, but they won’t walk The Boulevard.” So, what keeps the engine running? “Having a business on Ventura is like having a Hollywood address,” said Jacobs. “Business owners like having a Ventura Boulevard presence because it means something to the reader of the mail, that they are established and they are a legitimate business.” And, because of its length and the fact that it’s a straight shot from one end to the other, it’s easy for newcomers to become familiar with. “I think, because it’s so long, it can’t be packed together like (Santa Monica’s) Third Street Promenade,” said Joel Kotkin, a senior fellow at the Davenport Institute for Public Policy at Pepperdine University. “What’s nice and important about Ventura Boulevard is that a lot of independent stores have managed to coexist there. It’s really the emergence of the urban village of the Valley. There are some pockets that are fairly dead, but I think the Valley needed a shopping street and that’s what it has become. People don’t want to just go to the mall. They want options.” And, despite the apparent success of shopping destinations like Old Town Pasadena and the Third Street Promenade, businesses in those locations have not been immune to high turn-over rates either, and they must continually struggle to appeal to the eternally shifting tastes of a particular age group or income bracket. Whereas The Boulevard, because it changes so dramatically one mile to the next, is long enough and diverse enough to appeal to a wider category of consumers. “You have to remember what you are doing in places like Old Town and Third Street is unique to the area,” said Jack Kyser, chief economist with the Los Angeles Economic Development Corp. “So what worked in Santa Monica won’t necessarily work here. It’s a big street and carries a heavy volume of traffic, and there are differences that won’t let it be something it’s not quite ready to be.”

Interview: Spreading Sound Around Jon Kirchner is moving DTS beyond movie theater sound systems into a number of new businesses. By CARLOS MARTINEZ Staff Reporter At one time, nobody at Digital Theater Systems Inc. knew anything about DVDs or car stereos; now it’s a major part of the Calabasas-based company’s business. The privately held company, known for its high-end digital audio systems for movie theaters, CDs and video games, had its biggest year ever in 2001. Revenues went from $24 million in 2000 to about $30 million last year, and DTS CEO Jon Kirchner says it is on track to eclipse those numbers in 2002. Kirchner credits the company’s relative health to the consumer’s desire for the latest and best in sound equipment. It’s a niche market that thrives even as the company continues to market its so-called “digital surround sound,” Kirchner said. Sales of home theaters video and audio combos meant to mimic the movie theater experience have fed the company’s bottom line for the past three years, Kirchner said. The company, which began as a maker of movie theater sound systems in 1993, under Kirchner’s leadership has branched out to include consumer electronics, auto stereo equipment, movie subtitling equipment, sound systems for video games and its own record label for audio DVDs. As the company grew from a single product to a diversified entity, it has expanded into Europe, Latin America, Asia and most recently China where it has introduced home and auto sound systems along with its movie theater sound equipment. Kirchner, a CPA, was an expert on company turnarounds with PriceWaterhouse LLP when he got the offer to go to work at DTS in 1993. He worked his way up the ladder and became CEO in 2000, turning what was a fairly small firm just three years ago into a player in more than one field. Kirchner spoke recently with Business Journal reporter Carlos Martinez about the challenges he faces in leading the company as it diversifies into new businesses and new markets. Question: How did you get into the business? Answer: I worked for PriceWaterhouse in a financial capacity. I left the accounting side and got into the consulting side, did business recovery work which was dealing with business turnarounds, bankruptcies and restructurings of various kinds. Q: How did that background help you at DTS? A: There are a number of similarities between a business in trouble and a startup because the troubles in many cases are the same. There are cash constraints. There are priority challenges and there is a great deal of pressure to improve performance. I actually had a friend at DTS after it got started and he said they needed somebody with financial experience, so I came on board. I became executive vice president in ’98, the president in ’99 and CEO in 2000. Q: What issues were facing the company when you arrived? A: Things every business faces. We were thinly capitalized. We were breaking new ground technologically in an industry that does not typically change very fast. Film is a technology that’s been there for a hundred years and it hasn’t changed any. You can still put film in a projector that’s 80 years old and run it just fine. Q: What was the toughest period for the company? A: 1998. Even though we had started our launch into the cinema business, the expansion caused great stress and challenges for the organization. When you’re serving the studios (with digital sound systems), it didn’t take long for demand to grow. The studios said, “Service us in Europe, but you have to service us in Asia too.” So all of the sudden, whether you’re prepared or not, it leads you into an international business expansion and that was very expensive for us. We also looked at the consumer electronics industry and we realized that there was a great opportunity to develop high-quality audio technology. The trouble was, where do we get the money for that? We spent two and a half years developing it but we raised some institutional financing to help further develop our consumer electronics side of our business. Q: Why was the move into consumer electronics so important? A: We needed to branch out and diversify and take full advantage of our technology. We went into car stereos, home theaters, now into audio DVDs and video games. All of these things are natural progressions for us that allow us to further grow the business. Our cinema business is great, but we needed to branch out and expand our technology. Q: How did you happen to get into video games? A: We talked with Electronic Arts, who felt it would be a great opportunity to have digital surround sound for their games on PlayStation 2 last September. We think ultimately it’s one of the best applications for surround and the reason is that video games are part movie, part music soundtrack and part major effects. You put those three elements together and all of the sudden you have kids right in the middle of the action. If somebody is behind you, you’ll hear it behind you. If somebody is on the left of you, the sound will be on the left of you. All of the sudden, a game player has a far more real experience. Q: You’ve gotten into music too, just as CD sales have started to fall off. So what do you know that the rest of the industry doesn’t? A: There are 25 million home theater owners in the United States. We’re selling to that market. The fact that 13- to 15-year-old girls who make up most of that mass market aren’t buying as much music as they used to because there’s no new Britney Spears or whatever it may be doesn’t impact us. We’re selling a premium-priced disc retail for $24.97, but we’re selling a dramatically different experience. It has a stereo track, a 5.1 audio track; it has photo galleries, lyrics some have Web links so it’s a richer audio experience. Q: Why the sudden rapid growth in revenues last year? A: Entertainment delivery has been going through a pretty major change over the last decade and, with digital technology today, you can deliver ever higher quality of video and audio experiences. While there were leadership product areas where somebody’s technology was brought to bear first, it’s cascading now to everything, right down to the Walkman. We’re just riding a wave that is going to continue. Entertainment is a place where people are going to continue to spend money even in times of recession. We find ourselves riding on the back of this incredible revolution in entertainment. We don’t expect it to stop or slow down. It has a long way to go. Q: Your overseas market is also doing well. How do you account for that? A: Asia and Europe are in different phases of growth. They trail the United States in terms of some of the developments. We’re seeing very good traction in Europe in all of our business areas. China represents another sizable opportunity for DTS. We have tremendous brand recognition in China and, in the consumer electronics business, it’s very strong there. Q: Are there challenges involved with doing business in China? A: The revenue realization and collection can be a challenge for an intellectual property company. There are a number of rogue manufacturers who are pirating our trademarks or branding products as DTS that really are not DTS, or in some cases buying chips that have our technology but are not paying the appropriate royalties. We see China like everybody else. It’s a large consumer market. There’s 1.2 billion or 1.3 billion people in China, but that isn’t really the size of the market. At best it’s a market of a couple of hundred million people, which is the size of the market in the United States and Western Europe. Q: While your consumer electronics market grows, digital film technology is also progressing. What is the cinema side of your business going to be like in the future? A: It’s unclear how long that transition is going to take. While there are a lot of people handicapping that race, we believe it’s quite a ways off. However, we believe that it will occur and that DTS will play a part in that transition and we have certain technology that may be at risk in that change. SNAPSHOT: Jon Kirchner Age: 34 Title: President and CEO Education: B.A. in economics, Claremont McKenna College Most admired person: DTS chairman Dan Slusser Personal: Married