The powerhouses aren't padding pockets by standing still; deals, investments abound

By Gregg Krupa, Globe Staff

Top 10 margins Top 10 in losses

ome of the very best Massachusetts companies did what would be expected of them in a strong economy last year: They seized the opportunity to become even better.

Topping the Globe 100's leaders in absolute profits for 1997 were some of the traditional best performers, and those companies used their institutional strengths and the solid economy to improve their performances.

Even at the other extreme, absolute losses, were some companies whose performances deteriorated largely because they made bold, albeit costly, investments for the future. And 1997 saw them waiting for the return on their initiatives.

The list of strong performers reads like the list of perennial all-stars of the Massachusetts economy: Gillette Co., Fleet Financial Group Inc., BankBoston Corp., Raytheon Co.

Each in its way remains a well-managed company, continuing to thrive in a good economy and avoiding potential threats by making the right moves in flush times.

Gillette still benefits from its well-conceived diversification in recent years, even as it cut razor inventories to prepare for its recent launch of the Mach3 razor. Duracell and Parker Pens performed strongly among the company's varied product lines.

But Gillette's strategies are anything but stand-pat. It reported a profit of $1.4 billion on sales of $10 billion, with half of the sales coming from products introduced in the past five years. And the Mach3 resulted from two decades of meticulous development, a $1.1 billion enterprise aimed at preserving Gillette's 60 percent global market share of razors.

Fleet Financial Group Inc., the nation's ninth-largest bank holding company and New England's largest bank, made the sort of strategic acquisitions that have taken it to the top over the past decade. In fact, it went on a shopping spree in 1997, buying discount brokerage Quick & Reilly Group Inc. and credit card issuer Advanta Corp. for a total of $2.5 million, and adding global advisory and investment management firm Columbia Management Co. for $600 million.

Analysts saw appropriate synergies in all of the deals.

''Fleet has a proven track record as a disciplined acquirer,'' said Fleet spokesman James E. Mahoney. ''The only deals we pursue are those that are a strategic fit and bring value to the company.''

Although net income at Raytheon Co. declined 30.76 percent, the company - one of the nation's premier defense contractors - remained one of the big earners in the state, with $527 million in profits. Raytheon made two enormous acquisitions - the defense units of Hughes Electronics Corp. and Texas Instruments Inc. - to help solidify its position as one of the country's top three defense powers in a shrinking industry. The Hughes purchase was made too late to have much of an effect on income.

Even companies that did far worse than some of the perennial strivers did so because they similarly sought to secure or expand their positions. Near the top of the losses list are two companies that made strong, costly moves that could secure profits.

Analysts worried that Arch Communications Enterprises Inc., whose net losses increased 60.8 percent, was too busy attending to a heavy debt burden. Arch, the number two paging company in the nation, reached that lofty status by saddling itself with $940 million in debt after 34 acquisitions in 10 years. Its largest occurred in May 1997, when it acquired Westlink, a San Diego company that served 14 western states.

Another laggard in profits in 1997, Harcourt General Inc. of Newton, saw net income disappear when it acquired National Education Corp. for $800 million, or $21 per share, in June. When that purchase left the publisher of educational books with 82 percent of the Austin, Texas-based Steck-Vaughn Publishing Corp., Harcourt General decided to buy the remaining 18 percent for $42.8 million in cash.

The moves also provided Harcourt General with the biggest negative swing of any company, sending it from $189 million in profits to $144 million in losses.

Acquisitions were also part of the reason for the poor performance of The Learning Co., which lost $476 million last year. That performance placed it at the top of the list of biggest losses for the second year in a row, as price wars triggered by a slump in the market for educational software cut into the company's market share and bottom line.

Meanwhile, a $1 billion acquisition spree left the company about $460 million in debt, and many analysts have criticized the scope of the purchases.

But The Learning Co.'s market share has rebounded, and a $123 million cash infusion last year by venture capitalists Thomas H. Lee Co. and Bain Capital Inc. has helped relieve the firm's debt worries. The stock rebounded to about 18 by the end of the year, having fallen to 6 in spring 1997 after reaching a high of 50 in fall 1995.

Also on the profit yo-yo was Digital Equipment Corp. Consider: The company posted $413 million in profits in 1995, only to tumble to $378 million in losses in 1996, placing the company on top of the Nosedives list last year. For this year's ranking, it's a complete turnaround. The company zoomed to $239 million in profits, placing it on top of the Born Again list.

Digital's up-and-down fortune is giving many of its employees whiplash.

Much of the profits were regained through major restructuring and layoffs, as Digital shed its semiconductor manufacturing operations - sold to Intel Corp. for $700 million as part of a $1.5 billion deal to settle a patent lawsuit. It also sold its network products business to Cabletron Systems Inc. for $430 million.

For many workers, the ultimate blow was the company's agreement this spring to be bought out by Compaq Computer. That deal means one of the mainstays of Massachusetts industry in the modern era will be removed from Globe 100 consideration. For up to 15,000 more Digital workers, it will mean their jobs.