TUNED IN

At King World, Oprah Is Queen

Most investors hunt for undervalued assets on Wall Street. But the King brothers go no further than their television sets. "Oprah is unbelievable, she's a phenomenon," says Michael King, who is ecstatic about his latest find.

King is chief executive officer of King World Productions Inc. (#35), the business that distributes Oprah Winfrey's popular daytime talk show. Winfrey's show may be responsible for as much as 15% of the company's revenues next year. "We've got a superstar," says King.

A superstar is exactly what King World needed two years ago, when it launched its effort to unseat Phil Donahue in the ratings. The company picked a tough target: Donahue had resided near the top of the charts for a dozen years. But the Kings -- Michael's brother, Roger, is chairman -- noticed that some local morning shows were beating Donahue in their own markets.

Playing tapes of potential contenders, the Kings dozed through a boring gabfest. Most of the shows consisted of what the industry calls "infotainment" -- slick programs mixing news, how-to segments, and celebrity hype. Winfrey, whose show is based in Chicago, stood out. "There's something about her that comes through the screen," says King. "She can make you laugh during serious subjects, and she can also do shows on fashion and soapopera hunks." Winfrey's show, which made its national debut last September, dominates Donahue in most markets where they compete.

Not that King World's other shows are having trouble pulling their weight. Before Winfrey, the company unearthed two other gems, "Wheel of Fortune" and "Jeopardy!" The pair of game shows are now the two highest-rated syndicated shows in television history. Thanks to them, King World's sales hit almost $146 million last year. "That one company could develop three major shows in three years defies the laws of chance," says Lee Isgur, entertainment analyst at Faine Webber. "No other company has even come close."

THE FIXER

Mark Connally: Follow the Son

Over the years, former Texas governor John Connally has profited from investments in radio stations and real estate. These days, his most profitable asset is probably his son Mark.

The former U.S. Treasury secretary is finding that it's nice to have another businessman in the family. Mark, chairman and chief executive officer of Cable Advertising Systems (#82), says that growing up the son of a famous father "had its pluses and minuses." More minuses of late, we suspect, considering his father's heavy investments in Texas's overbuilt real estate market. "We've worked together for a long time," says the elder Connally. "To that extent, we are a team."

It seems to work like this: John's investments run into serious problems, and then son Mark comes in for the rescue attempt. It started in 1974, when 22-year-old Mark volunteered to run John's 10,000-acre ranch. Mark tossed away some old family practices for the sake of the bottom line. He improved the baling of hay and raised more profitable purebred cattle. After about three years, he says, "the ranch did not generate profits, but we had reduced its losses."

Next, Mark spent about two years rising from lending officer to president of The First City National Bank of Floresville (Tex.), a rural bank that was 10% owned by -- you guessed it -- John. Mark understood the market; he was making loans to ranchers who had problems just like he had experienced. During Mark's five-year reign as president, he moved it onto the growth track: deposits rose from $18 million to $36 million and profits doubled. Looking for a bigger challenge in 1984, Mark moved to a troubled real estate investment company where you-know-who was half owner. It was beyond his help, though. "When your market goes away, there is not much you can do," he says.

At Cable Advertising Systems, the previous chairman was -- of course -- his father. When Mark became CEO in 1986, the company was out of cash and lacking direction. Now it is focusing on selling advertising time on cable-television systems. Last year, it lost about $2 million on sales of around $2 million, but Mark expects to see profits by the end of this year.

What will he do then? Perhaps it's best to ask his father. "I don't have another venture in mind for him," says John Connally, who is 70.

CURRENT EVENTS

Energetic Entrepreneurs Find New Outlets

"When people hear the phrase 'independent power producer,' it conjures up an image of some guy with a windmill on his roof," says John Kuhns, president and chief executive officer of Catalyst Energy Development Corp. (#1). But Catalyst, a $227-million concern that is the fastest-growing small public company in America, calls itself just that.

For that matter, so do Bonneville Pacific Corp. (#7) and PSE Inc. (#43). All three companies are beneficiaries of the Public Utility Regulatory Policies Act of 1978, which brought entrepreneurs into the staid utility industry. Utilities are required to buy power from the independent producers, and must pay whatever it would have cost them to produce the power themselves. "Electricity rates have risen so rapidly that it created a huge opportunity," says Kuhns. "So along we came."

MULTIPLE FRACTURES

Westworld Community Healthcare: Critical Condition

Had Michael Dunn's Doctors performed operations the way he did, few patients would have emerged alive from Westworld Community Healthcare Inc.'s hospitals. As it is, Dunn's strategy landed the company (#18) on its deathbed, with losses of approximately $100 million on sales of about $178 million last year.

Dunn began acquiring rural hospitals in 1982, upgrading them with new personnel and modern equipment. Although Westworld's 38 hospitals became more expensive on a per-day basis, Dunn explained to patients that they would spend less time laid up.

Patients, though, felt they were being pushed out the door too quickly, and they voted to take their ailments elsewhere. In response, Dunn devised another marketing strategy: he would charge patients a standard fee based on their diagnosis, not on their length of stay. Medicare used the same tough billing system; by voluntarily using the system for all patients, Dunn figured that Westworld would be seen as a leader in the drive to hold down medical costs. As the empty beds filled up, profits would follow.

Dunn checked the billing idea with the home offices of about 40 big insurance companies, and "they had a very good reaction," he reports. But Westworld operates in small towns, where insurance offices demanded traditional, itemized bills. They refused to pay the bills that Westworld submitted. Consumers, who hated wrangling with their insurance companies, blamed Westworld.

On the verge of bankruptcy, Dunn sought help from a bank. The company eventually got $10 million, but the bank prescribed something to stop the bleeding: Dunn had to go. "I became the price for the bank's continuing to finance the company," he says.

His successor, Stephen Arterburn, has come up with a new marketing plan. The company divested more than half of its hospitals and some other assets late last year, taking a write-off that accounted for $71 million of the company's losses. Now Westworld's focus will be diversification into profitable specialty programs such as pain and alcoholism treatment. No doubt the company's stockholders could be among its first patients: Westworld's stock dropped almost 95% during last year's troubles.

NO HORSEPLAY

Robert Brennan: Saddled With Legal Problems

Where Robert E. Brennan goes, two things follow closely behind: fast growth and a good lawyer.

Brennan, you may recall, founded First Jersey Securities Inc., a high-profile brokerage that specializes in over-the-counter stocks. Over 11 years, he built a $96-million company that attracted as much attention from the Securities and Exchange Commission as it did from investors. He resigned last year, scarred from continuous battles with federal officials, who investigated him for stock manipulation but never filed criminal charges.

Now, Brennan is back with International Thoroughbred Breeders Inc. (#88), a horse breeder and racetrack owner that he took public in 1981. But Brennan has brought his legal problems with him. A shareholder suit charges him with fraud and asks for $170 million. The lawsuit claims that the company, which lost about $34 million on sales of more than $87 million last year, withheld important information about its plans to rebuild a New Jersey racetrack. "He didn't give the stock buyers a fair shake," says Paul Wexler, the shareholders' lawyer. Neither Brennan nor his lawyer is talking.

BIG DEALS

Roy Speer: The Deal Maker Behind Home Shopping

Home Shopping Network Inc. (#10) took almost everybody by surprise last year when it turned out to be among the most successful public offerings of the past quarter century. By February 27, its stock had zoomed 1,000% above the May offering price. But Roy Speer, the billionaire who serves as chief executive officer, claims he wasn't surprised by investors' reaction or by the company's five-year compound annual growth rate of 265%. "I guess I'm just smart," he says.

Such bluntness is characteristic of the 54-year-old Florida developer and former criminal lawyer. Speer got the idea for a cable-television shopping network after a radio station he owned had no trouble selling can openers over the air.

Speer rarely talks about his past personal or business life. But in a recent interview, he pointed to some of his more unusual escapades.

* He founded a swanky, all-black night-club in St. Petersburg, Fla., a deeply segregated city, about 30 years ago. "I had some very good friends who were black and wanted one," he explains. "So I built one for them." It was profitable, Speer claims, although it has since closed down.

* In the 1960s, he says he built retirement homes along Florida's coast. His company planned to build a $500-million community for 100,000 people. But the energy crisis brought hard times that forced him to liquidate the company, leaving major unfinished projects. "I didn't lose any money," he contends.

* He bought a 1,500-acre farm in Puerto Rico. After a few years of good harvests, he says, a hurricane destroyed it in the early 1970s. "After that, I made an agreement with God," notes Speer. "If he wouldn't send me any more hurricanes, I wouldn't grow any more vegetables."

* One of his planes was involved in a drug bust last year. According to Speer, drug dealers stole it; the plane was later recovered stuffed with marijuana. "They figured if they were going to fly, they might as well take the nicest plane," Speer reasons.

* He serves as a director or officer of about 25 Florida corporations, among them a beauty academy and a barbecue restaurant. Speer claims he can keep track of them all via his computer.

LINE ITEMS

* Dasan Potti, chief executive officer of Duramed Pharmaceuticals Inc. (#91), earned spending money during high school by working as a Hindu priest.

* Though he doesn't practice any Eastern religion, Benjamin Zitron, president of AutoSpa Corp. (#83), goes on 7- to 10-day fasts at least once a year. "It gives you a unique feeling of independence," he says. "It's a very good exercise in discipline."

* INC. CEOs pay a high price for running a fast-growth business. Half say that demands of their job force them to dramatically reduce the time they devote to their family.

* "daddy, would you take me to the shareholders' meeting, plee-ease?" Fourteen CEOs wanted to be businessmen when they were growing up.

* New England Critical Care Inc. (#65), which provides in-home intravenous infusions, estimates that 5% of its roughly 900 patients are AIDS patients. It expects that ratio to rise to 20% by 1992.

* Of some 600 directors who sit on INC. 100 boards, fewer than 20 are women.

* Richard J. Egan, president and CEO of EME Corp. (#68), developed the memory for the guidance computer for the Apollo space missions.

* S. Mort Zimmerman, chairman and CEO of Video Science Technology Inc. (#93), holds one of the original U.S. patents on the technology of closed-circuit television.

* And Dr. Raymond V. Damadian, chairman of FONAR Corp. (#49), invented the nuclear magnetic-resonance technology for medical imaging -- a scanning technology that uses no X-rays. His first machine is on permanent display at the Smithsonian Institution.

* One of the new ice-cream flavors this year at Ben & Jerry's Homemade Inc. (#66) is Cherry Garcia, named for Jerry Garcia, leader of the Grateful Dead.

* Frank J. Feitz, who advised big companies on installing phone systems, wrote and published a book in 1980 called The Bum Connection, an expose of the phone industry. At $79 per, he sold 990 out of 1,000 copies in three months. The book gave him the idea for starting American Businessphones Inc. (#44), which services small companies.

* Four of the INC. 100 CEOs work for no salary.

* The average equity held by the CEOs is 15%.

* Daniel M. Reichard III started a limousine service while in college. Four years after graduation, he founded People Ridesharing Systems Inc. (#64), which transports people to work by van.

* Last year, one-sixth of ATI Medical Inc.'s (#56) roughly $7 million in revenues came from renting medical equipment to such TV shows as "St. Elsewhere," "Dallas," and "Dynasty."

* About one-third of Saratoga Standard-breds Inc.'s (#45) $6-million revenue this year came from stud fees for one very happy stallion, Niatross, who is mated 175 times a year.

* Edward M. Esber Jr., CEO of Ashton-Tate (#41), once dressed up as General George S. Patton Jr. at a companywide quarterly meeting. He wanted to let his employees know that "It's still a war out there."

* Seventy of the 100 CEOs are founders of their companies.

* Long Odds Department: AutoSpa Corp. (#83) and CitiPostal Corp. (#40) shared the same New York City address for nearly two years. The two companies' CEOs had been friends since 1969, and one rented space to the other.

* Only 19 companies on the list are more than 10 years old.

* And almost half the companies went public during the two boom years for initial public offerings, 1983 and 1986.

* Before starting Bonneville Pacific Corp. (#7), Raymond Hixson was president of Snowbird, the Utah ski resort.

* President Jim Manzi owns less than 1% of Lotus Development Corp. (#2), but his shares were worth about $2 million on February 27.

* At ATI Medical Inc. (#56), company policy forbids employees from writing memos to one another. The policy is in writing.

* Diminutive actor Mickey Rooney may be an unlikely champion of fast growth. But he is the spokesman for TCBY Enterprises Inc., a frozen-yogurt franchisor (#52).

* King World Productions Inc. (#35), syndicator of "Wheel of Fortune," has not spent a cent of the more than $7.5 million it raised in its December 1984 public offering.

* Fibronics International Inc. (#67), which makes fiber-optic communications systems, is the only company to appear on the list for the fourth consecutive year.

* Dale Ballard, CEO of Ballard Medical Products (#26), launched a stock ownership plan for employees in 1958. That was about 20 years before tax breaks made them popular.

* Michael Brown and Mark Callegari formed their partnership in college when they founded Sound Energy, a portable disco service with sales of about $5,000 a year. Next, they launched Innovative Software Inc. (#69).

* I. William Krause, CEO of 3Com Corp. (#38), was one of Hewlett-Packard Co.'s two original computer salesmen, hired in 1967.

DINGDONG

BeautiControl: The Concept Rings a Bell

If you were Dick Heath's friend, what would you have told him?

You might have suggested that he was living in the Dark Ages, that the world had passed him by, that his idea for a new company would have been successful in 1950. But . . .

No "buts" for Heath. In 1981, he was sure his company, BeautiControl Cosmetics Inc. (#55), could prosper by selling cosmetics in consumers' homes. Yes, he knew that about 70% of women between the ages of 18 and 54 had exchanged ironing boards for boardrooms. And he could see that venerable Avon Products Inc., having ignored that shift, was about to face major problems both in recruiting new salespeople and in finding customers home during the day. But Heath was convinced that he could capitalize on that changing market.

Such direct sellers as Avon and Mary Kay Cosmetics have always relied on a bottomless pool of housewives both to buy and sell their products. Heath set out to appeal to career-minded women instead. His 9,000 sales reps pay $200 for 30 hours of training, plus another $300 for such tools as cases of beauty products and manuals. "The saleswoman has made a substantial financial commitment, so she's committed to it," says Heath, whose 50% turnover rate is one of the industry's best.

To attract customers, Heath's salespeople visit image-conscious businesses such as banks and real estate offices. They make a brief presentation to the manager, then put on a 45-minute workshop for female employees during lunch or after work. The next step is a free "color analysis" in their homes to help them choose the right makeup. "My lipstick is not that different from the next guy's," admits Heath. "So it's the service I add." It is a service that helped bring $23 million in sales and $3 million in earnings last year.

Both Mary Kay and Avon have toyed with similar strategies. Heath expects an ugly battle from the giants of the $15-billion cosmetics industry. "This is an industry in transition," he says. "Some of the giants may not be able to adjust, but the need for this service hasn't shrunk."