The year 1984 marks a time of dramatic change in the INC. 100. Nineteen eighty-three was a record year for new issues, with 888 initial public offerings generating $12.6 billion, and this year's INC. 100, our annual ranking of the fastest-growing public companies in America, reflects this. Ten years ago, 3 out of 4 companies on this year's list didn't even exist. Five years ago, most were still in the start-up stage -- small, struggling, and privately held. Today, they are the pacesetters of American business; as a group, this year's 100 -- including 43 companies that went public during 1983 -- is the fastest-growing in the six-year history of the list. They are also the youngest, the smallest, the leanest, the most productive -- and the least profitable.

Unchanged, however, is the spirit of risk-taking and adventure that lies behind each of these companies. James L. Jaeger, chief executive officer of Cincinnati Microwave Inc. (#33), was an electrical engineer who was intrigued by the sales figures for the Fuzzbuster, a car-mounted radar detector. When he bought one and took it apart in his garage, he decided he could do better. Last year his business, long since out of the garage stage, grossed $57.1 million, with a five-year growth rate of 2,644%. Walter A. Forbes was a restless consultant who got the idea for his electronic shopping service in a conversation with some Harvard Business School professors -- then built Comp-U-Card International Inc. (#87) into a $4.2-million business with a five-year growth rate of 919%. Parker Petit's business began in tragedy -- the 1970 loss of his son to sudden infant-death syndrome. To spare others that pain, he invented the home monitoring devices that helped lead Healthdyne Inc. (#5) to 1983 sales of $134 million and a staggering 10,336% five-year growth rate.

But fast growth is the sine qua non of membership on the INC. 100. Led by Endevco Inc. (#1), a Dallas energy company, and anchored by Lane Telecommunications Inc. (#100), a Houston maker of microprocessor-based terminal systems, the 100 companies are ranked according to sales, based on 1979 and 1983 fiscal year results. Over that five-year period, sales of the 100 companies soared by 2,030%, a compound annual growth rate of 115%. Five years ago, the 100 companies averaged $2.1 million in sales. None had even reached $16 million in revenues, and only 4 topped $10 million. Today, the INC. 100's average volume is $44.6 million, with 43 of the companies surpassing the $25-million mark. All but 2 of the 100 registered at least a ninefold increase in sales during the base period.

This remarkable growth rate marks a new historical high for the INC. 100. Last year the average growth for members of the list was 1,177%; during the first five years of the INC. 100, the growth rate has averaged 973%. Last year's cutoff point was 500% growth; this year, the cutoff mark was 783%, a figure that would have disqualified some 33 members of last year's list. In 1983 alone the INC. 100 chalked up a vigorous 67% sales increase, far surpassing the 4% sales growth of the "Corporate Giants of 1983" as recently reported in Business Week magazine.

As always, the ranking represents a diverse range of manufacturing, service, and energy-related industries. Computer and comuter-related product companies continue to dominate the list, up from 17 representatives last year to 21 this year. The number of data processing and software companies increased from 8 last year to 13 this year. The number of health-care providers and medical-equipment suppliers grew from 20 to 24, while the number of energy companies fell from 11 on last year's list to 7. Twenty-seven alumni from last year were able to earn places on this year's list, an historical low (see "Whatever Happened to the Class of '83?" page 158).

The members of this year's list are substantially younger than in previous years, largely because of 1983's rush to go public. On average, the 1984 INC. 100 companies have been in business less than 10 years; in past years the average has been more than 12 years. In 79 of the companies the original founder still serves as CEO, compared with the 76 founder/CEOs on last year's list. Founders hold an average of 20% of the equity, compared with 21% last year.

Not only are the 100 companies younger, they are also significantly smaller than in past years. The average volume of 1984's members is $44.6 million, compared with last year's average of $53.3 million and the historical average over the first five years of the ranking of $45.9 million. By aggressively combining internal growth and new ventures with a series of acquisitions in the piggyback trailer, trucking, and offshore marine services area, BRAE Corp. (#11), which topped last year's growth list, tops this year's sales list, with total sales of $322.5 million. Tandon Corp. (#20), a four-year veteran of the INC. 100, is number two in total sales, with a volume of $303.4 million. The Home Depot Inc. (#26), a string of retail do-it-yourself home supermarkets, has the highest total sales of any newcomer to the list, with a volume of $256.1 million (see "New Faces of 1984").

Smaller in sales volume, the 1984 INC. 100 are also leaner in personnel, employing an average of 506 workers each, the lowest figure in the six-year history of the list. Employment on last year's list averaged 683 workers per company, while the historical average is 699. At the same time, however, the 1984 INC. 100 companies have been responsible for generating more new jobs than members of any previous class. Last year alone, the number of employees in the group rose 52%, while over the past five years the 100 have recorded a whopping increase of 835%, a particularly significant figure compared with the 10.5% decrease registered by the top 500 industrials. Topping the list in employee growth are two companies new to the 100, Servamatic Solar Systems Inc. (#18) and Applied Circuit Technology Inc. (#12), with gains of 29,900% and 16,100%, respectively. Last year's number one in employee growth, Consul Corp. (#6), ranks third this year, adding another 1,400 employees in 1983 alone.

The 1984 INC. 100 reached an historical high in productivity as well. Using sales per employee as a yardstick, this year's 100 companies averaged $88,116, up from $78,069 last year, and a five-year historical average of $67,878. Here, too, a comparison between members of the Fortune 500 and the INC. 100 is instructive. With $138,600 in sales per worker, for example, Kaypro Corp. (#42) rang up 47% more sales per employee last year than IBM Corp. Altos Computer Systems (#28) was even more productive, generating almost twice as many sales dollars per worker as the computer giant. Compared with McDonald's Corp., Pizza Time Theatre Inc. (#17) pumps out nine times as much volume per employee. And in the game business, Centuri Inc. (#39) beats Bally Manufacturing Corp. fourfold.

While the majority of the INC. 100 companies expanded internally during the 1979-83 period, acquisitions played a key role in the growth of 45 others, including Crime Control Inc. (#58) and Healthdyne, two members of last year's list that have successfully followed a clearly defined acquisition strategy. Healthdyne's takeover fever began with the acquisition of a series of small retail dealers to provide distribution channels for its home health care equipment; then, last year, the $132.7-million company swallowed Narco Scientific Inc., an $80-million high-technology hospital systems manufacturer that helped swell the parent's growth rate to 10,336%. "Doctors prescribe the equipment the patient is to use at home," CEO Petit explains. "If you want to see home-care products, you'd better get into the hospital first."

Crime Control's acquisition strategy has been based on expanding its markets geographically, rather than by new-product introduction. "We target a region in terms of the growth of its crime rate," director of investor and public relations John Gibbs explains. Since 1980, the Indianapolis-based company has bought 16 smaller security companies based in Houston, southeast Florida, and California; by melding the companies to achieve economies of scale, computerizing heavily, and upgrading the technology the company has achieved growth of 1,305%.

Analysis above the bottom line reveals strong commitment to research and development among the INC. 100. Among the 63 companies for which R&D figures are available, development expenditures topped $200 million last year, up from $8.6 million five years ago. The hefty sum represents 7.5% of sales. Heading the list of the biggest R&D spenders are Genentech (#62), Tandon, Diasonics (#27), and ISC Systems (#40). Valex Petroleum Inc. (#93) tops the list of R&D spenders when measured as a percent of sales, with 129% spent drilling in the Ventura Basin north of Los Angeles, and in Kansas. "Now is a good time to be exploring for new gas deposits because of the decreased drilling costs," Valex president Sigmund Rosenfeld explains. At least 16 of the companies spent more than 10% of their sales on R&D, including two bio-tech companies: Genentech, which spent 78%, and Genex Corp. (#23), which spent 54%.

In terms of earnings, the members of 1984's INC. 100 show a far more ragged bottom line than their predecessors. As a group, the 100 companies were unprofitable five years ago, with 43 indicating red ink on their P&Ls. That has improved dramatically, although at the end of 1983, 19 were still wrestling with deficits. Two out of 3 companies posted gains in earnings last year, raising their total net profit to a modest 3.9% of sales, with a median of 5.7%, significantly lower than last year's median of 9.6%. Disregarding the 19 companies with losses, however, net income was a far more respectable 7.4% of sales.

Overall, 25 of the companies more than doubled their profits from 1982 to '83, while 9 climbed into the black. Among the more spectacular performances were those recorded by Kaypro, which soared out of the red and into the black by $12.9 million; Consul, which rang up a 2,773% increase in earnings; and Byers Communications Systems (#74), with a 1,834% gain in the profit column. Bolstered by 10 companies that more than doubled or tripled their profits last year, those companies in the health-care industry turned in the most favorable group performance.

Diasonics Inc. (#27), the California-based diagnostic imaging systems company, was the big loser, recording nearly $65 million in red ink on sales of $166.8 million in fiscal 1983. "We saw maybe five years of disasters compacted into one," vice-president of investor relations Timothy Craig explains. "It was Murphy's Law from beginning to end." Projection of market expansion turned out to be wildly optimistic throughout the industry, causing widespread price-cutting and eventually forcing the company to lay off staff and write down assets.

Buttressed by newly infused equity, 2 out of 3 INC. 100 companies boast current ratios of 2.0 or better. The average current ratio for the 100 is 3.9, with only 4 companies whose current liabilities exceed their current assets, including Nautilus Enviromedical Systems (#89), Movie Systems (#96), Terrano (#53), and Comp-UCard International. Of that quartet, only Nautilus closed 1983 in the black, although Comp-U-Card International CEO Walter Forbes sees an improvement shortly down the road (see "New Faces of 1984," page 174).

Pegging the INC. 100's return on equity is difficult, if not impossible. Small growth companies in general are highly leveraged, and the companies that form the INC. 100 are no exception. Substantial changes in equity due to new stock issues, coupled with the idiosyncracies of calculating return ratios, further distort the figures. By INC. estimates, however, the 1983 return on equity among the 81 companies showing aftertax profit ranges from 1.34% (Genentech) to 37.9% (AGS Computers Inc. [#82]), with a median of 13.8%. "I often say that we have such a high return on equity because we have such an understated balance sheet," jokes AGS Computers CEO Lawrence Schoenberg. AGS, Schoenberg explains, has focused directly on return-on-equity (ROE) since the company initiated its acquisition strategy more than three years ago, eventually buying up 7 companies without increasing debt to fund expansion; the goal, he says, is to maintain ROE at 1.5 to 2 times the industry average, "which is not going to be easy."

As with any ranking of elite companies, the 1984 INC. 100 list raises curiosity about the companies that finished as runners-up. Swanton Corp., a $54-million diversified financial services firm with widespread coal operations, emerged as #101. The New York City company, which chalked up a five-year sales gain of 778%, had earned slots on three previous INC. 100 rosters. Among other runners-up are at least 100 companies that have more than quadrupled or quintupled their sales since 1979. They include 27 members of last year's INC. 100 (see "Whatever Happened to the Class of '83?") and such fast-track performers as Robotic Vision Systems, KMW Systems, Micro Bio-Medics, and Kroy -- all of whom have increased their sales more than 700% in the past five years.

TOP 10 PERFORMERS

1983 PRODUCTIVITY ($000)*

Company Sales per

(INC. 100 rank) employee

Ultimate (3) $594.5

Electro-Kinetic Systems (68) 500.0

Centuri (39) 466.7

Jeffrey Martin (75) 464.4

Pope, Evans & Robbins (55) 460.2

Teleconcepts (84) 459.7

BGS Systems (71) 387.5

U.S. Health Care Systems (91) 357.0

Independence Health Plan (7) 345.7

Polymeric Resources (86) 320.1

* Excludes capital-intensive energy developers and companies whose primary business is leasing or real estate.

1983 SALES LEADERS ($000)

Company (INC. 100 rank) Sales

BRAE (11) $322,479

Tandon (20) 303,369

Home Depot (26) 256,100

Pope, Evans & Robbins (55) 184,065

TeleVideo Systems (8) 168,718

Nutri/System (78) 167,892

Diasonics (27) 166,800

Pizza Time Theatre (17) 165,500

AGS Computers (82) 145,911

Centuri (39) 140,000

INC. 100 PROFILE

Number of companies by industry

Manufacturing 51

Services 42

Mining (including oil and gas) 7

Total sales 1983 (million) $4,457

Change (1979-83) +2030.38%

Change (1982-83) +66.94%

Total net income 1983 (million) $173.2

Total net income 1979 (million) ($.793)

Median sales 1983 (million) $20.22

Median sales 1979 (million) $0.78

Compound annual sales

growth rate (1979-83)

Total sales 114.84%

Range 72.38%-357.40%

Median 100.89%

Net income as percentage

of sales (1983)

Range loss to 0.48%-41.29%

Median 5.70%

No. acquiring other companies 45

(1979-83)

No. incorporated since 1974 77

Total no. employees

1983 50,578

1979 5,410

Change 1979-83 834.90%

LEADERS IN

EMPLOYEE GROWTH

1979 1983 %

Company (INC. 100 rank) empl. empl. growth

Servamatic Solar 918) 3 900 29,900

Applied Circuit (12) 1 162 16,100

Consul (6) 40 3,600 8,900

TeleVideo Sys. (8) 11 867 7,782

BRAE (11) 19 1,208 6,258

ComputerCraft (14) 9 356 3,856

Info. Resources (15) 12 430 3,483

Emulex (4) 12 407 3,292

Forum Group (98) 120 4,000 3,233

HCW Oil & Gas (36) 4 128 3,100

TOP 10 PERFORMERS:

1983 PROFITABILITY

Company Net income

(INC. 100 rank) as % of sales

HCW Oil & Gas (36) 41.29

Phoenix American (73) 22.91

Wedtech (52) 18.52

Emulex (4) 18.12

C. P. Rehab (69) 17.95

Info. Resources (15) 17.55

Cincinnati Microwave (33) 17.54

Kaypro (42) 17.13

Nautilus Environmedical (89) 17.00

Quality Micro Systems (38) 16.99

WHERE THE INC.

100 ARE

BASED: TOP

STATES

State 1984 1983

California 27 20

Massachusetts 8 3

New Jersey 8 5

Texas 8 10

Colorado 7 5

New York 5 11

Connecticut 4 3

Georgia 4 2

Minnesota 4 7

Indiana 3 2

Maryland 3 0

Pennsylvania 3 4

Published on: May 1, 1984