Reinvention through innovation: despite the sluggish economy, a number of B.E. 100s companies are winning the battle for market share and profits by retooling their enterprises. (B.E. 100s Overview).

If there were a slogan to describe the attitude and activity permeating America's largest black-owned businesses, the tag would be "Rebuilt to Last." For the last few years that maxim has exemplified the spirit of the BE 100s--our ranking of the 285 largest black-owned industrial/service companies, auto dealerships, advertising agencies, banks, insurance companies, investment banks, asset managers, and private equity firms.

A perfect example of this new outlook is the overhaul of Wesley Financial Corp., formerly Wesley Industries Inc., (No. 55 on the BE INDUSTRIAL/ SERVICE list with $65 million in gross sales). A longtime supplier of the automotive industry, the company's father-and-son management team, Delbert and Dorian Mullens, decided to move into a defensive posture, literally. Today, one of Wesley's core products is rocket launchers. "We're out of iron casting," says Delbert of the Bloomfield Hills, Michigan-based company. "We're in manufacturing and defense," adds Dorian. "We've purchased a company that makes rocket launchers, and we're the only company licensed by the Pentagon to sell [them to the Department of Defense]. We've moved from a product organization to a portfolio organization. We are diversifying within multiple industries so that if one industry does you harm, the entire organization doesn't have issues."

The Mullens aren't alone in their strategic direction. To manage in these unpredictable times, BE 100s CEOs have readjusted revenue and profit goals; revamped operations into lean, mean, customer-service machines; and reorganized businesses by creating new products and services or acquiring established entities. In short, they've reinvented their companies through a series of innovative maneuvers.

Has the restructuring worked? Quite frankly, the jury is still out. Last year was among the toughest for the BE 100s. In 2001, the punishing blows of the Sept. 11 terrorist attacks, war, and recession staggered American business. In 2002, companies continued to feel the pain induced by anemic business spending; waning consumer confidence; rising energy prices; and the realization that war, at home and abroad, would have to be factored into near-term business plans. As a result, 2002 revenues for the top BE 100 INDUSTRIAL/SERVICE firms and leading 100 auto dealerships were flat: up $20.9 billion from $20.3 billion in 2001--a mere 3.23% jump.

A considerable number of black entrepreneurs, however, piloted their companies to soaring heights. There were 55 industrial/service companies and auto dealerships that grossed $100 million or more. And 23 of this collective group produced more than $200 million in revenues.

Houston-based CAMAC, a freshman from the 2002 list, still leads the pack with $1.09 billion in gross sales. The performance of the energy producer and distributor made it the second billion-dollar monolith to be included among the BE 100s since TLC Beatrice International Holdings Inc. TLC Beatrice, the massive conglomerate of offshore grocery stores and food manufacturers belonging to late financier Reginald Lewis, exited our ranking in 2000 after management liquidated Lewis' holdings.

A NEW WAVE OF INNOVATORS

This push for reinvention has also produced a number of serial entrepreneurs who once again grace the BE 100s. One returnee, billionaire Robert L. Johnson, sold BET to media giant Viacom in 2000. Over the last two years, he developed RLJ Development L.L.C. (No. 71 on the BE INDUSTRIAL/SERVICE 100 with $49.4 million in sales) through the purchase of Hilton and Marriott hotel properties. When Charles H. James III divested North American Produce from his family-owned enterprise, C.H. James & Co. Inc., in 1999, he knocked it off the 2000 BE INDUSTRIAL/SERVICE 100 list. Two years later, he sold his stake in an online produce supplier for more than $20 million. His latest venture, PrimeSource Food Service Equipment, grossed $139.9 million in 2002 and debuts on this year's list at the 30th spot. At press time, James was in the process of selling his controlling interest in the company.

OPERATING IN THE SLOW LANE

Some lost big in an effort to remake their companies, especially those in the automotive industry. Rising foreign competition, product recalls, poor selling models, and profit-deflating financing deals overtook legions of auto dealers. A number of companies were forced to hawk their franchises in 2002. Much of Mel Fart Automotive Group (No. 2 on the 2002 BE AUTO DEALER 100 list with $353.3 million in sales) was put on the auction block The former megafranchise and largest black-owned company in 1999 skidded off this year's auto list after Farr was forced to sell his stores back to Ford Motor Co. due to stalled sales, internal management problems, and a failed strategy to serve inner-city customers who had bad credit. Farr is now left with a Hyundai franchise and a used-car operation.

GAMBLING DURING TOUGH TIMES

Other BE 100s firms found opportunity despite hard times. Last year's BE Company of the Year, gush Communications of NYC Inc. (No. 14 on the BE INDUSTRIAL/SERVICE 100 list with gross sales of $260 million), grew due to the extension of its Phat Farm men's, women's, and children's clothing lines. "We sold 150,000 pairs of teen colors in just two weeks," maintains CEO Russell Simmons, who says the female-oriented Baby Phat exceeded sales estimates and Phat Classic sportswear line continues to be a best seller. And Simmons recently launched new ventures, including a beverage company and a financial services company for the hip-hop community.

The Heritage Networks (No. 61 on the BE INDUSTRIAL/SERVICE 100 list) posted a 102% increase in revenue, from $30.5 million to $61.5 million, despite the most severe advertising slump in television history. How was this accomplished? "We actually found a way to benefit from the recession by getting bold instead of retracting and by benefiting from other people's retractions," says Frank Mercado-Valdes, CEO of the New York City-based seller of TV syndication time. (Heritage makes its money as commissions when it sells advertising against air time of reruns and original programming.)

While the shaky economy unnerved other companies into canceling their weekend shows, Heritage charged forward in 2002. It launched three original properties--'N Gear, Livin' Large, and Weekend Vibe--through partnerships with Dick Clark Productions; Carsey-Warner, one of the leading TV program distributors; and Vibe magazine. Heritage also snagged the syndication rights to Showtime at the Apollo (See "Showdown at the Apollo," January 2003).

Mercado-Valdes, who "hocked everything" to develop new programming, took advantage of the recession by hiring quality talent that had been laid off by larger companies. With a 50% sales increase over last year, acquisition of the rights to shows such as The Parkers and Resurrection Blvd., and an alliance with renowned African American producer Suzanne de Passe to make made-for-TV films, Mercado-Valdes says Heritage is set up to reach the $100 million revenue mark.

Business owners who didn't share Mercado-Valdes' gambler's instincts focused on efficiency. Take Mays Chemical Co. Inc. (No. 22 on the BE INDUSTRIAL/SERVICE 100 list with $165 million in gross sales), which had to contend with an oil crisis brought on by the war in Iraq, turmoil in Nigeria, and the prolonged Venezuelan oil strike. Although between 25% and 30% of the chemicals and raw materials the company distributes are petroleum-based, the firm stuck to its sacrosanct formula for profitability. "We're in a scenario where the cost of oil could go up dramatically in a short period of time, so our challenge is to be very attentive to our raw-materials costs," says Senior Vice President Bill West. "[We] make sure that we pass those costs on efficiently and promptly to our customer base of manufacturing companies."

Mays also minimized its exposure by positioning itself to take advantage of a wartime economy as its clients in the pharmaceutical industry increased purchases. Now, it's conducting more business with healthcare and defense customers.

DEALING WITH THE ADVERTISING SLUMP

In 2002, many of our top 20 black-owned advertising agencies were pounded by a tough economy. One of the industry leaders, UniWorld Group Inc. (No. 2 on the BE ADVERTISING AGENCIES list), fell 9.9%, from $258.5 million to $232.98 million in billings, while less established firms such as E. Morris Communications, which plummeted 41.6%, from $32 million in billings to $18.7 million, fell off the list. A number of other BE agencies produced flat performances.

Surprisingly, some companies prospered. Among the list's top performers were the independent boutiques SWG&M Advertising Inc. in El Paso, Texas (No. 8 on the BE ADVERTISING AGENCIES list with $36 million in billings), and Equals Three Communications Inc. in Bethesda, Maryland (No. 6 on the list with $80 million in billings), which posted increases in billings of 44% and 17.6%, respectively.

BRAVE, NEW FINANCIAL WORLD

Black-owned financial services companies, which includes our rankings of insurance firms, banks, asset managers, investment banks, and private equity firms, continue to expand and contract in a sluggish economy and deregulated environment. New Orleans-based Liberty Bank & Trust Co. represents the type of innovative institution that will stay competitive in the future. Last year it focused on selling consumer credit cards as well as adopting an austerity program. All told, these measures helped the bank earn a profit of $2.15 million, up from $1.62 million in 2001.

A more ingenious maneuver by CEO Alden J. McDonald Jr. was partnering with the Minority Capital Alliance--a joint venture between City National Bank of New Jersey (No. 8 on the BE BANKS list with $215 million in assets), First Independence National Bank of Detroit (No. 12 on the BE BANKS list with $165 million in assets), and GE Capital--to provide equipment lease financing and advisory services to major companies. The Alliance is expected to generate $30 million to $100 million in the first year. "The alliance is significant because we can cross-sell our banking products--whether it's a municipality, school district, or another type of institution--to new clients as it grows," says McDonald.

To diversify income streams, old-line insurers and investment banks are treading on the turf of asset managers--dominated this year by John Rogers' equity-oriented Ariel Capital Management (No. 1 on the BE ASSET MANAGERS list with $10.3 billion in assets under management). For example, Atlanta Life Financial Group Inc. (No. 3 on the BE INSURANCE COMPANIES list with assets of $99.9 million) has completed its transition into asset management by offering several equity products.

As for the private equity market, investors continue to hold on to their wallets because the lackluster merger and acquisitions and IPO activity are not providing the quick and profitable exits they witnessed a few years ago. Firms such as Fairview Capital Partners Inc. (No. 1 on the BE PRIVATE EQUITY list with $850 million in capital under management) and Smith Whiley & Co. (No. 4 on the BE PRIVATE EQUITY list with $213 million in capital under management), however, managed to raise additional money on the strength of new funds in what Smith CEO Gwendolyn Smith Iloani calls "the worst fund-raising market that I've seen in the history of private-equity investing."

For BE CEOs, the watchword will continue to be innovation. Whether the economy crawls, skips, or sprints in coming years, they will have to streamline operations, create partnerships, and remain customer-obsessed. If the strategy works, these entrepreneurs must stay focused. And if it doesn't, they will have to tear up their old plans and build a better business model.

B.E. 100s Sales by Industry

Auto Dealers         $8,204.2   39.1%
Manufacturing        $1,958.7    9.3%
Media                $1,587.9    7.6%
Construction           $484.6    2.3%
Other *              $3,612.1   17.3%
Food & Beverage      $2,265.4   11%
Technology           $1,509.0    7.2%
Energy               $1,174.2    5.6%
Telecommunications     $183.0    0.9%

* OTHER INCLUDES: COMMODITIES, COMPUTER/OFFICE PRODUCTS, ENTERTAINMENT,
HEALTH & BEAUTY AIDS, HEALTHCARE, SECURITY & JANITORIAL MAINTENANCE,
TRANSPORTATION, STAFFING AND OUTSOURCING SERVICES, AUTOMOTIVE
SUPPLIERS, LOGISTICS, RETAIL AND SAFETY EQUIPMENT.
SALES IN MILLIONS OF DOLLARS PREPARED BY B.E. RESEARCH,
REVIEWED BY THE CERTIFIED PUBLIC ACCOUNTING FIRM EDWARDS & CO.

2003 Auto & Industrial/Service Summary

Top 100 I/S Companies        2002         2001  % Change

Total Staff                75,020       63,627     17.91
Total Sales *         $12,774.727  $11,452.417     11.55

Top 100 Auto Dealers         2002         2001  % Change

Total Staff                12,037       12,305     -2.18
Total Sales *          $8,204.220   $8,869.872     -7.50

B.E. 100s                    2002         2001  % Change

Total Staff                87,057       75,932     14.65
Total Sales *         $20,978.947  $20,322.289      3.23

* IN MILLIONS OF DOLLARS, TO THE NEAREST THOUSAND. AS OF DEC. 31,
2002. PREPARED BY B.E. RESEARCH. REVIEWED BY THE CERTIFIED PUBLIC
ACCOUNTING FIRM EDWARDS & CO.

Eligibility for the B.E. 100s

The BE 100s make up the largest black-owned businesses in the nation. For 12 months, the research department and editors of BLACK ENTERPRISE gathered surveys from hundreds of companies and information from scores of government agencies, professional organizations, industry associations, business information services, entrepreneurs, corporations, and our readers in order to develop our definitive rankings. The following are the qualifications for each of our lists:

B.E. Industrial/Service 100

A company must be at least 51% black-owned and have been fully operational for the previous calendar year (Jan. 1, 2002-Dec. 31, 2002). Companies listed must manufacture or own the products they sell, or provide industrial or consumer services. (Brokerages, real estate firms, and firms that provide professional services such as accounting firms and law offices are not eligible.)

B.E. Auto Dealer 100

An auto dealership must be at least 51% black-owned and have been fully operational for the previous calendar year.

B.E. Advertising Agencies

An advertising agency must be at least 51% black-owned and have been fully operational for the previous calendar year. To qualify as a full-service advertising agency, the company must provide creative services as well as make media placements--purchasing time and/or space for a clients' advertising. Companies that only provide consulting services, create or produce advertising, or do media placements do not qualify as full-service agencies. (We canvassed the Standard Directory of Advertising Agencies, combined industry publications, and made inquiries in the field to identify full-service agencies.)

An agency's financial status is measured in terms of billings--monies allocated by an advertiser to its agency to buy time on television and/or radio, or space in publications. These media outlets then pay a commission back to the agency in the form of a discount, typically between 15%-20%, which the agency counts as revenue. Other sources of revenue include production fees that the agency charges to its clients and fees for adjunct services such as public relations, consulting, and promotional work. Our ranking of the 15 top agencies is based on a combined total of actualized billings, in addition to capitalized billings (commissions that haven't been paid but the media buys were completed), and other agency fees reported as revenues--an accepted industry practice for reporting earnings.

B.E. Banks

A commercial bank or savings and loans that are classified by the Federal Reserve as black institutions and have been fully operational for the previous calendar year. An institution's financial status is measured in terms of total assets, capital, deposits and loans, including mortgage-backed securities for the calendar year. In compiling our list of the leading 25 institutions, we received surveys from black-owned institutions and consulted the Federal Reserve, state banking commissions, and industry associations.

B.E. Insurance Companies

A life insurance company must be at least 51% black-owned and have been fully operational for the previous calendar year. An institution's financial status is measured in terms of total assets, life insurance in force, premium income, annuity income, net investment income, statutory reserves, and surplus. The top 10 insurance companies on our list sell individual and/or group life insurance policies. (No institution that is strictly in the business of selling property and casualty insurance has been included.) In compiling the list, we received surveys from these institutions, consulted the rating services, state regulatory agencies, and industry associations.

B.E. Investment Banks

An investment bank must be at least 51% black-owned and have been fully operational for the previous calendar year. The top 10 investment banks compiled on our list engage in such activities as underwriting, initial public offerings (IP0s), mergers and acquisitions (M&A), retail brokerage, institutional research and sales, and financial advisory services. A firm's financial status is measured in terms of total dollar amount of senior, co-senior, and co-managed issues derived from the underwriting of municipal, corporate and agency bonds, mortgage- and asset-backed securities, equity underwriting and private placements for the calendar year. We have not included the firm's syndicate transactions. In addition to receiving surveys from these companies, we consulted the federal and state regulatory agencies, and industry associations.

B.E. Asset Managers

An asset management firm must be at least 51% black-owned and have been fully operational for the previous calendar year. The top 15 firms on our list include those that invest financial assets for individuals and institutions such as the pension funds of government agencies and corporations, and endowments of colleges and universities. (Asset managers who specialize in real estate and other types of investment vehicles or operate hedge funds are not eligible for inclusion on this year's list.) A firm's financial status is measured in terms of total dollar amount of managed assets derived from equities, fixed-income and tax-exempt investments, and cash for the calendar year. In addition to receiving surveys from these companies, we consulted the federal and state regulatory agencies and industry associations. All firms on our list must be registered with the Securities and Exchange Commission (SEC) and have made an annual filing of their assets under management with the SEC at the time of publication.

Private Equity Firms

A private equity firm must be at least 51% black-owned and have been fully operational for the previous calendar year. The leading 10 firms on our list include those that manage funds making equity investments in, and/or providing financing for, established and start-up companies. These investments are made on behalf of the firm and their individual and institutional investors. A firm's financial status is measured in terms of total capital under management for the calendar year. Additional information provided to BE included a firm's total number of funds as weld as its portfolio companies. In addition to receiving surveys from these companies, we consulted regulatory agencies and industry associations.

As indicated, BLACK ENTERPRISE consulted industry analysts and other sources to verify the information contained in the lists. Companies that may have previously appeared on the BE 100s but have been excluded this year are either no longer black-owned or their financial status has dropped below the minimum threshold to make any of the lists.

The BE 100s are available on disk in both Windows and Mac formats. TopList Software provides mailing addresses and phone numbers of the companies as well as information on black organizations. For more information on TopList, contact B.E. Unlimited at 212-886-9576.

--Additional reporting by Cliff Hocker, Jeffrey McKinney & Curtis Simmons