Articles

 

THE QUEST FOR ORGANIC GROWTH

Executive Summary:

Every business leader strives for more organic growth — more customers, more revenues, and more operating efficiencies. Organic growth is different than the creation of earnings through accounting elections or valuations, financial engineering, structured transactions, related party transactions, or the serial acquisition of revenue through mergers and acquisitions.

I have spent the past 4 years researching and studying high organic growth companies. This research began with the creation of a financial model, The Organic Growth Index ("OGI") which was designed to illuminate high economic value-creating companies who have consistently outperformed their industry competition primarily through organic growth. In three separate studies between 1996- 2003, of over 800 high economic value-creating public companies, I discovered that less than 5% of them consistently created such value through organic growth. In-depth research was performed with 22 of those companies in an attempt to understand how they achieved such spectacular results. The findings of these studies can be found in my recently released book, THE ROAD TO ORGANIC GROWTH: HOW GREAT COMPANIES CONSISTENTLY GROW MARKETSHARE FROM WITHIN (McGraw-Hill, 2006).

My primary findings were: (1) the 6 keys to organic growth; (2) that many of the current management consulting theories are not necessary for consistent high organic growth; (3) the common organic growth strategic progression or sequence; (4) and as importantly, that organic growth is much more than a strategy - it is a seamless, linked, self-reinforcing system.

The 22 companies that my model identified as consistent high organic growth companies earned an Average Return on Equity of 28% for the period 1999-2004. For the period of 1996- 2003, their cumulative stock market returns outperformed the NASDAQ DJIA, and S&P 500 indices by multiples of 4, 7 and 10 times, respectively. The 22 companies researched were: American Eagle Outfitters, Inc, Automatic Data Processing, Inc, (ADP), Bed Bath & Beyond, Inc., Best Buy Co., Inc., Brinker International, Inc., EOG Resources, Inc., Family Dollar Stores, Inc., Gentex Corporation, Harley-Davidson, Inc., Mylan Laboratories, Inc., NVR, Inc., Omnicom Group, Inc., Outback Steakhouse, Inc., PACCAR, Inc., Ross Stores, Inc., Stryker Corporation, SYSCO Corporation, Tiffany and Company, Total Systems, Inc., (TSYS), Walgreens Co., Wal-Mart Stores, Inc., and Waters Company.

I had expected to discover, as current management theories teach us, that high organic growers would have better talent, better strategies, more unique products or services, be the lowest-cost provider, have more visionary and charismatic leaders, be the most innovative, and be high outsourcers and off-shorers. To my surprise, I discovered that none of these theories were necessary or consistently prevalent in my 22 high organic growth companies.

The common denominators across the companies were the 6 keys to organic growth. The 6 keys to organic growth are: (1) A simple focused "elevator pitch" business model which can be easily understood by the average employee; (2) a "small company soul" in a big company body—companies entrepreneurially structured with "ownership" cultures but with strong central "back office" controls over quality, risk, and capital; (3) measurement maniacs—these companies measure many financial, operational, and behavioral metrics daily and weekly, with transparency, frequent feedback, and the alignment of measurements and rewards ; (4) they have highly engaged workforces with intense loyalty, high retention., and high productivity; (5) they are led by passionate home-grown, humble leaders who are intimately involved on daily basis in the details of operations; and (6) they are technology and execution champions.

Many of you are saying that your company does some of these things well. However, the major difference is that these companies do all 6 keys well and just as importantly, they have created an internal growth system that is consistent, linked and self-reinforcing across culture, structure, strategy, leadership, operational processes, HR policies, and measurement and reward systems.

The Beginning

I began with Enron. The extent of earnings creation through related party transactions and financial engineering at Enron motivated me to research the fields of earnings management and earnings quality which led me to organic growth.

The summer of 2002 after Enron, Standard and Poor’s ("S&P") released their "Core Earnings Report" and Merrill Lynch issued its "Quality of Earnings Report." These reports caused some stir for a short period of time. There was also an increased academic interest in financial models dealing with the quality of earnings as evidenced by the work of Professor Patricia Dechow at Wharton.

OGI – An Evolutionary Step Forward

With this background, I with a research team spent over 3,000 hours iteratively designing a model which would accomplish three objectives:

    1. It would illuminate high economic value-creating companies who
    2. consistently outperformed their industry competition and
    3. did so primarily through organic growth.

Research Method

We began by studying the existing work in the field: Stern Stewart’s EVA model, S&P’s Core Earnings Model, and Merrill Lynch’s work. We interviewed senior accounting and audit partners at Big 4 Accounting Firms, reviewed academic research, key books, and SEC policies and earnings manipulations lawsuits.

My model was designed to meet academic statistical standards and to be conservative. Plus I wanted to err on the side of eliminating companies so I set high hurdles where applicable in order to increase the probability of finding high organic growth companies.

OGI – 7 Steps

The Organic Growth Index ("OGI") model consists of 7 different steps or tests. The first 3 tests are designed to illuminate the "best" high growth companies. The last 4 tests are designed to illuminate high organic growers amongst that pool.

Finding High-Value Creating High Growth Companies

Test 1: EVA

We started with Stern Stewart’s EVA model as a market accepted definition of economic value creation. For each period (1966- 2001), (1997- 2002), and (1998- 2003), we took the top 1,000 EVA companies for the base year. For accounting reasons, we eliminated REITS, insurance companies and financial companies. We then computed EVA/Capital Invested (Equity + Debt) for each company for each year and ranked them yearly. We then averaged the ranks across the applicable period.

Because we were seeking the best economic value creators we chose the top 300 companies as "winners." The number 300 was arbitrary -- but thought to be a good sample size.

Test Period

Base # of Companies

Existing #

1996 – 2001

834

300

1997 – 2002

860

300

1998 – 2003

862

300

 

Tests 2 + 3 - High Growth Companies

We now had 300 high EVA companies. How many of these companies were high growth companies as compared to their industry competition? Was high growth better evidenced by increasing revenues or by increasing cash flow from operations (CFFO)? We decided to use both tests and weight them equally.

Sales GAGR

For each of the 300 companies in each test period, we computed their sales compounded annual growth rate ("CAGR") and compared it to a six (6) digit industry average Sales CAGR using 6296 different companies overall. We then computed a Z- statistic for each company to normalize our results across industries.

CFFO Growth

For each of the 300 companies in each test period we computed its annual change in cash flow from operations . We then divided the annual cash flow change by the book value of assets in the initial year in order to have a ratio to show the magnitude of the change. We then averaged the results for each company and compared it to the 6 digit GI CS industry average change in cash flow from operations. We then again used Z statistics to normalize results across industries.

CFFO Z statistic = Company A average change in CFFO - Industry average change in CFFO

____________________________

Standard Deviation of Industry

 

For tests two and three we used Compustat databases. To get the end result we weighted the Z results of tests 2 and 3 equally and averaged them. If a company had a positive net Z statistic, it passed these two tests.

Test Periods

Entering #

Exiting #

1996-2001

300

170

1997-2002

300

189

1998- 2003

300

204

 

ILLUMINATING HIGH ORGANIC GROWTH

Test 4: Modified S&P Core Earnings Test

S&P defines "core earnings "as income associated with a company’s "ongoing operation.". In my model, I modified their test by dividing a company’s average S&P core earnings for the applicable test period by its average reported net income to create a percentage:

Average Period S&P Core Earnings ≥ 90%

Average Period Net Income


If the percentage was greater than or equal to 90%, a company passed this test. The underlying assumptions of this test were: core earnings are a proxy for organic growth and the higher the percentage of core earnings as compared to reported net income the higher the likelihood a company is growing organically and not by creating one-time nonrecurring earnings.

Test 4 Results

Test Periods

Entering #

Exiting #

1996-2001

170

121

1997-2002

189

106

1998- 2003

204

128


Test 5: Income Manipulation

A common revenue manipulation is to accelerate income recognition either through changing income recognition policies or by extending more liberal credit terms or by channel stuffing.

One commonly used method to illuminate this possibility is to compare the growth rate of receivables to the growth rate of sales. If receivables growth outpaces sales growth that is a strong signal that something unusual may be going on.

I looked at each company’s year by year change in receivables and sales and for the applicable time period averaged their changes. If the average annual growth rate of receivables grew more then 10% of the annual average growth rate in sales, the company flunked this test.

In looking at the results for Test 5 we noticed an anomaly. Some companies flunked this test even if they had a de minimis amount of accounts receivables. This unintended consequence was dealt with by adding a de minimis exception – companies with overall accounts receivables less than 5% of sales automatically passed this test.

Test 5

Test Periods

Entering #

Exiting #

1996-2001

121

93

1997- 2002

106

69

1998- 2003

128

89

Test 6: Merrill Lynch’s Cash Realization Test

August of 2002, Merrill Lynch introduced its Quality of Earnings Report with the assistance of Professor David Hawkins of Harvard Business School. One of their 4 analysis screens looked at the ratio of a company’s CFFO to its net income. I used this concept for Test 6 because I thought it was a strong indicator of organic growth.

For each company entering Test 6 for each year of the applicable test period we computed the ratio and then averaged the ratios for each company of

CFFO ≥90%

NI .

If the average was equal to or greater than 90%, a company passed the test. For this test and test 4 we created special decision rules to apply if a number in any year was a negative number.

 

Test 6

Test Periods

Entering #

Exiting #

1996 -2001

93

87

1997 -2002

69

62

1998 - 2003

89

77

Test 7: The M&A Test

Historically, academics defined organic growth as non -acquisitive growth. Again, my purpose was to illuminate high organic growers --- not serial acquirers of revenue. This was a difficult test to construct because of unreliable deal data on the amount of income acquired. Because of this, we used deal values from the SDC (Securities Data Corporation) database and assumed that deal values were a multiplicable proxy of income acquired, assuming accretive deals. For each test period, we added the sum of deal values for each company as the numerator and divided that sum by the company’s increase in market cap over the same time period (defining market cap as equity plus debt). If the resulting ratio was greater than or equal to 33⅓.% the company failed.

 

Sum of Acquisition Values ≥ 33 ⅓ %

Increase in Market Cap During Applicable Period

Test 7

Test Period

Entering #

Exiting #

1997 – 2001

87

39

1997 – 2002

62

23

1998 – 2003

77

36

This test eliminated a high percentage of companies. In Hess and Kazanjian, eds. The Search for Organic Growth (Cambridge University Press, 2006) Professor Rita McGrath of Columbia University discussed her research of over 2,000 firms with market caps greater than $1 billion dollars in which she found that only 427 firms grew at least 5% a year for a studied time period and that only 35 of those 427 firms did so without significant acquisitions. Her research confirms that real organic growth is difficult.

Overall OGI Results

Test Periods

Sample Size

"Winners"

1996- 2001

834

39

1997- 2002

862

23

1998 -2003

860

36


Sixty-six (66) different companies passed all the tests in at least one test period. Twenty-four (24) companies passed all the tests in at least two periods and only ten (10) companies passed all the tests in all 3 test periods. They are listed in the Appendix.

Policy Questions

The paucity of consistent high organic growth companies raises fundamental questions concerning the quality or character of earnings:

    1. Are all earnings equal? Are organic growth earnings more representative of a company’s underlying vitality and sustainability than one time transitory or non-reoccuring earnings created by either accounting elections, valuations, reserves, currency gains, financial engineering, related party transactions, investments or serial acquisitions? Should all types of earnings be valued the same?
    2. Earnings transparency – Should public companies be required by the SEC to disclose clearly and in detail the character and source of their earnings?
    3. Why does the market accept the premise that growth must be linear and at a consistent rate? Wall Street’s "rule" that growth should occur linearly and quarterly is not based on any science. Does that "rule" motivate behaviors which are contrary to organic growth and also, substantial fees for Wall Street?

Research Project #2: The "How" and the "Why"

I next set out to discover the "how" and the "why" 22 of the winners were able to do what so many companies were not able to do – consistently create value and outcompete the industry competition primarily through organic growth.

For the twenty two companies I researched, the public records included major articles, publications, company reports, filings, and industry analyst reports. I conducted telephone interviews with 11 companies and in-depth interviews and site visits at 7 companies: SYSCO, TSYS, Outback Steakhouse, Tiffany and Company, Stryker Corporation, American Eagle Outfitters, and Best Buy. My research produced commonalities, not scientific causality.

How did the 22 companies perform?

Performance of 22 High-Organic Growth Companies (1996-2003)

 

Performance*

Indices

NASDAQ100

DJIA

S&P 500

22 Companies

Cumulative Returns

160%

101%

80%

779%

Annualized Returns

12.7%

9.1%

7.6%

31.2%

*CRSP Database

Their Average Return on Equity (1999-2004) SEC Filings:
28%

My Expectations

When I share my research findings with executives, I start by asking them to rate the following factors as 1 ( not necessary ) or 2( important ) or 3 (very important ) in producing consistent organic growth.

Factor Common Importance Rating

1. Better Talent

2.8

2. Diversified Strategies

2.5

3. Unique Products/Services

2.8

4. Being the low-cost provider

2.6

5. Visionary Leadership

2.5

6. Charismatic Leadership

2.0

7. Being Global

2.3

8. Outsourcing

2.4

9. Off-Shoring

10. Most Innovative

2.4

2.8

   

In studying these companies I found none of the above factors prevalent or necessary in order to consistently produce high organic growth. The answer to all of the above is number one (1): not necessary. What I found common to all the companies were the 6 keys to organic growth.

The 6 Keys

    1. An Elevator Pitch Business Model
    2. A "Small Company Soul" in a "Big Company Body"
    3. Management Maniacs
    4. A People Pipeline – Highly Engaged Employees
    5. Humble, Passionate, Operators as Leaders
    6. Execution and Technology Champions

Elevator Pitch Business Model

Some of the companies studied were primarily product focused like Gentex, Harley-Davidson, Stryker and Tiffany and Company. Some were customer focused like SYSCO and TSYS. Some were value proposition focused like American Eagle Outfitters, Wal-Mart and Outback Steakhouses.

Regardless their business model or the overall strategic focus, all had a simple – easy to understand –easy to explain business model and strategy which the average employee could understand and explain. Simplicity led to more focus and to more employee engagement – understanding how their job fits into the business and why it is important.

These companies had 3 common characteristics generally:

    1. They were only in 1 business;
    2. They resisted industry diversification; and
    3. They kept their strategy and business model stable while being fanatical about daily iterative and incremental improvements.

With few exceptions, my winners were great incremental improvers, not great discoverers or creators. They were not obsessed with changing industry structure, redefining the rules of the market, or introducing revolutionary products or services. On the contrary, these companies were great at the "blocking and tackling" of business.

A Small Company Soul

Corporate leaders are challenged to obtain increased productivity from their employees, as well as find ways to maintain a highly engaged and energized workforce committed daily to execution excellence. Most of the companies I studied have achieved this result because they have entrepreneurial cultures, structured themselves to encourage entrepreneurial behavior, and they measure and reward such behavior. The result is highly engages employees who feel like they have "ownership" of their job, their customers, their results and their careers.

Measurement Maniacs

Large companies who want to be entrepreneurial need ways to illuminate mistakes quickly and to keep control of the power they have delegated. Measurements are the way.

All companies produce financial measurements. What was interesting about the companies I studied was that these companies:

    1. Measure frequently: daily in most cases;
    2. They measure key behaviors as well as financial results;
    3. They use measurements to give frequent feedback; and
    4. They align measurements clearly with accountability and frequent rewards

All this is made possible by technology. One example. Each Best Buy store is a separate little entrepreneurial "company." Every morning each store manager receives metrics on his or her store’s previous day’s performance – 30 different key metrics all color coded either green, yellow or red – all important to that store’s ROI. And each day that store’s regional supervisor talks with each store manager about the yellow

(warning) and red (problem) metrics. Daily feedback and focus on the key value drivers is made possible by a technologically enabled measurement system.

The movement into behavioral measurements has led some of the companies to redefine the role of the Chief Financial Officer ("CFO") from solely a finance role to the role of Chief Metric Officer ("CMO"). A Chief Metric Officer is responsible for everything the CFO was responsible for in addition to designing and implementing behavioral and operational measurements across the value chain which drive the desired behaviors and resulting operational results.

This "drill down" to behaviors is an iterative and constant "work –in- progress." For example, SYSCO which has 157 different operating units measures over 800 measurements weekly. Years ago it adopted the "Service Value Chain" model and today they are still iterating and drilling down further to make sure they are measuring the right behaviors.

Employee Engagement

The companies I studied were all focused on high employee engagement – high loyalty – high retention – and high productivity. What I came to appreciate was the importance of four (4) key policies:

    1. Hire for cultural fit;
    2. Keep the rules of the game – how employees are measured and rewarded -stable;
    3. Promote primarily from within; and
    4. Create an implied social contract – you take care of the company and the company will take care of you.

These companies understand that high employee turnover is costly, time consuming and makes deep employee – customer relationships more difficult. These companies also understand that employees can only deal with so much change. If you want your employees to be engaged in daily improvement (change) – doing the job better and faster- you need to keep the macro – environment stable and reliable. This creates trust between the employee and the company without which you can not have high employee engagement. The "rules of the game" – how one is measured, rewarded and promoted need to remain stable. The strategy and leadership of the company need to be stable, thus the individual employee can more likely deal with the pressure of daily execution improvement.

For example, the average employee tenure at TSYS is 7 years. The average store manager at Walgreens has 13 years tenure. All of the 22 companies’ leadership teams had an average 20 plus years’ tenure with the company. 76% of Wal-Mart store managers started as hourly employees. Tiffany promotes from within 70% of the time. Best Buy’s employee turnover is 20% below industry average and their short – term goal is to be 50% below industry average.

These 22 companies have not lost sight of a fundamental management truth: business is conducted by and with people. Business objectives are realized by line employees. Great companies understand the importance of high employee satisfaction and engagement. Without that, consistent high quality daily execution is difficult.

Leaders – Humble Passionate Operators

The leaders of these companies I studied were surprisingly humble and were primarily operators intimately involved in the details of execution – not just strategy, Wall Street finance, industry groups, global politics, etc. In many ways my work confirmed Jim Collin’s findings of Level V Leadership – humility and passionate will.

One example. When I interviewed the top 8 executives at Tiffany and Company in New York City I thought – this is the "perfect storm" for arrogance and hubris. New York City – Wall Street – wealth – fashion – jewelry. I expected the CEO to be dressed to the hilt – designer Italian suits, designer British or Hong Kong shirts, cuff links, jewelry etc., and that he would spend very little time with me. I was wrong. All were humble, understated servant leaders. All were focused on stewardship of the great brand that had been passed to them. Tiffany’s motto is "Growth Without Compromise."

Other than pay, many of these companies fight executive elitism and the resulting arrogance and hubris that develop by eliminating executive perks such as corporate jets, lavish private offices, reserved parking spaces, chauffeured cars, executive dining rooms and other indicia of executive elitism. As Tiffany’s President Jim Quinn stated so succinctly, "There is only 1 star here and that is Tiffany."

Execution and Technology Champions

High organic growth companies are also execution and technology champions. These companies have worked hard to engineer process and technologically enable their entire value chain to drive operations efficiently and productively, and have engrained the following entrepreneurial processes into their culture and operating fabric:

    1. Engineering process;
    2. The scientific method;
    3. Iteration; and
    4. A Do, Test, Learn, Adapt mentality

Organic Growth Strategies

The relentless pursuit of organic growth is not pure. Many of these companies made small acquisitions of enabling technology, new products, new concepts, or new customer segments. What was interesting was that many of these acquisitions were small in value and at the early stages of the product, technology or concept life cycle.

So acquisitions were not forbidden – but they were strategic and related to the core business and except for one instance they were not large in scale. Interestingly enough, when you track the evolution of many of these companies they evolved along a similar continuum, sequence or progression.

The Common Progression of Organic Growth

Step Action______________________________

1. You expand your business geographically.

2. You introduce complementary products for existing customers.

3. You move into a new customer segment with your products.

4. You add complementary services for existing customers.

5. You focus on cost efficiencies.

6. You focus on technological productivity in the supply-chain, logistics, and manufacturing functions.

7. You use technology to focus on customer knowledge and service.

8. You then focus on people measurement, hiring, and training

9. You add or acquire a complementary new concept.

10. You change from a product company to a customer-solutions company.

11. You start over at step 1.

12. You simultaneously improve in all 10 areas yearly.

Conclusion: Organic Growth is More Than A Strategy It is a System

Lastly, what I learned from these companies was that organic growth was not just a strategy. The hard part was the sensitivity, constant vigilance and discipline to keep all parts of the system linked, consistent and self – reinforcing. Strategy, culture, structure, execution processes, people policies, accountability, measurement and reward systems had to all be aligned and consistently managed. These companies were vigilant and highly sensitive about sending inconsistent messages to employees and customers which could create hypocrisy – the deadly killer of trust.

APPENDIX A "OGI WINNERS"

1996–2001

1997–2002

1998–2003

1. American Eagle Outfitters, Inc.

1. American Eagle Outfitters, Inc.

1. American Eagle Outfitters, Inc

2. Apollo Group, Inc.

2. Anheuser-Busch Cos., Inc.

2. American Pharma Partners Inc.

3. Aptargroup, Inc.

3. Automatic Data Processing

3. Applebees International, Inc.

4. Arvinmeritor, Inc.

4. Bed Bath & Beyond, Inc.

4. Avon Products

5. Automatic Data Processing

5. Best Buy Co., Inc.

5. Bed Bath & Beyond, Inc.

6. Bed Bath & Beyond, Inc.

6. Brinker Intl., Inc.

6. Best Buy Co., Inc.

7. Best Buy Co., Inc.

7. C H Robinson Worldwide, Inc.

7. Biomet, Inc.

8. BJ’s Wholesale Club, Inc.

8. Family Dollar Stores

8. Brinker Intl., Inc.

9. CEC Entertainment, Inc.

9. Gentex Corp.

9. Cognizant Tech Solutions

10. Chevron Texaco Corp.

10. Harley-Davidson, Inc.

10. Columbia Sportswear Co.

11. Colgate-Palmolive Co.

11. Lincare Holdings, Inc.

11. Costco Wholesale Corp.

12. Devry, Inc.

12. Mylan Laboratories

12. Coventry Health Care, Inc.

13. Dollar General Corp.

13. NVR, Inc.

13. Del Monte Foods Co.

14. Dollar Tree Stores, Inc.

14. Omnicom Group

14. Dollar General Corp

15. EOG Resources, Inc.

15. Outback Steakhouse, Inc.

15. EOG Resources, Inc.

16. Ethan Allen Interiors, Inc.

16. Paccar, Inc.

16. Family Dollar Stores

17. Family Dollar Stores

17. Ross Stores, Inc.

17. Gentex Corp

18. Gentex Corp.

18. Ruby Tuesday, Inc.

18. Harley-Davidson, Inc.

19. Home Depot, Inc.

19. SYSCO Corp

19. Intl. Game Technology

20. Jack In The Box, Inc.

20. Tiffany & Co.

20. Lowe’s Companies, Inc.

21. La-Z-Boy, Inc.

21. Walgreen Co.

21. NVR, Inc.

22. Leggett & Platt, Inc.

22. Wal-Mart Stores

22. Omnicom Group

23. Masco Corp.

23. Waters Corp

23. Outback Steakhouse, Inc.

24. Molex, Inc.

24. Pogo Producing Co.

25. Mylan Laboratories

25. Ross Stores, Inc.

26. Nike, Inc.

26. Ruby Tuesday, Inc.

27. Omnicom Group

27. Ryland Group, Inc.

28. Outback Steakhouse, Inc.

28. Smucker (JM) Co.

29. Paccar, Inc.

29. Stryker Corp.

30. Renal Care Group, Inc.

30. SYSCO Corp.

31. Stryker Corp.

31. Tiffany & Co.

32. SYSCO Corp.

32. Total System Services, Inc.

33. Teleflex, Inc.

33. Urban Outfitters, Inc.

34. Timberland Co.

34. Walgreen Co.

35. Total System Services, Inc.

35. Wal-Mart Stores

36. Walgreens Co.

36. XTO Energy, Inc.

37. Wal-Mart Stores

38. Waters Corp.

39. WellPoint Health Networks, Inc.

APPENDIX B 24 – 2 + TIMES WINNERS

Company Name

St Stock Symbol

1. American Eagle Outfitters, Inc.

AEOS

2. Automatic Data Processing, Inc.

ADP

3. Bed Bath & Beyond, Inc.

BBBY*

4. Best Buy Co., Inc.

BBY*

5. Brinker International, Inc.

EAT

6. Dollar General Corporation

DG

7. EOG Resources, Inc.

EOG

8. Family Dollar Stores, Inc.

FDO*

9. Gentex Corporation

GNTX*

10. Harley-Davidson, Inc.

HDJ

11. Mylan Laboratories, Inc.

MYL

12. NVR, Inc.

NVR

13. Omnicom Group, Inc.

OMC*

14. Outback Steakhouse, Inc.

OSI*

15. PACCAR, Inc.

PCAR

16. Ross Stores, Inc.

ROST

17. Ruby Tuesdays, Inc

RI

18. Stryker Corporation

SYK

19. SYSCO Corporation

SYY*

20. Tiffany & Company

TIF

21. Total Systems Services, Inc. (TSYS)

TSS

22. Walgreen Co.

WAG*

23. Wal-Mart Stores, Inc.

WMT*

24. Waters Corporation

WAT

Appendix C The 10 Organic Growth Champions: Winners in all 3 Periods

1. American Eagle Outfitters, Inc.

AEOS*

2.. Bed Bath & Beyond, Inc.

BBBY*

3. Best Buy Co., Inc.

BBY*

4. Family Dollar Stores, Inc.

FDO*

5. Gentex Corporation

GNTX*

6. Omnicom Group, Inc.

OMC*

7. Outback Steakhouse, Inc.

OSI*

8.SYSCO Corporation

SYY*

9. Walgreen Co.

WAG*

10. Wal-Mart Stores, Inc.

WMT*

© 2012 Professor Ed Hess All Rights Reserved