(FORTUNE Magazine) – Coasting. That is the word that best describes the state of the world's largest corporations as they glided into 2001. Despite the bursting of the technology bubble and the deteriorating economic conditions in key markets during the second half of last year, the titans on FORTUNE's Global 500 list were carried forward by the momentum of brisk expansion in 1999 and the early months of 2000. Total revenues for the Global 500 increased 10.8%, while profits climbed 20.4%.

As always, the biggest business stories of the past year are reflected on our list. Higher crude-oil prices, for example, meant that oil producers were able to turn black gold into black ink. On average, petroleum refiners' revenues grew 39% and their profits increased 124%, an earnings jump bigger than that in any other industry. Nobody did it better than oil giant Exxon Mobil, which rose two places to end General Motors' four-year tenure atop the overall revenue rankings. (GM slipped to No. 3, while Wal-Mart Stores hung on to its No. 2 spot.) Exxon Mobil also unseated General Electric (No. 8) as the company with the most profits--$17.7 billion, a 124% increase. This feat is even more impressive given the quality of the field: In all, 22 companies broke the $6 billion profit barrier last year, eight more than in 1999.

Profits were also flying high at drug companies in 2000, with the sector providing a 17% return on both revenues and assets, better than any other industry. Those fat profit margins, however, hide potential trouble. "The industry has been under great pressure as the big companies have fewer new drugs coming to the market, patents are expiring, and there is a tough environment to grow in out there," says Barbara Ryan, a Deutsche Bank pharmaceuticals analyst in New York. Maybe that's why consolidation in the industry has not abated. In the biggest drug deal of the past year, Glaxo Wellcome (No. 349 last year) bought SmithKline Beecham (formerly No. 356) for $76 billion (the new company, GlaxoSmithKline, is No. 159). The year 2000 also saw Pfizer (No. 138) complete its merger with Warner-Lambert in a $116 billion transaction and Pharmacia (No. 273) finalize its purchase of Monsanto for $31 billion. (For more on the pharmaceuticals industry, see page 58.)

Merger mania was rampant in other sectors of the global economy as well. In fact, 2000 beat out 1999--the previous record holder--for both the number and the value of mergers and acquisitions. In all, there were 38,292 transactions, totaling nearly $3.5 trillion, according to the Canadian research firm Thomson Financial. A little more than half of that was in the U.S.

Of course, bigger isn't always better. DaimlerChrysler (No. 5), itself the creation of a huge cross-border merger, struggled in 2000, barely hanging on to its position as Europe's largest company, just ahead of an ascendant Royal Dutch/Shell (No. 6). Other big automakers stumbled as well, with profits falling 26% at GM and 52% at Ford (No. 4), even though worldwide car sales set a record in the first half of 2000.

The troubles at the big car companies did not trickle down to Europe's smaller producers, which generally kicked earnings into high gear. At Volkswagen (No. 21), for example, profits more than doubled. Earnings rose 63% at Fiat (No. 47) and 56% at Peugeot (No. 86).

Overall, 2000 was a year of mixed fortunes: More than 140 companies saw profits decline from 1999, and more than 50 lost money. Among those hurting were some of the same technology companies that were the darlings of last year's rankings, including Lucent and Olivetti. "Sales growth in the tech industry not only slowed, it went into reverse in the later part of year," says Jeffrey Applegate, Lehman Brothers' chief investment strategist in New York.

Although telecom and computer companies struggled in the second half of 2000, one of the worst-performing industries last year was an old-economy stalwart--shipping. The reason is further evidence of the link between older sectors and newer ones. The slowing economy and the end of the tech boom in the U.S. resulted in fewer products making it out the door. Falling volume also pinched profits at mail, package, and freight delivery companies. Earnings declined 24%, on average, in that sector. United Parcel Service (No. 135), however, increased profits 232%, mostly by concentrating on markets outside the U.S. In Europe, for example, shipments increased 30%, helping Big Brown beat expectations.

Japan had no such good fortune. Even though GDP grew 1.7%, twice as fast as in 1999, consumer demand remained sluggish. No one is predicting boom times. "Japan has managed to underperform even the most pessimistic expectations," notes Daniel Gabay, an economist with J.P. Morgan in London.

Despite Japan's inept economic policy, there is no doubt that its blue chips know how to do business, and its export-oriented giants managed to thrive. Canon (No. 171) streamlined its manufacturing operations to meet surging demand for its laser printers and digital cameras. The company's profits more than doubled last year, to $1.2 billion, on revenues of $25 billion. Meanwhile, office managers the world over clamored to buy Ricoh copiers. The company (No. 377) made a big push into the U.S. market, buying Lanier Worldwide late last year. Overall, its profits increased 28%, to $481 million. Toyota Motor (No. 10) also had an impressive year, with revenues growing 5% and earnings 17%, thanks in large part to America's continuing desire to hit the road in sport-utility vehicles. And revenues rose 7.5% at Mitsubishi (No. 9), which was enough for it to overtake Japanese trading company Mitsui as Asia's largest company.

For the past several years, readers of the Global 500 have been able to track China's emergence as an economic powerhouse. The number of Chinese businesses on the list continues to expand as more and more corporations have their books audited according to Western standards. This year 12 Chinese companies made the list--in industries from banking to telecommunications--two more than last year. China's new entrants include China Mobile (No. 336), a state-owned phone company with $15 billion in sales, and China National Petroleum (No. 83), a state-owned energy company that racked up $42 billion in sales and is the Global 500's largest employer, with a payroll of 1,292,558. By the same token, India continues to be notable by its absence: Only one company, Indian Oil, cracked the top 500--fewer than for Belgium, which has less than 2% of India's population. Indonesia, the world's fourth most populous country, doesn't have any. Russia, the fifth most populous, has two; its tiny neighbor, Sweden, has five.

Europe's multinationals spent 2000 expanding their global reach, helped in part by the positive trade conditions that resulted from the weak euro. Take French tiremaker Michelin (No. 353), which had solid volume growth worldwide but declining revenues. The story was similar for Germany's Siemens (No. 23). The weak euro helped the company grab international market share, but revenues declined slightly in dollar terms. Profits, however, soared, thanks in part to the company's majority ownership of Infineon Technologies, Germany's largest semiconductor company. Siemens netted $5.2 billion when it sold part of its Infineon stake in an initial public offering. The company's total profits increased 383%, to $8.6 billion, last year. Overall, 156 European companies made this year's list, down from 163.

In America, the story was of a boom turned to bust. But even in a not very good year, American companies continue to dominate the world--185 made the ranking this year, six more than in 1999. Average revenues for those corporate giants rose 14%, to $29.7 billion, while average profits remained about the same at $1.7 billion. By the end of the year, however, there were dark clouds. GDP growth, 5% in 2000, will be just 1.1% this year, predicts Morgan Stanley economist Joseph Quinlen. "The slowdown that started in the U.S. has spread from there," Quinlen says. "Demand is weak, and it's very difficult for companies to operate in this type of environment."

So what's in store for the Global 500? The world is slowing down. According to the Organization for Economic Cooperation and Development, the global economy will be lucky to grow 2% in 2001, compared with 4.1% in 2000. Prudent monetary policy--central banks in 75 countries have lowered interest rates so far this year--may keep the global economy from crashing. But corporations will not have an easy time beating last year's revenues and profits numbers. Coasting won't hack it anymore.

REPORTER ASSOCIATE Paola Hjelt

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