Are you seeing any truly unique annuals—at least from an appearance standpoint, not necessarily content?

S.C.: Occasionally. I have the feeling that four locales are most inclined to turn out books that are innovative, progressive—exciting, even: Milwaukee, Wis., Chicago and Atlanta, as well as New York City.

Do any guidelines exist concerning the summary annual report?

S.C.: None that I've seen. My personal belief—though not based on fact—is that those who opt for the SAR don't really care about such niceties. They'll make their own choice about what to include, what to leave out. And, increasingly, companies are failing to identify—on the cover—that theirs isn't a complete book...seven (one in 10) so far among early-arriving 1999s, costing them a pair of points automatically in my Category 15. That's on top of the automatic two points taken away because the report's a summary—meaning, a four-point hit. Some companies, to my way of thinking, are without pride.

The auditors are saying our CEO shouldn't sign the letter to shareholders, let alone join in assuming management's assumption for responsibility for the financials. How do you feel about this? Do you have a problem with it, like we do?

S.C.: Maybe the auditors' advice is an over-reaction to all the damning news about them that appears, it seems, virtually on a daily basis in business and financial publications. Every year, one or two CEOs worldwide doesn't put his (never a her) signature on the letter, though it's clearly understood the person in the corner office wrote it and takes responsibilty for it. I always wondered why some didn't affix a signature; now, perhaps, I know. It's because of reactionary advice by backward accountants. (Is that a redundancy—"backward accountants"?) No legal requirement exists that I know of that the boss "sign" either the letter or management's assumption back among the financials. But custom says at least the letter should bear the signature of whoever ostensibly wrote it. (Can you imagine getting a letter in the mail from a chairman or president without a signature?) If I were director of a company whose CEO refused to put his or her name on the letter that runs in the annual, I'd question that stance. That of course assumes directors are other than rubber stamps for those who proposed them for election to the board in the first place.

If someone requests a copy of an annual report, is it true that if the company cannot provide a copy upon request or in fact refuses to provide a copy of the report, it is unlawful? I have heard it is the law that a company must provide a person with an annual report if requested. Is that true, or can a company refuse to give anyone an annual report, employee or not?

S.C.: Beware barracks-house lawyers—that is, legal advice from would-be barristers. No, companies are not obligated to provide you with a copy of their annual unless you are a registered stockholder. Doesn't matter if you're an employee or not. It's most definitely not illegal. Increasingly, companies are telling non-shareholders to visit their website. I'm not sure I blame them. That's what I advise non-subscribers to my newsletter and/or other services—visit sidcato.com

When reading a company's annual report, what information would you look for, ranging from one to 15—one being the most important item?

S.C.: An annual report's most important element is the cover. If it doesn't convert recipient to reader (by saying, "Open me! Read me!") it has failed its most basic task. Second, I'd turn to the letter to shareholders. Does the CEO convince he or she was actively involved in preparation of the document? Does the CEO give the reader a good feel for author of the letter? Does he "speak English"—that is, use language rich in meaning and in clarity? Does the reader get a handle of where the boss sees the company headed? Are financial highlights listed up front, including a percentage-change column? And does the letter refer specifically to the numbers, explaining away, perhaps, those that are troublesome? Next, I'd evaluate the book's overall feel, as you thumb through it. Did you like the company that produced it? Did its paper stock, graphics, impress? Was clarity of thought apparent? I'd look for 11-year financial data, usually in the back of the book. Or, even better, declaration of a 10-year compound growth rate. Has the company celebrated its employees, not only by picturing them but identifying them, as all executives are identified? Then, has the company offered up detailed biographical data on officers and directors, indicating qualifications of each group to serve? And is the board of directors diverse, not seen to exclude women and/or minorities? Back up front, was an easy-to-comprehend company description presented—or did the company indicate, by its omission, "everyone knows our name"? Did the company present a mission statement—a declaration of its guiding principles? Bottom line: Was the reader left with a warm, positive feeling about the company and its investment potential—along with its desirability as a place to work? Those are some of the things I encourage stockholders and prospective employees to consider.

Can it be true that the average company prints two copies of its annual report per stockholder? I can’t believe that, in this age of the Internet, companies still are doing this. Say it ain’t so, Sid!

S.C.: Yes to the first part—no to the second. Yes, for years, companies have printed essentially two annual reports per stockholder. I call it the ratio of copies printed to the number of shareholders. First year, 1985, of my exclusive Producer Poll, the ratio was 1.96. It remained essentially constant—that is, 1.9—until the 1996 crop of reports. That year, and among 1997s, the ratio was off slightly to 1.7. But among '98 reports, the ratio was off to 1.3. The likely reason indeed is advent of the Internet. Today, virtually every corporation—at least, in the United States—has a website. I’d guess that, increasingly, non-stockholders interested in a company’s annual report are directed to the corporate website, thereby enabling the firm to shorten its press run.

I have collected over the years a number of old annual reports with prospectus. I need to obtain more current reports for research purposes. The reports I need are for the various companies in which I own no stock. The companies in which I do own stock automatically send me their reports. Is there a general website or phone number where I could call and order any report? Or do I need to call each company separately? Will these reports be sent for free? I have been able to obtain annual report information on the internet, but have refrained from downloading because of the high number of pages. I would rather work from the mailed version.

S.C.: First off, this question essentially has been answered online. Take my response to No. 27 for 1999, as well as No. 67. But yours is slightly out of the ordinary. There's no place I'm aware of that will provide you with annuals, either free or for cost, other than through The Wall Street Journal and its annual report service. Again, Corporate Annual Reports in New York City (I'm sure it has a website) has reports on file that, as I understand it, prospective clients are welcome to peruse at its offices. (No extra copies, I'd assume.) One other option: If there's a business reporter you're friendly with, it's just possible he or she might have some—though certainly not most —annual reports around the newsroom.

I am preparing research on the strengths and weaknesses of an annual report as a communications vehicle. What are your thoughts on the subject?

It would be interesting to question or poll receiver response to those books that seem to disregard the information presented and are merely an expression of designer whims. What's your opinion? Has anyone ever conducted such a survey?

S.C.: I suspect you're referring to the scathing review I gave the 1999 annual report of a Chicago corporation, as well as my criticism of both the Mead Show and Potlatch (the paper company), which seem to encourage creativity over substance. To my knowledge, no one has ever done such a survey as you suggest—to see how recipients react to far-out graphics regardless of the kind of year the corporation itself had. I can't help but think of the Tenneco report a few years ago. Its appearance, in the shape of a license plate, elicited raves from fellow-CEOs and many stockholders—despite the book's seven blank pages, which its executive vice president tried to sell as an intentional "cost-saving move." A year earlier, in its graphically arresting 1996 report, its CEO ignored a 45% decline in net income. With its '97 report, on a 10% increase in net sales and operating revenues, net applicable to the common stock declined again—21%. Meantime, the company reduced its cash dividend paid on the common stock a third. Yet, the company spent a bundle on its presentation—a case of style over substance. About those seven blank pages, which its executive VP defended: To be totally honest, each page contained 16 horizontal rules along with, atop each page, the word "Notes." A sure sign of rank amateurs at the helm.

Our CEO wants to pay his respects to a former chairman who had died. How do companies handle this in their annual report? Is there any one, best way?

S.C.: Companies handle this in a variety of ways, as you might imagine. It depends on the relationship of the CEO and the departed, understandably. If the current CEO really, truly liked and admired his predecessor, or an earlier CEO who has died, then, sure, honor him (or her). But be sure the writing indicates true concern, true admiration, a true statement of the deceased's contribution to the company. What form should such a tribute take? Any one of many: cover, inside front cover, as part of the shareholder letter, following the letter, as a special section, perhaps a spread with photos of the dearly departed—even on the inside back cover. Think about it: This all involves a sense of how the departed was regarded, and, I guess, why the CEO wants to honor him (or her). Is it, for instance, to make the board realize what a good, decent human the current CEO is? That's the thought process one must go through to determine how to proceed. And the final version is totally arbitrary, of course.

For a small (400 employees, revenues less than $50 million), relatively young software company (founded in 1990, went public in the middle of 1998), would your criteria remain the same for the annual report? Would you expect us to include all the same 15 elements you consider essential to a good annual report?

S.C.: Yes. While I would understand if a new, relatively small company didn't want to "go all the way" with its annual report, I can't make exceptions. When you think about it, everyone has an exception from time to time. One company explained it dropped its glossary of terms because environmental coverage had to be expanded. Others say their grid doesn't quite qualify because one of its clients listed switched allegiances. About you: Think how impressive it would be if a small, fledgling firm produced a perfect annual—that is, one that scored all 135 points, along with a 100% Cato Positive Index! The challenge awaits you—the gauntlet has been thrown down. (Mosinee Paper, a smallish firm, tied for first place in a year it conceded was less than satisfactory. What counts is that you embrace my criteria, that you subscribe to my admittedly arbitrary standards, whether you're small or large, in good years and bad. Consistency counts.)

Merger mania is running rampant, of course. Under those circumstances, what are the guidelines concerning when and if an annual report should be printed? Example: Two companies agree to merge in December. Merger won't close until late first quarter, say early March, and NewCo. is formed. Should both companies still publish separate reports, should they combine reports and make it an overview of NewCo., should they create a new animal that is part AR and part NewCo. company brochure? Any legal considerations here?

S.C.: This is among the complex problems facing corporations today, not only in the United States but around the world. There are no ironclad guidelines I'm aware of, but the timing you theorized certainly plays a large part in any decision. (You can't, for example, assume a proposed acquisition will be consummated, and decide not to produce your annual report, required by your stock exchange listing agreement. What if you don't print a report and the deal falls through? How do you explain that to the regulators?) What I always counsel is that one act in the stockholders' best interests. You could opt for any or all of the things you've touched on. To be factored in are several elements, not least whether it's a hostile takeover; whether the triumphant CEO wishes to throw a bone to the firm he has taken over; whether the premier boss is truly a Great Communicator. Also taken into consideration is at what stage of its annual report process is the acquired company, and/or the acquirer? If I were the CEO who reigned supreme, I'd be none too happy if my new charge spent a bundle on the report of a company that soon (presumably) no longer would be a separate entity. Loads of complexities here. What's called for is someone who takes a stand, advocates a position, based on the logic at play here.

Several weeks ago, I asked if companies were required to produce an annual report and, moreover, what would happen if they failed to do so—that is, what would the penalties be. You have not yet responded. Is that because you don't know the answer, and are too lazy to find out? Or isn't my query important enough for the Great Annual Report Guru? Please answer.

S.C.: As I've indicated online previously, there are occasions, believe it or not, when a question is posed whose answer I don't know. This was such an instance. So the day I received your inquiry, I appealed (via email) to a producer of one of the world's best annuals; did he know the answer? He asked his legal counsel, who suggested I call the Securities and Exchange Commission. After several phone calls to the SEC, I finally talked with an attorney, an assistant in the Enforcement Division. We agreed this is confusing, and here's why. First off, it's not the SEC that mandates that companies produce a full-color, full-disclosure report—it's a company's listing agreement with the exchange its stock is listed and traded on. What the SEC requires, and what it sees as an annual report, is the legalistic Form 10-K, whose contents all companies are familiar with. That's prepared usually by the Corporate Secretary's department, though not necessarily. That's a long windup to telling you the SEC isn't the place to get an answer, it appears—unless you're indeed talking about a Form 10-K. Yes, companies must file that. And if they don't? I don't know the penalty, never having established contact with the person the first guy said would call me...the person who knew the exact answer. Now, would the exchange your stock is listed on—would it take umbrage if you didn't produce an annual report, other than the Form 10-K? I doubt it. After all this, I suspect your question is theoretical. Consider my response, long and involved as it is, equally theoretical. A philosophical debate, if you will, between two persons who are into this key corporate communiqué. Is there a firm, concrete answer to your question? I'll pass it on should I ever receive one. Appreciate your patience.

Hope you subscribe to the "There are no dumb questions" school of thought. I get different answers to this question all the time: How many days before a company's annual meeting must the annual report be in the hands of shareholders? Can you help?

S.C.: Reason you get so many different answers is because this is a typical corporate game played, I'm sure, in corner offices around the world. The rule simply is that stockholders theoretically are supposed to have the annual report in hand before they vote their proxies. Some corporate secretaries make up a date, say 30 days prior to the annual meeting. Others say it's 21 days—three weeks. (But what if you used Priority Mail, guaranteed to be delivered in two or three days?) From a practical standpoint, so much information has been released prior to issuance of the annual report, it's actually moot whether stockholders have the annual in hand, or don't, prior to voting their proxies. Which most stockholders don't vote anyway! If I were an attorney, and had a corporate secretary on the stand, I bet I could get him (or her, of course) to admit that the answer is "yes" to my questions, "How about mailing the report 14 days prior to the annual meeting? Seven?"

Do many companies actually include a vision statement in their annual reports? If they do, does it have to appear in the front of the book? And how about the company description—must it be up front as well?

S.C.: You decide whether the word "many" applies: Last year, among 1998 annuals, 47% of the companies worldwide included a mission statement, essentially flat with 48% a year earlier. So far among 1999s: 37 percent. But keep in mind that most companies on a fiscal-year basis lack stature in my estimation, thus would be less inclined to declare their vision, should they actually have one. Must it go up front? No. In fact, many seem to position it on the inside back cover.

What is the correct way to list cities and states in an annual report? Should AP Stylebook guidelines be followed?

S.C.: Your reference to the AP Stylebook indicates to me your background is as a reporter. Many magazines, it seems, prefer the New York Times Stylebook, but I’m an AP Stylebook guy. I abhor—absolutely abhor—magazines (like the one I write for, Chief Executive) that use the two-letter post office designation in referring to states; as in, MN for Minnesota, OK for Oklahoma. I maintain that those two-letter designations are only used as part of a mailing address. As in "Kalamazoo, MI 49019-0850." Now to the point: I tend to think that, other than in listings (of directors, for example), the state name should be spelled out. Alabama, rather than AL—unless, of course, we’re talking about mailing addresses, as in your company address. In my monthly newsletter, I prefer the AP style: Minn. for Minnesota, for example; Mich. for Michigan, Ala. for Alabama. But one of my advisors wishes I would spell out the state names, rather than abbreviate them.

How new are the 10 bonus points for criterion No. 1? Is this something that could possibly mitigate part of the problem with the six-year financial highlights, or am I dreaming? Due to mergers, acquisitions and divestitures, which require restating results (a horrid task), we'd kill our accountants if we asked them to restate 10 years. With all the M&A (mergers and acquisitions) taking place, I wonder if we will see 11-year financial highlights as often in the future. Six-year financials may be a sign of companies on the move—11-year financials may be a sign of stagnant companies. Companies that actually do restate 10 years—are there really any out there that do that after a lot of M&A activity?

I am learning how an annual report is relevant to public relations/ PR professionals. How is this relevant and what information can you give me to assist with this issue?

S.C.: Why do I feel you haven't bothered to read (1) my AR Answer Man questions and responses, (2) capsule critiques, (3) monthly quizzes let alone monthly news releases. Not to forget my various essays online. If you've read all that and still don't know the relevance of an annual report to the public relations profession, one of two things is certain: Either I'm a poor communicator, or you're looking for someone to do your homework for you. Sorry I can't do more than I've already done.

What improvements do you suggest for tobacco companies annual reports, which are battered by lawsuits and litigation?

S.C.: I think such companies are fighting a losing cause. How can you explain away working for a company that helps kill a large segment of the population every year, that helps doom young people to a life of impaired health? Yes, yes...I know, it's not their fault; it's the responsibility of the consumer to know better. To which I respond, as gently as I'm capable of being: BALDERDASH! One company, based in New England, revealed that a top officer had resigned, which as I recall the company indicated it understood, sympathized with the executive's dilemma. I believe companies that make an unsafe product—in this instance, tobacco, whether smoked or chewed—should be treated as pariahs, and you're looking at ex-addicted smoker, lucky to be alive. (Yes, I know: It's not their fault, any more than the auto companies are to blame if people drive too fast and get killed. That's comparing apples and oranges, as we say.) So what can tobacco companies do in their annuals? Bite the bullet. Quit worshiping the God of Commerce. Be heroes.

I carefully read one company's Form 10-K filed with the SEC and compared it to its printed annual report. I noticed that the numbers listed for research and development expenditures in the 10-K were different than the numbers printed in the annual report (they were lower in the 10-K). Is this common? Is there a good reason why the numbers would be different or is the company committing fraud? Must the numbers in the 10-K exactly match the numbers provided in the annual report?

S.C.: My preliminary reaction was the same as yours: that this smacked of fraud. But I polled three top annual report producers, one an assistant corporate secretary. Here's the first two responses: "Research and development costs are normally included in the audited notes to the financial statements in most companies' reports. (In our case, it's in Note 1 under Other Costs.) The notes must be exactly the same in both the 10-K and the annual report, and any R&D costs must be identical. The only possible excuse would be a typographical error in one or the other document that the independent auditors didn't catch. If R&D expense is discussed in the editorial section of the annual report, and in Item 1 Business in the 10-K and not included in the notes, the amount could possible differ. However, I would expect one of the documents to explain the difference in calculations. Of course, another explanation could be a typo in one document or the other—or the annual report went to press before the 10-K was filed, and they changed the number after the report had been printed. Since the editorial section of the annual and Item 1 of the 10-K may not be cross-checked, different numbers might slip through." Here's what the assistant corporate secretary opined: "To the best of my knowledge, research and development expenditures are not a require disclosure in the annual report. They are required in the 10-K, though, if material. Nevertheless, if a company decides to disclose them in the annual, then I would expect the numbers to be the same as those in the 10-K." Here's the third response: "While I fear we don't have enough information (or proper context) for a definitive answer, I've consulted with our experts in Financial Reporting. Here's their assessment: Perhaps the annual report was discussing CASH paid for research and development (for example, spent $1.0 million), and the 10-K was showing R&D expenses incurred (keeping with the same example, incurred $1.2 million as of end of the fiscal period, but hadn't paid a bill of $200K to the outside consulting firm). We suggest re-reading both the annual report and the 10-K to ensure that the R&D amounts covered the same period and/or related to the same portion of the business—whether the whole business or certain segment(s)." Well, have we confused you sufficiently, with our three experts' responses to your query, all quite different?

We've just landed the annual report of a company with a new corporate identity. Do you know of any companies with new corporate identity programs that have unveiled or introduced them in the annual report?

S.C.: Not off the top of my head, but a few years back—say, five—I believe some companies did just what you're talking about. Why not find the association corporate identity folks belong to—perhaps the American Institute of Graphic Artists or some such?—and find out what companies have come up with new identities over the last decade, say. Then approach those companies for their annuals subsequent to the changeover.

What are your thoughts on using the same picture of the President over and over? It would be easier to achieve peace in the Middle East than to get our President to have his picture taken. Unless I can change his mind, this will be the fourth straight year we use the same picture. Unfortunately, because of the pose, it's very easy to recognize its previous use. Do you have anything that could help me get him into the studio?

S.C.: Yours is not an uncommon problem. I personally know how difficult it can be to work out the details concerning getting a new, current photograph taken. But it's a necessity. Imagine someone meeting me at plane-side and comparing my newsletter picture with how I actually look; talk about embarrassment! Those who use the same picture year after year—and don't capitalize President, please, unless you're referring to the President of the United States—in their annual report are seen as buffoons by many. By Cato, for instance (I'd zing him royally if I came upon the same photo four straight years, that's for sure). By stockholders with an eagle-eye, detecting his vanity, as I perceive it. My favorite story in this regard involves the annual report about a decade ago for Outboard Marine Corp. OMC, emulating LA's Times Mirror Corp. with its sun-drenched photograph of Charleton Heston-lookalike Otis Chandler of the media chain's founding company, draped over the hood of his Stutz-Bearcat or some such. Accompanied by tons of editorial praise by his employees, "members, all, of Bootlickers Anonymous," as I niftied. OMC ran an artist's drawing, similarly golden, of its CEO. I recall wondering how the chap actually looked. Then, in the back of the book, the idiots ran an actual photograph of the boss, appearing near death from cancer or something. So they were not only venal, but stupid as well. They use a fake painting of the boss, looking like a movie star, then stupidly show how he really appeared—on his last legs. Maybe you could relate this anecdote to your CEO, and tell him that bastard Cato is out to get him.

Can you give me contact information, even just a telephone number, for a couple of the more highly regarded annual report award competitions? I understand that Financial World is out of business. I have information on the Nicholson and PRSA programs, and I have received a submission request from American Business Communicators. But this is my first time making these submissions, and I want to make sure I am entering our annual report in the major competitions. If it helps you to determine what competitions would be suitable for me, I work for a rather large global financial services company.

S.C.: Only partially in jest do I say (with the possible exception of the Nicholson awards) that I know of none comparable to mine. (And I have no phone numbers for any other competitions whatsoever.) But of course I'm prejudiced. I do, though, discourage your entering design competitions (like those conducted by Potlatch and Mead Paper), since that's really not the point of an annual report, to my way of thinking. You presumably have not overlooked Sid Cato's program, now in its 17th year. When should you submit your report? Yesterday. Any "entry form" required? Nope. Where do I send it? Check my website for details—post office box for U.S. mail deliveries, my office address for Federal Express, UPS or other delivery services—which of course won't deliver to a post office box. Neither do I receive mail at my office—just the post office box. Confused? Welcome to the crowd.

What do you think the desirable characteristics of financial reporting are?

S.C.: If you've checked out my copyrighted criteria on what makes a good annual report, you know I advocate 11-year financial data, a financial highlights listing up front including a percentage-change column, and all graphs captioned. I decry use of the legalistic Form 10-K or the summary annual report. I want the same figures to appear up front—in the financial highlights, as well as in the letter to shareholders—as are on the income statement. Bottom line: I insist on honesty. Isn't that enough?

You were referenced in the International Herald Tribune. Do your picks of good annual reports translate into good companies, whose stock prices rise?

S.C.: First, my conviction is that an outstanding annual report is clear indication of an exceptional company. Second, several years ago—prior to the stock market crash of Black Monday 13 years ago—I was tracking this very subject: whether award-winners have industry-besting price-earnings ratios, both near- and long-term. As I suspected, an industry-besting performance trailed the award-winning annual report by two or three years. But, yes, there was a distinct correlation. Until Black Monday, when all bets were off. One of my advisors said, "Yes, your theory is correct—except when a stock market crash occurs." I'll buy that.

I am much interested to get annual reports on listed companies in Asia stock markets such as Indonesia, India, Philippines, Malaysia, Korea, and Taiwan. Do you have annual reports on these markets? Are they for free or at a cost, by how much?

S.C.: I have no annual reports, either for sale or loan—just those for my own needs. Which, of course, is analyzing annuals from around the world. Sorry. I have no idea how to get the reports you're interested in, other than writing each individual company. Do I have addresses of all those companies I would be willing to share with you, or sell for a price? No.

May I ask you (via e-mail) some basic questions about annual reports? If so, here they are: (1) What's the most important part of an annual report? (2) Is a report strictly for marketing or new business? (3) Are there specific layout procedures? (4) Is there any advice from the field that you can give me? I simply want to better understand this area of corporate communication. Thanks so much.

S.C.: First off, would it be presumptuous to assume you've thoroughly read all my online philosophy? From the AR Answer Man feature to monthly quizzes to Sid's Commentary to—well, everything I've already written on the subject. I believe, as you can readily see from my splash (home) page, the most important element of a report is—what? The cover! Next to that, I contend the most important element is the letter to shareholders—one that's forward looking, sounds as though a human authored it. Is a report strictly for marketing or new business? Neither. It's a corporation's report to its shareholders on management's stewardship during the year past, and how that promises to impact things to come. If you truly want to understand this area of corporate communication well, I suggest you revisit this website on a regular basis; it's being updated on an almost-daily basis. If you're sincere about this, I would assume you would contact all the companies whose annuals are listed as achieving "world-class" status—that is, scoring at least 100 of a potential 135 points. You also should study my annual writings for Chief Executive concerning the world's 10 best, and 10 worst. All that data is available on my website—as I hope you're aware.

First, what information, in your understanding, does the average personal investor want to get out of an annual report? The average corporate investor?

S.C.: All the surveys I've read say any investor, be he/she individual or professional, wants to know what a company's prospects are. Also, what the bench strength of a company is—in other words, is there anyone minding the store on the stockholders' behalf other than the chief executive? What industry/business is a company in, and why? What does it see for the future, and why? In other words, what its prospects are. And its chances of achieving them—that's what an investor wants to know. Not how well the last year was, but how it reflects on the future, what it portends. In the corporate world, there's no such thing as resting on one's laurels.

I need several annual reports. Can you help me?

Several months ago, I believe you cited what you view as the best graphic design agencies working in the field of annual reports. Any changes? Or has your list remained the same?

S.C.: Without comparing what I said before, the best agencies, as far as I’m concerned (speaking as an annual report reviewer, not as one who awards "outstanding graphic design") currently are: New York City’s Inc Design as well as RKC!; Connecticut’s Ted Bertz (the Champion 1999 book impressed, though he took his knocks a few years back for Tenneco’s with seven blank pages!); always-fine Texas-based Herring Design; Chicagoland’s SamataMason, its work on the R.R. Donnelley report memorable; same with Chicago’s Cagney + McDowell, for W.W. Grainger and Walgreen Co., among others; Pentagram/San Francisco, its Potlatch pieces exquisite; Nuforia, New York-based, for Harcourt General (if not, in its '99, MetLife); Nancekivell Group, especially its annuals for St. Paul Cos.; Little Design, likewise based in the Twin Cities (unless it's responsible for the wanting appearance of Wells Fargo's 1999 report); Chicago’s VSA Partners, perhaps; Atlanta’s Critt Graham + Associates, increasingly unforgettable. In-house, there’s none finer than Ford Motor Co. Not to forget the only agency with the courage to submit its entire body of work—Chicago-based Meta-4. Its oeuvre is especially pleasing. Not only are its artistic abilities enormous but they’re used to further, to advance, my criteria on what makes a good annual report. In fact, more Meta-4 reports make my "world-class" list year after year than any others I can recall, other, perhaps, than Critt Graham. An addendum concerning Chicagoland's SamataMason (sometimes typeset all lower case, as in samatamason): Its Donnelley design, one discovered, is virtually the same as in the TRW report and that of Brown Shoe Co., which—to one observer, at least—isn't kosher. It's dirty pool, indicates the designers don't differentiate between the needs, and audiences, of a commercial printer moving into the 21st Century, a famed multi-industry firm and a shoe company.

Regarding the agency problem and conflicts between managers and its interest of the shareholders, how could this affect the layout of the annual report?

S.C.: Huh?

How do you resolve the dilemma of declaring which annual reports are the world's best when they comprise some of your existing clients?

How many of the Fortune 50 companies produced summary annual reports in 1998? Do you see the number of summary reports increasing, decreasing, or remaining steady?

S.C.: I don't break down my findings by the top 50 companies; if that were the universe, I'd say few go the summary report route. But of the reports for 1998 analyzed, from around the world, from companies large and small, fewer than 5% (one in 20) went that down-and-dirty route. Among early 1999s, the percentage is half again so large—7.3%. That's terribly discouraging to those of us who abhor the summary report and what it portends for corporate disclosure. Still, that's fewer than two dozen bad actors worldwide. My fervent plea: Don't do it! Just say no.

In most companies, who is responsible for creating the annual report? Corporate Communications? Investor Relations? When you get submissions for your evaluation and awards programs, what percentage would you guess come from a company's department other than Corporate Communications?

S.C.: Contrary to what an investor relations magazine believes (I declined to be interviewed, its premise faulty), most annuals aren't the responsibility of the IR department. More than half the respondents to my 15th annual Producer Poll cite public relations in their backgrounds. Many also had backgrounds in employee communications. IR is a background of only one in seven or eight producers. What's required, of course, for a successful report is a professional communicator at the helm. (This isn't a job for amateurs.) When reports are sent "over the transom," as we say, they're like as not to come from someone who hasn't a clue about what my criteria are...what I'm seeking. Many arrive with the fervent plea, "Hope we make your 10 best list," when the reality is they're lucky they don't make the list of world's worst!

What do you mean by an end-use photograph? Do you mean "in use" or "end use"?

S.C.: Well, I guess you could say it either way. We're talking about the product and/or service in use—a so-called "end-use photograph." It affects your Cato Positive Index. I want to see not a can of pop, but the drink being consumed. Not an insurance policy, but the benefits of such a policy. Not a table-top meal, but a family savoring a Wendy's, for instance. Doesn't this requirement make sense? We've been tracking this element for 17 years, so it's no surprise—or, at least, it shouldn't be.

In a recent issue of your newsletter, you made reference to the length of an annual report letter to shareholders—NiSource was the company, and you said the letter "runs over 18 endless pages." Then you said that from now on, "scores go down as the number of pages goes up—over, say, five pages. One point if six, all 10 if 10 pages." Was this a joke, or are you serious?

S.C.: I'm serious. Letters have grown like Topsy—out of control. Graphic designers interrupt this key message in the key corporate communique' obscenely. Frankly, I don't know how companies let them get away with it. Regardless, from now on the corporations themselves will take a hit for letters running more than five pages. (Current average isn't even three and a half pages.) Take Rockwell International: Its letter in the year-ago annual, for 1998, ran over 16 or 17 pages, helping usher the report to 10-worst status. Charitably, I only counted it as running 12 pages in length—but, even at that, its score, a measly 60 points, would have been seven fewer, or 53, under the new rules.

I am researching pressures to produce environmental impact statements and I was wondering if you have any information regarding the pressures that companies feel to produce annual reports.

S.C.: First off, I wonder if you meant to say "annual reports on environmental impact." Companies certainly "feel pressure" concerning issuing their annual report to shareholders, required by their stock exchange listing agreement as well as, in specified form, the Securities and Exchange Commission. Many companies belong to an environmental association, which no doubt encourages that they consider issuing an environmental AR as well. I noticed your query came from an educational institution. I guess this means I'll be overwhelmed the next week or so with queries from late-starting students, whose final papers or reports are due.

Is there any formal research on the average length of time a shareholder/investor spends reading an annual report? I have done extensive research on the 'Net to no avail. If you can help, it would be most appreciated. I will let my client know of your services. I tried to phone you, but I guess you were out.

S.C.: Have you taken time to see if this question hasn't already been answered on my website? Bet it has. I've heard the average length of time ranges—from 15 seconds to 15 minutes, obviously simply wild guesstimates. As far as I'm concerned, no one knows. My question, I guess, is: Why does your client care? You should make an annual report so readable, so fast a scan, so easy to comprehend, as any of today's newspapers or magazines. Also, I don't take calls (happened that I was out) from nonsubscribers; how presumptuous of random callers who must assume I'm sitting around waiting to provide them with free information, which they'll turn around and bill the client for! If you have any questions in the future, please pose them as an AR Answer Man question and they'll be answered online—for all to read. (I can't promise how soon they'll appear, though.) Better yet: Subscribe!

We are a newly publicly held financial services company and we are in an expansion mode from a strategic standpoint. We currently produce 7,500 annual reports. The Form 10-K is included in the report together with the chairman's letter and a 20-page promotional glossy section. We have approximately 2,000 stockholders and we use the annual report as a marketing tool for prospective clients and business contacts. We offer premium services to individuals and their business interests. What is your projection of a reasonable cost per annual report?

S.C.: The cost, based on your input and where you're located, could range anywhere from $5 to $15 per copy, depending on many variables. That said, I'd be much happier if you confined the Form 10-K to its required purpose: as a filing document required by the Securities and Exchange Commission. By contrast, the annual report to shareholders ought to be so inviting and readable as a daily newspaper or weekly newsmagazine, I'm convinced. And a 10-K most definitely does not fall into that "most-readable" category. But if all else fails, and you do incorporate the 10-K as the main part of your annual report, be sure to so identify it on the cover. Otherwise, you run the risk of being taken to task for hiding the report's true identity.

I cannot find annual reports on most of the companies I am researching. Where, if not here or the SEC, would be a good place to go find annual reports and other financial information on companies?

S.C.: The question has been asked, and answered, more than once—as part of the AR Answer Man feature! You simply need to check my responses, this year and previously. One other point: The SEC wouldn't provide you with any financial data on companies, other than by way of its online filings—available to anyone with a computer. You need to do some work yourself, sir.

I will attend graduate school for design in the fall. I was considering focusing my studies on the design and production of annual reports, but I’m curious as to what the future will be for the printed documents. Many companies today publish theirs online, and while I find most of them unreadable that way, it seems to be popular. Do you think printed reports will endure? Also, who are some of the better design firms specializing in annual reports? I’ve heard that Addison is quite good, as is SamataMason and Inc Design. What’s your opinion?

AOL/TimeWarner recently published 560,000 printed versions of their (make it "its") annual report, along with an extensive online edition that included video interviews with key executives. In the age of broadband, do you think such an approach (that is, using motion and sound) will catch on for many corporations?

My company wants me to find out what others invest in their annual report to shareholders. Can you help?

S.C.: The year-after-year average, believe it or not, hovers around the $3 mark, but that's because respondents to my annual Producer Poll, now in its 15th year, tend to have larger print runs than you might anticipate having. This year, preliminarily, the average is running more than $4 a copy but, again, that's very much preliminary. One reason for a higher per-copy average: Companies are printing fewer copies, thanks to the Internet. (Their ratio—copies printed to number of shareholders—has declined from a year-after-year 1.9 to the current 1.6. A smaller print run equals a larger per-copy investment, and vice versa.)

As a principal of a graphic design firm, we are seeking to break into the annual report market (and perhaps we can influence some clients to see things your way!). Do you know of a good source or listing on how to contact the appropriate person in a corporation who has responsibilities for the company's annual report?

What's the latest conventional wisdom on mid-year reports? Do you have any research? Anything specific to utilities?

S.C.: I only monitor the world's annual reports to shareholders—not quarterlies. But while I have absolutely no research on quarterlies, for utilities or anyone else, I am convinced corporations are making a mistake when they cut back to one, too-often-abbreviated communique' a year to stockholders. Then they wonder why no investor has loyalty to any individual company. That's because loyalty has to be engendered; it doesn't just happen, as all good, professional communicators know. My point: Yes, continue at least a mid-year report, the quality (and content) of those produced by Quaker Oats or Sara Lee. Both, by coincidence, are Chicagoland companies.

How to modify the annual report in order to bring more understanding for non-accounting individual investors? How to make annual report more attractive?

S.C.: I contend that an annual report shouldn't require a degree in accountancy to understand, whether one lives in the United States or, as I suspect, in the Far East. That's why good journalists are a vital necessity—men and women who know how to communicate with the general public. Also, companies are best advised to make the report simple and understandable, just as a daily newspaper or weekly newsmagazine is. How to make an annual report more attractive? Well, that's the task of graphic designers, either inside a firm or outside. One I praise in the August 2000 issue of my newsletter certainly meets these standards: Atlanta-based (now with offices in New York City and Boston) Critt Graham + Associates has taken what could be a dull, dry document and turned out pieces that excite—that astonish, almost.

Are any companies going completely electronic with their annual reports? Is it legal to eliminate a paper version and just do a Web version?

S.C.: No, and no. So far, no one has tried to skip the print version, though don't be surprised if this is in the offing for those who relish a chance to avoid the path of full disclosure. Legality of eliminating a print edition and just do a version for the Internet hasn't been tossed to the stock exchanges and Securities and Exchange Commission—not yet, to my knowledge. But again it wouldn't surprise me if that's in the offing.

How do I critique an annual report? I just need it to be simple for my professional writing class. Any information you can give me will be great! Thank you.

S.C.: Everyone wants to be a Sid Cato. It's not simple, but you can begin to learn how I do it if you peruse my website. Check out the 15 copyrighted criteria on what makes a good annual report. Also study all the ASK Mr. Annual Report questions and my responses, as well as monthly quizzes and news releases. Oh, yes: Don't forget my Chief Executive articles for the last two years, dealing with my evaluations. You're welcome.

I know you hate the short form report because it "short changes" the shareholder. In the UK (United Kingdom), a shareholder can opt to receive the shortform and/or the full report—both are published. My 85-year-old mother prefers the quick, easy to read summary of 24 pages rather than the 104-page version. Any comment?

S.C.: All (or at least most) companies offer to send the full report if one writes in. The fact that almost none does is what management uses to justify the truncated version of the real thing. For years I've praised the U.K.'s Lloyds Bank, which at least advises that the abbreviated report doesn't provide sufficient information to enable one to make an investment decision. Those of us who know about such things could predict that no one (few, at least) will write. It's too much of a bother. This is akin to corporations saying, "Let's discontinue this issue of our quarterly magazine and see if anyone writes in." Again, few if any will write. Professional communicators know, though, that doesn't mean it's not missed, that its absence can reap negative benefits down the 'pike. Great that your aged mother likes the short report. If people listened to Sid Cato, the entire (if longer) report would be so appealing. This I'm afraid is a case of "never the twain shall meet": I'll never convince you of my position against down-and-dirty annuals, and you certainly haven't swayed me a whit.

I'm working as a project leader for a Norwegian company. We are developing conferences. I'm researching for a conference with the working title, "The Annual Report." My questions are: (1) Do you see any trends in using the Internet as a publishing tool? (2) Do you have contacts to recommend in Norway?

S.C.: Gee, what a zippy title for your proposed conference. My answer to your second question first: No. About Internet trends, it's obvious you haven't done your homework; My website contains copious comment on the subject, both in this ASK Mr. Annual Report feature and elsewhere. I see Norwegian annual reports (there aren't all that many), and they uniformly fail to impress. I question whether a Norwegian conference on the subject of annual reports could possibly draw more than a handful. If what you're seeking is some speakers to recommend, I'd have to suggest yours truly. My fee structure is outlined online. Payment is up front—prior to my departure.

How important is the print quality of annual reports, and are you aware of any printers that have a reputation for producing the best quality annuals?

S.C.: I can't conceive of any product requiring more perfection (printing and otherwise) than this key corporate communiqe, with its lifetime shelf life. Any error, or poor quality printing, glares at the reader evermore. Many printers are said to be quite good, not least Kentucky-based Hennegan Co.. L.P. Thebault and Acme Printing (now more officially known as Quebecor World Acme/Universal) are two I hear good things about. On the West Coast, George Rice has a good reputation. Oh, not to forget Graphic Arts Center, based I believe in Portland, Oregon. I'm especially fond of Bruce Offset, in the Chicago area.

Have you heard anything or seen studies/surveys suggesting companies are discontinuing publishing annual reports?

S.C.: How timely! Just today I received the Year 2000 annual report of Federal Express. It was accompanied by a note from the FedEx Corp. investor relations VP, advising "This will be the last time we will mail out financial material" such as the annual report. A sad day at Blackrock, to my way of thinking.

What do you think about giving shareowners the option of requesting their annual reports online? They can choose to not have the report mailed to them. Also, is it okay to encourage employees to access the report online by providing hard copies by request only?

S.C.: I'm not especially happy with this trend, but it appears unstoppable. I don't believe companies need any encouragement to give short shrift to the print version, whether with stockholders or employees. We can assume this trend will snowball, that eventually the online annual will be reviewed in my monthly newsletter, for instance, every bit as often as the print report.

I noticed that many visitors to your website have asked where to order annual reports. I found a site that allows people to order free reports from more than 3,600 public companies. Are you acquainted with the Public Register's annual report service?

We are contemplating changing the format of our quarterly shareholder letter (currently the "paycheck" style). We want to begin sending electronically or faxing ONLY the quarterly press release to interested parties (our quarterly press release is much more exhaustive with financials and informative than the currently shareholder letter). In order to accomplish this, we are considering sending out a letter detailing our intent to change formats, and including a prepaid response card to our current universe of quarterly letter recipients requiring a proactive action on their part to remain on our mailing list. Do you know of any good examples of the letter to accompany the response card? Companies who have done this without being off-putting or appearing that they are curtailing communication?

S.C.: First off, know I'm opposed to anything that presages a scale-back in communications with stockholders and/or professional investors. It sounds, though, that your intentions are good. Many, many companies have done what you're suggesting doing—in fact, I get a postcard a day, it seems, asking if I wish to remain on a firm's mailing list to receive its annual report. I always indicate "yes." About your final question: No, but I am well aware of a company that stubbed its toe terribly in this respect. It put out a self-serving letter from the CEO talking about how cutting out the annual report would be an improvement in communications, that indeed the company's goals were high-minded. That annual report by chance happened to become the world's No. 1 worst, heading the list in the November issue of Chief Executive, my 17th annual picks. I won't reveal its identity, but know its producer is a subscriber to my monthly newsletter! Obviously, I have failed him something awful—as, I submit, corporations who cut back on communications with stockholders are letting down their constituencies.

I'm trying to find out the trend (if there is a trend) among individual investors in their preference to receiving annual reports (or any other financial information like prospectuses, but mainly annual reports) in print versus electronically. And when someone talks about "via electronically," are they just referring to annual reports posted online on websites and not about annual reports emailed by the company directly to the investor? Are companies emailing annual reports to their investors?

S.C.: All companies—the progressive, with-it corporations, at least—are quick to embrace this new, ethereal means of communicating. When, frankly, all but about four dozen have yet to master the old-fashioned print report! That said: This is a time for exploration. Companies will try anything they can get away with, and each uses terms that may have their very own meaning to an individual. So when you ask for a definition of various terms, it well may vary. Are companies emailing annuals to investors? Well, not technically, though some are trying to dovetail (1) a truncated version of the print report with (2) a hippy-dippy electronic version. I don't believe any company, though, is emailing its entire report to investors—not if I understand your question. A truncated version, maybe.

I am requesting information on how to send you a company annual report. Where do I send it and are there any deadlines pertaining to the annual report article in the Chief Executive magazine?

The 1999 Sun Microsystems, the 1994 McDonalds, and an early '80s version of Blue Cross of New Jersey all used a magazine/newspaper format. Do you have any recollection of other companies that have done this within the past couple of years?

S.C.: I believe, to clarify things, the Sun "magazine/newspaper" format in reality was an advertising insert in The Wall Street Journal. I thought McDonald's was prior to 1994, but I'll take your word for it. (I remember it well, since McDonald's refused to debate me on CNN in Chicago.) Forget Blue Cross; I only monitor annuals of publicly held companies. Now, to my response: The McDonald's report was a WSJ ripoff, so poorly done the Journal didn't even bother filing suit. A New York bank, though, whose name escapes me currently (Goldome?), did a USA Today ripoff. When a Gannett reporter interviewed me about it, I pointed out "your legal department no doubt will file suit"; or, at a minimum, a "cease and desist" order—which it did. The bank sent a letter of apology to all its stockholders. It wasn't long thereafter it was gobbled up by a bigger bank. First such format, though, occurred in 1962. I did a Time-reminiscent annual. No one noticed. Almost forgot: Pier 1's fiscal 1984 report was a National Geographic look-alike. Also, the Marcus Corp. 1982 report was patterned after Newsweek. A year later, Marcus imitated Time. That elicited a formal protest, which Marcus appeased by covering the Time-like logo with a sticker.

What impact do you think the release of the annual reports on the share prices of the respective companies? What are the benifits for a company of listing in the stock exchange market? What are the cost? From an internal management perspective, what use are the annual reports?

S.C.: First off, I'm almost hoping against hope that you have little if anything to do with annual reports (indeed, you may well be a student; that in itself scares me!). At a minimum, you need an in-house spell-checker, if not a tutorial in spelling. But responding to your questions: Potentially, an annual report with forward-looking news can't help but impact a firm's share price—if not immediately, then over the long term. I have no knowledge whatsoever concerning your second question, involving listing on a stock exchange. Neither do I know the cost—I only deal with annual reports to shareholders of publicly held companies. The answer to your final question may be found in Chief Executive, which every CEO receives. Your question indicates to me you haven't taken time to really delve into the material on my website. I believe your question has been asked, and answered, hundreds of times. In the ASK Mr. Annual Report feature, in my commentaries, in my monthly quizzes, in my news releases on each issue of my newsletter...and on and on. Do your homework—that's my suggestion, with all due respect.

Does Xerox pat an annual dividend and if so how much?

S.C.: Assume you mean "pay." "Pay" or "pat," I have no idea—all I do, solely, is monitor the world's annual reports to shareholders, not dividend payments and the like.

I was wondering if you could tell me a few sources where I could research the impact of producing the simple 10-K report required by the SEC or the four-color glossy that has become standard. One of our clients is thinking of producing just the 10-K and we are discouraging it, but are looking for data to back up our opinion.

S.C.: My website is laden with similar questions, and my responses. Check those out. Plus monthly quizzes and news releases. Meantime, know I strongly oppose dilution of a company's message with a Form 10-K (in whole or in part), incidence of which is proliferating this year. That's a bad, bad sign for investors.

Could you send me some basic information of what the first time shareholder is, looking for, should be looking for...in annual reports.

S.C.: If you perused my website, I believe you'd find the answer. But in a nutshell (to use the cliche'), an annual report should have appeal. It should have a cover that says "Open me! Read me!" Plus, an inviting appearance throughout. Language should be simple and easy to comprehend. Beware the company whose annual report has a barren landscape -- no people pictured, save the Big Cheese. If you don't feel comfortable—warm, even—with an annual report, perhaps you misplaced your investment savvy by getting involved with that company in the first place. One last thing: My stockbroker (in days of yore) said you should (1) pick an industry you think is going places and (2) buy stock in the leader in that industry. Hope this helps.

Has anyone stopped printing the financials of their ARs, and referred investors to see the postings on their website?

S.C.: Not that I know of.

What's your position on the SEC's Regulation FD?

S.C.: FD of course stands for "fair disclosure"—a new rule ensuring that all investors, not just the professionals, get information on a contemporaneous basis. Right now, as you can see from my website observations, the Big Guys on Wall Street get the inside dope months before the little guys do. And NIRI—the IR trade association—wants to delay FD. On the contrary, fair disclosure should have been mandated years—years!—ago. You may quote me.

Can you refer me to a good annual report which would show me a draft of a footnote disclosure refering to this situation. My Company in Jan. 2000 purchased a majority interest in another co.that company has a June 30 fiscal year end. For the six month ended December 31, 1999, and the fiscal years ended June 30,1999 and 1998, sales of the other company totaled approximately 7,000,000, 9,070,000 and 8,482,000 and net income totaled (509,000), (1,418,000) and 171,000. My company acquired a 75% interest in the other company in exchange for 3.2 million in cash and 125,000 shares of the company's common stock. The remaining 25% of the other company was acquired by outside vendors for 2.4 million. My question is how to I draft this type of transaction into a footnote disclosure?

S.C.: Sorry, but it's the auditors' function to draft such footnotes. Besides, from your email address it appears you're a student. Obviously, you want me to do your assignment. Sorry, no.

What are the characteristics of a financial reports?

S.C.: Again, this sounds like a student, on deadline, trying frantically to finish an assignment. First off, students need to proofread the question they asked. Second, I haven't a clue as to what the characteristics of a financial report (singular) are. Other, perhaps, than ease of readability and full disclosure.

could you send me a copy of survey questions one could ask to the average shareholder regarding there knowledge of reports...and informaty of the annuial report

S.C.: It scares the living daylights out of me to assume you're either a student, or one who already has graduated from some school-or-other—that, or you flunked typing! (I sort of hope it's the last item!) I'm not even sure of your question, let alone what I'd advise. Try again after you get help—that's my unkind advice.

Could you please guide me regarding the difference between a CEO's Summary and a CEO's Letter to Shareholders, if they are not one and the same?

S.C.: I've never heard of the term "CEO's summary." Sounds to me the same as the CEO's letter to shareholders.

What is corporate identity? Why did dewalt sell to black and decker?

S.C.: Corporate identity has little if anything to do with annual reports to shareholders, though an identity an outside branding firm (such as New York's Addison) suggests to a company should influence the annual report preparers. All print pieces should bear a resemblance to all other forms of communication, from letterheads to advertisements to, say, the company's website. If I understand your query, dewalt is a company name, and it has been acquired by Black & Decker? B&D is a name I'm familiar with, its 1999 annual report named to my list of world's 10 worst. Didn't know of the acquisition; that's not in my purview, which is solely annual reports to shareholders of publicly held companies worldwide.

Are you aware of any company's online annual report that expands on the content of the company's print version?

S.C.: No, and there better be none, or companies will be in hot, hot water with the Securities and Exchange Commission, if not the exchange their stock is listed and traded on. Any company that puts more disclosure online will find itself making copious law firms rich, I predict. Those who attend my annual conference agree that both the print edition and the online annual report must contain the very same material, lest companies risk stockholder lawsuits.