Well, preliminarily, how do they look -- the '96 crop?

S.C.: After a slow start (it appeared 1996 reports were headed for the dump), annuals are even more positive than a year previous, when they achieved a record for positiveness. After a 5.7% Cato Positive Index at year's end among '95s, the 320 analyzed to date average 8.5%! Incidentally, the Gallup Poll would require for a representative sampling the square root of the universe -- in this instance, 110 annuals. So we've analyzed nearly three times that many, though a lot of turkeys are slow to arrive (their companies understandably skittish about Cato evaluating them).

How do you determine a report's positive bent?

S.C.: Three dozen indicators are used to evaluate, automatically, a report's positive or negative nature -- ranging from extensive financial disclosure to forthrightness in the letter to shareholders. Read: honesty!

Any winners so far?

S.C.: Campbell Soup Co. has a report that preliminarily has scored 101 points (of a potential 135), no small accomplishment considering the report was absent (1) complete biographical data on officers and directors and (2) a grid or matrix providing a breakdown of the company's operations. But its writing is exemplary, as indicated by a fog index of 4.93, accompanied by a low, 11.3 average words per sentence.

Any others worthy of commendation?

S.C.: Two others qualify for "world-class" status by scoring at least 100 points: Apogee Enterprises, with 110, and Japan's TDK, 102.

How important is design in your competition -- the 15th year you've monitored the world's annual reports?

S.C.: Not as important as graphic designers obviously believe. Take the BTG Inc. report. The cover fulfills its basic requirement: to make the reader open and proceed to inside pages. But despite good design work by Carter/Cosgrove & Co., Alexandria, Va., the book ended up with a flat rating -- that is, a positive/negative evaluation of 0.0%. Clearly, ours is not a design competition. As indicated by the fact that the Time Warner reports were selected, hands-down, as best designed, while in this competition, three years running they were adjudged world's worst!

How does your competition differ from others -- say, that of Financial World?

S.C.: Financial World, for instance, is looking for financial disclosure of a breakthrough nature. Other programs give three of four entries awards -- which the recipients pay for! That's dirty pool to my way of thinking. I commend the National Association of Investment Clubs (NAIC), whose standards seem to conform to ours. We're seeking a book that demands the recipient become reader, that communicates to all stockholders, professional and individual alike, in an honest, clear manner. And that especially looks for extensive CEO involvement and verbalization of what the company's all about and where he/she sees it headed. I want financial disclosure that's more than the basic required. A premium is placed on forthrightness. I want the CEO to address, regardless of the results, precisely what happened and why. The stockholder deserves no less.

Are there advantages to a company placing its annual report on its website?

S.C.: Most definitely! No disadvantage that I can see.

What are your opinions on rounding in annual reports? Is there a relationship between company size and the significant digits shown? Does it matter if there is internal consistency throughout?

S.C.: As a general position, I'm opposed to anything that smacks of "rounding" in so precise a document as a company's annual report to shareholders. (That's especially true where graphs are concerned: There's no place in an annual report for graphs that are scene-setters, sans precise year by year numbers.) But I recognize that some figures may be far too wide to permit showing them in their entirety. To be sure, most companies do some rounding, especially in the up front financial highlights. Consistency, though, is an imperative. The up front figures have to jibe with those in the back of the book -- the financials, that is. That relates to one of Sid Cato's advocacies: When in doubt, I advise chief executives, quote from the income statement. I routinely cross-check the figures there with the letter to shareholders. When I find a discrepancy, I question the CEO's forthrightness (read, "honesty").

Are any design firms particularly adept at creating easy-to-understand quarterly financial reports? Do you have any thoughts concerning companies with particularly good or bad quarterly statements?

S.C.: Denver-based Genesis, Inc., does the quarterlies for Chicago-based Quaker Oats Co., among the best I see. Colgate-Palmolive's and PepsiCo's are excellent, too, as are those produced by Sara Lee, Household International and Allstate, all, by coincidence, Chicago corporations. One or more of them is the client of Meta-4, oft-praised in my monthly newsletter. Worst are those that utilize a Milwaukee-based outfit that sends out self-mailers that may fulfill the letter but for sure not the spirit of full communication with stockholders. They're boilerplate, pure and simple.

If a letter to shareholders doesn't have a good, acceptable fog index, based on your evaluation—does that mean it can't be a good letter?

S.C.: As a general rule, a fog index exceeding 12 is anathema to most professional writers. (Under 12 means the material can be read easily by just about everyone who has attended high school.) But one of the year's better letters is by Mike Gilliand, chief executive officer of Wild Oats Markets, Boulder, Colo. All I can say is, if he didn't write the letter himself, he should sign his scribe to a long-term contract! Yet, his fog index is 9.20; worse, average words per sentence, 20.0, exceed the pro's self-imposed lid of 16. That cost him two points for writing. But the piece still sings.

How can I get a copy of the Tandem annual report -- or any annual report, for that matter?

S.C.: The Wall Street Journal online offers availability of many annual reports, and there's an Annual Report Library in San Francisco. Moreover, business and financial magazines frequently list reports available...as does the print version of the Journal. And, if worse comes to worse, ask your stockbroker to secure those you're interested in.

How many companies produce annual reports? And how many reports are mailed currently?

S.C.: The Securities and Exchange Commission says 12,114 companies are required to produce an annual report. My exclusive, 12th annual Producer Poll indicates the average print run is almost 232,000 copies. That figures out to nearly three billion copies mailed out (2.8 billion, to be more precise). Per-copy investment is running roughly $3. Meaning this is an $8.4 billion industry -- counting 1996 annual reports, that is.

Our chief financial officer, as we begin the '98 budget process, once again is beating the drum for a summary annual report—separating the financials into a separately bound piece. I hate this idea and I have a hunch most of my peers do, too. But I can't remember exactly why.

S.C.: Only two dozen companies any one year at worst take that approach—produce a down-and-dirty summary annual report (SAR.) So far among '96 annuals, seven (fewer than 2% of the universe) have gone down that path. One of the most memorable examples of a company that reverted—that is, went back to the "traditional" annual report after experimenting with a summary report—was Kimberly-Clark...after I named its SAR one of the year's worst! Know that no company that goes the SAR route—or in this instance, produces a two-part book, the financials a throwaway, usually printed in one color on toilet-paper stock—can make my list of world's best with its annual report. If you are forced to go that route—produce a two-part report, a not-so-subtle segue to an SAR—be sure to identify it as such. And know that many, yours truly among them, will be convinced you have something to hide. Trust me: The negatives far outweigh the positives, any alleged cost savings that might result.

Can you tell me the half dozen best annual report producers—among design agencies, that is—in the world?

S.C.: Make that eight or nine good ones, none abroad other, perhaps, than Corporate Graphics International, London-based. Plus, in this country, Meta-4, Chicago; The Nancekivell Group and Little & Co, St. Paul/Minneapolis; Jerry Herring, Houston; three in New York City: The Graphic Expression, Dick Lewis' Conceptual Communications and RKC! Also, Critt Graham + Associates, Atlanta, and Corporate Reports, likewise based there. Add to that list, Meyer Design Associates, Wilton, Conn. Its positively breathtaking design on behalf of Citizens Utilities gives the utility quite possibly the year's finest-appearing annual report. And a newcomer: Ted Bertz Design, Inc., whose superb work on the Xerox and, especially, the Executive Risk annuals catapults him to the top of the heap! Period. That's 12 I'd commend.

Since you're the annual report guru, I'm hoping you can answer my question. Are there any annual reports done on CD-ROM? I'm sure we're not the first design firm to do one in this format. Please help—nobody else has been able to.

S.C.: Sure—but not as many as we've been led to believe. Apocryphal (that is, unsubstantiated) tales abound of dozens of annuals on CD-ROM. Year after year, Mead is cited as one that's gone that route, but you couldn't prove it by me. The facts are this was one of the shortest-lived trends in history: Within a year, two at the most, the Internet completely overcame, overwhelmed the annual on CD-ROM. Typical of the stories is the one involving Adobe's stealth report on CD-ROM. The company maintains it produced one, but neither I nor my computer genius could find it on the disks (two) sent us. Indicative, too, is that Schlumberger a year ago produced a tiny annual report, the print version, along with a disk that deftly delved into the company and its capabilities. This year's Schlumberger report remains tiny, but no disk accompanies it this time. My question to you is: Why would you do an annual on CD-ROM in this day and age? Bet you continue to sing the praises of the stick shift.