Are there any rules on the dimensions of an annual report? For instance, a horizontal annual report may be more interesting graphically, but will that in any way detract from the overall effectiveness of the publication?

S.C.: No restrictions exist concerning size of a report—or we wouldn't have seen, last year, the tiny Neiman-Marcus report, the equally small one for Antec, printed on stock resembling waxpaper. (The former magnificent, the latter an embarrassment.) Of course, graphic artists love the horizontal book: It's better visually. But be sure it'll fit in an analyst's file. If it's outsized, out it goes. I get annuals that would require a tool-equipped workman to open, just so I can look at the book. That becomes the last to be opened, you can be sure!

We received a packet of materials concerning the Nicholson Awards. Can you tell me anything about them?

S.C.: I believe the Nicholson Awards have very much the same criteria as Sid Cato. By all means, enter! That awards program honors those whose primary audience is the individual shareholder. Presumably, those awards judges believe, as I do, that the best job is done when the annual report is aimed at an individual. Of course, the report should contain data key to analysts -- 11-year financials, for instance. The 10-year compound growth rate. In-depth discussion of the company's prospects. That sort of thing. But speak to the individual and I'm convinced you do the best job of speaking to all your audiences.

Is there an advantage in using recycled paper? I guess it's supposed to say, "Look at us: we're helping the environment." But it is more expensive than non-recycled paper--and that can give out a different message to shareholders.

S.C.: Use of recycled paper is 'way off among early 1997 annual reports. Reason I include it as one of my three dozen indicators of a report's positive or negative nature isn't because I necessarily prefer it (yes, it's costly and not without pollution problems in its manufacture). Simply put, use of recycled paper in an annual report (as in my monthly newsletter) is a positive sign. Just like use of a glossary of terms. Use it, that's a positive act; don't, it's a negative.

I have been asked to advise our team in the production of the 1997 annual report. First, I express my gratitude for the valuable information that your site provides. Could you share some specific comments concerning reports in the telecommunications industry?

S.C.: Assuming telecommunications refers not to cable TV companies like Connecticut-based Century Communications (dishonest as far back as its 1992 book), but rather firms like Chicago's Ameritech, I encourage you to study the latter's books over the last three years. Also, the SBC (formerly Southwestern Bell) books of four or five years ago, though not of recent vintage. Look at these annual reports only to learn what to avoid: Pacific Telesis, BellSouth (though it has some redeeming qualities, including appearance; its products, though, I find terribly wanting), U S West, Bell Atlantic and, not least, NYNEX. They're among the bad actors among telecoms—surprising in that they have such close dealings with the consumer, you'd think they would epitomize good customer relations, and that that would carry over to the annual report to shareholders. Alas, it's not to be.

Our company which deals in natural gas pipelines and chemicals has just announced its intentions to merge with another pipeline company and spin off the chemicals business as a stand alone, publicly traded company. We have yet to publish our '97 results (our AGM has been postponed until June). What's the best way to approach our annual? Besides financials, what kind of info will shareholders need to ratify the merger? Can you site examples of annuals from companies intending to merge or recently merged?

S.C.: Your situation reminds of the Monsanto report, which contained (as I recall) stuff on both the spinoff and remainder of the company. Making for a terribly long (and, in this instance, complicated) product. Your corporate secretary and/or legal counsel will decide the form stockholder-approval materials take—what documents are required and the like. That shouldn't fall in your bailiwick—unless you're in the legal department. In which case, rely on Securities and Exchange Commission guidelines! Eastman Chemical in Kingsport, Tenn., was a similar spinoff—Eastman Kodak's chemical operations. From Day One, its report was world-class, finished among the 10 best last year and no doubt will contend for No. 1 status this time around, I'm betting. One to beat, I predict.

Are there any special SEC rulings regarding publishing online annual reports?

S.C.: No SEC rules and regulations so far, but you can expect them as the online annual gains in popularity. My advice: Don't omit anything material (meaning: just about anything!) from the online version. Omit at your own peril. Better not to put your annual report online than to run afoul of the authorities—or than to subject your company to lawsuits from stockholders claiming they invested based on online information, "which was incomplete."

We're considering including a brief readership survey form with our annual report, possibly a self-mailer. Do you know of other companies that have done the same? Any do's or don't?

S.C.: First off, know that fewer than half a dozen companies, at most, each year conduct such a study. I'm a big advocate of every company going that route, to learn what's right and what's wrong with their document. Phillips Petroleum was among those to survey recipients of its 1992 report—when Greg Derrick was there (he's now with Deere & Co.). So did Pfizer, of its 1993 report. Conceptual Communications' Richard A. Lewis (212-505-1607) had a hand in the Pfizer poll, as I recall. Among other benefits: At least you'll receive poll reaction to your six-month (on average) annual report task. Too often, distribution of a report is greeted with a stony silence, which can be terribly depressing. (I did such a survey every year while an officer with Greyhound Corp., a conglomerate with 151 active subsidiaries.)

Your website indicates that you know a great deal about annual reports. I need a list of awards competitions. Do you have any idea where I might get this information?

S.C.: Gee, thanks for the compliment. No such list exists, but Financial World's competition is the granddaddy of them all. Be aware, though, that what may walk off with honors this year won't necessarily do so well next time, when the judging panel changes. Another is the National Association of Investment Clubs (NAIC), whose criteria are similar, apparently, to mine. Finally: Assuming you're courageous, and you've read my criteria, send me whatever you've got. Avoid, at all costs, awards programs that (1) require an entry fee and (2) are run by public relations firms. Also, (3) that sell trophies for a bundle.

What's the average total cost of a Fortune 500 report?

S.C.: My 12th annual Producer Poll indicates the average per-copy investment is $3.11, which you'd know if you read my weekend-only Blue Plate Special the end of October. Average print run for those responding to my survey: 278,337, for an average of 157,062 stockholders. (The ratio is an amazingly consistent 1.9, year after year. Meaning that companies essentially print two copies for each stockholder.) That figures out to an average budget of somewhere around $850,000 (excluding postage and handling charges, traditionally part of the corporate secretary's function, and internal staff time).

I see that you are vehemently opposed to summary annual reports. Can you outline your objections to this format? Have you noticed more companies—albeit still a small percentage—switching to summaries in the last couple of years?

What's the relevance of the annual report to corporate finance?

S.C.: Frankly, I don't know. Congratulations—you've stumped the expert.

Do you feel informality extends to annual report writing? Some clients are hung up on "corporatespeak" and have a hard time saying things plainly, while others want me to write conversationally, including using bad grammar...a delicate balancing act!

S.C.: The key question is "what’s appropriate?" Is the CEO a stuffy guy who still wears detachable starched collars? Then you’d be committing fraud if you tried to humanize him very much (though a little bit’s okay). I just read a speech by Dan Rather, whom I admire. I was put off by his poor sentence construction. He sentences wrote that took to parse my mental editing. (Every bit that awful—and worse—honest!) Getting back to business, more CEOs are allowing the first-person reference to appear in their letter to shareholders: one in five (21.1%) among 1995 annuals, up to two in five ’96s. Up even further—to one in every two CEOs this year. That’s a good sign to those of us who look for the human touch in shareholder letters, some indication that other than a word processor on autopilot cobbled up the message in what’s acknowledged as the key corporate communiqué.

My firm is expanding big time into the field of annual reports, and I just wanted you to be acquainted with us. Let me know if we can help you.

S.C.: If you want to invest Sid Cato’s time in your activities, you need (1) to know what my standards are—what works for me and what doesn’t—and (2) you need to be up to speed on what I’m doing and saying. On a daily basis, I’d say, though obviously I’m prejudiced. Only way I can think of to accomplish this, save free phone calls (from you to me, which isn’t an option), is to subscribe to my newsletter. That’s the minimum. Otherwise, you’re like people applying for a job with your firm who haven’t a clue as to what you’re about and where you’re headed. To wit: The report you proudly proclaimed you did this year scored but 73 points, it lowest in several years. There’s a tremendous learning curve involved . Being blunt, again: Annual reports are a specialty. This isn’t a job for amateurs. Calling me to get acquainted isn’t of interest to me, frankly. I don’t care who you are, or what your credentials are—simply what you achieve on your clients’ behalf. If you’re proud of the report’s look, enter it in one of the mindless shows (Mead comes immediately to mind) whose standards are dollar-oriented. But don’t waste my, or your client’s, time.

Do you advocate a theme? If so, why?

S.C.: I’m convinced a theme is required for an annual report’s cohesiveness. Without a theme—to guide both the reader as well as the entire, six-month production process—a book can be terribly hard to get a handle on. That is, to follow, to grasp. Declaration of a theme helps ensure the book’s taut execution. So far among 1997 reports, nearly three of four companies have declared a theme, though just over seven in 10 did I find tautly executed. Meaning: three of 10 aren’t!

What’s your Cato Positive Index? And why?

S.C.: The Cato Positive Index resulted from a story in The Wall Street Journal about the analyst who foresaw Black Monday prior to the stock market falloff in the fall of 1987. She had several "secret indicators" that guided her prediction. "Why don’t I have secret indicators concerning annual reports?" I asked myself over breakfast at Mary’s Place Café in Waukesha, Wis. I promulgated what’s now three dozen—and promptly announced them to the world. In other words, they didn’t remain secret for long. (Neither did I make her million-dollar-a-year salary!) Initially, I called them (mentally) the Cato Negative Index. But one of my savvy friends said the word had to be "Positive." He was right. What the CPI does is enable me to zero in on those annuals that have an abundance of pluses, from use of 11-year financial data to complete honesty in the letter to shareholders to use of biographical data, and individual photographs, on directors and officers. If a report’s CPI isn’t at least 40%, I usually don’t bother doing a readability study, the conviction being that there’s a correlation between a highly positive report and one that will score at least 100 points. Sometimes of course exceptions exist. For example, of the 14% (28 of 200, or one in seven) to achieve "world-class" status to date, Otter Tail Power Co. has a CPI of 38.9%, Amway Japan Limited 36.1%. The former scored 104 points, the latter, 103.

Would it be possible to get a listing of how the top 10 annual reports came to be so? What areas according to your criteria were their strongest?

S.C.: All annuals are evaluated against my 15 copyrighted criteria, which you will find on my website. Biggest two areas: (1) CEO involvement, actual or perceived, in the letter to shareholders as well as in verbalizing what the company's all about and where the chief executive sees it headed, and (2) financial disclosure. The former is worth a total of 25 points (out of a potential 135), the latter 15. Writing is worth 10 points. Category 1 —dealing with readability—worth 20 points potential. All that make the 10 best list have much in common, from biographical data on officers and directors to a theme, strongly declared and forcefully executed, to complete honesty.

My assignment in a basic financial management course is to gather information on Apple Computer—more specifically, a recent annual report. Do you have a copy you could spare? If not, can you tell me the best way to procure that report?

S.C.: If I had a copy of the Apple report, I wouldn't be able to spare it. Best way to get any company's report is either at the local library or through your stockbroker.

All the online annuals I've seen have been based on a printed book. Rite Aid Corp. has produced a black-and-white book containing only the financials and the chairman's letter with the company logo on the cover. Not a single photo in the entire book. All the "gloss" was put into the online version. I wonder what you think of this.

S.C.: I may be old-fashioned, but I'm not ready for the source document, the print version of the annual report, to be picture-less and in one color. I'd still rather see a good (though not necessarily expensive) print piece, the online version not necessarily adhering closely. An online annual, by the nature of the Internet, size of computer screens and the like, is a different breed than a print product—at least to me.

Last year I met with executive management to discuss a theme and key messages, but ended up with weak key messages with no sense of excitement. Do most AR writers develop key messages? Or do they concentrate on the theme and let the key messages flow from the CEO's letter and the year's activities? Is there a process you would recommend for developing key messages?

S.C.: I'm not sure I see much (if any) difference between a report theme and the approach/tack decided on, in the letter to shareholders or elsewhere. What's important isn't semantics, but that you adhere to a taut approach—in acting circles, it's known as "hewing to the line." Just be sure the Sid Cato's of the world get your drift, that we understand precisely the point or points you're trying to make.

Do you have any data on the average length, in words, of letters to the shareholders? What's your recommendation?

S.C.: No attempt has been made to count the average number of words in letters to shareholders, but I advocate a spread. (Average, year after year: just over three pages in length.) Then, if there's additional information the CEO wants to impart, consider adding a Q&A, a better, easier-to-grasp format anyway.

How many companies run photographs of directors? (All the good ones, I’m sure.)

S.C.: As of this stage of the judging process, nearly two in five (38%) 1997 reports contain photos of directors—the man or woman pictured alone more than three in five (63%) instances, as advocated. And you’re right: To make the 10 best list, running director photos is a virtual imperative.

In a recent Public Relations Society of America (PRSA) publication, an article stated that readers spend "less than five minutes on an annual report." The author remembered this from past research, but did not know specifics. Is this true? Do you know of the research this claim might be based on?

S.C.: Wouldn’t it be nice if a reputable publication like one from the PRSA would take time to check out an oft-repeated "urban legend" of the annual report business! This claim is so much happy horse s____t! No one has ever done a study of how long one spends on a report. But if he or she did, it would skewed by the fact that someone was watching—that’s my contention. How long one invests depends on (1) the recipient’s age, (2) time on his or her hands, (3) appeal of the book and/or the company stock as an investment, (4) current news about said company, (5) the recipient’s schedule (going on vacation that morning? forget it!). For example, you can be sure the current Pfizer report (Viagra’s inventor, remember?) will be read as avidly as, well, year-old copies of Playboy or Playgirl or the National Geographic. I’ve heard five minutes, five seconds, and variations thereof. Let’s all agree: Stop perpetuating what I call "thoughts conjured up during morning ablutions."

I have been given an assignment to review my company's annual report which contains nearly 35% of its printed pages in appendix form. I wonder if you have any tips on the use of appendices and the statistics and figures which appear in them. Should everything be displayed graphically and incorporated into the main report? Can we do away with the appendices altogether?

S.C.: I'm against material in an annual report being presented in a tabular format—that discourages readership, which I'm sure is the intent. By all means incorporate such material into main body of the report, and enliven it—and all other contents—through use of various visual devices. From graphs to pull-quotes (a statement appearing elsewhere that is pulled out and made larger to enliven appearance of the page). I have no statistics on your situation specifically, but it's somewhat akin to the use here and abroad of the legalistic Form 10-K. Only one in 12 reports (8% year after year currently) uses the 10-K in whole or in part as their annual. I think, generally speaking, it's a bad idea. Goal is to make the entire book one cohesive, highly readable document.

How many annuals will be printed for 1998?

S.C.: I have no idea. But I can tell you, concerning the 1997 crop: This is the 13th year of my exclusive Producer Poll—of the men and women on corporate staffs who have primary responsibility for their company's annual report. So far, producers report printing an average of 277,022 copies (for an average of 159,376 stockholders, a ratio of 1.7 per shareholder). Those obviously aren't the world's smallest companies, but if one were to multiply, say, 200,000 copies times the more than 12,000 companies required to produce a report, the total number of annuals printed would approach 2.4 billion. I suspect you really wanted to know how many annuals companies print per stockholder. That, as indicated, is 1.7. The average year after year has been 1.9, meaning companies print in essence twice as many copies as they have shareholders.

I'm looking for information from your 13th annual Producer Poll and haven't found it in your newsletter.

S.C.: Results of the 12th annual Producer Poll appeared in the July 1997 issue of my newsletter. This year's results haven't appeared in print yet. But know that (1) salary range for those responding to my survey is $73,125-88,125, a $15,000 range; (2) only one in six says his or her project is a one-person show; 83% say it's a team effort; (3) year after year, number on the team averages six persons (5.7, to be precise); (4) each invests roughly six months on the project (6.2 months average), again, year after year.

We're a not-for-profit agency. What should our letter from the chairman of the board include?

S.C.: I monitor only annuals of publicly held companies. But your letter, I tell you as a favor, should attempt to communicate your boss' personality, hopes and aspirations for the organization, things done during the year past as they presage the future for the group. In other words, how'd you do, and what does that portend for you and your members? How did you track against stated goals? That sort of approach. Make me believe he/she actually had a hand in the letter's creation. And, above all, be honest, forthright!

The cover story in your August newsletter was of interest to us. Could you please tell us which studies you were referring to that "indicate clearly that analysts are influenced by the annual report, that they do take its appearance and content into consideration when making investment recommendations."

S.C.: On Pg. 6 of the August 1995 issue of my newsletter I quoted Bill Adams' concerning the fact that most stockholders he surveyed rejected "austere annual reports."

More to the point:

Potlach's Northwest Paper Division (John Morrison, marketing VP) commissioned a study (Pg. 6, November 1995 issue of my newsletter) to evaluate the value of annuals to investment analysts, portfolio managers and individual investors. Finding: "When examining impact" of the annual report, it was found to "substantially surpass other channels as a source of information."

I listed Potlatch at Cloquet, Minn. 218 879-1061.

Thanks for keeping me on my toes.

I'm looking at your website now. How could you possibly omit Berkshire-Hathaway from any list of the best annual reports?

S.C.: Berkshire-Hathaway's annual report doesn't score well against my 15 copyrighted criteria—that's why it's not among the world's best. Same reason why the (to me) superior GE report doesn't.

In fact, several years back I named B-H to my list of world's worst—for the audacity of Warren's secretary to demand "prior written approval before you quote anything whatsoever from his letter to shareholders." In my words, "Balderdash!"

B-H falls into a special category, which I mention from time to time in my newsletter: annuals that excel, though they don't show up on my radar screen (score poorly, that is). This year, for instance, falling into that category is the Xerox report, which I call the "world's best report not to achieve world-class status" (i.e., score at least 100 of a possible 135 points). Its score: 99 points.

Two questions: 1) What, in your opinion, are the best books on how to produce an annual report? 2) Do you have a sample production schedule/process or know where I can locate one?

Considering that Financial World Magazine went out of business, when was the last annual report award given? Do you have a list of winners? Do you have a list of top annual reports in the chemical industry?

S.C.: Frankly, I don't have a clue. I was surprised that Financial World went out of business. I have no idea what it did with its files, data, etc. What are the best reports in the chemical industry? I can tell you that, based on my criteria, Eastman Chemical and ARCO Chemical (now Lyondell Chemical) are two of the finest.

How do you stand (I think I know) on using different paper stock in the financials?

S.C.: When I was on the other side of the fence—that is, as an annual report producer—I always opted for a contrasting (though compatible, colorwise) paper stock. To distinguish the financials from rest of the book. Now, though, I prefer one stock throughout—so the book has a cohesiveness, isn't obviously a two-parter. I recognize now that the financials need to be printed on an uncoated stock—so analysts and others can make notes on the pages. Perhaps the solution is to use uncoated stock for the financials, the same paper stock—though coated, for fine photo reproduction—in the rest of the book.

Why an annual report, anyway? What's the benefit?

S.C.: Most companies don't have a clue. An annual report, someone said at my recent conference, isn't even required by the SEC. That may be true, but it is required of your stock exchange listing—the listing, that is, of your stock. And the annual report, Chief Executive magazine agrees, is the—the—key corporate communique. It's the CEO's calling card, in the words of one conference presenter. It can sway public opinion, head off crises before they rage out of control. It can influence public officials, local, state, national and, indeed, international. It's used in every potential acquisition situation, trotted out to impress the prospective candidates to be acquired of the class, the elegance, the clarity of their soon-to-be new "parents." It can help retain current employees, motivate the work force. And, of course, it's required, essential for use by reporters interviewing your CEO or other executives. It's an historical chronicle of your company's activities, a repository for its hopes and aspirations—and, again, of management's clarity of thought. Any management that doesn't embrace this key corporate communique—well, they're overlooking an essential in their arsenal. Failing to take advantage of an enormously important, successful resource. In the long run, they're the losers. It makes me sad.

We are considering a Q&A with our CEO to follow our regular shareholder letter. It's been a year fraught with change, but one that promises a brighter long-term outlook. We believe we will give our CEO the opportunity to answer some of the tough questions that are surely on investors' minds. What do you see in a Q&A as opposed to the content of the letter? What makes it worthwhile? Can you cite any good examples for me to reference?

S.C.: Whew! Taking your query bit by bit: It sounds to me that your situation is made for a Q&A. Difference between the letter and question and answer session or section, if you prefer, is (1) the former by nature is more formal, proscribed, while (2) the latter has far greater immediacy. One essentially is stiff, the other candid, with a chance for give and take. If I were to advise a CEO in your situation, I'd say the approach you've outlined is precisely the way to go. The Q&A should be hard-hitting. Keep the interviewer out of it—no, "Interviewer," followed by his or her question, then "Mr. So-and-So" and his response. Move it fast. Be straightforward. Boldface the questions, and presumably in advance, you'll suggest in writing some of his responses. Don't ignore the mea culpa. Talk candidly about problems and you'll engender loyalty among your readers, who will appreciate the boss' frankness—courage in the face of terrible (sometimes, even overwhelming) problems. Check out (if you haven't already) those reports that appear destined to finish among the year's top 10, as reviewed in my monthly newsletter. Ameritech is one that did the Q&A, I believe. Southern Co.'s is a classic of the genre, as is its online "Lunch with Bill." Reuters, year after year, has its chief executive respond to questions, though only half a dozen this year. That's three for starters. Good luck!

In response to a previous question, you say that "Annual reports are a specialty. This isn’t a job for amateurs." I agree wholeheartedly with this statement; however, that is the exact situation in which I find myself. As the only native English speaker in my company, I have been charged with completely revamping my corporation’s annual report. While I do have experience creating corporate promotional and marketing materials, I am completely unfamiliar with annuals. Would you be willing to briefly critique my company’s report after its completion?

S.C.: Sorry, no. Can you imagine how many such requests I get—for a free evaluation, "just a brief one." My sympathies most definitely are with you—how unfair for a company to place such a burden on you. If you’re a woman, I think I understand why it’s done: My contention is companies aren’t quite sure where to put a new female employee "so let’s give her the annual report! She’ll learn all about our company that way." Then, when she produces an abject failure, what do her bosses say? "You just can’t get good women employees!" In other words, they’ve set her up for failure. This used to happen all the time at advertising agencies, whose reports were atrocious—spelling an end to tenure of the poor new employee, all to often, a woman.

Are there any regulations prohibiting use of photos in the MD&A or financial statements?

S.C.: There's absolutely no prohibition whatsoever. Many companies have gone that route, including Chevron, Armco, even Metropolitan Life—as you'd know if you read my newsletter, visited my website regularly!

Do you have any data, opinions or what have you on the negative impact of doing a 10-K wrap annual report?

S.C.: The facts (only I have them, don’t forget): Incidence of the Form 10-K, in any form (as total body of a report; with a cover wrapped around it; combined with a substantial amount of text) stands at 7.3 percent. One in 14 reports worldwide. None resorting to it has done well in my competition—with the possible exception (15 years ago) of AB Volvo. That 7.3 percent is off from a high of 8.2 percent (one in 12) among 1994 annuals, indicating it’s a tiny trend that never gained ground; indeed, it’s declining in usage. I used to think the 10-K was a good idea, but after years at this stand, I’m convinced it’s regressive. The 10-K isn’t intended for a consumer audience, the general public. It’s boilerplate, pure and simple—just the legalistic filing required by the Securities and Exchange Commission. Any company that goes that route, relying on the 10-K as its annual report, will be nowheresville in my competition.

I am a senior partner in a large California law firm. I represent several companies that produce annual reports and am often asked how to find a GOOD, knowledgeable and reputable design firm to produce their report. Do you have any special criteria for the design firm itself? I have taken the time to research your extremely informative website and will refer anyone interested to same. But, again, any information on top designers (especially in Southern California) who SPECIALIZE in annual reports would be greatly appreciated.

S.C.: The criteria I have for design firms is the same as for men and women on the other side of the fence—the producers themselves. Those criteria, 15 of them, are on my website too, as you no doubt noticed. What I want, always, in a design firm is men and women who will get truly involved in the project—and they must have specific experience with annual reports, a terribly, terribly unique species. It's not a job for amateurs, I often say. For me, it can't be an arm's-length relationship. To work on my annual report (or in the case of my long-time post as an officer with Greyhound, five annuals produced simultaneously!), you have to eat with me, live with me, agonize with me—be part of the team, all for one and one for all. Check my website for the names of the dozen top AR producers (an earlier response to a question here). Two persons who should be good sources for an outstanding, annual report-qualified design firm live and work in California. (Names provided questioner.) Best of all would be the Chevron producers, whose annuals have made my list of world's 10 best 11 consecutive years. If they don't know who fits the bill, no one will!

How important is the annual reporting process for the reputation of a company and how can the company use this process to provide information which will enhance the value of its shares?

S.C.: My belief, supported by Chief Executive Magazine, is that the annual report is the key corporate communique. So it's of ultimate importance that a company utilize this extremely valuable weapon in its arsenal. Will it enhance the value of the company's shares? My belief is that an award-winning annual report is indicative of a progressive, success-oriented, modern management. And that full appreciation of the company as an investment can't lag far behind. I monitored this a decade ago and found that award-winners bested their industry averages, near- and long-term.

I am a student at Cardiff University in the United Kingdom. I have been given an assignment for my Financial Accounting module which involves studying the annual report of British Telecommunications. I must critically evaluate it and point out how it can be improved for the purpose of user of accounts. Can you please provide me with information on the topic as a whole? And another: I'm assigned to study what impact there is from construction of a major league ballpark. In other words, does the added business justify the investment? Please help me right away—my paper is due any day now.

S.C.: Sounds like both of you want me to do your homework for you. Obviously, that ain't gonna happen! I know nothing about major league baseball and/or the construction of ballparks—I only monitor, full time, the annual report to shareholders industry worldwide. But (if you haven't already) obviously you should visit the websites of the American League and National League. About British Telecommunications: Study my 15 copyrighted criteria, on my website. That's the most I can do for you. And good luck to the both of you!

Which information is important to the shareholders, on which they decide their buy/sell decision?

S.C.: I'm guessing (this isn't based on in-depth research) that what has a true impact on a shareholder, prospective or present, is (1) potential that company delineates for itself and/or its industries in the annual report, (2) its track record and (3) impression of the chief executive. In other words, if a reader is impressed with the CEO—his (or her) clarity of thought, and apparent forthrightness—then I'd think one would be favorably influenced to invest in the company. And/or retain his or her stockholdings—or add to them.

What is the difference between an annual report and a 10-K filing? What type of information is provided in the 10-K that is not in the annual report?

S.C.: The Form 10-K is the legalistic filing required of all corporations by the Securities and Exchange Commission. The annual report has some SEC requirements (at least five-year financial data, for instance), but mostly they're the mandates of the stock exchange a firm's stock is listed and traded on. The 10-K does not require a letter to shareholders. Neither must it be made readable—not unless one considers page after page of unbroken type inviting, that is. I'd say the 10-K is more a legalistic report on the year past, while the annual report to shareholders most companies produce is more forward-looking. And, accordingly, of far greater value to investors, present or potential. Companies that resort to the 10-K—and the good news is that decreasing numbers do so—as their report to the public (present and prospective stockholders, including employees, a growing shareholder presence) are to be avoided like the plague in my seldom-humble opinion.

As a strong supporter of summary annual reports, I wonder why you say there is no trend in that direction. I understand and appreciate the usual objections relating to lack of information in a summary, but all the pertinent financial information missing from the annual is located in the proxy, which goes to all shareholders; the information in a summary is easier to read and digest; the book is shorter and less intimidating to the average shareholder; it eliminates the "split personality" of traditional books, between the editorial section...and the financials; it's considerably cheaper to produce. We saved several hundred thousand dollars last year. And of course just because it's a summary doesn't mean you can't provide all the depth you want regarding strategies and financials.

S.C.: Why do I say there's no trend toward the summary annual report? Because my annual monitoring indicates there's none, that's why. Presumably you've perused my website and have seen, and read, my article that specifically deals with the summary report and my objections to it. Taking the objections you raise: First, all reputable journalists know that it's fine to say all the pertinent data is available, but most of us believe it takes a well-organized stockholder and/or reporter to find and link up the disparate elements. In other words, suggesting we're all adept at filing and keeping elements united is hardly realistic. You say the information in a summary is easier to read and digest. If so, then why is no summary's writing among the year's top 10 or 15? Shorter and less intimidating? Studies which surely you must be acquainted with show that (1) focus groups of stockholders don't find all annuals intimidating, not by any means, especially when they learn that companies like Ameritech produce a full-bodied report for less than the cost of the daily Wall Street Journal; and (2) a study conducted by a reputable agency found that Wall St., despite what you may think, views the complete annual report as imperative—or, at a minimum, far preferable to any truncated, down-and-dirty version. Imperative. I still believe what Thornton L. O'glove (the "Quality of Earnings" man) said when the first summary came out in 1986: "It presents the potential for vast manipulation of the facts. Companies can pick and choose what they wish to include, what they'd rather leave out." So the reader is comparing apples and oranges. Worst of all is when a summary is produced that's not so labeled. Dirty pool, indeed—as I personally feel all companies that produce a summary report are engaging in. Yours included. And I'm a customer!

It is difficult to portray the same image of an annual report online unless you duplicate online the report’s pictures, etc. I assume that most companies if they could place a report online would want to portray the same image and impact that hardcopy annual reports present, and not a summarized version. Is this a correct assumption?

Only 22% of investment professionals (my percentage comes from the Internet Communications Survey; only 11% of the responding companies believe the information on their website reaches investment professionals) who responded to a survey said they prefer receiving financial information over the Internet. So the overwhelming majority would rather rely on printed annual reports as their source for receiving financial information. What would be two major issues involved with online financial reporting, and what would be some possible solutions to these issues?

S.C.: That's the best news I've had in a long while—that the print annual report remains popular, important to professional investors. As I was convinced! One problem with online reporting would be the medium—the transitory nature of material on the Internet. Anything can be amended, added to or subtracted from, on an hourly or daily or weekly basis. In other words, nothing is permanent. Today's declaration is tomorrow's "You must have imagined that! We never said that!" The print report, on the other hand, is the essence of permanence. It's bound, typeset, can't be updated surreptiously. It might help in gaining acceptance of online reporting if some declaration were made online to the effect that (1) the material presented here is the very same as appears in the print version of our annual report and (2) no changes will be made without online indication of such changes—to insure the continuity of data imparted. One other thing: Much of what's on the Internet is one person's opinion, with no indication given of the credentials of the man or woman posting said fact or data. My stepson, for instance, got a date off the Internet—of some battle or other. His teacher said the date was incorrect! I tried to find how to spell a man's last name, and one source put an extra "g" in his last name. Yahoo! (the popular search engine) had the correct spelling. So trust has to be built before online material will have the same validity as print pieces to members of the investment community.

Your criteria call for inclusion of "women and/or minorities" on the board of directors. Does this mean the board must have at least one minority and at least one woman in order for the report to get full credit in this category? (The reason I ask is that...the only minority on our board, has left.) Must a report have both a minority and a woman represented to get on the top 10 list? (Believe me, I am not happy we have not added another minority representative to the board. In this day and age...but I didn't get to choose!) It really sends a message about how much a company values diversity, so I certainly agree with your requirement. But I am wondering what it will do to our score with our 1998 report.

S.C.: Fewer and fewer companies are seen to exclude women and/or minorities from their boards, but never in my years at this stand have I taken more heat than from this requirement. To answer your question, the operative words here are "and/or." Companies must have either, or both, women and/or minorities. That applies to companies based abroad as well. Meaning: A Japanese firm with all Japanese men will be zinged. In today's international marketplace, to exclude minorities—i.e., picture, in this country, all white-bread males—is short-sighted as well as just plain bad business.

I just graduated from college in Mexico. I’m a graphic designer. My thesis is about graphic design in annual reports, which is why I’m asking for information like: What kind of data is required for an annual report? How important are the profits of a company to the report it creates? Does every company do one? What are some of the agencies that create reports? When should it be delivered? Who is in charge of analyzing reports, a department in the government? Which are some of the best-designed reports? Thanks for your time!

Can you provide some pointed reasons I can present to our executive staff to persuade them to produce an annual report, please. They believe no one really looks at this document, the information already is contained on our website and claim no benefit from our first annual report last year. Instead, they’re opting for a simple 10-K wrap.

You speak out again the multi-part report. Why? I don't see what's wrong with it.

I'm wondering if your weekend Blue Plate Special could go online a little earlier Fridays—late afternoon instead of early evening. That way, we could read it at the end of the day Friday before we go home and try to forget we've got a zillion AR deadlines approaching.

S.C.: The Blue Plate Special is an attempt to build weekend traffic to sidcato.com and we purposely don't even keep a copy—for those who either forget to visit the website or are too lazy to check it out and, during the week, wonder if we could send them a copy of what we wrote. The answer, as in this instance: Sorry, no.

Question No. 7 is about a self-mailer readership survey in the annual report. Some years back, we did a scientific, in-depth readership survey (hired a survey firm) in which we sent a sample of shareholders and analysts a questionnaire along with a second copy of the annual report—so they could refer to it if they didn't keep the one originally sent. Are other companies doing this? I would like to do another survey, but it was REALLY hard convincing management to go along with the last one.

Is it possible to get the contact names and numbers for those listed as the 10 worst annual reports of 1997? I have already printed the 10 best from your site.

S.C.: Can you imagine how the 10 worst, already severely wounded, would react if I went out of my way to encourage people to call and say, "Hey, hear you have an awful annual report! Will you send me a copy, please?" Even I'm not that mean.

Is there anyplace (particularly in the Midwest) that might have a library of hard copy annual reports for me to review?

S.C.: Afraid not. There is an annual report library (believe it has a website) in San Francisco, though. And Addison Corporate Annual Reports in New York City maintains annuals for visitors to review. Call Nancy Fuller 212-229-5093.

Is there a minimum restriction to the size of type that can be used in the notes section of an annual report? Is it a certain number of characters per line or something?

S.C.: The Securities and Exchange Commission years ago (30?) unwisely mandated that the notes be not smaller than 10 point Times Roman. Graphic designers, though, which I suspect the questioner is, can prove that some 9 point type—depending on type font, leading between lines, width of line, etc.—can be even easier to read. Years ago, I bounced this off the SEC: If I set the financials in the very same type size as front of the book, will I hear from you? In other words, will you take me to task for that, the indication being that I'm hiding nothing if I use the same type face throughout. The SEC's response: "No." In other words, it's okay. However: Don't forget Evans & Sutherland, whose 1990 report made my list of world's worst, the great line applied to its financials: "Honey, I shrunk the type!" Type was so tiny as to be unequivocally unreadable. Any sane person would realize that's undesirable. Setting type to fit is a Cato no-no, though I realize it's fine in theory but far more difficult in practice to tell the CEO he or she has to cut the message—otherwise, type will be so small as to discourage readership. Sometimes you simply can't win!