Sid Cato -- Capsule Critiques

Earlier Critiques

Citizens Utilities Belatedly, we came upon the year-earlier Citizens Utilities—oops, make that Citizens Communications (a turkey by any other name...) now—1999 report. Gee, the cover looks inviting, and it’s no longer a public utility. Who knows? Maybe it’s a whole new ballgame, no longer to be pushed around by yours truly. Wrong! Same'ol, same'ol. Its writing, for example, in the letter to shareholders is bad. In fact, it’s the world's second worst—second only to Akzo Nobel. A huge 29 average words per sentence (we pros strive not to exceed 16 average), and a 14.01 befogging index, 12 being the lid we pros try not to exceed. That cost it nine (of a possible 10) points for writing. Also, it’s an NSI—an annual report that includes a Form 10-K, or is a summary, or a combination of both, though Not So Identified. While overall, among 1999 reports only one in 10 CEOs was insufficiently forthright to my way of thinking, 17 of 100 NSIs were slippery, either somewhat or a lot. Bottom line: A 5.6% Cato Positive Index, only half so good as the worldwide average on the year, accompanied by 73 wanting points.

AT&T First off, know this is one of my favorite corporations. Its WorldNet service is flawless (well, as flawless as exists in today’s world of bytes and bandwidth). One wishes the same were true of its 1999 report. "Delivering" is its theme, continuing a tradition of brief ones. (Previously: "Listen," the two-word "Straight Talk" a year ago.) Sadly, the report doesn’t—deliver, that is. Even had the letter to shareholders been found honest—it wasn’t, CEO C. Michael Armstrong choosing to take the high road, ignoring the negatives—it would have failed to top the preceding year’s score, a wanting 90 points. (Its 1994 report with 120 points qualified for 10th best worldwide.) Writing too has been inconsistent: A year earlier, it warranted all 10 points, after several up and down years. This time, it lost three points for its excessive (22.4) average words per sentence. Its positive rating overall, despite the negatives, reached a respectable 30.6 percent, if off from 52.8 percent a year earlier. Only people pictured are executives, another negative. Also, at least one reader dislikes the design appearance (a year earlier, I criticized its "never-ending horizontal silver rules"). Specifically, the type font chosen, along with a wide column measure, plus layout on the first 10 pages, forgetting the financials, a throwaway. And "We trialed our cable telephony service..." Trialed? Gimme a break.

Evans & Sutherland I’m sure a brainier person than I could tell you what they do (computers?), but it’s not clear to me. What is clear as that these guys—all white-bread male board members, all white male officers—haven’t changed their spots. Not since they made my list of world’s worst reports back nearly a decade ago. With its 1999 report, Utah-headquartered Evans is yet another of the bad actors to publish essentially a legalistic Form 10-K without so identifying the half-breed on the cover. Neither did I find its eight-page wrap-around especially attractive (certainly, not inviting). I also found the CEO misleading. You decide: His opening sentence reads "1999 was a difficult year...but it was also a year that set the stage for long-term success and a return to consistent profitability." I saw that as an attempt to convince stockholders it did okay. The reality: a loss almost three times greater year to year. A year-to-year decline of 47 percent, worst in a decade. At least one observer believes its record-low year-end stock price is richly warranted.

Cinergy Other than a massive, unbridled ego, what do you suppose possesses a chief executive—in this instance, Cinergy’s James E. Rogers—to permit his letter to shareholders to run out of control? It’s a world-record 23 pages long—six or eight times the worldwide average. And it’s spread over 28 seemingly endless pages. New rules, instituted this year to discourage such egregious behavior, mandate that a point will be deducted for every page a letter runs over five. So Rogers was awarded a negative (that is, "minus") 18 for his outrageous, over-the-top ego. To at least one observer, this is a CEO, and a company, to beware of: Heaven help the CEO who has no naysayers on his or her staff. No one to tell him the realities of life. His writing alone cost the report a point, his average words per sentence an excessive 18.2, 16 being the average professional writers strive not to exceed. A negative, -11.1 percent positive rating, and 48 wanting points. Granted, not so bad as Evans & Sutherland (see preceding capsule critique), whose positive rating was most definitely negative: -38.9 percent. Its score was even lower, at 20 points.

Barnes Group A letter, one page long, and signed by CEO Edmund M. Carpenter, accompanies the 1999 report of this company. The letter says its report this year is a "world-class communications tool," a departure from "the traditional multi-faceted company review." It’s a departure, all right. But a world-class communications tool? I think not. Its score is a disgraceful 29 points, indicative of its absence of anything worthwhile. Its positive/negative rating is decidedly the latter: -50 percent. What Barnes offered up is an inside front cover company profile, on the facing page its tell-nothing letter, unsigned but with names of both the chairman and Carpenter as presumed authors. If one believed these guys, the unspecified "mediocre financial results" were expected. And what, pray tell, are those results? Beats me. The company cleverly (it thinks) breaks down operating results not company-wide, but by individual group. In its subsequent MD&A, type is set tiny, effectively discouraging readership. Only on the abbreviated (26 pages, half the worldwide average) book’s final page are the numbers presented. One learns there that net returned to the 1995 level, and Barnes experienced a decline in sales as well—all the while, adding employees. Long-term debt, meanwhile, was double five years earlier. And this, from a subscriber to Sid Cato’s monthly newsletter. Of all people, certainly he ought to know better.

Target Corp. With yet another new name (it was Dayton Hudson Corp. as recently as two years ago), its 1999 report is attractive, but—concerning the key corporate communiqué—it doesn’t know the territory. For one thing, its letter to shareholders lost seven of 10 points for writing, the fog index a high 13.84, along with 27.3 average words per sentence. Financial disclosure is wanting, despite what the company doubtless believes. There’s no percentage-change column with an upfront financial highlights, too few (eight) items (average, year after year, worldwide, is 13), and graphs aren’t fully captioned for the scanners among us. No biographical data on officers or directors, either, let alone photographs of each. Absent as well is a contents listing and/or glossary of terms used, or a special section. Neither was the book’s design look extended throughout. Oh, yes: The CEO is among the one in five or six so far this year to be dressed casually, by our definition (in this instance, he’s jacketless).

Metropolitan Life Insurance Co. Who could dislike a report that focuses on characters from "Peanuts," complete with a page-long tribute to Charles M. Schultz, its creator? Sid Cato, that’s who. Previously, I hailed the design work of New York-based Nuforia, but not this time. The 1999 MetLife report doesn’t warrant credit as being attractive, a standard going on four of five annuals achieve. Neither is the report honest, net off year to year though the boss takes the high road. (Translated, that means: "Don’t bother me with the facts, peon!") Its score is a measly 55 points, though its positive rating, 13.9 percent, slightly exceeds the worldwide average, 10.7 percent. Bottom line: ill-conceived, poorly executed, though it does have nice group shots of officers and directors.

PepsiCo/Pepsi Bottling Group Lots of changes occurring at PepsiCo, including its bottling group becoming a separate publicly held company. PepsiCo, before it became "New PepsiCo," has taken more than its share of knocks from yours truly over the years. For, among other things, its far-out, continuity-less themes ranging from butterflies and ballerinas to the infamous sumo wrestler. Recipients of its annual reports seem to like those to-me-incongruous approaches, though—and, to be sure, I have the highest personal fondness for producer of its report. In fact, she has kindly spoken more than once at Cato conferences—for sure, the last one in New Orleans, as well as the very first one in New York City back in 1988. Indeed, C. Wayne Calloway (he later dropped the initial, as have some other CEOs) I considered one of the (1) nicest men ever to walk the face of the Earth as well as (2) more talented chief executives extant. Mea culpa’s aside, this year’s PepsiCo report joins the legions—those many, many fools who interrupt the letter to shareholders an unconscionable number of times. I gave up trying to count how many pages Roger A. Enrico’s letter should be credited with…make that, "blamed for." Suffice to say it stretched over 10 pages, with more interruptions than one cares to count (graphs, if delightfully captioned, sidebars, pictures of employees holding company products). Its lone point awarded in Category 15 indicates the esteem—or lowliness thereof—in which I hold the report (though, as indicated, not its producer). A score of 84 wanting points, along with a positive rating of 11.1%, just about average worldwide among 1999 reports. (One area in which it lost points: I didn’t find the cover theme, "We’re building a premier company," adequately supported, though I’m sure Pepsi did.) Now, happier news: Pepsi Bottling Group, with its very first annual report ever, achieved "world-class" status—by one point, thus joining those half-a-hundred each year to score at least 100 of a possible 135 points. Both it and PepsiCo warranted all 10 points for writing in the shareholder letter, but the bottlers received two points in my Category 15—my "kicker," which indicates how I personally feel about the document analyzed. Not surprisingly, then, its CPI is a high 52.8%.

Caraustar Industries Things to avoid in an annual report (Georgia-based Caraustar serves as an example): First, decide on a theme before you begin the book. In this outfit’s case, its theme appears to be "One name says it all." But on the inside front cover, it appears another may have prevailed after the initial decision: "Some things change for the better." Or yet another: "Some things never change." Make up your minds, boys. One thing’s for sure (make that two): The company couldn’t care less about its employees, none of whom is identified (all either have their backs to the camera or, if their faces are seen, appear terribly somber). Neither are its standards properly high where honesty’s concerned. Nowhere in the two-page letter, entitled "A year of growth," does the CEO confront the fact that net income was its lowest since 1994, off a fifth year to year. Down to $1.63 a share from the year-earlier $2.04 per share. Its score a measly 47 of a possible 135 points, its positive rating very much a negative: -8.3%. Proving once again that producing an annual report isn’t a job for amateurs—or misanthropes.

BB&T/W.W. Grainger A huge negative, introduced with the new crop (1999) of annual reports, is indicated in our shorthand with the designation, NSI. That signifies a summary annual report, or a legalistic Form 10-K, but Not So Identified on the report cover. In other words, the recipient isn’t forewarned what he or she is holding isn’t a full-bodied disclosure; rather, it’s pretty much truncated. Meaning: Reader Beware! The company can pick and choose what to include, what to omit. Take Illinois’ W.W. Grainger: It failed to warn the reader that its report essentially was a 10-K. Worse, North Carolina’s BB&T buried, amongst Pg. 1 text, the warning that its report "is presented in a summary format." Two things about the latter print piece: It’s one of the increasingly few to use art, inappropriate in so precise a document as an annual report to shareholders, I maintain. Also, its letter runs going-on three times the year-after-year worldwide average. That average stands at 3.1 pages. BB&T’s letter encompasses eight heavily loaded pages, broken only by some uncaptioned graphs and a large photo of the CEO. The Grainger report, despite its legalistic bent, wasn’t all bad. Its score was 93 points, its Cato Positive Index 36.1%. Nice work on the document by Chicago’s Cagney + McDowell, whose principals attended our last International Annual Report Conference. The BB&T report, by contrast, had a CPI of but 2.8%, accompanied by a wanting 56 points.

Toronto-Dominion This Canadian bank (it prefers to be called TD Bank Financial Group) has tried hard, but without much success. Its 1999 report is credited with enlivening the contents listing, and it is among the one in four annuals this year to receive credit for 11-year financial data. Actually, it offered up a spreadful of data for 10 years, adding a column delineating its 10-year compound growth rate for each and every item. That's revolutionary. What isn't: its score, a wanting 58 points (of a potential 135), its Cato Positive Index a modest, 8.3%. At least it tried.

Albertson’s, Inc. Its 1998 report is the kind of annual that’s easily overlooked in the flood from firms around the world. Just by glancing at it—as I failed to do until just recently—I’d have been flabbergasted if the Albertson’s document had achieved "world-class" status…by scoring at least 100 of a potential 135 points. Or, moreover, had its Cato Positive Index reached the demarcation line of 40%, minimum (of a possible 100%, of course) needed to indicate clearly that a more in-depth analysis is warranted. Qualifiers aside, this is a charming creation, starting with a smile-inducing cover—an oh, so happy tiny tot, the frosting from a birthday cake lingering on her lips, illustrating the report theme, "celebrations." A delight as well was its superbly photographed special section illustrating some of the company’s attributes ("giving a little extra to customers," for one). A 27.8% positive rating—more than twice the worldwide average, 10.7%, on the year—if a fall-short 86 points. One to appreciate, regardless, for its many positives, not least the feel-good thoughts encountering it leaves one with.

ABB Switzerland-based, Asea Brown Boveri Inc. produced a two-part book for 1999: an operational review and a financial review, which I don't consider an annual report. Theme of the "operational review" is good, though: Brain power.

Roadway Express Pluses of Roadway Express’ 1999 report are extensive, among them (1) 11-year financial data, (2) a glossary of terms, (3) an honest CEO (it helps when the company had a great year), (4) a theme, "Seventy years of service," sufficiently supported, and (5) a focus on employees. At first, despite the abundance of pictures of what appeared to be workers, one was dismayed none was identified. (Of the 45% to run such photos, just over three in 10—31.7%—identify them, calling into question management’s sincerity, I say.) But there, on the book’s last page, the individual is properly celebrated. Obviously, it would have been preferable to identify the workers up front, but at least they’re not allowed to continue anonymous. Praise aside, the report still failed to break into the positive category: Its positive/negative rating is -11.1%, if better than the year-earlier -19.4%. Its score, too, a meager 61 points (three points lost for excessive average words per sentence), is 18 more than a year prior.

Hovnanian Enterprises I don’t know about you, but it certainly gives me pause when the financial types can’t keep their numbers straight. First it was Japan’s TDK, which said it was presenting 10-year financial data, when it was only half that—for five years. Now, New Jersey builder Hovnanian Enterprises promises 10-year data in the back of its 1999 book. I count one year fewer—1991-99. One of us is wrong, and it isn’t Sid Cato. (Hovnanian’s score is but 68 points, two points having been lost for writing, its average words per sentence excessive.)

Goodyear Every time I come near its 1998 report, I’m impressed with its "One revolution ahead" theme. Similarly, I applaud its use as "models in this report" the children "of Goodyear associates." They’re as good as any professionals who make their living at modeling. Score of the Goodyear report, 95 points, was just five away from "world-class" status, while its positive rating of 27.8% is more than twice the worldwide average. And though it would have been preferable to split its six-page letter into, say, a three-pager (the year-after-year average) along with a three-page "interview with the CEO," that length did enable the "technically savvy" firm to garner all 15 points for the boss’ articulation of what the company’s all about and where he sees it headed.

Greif Bros. Its theme is the with-it "Vision 2005." On the front cover of Greif’s 1999 annual report is a photograph of seven employees, three of whom appear to be black. That failed attempt at ethnic diversity aside, the report is replete with pictures of personnel. There’s even a gatefold shot of five members of the board’s lily-white executive committee, all of whom are identified. Other than the CEO, whose photograph appears three more times to enliven the letter to shareholders, only persons identified are men and/or women appearing with an executive. That leaves 74 "common folk" who remain anonymous, casting severe doubt as to the company’s true concern for its employees, protestations to the contrary.

Johnson Controls 3,400-student Lake Superior State University annually conducts a survey to see what words or phrases should be relegated to the trash can—that is, banned from use forevermore. On its latest list of overused phrases or words is "Thinking outside the box." By coincidence, that's the very theme proclaimed on the cover of the Johnson Controls 1999 annual report. The Wisconsin company failed to support the theme—failed miserably, abjectly, totally. Also, it's among the large numbers of companies—seven of eight—so far this year to picture employees ("us common folk") that apparently feel it's unnecessary to identify "the little people." Texas' Atmos Energy, by contrast, glorified its workers—and properly identified all of them, thus celebrating the men and women who help make the company what it is today. Both Johnson Controls and Atmos Energy have corporate vice presidents for communications (singular, in Johnson's case). Both appear to be women. That aside: When will companies smart'n up?

Lucent Technologies Putting its press run, 4.7 million copies, in perspective: Subscriber Jana Zoubkova says that's roughly half the entire population of the Czech Republic!

Maytag In earlier years, its product—that is, its annual report to shareholders—held promise. Sadly, it was not to be. For one thing, its current theme is "Creating value through innovation," reminiscent of the California financial institution's earlier "Creating value" and a slew of others, including Modine Manufacturing's "Creating value through technology" in its 1999 report." Another, singular honor: It's probably the sole 1998 report to include the word "paradigm," the darling of with-it executives and, especially, consultants. Not only its theme is trite; so is writing in the letter to shareholders. Two men share the blame for, among other things, a 50-word sentence—three times the average we professionals strive not to exceed. That contributed to a 12.49 fog index, along with 26.5 average words per sentence, costing Maytag six points for writing. It received but four of a potential 10. Its year- earlier report scored 89 points vs. 70 this time around. Worse yet, its positive rating plummeted from the year-earlier 36.1%, most respectable, to a lowly 5.6%, half the worldwide average for '98s. One can only hope that this isn't—well, the new paradigm among Iowa annuals. Design, for the first third of the book, at least, wasn't half bad. Credit St. Louis' Falk Harrison Creative.

Seagate Technology More than one person has commended to me the summary annual report (SAR) Seagate ran as part of The Wall Street Journal a couple of times this fall. Since Seagate’s on a fiscal year basis, its year ended July 2, the summary report is for 1999. To one reader, most interesting part of it—doesn’t this make my point that the SAR provides the potential for manipulation of facts?—is the stuff (nearly a hundred words) in tiny type at the end: "Our actual results could differ from those we anticipate in these forward-looking statements as a result of numerous factors, many of which are beyond our control. For example, factors that could cause our actual results to differ include volatile demand for our products, competition with other independent and captive disc drive manufacturers, price erosion of our existing products, our success in developing and introducing new products, our manufacturing costs, the success of our customers’ products, disruptions in our, our customers’ or suppliers’ operations from Year 2000-related systems failures, and risks related to our foreign operations." Whew!

Stockton Reinsurance Ltd. What do you suppose possesses a person who says she has visited my website—what possesses her to submit an annual that clearly should be limited to a graphic design competition? Granted, Stockton Reinsurance Ltd., Bermuda-based, is new to the annual report business, having only with its 1998 report gone public. Well, that’s not exactly correct: In the words of its proud producer, "Last year was our first foray into the arena of annual report as marketing document." She admits that neither she "nor our then-communications director"—neither was experienced in the field. That’s obvious, from perusal of both its ’98 and 1999 documents (first one for next year to be analyzed). Both reports had hugely negative ratings—-22.2% for each, by coincidence, indicating absence of most elements considered essential. But both books were credited with a magazine appearance, and with taking a decidedly new approach to the print project. In neither book—not this year’s or next (for 1999)—was CEO Daniel V. Malloy seen as honest. In the ’98 report, he wrote that the company "enjoyed a very successful year." (Professional writers know to avoid use of the word "very," it being very—overworked, meaningless, a sure sign of an amateur at work.) The back-of-the-book income statement contradicts his optimism: Net income dangerously close to half the year-earlier number. In Stockton’s 1999 report, he similarly misled: "This has been a very (there’s that amateurish word again) rewarding year…" Only if one is rewarded for a decidedly downward cast to earnings: Net, for the second year in a row, threatened to achieve but 50% of the year-earlier figure. Specifically, 1997 net was $134.6 million. It was off to $75.4 million in the current report, off even further in the 1999 document—to $45.3 million, a third of what it was two years earlier. No doubt he’ll explain that Stockton Re is a wholly owned subsidiary of Stockton Holdings, and that the parent company is taking bushelbasketsfull of dough out of it. Otherwise: How, I ask you, could anyone (1) confuse mine with a design competition or (2) think I would possibly have anything kind to say about this effort? You tell me.

Cilcorp Inc. Cilcorp Inc. appears to have employed the same graphic artist (not! a hack at best) as Warner-Lambert and Osmonics—someone who, for want of an acceptable design approach to an annual report, falls back on the compass-created arc. The Arc Approach, as we might call it henceforth, was at its silliest on Cilcorp's letter to shareholders spread. Arcs going first one way—aimed precariously at the CEO's outstretched hands—and then, on the facing page, the other. In fact, for bad measure, the facing page features not one but two! count 'em! two arcs, intertwining. Give that chap (or woman) an E for effort. An E, that is, with "A" being great, "E" egregious. Conspicuously bad, this.

Dura Pharmaceuticals Dura Pharmaceuticals devoted page after page in the back of its 1998 report, citing a myriad of risks in a question-and-answer format. While all companies try to ameliorate their results with legalistic disclaimers, this is the first firm to go to such extremes. I'd be a terribly nervous investor, I would, if I held stock in this company.

Kellogg Co. The Kellogg Co. 1998 report: long on looks, short on substance.

Heller Financial As with Federal Signal Corp. before it, Heller Financial committed a cardinal sin with its 1998 report: It produced a summary annual without so identifying it! That’s a major Cato no-no. If you’re going to trot out smoke and mirrors on stockholders, at least have the courtesy to tell ’em they’re being shortchanged, and on the very cover. Overall appearance of the report, though, is nice, but writing cost it two points—meaning, it scored but eight of 10 for the letter to shareholders (excessive, 21.4, average words per sentence; professional writers of course strive not to exceed 16). A wanting score of 77 points—of a potential 135—along with a not-all-that-bad 27.8% positive/negative rating. But its summary annual report format—that negates everything else; it means the company gets to pick and choose what to include, what to leave out. My advice: Place your investment dollars with companies that play it straight with their stockholders.

SuperValue, Inc. How to save a few bucks on annual report photography? If you’re SuperValue, Inc., you press your employees into doing double-duty as models, since they "are also customers." That alone wouldn’t necessarily warrant mention. What does: First, the continuing proliferation of those oft-criticized "cat hairs gone astray," as I see the compass-created half-moons that threaten to overrun annual report design. In this report, they’re everywhere—twice on the cover alone, first going one way, then the other, like busy little bees. Plus, on various text pages, everywhere with an arrow leading the way. (Well, that’s different.) Finally: This has to be a contender for world’s worst contents listing. Silver type on a dark-blue horizontal stripe makes the direction-finder, guidance-provider a failure. One last fault: It’s among the one in eight or nine corporations so far this year (one in nine among 1997 reports) to show their ignorance by running 10-year financial data. What’s required, of course, to calculate a 10-year compound growth rate is—data for 11 years! Duh.

Intimate Brands
Mohawk Industries I’ve never quite understood why annual report producers are so conservative. Don’t, for instance, turn out a document that would be touchy-feely, that would involve the recipient’s sense of touch, taste or smell. One idea was to make the cover of a report I produced of man-made fur. (One of the firm’s subsidiaries produced coats of the man-made, fur- like fabric.) Finally, among 1998 annuals, two companies—Intimate Brands and Mohawk Industries—have achieved what I’ve longed for.* The latter first: Its cover theme is "just touching the surface." Above those words, in a photograph of what appear to be a pond’s ripples, is a circular sample, crying out to be touched, of blueish "polyester carpet manufactured using recycled bottles." Mohawk is one of the U.S.’ "fastest-growing carpet mills." Stealing its thunder is the over-the-top Intimate Brands report, laden with items demanding involvement, from a type-and photo-laden cover to a sample of nylon hosiery, "Victoria’s Secret’s most luxurious ever." Plus a scratch-and-sniff snowman ("for a holiday sugar plum boost")…a CD of Victoria’s Secret’s fashion show, which when aired tied up the Internet for hours...three actual "peel and apply" samples of its lipstick colors— "Lovelight," "Brazen" and "Queen of Hearts." Not least, a coupon good for one of the company’s "White Barn Home Fragrance" candles, "Up to a $15 value." Even if one dashes past the scantily clad model, notebook computer in hand—or, more precisely, on shapely knee—this has to be one of the most-consumed annuals in history. If one’s goal is to convert recipient to reader, both have achieved this admirably. My only question: What took so long?
* Though not quite as these two U.S. companies have done, Germany’s Vorwerk has turned out reports that involve the reader to an unusual degree, so much so that for a time I was convinced it was a paper company, or a printer, perhaps. And one U.S. firm, Whitman Industries, tucked 3-D glasses into its cover a few years back, the better with which to view its inside front cover and Pg. 1 spread. It was hardly worth the effort.

Greif Bros.
AmeriCredit Corp.

The Greif Bros. report is a vast improvement over its prior outings, the focus being "One Company/One Vision." But a blank page in the back of the book? That's a sure sign of rank amateurs at work. Another to have a blank page in its 1998 outing is AmeriCredit Corp. It excused its barren Pg. 36 with the line, "This page left intentionally blank." That infraction aside, and not overlooking its woeful rating (a -5.6% Cato Positive Index, indicating absence of so many elements), it has a truly unique theme: "With insight, the choice is clear." That theme is supported superbly inside with some multiple-choice questions, pictorially illustrated. Example: Presented above the line, "Knowing how to spot the difference eliminates leaps of faith," are pictured two frogs. They look alike. They’re designated as A. and B. A. is identified as a tree frog. B.? A poison dart frog. Indeed, there’s a distinct difference.

Sears, Roebuck and Co.

What do you do when you’ve had a bad year, been taken to task right and left, and have a CEO whose book had to be withdrawn because all was not sweetness and light at the company he headed? In the annual report, at least, you do as Sears did: Don’t skirt the nasty news. Talk like a real, live human. Act concerned, contrite, even. Focus on the positive, the upbeat, the future. For sure, don’t—do not—produce a down-and-dirty report, compounding your problems. Most companies confronted with what Sears faced would have gone that route. Sears instead became one of 46 to make the list of "world-class" 1997 reports; i.e., those to score at least 100 of a potential 135 points. Its 107 points gave it a tie with Honeywell and Tribune Co. for 25th best worldwide. Noteworthy is an editorial feature, "What it takes to win." That ran over the better part of two pages, and included use of the first-person pronoun. As in, "I believe ownership is the key." That sidebar, coupled with the chairman acting as ringmaster, commending (in his letter to shareholders) what’s to follow, helped garner all 15 points for his verbalization of what the company’s all about and where he sees it headed. Kudos to Chm. Arthur C. Martinez—and to his report producers.

Walt Disney Co.

What do you do when net income is off, year to year—if, granted, only 2%? If you're Michael Eisner (or his bean-counters), you come up with a brilliant idea: Opt for (1) listing three-year numbers and (2) present, not the traditional percentage-change column, but a compound annual growth rate—for two years, 1996-8. Clever, huh? Well, at least he qualifies as honest, his eight-page, never-ending letter notwithstanding. The report, produced by the world's foremost media company, still is no great shakes. It didn't even receive credit for looking good, the barest minimum a report should achieve. No readership-enhancing devices—action-oriented contents listing or captioned graphs—and no mission statement or glossary of terms. But there are loads of photographs of officers—if what we refer to as "pickup pictures." Photos that do not appear to have been taken for the key corporate communique. Rather, Disney's pictures were made from a bunch of stills from motion pictures and the like. No cohesiveness, but a bonanza for the star-struck CEO, perhaps.

Dow Jones & Company

Dow Jones & Company—whose prime asset is The Wall Street Journal—did something it would never, never permit a company it reports on to get away with. Its letter to shareholders in the 1997 report began: "The past year was one of challenge and change at Dow Jones & Company." Near end of its letter, it brushed off the realities thusly: "Our financial results for the year are described in detail in the final section of this report." Then it proceeded to put the best-possible spin on things. Should one take the time to go to the back of the book, what awaits the reader—surprise!—is that the company lost $802.1 million on the year, not small change in my neck of the words, certainly. Year to year, a billion-dollar falloff. (Year-prior profits totaled $190 million or $1.96 per common share.) Design, by New York City’s Belk Mignogna Associates, is marvelous. Leading me to promulgate this Catoism: The better the design, the worse the reality likely is. Especially when it takes 16 pages to get to the heart of things: management’s face-off to the facts.

Ciprico

At least he's honest. Of the first 40 reports for 1998 analyzed in depth, 33 (82.5%) ran a photograph of the chief executive, as advocated. Of the 33, four—12% of those pictured—were dressed casually, including the CEO of Ciprico, a technology company based in Minneapolis. (Dressed caually means either jacketless or tieless, or both.) He had an awful year, which he admitted without delay: "Our financial results were very disappointing and we did not meet a number of our goals"—this, in the second sentence of the letter to shareholders. Use of a glossary of terms didn’t help all that much: His report has a -25.0% (that is, decidedly negative) evaluation. Attractive? Afraid not.

DeKalb Genetics

Another of the quartet of casually dressed CEOs, in his company’s final annual report (as a free-standing, independent, publicly held corporation, that is) didn’t qualify as honest, though DeKalb Genetics’ report is inviting. Earnings were roughly a third of the year-earlier net, but you’d never guess it from CEO Bruce P. Bickner’s letter. At least he deep-sixed his yokel look in the 1997 report, named to our list of world’s worst along with that of Monsanto, of which by coincidence DeKalb has become a subsidiary. Some would say they deserve each other.

TJ International

Innovative, yes. Appropriate for an audience of real, live humans who like as not will be befuddled (at best) by the layout? Perhaps not. But, granted, the TJ International report has broken new ground. When one picks up the book, one is greeted by a cover containing the letters "W" "T" and "H." Only after turning the book over does one realize that, on the "back" cover the word "Growth" is begun. The entire, self-covered book needs to be "opened up"—that is, spread wide—to be read. That's more than a little confusing, though it is innovative. Despite the outgoing design, its score is a wanting 66 points (of a potential 135), if a better-than-average positive index of 25%.

Kimberly-Clark

What do you suppose possesses a graphic designer to take an abnormally lengthy (I counted nine pages, nearly three times longer than the worldwide average) letter to shareholders—and run it over 18 interminable (if exciting) pages? Bet nobody gets to the end of the letter, except by accident. The book is lovely, design big, bold—if its CEO is less than 100% forthright. Only on Pg. 25 does one learn net income was off 35%—at $1.62 a share, down from $2.49 a year prior. Granted, it's a result of a 1997 pretax charge of $701.2 million in conjunction with the company's plan to shutter, sell or "downsize" 18 manufacturing facilities worldwide. The boss, as bosses will do, chose to focus on "record earnings from operations," ignoring that the $701.2 million is real money, and represents an anticipated loss to the company and its shareholders. Besides which, the boss' letter lost three points for writing, its words per sentence a long 21.7 average. (Professional writers strive not to exceed an average of 16.)

VTEL Corp.

Theme of the VTEL Corp. report for 1997, "It’s all about time," is good. If not all that well supported, frankly, though there is an index item entitled "Controlling time and distance"—but incongruous. Design, though, is lively...exciting, even—by one Metropolis Corp. (www.metropoliscorp.com), Milford, CT. How was VTEL’s year? You’d never guess it from the upbeat, two-page letter to shareholders, but its loss ($2.45 a share) almost approached the 1995 loss of $2.81 a share. Revenues were flat, 1997 vis-à-vis 1995, "cash and short-term investments" a third of the earlier figure, stockholders’ equity, $76.765 million, essentially half the earlier $139.5 million.

Wallace Computer Services

I could have told you (didn't the graphic designers on the 1998 Wallace Computer Services report know?) that white type on a silver background is a deadly combination, especially in a financial highlights listing showing a falloff in net income. (That's as bad as the silver type in the 1997 AT&T annual.) Otherwise, the Wallace report has a marvelous appearance, if uncredited. And the report does have a relatively decent, 16.7% positive rating. But it's absent so much—from biographical data on officers and directors to a mission statement or glossary of terms. Its theme, though, is impressive: "Here's where we're going." That ought to be the approach everyone takes: The annual report as historical document is—well, history.

Executive Risk

Ever see an annual report packaged so lovingly you can't bring yourself to bespoil it? That's the Executive Risk report, always exceptional graphically, year after year. The current book is no exception—at least, what one can see from the cover. It features the purposely blurred word "Problems?" and, through die cuts (plural), the corporation's initials, "E" and "R." At top of the cover is a pull element on which are printed the words, "Slide to solve"—presumably, PROBLEMS! My problem, though: I have yet to open the package, content simply to savor cover of the report, which remains in its pristine (that is, unopened) state. Which may not be what the company intended. Oh, well...

SKF

The 1997 SKF report, as initially distributed, contained errors, so recipients were encouraged to destroy any previously received copy or copies. That a company would go to that expense, after the fact, is unique. Most would rather invest the $$$ up front to ensure an accurate, quality product. That aside: What SKF has issued, a second time, is most impressive indeed. Biographical data on officers and directors is superb, as are, especially, the individual photographs of officers. There’s also a grid, if worth only three points. And cover of the Sweden-based company’s report is exciting, eye-catching—an action-filled shot of an attractive roller blader. The company, you see, makes ball bearings, 16 of which are used in each pair of skates. "Thus," says the company, in a classic understatement, "the market potential is substantial." You could say that, yeah.

Federal Signal Corp.

The Federal Signal Corp. 1997 annual report, though not so indicated, is a summary (SAR). Not to tell the recipient that you've opted to pick and choose what to include—or leave out—is dirty pool in my book.

Tenneco

A sure sign of amateurs at work is the annual report with a page or two left blank, an indication of poor planning to the ultimate. In the case of Tenneco in its 1997 edition (its 1996 report made Sid Cato’s list of world’s worst, much to CEO Dana G. Mead’s chagrin), it came up with blank pages, empty save for the afterthought "Notes." No piker, this: Its report contains a record number of blank pages—seven. At least it excels at something.

Hershey Foods

Make that 11 reports for 1996 that qualified as summary annuals—in the case of Hershey Foods, its first to go that route. And at least it so identified its outing as decidedly abbreviated. (Not all do.) The candy company thus joined the 2.6% of the '96 universe of annuals analyzed to take the down-and-dirty route. The record for summary annuals (SARs): among 1995 reports, 28 went down that path. That still amounted to only 3.8%—half the experience involving the legalistic Form 10-K. (Among '96s, 7.7% were 10-Ks, in whole or in part, 7.8% a year earlier.) And no one would suggest the 10-K threatens to supplant the traditional annual report. You tell me: Could Hershey's decision in any way be influenced by the fact that total net declined year to year (if up a bit per share to $1.77 from $1.70)?

FMC Corp.

Forget, for the moment, that its cover is strange (a rectangular block with half a dozen words on it): Chicago-based FMC Corp. had a 1996 report plagued by a graphic device terribly close to the stray cat hairs previously criticized. In this instance, at least, the arc has a base and a leading arrow, so one won't confuse it with kitty's leavings. Design isn't very good, though: It took several moments of self-debate to cite the FMC report as attractive, making it among the three of four to achieve that (to us) basic acknowledgment. Its cover description shed precious little light on what was intended. A measly 63 points for this entry out of a potential 135. Not good.

Alberto-Culver

How to make the photo dollar go a long way: Alberto-Culver is the cosmetics company (VO5 shampoo and the like), though it included no company description in its 1997 annual report. (Only 73 of every 100 companies last year, two of three corporations this year use the SEC-required text item, so A-C's in the majority, alas.) In its 'way below-average, 26-page book (on average, early arrivals are running just over 40 pages), whose cover stupidly is numbered, which is only done in a self-cover print piece, the company appeared to have stretched its photographic dollar by using two full-page color pix twice each! More important, its "independent auditors" say they've "audited the accompanying consolidated balance sheets..." etc. That's on Pg. 20. But one discovers two page 20s exist! And two page 19s! No Pages 11-18, though. And most assuredly, no balance sheets or income statement. Nice job, guys. A real class act.

Fletcher Challenge

I confess: New Zealand's Fletcher Challenge has left me in the dark; I haven't a clue as to what it's up to, with its separate reviews for paper, energy, forests and building operations, as well as a "Financial & Operating Report" that appears to encompass all four. Each item is a different size, bears a different look, but none qualifies as an annual report—not to my way of thinking.

Swiss Army Brands

Swiss Army Brands didn't do all that well with its '96 report, its positive rating a negative: -19.4%. Also, its score is but 65 points of a potential 135. That aside, its approach is truly unique, and I'd place the letter of J. Merrick Taggart, president, light-years ahead of those of the so-called industry oracles, Jack Welch, Andrew Grove and Warren Buffett. If you want a copy, try faxing (203) 925-0883. It appears that Chicagoland's SamataMason is responsible for the progressive appearance. At least it's a lot better than its work on behalf of Antec, based in a northwest Chicago suburb and criticized roundly in my monthly newsletter. Such antics, indeed.

Bayer Corp.

Bayer Corp. isn't even publicly held, as best we can determine, so it produces an annual report out of the goodness of its heart. So much for praise: It's weird (the report's setup/organization, that is), is done by out-of-the-box thinkers. That can be a positive. In this instance, it's decidedly negative: a -13.9% negative index. Design, by Straightline International, was emulative of Arnold Saks. I'd have bet money A. Saks did it. But, no. Check this report out only if you want to see what passes for with-it and contemporary among the creative types in the Big Apple.

GE Capital Services

Exercise in excess: the GE Capital Services piece, which made wealthy some printer, paper company and graphic designer. (Nice that it donated "modular space" to burnt-out black churches. Proving once again that nobody's all bad.)

Benetton Group.

About the United Colors of Benetton: Positive index of the Benetton report decidedly isn't: -38.9%, meaning it contains little of value. Number of totally blank pages in the 92-page book: four. That's not counting the two dozen-plus occupied only by a thumbnail photo of an unidentified boy or girl. Best part of the book well may be the letter to shareholders in Italian. At least it seems to have pizzazz, more than can be said for the production overall.

TIS

More cat hairs invade the world of annual report design! TIS (Trusted Information Systems—don't; more about that in a second) has joined Osmonics and Warner-Lambert before it in featuring a design approach that continues to baffle: meaningless, semicircular swipes. At least in this instance, it's clear the artist, compass at the ready, went to work drawing a full circle, apparently, on the covers. Then he or she replicated meaningless, partial-circle swipes on text pages, ceasing at the financials. (This is one instance where the financial types exhibited big savvy, prohibiting perpetuation of this weird graphic approach onto their turf.) The company, meanwhile, showed a 25-cent-a-share loss its first year as a publicly held company, but you'd never know it from the upbeat letter to shareholders. Can't help but wonder why those who have bad years do one of two things: avoid using a financial highlights listing up front, or set the financials in type so small readership is discouraged. TIS did BOTH! "Building a world of trust"? I don't think so, not on this initial sojourn in the world of the big boys. A well-deserved negative rating of -2.8%. Poor writing cost it three points there, as well. And this was submitted for Sid Cato's 14th yearly "Best and Worst Annual Reports" feature for Chief Executive magazine. Well, would you suspect it's not destined to make it onto the world's-best list?

U.S. Robotics
U.S. Robotics is hot, hot, hot—so much so, it no longer will remain a separate, independent entity...which fact its CEO neglects to mention in his letter to shareholders. About that letter: High average words per sentence (17.9) cost it a point for poor writing. The six up front graphs shout improvement all over the place: +86% this, +87% that. Add to that a minus: a -2.8% rating overall for its '96 report.

Arkwright

Add another candidate to the list of those poor planners who end up with a blank page in their annual report to shareholders—one of 36 in the already-succinct Arkwright document, notable for two things: (1) Its quote of the year ("Paging through a customer's annual report isn't enough. 'Knowing the customer' means understanding customer-sensitive issues...") and (2) It unveiled a classic way, via graphic design, to obscure declines in both operating income and net income. Moreover, it's the first annual ever seen that omitted per-share data. Overall net fell, though, 15%, a result of hurricanes and severe rainfall and floods, which each year has a tendency to witness, folks. It's called the vagaries of Mother Nature, in case you haven't noticed. Nice appearance to this report, if a -25.0% positive/negative rating (decidedly the latter, obviously).

Whitman Corp.

The Whitman Corp. report possesses a great look...which is meaningless. What matters, 3-D glasses aside, is the obscene budget this job must have had attached to it, what with die cuts and short sheets and the like. Besides, it's a two-part report, among the year's half dozen (1.7%) to tuck the financials into a flap in the rear. A not-so-subtle segue to a summary annual report, that. A -11.1% negative rating, richly deserved. Though it no doubt will walk off with countless awards for design.

The Dixie Group, Inc.

Dixie Yarns changed its name to "The Dixie Group, Inc." That's not all that needs fixing: Its annual report design quite possibly is the year's worst. It also may be the year's worst printing job -- hard to tell if this was by intent, or accident, that the ink lay was anything but uniform. Another thing to change: the graphic designers whose effort this was. Seldom (if ever) was a letter presented as such a mish-mash, lines (in smaller, blue type) between wall-to-wall black-appearing type on a yellow paper stock, some huge letters printed in a screen of black (words like "Bound" and "Determined") to muddy the waters even more. No pun intended, there, with the wall-to-wall-type reference, but Dixie is in the floor-covering business. Not to overlook the front cover. With what appears to be a disastrous printing job are the letters "a/r," presumably the hip shorthand for "annual report." The year, 1996, is separated into two lines, and printed in a rugged, blocky type. Illustration is a sailor's knot or some such -- which continues onto a gatefold cover and, it appears, throughout the book. Until, that is, wiser heads prevailed in the financial side of the business. Don't even ask about the company's new logotype, equally confusing -- arch, if you will. Will someone tell me: Why?

LADD Furniture

Speaking of atrocious design: LADD Furniture takes no back seat to Dixie. Forget that the CEO never addressed (not to the weary eye, at least) a continuing earnings loss, if shrinking year to year. Where the LADD report stands out is the confusing design -- furniture plans (or something) are reproduced, in white, as a backdrop to the letter, which is printed on a grey background. It's all accented with pull-quotes, the type reversed out of a purple box. Simply awful. A technicality, but a report can't be both a summary document AND contain a Form 10-K; it's one or the other, not both, folks.

Osmonics

Shades of Warner-Lambert: Designers (if you'll pardon the expression) of the Osmonics report have resurrected those stray cat-hairs, reminiscent of the drug company's artistic types. Each folio (page number, to you) has a "swipe" next to it that does nothing but distract. In addition...throughout the ill-designed book are full-page swipes -- some going one way down the page, others the opposite way. Somebody ambidextrous, if untalented, at work here, sadly.

Angelica Corp.

Credit Missouri's Angelica Corp. with the very first annual report submitted for 1997. Among '96s, 258 have been evaluted in their entirety, with another 300 on tap -- that is, awaiting evaluation. Angelica's fiscal '97 report, despite a bad year, which it openly admits to? Gorgeous, simply gorgeous.

STORA
First United Bancshares
Washington Post Co.
A sure sign of amateurs at work: when a company is so poorly organized, when its planning is so woeful, it ends up with an extra page in its annual report to shareholders. What to do? Well, in the case of Arkansas' First United Bancshares, you entitle the otherwise-blank page "Financial statements and notes." Sweden's STORA did the old last-page-in-the-book-is-empty bit by labeling it for "Notes." That's reminiscent of the producer a decade earlier who, faced with a blank page, indicated in type: "Could be used for notes." Then, would you believe, the Washington Post Co., which of all media companies ought to know better, had a blank page FACING START OF THE LETTER TO SHAREHOLDERS! Boy, talk about insensitive. Appropriately, its positive/negative rating is, at best, flat -- 0.0%, though its report did qualify as attractively designed. To all three producers currently: Nice try, turkeys.

AOL Not-yet-ready-for-prime time is AOL -- neither its service (abysmal; that's charitable) nor its online annual report. You'll find it if you type in, in AOL's search area, "Official Annual Report Website." That's a registered designation concerning Sid Cato's website, sidcato.com -- but finessing things never stood in AOL's way of providing wanting service. Then click on "Full disclosure," its first listed item. You'll be able to review, for instance, its letter to stockholders. Who among us is surprised that CEO Steve Case doesn't identify himself in the letter (is he indeed that smiling, jacketless chap pictured?), or that he never deigns to discuss, never once confronts what wisdom says one will discover in the income statement: Revenues soared, but earnings per share continued in the dump for the third straight year. A loss of 3 cents a share two years earlier, up to 51 cents in '95, a somewhat better -- if still a loss -- 28 cents a share. That's in parenthesis, as is appropriate in an audited financial statement. At least Case and his minions got something right! Boo, hiss is the most charitable thing one can add.

Wrigley At least it's consistent: The Wm. Wrigley Jr. Company annual report is as awful as they come. Positive/negative rating of report of the Chicago-based company is very much the latter: -50.0%, making it one of the half-dozen least-positive for 1996. Only reports with less to offer: Texas' CompuTrac; California's Triton Group; Texas' ACR Group; California's Grubb & Ellis, and Milwaukee-based Koss Corp. This is not Wrigley's first visit to the lower echelon of the world's annuals, having made the 10 worst list a decade or so ago.

CML Group Its annual report for 1996 may be wanting (a minus 25% ranking on the positive/negative scale), and its text cries out for a professional editor, but you gotta credit CML Group for a forthright opening to its letter to shareholders: "Fiscal year 1996 was unquestionably the worst year in CML's 27-year history."

Neiman Marcus Group The Neiman Marcus Group report for '96 may not score all that well on our 135-point scale. That aside, it's a classic, the "Love Stories" approach destined to finish among the year's most delightful. A smaller-than-normal size, the book comes wrapped like a package with an elastic tie, replete with notches to hold it in place. And the "love stories" -- four classic testimonials that support the concept of "service beyond the cause of duty." Sensitive, gentle, memorable design by New York City's Belk Mignogna Associates. Lettering (a never-before-seen credit, if richly deserved) by Lilly Lee, David Carrino. Take a bow, folks.

TRW TRW is among the 44 in a hundred companies (up from 37/100) to include a special section in its annual report -- 12 pages entitled "Performance and Growth Through People and Technology," illustrated with colorful, full-page photographs and supporting the report theme. Fillip: All 14 executives are pictured, sans jackets, across the bottom of the inside back cover, nary a woman among them, though two women's names appear among the listing of directors.

Nord Resources Nord Resources redux: Named a decade ago as one of the world's worst reports, its current version, though receiving credit as appearing attractive, didn't do so well in the area of honesty. Its fifth loss year in a row was never specifically addressed in the shareholder letter by Edgar F. Cruft, CEO, who's terribly proud that he has a Ph.D, FIMM, whatever that means. Dr. Cruft, as he favors being referred to, likewise neglected to run financial highlights up front, among the nine of 100 not to include that element. Its omission: a sure sign of a snow job aborning.

Delta Air Lines Delta Air Lines may have "achieved the best financial results in the company's history," but its accomplishment on another front is wanting -- decidedly. Its 1996 annual report, among six dozen already in, obviously strove for a boundaryless appearance -- that is, a look that broke new ground. At this it failed miserably. The design is so silly, so overblown, so unrealistic, it promises to turn off all but the most-dedicated reader. Worst of all are the financials and notes thereto. They contain the precedent-destroying design, as well as type that stretches wall-to-wall, thereby making the material unreadable to the max. This report warrants its -13.9% Cato Positive Index -- meaning its negatives far, far outweigh any positives, fine financial performance or no.

Century Communications Corp. Among 1995 reports, a record 26 (3.5%) relied on the dreaded summary annual report format -- an opportunity for management to slip and slide where the truth is concerned. First SAR among the 1996 crop of reports typifies what's wrong with the format: Century Communications Corp. experienced its third loss year in a row. The losses nearly three times greater than two years prior. So what's the company's approach? Produce a summary report, without so warning the recipient. Do a high-gloss book on heavy paper stock laden with gorgeous color photography -- and maybe, just maybe, no one will notice the awful results... which management opts to ignore completely in the letter to shareholders. Thus earning CEO Leonard Tow a severe slap on the wrist -- for (1) truncating the report without so apprising the reader, and (2) engaging in deceitful behavior. Color pictures of Venetian boatmen and hikers fording streams in the Himalayas or wherever on rickety foot bridges won't obscure such shenanigans.

Eisai Co., Ltd. Japan-based Eisai (pronounced as in "long a-zai"), say hello to America's Alcoa. Both forgot the purpose of a contents listing: to guide the reader through the maze. In Alcoa's case, its index didn't appear until Pg. 9, belatedly referred to material that preceded, helping it land a spot among the year's 10 worst reports. Similarly, its Japanese brethren didn't provide the reader with a road map until its Pg. 4. One reason is it used the inside front cover, and the facing page, Pg. 1, for the letter to shareholders, a first this year or last. Something's lost in the translation: A two-page, unsigned-by-the-CEO feature was entitled "Global 'hhc' message." Only later does one learn that stands for "human health care." Oh.

Promise Co., Ltd. While on the subject of Japanese annuals, another for 1996, by one Promise Co., bears the signature, on the shareholder letter, of two chaps. But use of the first-person pronoun (i.e., "I") indicates only one or the other -- the sullen, unsmiling, eyes-closed honorary chairman or, more likely, the company's broadly smiling president, Hirozo Yamada -- penned the missive. Either way, the report warranted a negative rating of -11.1%.

Nintendo Co., Ltd. Its six-page letter is interrupted only twice, causing it to run over eight pages -- a piker by comparison to some of the current, designer-induced interruptions. But no way was the superb, with-it letter written by the boss. Neither was it credited with being honest, the CEO, Hiroshi Yamauchi, glossing over a decline in revenues -- to $3.3 billion from $3.9 billion. (Though income rose, "owing largely to a more favorable balance between the dollar and yen," a hefty 44%.) Design was exciting, exceptional. But the report overall warranted, at best, a -8.3% negative rating. An astute observer, AFLAC's Martha Ray, noted that the CEO (ostensibly, that is) referred to his popular video games as a "bond of humanity." Noted Ray: "I've never thought of Donkey Kong or Super Mario Brothers in humanitarian terms!"

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