Sid Cato -- May 2002 Quiz Answers

(Answers for May 2002)

1. When CNN interviewed you recently, you agreed that annuals aren't overreacting to the Enron/Arthur Andersen/Tyco International mess. True or false?
Answer: False. On the contrary, we're seeing "a mixed bag"—companies opting to produce a legalistic Form 10-K with a letter to shareholders crammed on the inside front cover; two-part reports, the financials separated (and, quite possibly, never sent those requesting a copy of the annual), or just plain down-and-dirty reports—annuals that aren't complete but fall into the "NSI" category: abbreviated, though Not So Identified on the report cover. To be precise, two in five early 2001s fall into one or all of those foregoing categories.

2. By and large, you'd have to agree that most big companies know how to turn out a good annual report. True or false?
Answer: I'm not so sure. No longer can big companies be counted on to produce a report I would be proud of. From companies that I concede are second-tier—from GATX to Cooper Tire to El Paso Electric—one can expect a less-than-stellar performance. But when an R.R. Donnelley & Sons Co. deep-sixes its report—which a year ago was one of the world's very best—that gives me pause. One wise head (name of Greg Derrick) said, a few years back, that the investment community wants consistency—the same quality report year after year, through good times and bad. I couldn't agree more.

3. Your legendary "copyrighted criteria" actually exist only in your head. True or false?
Answer: Oh, contraire. Granted, they existed in my head for a year after I used them, in 1983, to judge Chicagoland reports—the best and worst. But with encouragement from a graphic designer, I promulgated them, officially, in 1984. They've been updated, modified, fine-tuned. But, essentially they're the same as 18 years ago, and they're published on my website www.sidcato.com for anyone to see.

4. As I recall, you foresaw that few if any companies would refer to the 9/11 terrorist acts in their subsequent annual reports. True or false?
Answer: True. And I was wrong. I misperceived the corporate mindset. I also underestimated the class, the good taste some companies would exhibit—from American Water Works to Pfizer to...well, dozens upon dozens of companies, exhibiting more sensitivity than I could have imagined.

5. I have it on good authority that Alcoa does not now (indeed never has) subscribe to your newsletter. Neither has it ever attended one of your "International Annual Report Conferences," or otherwise put money in your pocket. Isn't that why you never praise its consistently exemplary efforts? True or false?
Answer: True—the first part. False, the second. I've had nice things to say about the Alcoa report—especially its latest, which has achieved "world-class" status with its 109 (of a potential 135) points. It and IBM are comparable in their celebration of the individual; nobody does it better. Most companies can be counted on to picture the big boys (and, occasionally, women officers or directors). But few indicate the high esteem in which they hold the men and women in the trenches, on the firing line day after day, making the company go. This year, I've even written nice things about its design, by the Arnold Saks outfit, which I've criticized roundly more than once—a few years back, for instance, for sticking the contents page midway through the book, and referring, in said index, to material that went before. Outrageous.

6. Companies, as indicated by their 2001 annual reports, aren't feeling terribly ebullient. True or false?
Answer: True, it appears to me. I detect an underlying sadness, not to mention skittishness. One can hardly read the day's Wall Street Journal without biting his fingernails to the nub. If it's not a Merrill Lynch being taken to the cleaners (and being threatened by New York State elected officials), its analysts only saying nice things about companies the firm does business with—if not Merrill Lynch, then it's Tyco International keeping its head down to avoid the media's radar. Working hypothesis: Never invest in a company whose corporate headquarters of record is—Bermuda.

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	1.	When CNN interviewed you recently, you agreed that annuals aren't overreacting to the Enron/Arthur Andersen/Tyco International mess. True or false? *Answer:* False. On the contrary, we're seeing "a mixed bag"—companies opting to produce a legalistic Form 10-K with a letter to shareholders crammed on the inside front cover; two-part reports, the financials separated (and, quite possibly, never sent those requesting a copy of the annual), or just plain down-and-dirty reports—annuals that aren't complete but fall into the "NSI" category: abbreviated, though Not So Identified on the report cover. To be precise, two in five early 2001s fall into one or all of those foregoing categories.

	2.	By and large, you'd have to agree that most big companies know how to turn out a good annual report. True or false? *Answer:* I'm not so sure. No longer can big companies be counted on to produce a report I would be proud of. From companies that I concede are second-tier—from GATX to Cooper Tire to El Paso Electric—one can expect a less-than-stellar performance. But when an R.R. Donnelley & Sons Co. deep-sixes its report—which a year ago was one of the world's very best—that gives me pause. One wise head (name of Greg Derrick) said, a few years back, that the investment community wants consistency—the same quality report year after year, through good times and bad. I couldn't agree more.

	3.	Your legendary "copyrighted criteria" actually exist only in your head. True or false? *Answer:* Oh, contraire. Granted, they existed in my head for a year after I used them, in 1983, to judge Chicagoland reports—the best and worst. But with encouragement from a graphic designer, I promulgated them, officially, in 1984. They've been updated, modified, fine-tuned. But, essentially they're the same as 18 years ago, and they're published on my website www.sidcato.com for anyone to see.

	4.	As I recall, you foresaw that few if any companies would refer to the 9/11 terrorist acts in their subsequent annual reports. True or false? *Answer:* True. And I was wrong. I misperceived the corporate mindset. I also underestimated the class, the good taste some companies would exhibit—from American Water Works to Pfizer to...well, dozens upon dozens of companies, exhibiting more sensitivity than I could have imagined.

	5.	I have it on good authority that Alcoa does not now (indeed never has) subscribe to your newsletter. Neither has it ever attended one of your "International Annual Report Conferences," or otherwise put money in your pocket. Isn't that why you never praise its consistently exemplary efforts? True or false? *Answer:* True—the first part. False, the second. I've had nice things to say about the Alcoa report—especially its latest, which has achieved "world-class" status with its 109 (of a potential 135) points. It and IBM are comparable in their celebration of the individual; nobody does it better. Most companies can be counted on to picture the big boys (and, occasionally, women officers or directors). But few indicate the high esteem in which they hold the men and women in the trenches, on the firing line day after day, making the company go. This year, I've even written nice things about its design, by the Arnold Saks outfit, which I've criticized roundly more than once—a few years back, for instance, for sticking the contents page midway through the book, and referring, in said index, to material that went before. Outrageous.

	6.	Companies, as indicated by their 2001 annual reports, aren't feeling terribly ebullient. True or false? *Answer:* True, it appears to me. I detect an underlying sadness, not to mention skittishness. One can hardly read the day's Wall Street Journal without biting his fingernails to the nub. If it's not a Merrill Lynch being taken to the cleaners (and being threatened by New York State elected officials), its analysts only saying nice things about companies the firm does business with—if not Merrill Lynch, then it's Tyco International keeping its head down to avoid the media's radar. Working hypothesis: Never invest in a company whose corporate headquarters of record is—Bermuda.