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The 10 best annual reports of 1992.

Consider some of the themes featured on the covers of the best annual reports of 1992: flexibility, communication, value, and growth. Without coincidence, these concepts have been driving forces in the evolution of the annual - the single most important corporate communique

The first annual report, by Baltimore Gas & Electric traces to 1823. It was Spartan, relatively unappreciated, and aimed at the bolders of a whopping 519 shares. By contrast, a surprising 80 percent of this year's candidates look good. The 10 best also are readable, informative, forward-looking, and progressive - in terms of both communication and design. They are polished products that reflect significant CEO involvement, and the gap that separates them from their antecedents is immense.

In 10 years of rating annual reports for Chief Executive magazine, we've noted similar improvement, even given the exacting standards we've strived to create. This year, we analyzed 647 annual reports the U.S. and abroad, including those from France, Australia, and Botswana. (This is many times the minimum 97 needed to provide an accurate survey.) Not only bas the barrier of 130 points (of a potential 135 points) been broken for the first time, but by three reports: Knight-Ridder, Mosinee Paper, and COMSAT: The top two earned 93.9 percent out of a possible 100percent on the Cato Positive Index, a separate rating mechanism comprising 33 indicators. This marks them as the most positive reports since we began our work with CE in 1984. Overall, 1992 annuals are three times more positive than those in 1991, a critical indication of the jump in quality.

Partly in recognition of this progress, we've named a Best of the Decade both for North American companies and those outside the continent (see sidebar). The first award goes to the 1992 Knight-Ridder report and the second to the 1991 Reuters report. Reuters' 1992 effort, meanwhile, takes the fifth biggest slot in this year's rankings. Knight-Ridder, having taken firstplace in these rankings three times, is retired from future consideration and becomes the first member of the CE/Cato Hall of Fame.

How to crack the top 10? Here's a rule of thumb: The forthright elicit kudos, while wafflers draw brickbats. Key in terms of content are probity - don't shirk from painful financial results - and disclosure above and beyond the five-year financial data required by the Securities and Exchange Commission. Among the 10 best reports, all but Armco, the last of the best, present 11-year financial data.

No less important, however, are management's imprimatur on the financials, the use of action-oriented photographs (pacesetters often use these even in the table of contents), covers that entice readers to open the book and turn the pages, graphs with coherent captions, complete biographical data on officers and directors, and an attractive design that extends from the front of the book through the often-dreary financials. Annuals also win points for well-executed special sections and highlights pages, and for conveying a favorable impression of the organization - whether it is chalking up big numbers or drowning in red ink.

Several reports earned big marks for innovation, though they failed to make the leader board, besting many popular consumer publications in style and content. Electronic Data Systems turned out the year's most progressive report. From a grabbing cover to state-of-the-all photography, truly sizzles. Canada's Noranda, replicating the look of its since-discontinued employee publication, sbowcases its results in a tabloid-size document. Atlanta-based American Business Products is ingenious in its use of a die-cut cover. These are the capstones to an exhilarating year marked by more breakthroughs and more envelope-pushing efforts than in recent memory.

For the mostpart, meanwhile, even this year's worst reports are less deplorable. In the words of one long-time observer, "By and large, a better class of garbage."

To the ignominious losers, however, that's small consolation.

THE BEST: FIRST (134 POINTS)

Knight-Ridder for the second time has been listed in the 1993 edition of "The 100 Best Companies to Work for in America. " Those who have admired its annual report over the years aren't surprised - assuming one believes there's a link between a good, revelatory report and an outstanding company.

This Miami, FL-based company, headed by Chairman and CEO James K. Batten, pioneers in so many ways. Take its cover: Never, certain not in the last decade, has a report been printed with alternate covers - not until this year. Knight-Ridder's cover for American readers emphasizes the fact that less than 24 hours after Hurricane Andrew wreaked havoc on much of the Florida newspaper-reading area, Miami Herald paper carriers were back on the beat. A cover on the Knight-Ridder edition mailed outside the U.S. more logically focuses on a new, electronic financial information product.

Overall, the report is the decade's finest (see sidebar). That's no small feat, considering Knight-Ridder has attained the top 10 in each of the 10 years we've rated reports, including a tie for first place three years ago with Mosinee Paper and second-place finishes the past two years.

A minor quibble: The total two-page description of the company's basic businesses and crucial financial statistics, entitled, "Knight-Ridder at a Glance," is wanting. The listing of factors affecting 1993 growth is progressive, but not sufficient to compensate for the company's failure to name its competition, an approach taken by other pacesetters in their annual reports.

All in all, a savvy, refreshing, indispensable document. Nobody does it better than Knight-Ridder.

SECOND (133 POINTS)

Mosinee Paper's annual report grows on you. It may not be as elaborate as its competition, but it is enterprising and clever, from a cover that marks the company and its products as mainstream to an in-depth panel discussion between two analysts and an academic, and Richard L. Radt, Mosinee's president and CEO.

At five pages, it's one of the year's longest CEO features, but in this instance, it's definitely space well-spent.

In his letter to shareholders, Radt gets off to a good start with the admission: "One thing can be said about this past year. I'm sure glad it's over." Small wonder. The company eked out a $37,000 net operating profit, but swallowed a massive, one-time charge of $8.5 million, related to a change in accounting for retiree health-care benefits. Besides addressing the bad news with refreshing candor, the feature also exudes a rugged charm: In the photo that accompanies it, Radt appears clad in a chocolate-brown jacket and a pair of slacks with a pile of logs in the background. The symbolism is subtle but effective: Radt modestly is willing to share top billing with the raw material from which the company's core product is made.

Another positive is a two-page breakdown of Mosinee Paper's products, markets, distribution methods, and competition.

Mosinee is a moderate-sized enterprise, nestled in the heartland Wisconsin town from which it took its name. But pound-for-pound, its annual report this year packs a powerful punch.

THIRD (131 POINTS)

Never before has a company come off the bench to become not only a starter but a star player. But that's what Bethesda, MD-based COMSAT has done, rebounding from among the world's worst several years back.

In fact, it has not only attained the ranks of 10 best, but has soared to the rarefied atmosphere of top three. Along the way, it joins two others as the first in a decade to shatter the 130- point barrier. What keeps it from a perfect score of 135 is incomplete biographical data on officers, including their previous position and credentials for the job. Also, the pictures of officers and directors are wooden.

Outstanding, however, is a five-page roundtable discussion among Bruce L. Crockett, president and CEO, and the heads of his business units. The presentation forcefully buttresses the theme presented on the cover, "COMSAT On Course," touching on initiatives in the company's core sectors: communications, information, and entertainment distribution. Also worthy of note is a 12-year financial summary on a gatefold near the middle of the report.

This is definitely one for the record books.

FOURTH (127 POINTS)

Soft-drink and snack-food giant PepsiCo's theme this year is flexibility, symbolized by photos of ballet dancers. Several are captured in mid-air in moves most earthbound mortals wouldn't dare attempt. Some might say the motif is an improvement over last year's bunny rabbits, and previous years' diaper-clad infants and the infamous sumo wrestler in all his - well, call it glory. But we digress from our task.

Conservative the current edition is not. Perhaps its strongest suit is support of its theme. In his letter to shareholders, Chairman and CEO Wayne Calloway elaborates on Purchase, NY-based PepsiCo's "flexible" management philosophy, expressing doubt that inflexible companies are well-equipped to sell consumer products. "The marketplace just won't let you stand still," Calloway says, pushing along the metaphor. "As a category leader, we have to dance as fast as we can, always developing new ideas to keep the consumer interested."

Scoring its theme in endless variations, the report even quotes the late Martha Graham, dancer and choreographer par excellence, observing, "Nothing is more revealing than movement." Stretching the point a bit, or perhaps punning, Calloway notes, "We think movement-gracefully and artfully directed-will reveal growing prosperity for our investors ... One thing about flexibility: It allows us to bend over backwards on your behalf."

Indeed, a leaping dancer inside the report's front cover does just that. Art, of course, imitates life.

FIFTH (126 POINTS)

The cover of Routers Holdings' annual report immediately strikes an international tone, taking us to the 1992 French Open with a photo of Akiko Kijimuta, teeth gritted, focused on hammering a backhand return.

For Reuters, this year's serve is an ace, from a grid that breaks down operations and names the competition, to financials that are relatively actively well-designed and easy to read. Laudably, the letter from Peter Job, CEO and managing director of the London-based news and financial information service, is followed by a two-page interview to which he affixes his signature.

Meanwhile, you could work up a sweat just looking at this year's version: The text is interspersed with snapshots of a gymnast, canoeists, and a bicycle racer in action.

Advantage, Reuters.

SIXTH (124 POINTS)

Chevron punches in with a workmanlike effort. Appropriately, all the report's photos are black and white. The cover features five suited employees, representatives of Chevron teams formed to cut costs. The inside pages mix in shots of hardhats - women as well as men - and other blue-collar types pumping gas, inspecting heavy machinery, and tramping the platforms of gritty refineries and towering offshore oil rigs.

The multinational petroleum company has made the cut six years running, bouncing between second and 10th place during that time. This time around, San Francisco, CA-based Chevron excels with a 10-page special section on "Strategies For The Future," some of them involving the company's attempts to capitalize on international exploration and production opportunities. Each of seven strategic areas receives an individual focus. This topical organization signals change to the reader and represents a marked departure from the typical review divided into sections for upstream and downstream businesses.

Chairman Kenneth T. Derr, who signs the letter to shareholders "Ken Derr," is among the growing, 41.6 percent of executives (up from 35.7 percent last year) to refer to themselves in the first-person singular. "I've recently set a new challenge: saving an additional 25 cents a barrel by year-end," he writes.

Affable and innovative. Once again, Chevron earns its stripes.

SEVENTH (123 POINTS)

With its 1992 report, Portland, OR-based Northwest Natural Gas marches to its own drummer - as do the residents of the company's home turf, the Pacific Northwest. The report's theme, "Growth in an Era of Environmental Concern," reflects a serene approach that bumps up Northwest Natural - headed by President and CEO Robert L. Ridgley - three notches from last year.

The report is among half of this year's best to publish a glossary of terms; the feature sheds light on obtuse technical terms and complex industry regulations. A one-paragraph mission statement is positioned inside the front cover. Some 31 percent of this year's reports include such a statement, up from 20.9 percent two years ago.

Conservationists will get warm fuzzies from the full-color photos of wildlife in its natural habitat: Shots of a beaver, a bald eagle, a quail, and a black bear combine to create a pastoral atmosphere. On the cover, rolling waves of the Pacific Ocean lick gently at mist-covered shores in Northern Oregon.

Low-key and laid-back, Northwest Natural proves there's more than one path to the top 10.

EIGHTH (122 POINTS)

The comely report by Carmel, IN-based Conseco is one of five annuals worldwide to be produced in-house. The horizontal entry marks the financial services holding company's first appearance in our listings.

In an appealing cover illustration, suit-clad workers are depicted positioning slabs of granite, layer-on-layer, in the form of a giant dollar bill. Its caption piques our interest: "Building Value. How we do it. How we measure it. How we'll continue it." Inside, the report addresses all of these topics, aided by graphs with succinct captions. For example, a graph headlined, "Conseco's investments," is supported by the explanatory deck: "Bonds dominate the portfolio; mortgages/real estate are minimal."

Shareholders, of course, breathe a sigh of relief.

The management discussion includes a section that casts a glance at the future. Inside the front cover, a description of the company, headed by Chairman, President, and CEO Stephen C. Hilbert, puts a fresh spin on the cover theme. Printed in large, boldfaced type: "Who we are. What we do. Why we do it. "

The explanations are concise and unaffected, qualities that distinguish the report from front to back.

NINTH (121 POINTS)

One of the elite's shortest annuals at 48 pages, New Brunswick-based Bruncor's report nonetheless has many attributes. At a minimum, the diversified telecommunications data processing, and equipment leasing company aggressively solicits readership of its missive, partly through skillful design.

Chairman, President, and CEO Terence C. Bird's letter to shareholders takes the form of responses to 10 questions. Solid articles, written by vice presidents, indicate management depth.

While a skillful report can make good use of extra pages, brevity also can be a blessing.

TENTH (119 POINTS)

Whether by coincidence or not, the annual to anchor the list of the 1 0 best traditionally has been a sentimental favorite.

The Armco report has a lot going for it. Aesthetically, there's a subdued approach to color, though design quality tails off in the financials. Editorially, text is the eighth most readable in our survey, highlighted by a four-page discussion with the company's two senior officers, Chairman and CEO Robert L. Purdum and President James F. Will, entitled, "People at Work."

The Armco report is alone among the 10 best in neglecting to disclose at least 11-year financial data. But look on the bright side: Its 119 points would have earned the Parsippany, NJ-based company a tie for eighth place last year. The competition this year is just a cut tougher.

THE WORST:

Of the hundreds of annuals reviewed this year, fewer than ever are abysmal or simply hopeless. Even so, 1992 might best be described as "The Year Numbers Were Crunched."

Many firms have begun or continued painful restructurings, prompted by cost overruns, shifting markets, and economic weakness worldwide. While that's no crime in itself, many opt to camouflage performance with prestidigitation.

Compounding the matter last year was the adoption by many companies of changes authorized by the Financial Accounting Standards Board: FAS 106 and FAS 109. The former, which requires that companies account now for the future costs of retiree health-care benefits, at the largest companies involved charges of several billion dollars. The latter, FAS 109, involves a change in accounting for income taxes.

Given these changes, some crucial questions arise: What's the most accurate barometer of corporate performance, income before any changes or adjustments - operating income - or net income? And what's the best way for companies to report on these results?

It's a tough call, because in many instances, the gap between the two figures is considerable. Take DuPont, which fielded a report that beads this year's list of the worst. Before an extraordinary charge and accounting adjustments for both FAS 106 and FAS 109, the company tallied 1992 net income of $975 million. But charges sunk the bottom line nearly $4 billion in the red.

We're aware that under accepted accounting principles, companies must list results both before and after any charges. We're similarly aware that some analysts and investors choose to focus primarily on operating income: At some companies recently, when accounting-related charges significantly deflated operating figures, stock prices barely budged.

Nonetheless, it's incontrovertible that some companies play up operating figures, while fudging the bottom line. (The aforementioned DuPont is one example; see following.) Such an approach is unacceptable. The ways to blow smoke are many, ranging from an inordinate emphasis on operating results in the letter to shareholders or in other parts of the text, to listing operating income only in an annual report's financial highlights and explaining accounting changes in footnote fashion. We believe honesty is the best policy: Give operating and net income equal billing and let shareholders decide which is more important.

By the way, reports don't make the list of the year's 10 worst solely because of low scores, poor writing, or blatant dishonesty. In many instances, the deciding factor is a reluctance to confront the obvious. Call this tack shifty, slippery, evasive - or call it what you will. Annuals are perhaps the most important source of corporate information, and both their style and content must be beyond reproach.

We've taken that stand for the last 10 years, and we will continue to do so.

FIRST

DuPont's 1992 report is self-indulgent to the max, and it's the world's worst.

The perpetrator of this corporate put-on - ad agency Frankfurt Balkind - is the same firm behind the dreadful design that helped make Time Warner the world's worst three years in succession, ending last year when the company was retired to the CE/Cato Hall of Shame. The design firm also landed NYNEX among the 10 worst two years back.

The inside back cover features numerous pats on the back-from Wilmington, DE-based DuPont to itself, that is. For example, we learn that the company's printer is a customer in L.A., and that "a wide variety" of company products and equipment, including DuPont's fiber-optic technology, were used in the printing process. So what? Who cares?

This self-praise serves to obscure the year's ghastly showing: Operating income tumbled 30 percent to $975 million. Including an extraordinary charge, and charges related to accounting changes, the bottom line plunged nearly $4 billion in the red. If you are reading the corporate highlights on page three, however, you won't catch that unless you take a magnifying glass to a tiny footnote. The graphic itself is an unwieldy mass partly consisting of hard-to-read white type dropped out of a black background.

To the chemical conglomerate's credit, it presents a chart beneath the highlights showing its progress in reducing wastes and emissions. Some might say this is the least DuPont-headed by Chairman Edgar S. Woolard Jr. - can do, considering the hundreds of suits against it for hiding the fact that its Benlate fungicide can kill or damage plants.

And the cover! It's a collage, and it's bizarre - the graphic combination of body parts in different colors of men and women of different ages.

If this be the look of the future, give me the old DuPont, thanks.

SECOND

Increasingly, chief executives (or their unheralded designates) strut their stuff in annual reports, particularly in the letter to shareholders. Some are fine writers and communicators, including GE's Jack Welch and Berkshire Hathaway's Warren Buffett. Some serve up an unreadable mess.

Take the letter in Lino Lakes, MN-based Northern Technology's (nee Northern Instruments) annual report by Philip M. Lynch, the company's chairman. Eight pages long, nearly three times this year's average, it contains a sentence weighing in at a painfully bloated 87 words.

But worse than length is the monstrous immodesty of Lynch's letter, which overflows with archaic, obsolete, seldom-used words and phrases, including avouch, astringent, arrant, assiduous, and rampageous. Phrases such as "launch ourselves into a parabola of expansionary risk," "the ultimate plummeting of cherished corporate value," and "Malthusian limitations to our expansion" should be rewritten or cut.

Lynch indulges in every outmoded expression, except the pompous letter ending, "Your faithful servant."

Avouch? Ouch!

THIRD

You have to give Boca Raton, FL-based W.R. Grace & Co. points for enthusiasm.

In its latest annual report, President and new Chief Executive J.P. Bolduc takes on the role of head cheerleader. Beneath the first of three photographs of himself, in an italicized callout on page three, the CEO underscores Grace management's "enthusiasm for achieving our strategic mission." At another point, brimming with gusto, he urges "communicating more frequently, openly and candidly," presumably with employees, customers, and shareholders.

How does he do on this score? Consider the opening of his letter to shareholders, a spot in which some CEOs resort to tell-tale euphemisms. Bolduc doesn't fail to disappoint, noting, "The past two years represent one of the most significant periods of constructive change in the history of your company."

This approach usually presages bad news. No exception here. Net income plunged from $218.6 million in 1991 to a loss of $294.5 million, including a $183.9 million loss from discontinued operations and a $190 million hit related to accounting changes. That's not all: The dividend remained flat, book value fell, and shareholder equity was the lowest in five years.

How does Bolduc explain the numbers nightmare? He doesn't. Not head-on.

But back to really important information. Bolduc takes pains to assure stockholders that the company is attempting to motivate all employees, "from the mailroom to the boardroom. " To the diversified chemical and energy company's investors, that's doubtless comforting, especially the part about the mailroom, a big profit center for most companies.

We'd be the last to make excuses for Bolduc's equivocation. But in fairness, his communications skills may have grown stale while he waited to take over from J. Peter Grace, who headed the company for 47 years but finally passed the baton earlier this year.

Presiding over the "end of one era and the beginning of another," as the Grace report puts it, can be draining indeed.

FOURTH

Here's a combination hazardous to the production of a credible annual report: executives on the periphery of Jocksville; a gaggle of graphic artists intent on winning design awards; and a high-visibility product, sneakers, some types of which have little lights in the heels.

Shake them all up in sun-drenched California, and what do you get?

A report from La-La Land's L.A. Gear, of course.

Commendably, new Chairman and CEO Stanley P. Gold confesses without delay to a $71.9 million net loss, compared with a $ 66.2 million loss the year before. But that may well be the report's sole positive.

An unpaginated letter to shareholders is hard to follow, because each of its four columns is on a different page, interspersed with pictures of company products on half-sheet pages; concurrent text in boldfaced type that barely qualifies as an operations review; and somewhat-stiff photographs of the executive staff - nine VPs and senior VPs, along with the CFO, CEO, and president.

Chic or shriek? In company performance and annual report design, the latter description applies. And if the shoe fits...well, you know.

FIFTH

The report of Abbott Park, IL-based Abbott Laboratories isn't unattractive. But its obfuscation quotient is rather high. Notes to the financials dismiss any "adverse effect on the company's financial position" resulting from front-page news activities: that Abbott shelled out more than $140 million to settle "federal antitrust allegations from 27 drugstore and food chains, along with charges" from at least one state's attorney general of infant-formula "bid-rigging." These activities are not mentioned in the letter to shareholders, nor is the fact that the company still faces anti-trust actions by the Federal Trade Commission and nine state-court lawsuits related to baby-formula pricing, and that five other states continue to investigate if Abbott violated antitrust laws.

This is the stuff of which lawsuits are made. Shareholders and potential shareholders have a right to such information.

The report chalks up a woefully low score - 58 of a potential 135 points. Another weakness: Only in nine of 100 instances did letters from the CEO smack of ghostwriting. This is one of them. Chairman and CEO Duane L. Burnham's letter is as cold and emotionless as any on the year.

On the cover is a photo of a post-surgical child who paints while a doctor checks the level of painkillers being administered intravenously. The dosage, we're told in a caption inside the front cover, is monitored by Abbott's electronic patient-controlled analgesia system.

Crank up that machine, doc. Having plowed through this report, we need all the painkillers we can get.

SIXTH

With its 1991 and 1992 annual reports, telecommunications giant Bell Atlantic garrotted stockholders in two stages:

A year ago, when Philadelphia, PA-based Bell produced a dismal two-color, proxy-like annual, it offered a full-color publication with additional information to those who took pains to write in. Subsequently, management informed us that almost no one asked for the other document. That's a sham, (im)pure and simple.

This year, Chairman and CEO Raymond W. Smith completes the garrotting, going last year's woeful performance one better (or worse): There's no second color on inside pages of this dismal, lightweight throwaway. Nor is there even the half-hearted offering of a supplement.

This approach, Smith proclaims, saves about two-thirds of the cost of "a traditional report." The Bell report is a whopping four pages shorter than this year's 44-page average. There's nothing wrong with economizing on the stockholders' behalf, but not when it shortchanges their ability to get a feel for the corporate entity whose name is on the cover.

Smith calls Bell's management approach "prudent," lauding himself and the company for "constant innovation." But in the minds of many, downgrading the key corporate communique two years running is neither prudent nor innovative - it's regressive, nay, Neanderthal.

SEVENTH

Last year's buzzword was "TQM" - total quality management. This year, "raising the bar" is a popular phrase at corporate dinners and management seminars.

Stoughton, MA - based Reebok embellishes the expression slightly - "It's about raising the bar" - and plasters it on the opening spread of its annual report in 90-point, handwritten script. A waste of space, some might say. We'll be kinder, noting instead that the one who scrawled this near cliche might have missed a few grade-school penmanship lessons.

The footwear and clothing designer isn't a stranger to our annual dunning. Neither is Paul Fireman, the company's chairman, president, and CEO. A few years back, Fireman was roundly criticized or using a photograph of a male nude in his report. (Truth be told, the man wasn't totally without raiment. He was wearing a pair of the company's running shoes.)

This year's report avoids such a tasteless approach, opting instead to scribble throughout the inside pages in longhand such inspirational memos as, "I can jump higher," and "I'm stronger, faster, I've learned more," and on and on, ad nauseam.

A refreshing touch - if not particularly innovative - is a series of pictures which, when thumbed, animate a Reebok-clad high jumper. (TriStar, the motion picture company, did this years earlier.)

Are such devices meant to shift the focus from poor corporate performance? You decide. While sales hit a record $3 billion, pretax income was the lowest since 1989, and dividends remained flat.

EIGHTH

Bellevue, WA-based Penwest, a diversified food and chemical company, uses the same cover year after year. That doesn't make it bad: So do such giants as General Electric.

But Penwest's annual appears to be a laboratory experiment gone awry. Its cover pictures an organizational pyramid with the corporate logo at the pinnacle. Little "molecules" float alongside descriptions of company products, including non-active ingredients to prescription and over-the-counter capsules and tablets.

The technical orientation is the showpiece of the dapper Tod R. Hamachek, Penwest's president and CEO. Hamachek gets high marks for taking no longer than three paragraphs to address a 14 percent earnings decline in continuing operations. But one has to turn to the financials to learn that net income, including an accounting adjustment, dipped 64 percent to $3.1 million. And the CEO also warrants a slap on the wrist for countenancing an abundance of printing and design gimmicks, including thumbnail-size tab cutouts that make the book a nightmare to peruse.

Less jargon and flash, Tod, more substance. Enough, already!

NINTH

In the "Iliad," Homer pronounced the centaur Chiron a "wise and beneficent" beast "who tended the wounds of many heroes and thus was the mythical creative source of medical knowledge." The closest Emeryville, CA-based Chiron Corp. gets to that is the beastly nature of its annual report and the classical ruses it uses to avoid discussing a disappointing bottom line.

The letter to shareholders, by CEO Edward E. Penhoet and Chairman William J. Rutter, begins: "1992 was a year of exceptional challenge, and substantial Accomplishment, indeed. Chiron lost $102.6 million last year.

Equally despicable, the biotechnology - company company is among the minuscule 2.3 percent this year to resort to the summary annual report. What's worse, Chiron doesn't even label its document as such, taking advantage of the technicality that the financials, printed in one color on proxy-like paper stock, are tucked in a back flap.

Thus, for the second year in succession, this California company is one of the year's "not-so-artful" dodgers.

TENTH

It's not always easy to learn what companies do. Only three of four, in fact (75.6 percent), deign to describe their activities up front in the annual report.

That's bad enough when one has a brand name - such as General Motors or Phillips Petroleum, for instance. But it leaves one in four companies that keeps its identity a mystery - or haughtily assumes everyone knows what it is.

Take Britain's WPP Group, headed by Martin Sorrel, former CFO and architect of Saatchi & Saatchi's grand maneuvrings in the 1980s. Perhaps to ensure that those willing to delve in-depth learn what it fails to provide in the beginning, WPP has produced a three-section annual report. Actually, it's three separately numbered books presented as one. The books, respectively, run 40, 26, and 14 pages.

The first of the three is left pretty much to the bean counters. But even there, the company (which, one learns later on, provides "multi-media marketing services" and owns the U.S. companies, J. Walter Thompson and Hill & Knowlton) presents its figures in a way that downplays that pretax profits were only half the year-earlier figure: 23.2 million pounds versus 56.1 million pounds in 1991. That makes '92 profits $34.8 million. However, unlike South Africa's Barlow Rand and England's Reuters, WPP makes no attempt to translate those figures into U.S. currency, though there is reference to "basic earnings per ADS" - American Depository Shares - of 10 cents versus a year-prior 99 cents, a falloff of about 90 percent.

The second book is enlivened with hand-drawn elements, reminiscent of grade-schoolers learning to crayon. For instance, under the media advertising subsidiary's name, Cole & Weber, someone crayoned in the words "Bright & Clever." A young-minded graphic artist embellished the "Inc." on Scali, McCabe, Sloves, Inc. to read "Incredibly good advertising." It is a cute idea, but it would have been more humorous had not every page, every company profile been comparably adorned.

The final section is the most entertaining and, moreover, enlightening. It contains memorable quotes ("The best ideas grow out of collaboration between different people") and bon mots one scarcely could live without -that the "out" buzzwords next year will include "ultra," "free," and "light," while the "in" words will include "basic," "clear," and "smart."

Unfortunately, none of these words applies to this report.

What constitutes

a Good

Annual Report?

After a decade of spotlighting annual reports on these pages, it's clear the good ones contain certain essentials. For instance, text should be forthright - that is, there should be no long, slow windup before the news, even if disappointing. At the same time, a report should be informative and contain full financial disclosure.

Sid Cato's copyrighted criteria for judging the best and worst annuals is based on a 135-point-maximum scorecard that rewards those possessing these characteristics:

1. Action. The cover should lure the recipient into opening the report and turning the pages. The report should use various readership-enhancing devices - an intriguing cover statement, textual callouts, boldface lead-ins, subheads, bulleted paragraphs. Its layout should be open and inviting, and the descriptive table of contents should be comparable to that in every newspaper and magazine. (10 points)

2. Readability. Write clear, sprightly text, eschewing gobbledygook. (10 points)

3. Information. Inform the reader fully, perhaps through use of a special section, mission statement, or glossary or terms. (10 points)

4. Prospects. In a grid or matrix identify the competition, and provide market position and market share, a breakdown of operations, results, and prospects. (5 points)

5. CEO Photo. Picture the company's chief executive in a candid, congenial, informal pose, preferably leading off the letter to shareholders. (5 points)

6. Responsibility. Assume responsibility, alongside the auditors, for the financials. (10 points)

7. Biographies. Present biographical data on officers and directors - more than simply their age and the year they joined the board or company. (10 points)

8. Innovation. Break new ground. Ensure the report is not run-of-the-mill. (5 points)

9. Focus. Display a discernible point of view and a clearly stated, tautly executed theme. (5 points)

10. Impression. Convey a favorable image of the organization. (10 points)

11. Disclosure. Include more financial data than what's customary re required by the Securities and Exchange Commission (five years). Supplement all graphs with succinct, understandable captions. (15 points)

12. Honesty. Rhetorical commitment is where it's at. (10 points)

13. Involvement. Exhibit CEO involvement, at a minimum, in the letter to shareholders. (10 points)

14. Articulation. Present the CEO's view of the company's present and future mission and goals. (15 points)

15. Yecch. Is the report likable? Does it have redeeming qualities? (5 points)

BEST

OF THE DECADE

Marking the 10th year of the CE/Cato annual report evaluations, and the particularly strong showing of 1992 reports, we've chosen a "Best of the Decade" among annuals in two separate but equally important categories: North American and international reports.

This accolade honors individual annual reports: It is not a decade-long achievement award.

Finishing first in this year's top 10, Miami, FL-based Knight- Ridder completes a decade of strong performance and walks off with Best of the Decade in the North American category. Having achieved three first-place finishes in 10 years, the company also becomes the first member of our Hall of Fame - the "kudo" complement to our "brickbat" Hall of Infamy, which already is the final resting place of quite a few three-time losers.

As a three-time winner, Knight-Ridder no longer will be considered in future evaluations.

The company's showing over the decade has been nothing short of astonishing. In addition to its first-place finishes, the company three times has been runner-up, once No. 3, and once No. 7. Twice Knight-Ridder anchored the list of the 10 best.

With its 1992 report, the diversified media company achieved a record 134 points - a remarkable achievement, considering that never before has any report scored more than 130 points (that was Knight-Ridder's 1989 outing, which tied for No. 1 with Mosinee Paper).

On the international side, annual reports traditionally leave much to be desired. That's partly because in compiling the financials, international companies aren't compelled to disclose as much information as North American firms.

Nonetheless, this year's reports are strong, particularly those of London-based Reuters Holdings, a news and financial information services company, and Australia's CSR Ltd., a diversified construction company. Both achieved "world-class" status, scoring at least 100 of a possible 135 points. With a fifth-place finish among the best, Reuters became the first international company to penetrate the top 10 since 1983, when AB Volvo finished runner-up to Quaker Oats.

However, it is Reuters' 1991 report that we select as Best of the Decade. It is lively and inviting, and it features many informative, easy-to-understand graphs. In addition, the report has a fascinating focus: the toppling of the Berlin Wall and the failed coup attempt in the Soviet Union, which according to the annual, "touched off a chain of events that left the world a different place."

Information and focus add up to a winning report, one with an ambience that noses out its international rivals.

Letters

you can bet

the boss

wrote!

CEOs in the U.S. and abroad turned out a relatively strong crop of letters to shareholders. But letters in non-American annuals display unusual forthrightness.

None, perhaps, is more candid than that of S.M. Johnson, chairman and CEO of Botswana, a South African mining company. Because of the high debt and substantial accumulated losses of a subsidiary, Johnson says, "it is not envisaged that dividends will ever be paid."

Warren Clewlow, chairman of South Africa's Barlow Rand, tackles with power and grace the thorny issue of apartheid, likening the violence in his country to Europe's "frightening rise of ethnic nationalism and its expression in violent civil conflict . . . not entirely unconnected."

Clewlow writes he does not "believe there is a simplistic solution to the problems raised by ethnic differences. It is a tragedy that many politicians have tried to exploit the issue for political gain and, in so doing, have aggravated matters with the bloody and tragic consequences we witness every day."

"History, and the experience of many other nations, teaches us that it is possible for different groups of people to live in peace with one another provided there is mutual respect, a set of common goals for the good of the nation, and provided one side is not bent on destroying the other by force."

Lars V. Kylberg, president and CEO of Stockholm-based Saab-Scania Holdings, a diversified auto, truck, bus, and aircraft manufacturer, opens his communique with a metaphor: "Operations in 1992 turned out to require a combination of braking and accelerating." A quote in large type, alongside the letter's opening, allows that "1993 will be a difficult year for Saab-Scania's main commercial products."

In the U.S., meanwhile, the shareholder letter in the General Electric annual was widely praised. One observer said he viewed the letter as "the best ever for any annual report" in recent memory. "it was definitely written" by John F. Welch Jr. [Chief Executive magazine's 1993 CE of the Year], "of that there is no shred of doubt."

Welch writes: "Translating the need for speed, for reality, into the language and practices that change people's behavior, that encourage them to renew themselves, to walk through that door every day as if it were Monday morning on a new job - that's what leadership in this Company is all about. No matter how many ideas we try, it all comes back to people - their ideas, their motivation, their passion to win.

"Our unending drive to build a boundaryless, high-spirited Company is moving us faster every day in the direction of what we want passionately to become - the world's most competitive enterprise."

Richard J. Mahoney, chairman and chief executive of St. Louis, MO-based Monsanto, a diversified chemicals company, wastes no time in confronting the bad results: "Shareowners had a rough ride in 1992."

Douglas W. Leatherdale Jr., chairman, president, and CEO of St. Paul, MN-based St. Paul Companies, a property liability insurance organization, is similarly forthright, beginning with these words: "This is a letter no CEO wants to write."

Richard J. Stegemeier, chairman, president, and CEO of L.A.-based Unocal, an oil and gas company, faces a shrinking bottom line for the year and a fourth-quarter loss (against a year-prior profit) with this assessment: "We are all disappointed with these results. We can do better, and we will."
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No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Best Annual Reports; includes related articles
Author:Cato, Sid
Publication:Chief Executive (U.S.)
Date:Oct 1, 1993
Words:6674
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