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The 10 Best and 10 Worst Annual Reports of 1998

175 years ago, Baltimore Gas and Electric produced the very first annual report. Some companies, it seems, might need another 175 years to get it right. CE's 16th annual assessment of which companies are delivering knouts and which are down for the count.

Year after year, the companies with top-ranked annual reports tend to have more in common than the requisite forthrightness and focus, innovation and articulation. They also benefit from the involvement of chief executives who understand the power and reach of the publication.

“Shareholders are not the only audience for our annual reports,” says Stephen Wetmore, president and CEO of Aliant, the new company formed from the merger of Bruncor, Island Telecom, MTT, and NewTel Enterprises. “Employees, customers, business partners, and regulators are also important stakeholders, and such, the report must be written with their needs in mind too.”

As Ford’s Jacques Nasser put it, the annual report is “clearly the centerpiece all our communication forts. It’s a reference of what we’ve done, a blueprint of what we’re doing, and a map of our future.” That scope and opportunity are famously recognized by GE’s Jack Welch and Berkshire Hathaway’s Warren Buffet whose annual letters shareholders are event in themselves.

It’s also not surprising that CEOs of companies whose reports are repeat visitors to the 10 best list still emphasize the need for continual improvement and reevaluation, as Armco’s James F. Will notes: “We have tried to make our report easier to understand and follow, from both a written and graphic approach.” And Will’s counterpart in this year’s top spot, AFLAC’s Dan Amos-also no stranger to these rankings-hailed innovations that have made reports stronger, such as 11-year financial data, biographical information on company officers, and fully captioned graphs.

In evaluating these comprehensive representations of a company’s corporate vision and mission, we look at 15 elements (see sidebar, right). Some aspects of exceptional reports are easy to spot, such as extensive financial disclosure, detailed biographical data on officers and directors, and a clearly stated theme that is supported throughout the report.

Other noteworthy attributes are more difficult to identify at specific points in the text, but more likely to infuse the whole product with a welcome spirit that enlivens the reader’s experience. As Southern Co.‘s Bill Dahlberg said, “We try to make readers smile. There are lots of companies and lots of annual reports, all seeking attention. We want people to look at ours.”

1.       Two titans find themselves locked in the top slot in 1998. Armco may not have pioneered the magazine format for its annual report, but it fine-tuned the approach. Its 1998 report, an annual with the appeal of a newsmagazine, goes far to enliven the activities and accomplishments of an old-line steel company. One notable feature is the brief commentary in italicized type that accompanies each director’s photo and bio and answers the question of how each is qualified to serve. Its letter, while one page longer than average, was lengthened purposely, the company said, to “accommodate the answers to relevant shareholder questions.”

2.       AFLAC added excitement to what could be a dull recitation of accomplishments by using eye-catching photographs of employees, as well as their children. In an attempt to enliven the proceedings, the report zeroed in on employees; as the cover proclaims: “More AFLAC employees have shares in our company than ever before. As employee owners, their interests are directly aligned with yours.” AFLAC calls it “Inspiring excellence through ownership,” which is the report’s theme. Three charming little children, Cody Bruer and his sisters, Keeley and Kaylee, get off on the right foot on the book’s opening page. Posed beside a graph showing steadily increasing “annual cash dividends per share” over the years, the trio “have a lot to smile about…as some of AFLAC’s youngest shareholders.”

3.       Ford hasn’t hidden its desire to produce a world’s best report: Its transmittal letter bears the signatures of nine members of the annual report team, striving, in its words, “to be the best in the world.” It came close, its score only two from perfection. One of the book’s features, for the second consecutive time, is the check marks it provides on its upfront financial highlights listing. These indicate those results that are either an all-time Ford record, Ford’s best since 1988, or place it among the “top-quartile performance among S&P 500 companies.”

“Consumer focus” is the report theme. Report design, done in-house, is as good as it comes. So is the letter from Ford’s president and chief executive, Jacques A. Nasser, who uses believable language to communicate with stockholders both inside and outside the company: “I’m extremely proud of our team’s result to date, and we’re absolutely ready to take Ford to the next level!” As far as its annual report is concerned, it already has achieved that.

4.       For the second consecutive year, Bruncor’s annual report has achieved a 100 percent positive rating: it contains all the essentials. It converted the traditional letter to shareholders into a question-and-answer format, which is not new but progressive, nonetheless. What it failed to do was link its president, Gerry Pond, forcefully enough to a somewhat-superficial, executive-wide discussion with five top officers under the banner “Providing leadership.”

Two noteworthy features are a back-cover mission statement, and a glossary of terms used in the report, which is presented on the inside back cover. Credit was also given for extending the design concept throughout the report. Going as far back as the 1992 edition, this telecom’s report consistently turns out to be Canada‘s best.

5.       Year after year, Southern Company’s report is the world’s most humorous, a reflection of its chief executive, A. W. (Bill) Dahlberg, whose sense of humor is somewhat unusual in the corporate suites. Funny bone aside, his letter to shareholders qualifies as the year’s most readable. This, as much as any of the 10 best, is an externally oriented document, one that demands the recipient become reader, and then attempts to entertain while educating about the company’s unregulated, worldwide activities. Its text is decidedly focused on operations. One of the report’s hallmarks is an innovative theme: the cover boasts only the letters “SO,” the company’s stock exchange ticker symbol. That word becomes the lead-in to all the document’s textual sections: “So What’s Important to Southern Company?” “So What Does It All Add Up To?”

6.       Another frequent visitor to these parts has returned. Phillips Petroleum is a classic example of a company weathering the economic storms of the global marketplace that is intent on “Maintaining our course,” as its theme indicates. Its annual report continues to touch all the bases, from a meaningful letter to shareholders to its traditional interview with Chairman and CEO W. W. Allen (though it’s a bit brief, at a single page). One of the report’s features is its use of fully captioned graphs for the scanners among us, including six on a page whose headline reads: “Weak Prices Depress Financial Results.” How’s that for forthrightness?!

7.       Welcome back, Knight-Ridder: starting a decade ago, its finish (alone or tied) three times in first place disqualified it from consideration for 10 best status. With its 1998 annual report, this diversified news media company has begun its climb back up the ladder.

Its report is one of the year’s more external, more revealing of management’s plans, its prospects, and its attitudes. A distinct feature of the report is its pace-setting 19 hard-hitting questions (none other has come close) put to Chairman and CEO P. Anthony Ridder and four other officers, with innovative graphics making these spreads more inviting. This comes on the heels of a full-bodied, three-page letter to shareholders delineating where Ridder sees the company and what he envisions “the largest ‘pure play’ operator in our industry” becoming. The report’s biographies on both officers and directors are flawless, and accompanied by appealing photos of both groups as well as of Knight-Ridder’s executive committee. Though it was held back a bit for not running a grid that breaks down company operations and cites the requisite number of customers and competitors, this is a report that would not be denied.

8.       Dana and Chevron share billing as eighth best. While this marks Dana’s first visit to these pages, Chevron’s ranking signals its 12th consecutive year to finish among the world’s best. Among the current Chevron report’s praiseworthy features is its cover, brilliantly lighted and professionally executed, declaring the report theme: “Shaping the future” (with a subtheme, “staying focused…pursuing opportunities…”). And how did Chairman and CEO Kenneth T. Derr begin his letter in a disastrous year? With the words, “1998 was a tough year for Chevron and the petroleum industry…. Chevron’s net income fell 59 percent…from the record $3.256 billion earned” the year previous. Ohio-based Dana, on the other hand, experienced record sales and profits in what its chairman, Southwood J. “Woody” Morcott and its president and CEO, Joseph M. Magliochetti, described as a landmark period in the automotive industry. The report contained many elements considered essential, including a glossary of terms cleverly billed as “A guide to ‘Dana speak.'”- It’s among the minority, as is the Chevron book, to score well across the board-its report appearing attractive, demanding readership, and reflecting well on the company.

10.   “Small wonders” is the first part of the intriguing theme of this chemical company’s graphically arresting book. The second part, the subtheme if you will, is writ large in colorful type on page one: “Infinite possibilities.” Hercules’ 1998 effort is one of the more innovative among the 10 best, with large, colorful graphics used to encourage readership. Opposite a full- page, unobjectionable photo- graph of the beaker-hearing boss, Chairman and CEO R. Keith Elliott, is large type that sets the stage for a masterful and forthright performance. Against a red back- ground is a statement from Elliott printed in yellow type: “I call them gozintos.’ That’s because the products we make ‘go into’ a lot of the products you buy. Even the paper you are holding was enhanced using Hercules chemicals…. In fact, I hesitate to think what it might be like without them.” Modern communication techniques mark this tome; not the least of which is the application of something resembling a yellow highlighter to several positive statements interspersed throughout the letter to shareholders, including “We are growing your company” and “We acquired five great businesses.” The year’s financial results, discussed openly, are accompanied by five-year data showing clearly how bad it actually was.

End-use photographs-pictures of the product in use-were among the year’s best, showing products improving aspects of our lives-everything from Hercules-supplied pectin to thicken jelly to helping keep toothpaste on the brush.


Securing a spot on the world’s 10 worst list in this, our 16th year of selecting the best and worst worldwide, involves building a case. Lack of forthrightness or dissembling is virtually certain to single out an annual report as a convincing candidate for the worst list. Incidents of partial disclosure indicate a report that’s wanting, as does the expression of an “above-it-all” attitude when the company is actually in deep trouble. Hiding behind industry difficulties or empty phrases doesn’t help matters.

The absence of crucial data adds to the evidence against the candidate. Contrary to accepted standards, the report may fail to “list officers. Or financial data isn’t presented for the Securities and Exchange Commission-required five years, let alone the 11 advocated in this corner.

Disagreeable elements of vanity stand out, such as an overabundance of CEO photographs. Throw in some blank pages (a clear indication of amateurs at work), add an outrageous design or layout-and voila! Welcome to the world’s worst.

1.       For those who follow the news, it was hard to ignore that Archer Daniels Midland has been in hot water over the last several years-for its genetically engineered grains, which were protested vehemently overseas and threatened with government intervention; and for a massive price-fixing scandal in this country. “Think of ADM as an extension of the farm,” the 1998 letter to shareholders requests. Skeptics might assert that ADM would have us believe it’s just a bunch of hayseeds who got caught with a corporate hand in the till. Government trustbusters thought differently, winning convictions against three top ADM executives.

Stockholders reading the brief, one-page letter in the report, which contains heartfelt adages such as “The right to be well fed is a basic human right,” would have had nary an inkling of such antitrust problems. Neither would report recipients know-unless one perused a back-of-the-book, 10-year financial summary-that long-term debt had quadrupled over the decade, while earnings per share, 68 cents, essentially returned to the decade-earlier mark, 65 cents a share, though sales doubled.

In addition to this lack of forthrightness, a design deemed not up to professional standards didn’t help this report’s cause-nor did the absence of many of the three dozen ingredients considered essential for a good report. And by the way, folks, who was that unidentified man pictured on the inside front cover alongside Shimon Peres, former Prime Minister of Israel?

2.        At Century’s silver anniversary, Chairman and CEO Leonard Tow reminisces about a quarter-century earlier, when he foresaw a future for cable television. To be sure, revenues of the cable television and cellular telephone company continue to rise; and photography of the boss, as well as of President Bernard P. Gallagher, is memorable. Layout and design aren’t bad, either. This report builds its case for one of the world’s worst with a message that suffers frequent interruptions, with flashbacks to an earlier era and samples of some annual report covers through the years. What also earns this company a return visit to the 10 worst list is found at the very bottom of its “Selected Financial Data” listing a third of the way through the tome on page 24. There, annual report watchers will see a first-of-a-kind “Common stockholders’ deficiency.” That’s right, a deficiency, more than triple that of five years earlier: $725.25 million, up from $243.6 million in 1994. If this be success…

Tow continues to dream, though-“of cable TV systems functioning as interactive broadband networks”-and his report contains heartwarming photographs of helicopters, snowmobiles, even snowshoes, used by company personnel on mountaintops and the like to rectify service interruptions during blizzards. Second-in-command Gallagher, meantime, predicts the coming year will be “the most exciting…in our history.” One can only hope that includes profits as well, and, at long last, an end to that persistent “Common stockholders’ deficiency.”

3.      Not the first company to confront the dilemma of how to produce an upbeat document in a simply awful year, Reebok is likely the first to picture an advertisement featuring a drag queen (RuPaul), in its annual report to shareholders. Its theme this year is “I want to…” Run the 3:44.38 mile; say what I really think; hit 71 homeruns; experience true love; jump into the deep end; and, not least, “make a contribution to humanity.” What stockholders doubtless would prefer is a consistent earnings record, starting with improved profits. What they see, if they get past the fluff, engrossing photography and kicky graphics, is net income less than a tenth of the five years prior result-$23.9 million versus $254.5 million or 42 cents a share, off from $3.09 in 1994. Net is a sixth of the year-earlier figure, its lowest in five. Working capital similarly is at a low ebb-all of it on a steady decline in sales.

What’s Chairman, President, and CEO Paul Fireman’s take on all this? He admits he has “concentrated most of this letter on my long-term view of the industry and our company.” The harried executive insists, “We are not just a sneaker company.” Striving for other lofty phrases, he begins his letter “with a prediction: Five years from now, our industry will look nothing like it does today.” One can assume that stockholders hope that means a return to earlier levels of profit. (Full disclosure: My son and his wife are employed by Nike at its headquarters.)

4.       For openers, National Beverage’s report has no company description, among the one in three annuals worldwide to pompously believe the Securities and Exchange Commission-required element would be redundant. One won’t soon forget this company, another return visitor to our list of world’s worst. “Reigning Flavors” is the report theme, exhibited by way of a die-cut cover that forms a multi-color crown (reigning like a king get it?). The only thing missing is that crown being applied to Chairman and CEO Nick A. Caporella, whose ebullience is reflected by loads of textual emphases indicating his excitement: some words are bold, some italicized and bold, some bold and underlined; ellipses clutter his realm. Punctuation-challenges aside, his letter goes down as the year’s worst written-strictly from a readability standpoint (a 33.5 average words per sentence didn’t help). Caporella begins the message, his unrestrained enthusiasm clear, writing about “early in my life” listening to his “grandparents and their friends speak of America…the land where streets were paved with gold.” To make his long story short, suffice it to say that his mantra-punctuation his, of course-is “Yes…Yes We Can...Yes We Do…Yes We Will!”

It must be the carbonation.

5.         Here’s a first: the very first annual produced by a Hawaii-based company to make the world’s worst list. And not just because of the absence of most elements considered essential. But that, combined with Pacific Century’s bad judgment in an integral part of the report, combined to build its case. That bad judgment involves the never-ending letter to shareholders signed by Chairman and CEO Lawrence M. Johnson. While the worldwide average, year after year, runs just over three pages, Johnson’s letter is displayed over 16 pages. Interruptions (more than one cares to count) range from a delightful photograph of the CEO with three managing committee members; a photograph of the marketing director for Continental Airlines (a client); various artist sketches, and on and on and on. What possessed the graphic designer?

Pacific Century’s net was off, to $107 million, 23 percent lower than the $139.5 million in 1996. The bank’s five-year compound growth rate, found on page 23 of a 102-page book, and on unattractive paper stock, is a negative 4.2 percent. Basic earnings per share are off 24 percent year to year. It’s all news the reader is unable to unearth from the interminable shareholder letter——-though it may in fact be in there; the sheer length of the letter makes it impossible to be certain.

6.          The self-published book usually glorifies the author; hence the phrase “vanity book.” This New Zealand based energy company did the self-published book one better:

Producers of Fletcher Challenge Energy‘s 1998 report, which performed poorly overall in this competition, curried favor shamelessly with the company’s top executives in a progressive if unbecoming manner. The report, running 40 pages in length, a fifth shorter than the worldwide average of 50 pages, devoted entire pages to ultra-close-up photos of each of the four top brass.

And, in this kickily photographed and designed tome-how did CEO Greig Gailey begin his letter? With the telltale industry-associating euphemism: the year “was one of dramatic change for the industry.” Translated: earnings declined 64 percent on the year to $112 million, a fact which, granted, was disclosed on the page 1 highlights page.

What’s progressive is that various income statement figures are stated both in U.S. dollars and NZ currency. What’s not is that back-of-the-book figures virtually all appeared to have declined. The report’s theme? “Three targeted geographic arenas…three distinct businesses…one overriding objective: profitable growth.” Well, two out of three isn’t bad.

7.       Three years earlier, dapper Chairman and CEO William F. Farley’s report was named world’s second worst. He’s hack, only this time he can’t decide if it’s an annual report-as labeled-or an “Offering Circular,” which commonly means “prospectus,” a different breed altogether. Fruit of the Loom’s 1998 document barely qualifies to be dignified with the title of annual report. Roughly eight pages long on heavy paper stock, it’s devoted essentially to chronicling the success of Farley’s “restructuring and reengineering,” as he put it. The stock dropped from $42 a share in early 1997 to its recent low of less than $4. Consensus estimate for the current fiscal year, contrary to his public ebullience: a loss per share of 14 cents. In the summer of 1995, according to his letter, the company began moving “a substantial number of labor-intensive jobs to lower-cost locations in the Caribbean, Mexico, and Morocco,” which took the wind out of Windy City workers. By the end of 1998, “we reached our objective to move virtually all our sewing jobs to offshore locations at annual savings to the company of approximately $150 million.”

Things haven’t gone easily for Farley. When Chicago‘s Lyric Opera proposed him for membership on its board, union officials took out full-page newspaper advertisements spelling out what they described as his anti-labor stance ——-and that he was building a multi-million-dollar mansion out East. Farley, meantime, said he appreciates “your support in what has been a turbulent time in the textile-apparel industry,” a classic, industry-associating explanation for Trouble in River City.

The document barely  if at all-deserves to be called an annual report. It does not contain complete financials; its “selected financial data” is bare-bones at best. One is able to determine that assets are a third less than in 1994 and common stockholders’ equity is essentially half the five-year-earlier figure. The page-long “Selected Financial Data” contains a reference to the publication-which is labeled an annual report being an Offering Circular. That’s a first. Make up your mind: Which is it-annual report or prospectus? It can’t be both.

8.      So much is wrong with the 1998 report of the former Woolworth Corp. It begins with the hackneyed sports slogan and theme on the cover: “Positioned to win,” accompanying a photograph of a relay race, with participants handing off the baton to awaiting teammates. It’s among at least half a dozen companies to feature something related to sports in their annual reports, a device many view as sexist and female-exclusionary.

This competition advocates a report that’s oriented toward readers outside of the company; meaning, among other things, a report whose index doesn’t parallel the company’s internal breakdown. Venator’s text, though, is broken down by precisely those internal designations, Global Athletic Group, Northern Group, and “Other Specialty Group”-this preference for textual coverage operation by operation is a detriment to the document’s cohesiveness. Besides, it encourages the various officers to view the specific sections as their very own. Those sections also merit notice for featuring photographs that are among the most posed in memory.

Another failing was the lead to Chairman and CEO Roger N. Farah’s message, which looks for refuge behind the state of the industry: “The year 1998 certainly proved to be difficult for retailers in the athletic industry.” Translated, that too often means that “we lost our shirts, hut don’t think we’re the only ones.” The company earned only 2 cents a share, off from $1.57 a year earlier. That’s not quite up to the “positioned to win” standard.

9.      Every year, it seems, one company will think it’s clever to shareholders Northeast Utilities which has faced more than its share of problems, regulatory and otherwise, opted for a maneuver that has been tried before: Since income figures for the current year and the year earlier are negatives-a 1998 loss of $146,753,000, which was 13 percent worse than the year-earlier $129,962,000 figure-the company tried this ploy (which no doubt has the bean-counters chortling in the back room): Show the net loss figures-since they’re both negatives-as a positive; that is, without the traditional parentheses. Then, the casual reader of the report will glance at the 12.92 percent and automatically assume, since there are no parentheses around it, a substantial increase. What’s more, the letter to shareholders, signed by Michael G. Morris, chairman, president, and CEO, addresses the company’s “few rough years,” but does not deign to discuss the inconvenient numerical data.

The company no doubt will protest that it put parentheses around the numbers back among the financials. Of course it did, since showing three-year data (the 1996 earnings per share were a positive, 30 cents) would clearly have been seen as deceitful. But two loss years, back to back (a current year loss of $1.12 a share, 10 percent worse than the $1.01 a year earlier)-could be shown sans indication up front that they were negatives rather than positives, as implied.

 10.    What’s right, and wrong, with the report of this “world leader in electronic controls and communications”? On the short list are superb officer photographs, cropped close and reproduced superbly, plus a letter-preceding question-and-answer feature. That’s the Rockwell report theme: “Questions/Answers.” What’s wrong is more extensive: a company description that doesn’t appear until page 29, which surely doesn’t count as up front; a letter that runs, at 12 pages long, four times the worldwide average (with interruptions, it stretches over a seemingly never-ending 16 or 17 pages). And is Chairman and CEO Don H. Davis, Jr., sufficiently forthcoming? We see a 55-cent-a-share loss (Rockwell’s worst year in five) versus a year-prior $2.01 profit-“after special items and before [an] accounting charge.” A loss of $109 million versus a year-earlier profit of $437 million, followed by six lines in small, hard-to-read type containing all the caveats, all the qualifiers mandated by the attorneys. Without debate, apparently, shareowners’ equity declined more than a quarter year to year-to $3.245 billion from $4.8 billion. The back-of-the-book income statement shows a net loss of $427 million, off from $644 million and $726 million earned the previous pair of years, respectively. Disturbing to say the least is that the report contains condensed consolidated financial statements, though not so labeled. It was left to the auditors to wave that warning flag, saying those condensed statements “are the responsibility of the company’s management.” That’s assigning blame where it’s due.


More non-North American reports were analyzed this year than ever before. One in nine we reviewed (10.7 percent) originated from outside the U.S. Among the notables:

Reuters far and away leads the international contingent, its product consistently exemplary, containing full disclosure, financial and otherwise. For several years, it has achieved world-class status by scoring at least 100 of a potential 135 points.</S


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