Shareholders,
Look Out
For Those Annual Reports!
by Andrew Leckey
Shareholders,
look out below:
The annual reports
of than 12,000 corporations are now being showered into your
mailboxes and the Internet.
You'll notice they're
a little different this time around.
For one thing, they're
thinner than they used to be, averaging around 40 pages versus
the 65 pages of five years ago. For another, many have evolved
into multipurpose marketing vehicles, a trend initiated by high-tech
companies.
This generally means
a glossy, colorful first dozen pages or so and a paper sleeve
in the back of the report. For shareholders, the company inserts
the Securities and Exchange Commission Form 10K into the sleeve.
For customers, it inserts pricing sheets and technical specifications.
The negative impact
for shareholders is that a lot of reports now consist of pure
hype up front, with a stodgy SEC 10K in back that has full responsibility
for stating the facts.
"Instead of informative
photographs of product lines and facilities, there are often
a lot of photos of models throughout the front of a number of
reports, which I consider to be a no-no," said Jim Milner,
director of The Annual Reports Library, 369 Broadway, San Francisco,
CA 94133 (www.zpub.com/sf/arl), which has nearly 2 million annual
reports on file. "All product lines should be pictured."
If you thought the
Online versions of the annual reports offered something innovative
or captivating, think again, because most are nearly identical
to their printed counterparts.
"I believe that
there is a direct parallel between a good annual report and a
good company," asserted Sid Cato, publisher of Sid Cato's
Newsletter on Annual Reports, P.O. Box 19850, Kalamazoo, MI 49019-0850
(www.sidcato.com), which rates reports taking into account factors
such as presentation, clarity, attractiveness, writing, information
and CEO involvement.
Among the 223 annual
reports Cato has inspected so far this year, he gives insurance
firm RLI Corp.'s 1999 annual report a near-perfect score of 134
on his rating scale. Its cover features a yellow road sign with
the words "Watch for Falling Sky," a reference to the
fact that many analysts are overly nervous about the prospects
for the property and casualty insurance industry.
"Our senior management
group, consisting of a core of five senior managers, all signed
off on the theme," explained Eric Hoadley, communications
specialist for RLI, which boasts a long-term annual return of
18 percent. "As a specialty property and casualty company,
whenever the industry is in chaos, we try to take advantage of
the opportunities that rise from such situations. Right behind
RLI on Cato's list are The St. Paul Cos. Inc. with 127 and Sonoco
Products Co. with 124.
Other reports he rates
highly, in order, are DTE Energy Co., Southern Co., Dana Corp.,
Ford Motor Co., Unisys Corp., Phillips Petroleum Co., Knight-Ridder
Inc., Conoco Inc., Devon Energy Corp., R.R. Donnelley & Sons
Co., The Maniwoc Co., American Water Works Co. Inc., UtiliCorp
United, Alcoa Inc., Aliant Inc. and Wells Fargo & Co.
In
an unusual twist, Ford printed eight different report covers
depicting assorted types of customers. Smaller photographs of
the other seven covers are reproduced inside.
"We wanted to
demonstrate that we intend to connect with a broad array of customers,"
said Mel Stephens, Ford director of investor relations. "And,
as far as our annual report is concerned, it's our number one
corporate communications tool, reaching many audiences that include
customers, employees, shareholder and prospective employees."
Here's What To Look For In Every Annual Report
Here, according to the Annual Reports Library, are sections to scrutinize in every annual report:
1. Chairman of the board letter, which should cover changing conditions, goals and actions. Is it written well, and, reading between the lines, what is it apologizing for?
2. Sales and marketing, which should cover what the company sells, how, where and when. Is it clear where it makes most of its money and what the scope is of lines, divisions and operations?
3. Ten-year summary of financial figures, which should show the growth of profits and operating income.
4. Management discussions and analysis, which should give a candid and accurate discussion of significant financial trends the past two years.
5. CPA opinion letter, written by the CPA firm as an opinion of the company's financials.
6. Financial statements, which track sales, profits, research and development spending, inventory and debt levels over time. Read footnotes carefully!
7. Subsidiaries, brands and addresses, which should include brand names and overseas distribution.
8. List of directors and officers, worth examining to determine how many outside versus inside directors there are and qualifications of those directors.
9. Stock price history, showing the general price trend over time, where the stock is listed, the stock symbol and the bonus/dividend history.
© 2000
