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Companies get more gimmicky with annual reports


NEW YORK -- PepsiCo Inc. came up with a new way to put fizz in this year's annual report to shareholders: Supermodel Cindy Crawford.

Clad in her snug-fitting jeans, Ms. Crawford is pictured throughout the report, ogling the company's ample finances. PepsiCo Chairman and Chief Executive Wayne Calloway begins: I was telling Cindy, PepsiCo had a strong year . . ."

The 52-page document, titled "A typical investor (meaning Ms. Crawford) looks us over," is proving more popular than a bucket of the company's Kentucky Fried Chicken.

"We've had 1,000 extra requests from our own employees compared with less than 100 last year -- that's from people who already know about the company," said Elaine Franklin, corporate information manager for the soda, snack and restaurant company.

It's spring, and that means corporate America is caught up in the annual rite of trying to lure more readers into its annual reports -- and more investors into its stock.

From Hershey Foods Corp.'s giant foldout of a Hershey bar to McDonald's Corp.'s glossy-magazine format, many of these company calling cards are growing more colorful and gimmicky.

"The more elaborate ones are coming out now," said Sid Cato, publisher of Sid Cato's Newsletter on annual reports, based in Kalamazoo, Mich.

The creative approach can backfire, however. While PepsiCo's Crawford-graced report may show a sharp eye for marketing, it also may project the image of a sexist, male-dominated company. (The impression may be reinforced by photos showing that 15 of the 16 board members are men in their 50s and 60s.) Companies often use annual reports to offer a glimpse of their "corporate culture," a nicely amorphous approach that gives lots of leeway to touting the positive and glossing over the unpleasant.

That's why many serious investors prefer a company's more comprehensive -- if far drier -- annual 10-K report with the Securities and Exchange Commission.

The SEC has mandated annual reports since 1934. Last year, about 12,000 U.S. companies were required to prepare them, spending an estimated $8.5 billion on the effort.

"A company is trying to tell an interesting story, and you really don't want to skimp on that," said Richard Lewis, president of New York-based Conceptual Annual Reports Inc., a unit of Conceptual Communications Group that specializes in the reports. "They shouldn't be lavish, but [they] should look good."

Each of the 705,000 conventional reports sent out by International Business Machines Corp. this spring includes a coupon good for a copy of the report on CD-ROM. The Armonk, N.Y.-based computer maker made 20,000 of the high-tech versions. They come with original music in stereo, 30 minutes of narration and full-motion video featuring Chairman Louis Gerstner.

Mr. Cato said his experience with a preview model of IBM's CD demonstrates the perils of getting fancy. "At one point, I ended up with a split screen with Lou Gerstner's face on the bottom and his body on top," he said. Among the low-tech entries, Hershey Foods' report stands out with a cover that opens into an almost three-foot chocolate bar. More elaborate is McDonald's report, which for the second straight year is made to look like a business magazine, complete with customer letters and advertising.

Companies in industries more staid than computers or food -- such as insurers -- must try harder to avoid a dry report. One of the more unusual efforts this year is by Executive Risk Inc., which insures corporate executives against the consequences of their own multimillion-dollar blunders.

Its report is shaped like a brick. The idea, according to the company, is to show how the report "forms the cornerstone of the company's business philosophy -- literally." To be sure, not all corporations are sending a glossier, more elaborate message. Coda Energy Inc. of Dallas has put out a conventional report after last year's replica of USA Today, complete with ads sold to defray production costs.

The company found publishing an annual report that looks like a newspaper is a lot like publishing a real newspaper, Coda Chairman Doug Miller said.

"I had about half the staff ready to quit on me," he said. "You'd tell two people to write 200 words, and one would write 100 words and the other would write 1,000 words. Then you had somebody come in to edit it, and they'd change everything around."

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