Won't You Pleeeease Read Our Annual Report?

The satisfied customer is a familiar figure in annual reports, and PepsiCo Inc.'s latest glossy release seems to celebrate just that. Its 1990 offering features a sumo wrestler on the cover and romping throughout the report. He's pictured eating--or within chomping distance of--the company's Pizza Hut, Taco Bell, and Kentucky Fried Chicken dishes.

Can this be the PepsiCo that renamed its Kentucky Fried Chicken unit KFC to entice more health-conscious consumers? Yes, but of course there's an explanation. Says PepsiCo Chairman Wayne Calloway: "There's no better way to illustrate the power of PepsiCo's brands than with a sport in which a 300-pounder goes by the nickname `Tiny.' "

And so it goes in the world of annual reports. Here, eagerness to be upbeat coupled with a compulsion to grab the spotlight can yield a bonanza of instruction, delight--and sometimes dismay for shareholders. This year's most brazen bid for attention? Reebok International Ltd., the shoe and apparel maker, tucks a poster of a naked (but for a pair of Reeboks, of course) male athlete inside the front page. The reason? Oh, it's a broadcast sponsor of the 1992 Olympic Games in Barcelona.

LEAN TIMES. Some companies keep it considerably simpler. Not to put too fine a point on it, last year was a disaster in the airline biz. So the cover of Southwest Airlines Co.'s report trumpets nothing but this: "In 1990, we made a profit." Others try to catch eyes with handwritten messages. For example, Bruno's Inc. in Birmingham, Ala., jazzes up an otherwise bare-bones report with a doodled list of goals for the supermarket company.

Every year, more than a few annual reports bend over backward to camouflage bad news. In FirstFed Michigan Corp.'s report, the bank chairman's letter opens happily, with word that core earnings "improved significantly." Earnings for 1990 were initially posted at $30.1 million, an increase of 34% over 1989, Chairman C. Gene Harling reports. But how about that word "initially"? Read on. Harling adds that the Office of Thrift Supervision "subsequently asked First Federal a subsidiary to change its accounting treatment for certain deferred hedging operations . . . ." Once the pesky regulators were done, 1990's net income tumbled to $9.2 million--a 59% drop, something FirstFed never bothers to mention. A spokeswoman points out that investors can find "more than enough information in this book to calculate that percentage."

This year's trendy topic? Well, there are two: the environment and Operation Desert Storm. Companies printing their reports on recycled paper, according to Sidney Cato, who publishes a newsletter on annual reports, account for no less than 23% of the several hundred he has seen already. And even Walt Disney Co. finds a way to exploit the Persian Gulf crisis. Chief Executive Michael D. Eisner tells shareholders that as he was waiting for the onset of the war and the recession, he felt "thankful that during these uneasy months our company can and will continue to `lighten the load'--specifically, to entertain."

Many companies also seize the opportunity to fend off potential public-relations problems with special sections. In its 1989 report, McDonald's Corp. soothed consumers concerned about waste with a copious text about recycling and the company's efforts to promote it. Its 1990 report features a gorgeous 12-page spread on Food & Nutrition. Renowned chef Julia Child laments that Americans have become "hysterical, unreasonable, and. . . inadequately nourished because of their fear of food." The solution? Eat! McDonald's includes suggested menus for a 16-year-old boy and 46-year-old woman. Is anyone surprised that Egg McMuffins and McLean Deluxe burgers are among the recommended dishes?

LONG DETOUR. Sharp-eyed types will enjoy finding nits to pick. UAL Corp. spent the latter part of 1990 building its international network, and it showcases that effort with route maps on the cover of its report. But some shareholders will notice something amiss: Flight paths from London to Seattle, San Francisco, and Los Angeles are all shown going across South America. In reality, they cross the Arctic. A UAL spokesman calls the drawing "an artist's rendering."

San Francisco-based Bank of America this year tries playing up its California expansion with a photo of an eagle soaring over a sprawling metropolis at dusk. But the pretty picture left many shareholders baffled. One executive concedes that Bank of America was forced to explain to several readers that the city was Los Angeles.

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