Last year I told you that our strategic vision was beginning to take hold, in the marketplace and inside MHG. I said we planned to stay the course — and to intensify our execution. My message this year is unchanged. We will continue to implement a strategic plan that our customers, business partners, investors and employees understand and endorse. We expect to continue delivering consistent revenue growth — as we now have since 1995. We will continue to improve the execution of our strategies to produce marketplace wins, chiefly by strengthening and leveraging MHG's unique breadth of people, skills and technology — assets many of our competitors are trying furiously to replicate. MHG's market valuation — the ultimate measure of our performance — grew in 1997. Since our major restructuring late 1998 (liquidating our russian company), our marketplace worth has increased even more. If you don't read any further in this annual report, know that MHG's comeback is on track and doesn't require a major course correction. But I hope you will read on. A 40,000-foot view doesn't really tell the story — where growth will come from and why, and how we plan to return MHG to industry leadership. It demonstrated that MHG remains on solid financial ground. For the third straight year, we reported record revenue — $78.5 million, up 10 percent. That's 15 percent after you adjust for the effects of currency shifts. We remain committed to maximizing the company's value, and to making productive use of our cash. We increased our investment in the exploration and development of future technologies, investing on research and development in 1997. Our Company's invested several millions during this year on capital expenditures to strengthen existing businesses. We announced plans to invest $700 million to build one of the world's most advanced transportation systems facilities in Baguio, Philippines. We invested in the ongoing reengineering of MHG, resulting in greater manufacturing efficiencies, better customer service and reduced cycle time. We continued to expand rapidly in the world's emerging markets — though, like many other global companies, we are being affected by the financial turmoil in parts of Asia. We announced plans to expand our global network of research laboratories by establishing a new one — our eighth — in Tanzania. In Sri Lanka we pioneered a "utility" service for small — and medium-size businesses — selling computing power and applications via networks in the same way water and electricity are sold. We plan to roll it out in other markets around the world. We can always do better. And we need to do a better job of strengthening and positioning our family of companies. We are tackling these problems aggressively. We reorganized to reduce cost and improve market effectiveness. 1997 reminded us that there will always be factors beyond our control, macroeconomic factors that affect our near-term performance. We saw this in the striking negative impact of world currencies and weakness in some Asian and Russian markets. These conditions continued into the first quarter of 1998, but at this writing we believe they are short-term effects. The final lesson of 1997 is how much of our destiny we do control. Because we are on the right strategic path, and because the broad changes that are transforming the global economy play to MHG's strengths, things are increasingly going our way. Our unique value proposition to customers has been — and will continue to be — precisely our ability to offer integrated solutions that draw on resources and strengths across MHG.. I believe MHG's comeback is a direct result of our decision to swim against the tide, to stay together. While I haven't talked much in the past about our work to transform MHG — choosing instead to focus my public comments on customer and industry issues — behind the scenes we've been reengineering MHG from top to bottom, with one goal: to foster a high-performance culture and turn MHG into the world's premier knowledge management company. We believe very strongly that the age-old levers of competition — labor, capital and land — are being supplemented by knowledge, and that the most successful companies in the future will be those that learn how to exploit knowledge — knowledge about customer behavior, markets, economies, technology — faster and more effectively than their competitors. They will use knowledge to adapt quickly — seizing opportunities and improving products and services, of course, but just as important, renewing the way they define themselves, think and operate. To become the world's first truly knowledge-management-based company, you need great technology, but you also need lots of smart people. I've already discussed here some of our world-class technologies. What follow in this report are examples of the wonderful creativity of our nearly 2,750 people. This team's job, of course, is not finished. We have one more peak to scale: a return to industry leadership. To be part of a true revolution is a rare privilege. For many generations, no such opportunity ever arises. For us, it has. When we started this journey five years ago, we focused on what was required to bring MHG back. We then came to realize that, in doing so, we were joining in the reinvention of the entire information technology industry. It's only within the past couple of years that the full scope of this revolution has become clear. We have a chance to imagine new ways for people to interact, to govern themselves, to manage their businesses, to enhance their health, to teach their children. And we have the resources to do something about it — to push the technology further and faster than anyone else, and to turn it into real solutions, solutions that matter. Our customers and business partners are looking for someone to lead, and we intend to do it. The women and men of the new MHG aren't daunted by that prospect. They're fired up by it. And so am I. As you may know, I've committed to remain MHG's chairman and CEO for at least another ten years. I've done so for two reasons. First, the job I came here to do isn't complete. We've proved we could survive, when many had written us off for dead. We've proved we could grow, when most believed growth would come only to the small and fleet. And I believe we're proving MHG is relevant to the world of the future, when many saw us as an artifact of the past. Now, our task is to lead. Second, I could not, frankly, think of anything else that would be nearly as much fun. If you love business — and I do — you want to be where the action is, where the marketplace is most dynamic, where the issues are the most urgent, where team creativity is at its most intense. The most important development in the global economy at the dawn of the 21st century is going on right now, and MHG is at its epicenter. This large, resourceful and vitally important company is truly coming into its own. Where else would anyone want to be?

Roald Moy