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Over the last two decades, perhaps the two most significant developments that have impacted the annual report are the Internet and the collapse of Enron Corporation. The Internet, like no other communications medium, continues to feed our ever-growing appetite for instant, timely and thorough information. The demise of Enron, more than any other U.S. public company scandal, set the stage for the eventual passage of the Sarbanes-Oxley Act – forever changing the rigor and process by which public companies prepare, audit and disclose financial information.

The Annual Report’s Strengths and Weaknesses
Both the Internet and Sarbanes-Oxley have affected the annual report in ways that expose its underlying strengths and weaknesses. On the strengths side, the annual report is still the one corporate communications document that has the ability to summarize a company’s accomplishments and set forth its vision in a highly believable manner. The CEO letter, the scrutiny the annual receives from accountants and legal counsel, and – of course – those year-end numbers add credibility to the annual and its message in ways that ad campaigns and marketing brochures cannot.

Among its weaknesses are the annual report’s significant time and monetary costs. As Sarbanes-Oxley has created tighter time constraints for filing year-end information and has required public companies to disclose even greater amounts of information, companies are looking for ways to minimize their workload, streamline the process and keep production budgets in check.

NIRI Survey Confirms Companies Are Moving to 10-K Wraps
Ultimately, in response to additional financial reporting burdens imposed by Sarbanes-Oxley and financial economic pressures in a post-9/11 era, many companies have elected to adopt new annual report formats. A 2004 survey conducted by the National Investor Relations Institute (NIRI), which included responses from small-, mid- and large-cap companies, supports the claim that more companies want an annual report that is easy to produce and costs less. Among NIRI’s findings:

Forty-seven (47) percent of surveyed companies have turned to a 10-K wrap, with 46 percent still employing a traditional annual report format.

Ninety (90) percent of the surveyed firms that have moved to a 10-K wrap cited cost-cutting pressures and 63 percent mentioned ease of production as reasons for adopting the abbreviated format.

The average print run for the annual report has steadily decreased over the last two years, from 95,600 in 1999 to 61,900 in 2004.
These statistics support the notion that annual reports that are less expensive and easier to produce are gaining favor with companies of all sizes.

Online Annual Reports Remain Popular
As the Internet continues to serve as a powerful resource for analysts, shareholders, portfolio managers and other stakeholders seeking up-to-date information on companies and their industries, public companies have found that moving their annual report to an accessible, electronic format has considerable benefits.

As a result, a vast majority of companies – nearly nine of every 10 surveyed – offer their annual report in online form. The 2004 NIRI survey showed that while there had been a dramatic increase in the percentage of companies producing online annual reports in prior studies, this trend has now leveled off. In its 1999 study, NIRI reported that 76 percent of companies produced online annuals; in the 2002 report, that number jumped to 89 percent; this most recent study in 2004 reported 88 percent, essentially the same as in 2002.

Among the features of online annual reports, offering a downloadable PDF version has increased in popularity. The 2004 study found that 97 percent of the companies that have online annual reports supplement the main content with a downloadable PDF version. This is up from 92 percent in 2002 and 78 percent in 1999.

While online annuals are in favor, making them complex in technology or presentation is not. Less than 6 percent of the companies surveyed used Flash animation, frames, java scripts, splash graphics or foreign language translations.

What see see eye Recommends
Of course, there are different audience priorities and uses for virtually every annual report. Some companies regard the annual as little more than a regulatory necessity. Others use it as a marketing tool with customers, prospective clients, joint venture partners and bankers. Still others use it to update employees, recruit executives or educate the media and other constituencies.

In most cases, though not exclusively, see see eye recommends the traditional annual report as the most credible tool to appropriately convey a company’s unique position and build confidence in its organization. As for the belief that analysts don’t value the printed annual report, a recent roundtable conducted by NIRI of leading Wall Street analysts confirmed that they want as much information as possible about a company, its business and industry and its future growth opportunities. The traditional annual report offers an opportunity to provide just that – and to deliver the information in a format that is accessible to the widest possible audience.

Cost considerations and ease of production are certainly factors that can’t be ignored when producing an annual report. We believe there are ways to address these issues while maintaining a positive “brand experience” and delivering an engaging and thorough message. Some alternate approaches we’ve suggested:

Consider producing a summary annual report. Summaries (versus traditional annual reports) are generally more economical to produce because they contain fewer pages and thus require less design, typesetting and printing. They also enable companies to deliver a robust and informative narrative section and provide high-level financials (versus the entire 10-K which is tedious reading for the average shareholder, employee or customer). see see eye clients such as The Coca-Cola Company, Cousins Properties and Outback Steakhouse produced 2004 summary annual reports.

Consider producing a simple HTML online annual report. Reducing the amount of Flash or other animated graphics can help make an online annual viewable to the widest possible audience and can lower production costs. see see eye clients such as Bowater Corporation, CompuCredit Corporation and Freescale Semiconductor produced descriptive but simple 2004 online annuals.

Whatever format a company selects, the annual report should demonstrate a respect for the value of good design and presentation. It should use “plain English,” reflecting thoughtful, careful development of the message. It should signal an awareness of tone and manner, be simple, straightforward and clean. Then it will be a memorable takeaway.

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