Annual Reports

• Pages: 49-52

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Annual reports are formal financial statements that are published yearly and sent to company stockholders and various other interested parties. The reports assess the year's operations and discuss the companies' view of the upcoming year and the companies' place and prospects. Both for-profit and not-for-profit organizations produce annual reports.

Annual reports have been a Securities and Exchange Commission (SEC) requirement for businesses owned by the public since 1934. Companies meet this requirement in many ways. At its most basic, an annual report includes:

General description of the industry or industries in which the company is involved.

Audited statements of income, financial position, cash flow, and notes to the statements providing details for various line items.

A management's discussion and analysis (MD&A) of the business's financial condition and the results that the company has posted over the previous two years.

A brief description of the company's business in the most recent year.

Information related to the company's various business segments.

Listing of the company's directors and executive officers, as well as their principal occupations, and, if

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a director, the principal business of the company that employs him or her.

Market price of the company's stock and dividends paid.

Some companies provide only this minimum amount of information. Annual reports of this type usually are only a few pages in length and produced in an inexpensive fashion. The final product often closely resembles a photocopied document. For these companies, the primary purpose of an annual report is simply to meet legal requirements.

ANNUAL REPORT AS MARKETING TOOL

Many other companies, however, view their annual report as a potentially effective marketing tool to disseminate their perspective on company fortunes. With this in mind, many medium-sized and large companies devote large sums of money to making their annual reports as attractive and informative as possible. In such instances the annual report becomes a forum through which a company can relate, influence, preach, opine, and discuss any number of issues and topics.

An opening "Letter to Shareholders" often sets the tone of annual reports prepared for publicly held companies. The contents of such letters typically focus on topics such as the past year's results, strategies, market conditions, significant business events, new management and directors, and company initiatives. The chairman of the board of directors, the chief executive officer, the president, the chief operating officer or a combination of these four usually sign the letter on behalf of company management. Some of these letters may run a dozen or more pages and include photographs of the CEO in different poses (some even expound on topics that, while perhaps of only tangential interest to stockholders and other readers, are of importance to the CEO). More often, however, these letters are significantly shorter, amounting to 3,000 words or fewer.

Annual reports usually advance a theme or concept that has been embraced by company management and/or its marketing wings. Catch phrases such as "Poised for the Twenty-first century" or "Meeting the Needs of the Information Age" can unify a company's annual report message. In addition, particular events or economic conditions of a given year may be incorporated into the themes advanced in an annual report. Companies also use milestone anniversaries—including industry as well as company anniversaries—in their annual reports. Promoting a long, successful track record is often appealing to shareholders and various audiences, for it connotes reliability and quality. Still other companies have developed a tried-and-true format that...