The promise of Internet efficiencies assisting investor relations shimmers on the horizon like a desert mirage - the image is based on reality, but it's a lot further away than
it seems. Many companies are phasing out interim financial reports because the information is so readily available online, and many corporate Web sites now include electronic
renditions of annual reports. But the goal of stopping the presses for the last time is still a long time off.
Interim Reports are Disappearing
Individual investors are far less likely to find discretionary reports from companies in their mailboxes these days. "Companies have really gotten away from printed quarterly
shareholder reports," says Patrick Gallagher, senior VP with Edward Howard & Co., an independent IR/PR firm in Cleveland. "Quarterly reports to shareholders [are] something
that large companies traditionally did. There was no requirement by the SEC to do them."
Even with the shift from glossy reports to photocopied news releases, there remains an opportunity to cut costs further. "One of the cheaper services is the telegram-style
releases, [which cost] approximately 58 cents per shareholder to print and mail," Gallagher says. If a company has to send out 100,000 of them, that's $58,000 for just one
quarter.
David Evanson, principal with Gregory FCA, an agency in Philadelphia, is happy to see the demise of interim reports. "Passé perfectly describes it," he says, noting that there
are ample alternative venues through which investors can retrieve information. Evanson has never been a proponent of management investing time polishing what's already available
in quarterly filings with the SEC. "I can't tell you how much time I've spent in meetings with a CEO worrying about what color something is. I can't see how that helps," he
says.
Evanson does make exceptions, however. If a company is in "special circumstances" - a turnaround, reorganization or merger, for instance - then a mailing outside the annual
cycle makes sense. Gallagher adds that consumer products companies are likely to continue some mailings, where there's some market value in reinforcing brand identities.
Demographics, Behaviors are Key
While the trend is dying, companies with older shareholders will still be printing quarterly reports for the foreseeable future. Gallagher notes that companies that are more
dividend-oriented tend to have older demographics - that is, shareholders who seek income-producing investments. Utility companies are one example.
Retail shareholders of Constellation Energy Group, the holding company of what used to be Baltimore Gas & Electric, seem to reflect that. Nancy Caplan, senior counsel-
special projects in the company's issues communications unit, says Constellation's shareholder base is about 40% institutional, 60% retail. "The average shareholder had been over
55, the majority of them women, retired, well educated," she says. "But we are moving to become more of a growth stock, and that brings us to a whole new realm of investors."
Caplan says the company quietly stopped producing quarterly reports about eight years ago, and no one appeared to care. But it still produces a midyear report. " It's a follow-
up on our annual meeting, and we answer frequently asked questions," she says. Each year as the time draws near for the midyear mailing, Caplan is asked by I/R and Legal if it's
still necessary. And each time, she's left wondering: if it isn't done, how will the company reach its individual shareholders who aren't online?
Regulations Still Require Paper
Shipping gia nt FedEx is trying to nudge its shareholders online, offering a Web version of this year's annual report for the first time. The company also has halted
production of a quarterly review of operations, counting on the ready availability of information on the Internet to make up the difference. "We still do our quarterly filing [the
SEC's required 10Q] and a quarterly press release on our Web site," says Jeff Smith, an I/R advisor with the company. "The press release is immediately available, the 10Q within
a couple of days."
In line with the SEC's requirements, FedEx is inviting shareholders to enroll in electronic delivery. The company will mail some 285,000 annual reports, and deliver just a
fraction - between 6,000 and 7,000 - electronically, saving approximately $18,000 to $20,000 on an $800,000-plus expenditure. "It's going to be a slow process to wean people off
of paper," Smith says.
(Gallagher, 216/781-2400; Evanson, 610/649-3604; Caplan, 410/783-3058; Smith, 901/818-7037)
SEC and the Law
All the financial filings required by the SEC, both quarterly and annual, are available online through the federal agency's EDGAR system. But John Heine, a spokesman for the
agency, says that any time a company asks its shareholders to vote or to give proxies, it must contact them and, for now, that means snail mail.
"Paper is the default," Heine says. "If an arrangement can be made whereby
the information is delivered electronically and everybody's satisfied, that's
okay." In other words, shareholders must opt in for electronic-only commun-ication.
(Heine, 202/942-0020)