16(b). Other

The diverse opinions expressed by the survey group on some issues are understandable for a number of reasons-not the least of which is the FAS 106 information gap. Retiree welfare costs are largely determined by factors that are not normally disclosed to the public. And relatively few employers began to report their FAS 106 data until this year-in 1991 annual reports, for example. [Also included in 1(c)] [TOWERS PERRIN, p. 7]

Moreover, those data are preliminary in most cases. One reason is the fact that management discretion-in developing expensing, benefit and funding strategies-plays a critical role in determining the magnitude of FAS 106 expense. So although FAS 106 is an "objective" standard, it's difficult to anticipate how much of a difference changing conditions would make between preliminary and final results for individual companies. It's also unlikely that any two companies will take exactly the same approach to managing costs. [Also included in 1(c)] [TOWERS PERRIN, p. 7]

Given these factors, it's not surprising that 69% of the survey group say that management efforts to communicate with the investment community about FAS 106 issues will have a positive impact on assessments of a company's financial position. Employers might therefore want to include investor communications in their FAS 106 adoption plans. [Also included in 1(c)] [TOWERS PERRIN, p. 7]

Another factor is that FAS 106 is uncharted territory for most equity experts. Treatment of nonrecurring "events" (such as dividend cuts, earnings reductions) and other past experiences (such as FAS 87), although similar in some ways, haven't fully prepared investment professionals for the complexity they face in evaluating retiree welfare benefits costs. [Also included in 1(c)] [TOWERS PERRIN, p. 7]

__________

Videotape, audio tape, personal computer diskettes, and on-line access to a service organization are not attractive options for most individual investors. Videotape and audio tape are seen as too inflexible and somehow not appropriate for investment information, and even less so for the annual report. The other two options require computer literacy and access to appropriate equipment--capabilities that are not yet typical among the individual investors interviewed. [Also included in 15 and 16(a)] [SRI, p. 69]

Professional investors express a different level of interest and are more computer literate. When asked, "Would receiving company information in any of the following ways be useful to you?" their responses were as follows: [Also included in 15 and 16(a)] [SRI, p. 69]

                      Yes                    No                    
On videotape?         34.9%                  64.7%                 
On audio tape?        31.4                   68.6                  
On diskettes for                                                   
your                                                               
  personal computer?  60.9                   38.8                  
From on-line access                                                
to                                                                 
  a service           67.6                   32.1                  
organization?                                                      

[Also included in 15 and 16(a)] [SRI, p. 69]

Videotape is seen by all professionals except retail stockbrokers as inflexible, and not at all useful for investment analysis; audio tapes are thought to be even less useful. Retail brokers see the possibility of using videotapes in the sales process. [Also included in 15 and 16(a)] [SRI, p. 69]

Diskettes for personal computers have initial appeal, but concern about their usability prevails. To ensure compatibility with various computers, the diskette would have to be created in one or a very few standardized formats. In addition, most professionals, especially the analysts, have developed individualized approaches to security analysis. These problems are more perceived than real, however. As these technologies become better understood and more widely available, the personal computer will become an increasingly important element in financial information distribution. [Also included in 15 and 16(a)] [SRI, p. 69]

On-line information is appealing to all segments of professional investors. Most analysts, surprisingly, are not aware of the SEC's experiment with EDGAR (Electronic Data Gathering and Retrieval). As EDGAR is just such an on-line service, professionals are likely to receive it with enthusiasm. [Also included in 15 and 16(a)] [SRI, p. 69-70]

Ultimately, the needs of investors will shape corporate financial communications, including the annual report. In the long run, the market power and welfare of investors will guide the policymaking of regulators, the communications and investment vehicles offered by corporations, and the applications of technology in the investment field. By better understanding the investors' information requirements, corporations can mold the annual report and their other communications to achieve an even more productive and profitable relationship. [SRI, p. 73]

Last year the [CIC] Computer and Electronic Subcommittee noted growing use of new communications technology in company/analyst relationships. This year electronic communication:

. . . emerged as a critical and timely way of communicating with investors. Included . . . were electronic bulletin boards, complete release of quarterly information on Business Wire or the First Call service, video transmission of presentations at the New York Society of Security Analysts, and quarterly conference calls. The techniques were particularly important in the industry because the pace of change was accelerated and it was increasingly critical that all investors be treated equally and that the general public also have relatively quick access to important information. Much of the coordination of these efforts fell to the investor relations staff or function. The subcommittee, therefore, felt justified in increasing the importance of the weighting of this critical effort.

[AIMR/CIC90, p. 1-2]

__________

[A] number of [CIC] subcommittees noted a trend toward improved communication on the part of many companies. While many companies are to be commended for meeting this obligation, there is still room for considerable improvement. [AIMR/CIC92, p. 1]

[The CIC] oil industry subcommittees complimented oil companies] regarding the quality and timeliness of information made available to investors and the awareness of most managements of their obligation to those who own the company. [However,] the Insurance Subcommittee, [commented]: "In general, comments from subcommittee members showed a growing frustration with the lack of candor and insight into the numerous problems of both the life and property-casualty industries provided by many insurance management teams. There is a sense that too many companies are not being managed in an effective manner. . . .It is hard to believe, but the quality of the industry's reporting to shareholders continues to deteriorate." [Also included in 2(a) and 2(b)] [AIMR/CIC92, p. 1]

[The CIC has commented that] while the annual report remains the primary corporate communication and the quarterly report ranks very high, there is increasing emphasis on "extra efforts" put forth by management. The "factbook" with up to ten-year financial records continues as the most respected extra. Timely and meaningful press releases covering important developments are often cited. Quarterly conference calls and analyst meetings are also becoming more important and may well reflect growing investor concern for short-term "market performance." Many investors cite the absence of a separate fourth quarter report as a continuing sore point. Fax machines are a wonderful tool for the rapid dissemination of hard copy data but this newer means of distribution is often overworked. We stress again that corporate communications should not be confined to the professional investment community but also directed to the general investing public. [Also included in 11(b) and 15] [AIMR/CIC92, p. 2]

The following comment by [the] Chairman of the [CIC] Foreign-Based Oil Subcommittee, puts into good perspective many of the shortcomings overseas companies have in dealing with investors: "The committee felt that the area where there is most room for improvement was in the frequency and timing of interim reports and communications of business trends to investors on a timely basis. In general, quarterly/semi-annual/annual results are published much later than those of U.S. companies. The French practice, for example, is to release partial data on a timely basis (i.e. less than one month after a period's close), but not to release sector and financial details for one or even two months later. Without details, the initial release is of limited analytical value. . . . Most U.K. companies report semi-annual and do so quite awhile after the period has ended. Overall, these practices are in line with those of respective home markets but American investors, used to full detail within three to four weeks of the quarter's close, would prefer quicker and more detailed reports. [The Chairman] realize[s] there is a cost involved with doing this, but feels the market would be better informed and more efficient as a result. [Also included in 2(a), 11(a), and 15] [AIMR/CIC92, p. 3]

Most [CIC] subcommittees agree . . . [that] the following suggestion seems appropriate: [Also included in 1(b), 2(b), 2(c), 3(b), 3(d), 5(a), 5(d), 11(a), and 13)] [AIMR/CIC92, p. 3]

Reports should be prepared under a standard format. Companies that use the metric system should provide appropriate tables for conversion, while companies seeking foreign investors should state appropriate currency exchanges rates. [Also included in 1(b) and 16(b)] [AIMR/CIC92, p. 3 and 4]