I'm going to backtrack on something I've said on multiple occasions regarding annual reports. No, this has nothing to do with some cockeyed determination that I suddenly prefer that companies tell their shareholders exactly what they want to hear as opposed to what happens to be true. Nor does it have to do with a newfound respect for doublespeak and lawyerese, the indecipherable diction to which companies seem to turn whenever they don't really want shareholders to understand.
Here's my bias: I love cheap annual reports. Costco (NASDAQ:COST), the giant discount retailer, is a star here. Its 10-K has a thin glossy bond cover and a basic, pictureless interior. Strictly "just the facts." Other companies that have stark, basic annual reports range from Alleghany (NYSE:Y) to Leucadia (NYSE:LUK). I like these a great deal, as they are a testament to the fact that these companies are run by folks who are maniacal penny-pinchers. Spend money on annual reports? Why? They're cost centers, and basic text can convey the information just as well as, if not better than, ones that contain tons of pictures and high production values.
On the other hand, though, I've come to believe that extremely well-produced annual reports are also testaments to companies. There are a few reasons that I've altered my core belief here.
The first of which is a discussion in the May 8-K of freight forwarder Expeditors International (NASDAQ:EXPD). Regular readers will recognize Expeditors as a company I've written about in the past, namely to praise its communications with shareholders for being both informative and occasionally downright comedic. Expeditors releases its 8-K's monthly, in which it responds in written form to questions posed to it by analysts, shareholders, and I would imagine some people who simply get some thrill out of being mocked in public.
Expeditors also puts out a slick and expensive-looking annual report. The first time I saw it, I was a bit shocked, as this is a company that comes across as being extraordinarily cost-conscious in the same way that Costco is. In the aforementioned May 8-K, Expeditors' top executives fielded a question that asked them this very thing: "Why spend so much on your annual report?" Their answer changed my mind to some degree about the rationale of a sharp-looking annual report. OK, part of their answer -- I think the scorn the company heaped on this particular interlocutor was a bit over the top. If you'd like to read it yourself, it's Question 15.
Whereas you may be pardoned if you confuse Costco's corporate offices with another one of its warehouses, the Expeditors offices are well appointed. The company isn't building white elephants here -- Expeditors isn't building corporate golf courses a la Lucent (NYSE:LU) in the 1990s. But it isn't working on card tables either. Expeditors' operating philosophy is that it wants to look different, and it wants to look professional. This extends to the annual report.
The reason Expeditors has such a nice annual report is that this is the one tangible thing that shareholders receive from the company. This isn't a retailer, where anyone can visit and get a feel for the company and its products -- to most people companies such as Expeditors and the services it performs are invisible. So the company uses this one time to put its best foot forward, to present the image that the company has for itself. And yes, Expeditors gets extra credit for the fact that the CEO drafts the letter to shareholders himself.
I think this makes a great deal of sense, and something else that happened this past week rammed home exactly what the folks at Expeditors were talking about. I received a copy of what is simply the coolest annual report I have ever seen. It speaks volumes about the company that produced it. It oozes success and creativity -- just the types of images that any company would want to present.
It comes from Ameristar Casinos (NASDAQ:ASCA), which operates casinos in many of the midsize markets in the Midwest, Mississippi, and Nevada. Ameristar's 2003 annual report comes in the shape of a giant deck of cards in its own box. Inside the box is a thick, glossy 4 x 6 book that contains the annual report. The box also contains a tray that holds two decks of casino-style cards emblazoned with "Ameristar Casinos" on the back. Bad to the bone.
The report itself contains dozens of pictures showing off each of the Ameristar properties and explains in crystal-clear language what the company's operating strategy is, how it makes money, and what it considers to be the key elements that define its success. So all at once you have a single document/package that acts as the communicator of all of the information required by the Securities and Exchange Commission. But also it serves to connect shareholders to the company they own. It acts as a travel advertisement, a guide to the company's properties, and it offers some fairly inexpensive and useful schwag in the form of two decks of cards to remind people of the fun they can have at resort properties that they own a piece of. The annual report looks almost like one of those "everything's bigger in Texas" gag gifts, only about 100 times cooler. It oozes success. It screams "fun."
And it made me realize that the Expeditors folks -- though they are in a completely different business -- have a point. The annual report package really does communicate something. The Tiffany (NYSE:TIF) annual report has the same production values as the company's opulent catalogues. How could it not? Could you imagine a Martha Stewart Omnimedia (NYSE:MSO) annual report that didn't bear at least passing resemblance to Martha Stewart Living or one of her other signature sepia-toned publications? What would that say to shareholders? Other companies such as Starbucks (NASDAQ:SBUX) and McDonald's (NYSE:MCD) typically include coupons for their goods. Wrigley's (NYSE:WWY) includes a carton of gum. That's good business, a great way for companies to give something special to people who ought to be among their most motivated customers.
Still, deep down I am a skinflint. I guess I'll have to take a more binary position than I had in the past. Companies, if you're going to drop the big dollars to put together a slick annual report, take a look at what Ameristar did with its 2003 report. Get it right.
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Did anyone else notice the guy in the World Series of Poker show wearing the "Fool" hat? Bill Mann owns shares of McDonald's and Costco. The Motley Fool has a disclosure policy.
