"This whole Enron debacle has made a pretty challenging job even tougher," complains Plumley. He now regularly rattles off a laundry list of accounting techniques that his company doesn't use. "I spend a fair portion of my time trying to convince investors that we have no capitalized software, that our deferred revenue is all associated with maintenance contracts, we have no FX risk, no special-purpose entities, no leases, and no intercompany transactions."

Is Longer Better?
Despite the changes, some financial-statement consumers were unimpressed. "We were amused by all the ballyhoo surrounding IBM's 10-K, promising new, improved disclosure," wrote Carol Levenson, director of research at New York-based Gimme Credit research service. "Well, it was longer." Most of the supposedly new information, Levenson argued, simply repeated existing footnote disclosures in the MD&A.

Others felt the changes did not go far enough. Asked recently by the SEC for his disclosure wish list, Howard Schilit, president of the Rockville, Maryland-based Center for Financial Research & Analysis Inc. and author of Financial Shenanigans, proposed that any company taking a restructuring charge be required each quarter to indicate how much of the resulting reserve had flowed back onto the income statement. And, in addition to total balance-sheet debt, he suggested that companies detail their total obligations — off-balance-sheet debt, liquidity support, convertibles, options, and so on.

"All considered," says S&P's Shea, "I think [IBM and GE] did a good job and raised the bar a bit." Nonetheless, he would like to see disclosure of how options would affect earnings per share if the stock were treated as cash. "Companies that issue a lot of options are posting artificially high gross operating margins," he says. "Is that a realistic barometer of how expensive their business is? Probably not." Today, only one company in the Fortune 500, Boeing, expenses its options.

But investors may change some of these practices. "In the past 10 years," says Schilit, "the good guys haven't been rewarded for good behavior. That is changing. Substantial capital is flowing away from companies that are seen as just not playing fair."

Tim Reason is a staff writer at CFO.

Thinner and Phatter

In lieu of lavish annual reports, many smaller companies issue so-called 10-K wraps, consisting of merely the 10-K document with a chairman's letter attached. On the heels of its dismal performance in 2001, Natick, Massachusetts-based Cognex Corp. — famous for its irreverent annual reports — produced its "10K Rap," replete with hip-hop phrases and photos of CEO Robert Shillman dressed as a gangsta rapper. "Yo, Yo, Yo," began Shillman's letter to shareholders, "why spend a whole lot of money just to report to you that we lost a whole lot of money? It just don't make cents!"

Although incurably tongue-in-cheek, Shillman is serious about cutting costs. At $28,000, this year's report cost about a dollar per copy to produce (although Cognex's puckish reports have become something of a collector's item, forcing the company to print many more copies than their shareholders would need). A few years ago, Cognex spent just 21 cents per copy on what it proudly billed as "The World's Cheapest Annual Report."

"An annual report is a waste of time," says Shillman, who notes that the information usually has been posted on the Web for months by the time the report mails. How does CFO Richard Morin feel about Cognex's take on the annual report? "He's a starchy kind of guy," says Shillman, "but his sense of humor has improved since he has joined Cognex." —T.R.

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