The sudden collapse of Enron has prompted investors to demand greater transparency, and companies are responding by expanding their annual reports. Every company has its own unique disclosure challenges, but corporate giants General Electric (GE) and IBM are clearly at the forefront when it comes to complexity. These same companies are also clearly raising the bar when it comes to voluntary corporate reporting.
GE's Annual Report
According to the Wall Street Journal, General Electric said its 2001 annual report has 30 percent more financial information than the year before. Particularly press-worthy items include the sections on business segments and off-balance sheet financing. Altogether, GE provided information about 26 business segments this year. In contrast, its 2000 annual report provided data about just 12 business units.
GE also provided a special section this year about its use of special purpose entities and off-balance sheet arrangements. The report explains why these entities and arrangements are important to the company's business model and how they differ from Enron's. GE had disclosed such items in prior annual reports, but often in the footnotes or in line items within financial tables. "Frankly, pre-Enron, it never received the degree of interest and concern as it has since then," GE spokesperson David Frail told the Wall Street Journal. GE also told the Journal it is considering disclosing the impact of pension income in its quarterly earnings reports. ("GE Opens Its Books in Hefty 2001 Report," March 11, 2002.)
IBM's Annual Report
IBM's 2001 annual report introduces an added focus on key management metrics (revenue, earnings, and cash flows) and top management priorities for 2002 (market share in key segments, improved performance in certain businesses, and continued improvements in productivity). It also provides more detailed information about income from intellectual property. This item is broken out as a separate line item on the income statement, and the report provides a further break-down into income from licensing and royalty-based fee transactions, sales and other transfers, and custom development work.
Other areas of increased disclosures include retirement-related benefits, global financing, and non-recurring events and trends. For example, the report provides information about the combined impact of all retirement-related benefit plans (pension, 401(k) and retiree medical plans) and the related assumptions, including a comparison of historical and expected rates of return. The section on global financing includes a graph of assets and debt to show how most of the company's debt is used, and the notes to the consolidated financial statements include expanded disclosures about such items as workforce rebalancing charges and equity write-downs. Best of all, should readers of the report have any difficulty finding any of the above, there is a road map at the beginning of the MD&A to point you in the right direction.