In the wake of Enron’s wacky financial reporting, the U.S. Securities and Exchange Commission has been examining public company annual reports with “a fine-tooth comb,” says consultant Bill Dunk.

Dunk, who heads an 18-person consulting firm with offices in San Francisco, New York City, Dallas and Chapel Hill, has compiled an annual report on public company annual reports for decades. He once wrote annual reports for top companies himself.

He used to present his witty and insightful annual report on annual reports on Louis Rukheyser’s Wall Street Week and later continued it on his own. Locally, he has worked with Intersouth Partners, among others.

Although this year’s version of the report will not appear until May, Dunk says one thing already evident is that the whole process has been “Enronized.”

“Companies have to grind over these things to a fairly-well because no one wants to go astray of SEC scrutiny,” Dunk says.

That has caused some firms to delay filing their 10K annual reports – due April 1 – with the SEC, including some for which Dunk consults. But Dunk says the real story is that “the cost of reporting is going up, but I’d be hard-pressed to say that the quality of reporting is going up as a result.”

Details can highlight Achilles Heel

Dunk says companies such as IBM and GE have expanded their disclosures, and he expects that many other public companies will do the same. “They’re trying to give the appearance of open-book disclosures,” he says.

Dunk doesn’t see information that is a great deal more useful in the additional details, but says, “they can highlight a company’s Achilles Heel.” In the case of IBM, for instance, Dunk says, “It shows that the success of Lou Gerstner’s reign has been built on cutting costs, not adding revenue. It’s been a successful retrenchment.” Gerstner stepped down as IBM’s CEO March 1.

Cost-cutting and retrenchment point to one of the themes Dunk sees in this season’s crop of annual reports already: “Companies today are taking on the cost agenda, but they’re terrible on the growth agenda.”

Cost-cutting paramount again

“In many ways,” he says, “cost-cutting is still paramount as it was last year. The question is, can you find a clear hint as to whether the company as an agenda for the future? Does it have a clear sense of direction?”

The cost-cutting goes so far as to affect the form of the annual reports themselves, Dunk notes.

“I’m seeing a lot of stripped-down 10K-wraps,” he says. A 10K-wrap is the financial statements the company submits to the SEC with a President’s letter wrapped in the kind of manila paper used to mail magazines.

“Lots of companies are doing this, a lot more than usual. Cost is still very much on their minds and they want to show they’re saving every penny they can.”

Dunk says the reports can be interpreted as “dead-end reports” in which their answer to every business problem is “what can I chop off now? Arms and legs? The problem with cost-cutting is that eventually you go out of business.”

Five-strength reports

One thing Dunk says he’s seeing a lot of already are “five-strength reports.”

As a former writer of such reports, Dunk says, “It’s a trick I’m familiar with. You recite the company’s five strengths. They say, ‘Boy, when the economy recovers are we going to be great.” It’s frequently done “in the absence of a real strength,” Dunk says.

Dunk is looking forward to seeing the Compaq and Hewlett-Packard reports. “They should be interesting. There’s no particular indication that the way to cure your problems is to tam up with another wounded elephant.”

He does think some company reports, such as Dell’s, will focus on growth. “They used the recession to say ‘we’re going to pick up market share. If the market’s flat, we’ll just own more of it.”

Dunk says one of things he’ll be looking for this year are company assertions of risk management. “I saw hints of this last year predating 9-11. I haven’t seen tons of it yet, but do expect to see more.

“It was clearly rising as something companies thought they should be concerned about, and they want to project to shareholders that they’re doing things to protect them.”

Another thing Dunk is looking for: companies that identify geographic growth markets for their future, such as China. “They should give a hint that they’re paying attention to where there might be a big market in the future.”

Dunk says that while many companies are saying things in their annual reports and elsewhere that things are looking up, he’s not as confident.

“I wish I could say I’m sold, but I’m not,” Dunk says.

Dunk’s Web site, Global Province offers comment and advice on great Triangle dining, interesting books, the latest science, and other topics: