SEC to make firms disclose Year 2000 costs
By Kathy Bergen
Tribune Staff Writer
Friday, December 12, 1997
In a race against time, corporations are
spending megabucks to avoid massive
computer meltdowns at the millennium -- and
the government wants to make sure the
investing public knows just how this will
affect the bottom line.
Within the next week, the Securities and
Exchange Commission will provide additional
guidance on what information publicly traded
companies must disclose regarding the costs,
problems and uncertainties involved in
addressing so-called Year 2000 computer
problems.
Basically, the SEC is revising guidelines
issued in October that reminded the nation's
12,000 public companies that they must
disclose such information if it is material to an
investor's ability to make an informed decision
about whether to buy or sell company stock.
"A number of companies called and said they
wanted more guidance,'' said Duncan King,
an SEC spokesman.
The revised guidelines should be available
within the next week, and are meant to help
companies sort out what must be reported as
they publish their next round of annual
reports, 10-K filings, prospectuses and other
SEC filings.
The Year 2000, or Y2K, problems stem from
the fact that many computers were designed
to track only the last two digits in a four-digit
date. Without a fix, 00 will be read as 1900,
not 2000, generating massive problems with
mortgages, loans, interest payments and many
other business transactions.
And the cost of correcting this seemingly
mundane glitch is expected to be
astronomical: $300 billion to $600 billion
worldwide, according to the Gartner Group
Inc., a Stamford, Conn.-based research firm.
For some individual companies, the hit will be
substantial. For example, Chase Manhattan
Corp., the nation's biggest banking firm,
expects to spend $250 million; First Chicago
NBD Corp., $100 million; American Airlines,
$100 million; and GTE, $150 million.
Costs to business could soar even higher if
litigation arises from failure to solve the
problem.
"Every company in the world will need to
address these issues all along the chain of
supply and the chain of distribution,'' said
Brian Borders, president of the Association of
Publicly Traded Companies, a
Washington-based trade group representing
900 small and mid-sized companies.
Those affected most acutely, he said, will be
those that operate on the global stage: banks,
securities houses, telecommunications firms,
to name a few.
The SEC's decision to revise its guidelines on
existing disclosure rules was greeted with
praise from some corners.
"We are very pleased that the SEC is taking
swift action to ensure that investors receive
adequate information,'' said Robert H. Herz, a
partner at Coopers & Lybrand who is
chairman of the SEC Regulations Committee
of the American Institute of Certified Public
Accountants.
The action also pleased Sen. Robert Bennett
(R-Utah), chairman of the Senate financial
services and technology subcommittee, who
introduced a bill Nov. 10 that would require
public companies to disclose information
about the Year 2000 readiness of their
computer systems.
While the SEC will require disclosure when
information is considered material to
investors, Bennett's bill would require
disclosure in all cases.
"Sen. Bennett is delighted that (SEC
Chairman Arthur) Levitt has decided to move
ahead so aggressively on this issue and to use
the SEC to promote more disclosure and
more incentives to act among the industry
folks,'' said Mary Jane Collipriest, a
spokeswoman for the senator.
Collipriest said Bennett will review results of
the SEC initiative when Congress reconvenes
next year to determine if any changes to the
bill are merited.
Not so pleased with prospect of more
regulation on this matter was Borders, of the
Association of Publicly Traded Companies.
"Additional mandatory disclosures . . . will
clutter an already cluttered array of filings
and discussions.''
He noted that executives at public companies
already are "painfully aware'' of the problem
and the need to evaluate whether their firms'
exposure "is material to shareholders,'' and
thus something that needs to be reported in
SEC filings.
Wall Street, too, is acutely aware of the
problem, so the disclosures that will crop up in
1997 annual reports and other filings are
unlikely to rock the stock market, observers
said.
"The stock market heard about this
elsewhere, and analysts and others have
known about it for years, so the market will
not be surprised by this,'' predicted Roman L.
Weil, a professor of accounting at the
University of Chicago's Graduate School of
Business.
"At the margins, there may be shifts of
understanding,'' he said, if a company's
expense disclosure is greater or less than
expected. "But, it's not a big deal.''
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