Corporate disclosures about the cost of the Year 2000 problem..........
Firms Begin Estimating Costs Of Year 2000 Computer Problem
By LEE GOMES
Staff Reporter of THE WALL STREET JOURNAL
Initial corporate disclosures about the cost of the Year 2000 problem are in, showing that slightly more than 100 U.S. companies expect to spend $6.55 billion modifying their computer software to cope with the impending date change.
But the figures don't do much to settle a debate about whether the so-called millennium bug is a bearable burden or a financial catastrophe.
Some older computer systems are expected to crash when the date changes from 1999 to 2000, because computer makers originally set aside just two digits in which to store a date. When those machines in 20 months encounter the year "00," they will assume it is 1900, not 2000.
Under new Securities and Exchange Commission rules, companies facing substantial costs of upgrading their systems are now required to estimate them. The SEC imposed the requirement to allay investor concerns that fixing the problem could drag down corporate profits over the next few years.
Citicorp Tops the List
Among 107 companies that have reported so far this year, estimated conversion costs range from $350,000 for the Gottschalks Inc., a Redding, Calif., retail chain, to a hefty $600 million for Citicorp. Banks, with their vast networks of big mainframe computers, take up five of the top 10 spots on the list. General Motors Corp. said it will be spending between $410 million and $540 million fixing its computers, making its effort the second-biggest at any American company. Others making big outlays include telecommunications companies, utilities and health-care concerns.
The figures shed some light on the potential size of the financial burden. But it is early in the conversion process, and there are major differences in the way companies count costs. As a result, analysts with widely varying estimates of the potential liability find support for their positions in the preliminary numbers.
Tom Oleson, an analyst at International Data Corp., a Framingham, Mass., research firm, has one of the lowest estimates for fixing the Year 2000 problem at U.S. companies, putting the figure at $115 billion. The early SEC figures, he said, show his predictions are being borne out, and that the overall effort will be "serious but not catastrophic" for companies.
Bill Put at $670 Billion
But Capers Jones of Software Productivity Research Inc., a Burlington, Mass., consulting group, said he still expects the final bill to exceed $670 billion. He said he expected the repair costs to turn out to be much greater than those now being reported, "not because of any dishonesty, but because it's a very tough problem, and the classic error is to be optimistic rather than pessimistic." In addition, he said, "the software industry has a notorious track record for underestimating the cost of everything it does."
There are several reasons for different estimates. The SEC filings, for example, don't include potential insurance or liability costs that some analysts expect will swell the ultimate costs.
Filing requirements also are ambiguous. The agency requires that companies report any "material" conversion costs, but doesn't precisely define the amount of spending that would be "material" to investors. Consequently, while GM reported its costs, Ford Motor Co. and Chrysler Corp. didn't, saying the amounts weren't material to their financial statements.
Plenty of Discrepancies
In some industries, there were significant discrepancies between companies, leading analysts to conclude that companies were tallying their expenses in different ways. For example, Aetna Inc. said its Year 2000 expenses would run to just $23 million, compared to $155 million for Equitable Cos. In a similar vein, AT&T Corp. and GTE Corp. each reported expenses of $350 million. AT&T, however, only estimated costs through the end of this year, not the total costs that GTE and most others reported.
Where many companies included the cost of fixing their existing software, others included the costs of installing entirely new information-processing systems. For example, Houston Industries Inc., an energy holding company, put its Year 2000 cost at as much as $155 million. But that includes $130 million to implement new software.
Jay |
