SEC Guidelines to Yield Data on Year 2000 Risks -- NYTimes
By BARNABY J. FEDER -- October 5, 1998
As awareness of the Year 2000 problem has spread, a
wide gulf has opened between computer consultants,
who say many companies are dangerously vulnerable, and
Wall Street analysts, most of whom have been telling
investors there is little to worry about.
Now, thanks to new guidelines from the
Securities and Exchange Commission, this
debate is about to get something that has
been in short supply: public information
about how most companies are doing in
assessing and reducing their risks.
The new data will appear in reports filed
with the SEC in the coming weeks
summing up corporate earnings for the
quarter that ended Wednesday. In
response to previous prodding from the
agency, a majority of the 10,000 or so
publicly traded companies that file
quarterly and annual earnings reports
started mentioning Year 2000 concerns in
filings earlier this year. The new reports,
though, will be the first for most of them since the
agency, alarmed at how vague and limited most
disclosures had been, issued more specific Year 2000
guidelines two months ago.
The SEC guidelines have been viewed positively in
Congress, which on Thursday sent President Clinton a
bill allowing companies to exchange information on
their Year 2000 readiness or put such information on
the World Wide Web without fear that the information
could be used against them in a lawsuit if it turned
out to be wrong. The protection does not cover
knowingly false or reckless statements.
The Year 2000 problem, also
known as the Millennium Bug,
stems from the longstanding
practice of using just two
numbers in computer code to
stand for the year, as in
"98" for 1998. Computers,
software
and electronic devices may read "00" as 1900 instead of
2000 and crash or create inaccurate data.
The SEC wants companies to discuss specifically how
much they expect to spend to cope with this problem,
assess how far along they are in identifying and
dealing with their problems and describe what, if any,
contingency plans they are making. It is also requiring
reasonable "worst-case scenarios."
The agency also recommended that all companies consider
a variety of disclosures that might not be required,
like the percentage of their information-technology
budget being used on Year 2000 projects, whether other
information-technology investments were being delayed
and what outside resources were being used to verify
that repairs were successful.
"Because the lack of information regarding your
preparations for the Year 2000 could seriously
undermine the confidence investors place in your
company, it is imperative that you provide thorough,
meaningful disclosure on this topic," said SEC Chairman
Arthur Levitt in a letter to more than 9,000 chief
executives.
Investors have been given a hint of what the new
disclosures may look like from companies that filed
reports covering the three months that ended June 30.
The SEC requested that they voluntarily observe the new
guidelines and many made at least a partial stab at it.
Year 2000 consultants say the model to date is probably
the Phillips Petroleum report for the quarter that
ended June 30, which was filed in mid-August.
The Year 2000 disclosure by Phillips ran more than
1,250 words, over five times the length of the previous
quarter. It noted that although the overall Year 2000
project was "on schedule," a piece of it -- the
introduction of new software from the Oracle Corp. that
would retire a number of defective programs -- was
running far enough behind schedule that the company had
developed contingency plans. Phillips said it planned
to decide by the end of the third quarter whether or
not to rely fully on Oracle. (The company decided on
Thursday that the contingency plan would not be needed,
according to Del Clark, director of Year 2000 issues
for Phillips.)
Phillips also disclosed that it had spent $20 million
of its projected $58 million budget and that most of
the rest -- $21 million -- would go to fix or replace
chips in machinery and other "embedded systems."
Mallinckrodt, a St. Louis-based medical equipment and
supplies company, was less detailed and more confident
in its 10-K report for the fiscal year that ended June
30, which was filed last week. "Based on
accomplishments to date, no contingency plans are
expected to be needed and therefore none have been
developed," Mallinckrodt said.
The same report might make some investors wonder
whether Mallinckrodt is too complacent, because it
disclosed that the company was still assessing what it
might have to fix or replace in its research,
manufacturing, and facility management operations --
areas where embedded systems are common.
The new data should give a snapshot of corporate
America's Year 2000 readiness and may force some
companies to look at the problems more closely.
"I expect investors to begin voting with their feet by
March," said Jeff Jinnett, a New York lawyer. "It could
be a minefield for companies that don't pay a lot of
attention to what they are disclosing."
Some Year 2000 consultants doubt, though, that enough
reliable information will emerge from the new filings
to allow investors to make worthwhile judgments.
"The guidelines are window dressing unless we have
random audits in order to determine whether companies
are disclosing accurately," said Louis Marcoccio, Year
2000 director at the Gartner Group in Stamford, Conn.
Marcoccio said Gartner's research suggested that nearly
nine out of 10 companies were publicly underestimating
their Year 2000 problems, either knowingly or
inadvertently.
Copyright 1998 The New York Times Company |
