Dec. 21, 2004
Y2K uncertainty abounds, as does financial risk.

It's certainly true that no one can predict with 100% accuracy what will happen to the world's computer systems on Jan. 1, 2000. In fact, the level of uncertainty is so great that the corporate world has seen fit to hedge its bets big time on Y2K. I'm talking about the Y2K-related information to be found in just about any standard annual report and Form 10-K, a document companies that are publicly traded in the U.S. are required to file with the Securities and Exchange Commission. Judging from the notes in these documents, the uncertainty over the fallout from the Y2K computing crisis is significant. That is, while the risk may be unknown, it certainly is tangible enough to take steps now to warn investors. Take IBM Corp., for example. Big Blue was one of the first high-tech companies to release information about its products and their compliance or lack thereof. Early on the company warned its customers that some very old systems couldn't be upgraded -- that is, they were hardwired and would have to be replaced with newer computers. That was several years ago. In the 1998 IBM annual report, the company devotes a full page to Y2K. The report reveals that when all is said and done, IBM will have spent $575 million to fix its internal systems. That's the bill for conversion, testing, and contingency planning. Even so, IBM isn't certain it won't be impacted by the millennium date change. "Although the company believes its efforts will be successful, any failure or delay could result in the disruption of business and in the company incurring substantial expense. To minimize any such potential impact, the company has initiated a global contingency planning effort designed to support critical business operations." Sound more than a bit ominous? There's more, albeit in typically vague annual reportese: "A failure of the company's suppliers, business partners, and other third parties to address adequately their Year 2000 readiness could affect the company's business." "Could affect," sure, but how much? For more information, IBM directs customers to go to its Y2K Web site at IBM even goes so far as to suggest in its annual report that its customers' preoccupation with fixing Y2K in 1999 could hurt its business. "Efforts by customers to address Year 2000 issues may absorb a substantial part of their information technology budgets in the near term, and customers may either delay or accelerate the deployment and implementation of new applications and systems. While this behavior may increase demand for certain of the company's products and services, including its Year 2000 offerings, it could also soften demand for certain of the company's products and services or change customer buying practices from past trends." Translation: Your guess is as good as ours, folks, as to how much, if at all, this will affect our business. Finally, IBM states, "While the company continues to believe that the Year 2000 matters discussed above will not have a material impact on its business, financial condition, or results of operations, it remains uncertain whether or to what extent the company may be affected." There you go -- "uncertain." You can't get much clearer than that. Other companies have reported similar levels of uncertainty to their shareholders, presumably as a sort of minimal hedge against shareholder lawsuits should Y2K bite them in their corporate pocketbooks. For instance, at Tab Products Co., a Palo Alto, Calif. maker of filing supplies and document-management products, a page and a half of the company's Form 10-K is devoted to the millennium computer bug. "The Company believes that its most reasonably likely worst case Year 2000 scenarios would relate to problems with the systems of third parties rather than with the Company's internal systems or its products," the report states. " . . . the Company believes the risks are greatest with infrastructure (e.g. electricity supply, water, and sewer services), telecommunications, transportation supply chains, and critical suppliers of materials. . . Failure of an electricity grid or an uneven supply of power, as an example, would be a worst case scenario that would completely shut down the affected facilities." Similar to many other companies' contingency plans, Tab Products' fallback strategy "in certain limited situations includes a planned increase in the level of inventory carried." Tab Products, which had revenues of $156 million in the latest fiscal year, expects to spend $2.2 million on Y2K compliance; the company is fortunate in that many of its products are low-tech -- file supplies, furniture, forms-handling equipment, file-storage gear, and mobile-file equipment, none of which has date-related processing. American Software Inc., a provider of supply-chain-management systems among other things, saw fit to mention the Year 2000 only once in its annual report, and that was in president and CEO James C. Edenfield's letter to shareholders. "Moreover," he wrote, "current American Software solutions are Year 2000 compliant, and we offer proven services to assist new and existing clients in addressing their century-date compliance concerns." Apparently the Atlanta-based software firm isn't too worried about the power grid blacking out, or water services for its corporate office going dry, since no such concerns or contingency plans are mentioned anywhere in the annual report. Another small company, Telepanel Systems Inc., a Canadian manufacturer of digital shelf-labeling systems for grocery and other retail stores, devoted only one paragraph to the Y2K issue in its latest annual report: " . . . the impact on operations and financial reporting may range from minor errors to significant systems failure, which could affect an entity's ability to conduct normal business operations. It is not possible to be certain that all aspects of the Year 2000 issue affecting the entity, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved." Translation: The bottom line is that nobody really knows for sure what will happen. But then when could we ever control the outcome of business or life? Doug Bartholomew is an IW senior editor based in San Francisco.

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