Mr. Chairman, distinguished Members of the Subcommittee:
My name is Steve Hock. I am President and Chief Executive Officer of Triaxsys Research LLC, based in Missoula, Montana. Triaxsys conducts research concerning the technological, legal and financial aspects of major information technology challenges, including the Year 2000 problem, and publishes interdisciplinary research reports designed to assist organizations in meeting those challenges. I am also Of Counsel to the law firm of Thelen, Marrin, Johnson & Bridges LLP, headquartered in San Francisco, where I practiced law in the field of computer technology for over twenty years and served as Managing Partner from 1992 through 1997. I have been deeply involved in the legal and risk management aspects of the Year 2000 problem for several years. The testimony I give today represents my personal views and not necessarily those of Triaxsys or the Thelen law firm.
The purpose of my testimony is to present to you the facts concerning the nature and adequacy of Year 2000 disclosures in the federal securities filings by the largest public companies in the US, subsequent to the revisions to SEC Staff Legal Bulletin No. 5 on January 12, 1998.
Earlier this year, Triaxsys undertook a comprehensive study of federal securities filings (Forms I OK, I OK-405, I OQ and/or 8K) by the largest 250 public companies in the US, ranked by revenue. The objectives of the study were to analyze the nature and adequacy of Year 2000 disclosures and to determine the progress of these companies in solving the Year 2000 problem. The study was completed on April 17, and the results are contained in the April 1998 Triaxsys Research Report, copies of which have been provided to all Members of the Subcommittee and staff. A detailed table, summarizing the disclosures by each company, is contained in the report at pages 25-37.
Nearly half of the top 250 companies disclosed no information or so little information that it is impossible to glean anything meaningful from the securities filings about their progress or costs in addressing the Year 2000 problem.
Seventeen of the top 250 companies (primarily mutual insurance firms) are not required to file securities forms subject to SEC Staff Legal Bulletin No. 5. Due to varying fiscal years ends among the top 250, another seventeen companies filed their most recent annual reports (Forms I OK or I OK-405) prior to issuance of SEC Staff Legal Bulletin No. 5. As of April 17 those companies had made no mention of Year 2000 in quarterly I OQ reports or in Form 8Ks.
Of the remaining 216 companies, thirty-eight mentioned Year 2000 but provided no substantive information at all about progress or costs. Another forty-two companies disclosed so little hard information that it is impossible to determine anything meaningful about their Year 2000 progress or costs.
In short, as of April 17 no meaningful information whatsoever could be found in federal securities filings for 114 of the largest 250 public companies. These 114 companies span all industries represented in the top 250. Subsequent to April 17, several of these 114 companies made securities filings mentioning Year 2000, but most of these recent filings contain little or no meaningful information.
As of April 17, 136 of the top 250 companies disclosed at least some information relating to Year 2000 progress and/or costs. The nature and adequacy of the disclosures by these 136 companies vary considerably. Many provide only sketchy information; some provide a great deal of information. When analyzed collectively, the data disclosed by these 136 companies reveals that the largest public companies in the US have made remarkably little progress on Year 2000. This conclusion applies across all industries represented in the top 250.
Forty-seven companies disclosed the year in which they began work on the Year 2000 problem. Sixty-six percent (66%) of these companies did not start work on the problem until the last two years, and thirty-three percent (33%) did not begin work until 1997.
101 companies disclosed whether or not they have completed the assessment phase of their project. Assessment is the most preliminary phase of any Year 2000 project. Sixty percent (60%) of these companies revealed that they had not completed their assessments.
Of the companies discussing project status, only thirty-eight percent (38%) affirmatively stated that they have reached the stage of converting at least some code to be Year 2000 compliant. Only two companies reported how much progress they have made on code conversion. Only six percent (6%) affirmatively stated that they are engaged in at least some Year 2000 compliance testing. None reported the status of testing.
Thirty-three companies disclosed both (1) Year 2000 project costs incurred through the end of 1997 and (2) total estimated Year 2000 project costs. One measure of project progress is the percentage of total estimated project costs incurred through the end of 1997. The percentages disclosed by these thirty-three companies range from 7% to 45%. The average is 21%, or one-fifth progress toward completion.
For these thirty-three companies, average estimated total Year 2000 project costs are $148 million. The thirty-three companies are a fairly good representative sample of the top 250 in terms of both size and industries. Extrapolating the cost data they disclosed to the entire top 250 indicates that the top 250 collectively will spend approximately $37 billion in attempting to solve the Year 2000 problem. Of that amount, approximately $29 billion - seventy-nine percent (79%) of the job - has been left to this year and next.
Triaxsys has expanded the study to include the top 500 US public companies, ranked by revenue. The results of the expanded study will be published in the June 1998 Triaxsys Research Report, scheduled for release later this month. We would be pleased to provide copies to Members of the Subcommittee and staff. In general, the data for the 251-500 ranked companies is consistent with the results outlined in this testimony regarding the top 250 - many of the companies disclose no meaningful information, and those providing at least some information have made remarkably little progress, with few exceptions.
Thank you for inviting me to address you on this important subject.
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