Y2K Budgets Jump as Much as Five-Fold

Y2K budgets at many large nonfinancial corporations have jumped as much as five-fold in the first quarter, indicating that management may have greatly underestimated the scope of their Year 2000 computer problems, according to a recent study by Weiss Ratings, Inc., the only provider of Y2K readiness ratings.

OGE Energy Corporation, based in Oklahoma City, reported a Y2K budget of $35 million in its March 31, 1999 SEC filing, representing a 483 percent increase from the $6 million the company disclosed at year-end 1998. The company has received a Weiss Y2K Rating of "low," primarily reflecting concerns regarding the integrity of its budgeting process.

Kroger Company, based in Cincinnati (not rated due to insufficient data), boosted its budget by 158 percent from $31 million to $80 million, while Fluor Corp. in Irvine, CA (rated "low") more than tripled its budget from $15 million to $55 million.

Even some technologically advanced companies have had difficulty gauging the costs of their future Y2K fixes. America Online Inc., for example, has boosted its Y2K budget to $20 million at March 31, 1999, more than double the $8 million estimate of three months earlier and four times larger than the estimate of six months earlier. AOL is rated "low" because of the company’s apparent failure to accurately estimate future Y2K costs as well as the lack of progress in using those funds. Nearly two-thirds of AOL’s Y2K budget was still unspent at the end of the first quarter, according to the company’s disclosures to the SEC.

In contrast, some large companies have reported significant reductions in their Y2K budgets, although many of these had experienced large budget increases earlier. For example, Eastman Kodak Company (not rated due to insufficient data) cut back its Y2K budget by 31 percent, following a budget increase of 45 percent at the end of last year.

Martin Weiss, chairman of Weiss Ratings, commented: "Estimating Y2K fix-it costs has been touch-and-go for many companies. Often, the more bugs they fix, the more they find. The net result is that some of these companies are falling even further behind in their Y2K remediation schedules."

Among other Fortune 1000 companies, large firms rated "low" for their Y2K readiness include (in order of their size): Intel Corporation, Dynegy, Inc., Farmland Industries, Inc., Tenet Healthcare Corporation, Lear Corporation, Consolidated Natural Gas Company, El Paso Energy Corporation, Ikon Office Solutions, Inc., Comcast Corporation, Owens-Illinois, Inc., Applied Materials, Inc., Merisel, Inc., Phelps Dodge Corporation, Solectron Corporation, Beverly Enterprises, Inc., 3Com Corporation, and others.

The largest nonfinancial companies rated "below average" for their Y2K readiness include AT&T Corporation, Bell Atlantic Corporation, Motorola Inc., PepsiCo Inc., SBC Communications Inc., United Technologies Corporation, ConAgra Inc., United Parcel Service of America, Inc., BellSouth Corporation, International Paper Company, MCI Worldcom, Inc., Atlantic Richfield Company, UAL Corporation, and others.

Meanwhile, large "high" rated companies include Phillip Morris Companies Inc., J.C. Penney Company, Inc, American Stores Company, AMR Corporation, American Express Company, and AlliedSignal Inc. These have generally reported consistent Y2K budgets over time and consistent progress in duly allocating those resources to Y2K remediation efforts, indicating advanced states of completion.

The Weiss Y2K Ratings for the large nonfinancial corporations are based on a proprietary model that compares publicly available data on Y2K budgets and expenditures over time, and in relation to industry peer groups, while also reviewing the company’s own assessment of its Y2K status. Weiss rates financial corporations, such as banks, S&Ls, and insurance companies, separately, based on the Weiss Y2K questionnaires received privately from these institutions.

"The information disclosed by the companies to the SEC does not permit definitive conclusions regarding their current status, but it does give us a pretty good indication upon which we base our opinion," said Weiss. "Unfortunately, many companies have failed to disclose even the basics such as their Y2K budgets and expenditures, despite SEC guidelines that call for these disclosures."

IBM, for example, has so far failed to reveal the amount it has spent in Y2K remediation efforts, making it difficult for outside analysts to evaluate the company’s Y2K progress. Other major companies that have failed to disclose either their Y2K budgets, their expenditures, or both, as requested by the SEC, include Boeing Company and Merck & Company.

"Investors can usually absorb just about any bad news on Y2K, provided it’s reported promptly and in small doses,"commented Weiss. "It’s the sudden surprises, typically the result of inadequate or late disclosure, that have the potential to cause the most damage to investor sentiment."

For more information, visit Weiss Ratings Inc.’s Web site at www.weissratings.com.

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