RE: APRIL 1 - FISCAL YEARS & Y2K
Actually I don't think we'll hear about many immediate problems. I think we'll be seeing a situation more like what happened with Oxford healthcare, where corrupted information was interpreted as real/actual for many, many months ... until things finally blew up.
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COMPUTER CRISIS: OXFORD HEALTH PLANS, INC. (Nasdaq: OXHP)
For over a year ('96 & '97), each quarter, Oxford Health Plans had been reporting ever INCREASING earnings and revenue - when in fact they were LOSING money, but were unaware just how much, because of computer software problems. Stock plummetted. Here's what stockholders saw:
3rd Qtr 1996 net earnings rose 77% on revenue increase of 69% ...
1st Qtr 1997 net earnings rose 86% on revenue increase of 50% ...
"Company's balance sheet continues to show higher levels of premiums receivable resulting from delays in billing associated with the conversion of certain of the Company's operations to a new computer system. Medical costs payable continue to reflect delays in claims payments associated with this system conversion ..."
2nd Qtr 1997 net earnings rose 66% on revenue increase of 46% ...
THEN ...
3rd Qtr 1997 NET LOSS $78.2 MILLION, or 99 cents per share ...
"Third quarter results reflect accounts receivable write-offs due to clean-ups of delayed group bills and terminations of non-paying individual and group customers. Additions were also made to accounts receivable reserves" ... "These adjustments are a consequence of information recently learned as a result of reviewing and reconciling previously delayed premium bills."
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BEHIND OXFORD'S BILLING NIGHTMARE
Abstracted from Business Week 11/17/97
Oxford Health Plans Inc has suffered a $78 mil loss in 3rd-quarter 1997, and has reduced its profits prediction for 1998 by 25%. A computer system that has been inadequate since about 1992 apparently is at the root of the problem. A five-year, $20 mil/year program to replace the old system still has not been completed.
This forced Oxford into the habit of sending money to healthcare providers without really knowing what was owed, promising to rectify accounts when the computer caught up. But when all the claims were finally added up, they totaled far more than Oxford had anticipated.
Bills for premiums due were sent out late. But by the time the bills were sent out, many subscribers had quit Oxford, and the bills were thus uncollectable, costing Oxford some $42 mil. Thus Oxford was faced with higher bills and lower revenues, forcing the dismal third-quarter report. Oxford was getting claims totaling about 85% of its premiums, although it thought the medical-loss ratio was closer to 80%. This cost another $51.9 mil.
At least 12 law firms have now filed class action suits against Oxford for misleading investors by continually saying that the problems were past. A sale of stock by chairman Stephen F Wiggins and other officers in 8/97 indicates that management knew that the company's problems were severe, according to the lawsuits. Claims payments are still not caught up. Some providers are being paid interest on overdue accounts. Meanwhile, Oxford still is using the computer system it wanted to replace 5 years ago, but only for some of its operations ...
hoovers.transium.com
Taken from one of many lawsuits ...
The complaint alleges that defendants violated the federal securities laws (Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5) by, among other things, misrepresenting and/or omitting material information in a manner which concealed the adverse impact of a COMPUTER CRISIS which arose from changes made in the company's computer system in September of 1996 on: the ability of Oxford to collect on its accounts receivable; membership enrollment; and expenses. The complaint also alleges that certain of the defendents disposed of substantial quantities of Oxford common stock during the class period while the price of Oxford common stock was artificially inflated by the materially false and misleading statements alleged.
defrauded.com
I was in Washington D.C. last year (at airport coffee shop), when I ran across a fascinating article that detailed the entire story in chronological order - 2 full pages. I can't remember if it was Wall Street Journal or Washington Post. I was hoping to find it and post a link here, but don't have time to search today cause I have to spend all day with contractors.
What amazed me, when I read the article, was how long the company was aware of the problem. That they knowingly were working with inaccurate data. And, their attempts at various "work-arounds". Which obviously, and ultimately, didn't work very well.
This is what I see as a likely scenario for many companies and government agencies, who are not fully Y2K compliant, going into a 2000 fiscal year.
Cheryl
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