Interesting article on Y2K readiness in the major corporations:
Large U.S. Corporations Fail To Disclose
Y2K Costs To Investors
IBM, Hewlett-Packard, Merck, and Microsoft
Among the Companies With Serious Disclosure Gaps
Palm Beach Gardens, FL, September 13, 1999 -- Many Fortune 1000 companies have failed to disclose the costs of
their Y2K fixes to investors, despite efforts by the Securities and Exchange Commission (SEC) to urge such
disclosure, according to a recent study by Weiss Ratings, Inc., the only provider of Y2K readiness ratings on U.S.
corporations.
According to SEC guidelines, each company should disclose its total estimated Y2K budget along with its Y2K
expenditures to date.1 However, many report only partial cost data, or none at all. Specifically:
IBM and Hewlett-Packard have failed to provide any information regarding their actual expenses, disclosing
only their estimated Y2K budget -- $575 million and $250 million, respectively.
Bristol-Myers Squibb, Dell Computer, Enron, Merck, Microsoft, and SYSCO have disclosed neither actual
Y2K costs nor Y2K budget estimates. The companies failed to include this information in their 10K or 10Q
statements in 1998 and 1999.
All told, Weiss has been unable to obtain complete Y2K cost disclosure from the publicly available
documents of 41 of the Fortune 500 companies.
Almost all Fortune 1000 companies, whether making full disclosure or not, include standard language in their
statements that Y2K costs are "not material." However, this appears to be in conflict with the SEC's opinion that
"for the vast majority of companies, Year 2000 issues are likely to be material."2
Martin Weiss, Ph.D., chairman of Weiss Ratings, Inc., commented: "A company's Y2K cost and budget information
is very important for investors -- not only because of its potential impact to the bottom line, but also because it
provides an approximate indication of the company's progress in fixing its Y2K problems.
"Investors must get this information well before year-end in order to make timely decisions. Right now, however,
whether due to weak regulation, poor compliance, or a misunderstanding of the word ‘material,' the end result is that
shareholders are simply not getting these critical numbers from many large companies, raising the specter of some
potentially unpleasant surprises early next year."
Major Corporations Still Lagging In Their Y2K Fixes
Among the Fortune 1000 companies for which sufficient first quarter data was available, 263 had failed to make
adequate progress in their Y2K expenditures, according to Weiss. Moreover, new data, reflecting the status at the end
of the second quarter, indicate that many of these are still lagging. For example:
At June 30, 1999, United Technologies had spent only $110 million of its $175 million Y2K budget; and
Chevron, $130 million of $200 million.
Surprisingly, some large high-tech companies appear to be even further behind in their pace of Y2K
spending. At mid-year, Sun Microsystems had spent only $17 million, less than half of its $37 million Y2K
budget; while 3Com had spent $6.4 million, less than one third to one fourth of its estimated budget range of
20 to $30 million.
Dr. Weiss added: "By mid-year 1999, with only six months remaining before the date change, most companies should
have allocated at least three quarters of the Y2K budget to actual remediation expenses."
Weiss issues Y2K ratings on nonfinancial corporations based on changes in their Y2K budgets over time, the rate of
Y2K expenditures, and comparisons with other companies in their peer group.
Weiss advises consumers and investors to favor companies that do make adequate disclosure and have earned a Weiss
Y2K rating of "average" or "high." Based on first quarter 1999 SEC filings, Weiss has assigned a Y2K rating of
"high" to 10.8% of the Fortune 1000 companies; "average" to 26.5%; "below average" to 21.2%; and "low" to
4.9%. The balance either failed to disclose sufficient data or had not yet filed at the time of Weiss' last ratings
review, receiving a Weiss rating of "unknown."
Separately, Weiss also publishes financial safety ratings and Y2K readiness ratings on insurers, banks, and S&Ls. The
accuracy of its financial safety ratings has been favorably reviewed by the U.S. General Accounting Office (GAO) as
well as national consumer organizations.
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