Amid the roar of Internet stocks soaring into the stratosphere and
taking the market along with them, discussion of the Y2K impact on
corporate profits and the economy has been only whispered. At last some
the business and popular press has begun discussing the effects of Y2K
the world economy, an issue which, I believe, looms like a huge shadow
a super-heated stock market and a “strong” economy.

Marcia Stepanek in the Dec. 14, 1998 issue of Business Week
uncovers the costs and the effects of Y2K spending not only in 1999, but

also in the year 2000. Her article implies that corporate America has
grossly underestimated the cost to fix their Y2K problems and that they
appear to be a day late and many, many dollars short. Last October the
Gartner Group, Inc., a computer-consulting firm, published an analysis
how Y2K compliance will impact corporate computer budgets. The analysis,

at the time, showed that business has been slow in implementing
and they estimated that the world-wide cost to prevent Y2K corporate
computer failures would total $300 to $600 billion, of which
$200 billion would be spent in the United States.

Several months later as reported by Business Week the Gartner Group
increased its October estimates to $1 trillion as a result of an
cost of $400 billion for Y2K remediation after Jan. 1, 2000. Yet, these
numbers could be woefully short of the true cost. As I predicted in,
troubles begin NOW,”
Y2K problems are emerging daily. We all know that the year 2000 will
cause computer problems, but those who predicted that the number 9 could
also cause computer glitches are turning out to be omniscient. In the
early days of computing, some programmers, those who appeared not to be
fully cognizant that the year 1999 was fast approaching, used the “9”
digit or groups of “9” as a computer stop sign. This anomaly caused
problems when computer clocks changed from Dec. 31, 1998, to Jan. 1,

We have now learned that Hewlett Packard has a malfunctioning time
indicator on its external defibrillator, and for 20 hours on Jan. 1,
1999, 100,000 members of PCS Health Systems, a company that manages the
drug benefits for 3.7 million federal employees, had their prescriptions
denied due to errors in the computer system. The Business Week article
describes a snafu at Samsonite that cost them $4 million in profits and
$10 million in sales. And that was just a “test” of their Y2K compliant
system, which did not function. How many other similar problems existed
or will exist
during 1999 that no one will discuss?

Dennis Grabow, the president of Millennium Investment Corporation, a
company which provides financial advice based on year 2000
prognostications, was quoted in as saying, “Because this
about money, I don’t believe that companies are going to raise their
and say that their systems have failures. Everybody is masking the

If everyone in corporate America is “masking the truth,” how can
the small investor, let alone the consumer be informed? Arthur Leavitt,
the chairman of the Securities and Exchange Commission, is extremely
worried about Y2K corporate preparedness. He has, in fact, written four
memos requesting not only disclosure but full disclosure. The SEC is
requesting Y2K information in corporate quarterly and annual statements.

These 10-Q reports must include state of readiness, costs of
risks posed by Y2K and contingency plans.

Although many in corporate American are complying with Mr.
Leavitt’s requests, the numbers in those 10-Q reports appear to be
understated. In fact according to a Proxy Monitor report the projected
compliance cost of the 30 stocks which comprise the Dow Jones Industrial

Average will total over $6 billion. But those 10-Q report numbers
are already obsolete. AT&T was predicting a cost of $611 million, and
their figures are now revised to $900 million with $186 million to be
between Oct. 1, 1999 and Dec. 31, 1999.

And AT&T is not the only company with a New Year’s Eve completion
date. Of the 30 DJIA companies, 13 companies have a completion date of
12/31/99. Linda Krull, a senior analyst at Proxy Monitor, told Barron’s
Market Week that the completion dates keep slipping while the predicted
dollar costs go up. New Year’s Eve doesn’t allow for any slippage. It is

328 days away and counting.

If the companies who have complied with SEC reporting requirements
are filing inadequate reports, what about those companies who are in Y2K

denial and have failed to file any report? Can the SEC do anything to
require them to take it seriously? The SEC has started to levy fines and

issue reprimands against transfer agents, companies that monitor the
millions of trades executed each day and maintain shareholder records.
SEC’s assistant regional director of enforcement, Katherine Addleman,
quoted in as saying, “To a certain extent there is an
important message to be sent. The commission takes very seriously all of

its filing requirements.” But for those companies who are avoiding Y2K
issues, a fine is a small price to pay.

How can stockholders or consumers become better informed? How do I
advise my daughter where to invest her rollover retirement dollars, let
alone invest my own. If those retirement funds and 401(k) funds are in
mutual funds, is there any assurance that the fund managers have even
looked into the Y2K preparedness of their holdings?

There are deadlines for Y2K compliance and consequences for
non-compliance. Hewlett Packard and PCS Health Services have already
experienced the first of many such deadlines. The next one to watch is
99th day of 1999 — April 9, 1999. With the final “drop dead” date 11
away, will the economy and the market discount Y2K problems
Or will that trillion-dollar bill come due as the clock strikes

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