GE pins Y2K costs at $550 million

Efforts to cleanse its computer systems of the Year 2000 glitch will cost General Electric a hefty $550 million, according to a quarterly report filed with the Securities and Exchange Commission.

One of the largest companies in terms of market capitalization, GE reported it will shell out two-thirds of that estimated total Y2K cost in this year alone, with the remainder expected to be spent in 1999.

Industry observers estimated GE's Y2K budget to be the largest yet reported in Security and Exchange Commission filings.

Earlier this week, Sears Roebuck said it has spent $67 million so far to get its computers ready for the Year 2000 changeover, but the cost could reach $143 million.

Most of GE's expenses are not likely to be incremental costs, but rather will represent the redeployment of existing resources, GE stated. The company's Year 2000 efforts involve estimates and projections of activities and resources that will be needed in the future.

GE noted that business operations are dependent on the Year 2000 readiness of infrastructure suppliers in areas like utilities, communications, transportation, and other services. "In this environment, there will likely be instances of failure that could cause disruptions in business processes. The likelihood and effects of failures in infrastructure systems and in the supply chain cannot be estimated," the company reported.

Dennis Grabow, founder and CEO of the Millennium Investment Corporation, said GE's Y2K estimates are substantial, but not surprising. "They have very disparate manufacturing facilities around the world. In fact, that is the direct, out-of-pocket cost. A greater cost, I believe, will come from their financial services side, or subordinate financing."

Huge companies like General Electric often invest in many other smaller corporations. GE, and others like them, may see some negative financial impact from investments in companies that don't do as well in preparing for Y2K, explained Grabow, whose firm consults people on ways to protect their financial investments from possible Y2K mishaps.

Compared to other major corporations that have filed their Y2K cost estimates with the SEC, GE tops the list.

For example Coca-Cola estimated its Y2K costs as reaching $130 million to $160 million before the end of the century, while its competitor Pepsi Cola said its costs would be around $130 million.

More in line with GE's estimate are Bell Atlantic's prediction of a $300 million price tag for Y2K-related fixes, and pharmaceuticals and healthcare product giant Johnson & Johnson's estimate of $250 million to fix its millennium problems.

In its SEC filing, GE said it does not expect that any unforeseen Year 2000 failures will have a material adverse effect on its financial position, operations, or liquidity. It also stated that these estimates and projections could change over time as work progresses.