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The cost of moving forward

Y2K Management:
The cost of moving forward

With less than 10 months to go, Year 2000 has become the issue for information-technology officials at local companies.
The area’s top 25 publicly held companies–as listed in the Rochester Business Journal’s annual list based on market value–expect to spend more than $381 million to squash the millennium bug.
The Y2K issue is the result of computer programs using only the last two digits to indicate the year. If uncorrected, such computer programs cannot interpret dates beyond 1999. This is expected to cause computer system failures and other errors, potentially disrupting operations.
The Securities and Exchange Commission requires companies to disclose their Y2K efforts, risks and expenditures. Information in this article is based on the most recently filed quarterly report.
The records show the following companies expect an effective program will be in place to resolve the Y2K issue in a timely manner, but all also face potential litigation. They say, though, that they are uncertain how large the potential is for such actions. Nationally, litigation regarding Y2K is expected to exceed $1 billion.
Most companies use a multistage plan, including inventory, assessment, detailed analysis, implementation and remediation, audit and contingency planning. Their efforts involve information technology and non-IT systems.

Bausch & Lomb Inc.
Total estimated cost: $65 million to $75 million

Bausch & Lomb’s Y2K issues are being addressed through a combination of software replacement, system upgrades and, in limited instances, source code modifications.
The assessment phase of IT systems is substantially complete. The renovation phase is on schedule, and the company plans to have all key IT systems tested and compliant by the end of June. Other IT systems should be tested and compliant during the first three quarters of 1999.
For non-IT systems, Bausch & Lomb has outsourced the work to a production systems integration firm specializing in Y2K. The assessment phase is ongoing and should be completed by the end of the first quarter of 1999.
The company plans to have all key non-IT systems tested and compliant during the third or fourth quarter of 1999. The company has been assessing the readiness of key suppliers and customers since early 1998. This assessment is scheduled for completion early in the fourth quarter of 1999.
Y2K costs are expected to range from $65 million to $75 million. Some $20 million has been spent.

CPAC Inc.
Total estimated cost: $490,000

Some 80 percent of CPAC’s primary operating systems and related software have been reviewed and, in many cases, have received upgrades and certification of compliance. The largest system still in process is a production/manufacturing resource-planning system at the company’s Fuller Brands segment. The internal software programming of this system is slated for completion in June 1999.
CPAC has 85 percent-completed a final list of computer hardware for all locations, showing the individual items remaining to be updated and an estimate of the time needed. Due to acquisitions in recent years, the company has been routinely upgrading its computer hardware, most of which is already Y2K-compliant.
The Imaging segment domestic locations have already been converted to a compliant status by the manufacturers. At foreign operations, the upgrade of software is in process.
CPAC’s effort to address Y2K compliance within its infrastructure–such as heating and cooling facilities, telephones and switchboards, security and fire systems, etc.–is 75 percent complete.
CPAC estimates that the total cost of ensuring Y2K will be $490,000.

Canandaigua Brands Inc.
(company did not disclose cost)
The company has completed its assessment phase and approximately 60 percent of the remediation phase for its IT systems. For non-information technology systems, Canandaigua has completed approximately 90 percent of the assessment phase and some 55 percent of the remediation phase.
The testing is expected to be completed by September. The company also plans to have all internal mission-critical information technology and non-information technology systems Y2K-compliant by then. Canandaigua’s readiness programs also include the development of contingency plans by September.
Canandaigua officials have declined to provide a cost for their Y2K efforts and say they are not required to release it.

Detection Systems Inc.
Total estimated cost: $750,000

Detection Systems has appointed a senior management-led team to assess the Y2K impact on its information systems, products and business.
The company placed a high priority on ensuring that its products are Y2K-ready. It has completed a review of all products manufactured domestically and at its China plant, as well as products resold by its domestic businesses. It believes all products are Y2K-compatible.
Detection Systems also says date-sensitive tools and equipment used to manufacture its products also comply. The company is fixing and testing all non-manufacturing business applications such as core financial information and reporting systems, procurement, human resources/payroll, factory applications, customer service systems and revenue systems. It does not expect any significant Y2K problems.
Its domestic business information systems had required upgrades and enhancements that have been made and are being tested. All necessary upgrades to other IT infrastructure have been identified and are being fixed. Testing of Y2K upgrades is expected prior to year-end.
Most of the company’s non-U.S. subsidiaries’ information systems will require upgrades or replacements (except its Hong Kong subsidiary, which uses the domestic information system). The company has purchased a new enterprise resource-planning system, which is Y2K-capable and is being implemented at its foreign subsidiaries.
Detection Systems has evaluated its facilities and infrastructure (health, safety and environment systems, buildings, security/alarms/doors, desktop computers, networks) to ensure they are Y2K-compatible. Upgrades are being implemented where needed.
The company has a comprehensive program to identify and obtain Y2K information from its critical suppliers, customers and service providers. Responses are currently being received and evaluated. If any such customer or vendor is of concern with regard to Y2K readiness, Detection Systems will develop contingency plans to minimize the Y2K risk.
The company estimates its costs for Y2K activities from 1997 through 2000 will be approximately $750,000. It had spent $145,000 through Dec. 31.

Eastman Chemical Co.
Total estimated cost: less than $20 million

Internal identification of all business, manufacturing and embedded chip devices for Y2K compliance have been completed.
The company expected to complete remediation and final acceptance testing of its existing business computer systems by year-end 1998. It found few problems, chiefly because of its implementation of enterprise software and standardized desktop/office software earlier this decade.
Assessment and remediation of date-dependent manufacturing control systems and devices are proceeding. A small number of devices have been found non-compliant, with most requiring software upgrades at minimal cost.
A testing plan has been approved by senior management, which will evaluate all control systems for date-sensitive issues and test a representative sample of manufacturing control systems.
Eastman’s current goal for manufacturing control systems is to complete assessment, testing and most of the remediation or workaround solutions on critical control systems early in 1999. Some upgrade work may occur later in the year.
Some low-priority devices will not be tested or remediated, but will be managed by contingency plans. Although some risk is inherent with this plan, company officials say it is controllable with contingency plans being developed.
Testing, remediation or workaround solutions for other devices with embedded chips continue on schedule, with a targeted completion date at the end of the first quarter of 1999.
Eastman has identified and is communicating with customers, suppliers and other critical service providers to determine their plans to address the Y2K issue. The company has received affirmative readiness responses from some 90 percent of its materials suppliers and 75 percent of other key service providers.
Overall costs for Y2K efforts are expected to be less than $20 million.

Eastman Kodak Co.
Total estimated cost: $78 million

Kodak established in 1996 a formal global program office to assess the impact of the Y2K issue.
The assessment addresses software applications, systems software, information-technology infrastructure, embedded manufacturing control technology, and products and services. Last June, an independent third party completed a comprehensive review of Kodak’s overall Y2K program.
The company expected to have its mission-critical IT systems and server infrastructure tested and installed by the end of 1998, and manufacturing control systems Y2K-compliant by mid-year.
The company also expects actively supported products and services compliant by the end of August. Kodak has modified its commercialization process to make compliant products.
During the third quarter of 1998, the project team increased global mission-critical compliance from 50 percent to 70 percent; used mainframe test facilities to simulate remaining mission-critical applications; and completed an inventory, assessment and solution plan for Kodak’s U.S. server network.
It has a comprehensive supplier compliance program in place. Kodak has posted its own product compliance plan on the Web at www.kodak.com/go/year2000.
The cost of software and hardware remediation was $13 million in 1997, and is estimated to be $27 million, $12 million and $6 million in 1998, 1999 and 2000, respectively.
The remediation efforts, almost entirely for software, will not increase the company’s spending on information technology because some normal development and maintenance work has been postponed. Some non-compliant systems will be eliminated in 1999 as the company installs enterprise resource planning software.
The company has contingency plans for some mission-critical applications and is working on plans for others. For example, plans for the U.S. payroll system have been in place since January 1998, while those for sensitized goods manufacturing were completed by year-end 1998. Contingency plans involve, among other actions, manual workarounds, increased inventories and extra staffing.

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3/5/99

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