Phillip Morris, RJR Tobacco Y2K Costs in Line

Updated 7:22 PM ET November 12, 1999

By Edward Tobin

NEW YORK (Reuters) - The nation's two biggest cigarette companies on Friday reported costs to safeguard their computers against the Y2K bug were in line with expectations.

Philip Morris Cos. Inc., the world's largest tobacco company, said it will spend about $550 million on year 2000 compliance -- $500 million of which has already been spent -- according to quarterly reports filed with the U.S. Securities and Exchange Commission.

The New York-based company, which also owns Kraft Foods and Miller Brewing Co., said remaining costs relate to the final testing and certification of its business systems and transition management efforts.

"Those figures are about what we've been expecting all year," company spokesman Chris Kircher said.

R.J. Reynolds Tobacco Holdings Corp., the nation's No. 2 cigarette maker, estimated that it will spend about $36 million for its systems to be year 2000 compliant in its 10-Q filing with the SEC.

The Winston-Salem, N.C.-based company, whose brands include Camel and Winston cigarettes, said it will spend $4 million prepping its operating systems in the remainder of the year in addition to the $32 million it has spent as of Sept. 30.

The Y2K glitch occurs when older computers or software, which allocated two digits for the year in a date instead of four, mistake 2000 for 1900.

Tobacco analyst Bonnie Herzog of Credit Suisse First Boston pointed to Philip Morris' vast food and beverage businesses along with its financial services unit for the difference in Y2K price tags between the two tobacco giants.

"The main reason is the sheer size and complexity of Philip Morris, with their Miller business and their financial unit, compared with RJR, which is simply tobacco," Herzog said, adding the figures were not surprising.

RJR said that all mainframe information technology systems were Y2K compliant and in use by the end of October. The company said it is also in contact with suppliers, vendors and service suppliers and as of Sept. 30 85 percent were Y2K compliant.

Comparable Y2K figures from Brown & Williamson Tobacco Corp., the No. 3 cigarette seller in the United States, were not immediately available.

Shares of RJR closed Friday up 5/8 to 22 on the New York Stock Exchange while Philip Morris shares ended down 1/8 to 25-1/8.

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Ray

-- Ray (ray@totacc.com), November 12, 1999