...cat's outta the bag - F1000 admitting potential problems

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if convenient, check out this mornings USA Today p 4B; Fortune 1000 companies admitting what some of us have believed all along...greater potential for problems than they have previously admitted Perry

-- Perry Arnett (pjarnett@pdqnet.net), October 11, 1999


Fasten your seatbelts folks.

-- R (riversoma@aol.com), October 11, 1999.

Thanks for the heads-up, Perry. Here's the link:


Y2K Fears Start To Surface

-- Donna (moment@pacbell.net), October 11, 1999.

Corporate America is exhibiting nervous ticks and twitches as the Year 2000 nears.

For almost two years, companies made mostly rosy predictions about their ability to handle the Y2K computer glitch. But now, some of the nation's largest corporations are expressing reservations in quarterly Y2K status reports filed with the Securities and Exchange Commission.

There is near-universal acknowledgment that no one can identify every weakness that could cripple a computer system and, perhaps, a company, according to a USA TODAY review of SEC filings.

The biggest fear: Problems that by themselves would be minor could trigger a domino effect with serious consequences.

EDS, for example, says it is ready. But, the information technology firm adds, "There is a significant likelihood that non-EDS related Y2K problems will cause interruptions of the 'extended' networks utilized by EDS and other third parties."

Simply put: A local phone line fails, and EDS starts losing clients.

That could be an expensive disconnect. General Motors is committed to paying EDS a $62 million bonus if the auto giant makes it past April 1 without any significant business disruption and financial loss due to Y2K. That's on top of $204 million GM is paying EDS for Y2K services.

The Y2K problem is so simple that it would be laughable if it weren't so pervasive. Arcane computer code - in an unknown number of computer systems, software and chips - uses two digits to denote years. So the day after Dec. 31 could be read as Jan. 1, 1900, skewing date-sensitive functions.

While no one predicts devastating system failures, several companies draw apocalyptic pictures. The SEC requires firms to provide worst-case scenarios. Such disclosures are meant to warn investors and provide some defense against liability lawsuits if the worst comes to pass.

"These filings are neither basis for panic nor reason to be reassured," says Steve Hock, of Triaxsys Research, a consulting firm that analyzed SEC filings.

Common themes

Hock identifies five trends in the latest SEC disclosures, which reflect work completed through June 30:

Domino effect. Companies are recognizing that there are likely to be failures resulting from the complex relationships of systems. Mobil Oil, for instance, says the failure of one or more systems that individually are minor could "trigger a cascade of other failures for Year 2000 reasons, the combination of which could have a material adverse effect on Mobil's operations, liquidity and/or financial condition."

Embedded systems. These are microchips contained in millions, perhaps billions, of products that may have some time-sensitive qualities. If they fail, they could trigger the domino effect.

Enron, one of the world's largest suppliers of energy, admits that it, its suppliers and other firms on which it depends won't be able to find and fix all its embedded chips.

The company warns: "Some of the embedded chips that fail to operate or that produce anomalous results may create system disruptions or failures. Some of these disruptions or failures may spread from the systems in which they are located to other systems in a cascade. These cascading failures may have adverse effects upon Enron's ability to maintain safe operations and may also have adverse effects upon Enron's ability to serve its customers."

Supply chain problems. The failure of a smaller provider to fix its Y2K problems could cripple a larger company. Philip Morris reports that it considers 700 of its 6,000 "key business partners" likely to suffer some Y2K failures.

Upshot: "The possible consequences of these disruptions include temporary plant closings, delays in the delivery of products, delays in the receipt of supplies, invoice and collection errors, and inventory and supply obsolescence. Depending on the number and severity of disruptions, it is possible that the business and its operating subsidiaries could be materially adversely affected."

Stockpiling. Pharmaceutical giant Eli Lilly, for example, "has made the decision to increase inventories of certain key products in order to have additional finished stock in the event excessive consumer purchasing occurs in late 1999." Such stockpiling by companies could skew economic statistics and create the illusion of rapid economic growth.

Replacing old systems. Hock says about 25% of companies are installing new systems rather than upgrading old ones. Those firms are "at terrible risk," he says. "Historically, 80% of technology projects that ultimately fail to make deadline are reported to be on time and trouble free just three months prior to" deadline.

Reebok International has been overhauling its information technology worldwide and told the SEC it was relying on that conversion to protect it from Y2K.

But in its most recent SEC filing, Reebok says that because of technical difficulties, it has decided to delay full implementation until after January 2000. The firm will address Y2K by modifying its existing software, a project it expects to have done this fall.

But, Reebok warns, "There can be no assurance that its contingency plans will be sufficient to mitigate the impact of any potential failures."

Time's running out

Many companies also are saying there's more work than time remaining before the new year. The nation's 1,000 biggest companies, as ranked by Fortune magazine, report spending 77% of what they say it's going to cost to make them Y2K ready, Triaxsys says.

"I'm not bothered by the company that reports it's 97% complete," says Hock. "But there are some chemical companies, for instance, that report spending as little as 33% of their Y2K budgets. Those are the ones I worry about."

Collectively, the Fortune 1,000 expect to spend at least $55 billion to correct Y2K problems, Triaxsys found. Citigroup tops the list with $950 million budgeted. Wal-Mart, the nation's third-biggest company, is spending $27 million. Only three of the 100 biggest companies reported spending less. The difference is the extent to which the banking and retail industries rely on computers. For Citigroup, a Y2K failure would threaten core operations; for Wal-Mart, it would be an inconvenience.

The USA's total Y2K tab - including businesses; federal, state and local governments; and individuals - is expected to be about $200 billion, according to consultants.

"This is obviously the biggest management problem the world has ever seen," says John Koskinen, chairman of the President's Council on Year 2000 Conversion.

-- Sysman (y2kboard@yahoo.com), October 11, 1999.

sadly, the on-line version leaves out the two side-bars that make the story credible:

one is a worst-case scenario submitted by Enron in their SEC filing; reads just like North and Milne have hypothesized for months...

the other is a tabulated list of "some of the biggest companies" [100 or so] and what they expect to spend on Y2k

most revealing article to date - in the printed version


-- Perry Arnett (pjarnett@pdqnet.net), October 11, 1999.


Thank you for the link. I but wonder now what the spin will be from "I am not going to tell you my vocation" Fact Finder. I well imagine that he/she will once again ignor my requests fo his/her bonifides. But I shall continue to seek out their mysterys.

Note the mention of the embeded systems folks. The embeds are going to be the real "killers". And they'll be speaking their siren's song of failure for about 19 more months, give or take a couple of months.


-- Shakey (in_a_bunker@forty.feet), October 11, 1999.

...and the Dow rallies another 50 points in response...

-- Downstreamer (downstream@bigfoot.com), October 11, 1999.


Thanks. Think I'll get a copy of the print version today.


-- Diane J. Squire (sacredspaces@yahoo.com), October 11, 1999.

Well if its in USA Today then we can expect all sorts of other revelations in the near future. Finally we won't have to explain what we mean by terms like "falling dominoes" and "cascading failures." In any event we must be near the end game because it seems doubtful that this kind of news will be good for Reebok stocks. The fear of lawsuits is finally overcoming the fear of profit loss. If this is happening BEFORE the Christmas rush then that speaks volumes.

Get it while you can.

-- R (riversoma@aol.com), October 11, 1999.

wow Perry, so the article "set-up" was even more "doomer" than this one article suggests? And in USA Today?

One great thing about USA Today is that even with placement on page 4B this article will still be seen. "Will it be read?" is another story.

High profile paper goes doomer? The times they are a changin'.



-- Michael Taylor (mtdesign3@aol.com), October 11, 1999.

Thanks for the heads-up, Perry...............

On this forum, the cat has been out of the bag a long, long time...

Don't think that John and Jane Q Public will wake up until they SEE the results of problems on the boob-tube. Maybe not even then.

Spoke to a well-to-do neighbor with plans to liquidate his bank account REAL SOON NOW as GN phrases it. A co-worker talked to me about his stock portfolio about a month ago. He said, "You know, alot of people will be doing this." I was silent. You KNOW many others have the same thought. The "fun" is just about to commence.

-- PJC (paulchri@msn.com), October 11, 1999.

Too many companies have the mistaken idea that a Y2K failure would be an "inconvenience." So many simultaneous cascading global "inconveniences" will cripple, hobble, and destroy businesses.

Computers have taken over just long enough to have made turning back impossible, yet not long enough to break through humanimals' collective consciousness cemented in the "old ways" for thousands of years.

-- Ashton & Leska in Cascadia (allaha@earthlink.net), October 11, 1999.

Thanks Perry.

I wonder what spin the church of Pollyology will give this

and of course there will be many more articles soon.

-- no talking please (breadlines@soupkitchen.gov), October 11, 1999.

My inconvenience, your fatality???

-- ..- (dit@dot.dash), October 11, 1999.

"This is obviously the biggest management problem the world has ever seen," says John Koskinen, chairman of the President's Council on Year 2000 Conversion.

Anyone remember when the Challenger Shuttle blew up, and that control guy said "Obviously a major malfunction...." as the pieces were falling to earth...

What a genius.

-- Cory Hill (coryh@strategic-services.net), October 11, 1999.

And the a.trophy for Biggest Mismanagement PHM goes to Koffinsky. Major a$$.

-- Ashton & Leska in Cascadia (allaha@earthlink.net), October 11, 1999.


I have posted a thread listing SEC Filings by industry.

 A long list of SEC Filings

-- Brian (imager@home.com), October 11, 1999.

amazing folks! USA Today has posted the side-bars that were missing from the link earlier;

below is the [c&p] "worst-case scenario" 10/11/99- Updated 11:20 AM ET

A worst-case Y2K scenario

The Securities and Exchange Commission requires every corporation to provide "a worst-case scenario" in Y2K readiness statements. Some are more dramatically specific than others.

Enron, the energy giant, offers a glimpse of the future for those wedded to the notion that Y2K means the end of the world as we know it. The company does caution, however, that the scenario is "unlikely in some or many cases." Says Enron spokeswoman Karen Denne: "We gave the SEC what they requested ... odds are very low that this will happen, but it remains a possibility."

Enron's SEC filing says Y2K could cause: "Widespread failure of electrical, gas and similar supplies by utilities serving Enron domestically and internationally; widespread disruption of the services of communications common carriers domestically and internationally; similar disruption to means and modes of transportation for Enron and its employees, contractors, suppliers and customers; significant disruption to Enron's ability to gain access to, and remain working in, office buildings and other facilities; the failure of substantial numbers of Enron's mission- critical information hardware and software systems, including both internal business systems and systems controlling operational facilities such as electrical generation, transmission and distribution systems and oil and gas plants and pipelines, domestically and internationally; and the failure, domestically and internationally, of outside systems, the effects of which would have a cumulative material adverse impact on Enron's mission-critical systems.

"Among other things, Enron could face substantial claims by customers or loss of revenues due to service interruptions, inability to fulfill contractual obligations, inability to account for certain revenues or obligations or to bill customers accurately and on a timely basis, and increased expenses associated with litigation, stabilization of operations following mission-critical failures, and the execution of contingency plans. Enron could also experience an inability by customers, traders and others to pay, on a timely basis or at all, obligations owed to Enron.

"Further in this scenario, the cumulative effect of these failures could have a substantial adverse effect on the economy, domestically and internationally. The adverse effect on Enron, and the diminution of Enron's revenues, from a domestic or global recession or depression also is likely to be material, although not quantifiable at this time."

read it and weep...


-- Perry Arnett (pjarnett@pdqnet.net), October 11, 1999.

Holy disclosures Batman!!

Perry, thanks for the follow up.

People, finish your prepsNOW!

-- Deborah (infowars@yahoo.com), October 11, 1999.


Good news - it looks like we were not crazy to prep for y2k.
Bad news - it looks like we were not crazy to prep for y2k.

= = = = = = = = = = = = = = = = =

-- G (balzer@lanset.com), October 11, 1999.

An excellent article, so long as we remember that these are SEC- required

-- Flint (flintc@mindspring.com), October 11, 1999.

An excellent article, so long as we remember that these are SEC- required WORST-CASE scenarios. If the worst thing that can happen to you crossing a street is that you get hit by a truck, this hardly constitutes proof that you WILL get hit by a truck. These are not "disclosures" in the sense of "here's where we stand." These are "here's the worst thing that can possibly happen."

Strange that nobody seems to notice the caveat that these are considered low-probability events, and everyone here seems to be treating them as inevitable. These are a good help in focusing our preparations, and for that I'm thankful.

-- Flint (flintc@mindspring.com), October 11, 1999.

I've seen too many low probability events happen that have caused loss of life or severe injury, to me every single one of those events was a 'disaster'.

So why don't we all prepare so we can make the 'low probability event' even lower so there is no loss of life?

Regards, Simon

-- Simon Richards (simon@wair.com.au), October 11, 1999.

Flint - you're notion of "worst case scenario" is wrong. (And I think many of your posts are well thought out.)

When describing a "worst case scenario" the company considers only those events which might reasonably be considered as possible outcomes. (A 'reasonable man' would consider these to be special risks worth mentioning.)

The Company (Enron) has reason to believe that the scenarios elaborated in the statement may occur.

-- Me (me@me.me), October 11, 1999.

And just watch: Pollies that make Flint look like a doomer will come up with creative stuff like, "Oh, you can't take those scenarios seriously, they were just written by THE LAWYERS so as to cover themselves. Such things could never-ever-really-possibly-even-remotely happen. At least not HERE. Foreign countries, sure, but not HERE."

-- King of Spain (madrid@aol.cum), October 11, 1999.


Actually, if you think about it, getting hit by a truck when crossing the street IS a reasonable possibility. We aren't taught to look both ways for nothing.

Without doubt there are real, genuine risks and threats. I applaud companies like Enron for examining them and thinking seriously about them. I was merely commenting on the flavor of the reactions to this article, which I read as "See, we told you it would be real bad, and now companies are admitting that it *will* be real bad." I'm pointing out that that's NOT what they're saying. They're saying, "Here's the worst that could happen if *everything* goes wrong that we consider possible." Big difference.

I repeat, they believe these scenarios to be "low probability". These are NOT status reports.

-- Flint (flintc@mindspring.com), October 11, 1999.

Flint: Ever hear of "Murphy's Law" -- that everything that can go wrong will go wrong? Think about it.

-- King of Spain (madrid@aol.cum), October 11, 1999.

I can't fathom why it is coming as a surprise to anyone who started preparing in 1998 or earlier. You all knew this already. You read the articles back then talking about Fed spins, Pr spins, and companies claiming "No problem" for their investors ears. You all knew what this would be like and what would be happening. What some of you are saying is that you were beginning to doubt yourselves and falling under the spin as much as the "sheeple."

-- Paula (chowbabe@pacbell.net), October 11, 1999.

Flint -

You wrote: "They're saying, "Here's the worst that could happen if *everything* goes wrong that we consider possible." Big difference. I repeat, they believe these scenarios to be "low probability". These are NOT status reports."

Me respond: Correct. In fact, there IS a substantial 'lawyer component' to these disclosures. Disclosure of horrific possibilities = at least partial protection from litigation.

I simply responded to your assertion re: "risk of being hit by a car". I don't like what I call 'the smear effect'. When the reps of power companies claim, as they often have and do, that "we can't guarantee the power will be on tomorrow, so how can we guarantee it will be on Jan. 1?", they are responding to a legitimate question/concern in a disingenuous manner. Same for those who adopt a polly position on y2k by claiming that "software malfunctions all the time."

The software and power statements are technically true (depending on your definition of "all the time") but are sophistry at best. I have a reasonable expectation that when I get up tomorrow the power will still work. It may be true that "there are power outages all the time", but along those same lines, asserting that "people die all the time" will not reassure me in the face of sudden confrontation with real and present danger.

Bottom line: Me don't think that citing death auto impact relates to y2k risk assessment.

-- Me (me@me.me), October 12, 1999.



Three Mile Island, etc.

Shuttle #25 (4%).


Murphy is alive and well, and is going to "party like it's 1999" plus one.

Tick... Tock... <:00=

-- Sysman (y2kboard@yahoo.com), October 12, 1999.

"EDS, for example, says it is ready. But, the information technology firm adds, 'There is a significant likelihood that non-EDS related Y2K problems will cause interruptions of the 'extended' networks utilized by EDS and other third parties."

In this case Flint, I think the language is pretty clear.

-- PNG (png@gol.com), October 12, 1999.

From: Y2K, ` la Carte by Dancr (pic), near Monterey, California

I've taken at least five graduate courses in statistics (and a couple undergrad), so I know a little bit about how probabilities are figured. The last four places I've lived in have had a so-called 100-year flood while I was living there. This place has had two since I moved here five years ago. Even with the fairly extensive flood stats that have been collected during the past 100 or so years, they're not too good at making predictions. I have no confidence what-so-ever in corporate and government PR flaks and their "mediation 97% complete" reports and their "very low probability of disruption" predictions.

-- Dancr (addy.available@my.webpage), October 12, 1999.

Lies, Damn Lies and Statistics : The Manipulation of Public Opinion in America, by Michael Wheeler

-- Dancr (addy.available@my.webpage), October 12, 1999.

One of the sidebars listed what some large companies had spent on Y2K. Citigroup was first at $950 million. Walmart only spent $27 million. The article pointed out that Walmart is the 3rd largest US corp. Even allowing for the differences in IT usage by industry, that seems too small.

-- sam walltown (sammy@wall.mart), October 12, 1999.

The Y2K Bug Has Already Struck En Masse
A chilling new survey reveals that not only are systems at most of the nation's largest corporations already failing due to Y2K glitches, but that few companies are optimistic they'll be ready in time for the century rollover. The survey, conducted by Cap Gemini America Inc. (New York), finds that 75 percent of the largest U.S. companies have already experienced a Year 2000-related date failure in their systems. Only about half of these companies (48 percent) expect to have all their critical systems ready when the Year 2000 hits, so they're preparing for the worst.


-- (not@now.com), October 12, 1999.

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