Sample Y2K disclosure 3Q (1999) from 3Com. : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Yesterday there was alot of comment on SEC filings and the Y2K disclosures.

3COM just released their 3Q disclosure and I thought it should be shared with you folk. This is the first of the 3Q disclosures which is why this is posted. It will be the last of the Corp. filings before the rollover so it should be considered very relevant. While I am not a economics whiz or a tech whiz my comments will be noted by (brackets) and hopefully will help.

Also I have posted a long list of SEC Filings from the 2nd Q on a thread below.

 A long list of SEC Filings

 3COM CORP - Quarterly Report (SEC form 10-Q)

Sales in the first quarter of fiscal 2000 totaled $1.39 billion,


As is true for most companies, 3Com faces a risk from the Year 2000 issue. 3Com's operations could be adversely affected if systems do not correctly recognize date information when the year changes to 2000. The Year 2000 issue affects us at the end of the calendar year 1999. 3Com faces risk primarily in the following areas:

 - systems used by 3Com to run our business including information
 systems, equipment and facilities
 - systems used by 3Com's suppliers
 - potential warranty or other claims from 3Com customers
 - potential for reduced spending by other companies on
 networking solutions as a result of significant information
 systems spending on Year 2000 remediation
3Com continues to evaluate and mitigate our exposure in these areas where appropriate. We intend for some of our disclosures and announcements concerning our products and Year 2000 programs, including those in this report on Form 10-K, to constitute "Year 2000 Readiness Disclosures" as defined in the recently enacted Year 2000 Information and Readiness Disclosure Act. We cannot be certain that Year 2000 issues will not have a material adverse impact on us.

(This is pretty standard)

RISK SUMMARY. Based on currently available information, management believes that Year 2000-related disruptions affecting the above-noted components of business operations, or in products sold to customers, will not have a significant adverse impact on our operational results or financial condition.

(This seems to be contradicted below, particularly in legal matters)

As with many companies, 3Com is dependent on third parties, both public and commercial, for provision of power, telecommunications, water, transportation, and key raw materials, and on the accuracy of Year 2000 readiness statements made by those parties to us. Although contingency plans will be in place to address interruptions in the availability to 3Com of goods and services, failure to ensure Year 2000 readiness by a supplier, customer, or other third party may have a significant adverse impact on our operational results or financial condition.

(It would seem that many of the Corps provide disclaimers such as this, what may be notable is the fact that they aren't anymore reasured than most of the forum members in regards to infrustructure)

STATE OF READINESS AND RISKS. 3Com has identified four key exposure areas within 3Com with respect to the Year 2000 issue, namely: key transaction processing applications, equipment and facilities, 3Com products, and key suppliers.

KEY TRANSACTION PROCESSING APPLICATIONS. Key transaction processing applications include those used to run 3Com's business, such as finance, manufacturing, order processing, and distribution. We have completed our evaluation of these applications for Year 2000 readiness and have been fixing or replacing systems, where necessary. We have successfully completed integration testing of all of our applications as of the end of August 1999. If we identify significant new non-compliance issues or encounter unexpected difficulties in areas previously considered to be Year 2000 ready, our ability to conduct our business or record transactions could be disrupted, which could adversely affect our results of operations or financial condition.

(Good news if correct)

EQUIPMENT AND FACILITIES. 3Com is evaluating Year 2000 readiness of its equipment and facilities. As of the end of September 1999, we have completed contacting our key suppliers to ascertain Year 2000 compliance of our critical equipment. If we are delayed in upgrading or replacing any non-Year 2000 ready equipment, or if we encounter any unexpected difficulties in areas previously considered to be Year 2000 ready, our design, production, and shipping capabilities could be disrupted, which could adversely affect our results of operations or financial condition.

(This seems odd, as of the end of September they have not nailed down the third party exposure in critical business operations. Not good.)

3Com is also assessing the Year 2000 readiness of our owned and leased facilities worldwide. We are giving priority to critical facilities that house large numbers of employees or significant operations. We have completed these assessment activities as of the end of August 1999. We have also completed remediation efforts identified in our assessment activities. Any unexpected problems with respect to these facilities could adversely affect our results of operations or financial condition.

(Completing the assessments of their facilities by the end of August? The mention of remediation of the facilities doesn't mention whether the third parties have finished if there facilities are relying on this.)

PRODUCTS. 3Com has conducted an extensive evaluation of our currently available and installed base of products. We believe that the products on our current price list are Year 2000 ready. We have identified some obsolete products that are not Year 2000 ready. While we still support some of these obsolete products, all can be upgraded or replaced with a 3Com Year 2000 ready product. We cannot be certain that older releases of our products will be Year 2000 ready with customers' systems or within existing networks. To assist our customers in evaluating the Year 2000 readiness of 3Com's products, we have developed a list that indicates the capability of our products. We have published the list on our website ( and periodically update it as we complete our assessment of additional products. If any of our products do not operate properly in the Year 2000, we could have increased warranty costs, customer satisfaction issues, litigation, or other material costs and liabilities, which could adversely affect our results of operations or financial condition.

(Here is where the contridiction from the above comment of mine comes in. The legal implications could be significant even if there is no fault by 3COM, are all the business aware of the implications of the noncompliance of "obsolete products" and what defines a obsolete product?)

KEY SUPPLIERS. 3Com has contacted our critical suppliers of products and services to determine that the suppliers' operations and the products and services they provide are Year 2000 ready. Confirmation of the continued Year 2000 readiness of these key suppliers will continue throughout the remainder of 1999. If key suppliers fail to adequately address the Year 2000 issue for the products or services they provide to 3Com, critical materials, products, and services may not be delivered in a timely manner, which could adversely affect our results of operations or financial condition.

(Well that is the standard disclaimer, 3Com has provided a average view of their Corp. Motorola being the best and Best Foods being the worst. The "worst case scenario below repeats much of the above. I would like to note that there is no mention of an "emergency bunker", many of the bigger corps are doing this.)

MOST REASONABLY LIKELY WORST-CASE SCENARIO. We believe that our most reasonably likely worst-case Year 2000 scenario would relate to problems with the systems and services of third parties rather than with 3Com's internal systems or products. 3Com's operations are conducted in a variety of domestic and international facilities. We believe the risks are greatest with infrastructure (e.g., electricity, water, and sewer service), telecommunications, transportation and distribution channels, and critical suppliers of materials and services. Each location relies on local private and governmental suppliers for utilities, telephone, and other necessary services and supplies.

3Com cannot identify all possible disruption scenarios. We are preparing contingency plans specifying our actions if failures occur in key internal systems and/or critical third party systems and services. The process includes identifying and prioritizing risks, assessing the business impact of those risks, evaluating risk mitigation alternatives, and preparing written contingency plans for those failures with the greatest business risk to 3Com.

Contingency plans for critical business operations are expected to be in place by mid-November 1999. Throughout the remainder of the calendar year these plans will be validated and modified as needed, and as we learn more about the preparations and potential exposure of third parties to Year 2000 disruptions.

COSTS TO ADDRESS YEAR 2000 ISSUES. We currently estimate that the total cost of our Year 2000 related programs will range between approximately $22 million and $31 million. Through August 27, 1999, we have spent $8.6 million on the program. In order to adequately prepare ourselves for the Year 2000 changeover, we expect to spend approximately $2.5 million between August 28, 1999 and January 1, 2000, primarily for computer equipment, consultant and contractor fees, and costs to ramp up our customer service organization for the expected increase in support calls during the Year 2000 transition. Excluding contingencies, we expect to spend approximately $5.2 million in calendar 2000, primarily for increased staffing in our customer service organization to address potential Year 2000 issues, premium pay and bonuses for employees working during the Year 2000 date rollover period, and remediation of non-critical applications, equipment and facilities, and products and services. All expected costs are based on our current evaluation of the Year 2000 programs and may change as the program progresses.

(I find the costs seem to be low.)

Our estimate includes amounts for contingencies of approximately $6 million to $15 million related to the following items:

 - hardware and software upgrades or replacements related to
 desktop systems and telephone equipment
 - consultant and contractor fees to assist in remediation
 - further increased staffing in our customer service area to
 address the expected increase in support calls during the Year
 2000 transition
 - a contingency for potential disruption in supplier product or
 service delivery or in manufacturing operations
 - a contingency for potential product upgrades or replacements
 - a contingency for potential unexpected costs associated with
 replacing or repairing consumer products previously considered
 to be Year 2000 ready
We have not included in the total cost estimate any costs associated with potential Year 2000 litigation exposure since these costs are not estimable.

We have adequate funds to pay for the expected costs of Year 2000 programs. As of August 27, 1999, we have not deferred any significant internal information technology projects due to our Year 2000 efforts.

SALES IMPACT. Year 2000 readiness is an issue for virtually all businesses whose computer systems and applications may require significant hardware and software upgrades or modifications. Companies owning and operating such systems may plan to devote a substantial portion of their information systems' spending to fund such upgrades and modifications and divert spending away from networking solutions. In addition, companies may defer spending on networking solutions while they test and ensure the stability of their current network configurations. Such changes in customers' spending patterns could adversely affect our sales, operating results, or financial condition.

-- Brian (, October 12, 1999


ust thought I would include this as the definitive Y2K disclosure.

 MOTOROLA INC - (Year 2000 Disclosure) Quarterly Report (SEC form 10-Q) August 3rd

-- Brian (, October 12, 1999.

This sounds like a standard, boilerplate disclosure. As far as 3COM is concerned, they've finished with all the important stuff they can find (but they're still looking) and they have some noncritical odds and ends to fix up. They have three main concerns, it would appear: (1) Obsolete equipment causing support headaches; (2) Anything important they may have missed; and (3) Problems caused by the "other guys" beyond their control. Litigation costs are a complete unknown.

Interesting that they've set aside for contingencies even more than they've spent on remediation, implying that they are prepared (and may even expect) to do some fancy footwork during the first part of next year. This substantial contingency fund, being part of their y2k budget, probably earns them a poor Weiss rating, ironically.

-- Flint (, October 12, 1999.

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