Mobil Y2K disclosure

greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Well there is a bit of data here. The amount spent on IT dawrfs non IT.

1% of control systems still to be fixed.

Consern about the internation status.

 MOBIL CORP - Quarterly Report (SEC form 10-Q)

November 12, 1999

Year 2000 Project

Mobil is engaged in a company-wide effort (Project) to
address the issues that are likely to arise if computer
programs and embedded computer chips are unable to
properly recognize dates in and after the year 2000. The
Project is focused on three main areas: the information
technology (IT) systems in Mobil's computers and
computer software, including those that are linked to the
systems of third parties; the non-IT systems embedded in
equipment that controls or monitors Mobil's operating
assets; and Mobil's business relationships with third
parties (referred to herein as external agents). The thrust
of the Project is to address those of Mobil's IT systems,
non-IT systems and relationships with external agents
which Mobil judges to be materially important to Mobil.
These systems or relationships, referred to herein as
materially important, are those whose failure for year
2000 reasons would likely: put the safety of individuals
at risk; lead to damage to property or the environment;
put in jeopardy the value of Mobil's name or intellectual
property; or trigger a significant adverse consequence to
Mobil's financial performance or condition.
 

MOBIL - 14 -

Year 2000 Projectcontinued

Project work dealing with IT systems and Project work
dealing with non-IT systems has the following three
phases: (1) inventory and assessment: inventorying all of
Mobil's systems (including those that are linked to third
parties), identifying those of Mobil's systems that are not
year 2000 compliant, and making judgments as to which
of Mobil's systems (both compliant and non-compliant)
would likely be materially important; (2) strategy and
planning: developing strategies and plans for (a)
remediating, upgrading or replacing all non-compliant
systems (except those whose failure would, in Mobil's
judgment, have an insignificant impact on Mobil's
operations) and (b) testing all systems judged to be
materially important, and estimating the costs of
implementing these strategies and executing these plans;
and (3) execution: implementing the strategies and
executing the plans.

Project work dealing with relationships with external
agents has the following three phases: (1) inventory and
assessment: inventorying Mobil's relationships with
external agents and making judgments as to which of
those relationships would likely be materially important;
(2) communication and evaluation: sending letters and
questionnaires to those external agents whose
relationships are judged to be materially important to
elicit information about the plans and actions of those
external agents to achieve timely year 2000 readiness,
and evaluating the information so obtained; and (3)
follow up: contacting external agents with whom Mobil
has already communicated to obtain further assurance
that such external agents will achieve timely year 2000
readiness.

Additional Project work, discussed below, involves
identifying scenarios involving failures for year 2000
reasons of materially important IT and non-IT systems or
materially important relationships with external agents
and developing contingency plans for mitigating the
impact of such failures.

The inventory and assessment and the strategy and
planning phases of the work dealing with IT systems are
complete. The execution phase of this work involves
both application and infrastructure repair and systems
upgrades and replacements. Application and
infrastructure repair involves: the remediation and testing
of non-compliant code; the remediation, replacement and
testing of computing infrastructure and
telecommunications devices; and the upgrading and
testing of end user applications. The application and
infrastructure repair work, which is being performed by
both Mobil personnel and third parties specializing in
resolving year 2000 issues, was essentially complete as
of September 30, 1999. The systems upgrade and
replacement work consists of the implementation of a
major integrated enterprise software system in North
America (which would have been implemented
regardless of year 2000 considerations) and numerous
other systems. This work is complete.

The inventory and assessment and the strategy and
planning phases of the work dealing with non-IT
systems are complete. The execution phase of this work,
much of which is being performed by the vendors of the
products involved, was essentially complete as of
September 30, 1999, with minor work remaining that
affects less than 1% of the controls inventory. This
remaining work is either work whose timing must be
coordinated with plant operations or work to install new
upgrades from vendors or to change upgrades previously
provided by vendors.

The inventory and assessment phase of the work dealing
with relationships with external agents is complete. The
communication and evaluation phase of this work is also
complete,with all external agents whose relationships
Mobil judges to be
 

MOBIL - 15 -

Year 2000 Projectcontinued

materially important having been contacted as of March
31, 1999. The follow-up phase of this work (which
includes contacting again those external agents from
whom responses have not yet been received and
developing contingency plans relating to those external
agents whose responses raise issues or who do not
respond) is being undertaken by the business continuity
and contingency planning teams referred to below under
"Risks and Contingency Plans." The work of these
teams will continue through the end of 1999.

Cost

The costs associated with the Project (all on a pre-tax
basis) are being spent over a three-year period. There are
two categories of these costs: (1) costs that are being
incurred solely to achieve year 2000 compliance and (2)
costs that are being incurred to install new systems that
improve business functionality and in many cases
concurrently provide year 2000 compliance.

Mobil estimates that the costs to be incurred solely to
achieve year 2000 compliance will total approximately
$175 million (which amount includes about $5 million
for contingencies which will only be spent if unforeseen
repairs are required in early 2000) of which the costs of
dealing with IT systems are expected to be about $158
million and the costs of dealing with non-IT systems are
expected to be about $17 million (the costs of dealing
with relationships with external agents are expected to be
minimal). As of September 30, 1999, about $160 million
of the total costs estimated to be incurred solely to
achieve year 2000 compliance had been expended.

Mobil estimates that the costs to be incurred for new
systems that improve business functionality and in many
cases concurrently provide year 2000 compliance will
total approximately $275 million, and as of September
30, 1999, about $270 million of these costs had been
expended, of which about $95 million was expensed and
approximately $175 million was capitalized.

The estimate of total Project costs has been reduced by
approximately 3% from the prior estimate to reflect
efficiencies and actual experience in completing project
work over the past several months. Bookings of Project
expenditures tend to lag completion of Project work, so
that the percentages of the total estimated costs that have
actually been expended are lower than the percentages of
the Project work that have actually been completed.

All Project costs are being funded with cash flows from
operations. The $175 million which Mobil estimates will
be expended solely to achieve year 2000 compliance
represents less than 15% of Mobil's estimated total IT
budget for the period covered by the Project. This entire
amount is being expensed as it is incurred. Of the $275
million which Mobil estimates will be expended on new
systems that improve business functionality and in many
cases concurrently provide year 2000 compliance,
approximately $100 million is being expensed and
approximately $175 million is being capitalized.

As a result of the Project, certain IT projects to improve
business functionality have been reprioritized and
accelerated while other such IT projects have been
deferred. As a consequence, expenditures during the
period covered by the Project on IT systems that will
improve business functionality will actually be greater
than the expenditures that would have been made on
such systems had there been no Project. Accordingly,
the deferral of IT work due to the Project will not have a
material adverse effect on Mobil's results of operations
or financial condition.
 

MOBIL - 16 -

Year 2000 Projectcontinued

Risks and Contingency Plans

The failure or failures for year 2000 reasons of materially
important systems or relationships with external agents
could have a material adverse effect on Mobil's results of
operations, liquidity and/or financial condition. For
example, if, for year 2000 reasons, a utility company
were to be unable to supply electricity to a Mobil refinery
for an extended period, the refinery would have to be
shut down for that period, which could result in
substantial losses of production, sales and income.
Mobil believes that the Project work described above
dealing with materially important IT systems and non-IT
systems will, when completed, serve to reduce very
substantially the risk that such systems will fail for year
2000 reasons. Mobil has no way of ensuring, however,
that external agents whose relationships with Mobil are
judged to be materially important (e.g., utilities,
telecommunications providers and transportation
providers) will be timely year 2000 compliant.

The failure or failures of systems for year 2000 reasons
could also give rise to liability to third parties. Mobil has
not yet attempted to assess the potential for such liability,
and hence cannot say whether such liability presents a
material risk independent of the risk that such failure or
failures could have a material adverse effect on Mobil's
results of operations, liquidity and/or financial condition.

To minimize the risks associated with the year 2000
issue referred to in the second preceding paragraph,
Mobil has undertaken a significant effort (1) to identify
scenarios involving possible failures for year 2000
reasons of materially important systems and relationships
with external agents and (2) to develop contingency
plans for mitigating the impact of these scenarios. This
effort was substantially complete as of September 30,
1999.

Mobil operates a portfolio of diverse businesses which
have facilities and operations throughout the world and
are managed regionally. Mobil believes that the most
reasonably likely worst case scenarios, should they
occur, will be encountered at facilities or operations
located in one or more of these regions. Accordingly, a
risk-based contingency planning process was developed
for execution by each business unit in its unique
operating environment, focusing on its business-specific
risks. Contingency planning project leaders were trained
in the process during the first six weeks of 1999. Under
their leadership, teams in the business units have
essentially completed the development and
implementation of business continuity and contingency
plans. Mobil has also adapted its existing crisis response
model to encompass failures for year 2000 reasons of
materially important systems or relationships with
external agents, and has undertaken several exercises to
validate the model in the context of Year 2000 crisis
response. Final implementation of contingency plans and
additional exercises to validate the crisis response model
in the business units will take place in the fourth quarter
of the year.

The work described in the preceding paragraph is
focused on risks, scenarios and contingency plans
involving materially important systems and relationships
with external agents. There are, however, an almost
infinite number of additional risk which are simply not
assessable and for which, therefore, contingency plans
cannot be developed. These are the risks of failure for
year 2000 reasons of one or more systems or
relationships with external agents which, individually,
Mobil does not judge to be materially important but
whose failure could trigger a cascade of other failures for
year 2000 reasons, the combination of which could be
materially important or could prevent Mobil from
implementing
 

MOBIL - 17 -

Year 2000 Projectconcluded

contingency plans it has developed. Such a combination
of failures could also have a material adverse effect on
Mobil's results of operations, liquidity and/or financial
condition.

Forward-Looking Statements Relating to the Year 2000

The foregoing discussion about the year 2000 issue
includes a number of forward-looking statements, which
are based on Mobil's best assumptions and estimates as
of the date hereof. These include, without limitation,
statements concerning: Mobil's estimated timetables for
completing the not-yet-completed phases of the Project
work; Mobil's estimates of the percentages of the work
that remains to be performed to complete such phases;
Mobil's estimated timetable for identifying scenarios
involving possible failures for year 2000 reasons of
materially important systems and relationships with
external agents and the development and implementation
of contingency plans for mitigating the impacts of these
scenarios; and Mobil's estimates of the costs of (1)
completing the not-yet-completed phases of the Project
and (2) identifying possible year 2000 failure scenarios
and developing and implementing contingency plans for
mitigating the impacts of these.

Actual results could differ materially from the estimates
expressed in such forward-looking statements, due to a
number of factors. These factors, which are not
necessarily all the key factors that could cause such
differences, include the following: Mobil's failure to
judge accurately which of Mobil's systems and
relationships with external agents are materially
important; Mobil's inability to obtain and retain the staff
and third-party assistance necessary to complete the
not-yet-completed phases of the Project in accordance
with Mobil's estimated timetables; the inability of such
staff and third parties (1) to locate and correct all
non-year 2000 compliant computer code in materially
important systems and test such corrected code and (2) to
install and test upgrades or new systems containing year
2000-compliant computer code, all in accordance with
Mobil's estimated timetables; unforeseen costs of
completing Project work; Mobil's inability or failure to
identify significant year 2000 issues not now
contemplated; and the failure of external agents to
achieve timely year 2000 readiness.

-- Brian (imager@home.com), November 15, 1999

Answers

This part really caught my eye:

"There are, however, an almost infinite number of additional risk which are simply not assessable and for which, therefore, contingency plans cannot be developed. These are the risks of failure for year 2000 reasons of one or more systems or relationships with external agents which, individually, Mobil does not judge to be materially important but whose failure could trigger a cascade of other failures..."

-- mabel (mabel_louise@yahoo.com), November 15, 1999.


Mara,

That caught my eye too ;-(

Brian, thanks for your diligence!!

-- (karlacalif@aol.com), November 17, 1999.


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