Management's Discussion and Analysis of
Financial Condition and Results of Operations

Impact of the Year 2000 Issue

General

The Year 2000 issue is the result of computer programs being written using two digits rather than four to identify the applicable year. Computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. If not corrected, those programs could result in miscalculations or systems problems that disrupt operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar business activities.

Readiness

The Company is engaged in an enterprise-wide Year 2000 compliance program, with the objective of completing the process for all critical business systems by June 30, 1999. The Company's ISIS computer software was designed with the Year 2000 issue in mind, and the Company believes that it is Year 2000 compliant. However, the Company uses many different systems and software programs to effect, process and summarize business transactions, and the remediation efforts estimated to be required vary depending upon the systems or sites involved. The following chart summarizes the estimated Year 2000 readiness, as of January 30, 1999, of the Company's program:

The Company has initiated formal communications with significant suppliers to determine the extent to which the Company is at risk to those third parties' failure to remediate their own Year 2000 issues. In select cases, the Company is involved in the verification of the remediation efforts of those suppliers. The Company believes that because of its large, diverse customer base, potential Year 2000 problems on the part of a customer will not be material to the Company. There can be no guarantee that the systems of other companies on which the Company relies or with which it does business will be timely converted or converted compatibly with the Company or that such deficiencies will not be material to the Company.

Costs

The total estimated cost of the Year 2000 project is between $6,000,000 and $8,000,000 and is being funded through operating cash flows. These costs are not expected to be material to the Company's consolidated results of operations. Of the total project cost, approximately $2,000,000 is for the purchase of new software or equipment which will be capitalized. The remaining $4,000,000 to $6,000,000 has been or will be expensed as incurred. In a number of instances, the Company may decide to install new software or upgraded versions of current software programs which are Year 2000 compliant. In these instances, the Company may capitalize certain costs of the new system in accordance with current accounting guidelines. As of January 30, 1999, the Company had spent approximately $4,200,000 on its Year 2000 remedial efforts. The Company has used internal and external resources in its Year 2000 program, although the Company expects to rely primarily on internal resources to complete its program initiatives.

Risks

The Company presently believes that its Year 2000 issue can be mitigated through modifications to existing software and conversions to new software for those sites which it believes may be affected. If internal modifications and conversions are not made correctly, or are not made in time, or if there are large scale Year 2000 problems with the ability of the Company's customers to order or its suppliers to provide products, then the Year 2000 issue could have a material adverse impact on the operations of the Company.

Contingency Plans

The Company is evaluating, and plans to develop as necessary, contingency plans to handle unresolved Year 2000 issues. For example, the Company believes that it currently has alternative sources for most of its suppliers. In addition, the Company believes that it could revert to manual systems to process many of the transactions that it normally handles by computerized processes although at a substantially reduced volume because of the added time and order prioritizing that would be required.

Management's estimates regarding total project costs and completion dates are based on numerous assumptions of future events including the availability of certain resources, third party modification plans and other factors. There can be no assurance that these estimates will be achieved, and specific factors that could cause actual results to differ materially from those plans include the continued availability of trained personnel in this area, the ability to locate and correct all relevant computer codes and similar uncertainties.