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

Other
Year 2000 Issues
During 1999, all phases of the Company's compliance plan were completed for all critical and non-critical systems. Thorough testing was done on all critical systems, globally, after the rollover to the Year 2000, and all results were favorable. As anticipated, the Company did not experience any problems resulting from the century change in any of its domestic or international operations.

Overview. Year 2000 issues result from the past practice in the computer industry of using two digits rather than four to identify the applicable year. This practice can create breakdowns or erroneous results when computers perform operations involving years later than 1999.

The Company's State of Readiness. The Company devised and completed an extensive compliance plan with the objective of bringing all of the Company's information technology (IT) systems and non-IT systems into Year 2000 compliance. The Company divided its systems into (i) critical systems, consisting of IT systems, and (ii) non-critical systems, consisting of a mixture of IT and non-IT systems. Each system was evaluated and brought into compliance in five phases:

  • Phase I: Awareness - Prepare and present comprehensive report to management
  • Phase II: Assessment - Identify and evaluate all systems for Year 2000 compliance
  • Phase III: Compliance - Complete necessary Year 2000 modifications
  • Phase IV: Testing - Test all modified systems for Year 2000 compliance
  • Phase V: Implementation - Return Year 2000 compliant systems to daily operation

The Costs Involved. Due to the fact that many of the Company's computer systems have been replaced in recent years as part of the Company's on-going goal to maintain state of the art technology, the Company's Year 2000 compliance costs have been relatively low. To date, the Company has incurred expenses of approximately $150,000 for external consultants and software and hardware applications in implementing its compliance plan. The Company did not separately track the internal costs incurred for the Year 2000 project. Such costs are principally payroll-related costs for the Company's information technology group.

Risks. If the Company has not been successful in its efforts to bring its systems into Year 2000 compliance:

  • The Company's ability to procure merchandise in a timely and cost-effective manner may be impaired,
  • Daily business procedures may be delayed due to the use of manual procedures, and
  • Some business procedures may be interrupted if no alternative methodology is available.

Each of these items could have a material adverse effect on the Company's operations. However, to date, no problems have been identified.

The Company has no guarantee that the systems of third parties were brought into compliance on a timely basis. The non-compliance of a third-party's system could have a material adverse effect on the Company's operations.

The Company's Contingency Plan. Although the Company believes that its Year 2000 plan was adequate to achieve full system compliance on a timely basis, the Company did develop contingency plans to address the possibility of the Company's and third parties' non-compliance. The Company, to date, has not had the need to implement these or any other contingency plans.