is approximately 70% complete for the identified Non-IT Business Systems. The Company anticipates that this Phase will be completed during the second quarter of fiscal 1999. 

Phase III--Remediation: 

This Phase includes the replacement or correction of the High and Medium Risk Non-IT Business Systems and IT Systems. A detailed project plan for the remediation has been developed and is currently being implemented. This Phase is approximately 90% complete for the IT Systems and is approximately 10% complete for the Non-IT Business Systems. The Company anticipates that this Phase will be completed during the third quarter of fiscal 1999. 

Phase IV--Remediation Testing: 

This Phase includes the future date testing of all remediation efforts made in Phase III to confirm that the changes made bring the affected systems into compliance, no new problems have arisen as a result of the remediation, and that all new systems which replaced noncompliant systems are Y2K compliant regardless of whether vendors represent that such systems are Y2K compliant. This Phase has just commenced for the IT Systems and will commence for the Non-IT Business Systems in the second fiscal quarter of 1999. The Company anticipates that this Phase will be completed during the fourth quarter of fiscal 1999. 

COST TO ADDRESS Y2K 

The costs of the Y2K program are primarily costs associated with the utilization of existing internal resources and incremental external spending. The Company estimates it has incurred approximately $4.1 million of incremental external spending directly associated with Y2K issues through September 25, 1998. Based on the current status of the Company's remediation cost estimation as discussed above, the Company estimates that it will incur future incremental external spending associated with Y2K issues of approximately $5.1 million to address those risks identified as High and Medium. However, as the Company's Y2K Plan continues, the actual future incremental spending may prove to be higher. Also, this estimate does not include the costs that could be incurred by the Company if one or more of its significant third party service providers fails to achieve Y2K compliance. The Company is not separately identifying Y2K costs incurred that are the result of utilization of existing internal resources. 

RISK FACTORS 

Based on current information, the Company believes the Y2K issue will not have a material adverse effect on the Company, its consolidated financial position, results of operations or cash flows. However, there can be no assurance that the Y2K remediation by the Company or third parties will be properly and timely completed, and the failure to do so could have a material adverse effect on the Company, its business, results of operations, and its financial condition. In particular, the Company has not yet completed its assessment of the Y2K readiness of its significant third party service providers. Completion of this assessment may result in the identification of additional issues which could have a material adverse effect on the Company's results of operations. In addition, important factors that could cause results to differ materially