Best Buy 1999 Annual Report Download - page 29

MANAGE ME NT ’S DI S CU S S I ON & ANALYS I S OF R E S U L T S OF
OPE R AT I ONS AND F I NANCI AL CONDI T I ON
YEAR 2000 READINESS
The Company understands the material nature of the business issues surrounding computer
processing of dates into and beyond the year 2000 (Y2K). Any computer program or computer
chip-controlled device could harbor a Y2K processing issue. Typically, Y2K issues arise from systems or
software processing only two digits representing a year. The absence of century digits (e.g., “19” for
years 1900-1999, or “20” for years beginning in 2000) usually leads to false results from computer-
controlled systems. This is the most pervasive issue.
The Company recognized that Y2K issues existed within its computer programs and computer chip
controlled devices and has taken corrective action. The Company’s actions to address Y2K issues
began with the selection of a nationally recognized, experienced computer hardware and consulting
firm to assist in both identifying and resolving these issues. The Company developed specific and
detailed plans to correct Y2K issues and management believes, to date, the Company has made
significant progress.
The majority of the Company’s business processing applications operate on mainframe computer
systems. Over five million lines of computer programming were scanned and analyzed to identify
Y2K issues in these systems. In the past year, corrective programming logic to replace existing
computer code for these Y2K issues has been installed and this effort is over 95% complete.
Corrected logic was tested as changes were made. This portion of the Company’s plan was
completed at a total cost of approximately $9 million in outside professional fees, of which
the majority were incurred in fiscal 1999. In addition, the Company has dedicated a staff of its
internal resources to address Y2K issues. Although the change to the calendar year 2000 is responsible
for the majority of the Y2K issues, the Company’s systems are fully functional in its current
fiscal year 2000.
The Company is also replacing or installing certain computer hardware and software which will
address new business applications, as well as Y2K issues. The timing of some of these projects has
been accelerated to meet Y2K compliance. The Company expects to fund both the capital and
expensed elements of resolving Y2K issues through funds generated from operations.
In addition to the mainframe system Y2K issues, the Company has substantially completed efforts to
identify non-mainframe computer system Y2K issues and other potential Y2K issues. These issues
include the Company’s communication systems and operating systems at and between the Company’s
locations and support facilities. The Company has corresponded with its business partners, including
merchandise suppliers and service providers to assess their ability to support the Company’s operations
with respect to their individual Y2K issues. These issues include data exchange with the Company, as
well as the partners’ production and shipping processes. The issues that were identified as part of this
process have been prioritized in order of significance to the Company’s operations and corrective
action is being taken as appropriate. This portion of the Company’s plan is expected to be completed
at a total cost of approximately $8 million, of which the majority will be incurred in fiscal 2000.
The Company generally believes that the vendors that supply products to the Company for resale
are responsible for the Y2K functionality of those products. However, should product failures occur,
the Company may be required to address the administrative aspects of those failures such as
handling product returns or repairs.
While the Company believes that it is pursuing the appropriate courses of action to ensure Y2K
readiness, there can be no assurance that the objective will be achieved either internally or as it relates
to business partners. Also, the Company can provide no assurance regarding potential impact
on consumer spending that may result from concerns regarding the Y2K functionality of products.
For the Y2K issues which, if not timely resolved, could have a significant impact on the Company’s
operations, the Company is continuing to develop contingency plans to minimize the impact of failure
to achieve Y2K compliance. The Company has also devoted significant attention to planning for
what could be the result of the most adverse consequence of Y2K issues. Management believes that
adequate contingency plans are being developed to minimize the financial impact to the Company.
F I S CAL 1999 B E S T B U Y ANNU AL R E POR T
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