Starbucks 1999 Annual Report Download - page 8

Cash provided by financing activities for fiscal 1999 totaled $90.5 million. This included $29.9
million of checks issued but not presented for payment, $52.4 million generated from the exer-
cise of employee stock options and the related income tax benefit available to the Company upon
exercise of such options and $9.4 million generated from the Company’s employee stock purchase
plan.As options granted under the Company’s stock option plans are exercised, the Company will
continue to receive proceeds and a tax deduction; however, neither the amounts nor the timing
thereof can be predicted.
Cash requirements for fiscal 2000, other than normal operating expenses, are expected to consist
primarily of capital expenditures related to the addition of new Company-operated retail stores.
The Company plans to open at least 400 Company-operated stores during fiscal 2000. The
Company also anticipates incurring additional expenditures for enhancing its production capacity
and information systems and remodeling certain existing stores.While there can be no assurance
that current expectations will be realized, management expects capital expenditures for fiscal
2000 to be approximately $300 million.
Management believes that existing cash and investments plus cash generated from operations
should be sufficient to finance capital requirements for its core businesses through fiscal 2000.
New joint ventures, other new business opportunities or store expansion rates substantially in
excess of that presently planned may require outside funding.
YEAR 2000 COMPLIANCE
The Year 2000 issue results from computer programs being written using two digits rather than
four to define the applicable year. Computer programs with time-sensitive software, at the
Company and elsewhere, may recognize a date using “00” as the year 1900 rather than the year
2000. This could result in a system failure or miscalculation causing disruptions of operations,
including, among other things, a temporary inability to produce and distribute products, process
transactions or engage in similar normal business activities. To address the Year 2000 issue and
its risks, the Company formed a cross-functional Task Force, headed by senior management, to
evaluate the risks and implement appropriate remediation and contingency plans.
The Company’s preparations for the Year 2000 have been divided into two categories, MIS-
supported systems and other systems and issues.“MIS-supported” systems are those telephone and
computer systems that are acquired, installed and maintained by the Company’s Management
Information Systems (“MIS”) department. These systems include all of the software applications
generally available on the Company’s computer network, as well as many applications used by
particular departments or in connection with specific functions (for example, payroll and general
accounting software). Single-user applications and a few specialized systems maintained by certain
departments within the Company are not considered MIS-supported systems.The Company’s MIS
department is primarily responsible for addressing Year 2000 compliance issues arising from all
MIS-supported systems, while the Year 2000 Task Force is primarily responsible for Year 2000
compliance issues arising from non-MIS-supported systems and from relationships with critical
product and service providers.
The majority of computer and telephony applications at Starbucks are relatively recent purchases
that are not expected to be affected by the Year 2000 problem. All of the MIS-supported systems
used at Starbucks have been identified and evaluated. Where necessary, the Company has
remediated such systems by installing system upgrades or rewriting code. As the suppliers of
telephone and computer systems or software to the Company have worked to address Year 2000
issues with their own products, several have uncovered new or additional problems relating to
their systems or software and have so notified the Company. In some cases, these new or additional
issues have necessitated additional remediation or testing of the Company’s systems. As part of
the remediation process, the Company’s MIS department has tested each critical system and
networked application.
To address issues arising from non-MIS-supported systems or embedded chips and to evaluate
the Company’s exposure to third parties’ failures to remediate their Year 2000 problems, the
.  STARBUCKS COFFEE COMPANY