Starbucks 2000 Annual Report Download - page 9

Internet-Related Investment Losses
During fiscal 2000 and 1999, the Company made several minority investments in companies that derive
the majority of their revenue from Internet-related activities.
In fiscal 1999, the Company invested $8 million in Talk City, Inc. (“Talk City”), a publicly traded
interactive online chat site. The Company also invested $20 million in living.com Inc. (“living.com”),
an online furniture retailer. Also in fiscal 1999, the Company established an alliance with Cooking.com,
Inc. (“Cooking.com”), a privately held web-based retailer of cookware, accessories and specialty foods
and provider of information about cooking. As part of this alliance, the Company made a $10 million
investment in Cooking.com.
In the second quarter of fiscal 2000, the Company invested $25 million in Kozmo.com, Inc.
(“Kozmo.com”), an Internet-to-door delivery service for food, entertainment and convenience items.
Starbucks and Kozmo.com also entered into a commercial agreement to provide in-store return boxes
in Starbucks stores in exchange for cash, a channel for selling the Company’s products and other
marketing opportunities. In connection with this agreement, Starbucks received a $15 million payment
that is being recognized as revenue on a straight-line basis over twelve months. The Company does not
expect to continue recording revenue from the current Kozmo.com relationship after February 2001.
During the fourth quarter of fiscal 2000, the Company determined that its investments in Internet-
related companies had experienced declines in value that were other than temporary. As a result, the
Company recognized losses totaling $59 million to reduce its investments in living.com, Talk City,
Cooking.com and Kozmo.com to their aggregate fair value of $5 million as of October 1, 2000.
Income Taxes
The Company’s effective tax rate for fiscal 2000 was 41.1% compared to 38.0% for fiscal 1999. The
increase was due to the establishment of a valuation allowance against a portion of the Internet-related
investment losses which management has determined may ultimately not be realizable for tax purposes.
Excluding the effect of these losses, the effective tax rate for fiscal 2000 was 37.6%. Management expects
tax planning efforts to lower the effective tax rate to approximately 37.0% in fiscal 2001.
results of operations — fiscal 1999 compared to fiscal 1998
Systemwide Retail Store Sales
Systemwide retail store sales, which include net sales for both company-operated and licensed retail
stores, were $1.6 billion for fiscal 1999 (53 weeks), up 37% from $1.2 billion in fiscal 1998 (52 weeks)
primarily due to the opening of an additional 625 stores.
Revenues
Consolidated net revenues increased 28% to $1.7 billion for fiscal 1999, compared to $1.3 billion for
fiscal 1998. Retail revenues increased 29% to $1.4 billion from $1.1 billion. The increase in retail
revenues was due to the addition of new Company-operated stores, comparable store sales growth of 6%
and sales for the 53rd week of the fiscal year. The increase in comparable store sales resulted from a 5%
increase in the number of transactions and a 1% increase in the average dollar value per transaction.
During fiscal 1999, the Company opened 424 stores in continental North America and 36 stores in the
United Kingdom. As of fiscal year-end, there were 2,038 Company-operated stores in continental
North America and 97 in the United Kingdom.
Specialty revenues increased 25% to $257 million for fiscal 1999 from $206 million for fiscal 1998. The
increase was driven primarily by higher sales to licensees and joint ventures and business dining
customers. Licensees (including those in which the Company is a joint venture partner) opened 44
stores in continental North America and 121 stores in international markets. The Company ended the year
with 179 licensed stores in continental North America and 184 licensed stores in international markets.
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