Starbucks Corporation CORPORATE SOCIAL RESPONSIBILITY ...

Starbucks Corporation Corporate SoCial reSponSibility / FiSCal 2006 annUal report

Maybe you have a Starbucks you callyour own. And because it is yours,you expect a lot from it.Customers want to feel good about the place theygo and the coffee they drink. Our employees,whom we call partners, want to feel proud whentalking to friends and family about where theywork. Farmers want to know that they candepend on us for a livelihood that’s sustainable.We have come to appreciate that throughout theworld many people feel a sense of connection tous. Being their Starbucks is an honor. And also aresponsibility.For us corporate social responsibility is not just aprogram or a donation or a press release. It’s theway we do business every day.This report is one of the ways we openly andhumbly share our commitment to do businessresponsibly. To continue to earn the privilege ofbeing your Starbucks.STARBUCKS MISSION STATEMENT ANDGUIDING PRINCIPLESTo establish Starbucks as the premier purveyor of the finestcoffee in the world while maintaining our uncompromisingprinciples as we grow.The following six Guiding Principles will help us measure theappropriateness of our decisions:• Provide a great work environment and treat eachother with respect and dignity.• Embrace diversity as an essential component in theway we do business.• Apply the highest standards of excellence to thepurchasing, roasting and fresh delivery of our coffee.• Develop enthusiastically satisfied customers all ofthe time.• Contribute positively to our communities and ourenvironment.• Recognize that profitability is essential to ourfuture success.S T A R B U C K S A N D C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y

CONTENTSPAGEGLOBAL REPORTINGINITIATIVE (GRI) INDICATORSSTARBUCKS AND CORPORATE SOCIAL RESPONSIBILITYStarbucks Mission Statement & Guiding Principles 1 3.7Letter to Stakeholders 2 1.2Focusing on Materiality 3About This Report 4 2.11-2.13, 2.20, 2.21Key Performance Indicators Summary and Highlights for Fiscal 2006 7 EC4, EC10, EN17, LA7, LA11Starbucks Company Profile 9 2.1-2.3, 2.8, 2.16, EC1Integrating Corporate Social Responsibility 10 2.9, 3.1-3.3, 3.6, 3.8, 3.10-3.12, LA11External Recognition 14 SO4United Nations Global Compact 15 3.14PRODUCTSOur World of Products 16Sustaining Coffee Quality 16Creating a Sustainable Approach 18C.A.F.E. Practices 19 3.7, 3.16, EC13, EN27, HR2, HR3, HR6The Link Between Quality and Price 19 EC13Respect for Workers’ Human Rights 19 HR2C.A.F.E. Practices – Hitting Our Targets 20 EC4, EN33C.A.F.E. Practices – Findings and Next Steps 21C.A.F.E. Practices – The Verification Process 23Economic Transparency 23Starbucks and Fair Trade 23 EC4, EC13, PR6Purchasing Certified Organic and Conservation Coffees 25 EC4, EN27Access to Credit 26 EC13Investments in Coffee Communities 27 EC13Sustainable Trade: Purchasing Our Non-Coffee Products 29 3.7, 3.16, HR3Procurement Practices for Sustainable Agriculture 30Responsible Cocoa Sourcing Program 30 3.7, 3.11, 3.16, HR2, HR3, HR6Tazo ® Tea – Sustainability Practices 31Dairy and Bakery Products 32 3.11Starbucks Social Responsibility Standards – Manufactured Goods 33 3.7, 3.16, HR2, HR3, HR6Ethos Water 34Quality Assurance and Product Recalls 35 PR1(continued on next page)S T A R B U C K S A N D C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y

STARBUCKS CORPORATE SOCIAL RESPONSIBILITYKey Performance Indicators Summary and Highlights for Fiscal 2006ToasforINDICATOR 2005 2006 2007 TARGET WHAT WE SAID INCOFFEECoffee and FarmerEquity (C.A.F.E.)PracticesPounds of green (unroasted) coffeepurchased from C.A.F.E. Practices approvedsuppliersPercentage of total green (unroasted)coffee purchases77 million pounds(goal: 75 millionpounds)155 million pounds(goal: 150 millionpounds)225 million pounds • Explore openinbegin introduc25% 53% • Work with the Aquality trainingpractices to coFair Trade Certified coffeePounds of green (unroasted) coffeepurchased from Fair Trade Certified cooperatives11 million pounds(goal: 10 millionpounds)18 million pounds(goal: 12 millionpounds)Fair Trade Certified green (unroasted) coffeepurchases to support forecasted sales.• Promote our Fademand and sPercentage of total green (unroasted)coffee purchases4% 6% • Continue to woadditional FairSOCIETYCharitablecontributionsTotal cash and in-kind contributions $30.3 million $36.1 million Do not currently set targets for futurecharitable contributions.• Focus communeducation.Volunteerism(Make Your Mark)ENVIRONMENT*ElectricityWaterPaperWORKPLACEPartner satisfactionPercentage of pre-tax earnings 3.8% 4.0%Number of hours volunteered by partnersand customers in the U.S. and CanadaKilowatt-hours per square foot of retailspace per monthGallons per square foot of retail spaceper monthPercentage of post-consumer fiber (notincluding hot cups)Percentage of unbleached fiber (notincluding hot cups)Percentage of satisfied orvery satisfied partners299,000 383,000(goal: 375,000)421,000 • Increase partn6.40 6.57 Target has not been established. • Purchase renewused in our U.S24 26 Target has not been established. • Integrate specistandards to henergy and wa49.5%(goal: 48%)85.9%(goal: 90%)Partner engagement Percentage of engaged partners 73% 69%Health and safety Injury rate per 200,000 hours worked –retailDIVERSITY66.4%(goal: 50%)86.3%(goal: 86.5%)66.9% • Roll out new ho(PCF) in U.S. c87.1%87% 86% We continually strive to strengthen ourworkplace practices in ways that makeStarbucks a great place to work.7.05 1 5.46(goal: 6.5)• Conduct a PartLast one took p5 • Complete the roperated storeWomen U.S. executives (vice presidents and above) 34% 33% While Starbucks values diversity andinclusion, we do not currently set targets forrepresentation by race and gender.• Roll out our divleadership teaU.S. workforce 65% 66%People of color U.S. executives (vice presidents and above) 14% 15%SuppliersU.S. workforce 30% 30%Amount spent with certified minorityandwomen-owned businesses in U.S.$166 million(goal: $140 million)$213 million(goal: $206 million)$250 million • Expose Starbucopportunities f• Increase our leNational MinorBusiness Enter*We have not measured our greenhouse gas emissions since 2003 and therefore this indicator has been removed from this table. For information about our Climate Change Mitigation Strategy, see page 56.1Fiscal 2005 information has been retroactively adjusted to reflect new claims that were filed after the fiscal year ended.S T A R B U C K S A N D C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y

To measure how well we are doing at upholding our commitment to social responsibility and to our Guiding Principles, Starbucks has identified the following key performance indicatorsas relevant metrics for our business. Each year, we will report our performance relative to these metrics and any new metrics we may add. We strive to include forward-looking targetsfor our performance indicators. However, in some cases the information is not available or the company is unable to provide it for other reasons.WHAT WE SAID IN 2005 WHAT WE DID IN 2006SELF-RATINGMOREINFO• Explore opening a Farmer Support Center (FSC) in Asia-Pacific andbegin introducing C.A.F.E. Practices to our local suppliers.• Began exploring opportunities to open an FSC in Asia Pacific. Organizedsuppliers training sessions in both Indonesia and Papua New Guinea reachingout to small- and large-scale suppliers from various countries in Asia Pacific.Page 19• Work with the African Wildlife Foundation (AWF) to provide coffeequality training and encourage adoption of sustainable coffeepractices to cooperatives in Kenya.• Continued to work with the AWF to provide quality training and expertise andencourage sustainable coffee practices. Starbucks also conducted training inKenya for coffee farmers, cooperatives and exporters from the majority of thecountries we buy coffee from in East Africa.Page 22oasted) coffeed sales.• Promote our Fair Trade Certified coffee blends to increase customerdemand and sales of these products.• Supported Fair Trade Month in October 2005, featuring Starbucks newestFair Trade Certified blend, Café Estima Blend , as the “Coffee of the Week”in U.S. and Canada stores. Increased distribution of packaged Fair TradeCertified coffees globally. Began selling Kirkland Signature Fair TradeCertified coffee in Costco stores in the U.S. and Canada.Page 23• Continue to work with regional Fair Trade organizations to introduceadditional Fair Trade Certified coffee products globally.• Globally, coordinated efforts with Fairtrade Labelling OrganizationsInternational and 10 of the 20 Fair Trade National Initiatives to expand FairTrade Certified product offerings in 24 markets.future• Focus community investments to address global water issues andeducation.• Initiated water projects in Indonesia and in Ethiopia, both supported throughThe Starbucks Foundation’s Ethos Water Fund. Completed first of five-year, $5million commitment to Starbucks China Education Project.Page 40• Increase partner volunteerism.• Encouraged partners to leverage their volunteerism through Starbucks MakeYour Mark program.Page 42. • Purchase renewable energy certificates to offset 20% of the energyused in our U.S. and Canada company-operated stores.. • Integrate specific environmental practices into our retail operationalstandards to help focus on improving store level accountability forenergy and water conservation, recycling and waste reduction.• Roll out new hot beverage cups containing 10% post-consumer fiber(PCF) in U.S. company-operated and licensed stores.• Quadrupled our renewable energy purchase to equal 20% of the energy usedin our U.S. and Canada company-operated stores.• Updated a store manager performance tool to emphasize the importance ofmanaging environmental aspects of store operations and what bottom lineimpact – positive or negative – their actions can have.• Converted all hot beverage cups in Starbucks U.S. and Canada stores to the10% PCF content version.Page 55Page 57Page 56hen ourt make.• Conduct a Partner View Survey approximately every 18-24 months.Last one took place in October 2004.• Expanded the reach of latest Partner View Survey, conducted March 2006,to include partners in company-operated stores globally. Achieved 84%response rate, our best yet.Page 64• Complete the rollout of anti-slip mats to our North America companyoperatedstores.• Finished replacing mats in more than 3,400 existing stores and all new storesin North America.Page 59y andet targets forder.• Roll out our diversity and inclusion scorecard to our ceo and seniorleadership team.• Finalized diversity and inclusion scorecard and delivered it to Starbucks ceoand his direct reports. It includes data on workforce diversity; individualleadership performance related to diversity and inclusion; supplier diversityand customer demographics.Page 72• Expose Starbucks buyers and procurement directors to moreopportunities for doing business with diverse suppliers.• Increase our level of participation in organizations such as theNational Minority Supplier Development Council and Women’sBusiness Enterprise National Council.• Engaged with National Association of Minority Contractors; participated inNational Minority Business Council annual opportunity fair and other events;attended Women’s Business Enterprise National Council annual conference;took part in supplier diversity training for Institute for Supply Management–Certified Purchasing Manager credits; and served as board chair for localNorthwest chapter of National Minority Supplier Development Council.Page 74egy, see page 56.KEY: ACHIEVED MAKING PROGRESS DID NOT ACHIEVES T A R B U C K S A N D C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y

STARBUCKS COMPANY PROFILEStarbucks Corporation is the leading retailer, roaster andbrand of specialty coffee in the world, with more than 12,000company-operated and licensed locations in North America,Latin America, Europe, the Middle East and Asia Pacific.Through various licensing arrangements and foodserviceaccounts, Starbucks coffee and other products are sold indesignated locations within airports, grocery stores, otherprominent retailers, hotels and universities. Starbucksinternational licensed retail stores are operated throughlicensing arrangements and joint ventures, primarily withestablished retailers or restaurant operators.Our brand portfolio offers a wide variety of consumerproducts including Tazo ® teas, Hear Music ® CDs, bottledEthos water and Starbucks Liqueurs. The Seattle’s BestCoffee and Torrefazione Italia coffee brands enable Starbucksto appeal to a broader consumer base by offering a varietyof coffee flavor profiles. Starbucks also sells coffee-brewingequipment and other merchandise.Starbucks Corporation is incorporated in Washington State,in the United States. The company’s common stock is tradedon The NASDAQ ® Global Select Market (“NASDAQ”),under the symbol “SBUX.” As of January 12, 2007, therewere approximately 603,000 registered and beneficialshareholders of record.Company DataFISCAL YEAR 2004* 2005 2006Total net revenues $5.3 billion $6.4 billion $7.8 billionU.S. company-operated retail stores $3.8 billion $4.5 billion $5.5 billionU.S. specialty (licensing, foodservice and other)** $465 million $558 million $683 millionInternational company-operated stores $657 million $852 million $1.1 billionInternational specialty (licensing, foodservice and other)** $137 million $170 million $215 millionTotal Global Consumer Products Group revenues** (licensing) $235 million $249 million $305 millionNet earnings $389 million $494 million $564 millionEarnings per common share – diluted $0.47 $0.61 $0.71Shareholders’ equity $2.5 billion $2.1 billion $2.2 billionTotal income taxes $232 million $302 million $325 millionCash paid for income tax expense $173 million $228 million $274 millionU.S. federal and state $163 million $219 million $258 millionInternational $10 million $9 million $16 millionEffective tax rate 37.3% 37.9% 35.8%Number of countries where Starbucks stores are located 34 37 37Total retail stores 8,569 10,241 12,440U.S. company-operated stores 4,338*** 4,918*** 5,728International company-operated stores 978*** 1,144*** 1,374U.S. licensed stores 1,839 2,435 3,168International licensed stores 1,414*** 1,744*** 2,170Number of partners (employees) 97,000 115,000 145,800* Fiscal 2004 included 53 weeks. For further information about our financial performance, please see our 2006 Annual Report to Shareholders, available online atwww.starbucks.com/aboutus/investor.asp.** Beginning in the fiscal fourth quarter of 2006, the Company increased its reporting segments from two to three to include a Global Consumer Products Group (“CPG”)segment in addition to the U.S. and International segments. This additional operating segment reflects the culmination of internal management realignments in fiscal2006, and the successful development and launch of certain branded products in the U.S. and internationally, commencing in fiscal 2005 and continuing throughoutfiscal 2006. Additionally, with the 100 percent acquisition of the company’s operations in Hawaii in fiscal 2006 and the shift in internal management of this market tothe U.S., these operations have been moved from the International segment to the U.S.*** International store information has been adjusted for the fiscal 2006 acquisitions of Hawaii and Puerto Rico and fiscal 2005 acquisitions of Germany, Southern Chinaand Chile licensed operations by reclassifying historical information from Licensed stores to company-operated stores. U.S. store information was also adjusted to alignwith the Hawaii operations segment change by reclassifying historical information from International company-operated stores to the U.S.S T A R B U C K S A N D C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y

Integrating Corporate SocialResponsibility (CSR)At Starbucks, our commitment to goodgovernance, ethical conduct and socialresponsibility is core to our way of doingbusiness, and strongly aligned with our driveto create and increase shareholder value. We arealso committed to maintaining our relationshipswith stakeholders and gaining their input andfeedback on issues of mutual importance.The Business CaseStarbucks defines CSR as conducting business in ways thatproduce social, environmental and economic benefits forthe communities in which we operate and for the company’sstakeholders, including shareholders. A few of the tangiblebenefits are:• Attracting and retaining our partners – We believeStarbucks commitment to CSR leads to higher thantypical levels of satisfaction and engagement amongour partners.• Customer loyalty – Studies have revealed that customersprefer to do business with a company they believe to besocially responsible, when their other key buying criteriaare met. We believe customer loyalty has been a drivingforce behind Starbucks phenomenal growth and longtermsuccess.• Reducing operating costs – Many environmentalmeasures, such as energy-efficient equipment or lighting,involve initial investments, but deliver long-termenvironmental and cost-saving benefits.• Strengthening our supply chain – To have a sustainablebusiness, we need a reliable and responsible supplier basethat can keep pace with our growth. Starbucks invests inmeasures to ensure our suppliers have the opportunity todo so.• License to operate – Having a strong reputation as asocially responsible company makes it more likely we willbe welcomed into a local community.Corporate GovernanceStarbucks board of directors holds management accountableto operate and manage the company according to strongethical and governance principles. The board currently has 11members, eight of whom meet the independence requirementsof NASDAQ. ® All three committees of the board arecomprised of independent directors and have specific charters:Audit and Compliance; Compensation and ManagementDevelopment; and Nominating and Corporate Governance.There are well-defined criteria for the selection of new boardmembers, foremost being a clear demonstration of their ownpersonal integrity and ethics. Board diversity is sought interms of members’ personal and professional backgrounds,gender, race, ethnicity or other differentiating characteristics,enabling a wider range of opinions and perspectives to beconsidered. Of the 11 members of Starbucks board, one isLatino, two are African American (one of which is female),and one other female also serves on the board.In fiscal 2006, one independent member of the boardresigned, stating that increased demands on his time arisingfrom his new position as president and chief executive officerof a large media company would make it difficult for him tocontinue to serve on the Starbucks board. The vacancy createdby his resignation has not yet been filled.For stability and continuity, among other reasons,Starbucks has historically had a classified board. However,Starbucks has questioned whether a classified board reducesaccountability of directors because of the limits it places onshareholders’ ability to evaluate and elect the board annually.The board requested that the Nominating and CorporateGovernance Committee once again consider the merits of adeclassified board in fiscal 2005. Based on the Nominatingand Corporate Governance Committee’s recommendation,the board approved an amendment to our Articles ofIncorporation, which provides for the annual election ofall directors, and then recommended to our shareholdersthat they approve this change. Starbucks shareholdersapproved the change at the company’s 2006 AnnualShareholders’ Meeting.Committee charters, our governance principles, ourdirector nominations policy (including criteria for boardmembership) and profiles on each board member are availableat Starbucks.com. In addition, specific information regardingdeclassification of the board can be found in Starbucks fiscal2005 proxy statement, also available at Starbucks.com.Business EthicsUpholding our strong ethical corporate culture is paramountto Starbucks success. Starbucks Business Ethics andCompliance (BEC) program provides guidelines in theStandards of Business Conduct to help partners make ethicalbusiness decisions, facilitates legal compliance and ethicstraining, and provides mechanisms for partners to voiceconcerns. Partners are urged to report any related concernsthrough the Business Conduct Helpline. (More information isavailable on page 65.) Starbucks also maintains an Auditlinefor third parties, such as vendors, investors, and customers, toreport possible accounting and/or auditing irregularities. TheAuditline is available to Starbucks partners as well. In NorthAmerica the program is well established, having been in placeS T A R B U C K S A N D C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y 10

since 1999. In 2004, program components were launchedinternationally and continue to be rolled out in companyownedmarkets following a market opening or acquisition.Managing CSRThe way in which CSR is managed at Starbucks continuesto evolve to ensure that emerging issues are identified,prioritized and addressed in a more systematic and integratedmanner throughout the company. While there is a sense ofshared accountability for CSR at Starbucks, the companyrelies on a dedicated CSR group, reporting to the senior vicepresident of CSR, for the day-to-day management of specificCSR-related initiatives. This group also provides the impetusfor and broad oversight of other CSR programs that aremanaged and implemented at the business unit, division ordepartment level.Beyond the dedicated CSR group, Starbucks has establishedthree cross-functional teams with specific responsibilitiesrelated to the company’s CSR and governance. They are theEmerging Issues Council, the CSR Executive Committeeand the Policy Governance Council, all described below inmore detail.Our CSR organizational chart is also presented below.Currently the board does not have a committee dedicatedto CSR.Corporate SocialResponsibility GovernanceThe Starbucks FoundationA separate 501(c)(3) charitable organizationCorporate GivingCivic and Community AffairsBusiness Practices(Supply Chain)Board of Directorspresident andchief executive officersenior vice presidentCorporate Social ResponsibilityEnvironmental AffairsInternational CSRPublic Policy andGovernment AffairsCorporate Social ResponsibilityExecutive CommitteeEmerging Issues CouncilStakeholder andPartner EngagementTransparency andReportingEmerging Issues Council (EIC)Established in 2004, the EIC is a cross-functional team of 18Starbucks executives responsible for proactively identifying,prioritizing and mapping key external trends and issuesthat may impact Starbucks and/or specific business unitson a local, regional or global level. As issues are identified,the EIC may engage external stakeholders to gain input. Itmay also involve appropriate business units to explore anissue further, define feasible options and present follow-uprecommendations at a later date.For instance, in 2004 the EIC began to assess potential risksand issues related to cocoa production, and later determinedthat the company needed to develop a sustainable approachto cocoa purchasing. This determination was presented as aformal recommendation to the CSR Executive Committeefor approval.In 2006, the EIC continued to focus on issues related to thehealth and wellness of Starbucks products and completed itspreliminary review of Starbucks human rights policy. TheEIC will submit its recommendations regarding a humanrights policy to the CSR Executive Committee in fiscal 2007.CSR Executive CommitteeIn fiscal 2006, we fulfilled our commitment to create a CSRExecutive Committee, an effort we believe will strengthenthe company’s overall governance of CSR. The Committeeis charged with setting CSR-related strategy and policies;monitoring progress against CSR objectives; reviewing andapproving major CSR social investment activity; overseeingglobal, regional and local CSR organizational structure andaccountabilities; and ensuring CSR integration throughoutthe company. The CSR Executive Committee is comprisedof Starbucks president and ceo, who heads the Committee,and several of his direct reports, all of whom are senior levelofficers of the company.In 2006, as part of our ethical sourcing commitment,the Committee made the decision to approve the EIC’srecommendation and implement Starbucks SociallyResponsible Cocoa Sourcing pilot, which allows for apremium to be paid for processed cocoa when it is producedand sourced in a socially responsible manner. (See page 30.)S T A R B U C K S A N D C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y 11

Policy Governance CouncilOver the years, Starbucks has adopted certain governancetools, such as policies, standards, guidelines and proceduresto help guide our business conduct in accordance with thelaw and Starbucks Mission Statement and Guiding Principles.Until recently, Starbucks did not have a formal structure orprocess for oversight and management of these governancetools, a reality that left the company’s reputation, brandand culture at risk in the event these tools were not properlymanaged or enforced.Starbucks formed a Policy Governance Council in fiscal2006 to oversee and approve our governance tools at theglobal enterprise level, and to ensure they are well defined,consistent with each other, current, stored for easy retrieval,and effectively communicated to partners. The Councilis comprised of company leaders who represent multiplebusiness units and functions, and is supported by Starbucksnewly created Policy Office and staff.• To help us improve our transparency, we engaged variousstakeholders in June 2006 and invited them to providefeedback on Starbucks Fiscal 2005 CSR Report. Theirinput helped influence the changes we made to this currentCSR Report, including our decision to print only anabridged version focused on our most material issues andpublish the full report online.• In September 2006, Starbucks held a stakeholderfeedback session to gain initial input on the developmentof our sustainable purchasing guidelines for Starbuckscocoa, which will be piloted in fiscal 2007. Participantswho attended the session represented our suppliers,governmental agencies, nongovernmental organizations(NGOs), and chocolate manufacturers. It is likely they willbe consulted again on this issue as we move forward.Stakeholder EngagementStarbucks stakeholders include partners (employees),customers, suppliers, shareholders, governments, communitymembers, environmental groups, activists and many others.By proactively engaging our stakeholders, including thosewho may be directly impacted by our business decisions, weare able to better understand their concerns and gain theirinput on topics of mutual importance.We hosted several stakeholder meetings in fiscal 2006,including the following:• A nutrition roundtable was held in October 2005 toexplore health and wellness issues in the food industry.Our objectives were to better understand stakeholderexpectations of the company’s responsibilities regardingspecific nutrition issues, to learn how our current effortsare being perceived and to establish a platform for ongoingdialogue on the topic. An important outcome of thisengagement was Starbucks decision to form a health andwellness advisory panel in fiscal 2007.• Starbucks engaged stakeholders to discuss water-relatedissues in November 2005. The discussion focused onStarbucks role as both a user of water resources throughoutour supply chain and operations, and as a supporter ofefforts to improve access to clean water around the world.Stakeholders recommended that Starbucks conduct aresource use assessment to clarify the company’s waterfootprint as a first step toward developing an overallcorporate water strategy. Participants urged us to use ourretail footprint and brand to raise awareness of the watercrisis facing people in developing countries, in addition tofunding clean water projects in communities.S T A R B U C K S A N D C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y 12

Transparency and ReportingOur stakeholders want to know what Starbucks is doing tobe a socially and environmentally responsible company. Since2001, Starbucks has published a CSR Report as part of ourbroader communications efforts to provide transparency onour CSR activities and performance. In preparing our fiscal2006 and previous reports, we have been influenced by theGlobal Reporting Initiative (GRI) 2002 Guidelines, a set ofinternationally recognized sustainability reporting standards.A GRI Index is available on pages 5 and 6.Starbucks also reviewed the recently released GRI G3Guidelines in developing this report, which includesspecific guidance for reporting against the GRI principlesfor defining content and quality. The principles, along witha brief description of how Starbucks addressed them, arelisted below:Materiality: To determine what topics and indicatorsto include in our report that reflect the company’s mostsignificant impacts and issues of greatest importance tostakeholders, Starbucks conducted a materiality assessment,described on page 3.Stakeholder Inclusiveness: We define who our stakeholdersare, describe the measures we took to engage and solicittheir feedback, and throughout this report explain how weare addressing their concerns. More specific informationon our stakeholder engagement efforts is described on theprevious page.Sustainability Context: Discussing our CSR-relatedmeasures and performance in the broader sustainabilitycontext is essential. At the beginning of most sections, weintroduce the specific topics to be covered and explain howthey support our approach to sustainability.Completeness: To provide readers with appropriate contextfor what is and is not covered in this report, we define thescope, boundaries and topics contained in this report onpage 4. Since first publishing a CSR report in 2001, we haveworked to make our report more comprehensive each yearand will continue to do so in the future.Balance: Throughout this report, Starbucks has includedmulti-year performance data and provided self assessmentsof our performance. We have also included case studiesand external stakeholder comments as a way of providingmore insight and objectivity about some of the challengesStarbucks faces.Comparability: In developing the report each year, weuse our previous reports as starting points. We providefollow-up information regarding any intended plans wepreviously stated and include multi-year performance datawhen possible. Self assessments about our performance arealso included. This enables our stakeholders to compare ourperformance over time.Accuracy: The content and data included in this report havebeen internally reviewed by numerous subject matter expertsand senior leaders at Starbucks, and been subject to a systemof internal controls. As described below, external verificationwas conducted by Moss Adams LLP, an independentaccounting and consulting firm. See pages 76 and 77 formore information.Timeliness: At the end of our fiscal year, which ends on theSunday closest to September 30, our goal is to complete andrelease Starbucks CSR Report by the date of our AnnualShareholders’ Meeting. The date of the meeting varies year toyear, but usually takes place within six months after the fiscalyear closes.Clarity: Each year we have worked to improve the designand readability of our report in a format that is concise,understandable and user-friendly. We have also reducedthe amount of content covered in our printed report andpresented more information online.Reliability: External verification of the data and statementsmade in Starbucks CSR Annual Reports began in 2002,when the company retained Seattle-based Moss Adams LLP,the 12 th largest accounting and consulting firm in the U.S.The selection of Moss Adams met Starbucks criteria for ahigh-quality firm that had not worked with the companypreviously, and a firm that could develop a customizedapproach for verifying CSR-related data and content. (Seepages 76 and 77.)S T A R B U C K S A N D C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y 13

External RecognitionSocially Responsible Investments (SRI)There are a variety of socially responsible mutual fundsavailable to investors who choose to invest in companiesthat meet specific criteria in areas covering various social,environmental and economic dimensions. Starbucks waslisted on several SRI indices (mentioned below) and includedin some socially responsible mutual funds in fiscal 2006.• Calvert Social Index • Citizens Index ®• Domini 400 Social SM Index (DS400)• Dow Jones Sustainability North America Index (DJSINorth America)• Dow Jones Sustainability United States Index (DJSIUnited States)• Dow Jones Sustainability World Index (DJSI World)• Ethibel Sustainability Index, Excellence Constituent• FTSE4Good Global Index• FTSE4Good U.S. Index• FTSE4Good US 100 Tradable Index• KLD Broad Market Social SM Index (BMSI)• KLD Large Cap Social SM Index (LCSI)• KLD Select Social SM Index (SSI)CSR AwardsWe are proud of the following CSR-related recognition thatStarbucks received in fiscal 2006. While these honors aregreatly valued and appreciated, we do not view them as endresults but rather as important acknowledgements of ourongoing commitment to CSR and our efforts to date.Multiple-year awardsStarbucks was ranked 17 th on the list of “100 Best CorporateCitizens” by Business Ethics magazine in 2006. Starbucks hasmade this list every year since 2000.Starbucks has made Fortune’s list of “The 100 BestCompanies to Work For” eight times. Starbucks ranked 29 thon the list in 2006.Single-year awardsThe U.S. Environmental Protection Agency’s Green PowerPartnership list of Top 25 Green Power Partners rankedStarbucks sixth for our significant purchase of Green Power.Starbucks was recognized as one of 15 employers toreceive the “Secretary of Defense Employer SupportFreedom Award” given by the National Committee forEmployer Support of the Guard and Reserve, a DefenseDepartment agency.Starbucks was recognized by DiversityInc in its “Top 50Companies for Diversity” and “Top 10 Companiesfor Latinos.”Starbucks Calgary received the “Employer of Persons withDisabilities Award of Distinction” at the Alberta BusinessAwards of Distinction Banquet.Starbucks UK was recognized as one of “UK Top 50 BestPlaces to Work” (ranked 34th), awarded by the Great Placesto Work Institute, in partnership with the Financial Times.Starbucks was ranked 9th by college students as a “MostDesirable Company to Join,” a listing compiled by Cheersmagazine in Taiwan.Starbucks was ranked 25th on Newsweek Japan’s “2006World Corporation Ranking 500” list based on sales,corporate social responsibility and return on equity.Starbucks was recognized as “Model Company forSustainable Economic Development” by the LuohuGovernment in Shenzhen, China.Starbucks UK was awarded a “Big Tick” by Business in theCommunity in recognition of excellence in corporate socialresponsibility, for the Partners in Education program.S T A R B U C K S A N D C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y 14

United Nations Global CompactIn June 2004, Starbucks joined the UN Global Compact,a voluntary international network of corporations, UNagencies, trade unions and nongovernmental organizationsthat support 10 universal principles. These principles arebased on the Universal Declaration of Human Rights; theInternational Labour Organisation’s Declaration of theFundamental Principles and Rights at Work; and the RioDeclaration on Environment and Development. We considerthese principles to be a natural extension of StarbucksGuiding Principles, which define the company’s commitmentto social and environmental responsibility.Through our participation in the Global Compact, weare continually learning how the company can strengthenexisting or develop new internal practices and policies. Forinstance, Starbucks advanced efforts to create an overarchinghuman rights policy during fiscal 2006, and in 2007 will seekapproval of this policy. This is an important step as we furtherour expansion to areas of the world where human rightsprotections are not consistently upheld.The table to the right features the Global Compact’s 10principles and references to sections in this report that speakto how our priorities are aligned with each principle. We planto report our progress annually.UN Global Compact “Communications on Progress” ReportPRINCIPLESHUMAN RIGHTS1. Business should support and respect theprotection of internationally proclaimed humanrights.2. Business should ensure that they are not complicitin human rights abuses.LABOR STANDARDS3. Business should uphold the freedom ofassociation and the effective recognition of theright to collective bargaining.4. Business should support the elimination of allforms of forced and compulsory labor.5. Business should support the effective abolition ofchild labor.6. Business should support the elimination ofdiscrimination of employment and occupation.ENVIRONMENT7. Business should support a precautionaryapproach to environmental challenges.8. Business should undertake initiatives to promotegreater environmental responsibility.9. Business should encourage the development anddiffusion of environmentally friendly technologies.CORRUPTION10. Business should work against corruption in all itsforms, including extortion and bribery.PAGE19, 20, 29, 30, 31, 33,65, 70, 7119, 20, 29, 30, 657019, 20, 29, 30, 3319, 20, 29, 30, 33, 7065, 70, 73, 7419, 54-5919, 30, 31, 54-6255-5710, 65S T A R B U C K S A N D C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y 15

OUR WORLD OF PRODUCTSFor 35 years, Starbucks has purchased, roastedand sold high-quality coffee beans through retailoutlets and commercial wholesale accounts.While coffee continues to be Starbucks coreproduct, the company markets, sells and/orlicenses a broader range of products, includingTazo ® tea, Hear Music ® CDs, Ethos water,Starbucks Liqueurs, various food and dairyitems and an array of brewing equipment andmerchandise.With every product Starbucks brands, markets and sells,or uses in our operations, we uphold our commitment toquality and strive to source our products in a socially andenvironmentally responsible manner. This is what we refer toas sustainable trade.In this section, we explain how we are evolving our approachto sustainable trade by focusing on quality and the socialand environmental conditions under which our products areproduced. The following major topics are discussed:• Sustaining Coffee Quality• Sustainable Trade – Purchasing Our Non-Coffee Products– Agriculture Products– Cocoa, Tea, Dairy and Bakery– Manufactured Goods– Ethos water• Quality Assurance and Product RecallSustaining Coffee QualityWhenever a customer walks into a Starbucks, we consider itan opportunity to share our passion and knowledge of coffee,serve the highest-quality beverage, and deliver an experienceso rewarding that this customer becomes our customer – andour store becomes their Starbucks. We strive to create theultimate Starbucks Experience for all of our customers, all ofthe time.At its core, the Starbucks Experience is about great coffee –the quality that our customers have come to expect fromStarbucks and for which they are willing to pay a premium.We know to continually earn our customers’ loyalty, thequality of our coffee can never be compromised.The farmers, millers, exporters and importers who grow,process and/or supply coffee to Starbucks share the sameuncompromising commitment to quality we value. Because ofthis, they enable Starbucks to deliver on our promise of highquality to our customers.In this section we discuss the steps Starbucks is takingto ensure the sustainable production and supply of highqualitycoffee. The underlying force behind all of this is ourrelationships with coffee farmers and suppliers. They arecritical to our business and, we believe, Starbucks is vitalto theirs.Specific topics in this section include:• Overview of the coffee industry• Creating a sustainable approach• C.A.F.E. Practices:– An overview of Starbucks coffee buying guidelines– Verification system– Results and achievements– Findings and next steps• Economic transparency• Linking premium prices to premium quality• Respect for workers’ human rights• Starbucks and Fair Trade• Purchasing certified organic and conservation coffees• Providing farmers access to credit– Assisting coffee farmers in Ethiopia• Investing in projects in coffee-growing communities– Black Apron Exclusives program– Tropical Storm Stan relief effortsP R O D U C T S 16

The Coffee Industry – An OverviewIt is believed that coffee was first consumed as a hot beveragein East Africa during the 11th century. Today, coffee is oneof the most popular beverages, with more than $80 billionin retail sales worldwide.* Furthermore, the coffee industryprovides a livelihood for an estimated 25 million coffeefarmers* in more than 60 coffee-producing countries.*The coffee market has always been prone to ups and downs,mostly related to the balance between supply and demand.Back in 2001, coffee prices fell to a record low of $0.42 perpound ($0.91 per kilogram), and fluctuated near the bottomfor several years. These particular market conditions created aclimate of economic instability that had an impact on manyfarmers and their communities. Today’s market conditionsare greatly improved, evident by recent prices of coffee tradedon the New York “C” market (the worldwide reference usedby coffee traders). In fiscal 2006, world coffee prices averaged$1.04 per pound ($2.29 per kilogram).There are two commercially viable species of coffee – robustaand arabica. High-quality arabica coffee is grown on farmsthat range from very small family-run parcels to large-scaleestates, located primarily between the Tropics of Cancer andCapricorn and situated at higher elevations. These elevationsprovide optimal climatic conditions needed to grow the typeof coffee that is considered specialty grade.The higher-quality and more expensive arabica beans aresold as specialty coffee, which accounts for approximately10 percent** of total worldwide coffee purchases, includingthe coffee Starbucks buys. Starbucks purchases high-qualityarabica coffee beans, paying premium prices for premiumquality. These coffees are sold under the Starbucks, Seattle’sBest Coffee and Torrefazione Italia brands.Quick Coffee Facts:Total worldwide coffee production (Oct. 2005–Sept. 2006):15 billion pounds (7 billion kilograms)*Total coffee purchased by Starbucks (Oct. 2005–Sept.2006): 294 million pounds (133 million kilograms)Number of coffee farmers worldwide: 25 million*Number of countries where coffee is grown: About 60*Number of countries where Starbucks bought coffee infiscal 2006: 24* International Coffee Organization** Specialty Coffee Association of AmericaP R O D U C T S 17

Creating a Sustainable ApproachAfter years of traveling to coffee-growing regions around theworld, we have come to deeply appreciate the care that goesinto producing high-quality coffee. Our coffee buyers, qualityexperts and agronomists spent considerable time in the fieldduring fiscal 2006, sometimes traveling great distances toreach a particular coffee farm.These visits are always worthwhile, especially when we havebeen able to engage directly with farmers, observe theirbest practices, gain insight about their short- and long-termchallenges and identify ways that Starbucks can contributeto the longevity of their business. More important, theyhave helped to raise our awareness about the need for a moresustainable approach to coffee production – one that toucheson every essential aspect of the supply chain – from farmingto processing to exporting.When we began our journey to create a more sustainablemodel, there were several key assumptions we considered andwhich we still believe to be relevant today. We assume that:• A holistic strategy for sustainability must include criteriafor quality, social, environmental and economic aspects.• Premium prices paid for coffee are linked topremium quality.• Economic transparency is required and necessary toevaluate whether farmers receive equitable payment fortheir crops.• Our strong relationships and direct engagement withcoffee farmers and suppliers will keep us in touch withtheir progress and issues.• Coffee-growing communities will benefit from theeconomic stability of local farmers as well as from targetedcommunity investments.• Access to credit and other resources will enablefarmers to make quality improvements and strengthentheir businesses.• Certification labels, such as Fair Trade Certified andorganic, help to advance specific aspects of sustainablecoffee farming.• By embracing sustainability, Starbucks can lead changewithin the coffee industry.As our journey progressed over several years, we created andlaunched a number of programs and initiatives. Collectively,they represent the key components of Starbucks sustainablemodel for coffee production, and have been the focus of ourongoing efforts. They are:• Coffee and Farmer Equity (C.A.F.E.) Practices, a set ofcoffee-buying guidelines, was formally introduced infiscal 2004.• Starbucks Farmer Support Center, an on-the-ground fieldoffice located in Costa Rica, opened in fiscal 2004 toprovide technical resources and ongoing support to coffeefarmers throughout the world.• Funding of coffee community projects was started infiscal 1998.• Starbucks Black Apron Exclusives program launchedin fiscal 2004 to showcase and recognize the productionof rarified coffees of exceptional quality, and rewardthe origin farming community with funding for alocal project.• Loans that enable farmers to access credit began infiscal 2001.• An alliance with Conservation International began in1998 to promote environmentally sound practices aimed atpreserving biodiversity in some coffee-growing regions inLatin America.• The purchasing of certified coffees, such as Fair TradeCertified and organic coffees – both of which promoteaspects of a sustainable farming model – began infiscal 2000.• A partnership with the African Wildlife Foundation toadvance sustainable farming practices in East Africa wasinitiated in fiscal 2005.My Starbucks –I want you - my Starbucks friends – toappreciate the impact your company ishaving on higher prices being paid tocoffee farmers in Papua New Guinea.The local mill is paying the best pricelocal farmers have ever been paid.Everyone here knows Starbucks is buyingthis coffee, but only if it’s good quality.So now farmers are competing with theirquality so they can sell to Starbucks.It shows me how supply and demand iscontributing to a sustainable solution.Thank you, Starbucks.Aarlie Hull(A coffee supplier to Starbucks)P R O D U C T S 18

C.A.F.E. PracticesThe Conservation Principles for Coffee Production, a setof multistakeholder criteria launched in 2001, became theoriginal platform that Starbucks used to evolve and eventuallydevelop a more holistic set of coffee-buying guidelines thatis now known as Coffee and Farmer Equity (C.A.F.E.)Practices. These guidelines were designed to ensure thesustainable supply of high-quality coffee; achieve economicaccountability; promote social responsibility within the coffeesupply chain; and protect the environment.C.A.F.E. Practices encompasses various sustainabilitymeasures that are defined by 28 criteria, extending to boththe farming and processing of coffee. The criteria, which serveas the basis for a comprehensive scorecard, fall under fourfocus areas: product quality; economic accountability; socialresponsibility; and environmental leadership.Thousands of participants – from our largest coffee suppliersto many small-holder farms and cooperatives – have appliedand been approved as C.A.F.E. Practices suppliers since2004. When suppliers apply to C.A.F.E. Practices, theymust undergo a third-party evaluation to verify the degree towhich their practices are aligned with the criteria. (For moreinformation about the verification process, see page 23.)The Link Between Quality and PriceWe believe that with any product there is an inherent linkbetween quality and price. Through our close workingrelationships with coffee farmers and suppliers, we havealways emphasized the importance of quality as the best, mostsustainable driver of higher prices paid. We understand thatcoffee farming, like any business, must be profitable to besustainable. Furthermore, we know that when coffee farmersdo not earn enough to cover their production costs and/orprovide a reasonable income, they may switch to other cropsor perhaps stop growing coffee altogether.Starbucks commitment to pay premium prices for premiumquality coffee has not wavered over the years. It is anapproach that not only serves the short- and long-termeconomic interests of coffee farmers and suppliers; it alsoserves Starbucks interests by creating an incentive for farmersto improve quality and increase production that in turncontributes to a more sustainable supply of high-quality coffeewhich we depend on to support Starbucks continued growth.What Did Starbucks Pay for Coffee?In fiscal 2006, Starbucks purchased 294 million pounds(133 million kilograms) of coffee and paid an average price of$1.42 per pound ($3.12 per kilogram).Respect for Workers’ Human RightsStarbucks believes every person deserves to be treated withrespect and dignity, and is entitled to a fair, safe and humanework environment. This is a deeply held value at Starbucksand one of our Guiding Principles. Our commitment to thisvalue applies as much to our own workforce as it does to theworkers employed by our suppliers.Child labor is a topic widely reported in the media. Thecoverage has raised awareness about the issue and led to somereforms. While the concern over child labor remains, it maynot always be well understood. For instance, in many coffeegrowingcommunities, it is a natural extension of family lifefor children to work alongside their parents. Concerns overchild labor arise when it is considered forced, of a hazardousnature, inappropriate or prevents a child from attendingschool. There are international child labor standards thatprovide clear guidance on what is and is not acceptable.*Starbucks is committed to upholding international childlabor standards in our own operations and throughout oursupply chain by making them a stipulation of our supplierrelationships. Like other companies, Starbucks has adoptedpolicies that require all of our suppliers – from large-scale tosmall enterprises – to comply with international or locallymandated labor standards, whichever is higher.International labor standards also include principles relatedto working conditions, such as the health and safety ofworkers; minimum wage requirements; security; and freedomof association, among others. As part of C.A.F.E. Practices,Starbucks developed a comprehensive system to verifyour coffee suppliers’ compliance with international laborstandards, including child and forced labor practices as wellas other socially and environmentally responsible practices.* International Labor Office, 2006What Determines Price?Quality is the most important factor in determining theprice we pay for coffee, but not the only factor. The cost ofproduction is also reflected in the price as well as prevailingmarket conditions which vary from country to country andeven from region to region.P R O D U C T S 19

The Four Fundamentals ofC.A.F.E. PracticesProductQualityEconomicAccountabilityPrerequisitesSocialResponsibilityEnvironmentalLeadershipEvaluatedComponentsC.A.F.E. Practices Criteria – Areas of FocusC.A.F.E.PracticesProduct Quality (prerequisite): All coffee purchased fromC.A.F.E. Practices suppliers must meet Starbucks standardsof high quality.Economic Accountability (prerequisite): C.A.F.E. Practicessuppliers are required to submit evidence of payments made atall levels along our coffee supply chain, including receipts thatindicate how much was paid to farmers for their coffee.Social Responsibility (evaluated components): C.A.F.E.Practices suppliers – and other entities within their supplynetwork – must have certain practices in place that ensuresafe, fair and humane working conditions; the protectionof workers’ rights; and adequate living conditions. Theminimum/living wage requirements and child labor/forcedlabor/discrimination criteria are mandatory.Environmental Leadership (evaluated components): In thegrowing and/or processing of coffee, environmental measuresmust be in place to manage waste, protect water quality,conserve water and energy use, preserve biodiversity andreduce agrochemical use.The C.A.F.E. Practices scorecard of indicators is available atwww.scscertified.com/csrpurchasing/Starbucks.html.C.A.F.E. Practices – HittingOur TargetsAchieving our annual targets for the amount of coffeepurchased from C.A.F.E. Practices–approved suppliershas not always been easy. We have worked to increaseparticipation in C.A.F.E. Practices by expanding to newregions, motivating thousands of farmers and suppliers toapply, and guiding them through the application process.Currently, suppliers from 10 different coffee-producingcountries have applied and been approved to participate inC.A.F.E. Practices.We took the following specific steps in fiscal 2006 to get tothis point:• Laid important groundwork for the expansion of C.A.F.E.Practices in Africa and Asia Pacific.• Trained 30 potential verifiers in Africa and Asia Pacific,and held a “train the trainer” session in Costa Rica,attended by lead verifiers from 14 approved verificationorganizations. The additional verifiers enabled moresuppliers to be evaluated and approved for C.A.F.E.Practices. Trainings were conducted by ScientificCertification Systems (SCS), an independent evaluationand certification firm.• Spent more time in the field with C.A.F.E. Practicesparticipants, soliciting their feedback, offering supportabout how they can improve coffee quality and scores,and conducting training workshops via Farmer SupportCenter agronomists.• Continued to work with and solicit input from variousparties on ways Starbucks can improve elements ofC.A.F.E. Practices, including Conservation International,a nonprofit environmental organization; African WildlifeFoundation, an organization dedicated to conserving thewildlife and wild lands of Africa; and SCS.Results and AchievementsMetrics used to measure the growth of C.A.F.E.Practices include:• Total pounds of coffee purchased annually from C.A.F.E.Practices–approved suppliers.• Estimated number of hectares (acres) of sustainable landlinked to C.A.F.E. Practices purchases.• Percentage of C.A.F.E. Practices coffee purchased fromapproved suppliers by status level.P R O D U C T S 20

C.A.F.E. Practices PurchasesStarbucks established an aggressive goal to purchase 150million pounds (68 million kilograms) of green (unroasted)coffee from C.A.F.E. Practices suppliers in fiscal 2006,approximately double the volume purchased the previousyear. We exceeded that goal with purchases of 155 millionpounds (70 million kilograms), representing more than 50percent of all coffee purchased in fiscal 2006 by Starbucks.(See graph for purchases and future targets.) The 155 millionpounds of coffee purchased under the program were producedon farms that represent a total of approximately 200,000hectares (494,000 acres) of sustainable land.Millions ofpounds(kilograms)Fiscal yearCoffee Purchased From C.A.F.E. Practices Suppliers13(6)43(20)30(14)C.A.F.E. Practices Goal77*(35)75(34)Percent Purchased by Supplier Group155**(70)150(68)225(102)2003*** 2004*** 2005 2006 2007C.A.F.E. Practices Actual* Represents 25% of Starbucks total coffee purchases for fiscal 2005.** Represents 53% of Starbucks total coffee purchases for fiscal 2006.*** Coffee purchased under Starbucks Preferred Supplier Program guidelines.There are three status levels for C.A.F.E. Practices suppliers:Strategic, Preferred and Verified. Of the 155 million poundsof coffee purchased from C.A.F.E. Practices suppliers in fiscal2006, the percentage from each supplier group is as follows:• 19 percent purchased from Strategic Suppliers (those withscores of 80 percent and higher in each of the social andenvironmental areas)• 12 percent purchased from Preferred Suppliers (those withscores between 60 percent and 79 percent in each of thesocial and environmental areas)• 69 percent purchased from Verified Suppliers (those withscores of less than 60 percent in each of the social andenvironmental areas)C.A.F.E. Practices – Findings andNext StepsWhen we first introduced C.A.F.E. Practices, we wereinspired and motivated to help create a better future for coffeefarmers and their communities, based on a shared interest tosustain the production of high-quality coffee. Our vision –and commitment – has not changed, only deepened.The amount of time, energy and resources needed toimplement and manage C.A.F.E. Practices across such acomplex, diverse and sprawling supply chain is considerable –and at times more than we anticipated. We did, however,expect the process to involve challenges. In fact, there werea number of obstacles we faced – and overcame – in the lasttwo years, such as making C.A.F.E. Practices as accessible tosmall-scale producers as it has been to larger coffee producers.We have encountered some dilemmas that we are continuallyworking to address. Given our optimistic mindset atStarbucks, we choose to view these as opportunitiesfor improvement. We outline a few of these ongoingopportunities below.Continued Emphasis on Relationships, Communicationand TrainingAs our demand for coffee grows and our already complexsupplier network expands, we understand the importanceof staying in touch with and training our suppliers so theyunderstand how to complete the application forms forC.A.F.E. Practices, manage the required verification process,and adapt their practices to improve their scores. We mustalso seek efficiencies on our end that enable us to respondmore quickly to the needs of our suppliers.Verifiers and Improved Systems NeededOur plan to buy more sustainable coffee in the futurecan only be realized if our network of approved suppliersparticipating in C.A.F.E. Practices grows. The process ofapproving more suppliers will involve conducting a greatnumber of inspections by third-party verifiers.At the end of fiscal 2006, we had 143 trained and approvedverifiers in the field, which was 43 more than the previousyear. Going forward, we expect that more verifiers willbe needed to keep pace with the increasing number ofverifications that will be required.We see the need for more trained verifiers as an opportunity,and we are encouraged by the interest farmers have shown inbecoming approved C.A.F.E. Practices suppliers. And becauseof this, verifiers will need to be responsive to the increasingdemand of more inspections.P R O D U C T S 21

Our priorities are to increase the number of trainedverifiers and make the verification process more efficient anduser-friendly. Some adjustments were made in fiscal 2006,and others are in the works.The process improvements we are making are necessary toensure that Starbucks coffee buying guidelines are supportedby a highly efficient and credible verification system with thecapacity to serve the growing number of suppliers wanting toparticipate in C.A.F.E. Practices.unique conditions in Africa and Asia Pacific. Also, the needfor more locally based support through regional FarmerSupport Centers has been confirmed.F U T U R E G O A LIn fiscal 2007, we plan to hire additional agronomistswho will focus on helping coffee farmers worldwideimplement C.A.F.E. Practices.F U T U R E G O A L SGoing forward, our efforts will focus on:• Introducing a revised version of the guidelines to allowfor streamlined, efficient and objective scoring.• Updating our guidelines to account for regionaldifferences, including clarification of minimumperformance levels and compliance with local laborlaws and wages for permanent, temporary and seasonalworkers.• Implementing a new IT system for online verifierreporting and score calculation.Extending C.A.F.E. Practices to Africa and Asia PacificIn 2004, Starbucks opened a Farmer Support Center in CostaRica, which has allowed us to work more closely with farmersand suppliers on their sustainability measures and coffeequality. Shortly thereafter, suppliers in that region beganapplying and gaining approval for C.A.F.E. Practices, and thenumber has kept growing ever since.Increasing our focus on C.A.F.E. Practices in Africa andAsia Pacific has proven to be difficult, as expected. In Kenya,Starbucks has been collaborating with the African WildlifeFoundation (AWF) on various sustainability initiatives as afirst step toward advancing C.A.F.E. Practices in Africa.In both Africa and Asia Pacific, Starbucks has been workingto introduce C.A.F.E. Practices to coffee farmers, processorsand suppliers. Progress has been slowed by realities of localcoffee industries, lack of financial transparency, minimalunderstanding of C.A.F.E. Practices among local suppliers,and too few trained verifiers. Some headway was made infiscal 2006 to improve suppliers’ understanding of C.A.F.E.Practices and train more verifiers, partly because of effortsmade by SCS, Starbucks coffee buyers, agronomists andbusiness partners to organize training sessions.We realize there may be a need to consider regional guidancefor C.A.F.E. Practices to make the criteria more relevant toMy Starbucks –In a letter to Starbuckspresident and ceo, Jim Donald,Estuardo Porras wrote:Since Tropical Storm Stan passed,I have been spending 24 hours a dayassessing the damage on the El Faroand Las Delicias coffee farms inGuatemala. Now I am glad to informyou that C.A.F.E. Practices hasbeen by far our best investment.Both farms are virtually intact inregards to any disease or soil erosionissues. I strongly believe that theimplementation of C.A.F.E. Practices onboth farms has greatly contributed toour ability to withstand any potentialadversities caused by this storm.Your friend,Estuardo Porras, OwnerEl Faro and Las Delicias farms,GuatemalaP R O D U C T S 22

C.A.F.E. Practices – The VerificationProcessWhen suppliers apply to C.A.F.E. Practices, they mustundergo an independent third-party evaluation to verifythe degree to which their practices are aligned with the 28criteria. Upon completion of each evaluation, the verifiersubmits a report along with a scorecard to the applicantand to Starbucks for review. The scores given by the verifierdetermine the supplier’s approval status in C.A.F.E. Practices.Evaluations involve field inspections, face-to-face interviewswith workers, document reviews and desk audits. Theconditions of a supplier’s status dictate the terms ofreverification. Reverification is periodically required in orderto measure continuity and sustainability improvements.Since launching C.A.F.E. Practices in 2004, Starbucks hasretained Scientific Certification Systems (SCS), a third-partyevaluation and certification firm, to help develop and overseethe verification system and conduct ongoing verifier trainings.By the end of fiscal 2006, SCS had trained 30 additionalindividual verifiers on how to evaluate and score suppliersagainst C.A.F.E. Practices’ comprehensive set of criteria.Independent verifiers for C.A.F.E. Practices are affiliatedwith 25 different organizations conducting verifications in19 countries.Economic TransparencyTo help assure that the farmer receives an equitable shareof the price paid by Starbucks, a requirement for economictransparency is included in our coffee contracts, includingall of our contracts with suppliers participating in C.A.F.E.Practices. This provision stipulates that our suppliers mustprovide credible evidence of payments, usually in the formof receipts indicating payments made at all levels along thecoffee supply chain, including prices paid to farmers. Infiscal 2006, 98 percent of our coffee contracts included aneconomic transparency clause requesting documentation ofpayments made to various participants in the supply chain.In 95 percent of these contracts, economic transparency wasrequired to the producer level.Requiring coffee suppliers to provide evidence of paymentswas almost inconceivable several years ago, especially giventhe diffused and complex nature of the coffee supply chainand the historical lack of record keeping. However, sinceStarbucks instituted this requirement, a notable change hasstarted to take place in the specialty coffee industry, withmore serious attention now being focused on assuring thatfarmers receive an equitable share of the purchase price. Webelieve this ultimately benefits coffee farmers and other keysuppliers who add value along the supply chain.While we are encouraged by the progress to date,institutionalizing this new requirement has come with certainchallenges. In particular, the coffee industry does not have astandardized mechanism in place that allows all parties acrossthe coffee supply chain to easily submit evidence of paymentin a consistent, uniform manner. At Starbucks, we receivedifferent forms of documentation – from a simple receiptfor the coffee cherries that the farmer delivered to the millto full purchase agreements that include more levels alongthe coffee supply chain. These documents not only differ inquality, they reflect variations in currency, industry standardsand laws, units of measure and are prepared in manydifferent languages.Despite these realities and the unique circumstances of eachproducing country, Starbucks will continue to work towardverifying the submitted evidence in order to assure thatfarmers received an equitable portion of the purchase price.Starbucks and Fair TradeStarbucks and the Fair Trade movement share commongoals: to help ensure that farmers receive a fair price for theircoffee and have improved access to international markets.C.A.F.E. Practices and the Fair Trade system both focuson cultivating long-term, stable relationships with farmers;providing supplemental funding for community projects;and providing farmers with access to affordable credit. Apoint of differentiation is that the Fair Trade coffee modelfocuses on smallholder farmers belonging to cooperativesand associations, while Starbucks purchases from coffeecooperatives, farms and supply networks of all sizes and scale.Starbucks first relationship with a Fair Trade certificationand licensing organization began in April 2000, when weestablished an agreement with TransFair USA that allowedStarbucks to purchase, roast and sell Fair Trade Certifiedcoffee. We are still actively engaged with TransFair USA, aswell as with Fairtrade Labelling Organizations International(FLO) and nine of the 20 other national initiatives aroundthe world that oversee and coordinate Fair Trade licensingand sales promotion in 24 of our international markets.Each Fair Trade national initiative is unique and has its ownrequirements, trademarks and protocols, a reality that hasconstrained our ability to offer Fair Trade Certified coffeeinternationally. Starbucks is committed to working togetherwith FLO and the national initiatives on a streamlinedsolution that will make it easier for multinational companies,like Starbucks, to distribute and sell Fair Trade Certifiedproducts in other countries.P R O D U C T S 23

What is Fair Trade Certified ?The Fair Trade Certified labels are owned by the Fairtrade Labelling Organizations International and Fair Trade national initiativesaround the world. Starbucks pays licensing fees to the national initiatives in order to affix the Fair Trade Certified trademark on ourpackaging. According to the national initiatives, a majority of the fees support various Fair Trade activities to help market the product,and the remaining fees are used to fund the certification process, the development of standards and support for producers.Fair Trade products appeal to socially minded consumers who place a high value on the Fair Trade certification seal. Fairtrade LabellingOrganizations International certifies to consumers through the seal that a minimum price* of $1.24 - $1.26 per pound ($1.39 - $1.41per pound for organic) was paid to the farmer cooperative that produced the coffee. However, factors such as market recognition of FairTrade coffee quality, higher commodity prices, and supply and demand may work in combination to raise the Fair Trade price.Fair Trade certification includes criteria to be met by coffee cooperatives, such as fair labor conditions, freedom of association andcertain environmental standards. To be certified as Fair Trade, the coffee is to be produced only by farmers who belong to farmerowned,democratically run coffee cooperatives and associations listed on the Fair Trade registry. An estimated four percent of globalcoffee production is Fair Trade Certified. * These established prices are set by Fairtrade Labelling Organizations International for the purpose of covering the costs of sustainable production and living.The pricing components include $1.19-$1.21 for the coffee (depending on the region), $0.05 for a social premium and an additional $0.15 premium fororganic. When “C” market prices rise above the Fair Trade minimum price, Fair Trade prices are adjusted accordingly to be at least $0.05 above the “C” price.Our Purchases of Fair Trade Certified CoffeeIn fiscal 2006, Starbucks global purchases totaled morethan 18 million pounds (8 million kilograms) of Fair TradeCertified coffee, representing approximately 14 percent ofglobal Fair Trade Certified coffee imports, and about 30percent imported into the United States.Starbucks remains the largest purchaser, roaster anddistributor of Fair Trade Certified coffee in North America.Pounds(kilograms)5 million(2 million)Fair Trade Certified Coffee11 million(5 million)18 million*(8 million)Fiscal year 2004 2005 2006*Represents 6% of Starbucks total coffee purchases.At the beginning of fiscal 2006, Starbucks set a 12 millionpound (5 million kilogram) purchasing target for Fair TradeCertified coffee, which we exceeded by more than 6 millionpounds (3 million kilograms) because we extended our lineupand broadened distribution of our Fair Trade Certified product offerings. In addition to offering Café Estima Blend in Starbucks stores, strong sales were achieved through therollout of a new Fair Trade Certified coffee product underthe Kirkland Signature brand in Costco stores in the U.S.and Canada.Starbucks will continue to work with various Fair Tradenational initiatives to promote and market our Fair TradeCertified coffee products in our stores around the world.We believe these efforts will help to further increase customerdemand and sales of Starbucks Fair Trade Certified coffees.Purchasing enough Fair Trade Certified coffee to meet thedemand will be essential.Previously, we set arbitrary targets for the amount of FairTrade Certified coffee we planned to purchase annually, anapproach that is no longer practical. Instead, we will beginlinking our purchases of Fair Trade Certified coffee tosales forecasts.Through our purchases of Fair Trade Certified coffee infiscal 2006, we:• Provided more than $900,000 in Fair Trade socialpremiums through the price we paid for Fair TradeCertified coffee. FLO certifies that these funds wereredistributed back to the Fair Trade cooperatives wepurchased from to support local community improvementprojects decided upon by the general assembly ofthe members.• Paid approximately $8 million more to Fair TradeCertified cooperatives than they would have received ifthey sold their coffee at “C” market prices. This is similarto the premiums that Starbucks typically pays above thecommodity price for other high-quality coffees. Accordingto TransFair USA, the average price of Fair TradeCertified coffee during fiscal 2006 was $1.48 per pound,including the social premiums. Approximately 80 percentof the price paid to the Fair Trade registered cooperativesgoes to coffee farmers, and the remaining 20 percent coversco-op overhead, export costs and social investments.• Paid a total of $1.6 million in licensing fees to variousFair Trade organizations, with the majority paid toTransFair USA.P R O D U C T S 24

Going ForwardStarbucks is committed to purchasing Fair Trade Certified coffee as a way of supporting the network of Fair Traderegistered coffee cooperatives. Specifically, Starbucks plans to:• Link global purchases of Fair Trade Certified coffeeto customer demand in fiscal 2007. Using fiscal 2006demand as a barometer, we expect that Fair TradeCertified coffees could represent approximately fivepercent of our total coffee purchases in a given year.• Work with the Fair Trade national initiatives to promoteand increase customer demand and sales of our FairTrade Certified coffees while also collaborating on astreamlined approach to the global distribution of thisproduct.• Offer Kirkland Signature Fair Trade Certified coffee toCostco for stores located in the UK, Japan, Taiwan andKorea beginning in fiscal 2007.• Support and promote the sale of Café Estima Blend coffee in Starbucks company-operated stores, foodservicechannels and other points of distribution.• Continue to work with Fair Trade organizations tocommunicate key findings and challenges, providetransparency to the farmer level, augment the businesscapacity of participating Fair Trade cooperatives, andsupport a multipronged approach to ethical, sustainablecoffee purchasing.Purchasing Certified Organic andConservation CoffeesStarbucks purchases certified organic and conservation(shade grown) coffees. These purchases support thecompany’s larger effort to preserve the natural environmentand/or promote economic stability. (See graphs at right foramounts purchased.)Over the years Starbucks has purchased millions of poundsof conservation coffees grown by farmers participating in CI’sConservation Coffee SM program. This particular source of oursupply stems from the alliance Starbucks and CI formed in1998 to encourage farmers to use ecologically sound growingpractices that help protect biodiversity in environmentallysensitive areas and to stimulate the production and sale ofhigh-quality coffee grown under the canopy of bird-friendlyshade trees.Today, much of the conservation coffee grown byparticipating farmers is also certified organic or “intransition”coffee, the term used when an agricultural productis grown under organic conditions but has yet to be certified.Beginning in fiscal 2007, the coffee Starbucks purchases fromfarmers participating in the Conservation Coffee SM programwill no longer be tracked as conservation coffee. Instead wewill track only certified organic coffee purchases rather thanspecifying both organic and conservation purchases, whichin many cases is the same coffee. Fair Trade Certified coffeethat is also certified organic will continue to be tracked inboth ways.Pounds(kilograms)6 million(3 million)Certified Organic Coffee9 million(4 million)12 million*(5 million)Fiscal year 2004 2005 2006*Represents 4% of Starbucks total coffee purchases.As consumer demand for certified organic coffee continuesto grow, Starbucks purchases of this coffee has also increased.Some of the certified organic coffee Starbucks buys isproduced by farmers participating in the Fair Trade system,in which case this coffee is included in our total purchasesof both Fair Trade Certified and certified organic. Inother instances, certified organic coffee is purchased fromfarmers participating in Conservation International’s (CI)Conservation Coffee SM program, and therefore accounted aspurchases of conservation, organic and possibly even FairTrade Certified coffees.Pounds(kilograms)Conservation (Shade Grown) Coffee2 million(1 million)2 million(1 million)2 million*(1 million)In fiscal 2006, Starbucks offered two specifically labeledtypes of certified organic coffee, and Seattle’s Best Coffee soldeight varieties.Fiscal year 2004 2005 2006*Represents 1% of Starbucks total coffee purchases.Note: Coffees may be certified in more than one category.P R O D U C T S 25

Access to CreditDuring the growing and harvest cycles, coffee farmers rely ontheir modest reserves to pay their expenses. It isn’t until theircrops are finally shipped that payment is received, which maytake months. It’s common for farmers to experience a cashshortage, which can lead them to sell their crops early to localbuyers, be charged high interest rates and receive lower prices.This inevitably cuts into farmers’ profits and sets up a similarscenario for the next year.Starbucks works with several social investment organizationsto make loans available to coffee growers, which makes itpossible for farmers to postpone selling their crops until theprice is favorable and to invest in capital improvements. Infiscal 2006, we increased our loan commitment to EcoLogicFinance by $1 million, bringing the total commitment to$6 million. EcoLogic uses Starbucks capital to make loansto both coffee and cocoa farmers. We also continued our $1million loan commitment to Calvert Foundation and $2.5million loan commitment to Verde Ventures, a loan programmanaged by Conservation International. (See chart on nextpage.)Assisting Coffee Farmers in EthiopiaWhen the Sidama Coffee Farmers Cooperative Union inEthiopia (SCFCU) was established in 2000, it set boldobjectives: to increase farmers’ share of the Free on Board*(FOB) price of coffee, stabilize the local coffee market,export directly to foreign buyers, protect co-ops and familyfarmers from illegal domestic market actors, take advantageof economies of scale, and promote and reward production ofhigh-quality coffee.SCFCU is a farmer-owned and managed cooperative unioncomprised of 42 primary societies, representing nearly 87,000local coffee growers practicing shade-managed and organicfarming techniques in the forests of southcentral Ethiopia. Itis also part of the Fair Trade Certified market system.In October 2005, SCFCU received a $400,000 loan fromEcoLogic Finance. The loan is enabling the cooperativeto provide services to its members, including marketingassistance in developing producer/buyer linkages; directexport of members’ specialty coffee; coordination ofwarehousing services, processing and transport; promotionof high-quality coffee production; field-based training andeducation programs; and access to savings and credit services.Starbucks provided the capital funds that EcoLogic used tofinance the loan.As one of the cooperative’s principal foreign buyers, Starbucksrespects SCFCU for its organizational integrity, and values itspremium product. Indeed, the unique flavor characteristicsof local coffee beans grown by one primary society belongingto SCFCU were so distinctive and of such exceptional qualitythat this coffee – “Shirkina Sun-Dried Sidamo” – was chosenas one of Starbucks Black Apron Exclusives ** coffees infiscal 2006. As a result, the farming community where thiscoffee was produced was awarded a $15,000 prize fromStarbucks. These funds, combined with the funds theyreceive through Fair Trade social premiums, are being usedto construct an office space where community meetings andtrainings can be held.Starbucks and the Ethiopian government have been engagedin discussions regarding the protection and use of theintellectual property rights of Ethiopia’s geographic coffeenames. We are committed to working together in pursuit of asolution that benefits Ethiopian coffee farmers. For the mostcurrent information on this topic, please visit Starbucks.com.* Free on Board is a trade term requiring the seller to deliver goods on board avessel designated by the buyer. The seller fulfills its obligations to deliver whengoods have passed over the ship’s rail. The word “ free” means the seller has anobligation to deliver goods to a named place for transfer to a carrier.** The Black Apron Exclusives coffees are a select line of rare, exotic and cherishedcoffees. The Black Apron name refers to the color of apron worn by Starbucksmost knowledgeable buyers, roasters, tasters and Coffee Masters while in thetasting rooms and in Starbucks coffeehouses.P R O D U C T S 26

FARMER LOAN PROGRAMSName ofOrganizationCalvert FoundationVerde Ventures,managed byConservationInternationalEcoLogic FinanceAmount ofStarbucks loansto Fund$1 million loaned infiscal 2004$2.5 million loanedin fiscal 2004$2.5 million loanedin fiscal 2004$2.5 million loanedin fiscal 2005$1 million loaned infiscal 2006Total numberand value ofloans made byStarbucks infiscal 20066 loans valued at$2.25 million*8 loans usingStarbucks capitalvalued at $2.12million63 loans usingStarbucks capitalvalued at $11million*Average loan size(per borrower)made fromStarbucks capitalin fiscal 2006*Total exceeds amount of Starbucks loan because money is loaned, repaid and loaned again.Purposes ofloans made fromStarbucks capital$371,000 Prefinancing of FairTrade and organiccoffee contracts$265,000 Prefinancing ofC.A.F.E. Practicesor conservationcoffee farms;working capital forthe above coffeefarmers$175,000 Prefinancing ofFair Trade, organicand specialtycoffee and cocoacontracts; capitalinvestments forinfrastructure# of farmersparticipatingCountries whereborrowers ofloans made byStarbucks capitallive24,000 Mexico, Nicaragua,Peru6,000 smallholderfarmersparticipating inCI’s ConservationCoffee Programsites, andapplicants toC.A.F.E. Practices44,000 farmersfrom 58 variouscoffee andcocoa farmingorganizationsMexico,El Salvador,Guatemala,Indonesia, PeruBolivia, Honduras,Colombia,Indonesia, CostaRica, Mexico,Nicaragua, EastTimor, Peru,Ecuador, Rwanda,El Salvador,Tanzania, Ethiopia,Uganda, GuatemalaInvestments in Coffee CommunitiesThe majority of high-quality coffee is grown in remotecommunities of developing countries. These areas havehistorically faced a devastating range of social, environmentaland economic challenges. At times, they have also been left inruins by severe natural disasters.Over the years, Starbucks has worked with coffee farmers,cooperatives, mills, exporters and local communities onvarious community improvements, which have includedbuilding schools, health clinics and other projects thatstrengthen the local infrastructure and benefit nearbyresidents. These investments are not only made through ourphilanthropic contributions, they are also funded in twoother ways:• Through premiums that we add to our coffee contracts,which provide additional funds for community projects.• Financial awards given to farming communities thatproduce a specific coffee selected as part of StarbucksBlack Apron Exclusives program. For each Black ApronExclusives winner, Starbucks awards $15,000 to use for atargeted project. In fiscal 2006, four coffees were selectedas Black Apron Exclusives offerings, three from Africaand one from Indonesia.The combined total of Starbucks investments in coffeegrowingcommunities was $2.7 million in fiscal 2006,which included $1 million towards Tropical Storm Stanrelief efforts. (See next page.) The funds were used topay for 103 projects located in 11 countries, benefitingan estimated 545,000 local farmers, their families andcommunity residents.P R O D U C T S 27

Tropical Storm Stan Relief EffortsIn October 2005, Tropical Storm Stan struck parts ofMexico, Guatemala and El Salvador, including areas wherecoffee is grown. The storm caused flash floods, mudslides,damage to crops, and it claimed the lives of thousands. Weresponded to the immediate needs for humanitarian reliefand longer-term rebuilding efforts. Within the first weekfollowing the storm, Starbucks coffee buyers and agronomistsvisited some of the affected areas where we buy coffee to makea human connection with local farmers and gain a bettersense of long-term rebuilding needs. Starbucks was able torespond rapidly with $1 million toward relief and rebuildingefforts in Mexico and Guatemala, which helped to fund 59local projects and benefit an estimated 415,000 people.To assist affected communities in El Salvador and Guatemala,Starbucks earmarked $23,000 of the emergency funds wehad contributed to CARE International earlier, and we alsoprovided an additional $250,000 via Mercy Corp for reliefefforts in areas of Guatemala that were especially hard-hit.My Starbucks –The first two weeks following TropicalStorm Stan were very difficult forus. The Chanjul coffee farm wascompletely inaccessible after the storm’storrential rains had washed away theroad. Now it has been fixed, thanks toStarbucks. Along with our neighbors,we are once again able to transportour coffee crops to the processingfacility. While the monetary support yougave was of great help, we are moreuplifted by the solidarity we experiencedwith Starbucks coffee buyers.african Heartlands Coffee ProjectThe first phase of the African Heartlands Coffee Project, acollaboration between Starbucks and the African WildlifeFoundation (AWF), was launched in Kenya in January 2005.The three-year project is focused on helping farmers improvethe quality and quantity of Kenya coffee, introducingsustainable growing and processing best practices as well assupporting wildlife and biodiversity conservation.The three-year venture is being funded with a $600,000commitment from Starbucks, which included a contributionof $187,000 to AWF in fiscal 2006. We believe the positivedevelopments taking place in the two Kenyan coffeecooperatives participating in phase one of this projectclearly reflect the hard work and dedication of coffeegrowers to embrace sustainable growing practices and higherquality standards.Additional support for AWF’s work in Kenya came fromStarbucks UK. In fiscal 2006, Starbucks UK contributedapproximately $90,000 to AWF to help to fund theconstruction of an earth dam, revitalize a reforestationprogram and rehabilitate the Kihuyo Wildlife Fence. Toengage partners in this effort, Starbucks UK created anAfrica-themed photo contest, from which 10 UK Starbuckspartners were selected to travel to Kenya in October 2006and meet with local coffee farmers who are benefiting fromthe project.Marco LucasFarm General ManagerChiapas, MexicoP R O D U C T S 28

Sustainable Trade: Purchasing OurNon-Coffee ProductsIn 2003, we introduced Starbucks Supplier Code of Conduct,a values-based framework that guides our global purchasingdecisions and supplier relationships. The Code of Conductand supporting guidelines set forth our standards for humanrights, social conditions and environmental responsibility. TheCode applies to agriculture products (such as coffee, cocoaand tea) and manufactured goods and services. Throughadherence to this Code, Starbucks and our suppliers seekto demonstrate our commitment to the welfare, economicimprovement and sustainability of the people and places thatproduce our products and services.In the remaining pages of this section, we discuss ourapproach to sustainable trade and product quality. Specifictopics include:• Procurement Practices for Sustainable Agriculture– Responsible Cocoa Sourcing Program– Tazo Tea Sustainability Practices– Dairy and Bakery Products• Starbucks Social Responsibility Standards forManufactured Goods• Ethos water• Quality Assurance and Product RecallStarbucks Approach to Sustainable TradeOur products are grown, producedand/or manufactured by a multitudeof suppliers around the world. As ourglobal supply chain operations expandand become increasingly complex, werecognize the importance of institutingan overarching framework that ensuresethical trading practices, increasestransparency and continues to builda sustainable network of suppliers.Starbucks is working on many levels toimplement such an approach.Social Responsibility Standards:Agriculture ProductsCODE OF CONDUCTSocial Responsibility Standards:Manufactured Goods and ServicesStarbucks Supplier Code of Conductarticulates our core values and theexpectations we have of our suppliers.The Code includes social responsibilitystandards for both agricultural productsand for manufactured goods.Coffee:C.A.F.E. PracticesOther Agriculture Products:(Cocoa, Tea, Dairyand Bakery)Supplier SocialResponsibility ProgramP R O D U C T S 29

Procurement Practices for SustainableAgricultureIn addition to C.A.F.E. Practices, our coffee buyingguidelines, Starbucks is working to develop sustainablepurchasing guidelines for cocoa and may also developguidelines for other products such as tea, paper and dairy.Responsible Cocoa Sourcing ProgramCocoa continues to be an important ingredient in many ofthe beverages and products we sell in our stores, includingcoffee beverages, bakery items and chocolate bars. We seek toensure that the cocoa we buy has been produced and tradedin an ethical, transparent and sustainable manner, and we aretaking significant steps to ensure our supply chain is in linewith our company’s values.Worldwide cocoa production for the 2005/2006 crop yearwas 7.7 billion pounds (3.5 billion kilograms), of whichapproximately 70 percent was produced in West Africa. Infiscal 2006, Starbucks purchased just over 15 million pounds(6.8 million kilograms) of processed cocoa from our suppliers,sourced primarily from the Ivory Coast.In fiscal 2006 we launched Starbucks Socially ResponsibleCocoa Sourcing (SSRC) Pilot Program in the Ivory Coast,with two established cocoa suppliers that included ninefarmer cooperatives and hundreds of farmers. An initial setof general guidelines for transparency, working conditionsand price premiums for cocoa farmers were developed for thispilot program.During the first year of the pilot, Starbucks sourced 11million pounds (5 million kilograms) of cocoa beans, inwhich we expect to have full price transparency throughoutthe supply chain – from the cocoa farm to Starbucks. Thistransparency data will be audited and validated by anindependent third party to ensure farmers are receiving anequitable share of the sustainability premiums we pay.Cocoa Practices Sourcing GuidelinesBuilding upon the initial Socially Responsible CocoaSourcing Pilot, in September 2006 we completed a newdraft of our Cocoa Practices Sourcing Guidelines (CocoaPractices). Similar to C.A.F.E. Practices for coffee, CocoaPractices provide guidelines for the cultivation and processingof cocoa in a manner that is environmentally sustainable,socially responsible, and promotes equitable relationships withfarmers, workers and communities. We plan to launch CocoaPractices in fiscal 2007 as a two-year pilot program, and movetoward our longer-term plan to utilize the guidelines for all ofour cocoa purchases.Access to Credit & Social Development ProjectsIn fiscal 2006, EcoLogic Finance provided $400,000 in loansto three cocoa farming cooperatives. Starbucks provided thecapital funds used for the loans. To further support cocoagrowing communities in the future, Starbucks has authorizedEcoLogic Finance to provide up to $500,000 in affordableloans to cocoa farmers, drawing off the $6 million in loancapital Starbucks already provided. We also amended our loanagreement with Conservation International’s Verde Ventures,which will now allow up to 25 percent of the $2.5 million incapital we provided to be loaned to cocoa farmers.Stakeholder EngagementIn September 2006 we hosted a stakeholder engagementsession with suppliers, government agencies, nongovernmentalorganizations (NGOs) and chocolatemanufacturers to review the initial draft of the guidelinesand obtain feedback. This feedback will be incorporated intoCocoa Practices prior to the pilot launch in 2007, and we willcontinue to consult with stakeholders as we move forward.F U T U R E G O A L SOur goals for fiscal 2007 include:• Purchasing 22 million pounds (10 million kilograms)of cocoa beans from the Starbucks SociallyResponsible Cocoa Sourcing Program.• Completing independent audits and sharing resultsof the fiscal 2006 pilot.• Rolling out Cocoa Practices Guidelines for use in thenext crop year (2007-08)• Delivering quarterly updates to cocoa stakeholders.• Providing financial support for social developmentprojects in cocoa growing communities in theIvory Coast.P R O D U C T S 30

Tazo ® Tea – Sustainability PracticesTazo Tea is one of several brands within Starbucks portfolio,and is sold in Starbucks stores, grocery stores and otherretail outlets.Global tea production in 2006 was 7.6 billion pounds (3.5billion kilograms). In fiscal 2006, Tazo purchased 5.7 millionpounds (2.6 million kilograms) of tea and botanicals from25 countries.In previous years we focused our sustainability reporting forTazo on purchases of organic ingredients. Tazo has movedaway from this singular focus on organic purchasing in orderto pursue a more comprehensive sustainability strategy for ourtea sourcing.As part of this strategy, Tazo joined the Ethical TeaPartnership (ETP) to ensure the teas we purchase areproduced in a socially responsible way. ETP is a unique, longtermethical sourcing initiative, set up to work in partnershipwith producers to independently monitor living and workingconditions in tea gardens. The organization also works toimprove the working conditions in the tea industry.Additionally, in fiscal 2006 we began purchasing some teafrom smallholder tea growers in order to develop closer tieswith tea-growing communities and help support smallholderfarmers in and around the Himalayan foothills of Darjeeling,India. We worked in partnership with the DarjeelingEarth Group (DEG), a nonprofit organization focused onenvironmental and social issues, to collaborate with teagrowers on better tea production and green leaf handlingtechniques.Similar to Starbucks holistic approach to responsible coffeesourcing, Tazo combines its commitment to purchaseresponsibly grown tea with a social development strategy.At the center of Tazo’s social development strategy is ourCommunity Health and Advancement Initiative (CHAI),which we launched in conjunction with Mercy Corps in2002, and which remains our way of giving back to theregions that produce Tazo ® tea ingredients. Funding forCHAI comes from Tazo, its tea suppliers and Starbucks. Since2003, nearly $1.4 million has been contributed to the CHAIProject, including donations in fiscal 2006 of $301,000 fromTazo and its suppliers, and $100,000 from Starbucks.Today CHAI is a partnership between Tazo, Mercy Corps,DEG, and the Assam Branch of the India Tea Associationand is aimed at improving the lives of community membersliving in tea estates and neighboring communities. Workingwith local Community Action Groups, CHAI works todemocratically identify and address common problemsthrough a community mobilization process to improve thequality of life through health, economic development andyouth initiatives.During fiscal 2006, the CHAI Project expanded a pilotthat originally began in 2005 in four cardamom-producingcommunities in Guatemala, and now encompasses ninecommunities. As a result of expanding the project, anadditional 1,000 people have benefited.In fiscal 2006 we laid the groundwork to expand the CHAIProject into the Assam region of India, an area where Tazopurchases tea. Next year, we plan to develop programsfocused on income generation and education programs thathelp to improve economic opportunities for farmers andfamilies living on tea estates in the region.F U T U R E G O A L SOur goals for fiscal 2007 include:• Completing development of a long-term strategy forTazo’s sustainable tea sourcing initiative.• Developing a three-year strategic plan for the CHAIProject.• Launching the CHAI Assam Project in four teaestates, and expand CHAI Guatemala to twoadditional villages.P R O D U C T S 31

Dairy and Bakery ProductsDairy and bakery products comprise a significant part of ourstore operations. For all of our products, Starbucks upholdsour high standards for quality and ensures our products aresafe for consumption.In response to some stakeholders’ concerns about ourdairy products and our own interest in developing a moresustainable approach to our dairy purchases, we recentlyevaluated the feasibility and implications of converting allcore dairy products – fluid milk, half-and-half, whippingcream, and eggnog – to rBGH-free and changing our defaultmilk standard for our beverages to 2% milk from whole milk.(rBGH is a synthetic growth hormone given to dairy cows toincrease milk production.)In fiscal 2006, we surveyed our current dairy suppliers tounderstand their cost structure and ability to deliver sufficientsupplies of the highest quality certified organic and/or rBGHfreemilk needed for Starbucks operations. We also met withstakeholders and dairy suppliers to discuss and learn moreabout rBGH and options for new products. As a result ofthese efforts, we are able to ensure that 37 percent of the coredairy products in our U.S. company-operated stores wererBGH-free as of January 2007.Stakeholder EngagementIn April 2006, Starbucks hosted stakeholders for a two-day“Dairy Summit.” Our goals in hosting this session were to:• Deepen Starbucks understanding of supply chain costs andperformance related to rBGH-free milk.• Discuss dairy industry innovations and supplier/industrycapabilities as well as the health and nutrition impactsassociated with dairy products.• Build stronger connections to our dairy suppliers.Attendees of this summit included Starbucks partners,representatives from Oregon Physicians for SocialResponsibility, and several of Starbucks dairy suppliers. Inaddition, we met with the National Dairy Council in fiscal2006 to discuss Starbucks existing sustainability programs,including C.A.F.E. Practices, as a first step to introduceand explore how sustainability applies to dairy, as well asconsumer health and wellness. We are in the process ofevaluating and/or rolling out new products as a result of thisdialogue, and intend to continue consulting with many ofthese stakeholders going forward.For more information on Starbucks health and wellnessinitiatives, please see the Health and Wellness section of thisreport beginning on page 49.F U T U R E G O A L SIn fiscal 2007 we plan to:• Require all core dairy products used in ourhandcrafted beverages to be rBGH-free. Thisrequirement initially will take place in our U.S.company-operated stores.• Conduct a market test in our U.S. company-operatedstores and a small group of stores in Canada toassess the feasibility of making 2% milk the defaultfor our beverages.Starbucks has also been investigating options for usingorganic ingredients in some of our bakery products. Ourefforts during fiscal 2006 included test marketing two 100percent organic bakery items in more than 100 companyoperatedStarbucks stores in North America stores, andexploring opportunities to incorporate the use of sustainablewheat into our portfolio of bakery products.P R O D U C T S 32

Starbucks Social ResponsibilityStandards – Manufactured GoodsStarbucks purchases an increasing number of manufacturedproducts that are sold in our stores or used in our businessoperations. With the aim to ensure these products areproduced without harm to workers or the environment,in fiscal 2006 we created a new internal organization –Sustainable Procurement Practices (SPP) – focused onsocially responsible procurement practices, the Supplier SocialResponsibility Program and Supplier Diversity.Initially launched in 2005, the Supplier Social ResponsibilityProgram aims to integrate responsible procurementpractices throughout Starbucks global supply chain formanufactured goods by June 2010. This will help ensuresupply chain transparency, encourage a shared responsibilitybetween Starbucks buyers and suppliers, and support soundpurchasing decisions through a system of standards, tools andfactory assessments.In fiscal 2006, we advanced our work in responsible sourcingfor manufactured goods by developing an enhanced setof factory standards, creating tools for monitoring andcompliance, and initiating a pilot test of 10 factories inChina. Our Supplier Social Responsibility Standards(SSR) for factories include requirements for worker healthand safety, worker treatment and rights, worker hours andcompensation, transparency and environmental protection.Rather than seek short-term remedies for issues that mayarise, Starbucks stresses the importance of continuous,measurable improvement among our suppliers.Additional progress made this year includes:• Development of new Zero Tolerance Standards todesignate critical non-negotiable behaviors for suppliersof manufactured goods, including lack of transparency,denied access, child labor, forced labor, nonpayment ofwages and physical/sexual abuse.• Development of and testing of processes and tools toimplement the SSR Standards. These include factoryassessment forms, an SSR Standards Manual and otherresources.• Training of our internal buyers on the SSR guidelines,standards and tools.F U T U R E G O A L SOur goals for fiscal 2007 include:• Selecting factory monitoring firms to conductindependent assessments.• Rolling out the Supplier Social Responsibility (SSR)Standards.• Assessing all new factories and systematicallyassessing existing factories.• Conducting three factory training sessions for anestimated 60 factories.• Verifying and reporting on our factory base/supplychain for manufactured products.Key Supplier Social Responsibilit yProgram Policies1. Code of Conduct – overarching business standardsand practices2. Standards for Manufactured Goods & Services –specific guidelines that incorporate applicable laws,codes and regulations3. Zero Tolerance Standards – non-negotiable standardsfor being a Starbucks supplierP R O D U C T S 33

Ethos WaterStarbucks acquired the Ethos Water brand in April 2005 andbegan selling Ethos bottled water in our U.S. companyoperatedstores that same year. As part of this acquisition,we began exploring the range of issues associated withbottled water.In November 2005 Starbucks hosted a Water Stakeholders’Summit, moderated by Business for Social Responsibility(BSR), in order to learn more about stakeholder concernsrelated to Starbucks use of water resources throughoutour business, sourcing and packaging for Ethos water,The Starbucks Foundation’s investments in humanitarianwater projects resulting from the sale of Ethos water, andother water-related issues and topics. For information onStarbucks and The Starbucks Foundation’s commitment toproviding clean water for children, please see pages 41 and 47,respectively.Encouraged by this stakeholder discussion, in 2006 wefocused our efforts on developing a set of responsible sourcingprotocols for Ethos water. Quickly recognizing that, todate, there is no one single standard for responsible sourcingof spring water, we consulted with a number of industry andenvironmental experts to further understand the issues, andto develop a strategy to guide our current and future watersourcing plans.*The result of this work is a responsible water sourcing protocoldesigned to ensure that we purchase the highest qualitybottled water product, sourced in an environmentally andsocially responsible manner. The protocol includes provisionsfor a variety of crucial sourcing concerns and specific legalissues, such as the appropriate definitions of spring water;transportation impacts; sustainable yield assessment tobetter understand existing water uses (by animals, plantsand communities); bottling issues; and community impactsand engagement.Following initial development, we reviewed and refined theprotocol with our stakeholders and utilized it to audit ourexisting water sources. Moving forward, we intend to use thisprotocol as a tool to monitor our existing sites and to qualifyadditional sources for Ethos water. Starbucks will alsocontinue to engage in dialogue with our stakeholders.Ethos Water Voluntary Product WithdrawalStarbucks is deeply committed to the health and safety ofour customers and partners, and to delivering high-qualityproducts. If a concern arises regarding the safety or qualityof one of our products, Starbucks is committed to takingappropriate measures and immediate action. One recentexample of Starbucks swift response related to an issue thatinvolved Ethos water.In December 2005, it was discovered that one of thesuppliers that Starbucks was using at the time to bottleEthos water was out of regulatory compliance for levelsof bromate. Bromate is formed from bromide – naturallyoccurring minerals found in some spring waters – during thepurification process.Upon learning of this issue, Starbucks contacted the FDA andinitiated a voluntary product withdrawal for Ethos watersold in 14 Western states. Supplies of Ethos water on theEast Coast of the U.S. were not affected because we utilize adifferent supplier for this region.As a result of the recall, West Coast production of Ethos water was immediately halted, and the impacted inventory inour stores, warehouses and other retail outlets was destroyed.Starbucks temporarily supplied our Western U.S. stores withEthos water from our East Coast bottler while we located anew source for the West Coast. Using our new water sourcingprotocol as a guide, we have qualified a new supplier thatwe believe can consistently meet our quality standards andsustainable sourcing criteria.* Ethos water is currently sourced from two natural spring sources – BaxterSprings in the Sierra Nevada Range in Northern California, and TomhickenSprings in the Pocono Valley in northeastern Pennsylvania.P R O D U C T S 34

Quality Assurance and ProductRecallsStarbucks places the highest priority on the safety andwell-being of our customers and our partners. Our qualityassurance (QA) process is extremely rigorous and extendsthroughout our entire supply chain – from coffee, dairy andother agricultural products to manufactured goods, such asbrewers, mugs and gift items.Our commitment to product safety means that we not onlycomply with government regulations and operate with fulltransparency in our QA processes, but ultimately, we seekto do the right thing – for customers, partners and theenvironment – going above and beyond basic regulationswhenever possible and appropriate.Several years ago we formed an internal “Product IncidentTeam,” comprised of representatives from QA, Legal,Operations and Communications in order to provideadditional monitoring of product quality. The team is taskedwith weekly review of product performance information,customer and partner feedback, and other product usageinformation in order to proactively assess any potential issues.Should a product quality, failure or safety issue arise, anextensive response system, including communications andoperational components, is rapidly implemented.Despite having extensive QA controls, certain unforeseensituations can arise, making a product recall necessary inorder to bring a product into government compliance and/orto ensure the health and safety of partners and customers.In Starbucks 35-year history, we’ve had only a handfulof incidents that warranted a product recall, and in eachsituation we took a proactive and universal approach torectifying the situation and maintaining customer trust andloyalty. In fiscal 2006 we conducted a rapid and voluntarywithdrawal of Ethos water as a result of quality issues,explained in more detail on the previous page.P R O D U C T S 35

Starbucks GrowTH andCommunity ImpactsIn an era of increasing globalization, whencommunities around the world are striving topreserve their cultural uniqueness, one mightassume that a large, global coffee companyis out of touch with the needs of individualcommunities or its individual customers.This assumption runs contrary to what webelieve at Starbucks. We do, however, recognizethat Starbucks continued success dependsgreatly on our ability to operate our individualstores much like a small, local business does – bybuilding lasting, personal relationships with ourcustomers and neighbors. It also means honoringthe intent of Starbucks Guiding Principles bycontributing positively to our communities.Throughout this section, we discuss Starbucks role in oursociety and the relationships we have with our communitiesand customers. Specifically, we address:• Starbucks growth• Starbucks community investments• Investing in communities around the world• The Starbucks Foundation• Starbucks commitment to health and wellness• Being responsive to our customers• Public policy and government affairsStarbucks GrowthTo realize our ambitions for Starbucks long-term growth, wework to gain the support of local communities to open newstores and operate our business. This comes down to how wellStarbucks is regarded as an enterprise that adds value to localcommunities. When Starbucks is viewed as stimulating localeconomic development, providing an inviting gathering placefor residents, and supporting neighborhood interests, we arealmost always welcomed in.Occasionally, Starbucks entry into some areas raises concernsamong local residents. Our approach is to engage openlyand directly in the hope of resolving concerns before or asthey arise.Over the next few pages, we examine some of the specificissues related to Starbucks growth, explain our perspective,and share what Starbucks is doing to be a responsibleneighbor. Some of the topics discussed below are:• Continuing marketplace evolution• Operating in the global community• Being respectful of community concerns• Being locally relevant• Supporting local communities and economic developmentStore GrowthIn fiscal 2006, Starbucks opened 2,199 new stores, bringingthe worldwide total to 12,440 locations. We expect to add asmany as 2,400 new locations next year.In October 2006, Starbucks announced plans to increasethe company’s long-term store target from 30,000 to 40,000locations worldwide, more than tripling the company’scurrent store base. We envision having approximately 20,000locations in the U.S., and another 20,000 locations outsidethe U.S. someday.S O C I E T Y36

Continuing Marketplace EvolutionOver the past several decades, the marketplace has becomeincreasingly more competitive and global in nature. Largeretail companies entering the market offer the most visiblesigns of this trend through the replication of their successfulstore concepts within and beyond their national borders. Thisis also true for Starbucks.A common misperception is that large global brand retailersand small, independent retailers cannot coexist. The coffeeretailer market offers an example of such coexistence.Coinciding with Starbucks growth has been a steady growthof small, independent coffee shops throughout the U.S. Thiswould suggest continuing synergy between the growth ofStarbucks and that of smaller coffee retailers. Starbucks haslong believed that coffee consumers have a wide variety ofneeds and preferences, and, in turn, their demands support avery diverse range of coffee retailers.From the beginning, Starbucks has played an integral part increating an industry for gourmet coffee. This growth of thespecialty coffee industry has, in turn, created opportunitiesfor competing coffee businesses that similarly cater to theincreasingly sophisticated consumer palate for specialtycoffees. As Starbucks has grown, so has the industry, all ofwhich has benefited coffee consumers.Operating in the Global CommunityIn our efforts to extend Starbucks presence to markets beyondthe U.S., we have been introduced to a multitude of newplaces, each one uniquely characterized by its history, culture,sense of community and natural environment. We have alsobeen introduced to and welcomed by millions of enthusiasticcustomers. Overall, our experience of doing businessthroughout the world has been overwhelmingly positive.There are, however, times when doing business on the globallandscape presents some challenges, including dealing withthe wide spectrum of perceptions people have of America.In some parts of the world, there has been a rise in anti-American sentiment, much of it attributed to the war in Iraq.As a global company with an American heritage, we strive tobe respectful of other perspectives and responsive when weencounter misconceptions that may affect our relationshipswith our customers, neighbors and/or business partners.Being Respectful of CommunityConcernsThe growing presence of global brand retailers has heightenedawareness about the level of homogeneity in the marketplace.Some local citizens are opposed to national retailers enteringtheir communities, suspicious that these retailers will forceout small independents by driving up commercial rents oraffecting the unique complexion of their neighborhoods. Onoccasion Starbucks has encountered community opposition,although it is far more typical for us to receive a warm andenthusiastic welcome when opening in a new area.We make every effort to understand the underlying issuesrelated to these situations and work collaboratively andrespectfully with local citizen groups. Looking for waysto leverage Starbucks economic impact – jobs, support forcommunity-based organizations, use of local vendors andsuppliers – is one approach we take. Another is to determinehow Starbucks can contribute to the local character of an areaand minimize any undesirable impacts.Many factors are weighed when considering a specific locationto site a new Starbucks, focusing the end goal on being ableto serve our loyal customers in a welcoming environment.However, if after thoughtful review we determine thatStarbucks is not a good fit for a particular locale, we maychoose to respectfully withdraw our plans to open a newstore. There have been several instances in the past when wehave elected to do this.On the next page we report on three experiences we recentlyhad in California, New York City and London.S O C I E T Y37

Local Community Case StudiesLa Mesa, CaliforniaWhen some members of the community learned of ourplans to open a new store in the heart of La Mesa Village,they expressed concern that Starbucks arrival might erodecompetition and change the unique character of this area.La Mesa Village, the city’s oldest, most established shoppingdistrict, is surrounded by many historic buildings that dateback to 1912, the year this city was incorporated in San DiegoCounty.Some residents welcomed Starbucks presence, while otherswho were more apprehensive registered their concerns withlocal civic leaders and the mayor’s office.We believe a situation such as this can only be resolved whena climate of mutual respect and trust exists. We took thisto heart in La Mesa and reached out to the mayor, affiliatedwith the local merchant association and looked for otherways to become immersed and invested in the overall successof La Mesa Village. Starbucks also identified opportunitiesto support important events that helped to strengthen ourconnection to the local community, which we had been a partof since opening our first store in the area in 1995.As a result of these efforts, tensions softened and there wasa notable turn in acceptance. To celebrate the opening ofStarbucks new store, we held an event that was attended byrepresentatives from the City of La Mesa, members of the LaMesa Merchants Association and many local neighbors.New York City – Astor PlaceWhen Starbucks began planning to make some much neededrepairs and improvements to the atrium area of the historicAstor Place building, local residents wanted assurance thatStarbucks would be respectful of this 160-year-old landmarkstructure as well as the distinctive character of the surroundingcommunity. The atrium offers ample seating space, whichmany customers of Starbucks Astor Place store enjoy.Many longstanding structures, such as Astor Place, arearchitectural treasures that connect residents to their localhistory and add charm and character to their neighborhoods.In the case of Astor Place, we wanted local residents tounderstand Starbucks commitment to their neighborhoodand our intent to preserve this mixed-use building that holdsa commanding view of the immediate area.Due to our delay in renewing our local business license,and the community’s overall concerns about the neededrepairs to the atrium, our permit to use the atrium space wasthreatened. We resolved this matter in a positive manner byworking with a local council member, area residents, cityemployees and the Landmark Preservation Commission tofind a suitable process that would ensure the preservation ofthis beloved site.Through our engagement with the community, we wereable to dispel some misinformation that had previously beenreported, and share our desire to work together on a commongoal. Because Starbucks had been operating in this locationfor some time, this process also helped to strengthen ourexisting relationships in the community and set the course forongoing engagement.London – Bloomsbury DistrictThe occasional opposition to Starbucks has not only beenisolated to specific communities in the U.S. In 2006 weexperienced an incident in London when some local citizenssigned petitions in an effort to keep Starbucks from openinga store on Lamb’s Conduit Street in the Bloomsbury district.The resulting media coverage focused largely on the influencecertain celebrities had in galvanizing the community’sopposition to this new Starbucks.Since opening in August 2006, our store partners have soughtto establish relationships with neighboring businesses andcommunity organizations, and looked for opportunities tosupport local causes. While some community members havechosen not to frequent this new Starbucks store, others havebecome our customers. Starbucks is committed to buildingstrong ties to this community and continually lookingfor ways we can contribute to the thriving life on Lamb’sConduit Street.My Starbucks –Through its work with local preservationists,Starbucks demonstrates how a nationalretailer can be a good neighbor by helping topreserve community character instead ofdestroying it.-Richard Moe, president, NationalTrust for Historic PreservationS O C I E T Y38

Being Locally RelevantProviding a consistent experience for our customers isone of Starbucks greatest strengths. At the same time, weare respectful of our local communities throughout theworld and, when possible, modify our store environmentand customer experience in various ways. For instance, wehave adapted our menu at times to include special fooditems in Asia, Europe and elsewhere; adjusted the days andhours of our store operations depending on local customs;incorporated architectural elements in our store designto reflect the uniqueness of a neighborhood; and createddifferent types of store environments that are culturallyattuned to and meet our customers’ needs.In the UK, Starbucks has an initiative aimed at incorporatingfeatures that make our stores relevant to the localcommunities. For example, in Manchester, England, we havepurchased several items for our local stores from BenchmarkFurniture Design, a local maker of wood furnishings with asocial mission.Some of our stores in the U.S. are also adapted with alocal flair. For instance, instead of building a new store inChicago’s Beverly neighborhood, Starbucks refurbishedan existing limestone building and preserved many of theoriginal features, including a distinctive fireplace mantelwhich we designed to be a focal point of our new store.Supporting Local Communities andEconomic DevelopmentWhether it’s an existing location or we are entering aneighborhood for the first time, an important way we ensurestrong ties to the community is through our support of localprograms and causes. This takes a variety of paths, includingour ongoing support for community-based organizations;encouraging our partners to actively volunteer; establishingalliances with nonprofit organizations; and other localengagement activities.In addition to this type of support, Starbucks has beena catalyst for local economic development. Since 1998,Starbucks has had a joint venture with Johnson DevelopmentCorporation, a company owned by Earvin “Magic” Johnson,through Urban Coffee Opportunities, LLC (UCO). Thegoal of UCO is to bring Starbucks stores to diverse localcommunities in the U.S. At the end of fiscal 2006, there were102 UCO stores in operation.As the name suggests, UCO focuses on creating opportunitiesfor communities that may have been overlooked by otherprominent retailers, despite their long-term potential foreconomic vitality. At times, Starbucks has been the firstpremium brand retailer to site a store in a certain area, apresence that has helped to serve as an economic stimuluswith the creation of new jobs, use of local suppliers, and byattracting other major retailers to the neighborhood. (Formore information on UCO, please see page 75)Building Civic AlliancesIn fiscal 2006, Starbucks worked closely with civicorganizations that helped us better understand theopportunities, concerns and challenges faced by our localcommunities, including the U.S. Conference of Mayorsand the National Trust for Historic Preservation – MainStreet Center.These relationships have been mutually beneficial. Notonly have we forged closer connections to our communitiesthrough these civic relationships, we have also been ableto educate the public about Starbucks brand and the valuewe bring to local municipalities, and gain a broader rangeof insights and feedback at the civic level. We believe theseorganizations have benefited from Starbucks support of issuesthat are important to their constituents. Historic preservation,the environment, infrastructure, jobs and urban revitalizationare just a few of the issues we collectively address throughthese alliances.In the following pages, we explain how Starbucks isinvesting in our local communities in the U.S. and ourinternational markets.S O C I E T Y39

Starbucks Community InvestmentsStarbucks seeks opportunities to contribute positivelywherever we have a presence. At any given time, we maybe funding a water purification system in Indonesia;contributing to the rebuilding of a library damaged by anatural disaster; or helping to establish a new high school in arural coffee-growing village.The specific topics we discuss include:• Our overall approach to community investments• Investing in local communities– Promoting the need for clean water– Rebuilding communities struck by natural disaster– Starbucks partners – supporting their communities– Localized initiatives• Investing in communities around the world– Investing in coffee- and tea-growing communities• The Starbucks FoundationOur approach to community investments has been shaped byour increasingly global presence. After thoughtful discourse –internally and with external stakeholders – Starbucks decidedin fiscal 2006 to begin focusing a significant portion of ourcommunity investments on two universally important issues:education and access to clean water. These two complex yetcritical issues complement Starbucks core values and ourstrategic direction. We also believe that by focusing andaligning the giving priorities of Starbucks Coffee Companyand The Starbucks Foundation, Starbucks contributions willhave greater impact and provide more benefit to communitiesaround the world.Given the complex nature of the issues we address, our givingis done in a number of ways and through various channels.These include:• Cash contributions made at the corporate, regional andlocal level• In-kind donations of Starbucks products and resources• Partner (employee) volunteer and gift-matching programs• Contributing funds to The Starbucks Foundation for itsgrant-making efforts• Adding premiums to some of our coffee contracts to fundcommunity projects• Encouraging customer charitable donationsWe recognize that our focused approach to communityinvestments needs to remain flexible so we can be responsiveto emergent needs in the areas where we have a local presence.This was certainly the direction we took in fiscal 2006, bytargeting our giving in the following ways:• Launched a campaign to call attention to the globalwater crisis and provided funds to address critical water,sanitation and hygiene programs in regions of Ethiopiaand Indonesia.• Provided ongoing assistance for rebuilding efforts in U.S.Gulf Coast communities affected by Hurricane Katrina.• Supported locally relevant education programs incommunities where we do business.• Contributed to the local nonprofits that our partnerspersonally support with their contributions of timeand money.• Invested in projects that benefit coffee- and tea-growingcommunities.In fiscal 2006, Starbucks cash and in-kind contributions werevalued at $36.1 million, or four percent of the company’searnings before income tax. (See pie chart below.)Starbuckscontribution toThe StarbucksFoundation$15.9 millionCorporate giving$9.8 millionStarbucks Donations Paid in Fiscal 2006*Total: $36.1 millionProjects in coffeecommunities$2.7 million**Product andin-kind donations$7.7 million* This chart represents grants and product donations paid by Starbucks Coffee* This Company chart represents during grants fiscal and 2006. product These donations numbers paid differ by Starbucks from grant Coffee Company expenses during fiscal2006. recorded These in numbers our consolidated differ from grant financial expenses statements, recorded in our which consolidated are shown financial on an statements,which accrual are shown basis as on required an accrual by basis generally as required accepted by generally accounting accepted principles accounting principles (GAAP) in(GAAP) the U.S. in the United States.** ** Represents the total the total amount amount Starbucks Starbucks paid through paid some through coffee some contracts coffee to fund contracts various to projects toimprove fund various coffee-growing projects communities. to improve coffee-growing communities.S O C I E T Y40

Investing in Local CommunitiesStarbucks long tradition of supporting important and locallyrelevant causes got its start in the U.S., although today ourgiving extends to communities around the world – especiallyin places where we have a strong and growing presence.Below we provide several tangible examples of communityinvestments Starbucks made in fiscal 2006, beginning withdescriptions of our U.S. initiatives and our support fordisaster relief; followed by a section highlighting our localcommunity efforts in some of our international markets.Promoting the Need for Clean WaterIn recognition of World Water Day, a UN day of observance,on March 22, 2006, Starbucks launched a multiyear effortto call attention to one of the most significant public issuesin the world. More than one billion people globally lackaccess to clean, safe drinking water. The public healtheffects associated with this global water crisis are enormous,including the death of an estimated 1.8 million children eachyear from preventable waterborne illnesses.*Solving the problem will take a concerted global effort andresources from many different sources. Our goal is to leverageStarbucks unique culture and global presence to make adifference. Raising awareness with our partners and customersabout the world water crisis – and what we all can do toaddress it – is a first step. In fiscal 2006, we:• Sponsored World Water Day walks in eleven U.S. cities tosymbolize the difficult average three-mile daily walk thatwomen and children in developing countries often maketo get drinking water for their families.• Launched a World Water Day website,www.worldwaterday2006.org, to inform and mobilize thepublic about the issue.• Encouraged nearly 4,000 partners and individualsrepresenting NGOs to participate in World Water DayWalks for Water in cities around the country and on a“Virtual Walk for Water” online.For information about The Starbucks Foundation’sinternational initiatives to bring reliable and clean water tocommunities in Ethiopia and Indonesia, see page 47.Rebuilding Communities Struck by Natural DisastersStarbucks has been quick to respond to and provide assistanceto local communities devastated by natural disasters inseveral regions around the world. This includes our reliefefforts for communities along the U.S. Gulf Coast, and areasaffected by the tsunami in South Asia and the earthquake inIndonesia. Starbucks also provided support to coffee-growingcommunities in Central America affected by Tropical StormStan. Our response to Tropical Storm Stan is described onpage 28.Hurricane KatrinaIn September 2005, following Hurricane Katrina, Starbucksmade a $5 million commitment, funded by both Starbucksand The Starbucks Foundation, to support the region. Thiscommitment included an immediate $1 million donation thatStarbucks made to the American Red Cross for emergencyrelief services.The remaining funds will be used for the ongoing rebuildingof local Gulf Coast communities that are still recovering fromthe overwhelming damage caused by this hurricane.As part of our initial $5 million commitment, Starbuckspledged a portion of revenues generated by the CD I Believe toMy Soul for the rebuilding efforts. Ten dollars of the purchaseprice of every copy sold in Starbucks company-operated storesin the U.S. and Canada is donated to aid in the Gulf Coast’srecovery. Donations are made to the American Red Cross andthe Canadian Red Cross and will continue for the lifetimeof the CD. To date, more than $315,000 has been raisedthrough the sale of I Believe to My Soul.To learn how The Starbucks Foundation is addressing therestoration of communities in the U.S. Gulf Coast, please seepage 46.* Human Development Report 2006 from the United Nations DevelopmentProgrammeS O C I E T Y41

South Asia Tsunami CommunitiesAs part of our ongoing work with CARE International, aleading humanitarian organization fighting global poverty,Starbucks provided $50,000 to CARE in fiscal 2006 tosupport the restoration of areas in South Asia where the needsare greatest. With Starbucks support, CARE has been able to:• Develop innovative and local technology to improve waterand sanitation devices in CARE-constructed houses.• Organize trainings and provide materials that have helped16,000 people find a range of ways to earn an income,including: tailoring, carpentry, cooking, fishing andsmall shops.• Conduct three-day trainings on maternal and child healthissues for 245 health workers. Each month, approximately2,500 women are screened for malnutrition and providedwith supplements.For a complete picture of CARE and its work in South Asia,see www.care.org.Indonesia EarthquakeStarbucks Asia Pacific business established The StarbucksIndonesia Earthquake Fund as part of a fundraising effortaimed at helping our partners and others in need whowere recovering from this natural disaster. Starbucks Japancontributed to the earthquake relief efforts by initiating adonation program in conjunction with Starbucks CoffeeInternational and Starbucks Coffee Asia Pacific. Fundsraised through the sales of Indonesian whole bean coffeeduring June 2006, approximately $17,800 (¥2,100,149), werecontributed to Japan’s chapter of CARE International.Starbucks Partners – Supporting Their LocalCommunitiesOur partners have repeatedly demonstrated a strong desireto engage in their communities, and Starbucks is proudto encourage and support their efforts. The following twoprograms are unique to the U.S. and Canada, although ourinternational partners are involved in their communities inmany similar forms.Make Your Mark Volunteer ProgramStarbucks volunteer program – Make Your Mark (MYM) –was introduced six years ago in the U.S. and Canada as a wayto encourage and support our partners’ (employees) volunteerefforts. Through MYM, Starbucks matches our partners’volunteer efforts by donating $10 for every hour volunteeredto the designated nonprofit organization, up to $1,000per project.If our partners enlist the help of customers, Starbucksmatches their volunteer hours, too. Since its inception, MYMhas inspired our U.S. and Canadian partners and customersto volunteer more than one million hours for thousands oflocal community organizations. That’s equivalent to about480 people working full-time for one year. (See graphs below.)To learn about The Starbucks Foundation’s special Make YourMark program to support partners’ exceptional communityefforts in the U.S. Gulf Coast region, see page 46.Starbucks Make Your Mark GrantsMake Your Mark Volunteer Hours383,000$1,487,000 $1,559,000 Fiscal year 2004 2005 2006299,000$801,000214,000Fiscal year 2004 2005 2006S O C I E T Y42

Choose to Give! Gift Matching ProgramStarbucks also encourages our U.S. and Canadian partnersto make their own charitable gifts with support fromthe company’s gift-matching program, Choose to Give!Starbucks matches our partners’ charitable gifts, dollar-fordollar,up to $1,000 annually. In fiscal 2006, 3,800 of ourpartners’ charitable contributions were matched by Starbuckswith $677,000.Localized InitiativesIn addition to our national community initiatives in theU.S., Starbucks looks for opportunities to contribute at thelocal level in meaningful ways. Based on our belief thatcommunities greatly benefit when grants are combinedwith volunteerism, we often direct our local communityinvestments to the organizations where our partners areactively involved. In other cases, Starbucks supports causesthat are locally relevant and contribute in a meaningful wayto enhancing community life.Examples of our localized initiatives include the StarbucksCalifornia Giving Program (www.starbuckscalgiving.com),which awards grants annually to eligible community-basednonprofit programs that allow children an opportunity togrow and flourish. The other is Starbucks NeighborhoodParks Program (www.starbuckslovesparks.com), an initiativedesigned to help improve local area parks in the GreaterSeattle area, Starbucks hometown. With our localizedinitiatives, our partners’ involvement is a key component, andstrongly encouraged.NA ACP Strategic AllianceIn May 2006, Starbucks announced a five-year, $2.5million commitment of both cash and in-kind donationsto the National Association for the Advancement ofColored People (NAACP), the oldest and largest civilrights organization in the U.S. This strategic alliance willenable Starbucks and the NAACP to support programs andactivities reflecting our shared commitment to social andeconomic equality. The NAACP and Starbucks will worktogether on an annual basis to identify programs that willreceive funding through Starbucks donations.S O C I E T Y43

Investing in Communities Aroundthe WorldIn our international markets, there are countless examplesof how Starbucks supports local communities throughphilanthropy, partner engagement and by opening our doorsfor community events. While our international communityefforts support many causes and often follow the lead of ourpartners’ interests, we are beginning to focus more of ourefforts on support of educational and water-related initiativesthat improve the lives of children. Below are some examplesthat represent our activities in fiscal 2006:Greater China• Mainland China – Since the opening of our first storein Beijing in 1999, partners have been involved incommunity initiatives, from volunteering in local schoolsto assisting other educational nonprofit organizations.• Hong Kong/Macau – We facilitated a customer toyand book drive for Operation Santa Claus, an annualfundraising effort held every December in support of smallcharities in urgent need of support.• Taiwan – Starbucks Taiwan continued its long-termsupport of aboriginal children through World VisionTaiwan, in addition to sponsoring an environmentalawareness campaign and a community cleanup.Asia Pacific• Thailand – On Earth Day, Starbucks Thailand held a“Green Up” workshop at a central park in Bangkok forcustomers and partners. Workshop participants learnedhow to minimize their environmental footprint andplanted new trees in Rot Fai Park.• Japan – Starbucks Japan, in collaboration with MajorLeague Baseball, donated $248,500 (¥28.7 million) tofour agencies that enhance the lives of children in Japan,Ethiopia and Indonesia. Revenues for the donationswere raised through sales of a Starbucks Card featuringIchiro, a famous Japanese baseball player who plays forthe Seattle Mariners. The Cards were sold in all StarbucksJapan stores.Europe/Middle East/Africa (EMEA)• The UK – Starbucks partners have worked with theNational Literacy Trust for six years to develop All Booksfor Children, a program that introduces preschool childrenand their families to the benefits of libraries and reading.Hundreds of Starbucks partners have been involved withthe program since its inception. For the second year ina row, UK partners were honored for their outstandingefforts in support of literacy with a prestigious award fromBusiness in the Community, a movement that encouragespositive civic engagement by businesses.UK partners also supported an African WildlifeFoundation (AWF) program in Kenya. AWF is working toimprove the accessibility and reliability of water and bringother basic improvements to a Kenyan coffee-growingcommunity. Ten UK partners traveled to Kenya inOctober 2006 to meet with local coffee farmers who havebenefited from the project and learn about the other workof AWF.• Germany – Literacy was the focus of our partners inGermany who participated in a nationwide Read-OutDay in November 2005 in cooperation with the GermanLiteracy Trust Organization and Die Zeit, a nationwideweekly newspaper. Twenty-four Starbucks stores hostedreading sessions for children.• Greece – Our partners in Greece have continued tosupport SOS Children’s Villages and prioritize children’shealth and welfare in their community efforts. In fiscal2006, partners lent their support to several programsfor orphaned children. They also helped create librariesand playrooms for children hospitalized in four state-runorganizations.• Spain – Our partners organized an in-store children’s bookdrive during the holiday season in fiscal 2006. Many ofour customers donated books, bringing the total to 1,475books collected. The books were then donated to severaldifferent Children’s Hospitals.• Turkey – Our partners in Turkey identified education asan important issue in their communities, due to the youngage of the Turkish population (65 percent are below 18years of age). Working with the Ministry of Education,each new Starbucks location identifies a local school towork with. Partners commit personal time to supportevents such as parties, fund raising and gift giving as wellas organizing day trips for the children to theatres andmuseums. They have found that the trips can be a once-ina-lifetimeexperience for some of the children, and this factalone has a positive effect on the satisfaction our partnersfeel from being involved. As of May 2006, there were 40schools involved in the program, with an average of 1,000students each, including two schools that serve studentswho are deaf.S O C I E T Y44

CanadaStarbucks Coffee Canada is dedicated to supporting familyliteracy by working with a variety of national and local literacyorganizations. In fiscal 2006, we partnered with the ABCCanada Literacy Foundation to launch Gift of Words (GOW),a national program to address funding shortages in schools,libraries and literacy organizations. GOW will provide childrenwith access to books and one-on-one reading opportunities toencourage their development as lifelong readers and learners.In its first year GOW delivered thousands of books to childrenacross Canada, and more than 69,800 children gained access tonew or improved reading circles.Starbucks Canada donated $264,000 (CAD$305,000), whichrepresented the full proceeds of latte sales in all CanadianStarbucks stores on January 19, 2006, to Gift of Words andFrontier College, another national literacy organization.Latin America• Mexico – Until recently, there was no high schoolin the rural province of Nuevo Paraiso in Chiapas,Mexico, an area that is home to many coffee farmingfamilies. Attending high school – or taking any classbeyond primary school – meant leaving the provinceand relocating miles away. When the coffee cooperativeComon Yaj Nop Tic looked into building a regional highschool, Tecnológico de Monterrey, a private college, offeredto install a virtual education program, transmitted viasatellite to a central location in the province.After six months of combined effort by the cooperative,Starbucks and many community members, as wellas $10,000 in financial support from Starbucks, aCommunity Learning Center was built and opened inJune 2006. The Center, which now serves 150 coffeefarming families and others from five neighboringcommunities, provides access to a virtual high school andpost-graduate programs, as well as family development andhealth programs. Permanent instructors staff the LearningCenter under the supervision of Instituto Tecnológico y deEstudios Superiores de Monterrey. More than 50 studentshave registered for the 2006-2008 high school program.Other courses are being developed, including training onsustainable coffee production.• Chile – Starbucks partners in Chile are dedicatingtheir efforts to help children with serious medical issuesparticipate in a special form of movement therapy knownas hipotherapy. Starbucks partners worked twice a weekwith these children as they engaged in hipotherapy asa means to improve their balance and coordination.Starbucks Chile funded a scholarship to allow one childto receive the treatment in fiscal 2006, and will continuesupporting the program in fiscal 2007 with an additionalscholarship and partner support.Investing in Coffee- and Tea-GrowingCommunitiesStarbucks recognizes the positive impact our tradingrelationships and our commitment to education and healthissues can have on coffee- and tea-growing communities.Starbucks often works with nongovernmental organizations(NGOs) with required knowledge and expertise to ensure ourefforts are effective.In fiscal 2006, Starbucks continued to support thework of Conservation International, African WildlifeFoundation, CARE International, and Coffee Kids in theareas of biodiversity preservation, wildlife conservation,poverty alleviation and microlending, respectively. Wealso maintained our collaboration with Save the Childrenin Guatemala and our work with Mercy Corps in teagrowingcommunities.For information about our investments in coffee- and teagrowingcommunities, see pages 27 and 31 respectively.Save the ChildrenIn 2005, Starbucks committed $1.5 million over four yearsto bring bilingual education to 20 Mayan communitiesin the rural highlands of Guatemala, $426,000 of whichwas contributed in fiscal 2006. Starbucks selected Savethe Children USA, an international relief and developmentorganization, to lead our Guatemala Education Initiative.Save the Children then successfully leveraged Starbuckssupport by securing $600,000 in matching funds from theUnited States Agency for International Development (USAID)to bring additional educational benefits to rural Guatemala.The Guatemala Education Initiative aims to provide qualitypreschool, primary and secondary education to ruralindigenous children, with special emphasis on girls. Savethe Children has developed bilingual programs sensitive tolocal social and cultural factors, with input from parents,education officials and community leaders.In the first year of operation, Save the Children worked in 14schools in 12 communities and established 14 preprimarycenters. More than 50 teachers were trained and as manyas 1,700 children are now participating in the new bilingualactive learning programs. More information is available onthe Save the Children website: www.savethechildren.org/corporate/partners/starbucks.htmlStarbucks partners have supported the Guatemala EducationInitiative enthusiastically. In fiscal 2006, partner supportof the Guatemala Education Initiative provided fundingto furnish two rural Guatemala schools with backpackscontaining school supplies; school playgrounds; and othervaluable supplemental support for the children.S O C I E T Y45

The Starbucks FoundationStarbucks chairman Howard Schultz established TheStarbucks Foundation in 1997 with a mission to create hope,discovery and opportunity in communities where Starbucksretail stores are located. Since that time, The Foundationhas provided more than $18 million in funding initiallyto literacy and youth education programs in underservedcommunities in the U.S. and Canada. More recently, TheFoundation has broadened its approach to grant making.The Starbucks Foundation, a 501(c)(3) charitableorganization, receives the majority of its funding fromStarbucks Corporation as well as some private donations. TheFoundation, a separate entity from Starbucks Corporation, isgoverned by a board of directors comprised of 11 Starbuckssenior executives and is chaired by Orin Smith, retiredStarbucks president and chief executive officer.In fiscal 2006, The Foundation made more than 200 grantsto nonprofit organizations, totaling $7 million.The Starbucks Foundation is increasingly focusing more ofits resources on education and addressing issues related towater. The Foundation seeks to align its giving with its corevalues and mission, and be responsive to emergent needs incommunities where Starbucks has a presence. In fiscal 2006,The Foundation supported a variety of initiatives around theworld, including:• Rebuilding efforts in areas impacted by two significantnatural disasters• Projects aimed at improving access to water, sanitation andhygiene education• Youth development programs in education, the arts andenvironmental education• Continued support of key nonprofit partners that promoteliteracy• Funding to establish The Starbucks China EducationProject at Give2AsiaF U T U R E G O A LThe Starbucks Foundation will mark its 10-yearanniversary in 2007. Both The Foundation andStarbucks Coffee Company will announce a globalphilanthropic framework focused on supportingeducational initiatives in Starbucks retail marketsaround the world.Hurricane Katrina Rebuilding EffortsIn September 2005, following Hurricane Katrina, Starbucksmade a $5 million commitment, funded by both Starbucksand The Starbucks Foundation, to support the region. TheStarbucks Foundation donated $200,000 to immediate reliefefforts following Katrina, including $150,000 to Habitat forHumanity and $50,000 to Jumpstart of New Orleans. TheJumpstart funds will be used to rebuild libraries and replacebooks, and the donation to Habitat for Humanity supporteda musicians village project. The Starbucks Foundation hastaken an innovative, community-based approach to helpingthe region recover from the hurricane disaster, including:• Making grants of $50,000 each to four communityfoundations to be used where the need was greatest.• Setting up Donor Advised Funds totaling $700,000 atthree community foundations to take recommendationsfrom partners (employees) for gifts of up to $10,000 tograss-roots, neighborhood nonprofits.• Instituting a Gulf Coast version of Make Your Mark tosupport our partners’ extraordinary volunteerism in theircommunities. The Foundation donates $25 for everyhour that our partners volunteer their time to nonprofitorganizations working to restore homes, lives andcommunities destroyed by Hurricane Katrina. To date,nearly $17,000 has been granted to eight projects throughStarbucks match of the volunteer hours of 86 individuals.The Foundation will monitor rebuilding efforts in the regionand work with community leaders to identify the areas ofgreatest need and determine how the reserved funds can bestserve local communities.My Starbucks –Jerry Moran, store manager, and hisfellow New Orleans partners have beeninstrumental in saving flood-damagedhomes from the bulldozer. The Cityof New Orleans placed a deadline forhomeowners to salvage and treat theirsodden and often mold-infested homes.The cost was prohibitive for manyfamilies in lower income neighborhoods.So Jerry and his co-workers, alongwith others throughout the Gulf Coastregion, teamed up with ACORN (TheAssociation of Community Organizationsfor Reform Now) to help recoverthese homes through a combined 670-hour volunteer effort. The volunteersrestored 11 homes in fiscal 2006, whileraising an additional $17,000 to supportACORN through donations from a specialGulf Coast version of Make Your Mark.S O C I E T Y46

Ethos Water Fund and World Water InitiativesThrough the acquisition of the Ethos Water brand in April2005, Starbucks embarked on an effort to raise awareness ofthe world water crisis and support clean water initiatives. Foreach bottle of Ethos water sold, five cents is donated towardStarbucks goal of contributing at least $10 million by 2010 tohelp alleviate the world water crisis.The Ethos Water Fund is housed within and directedby The Starbucks Foundation to support nonprofit andnongovernmental organizations working to bring clean waterto those in need around the world. Funding priority is givento integrated and sustainable water projects that positivelyimpact the lives of children and their communities.On World Water Day 2006 The Starbucks Foundationannounced two new multiyear initiatives to help communitiesin Indonesia and Ethiopia gain access to improved water,sanitation and hygiene education.Mercy Corps in Sumatra, IndonesiaThe Starbucks Foundation committed $1 million over twoyears to support Mercy Corps’ Sumatra Healthy SchoolsProgram on Sumatra Island, Indonesia. In this region, thelack of potable water has helped fuel an anemia epidemicin young people, among other serious nutritional andhealth problems.Mercy Corps has identified four interrelated programcomponents to improve children’s health by addressingthe problem through 960 schools in four provinces. TheFoundation’s Ethos Water Fund is providing needed funds toaddress the water and sanitation components of the programin 760 schools.For more information about the Sumatra Healthy SchoolsProgram, see www.ethoswater.com and http://indonesia.mercycorps.orgWaterAid in EthiopiaMenge Woreda is located in northwestern Ethiopia near theSudan border. Surrounded by mountains, it is a remote andmarginalized region of one of the poorest countries in theworld.Over a period of three years, beginning in 2005, WaterAidplans to provide all 22 villages in Menge Woreda withaccess to safe water, effective sanitation, and the hygieneeducation necessary to make the best use of these facilities.The Starbucks Foundation has committed $1.13 millionover three years to support this potentially life-changingproject for the 38,000 residents of Menge Woreda. For moreinformation about this project, see www.ethoswater.com,or see www.wateraid.org for more about WaterAid’s workin Ethiopia.My Starbucks –Sandy Nelson has been engaged inthe world water crisis for the last fiveyears. She and her husband, Chris, areactively involved with a Seattle-basedinternational water organization andhave seen firsthand how severe thewater-access issues are in countrieslike Honduras, Ethiopia, Bangladeshand India. “To actually see childrenwho are sick because their drinkingwater is contaminated changes one’svalues tremendously,” Sandy says.Sandy is a senior designer in theStarbucks Creative Group, so whenStarbucks acquired Ethos Water in2005 she was eager to bring herpersonal experience to help build theEthos Water brand. The passion Sandyhas for bringing safe water to thosein desperate need is now helping toinform the design and communicationof the Ethos Water mission.S O C I E T Y47

Supporting Youth: Arts and Literacy, EnvironmentalLiteracyThrough the Giving Voice grant program, The StarbucksFoundation promotes literacy for the 21st century. Theregional grant program supports programming for youth ages6-18. Priority is given to programs that integrate literacy skillswith personal and civic action, and that empower youth tobecome local champions for a sustainable environment. Infiscal 2006, The Foundation awarded more than $2 millionin Giving Voice grants, ranging from $5,000–$20,000, tocommunity-based organizations in the U.S. and Canada.City at Peace AwardIn May 2006, City at Peace, an after-school program forteens in Los Angeles, honored The Starbucks Foundation andStarbucks partners for their support over the last three years.City at Peace was a fledgling organization in 2003 when,with the support of local Starbucks partners, the organizationapplied for a grant from The Starbucks Foundation. TodayCity at Peace is a dynamic youth development program thatuses the performing arts to bring together teenagers fromvastly diverse backgrounds to create personal and socialchange. The program supports, guides, instructs and nurturesyouth leaders, corresponding perfectly with the goals of TheStarbucks Foundation’s Giving Voice grants.Key PartnershipsIn fiscal 2006, The Foundation continued support of severalnational youth organizations in the U.S. and Canada –America SCORES and Jumpstart – and Earth Day Network,an environmental education organization.Jumpstart’s Read for the RecordDuring August 2006, Starbucks supported Jumpstart’s Readfor the Record campaign to promote awareness of earlylearning and school readiness. The campaign raised nationalawareness of Jumpstart’s successful approach to preparingyoung children to succeed in school, and achieved thefollowing goals as well:• An official Guinness World Record was set when adultsacross the U.S. read The Little Engine That Could to morethan 150,000 children on August 24, 2006.• In partnership with Jumpstart’s corporate partners,Starbucks was the exclusive retailer and sold nearly 53,000copies of a special edition of The Little Engine That Couldin four weeks and donated the sales price of the books,totaling more than $500,000 to Jumpstart.• Starbucks stores hosted more than 330 reading eventsacross the U.S., engaging thousands of partners andcustomers in Jumpstart’s mission.• Renewed interest in the classic children’s book pushed it tofirst place on the New York Times Bestselling Children’sBook list.Earth Day Network – National Civic Education ProjectThe Starbucks Foundation contributed $75,000 in fiscal2006 to launch Earth Day Network’s new National CivicEducation Project (NCEP). The Project recruits teachers andtheir students from diverse urban neighborhoods to combinecivic and environmental education through a communityenvironmental project of their choosing.In its first year, the NCEP worked with three schools inCincinnati and one in Washington, D.C. The project wasparticularly effective in Cincinnati where the teachersfocused on greening schools and contributed greatly to theBoard of Education’s decision to adopt greener buildingpractices. Student projects ranged from building a greenroof on a school to raising awareness of the economic,educational and environmental benefits of green schools. Thestudents presented their findings to the Board of Education,including such benefits as higher attendance and greateracademic performance.The Starbucks China Education ProjectStarbucks first store in China opened in 1999 and ever sincewe have been working to simultaneously expand our storeand community presence. At the heart of Starbucks socialresponsibility endeavors in China is the China Education Project.This project was created to support the emphasis that both Chinaand Starbucks place on the importance of education. In 2005,The Starbucks Foundation pledged $5 million over five years toestablish the Starbucks China Education Project at Give2Asia, anorganization dedicated to promoting philanthropy in Asia.The Starbucks China Education Project is also overseen bya local steering committee in China, comprised of educationexperts, foundation and community representatives, andStarbucks executives. Working with this committee of localstakeholders helps ensure that Starbucks efforts are locallyrelevant and address the areas of greatest need in the ruralcommunities targeted for assistance. Since the projectwas launched in 2005, the steering committee has beeninstrumental in shaping the overall direction and structure ofthe project.The committee identified the need for quality teacher trainingas one of the top priorities to improve education. In China,many teachers in rural villages have little or no formal training.Almost always, they are the only teacher in their village so theymust teach to all grade levels.To help address this challenge, the Starbucks China EducationProject is supporting the China Soong Ching Ling Foundationin an effort to provide training for teachers to improve theirskills and offer financial assistance to financially disadvantagedstudents pursuing teaching careers in 15 universities in China.At the first teacher training session held in July 2006, teacherswere trained in the latest techniques and received materialsto continue their education in their home villages. Othercomponents of the program will offer:• Training for school administrators• Books, supplies and teaching toolsBy 2010, the teacher-training program is expected to reachan estimated 3,000 teachers from nearly 1,000 primary andmiddle schools located in five western provinces.More information about The Starbucks Foundation is availableonline at www.starbucks.com/foundation.S O C I E T Y48

Starbucks Commitment toHealth and WellnessIn 2004 the World Health Organization (WHO)introduced a major plan, calling attention tothe growing worldwide epidemic of diseasesattributed to poor diet, lack of exercise andobesity. Among them: heart disease, diabetes,cancer, osteoporosis and tooth decay – all ofwhich have an impact on healthcare systemsworldwide and overall quality of life. Accordingto the WHO, obesity is not only a formidableproblem in some Western countries, it is nowbecoming an issue in the developing world.As concern over this public health issue mounts, Starbuckshas already implemented a number of health and wellnessmeasures to offer more choices to our customers. Theseinclude:• Expanding our menu offerings to include an array ofoptions, and encouraging customization• Providing nutrition information on our beverages and foodproducts• Reducing trans fats in our products• Adopting a long-term and holistic approach to promotehealth and wellnessExpanded and Customized Menu OfferingsStarbucks actively listens to what our customers tell us andcontinually adapts in response to their demands. In recentyears our customers have requested a wider range of menuoptions from which to choose and customize. They have alsoasked for more nutrition information about Starbucks foodand beverage products. This feedback, as well as feedbackfrom nutrition experts, helped inform specific actions wetook in fiscal 2006, including the formation of an internalteam to focus on health and wellness initiatives. Forexample, this team is looking at nutritional criteria for futureproduct development.In addition, Starbucks will drive efforts aimed at providinga broader selection of product choices to our customers, onboth a companywide and a regional basis. We will build onoptions currently offered, such as nonfat, organic and soymilk; sugar-free syrups used in some of Starbucks handcraftedbeverages; reduced-fat and lowfat baked items; and lower fatand reduced calorie Frappuccino® blended beverages.In fiscal 2006, Starbucks introduced several beverage andfood items as part of our commitment to health and wellness.Here are some examples:• Yogurt parfaits and fresh fruit salads were added to themenu in various stores.• Prepackaged nut and dried fruit blends beganbeing offered.• Pomegranate and Tangerine Frappuccino® JuiceBlends, which contain real fruit juice and are naturallyfat-free, cholesterol-free, and completely non-dairy,were introduced. These lighter beverages can becustomized with any Tazo® tea flavor, including caffeinefreeoptions.We encourage our customers to customize and create theirfavorite beverages exactly as they like – from lighter versionsto indulgent splurges. In fiscal 2006, nearly 40 percent of thebeverages consumed by our U.S. customers were ordered withfewer calories and less fat, such as coffee and tea.S O C I E T Y49

Nutrition Information on Starbucks Beverages andFresh FoodWe are committed to helping our customers make wellinformedchoices about Starbucks food and beveragesby making nutrition information readily available. OurU.S., Canadian and UK customers can access nutritioninformation on Starbucks beverages via an in-store brochure.The information is also available on Starbucks.com.In fiscal 2006, we enhanced our website to include nutritioninformation on all fresh food items offered at Starbucks storesin the U.S., the majority of which are regional offerings.Customers visiting the nutrition page on Starbucks websiteare prompted to enter their local zip code and then accessnutrition information on specific fresh food items offered attheir local Starbucks store.Over the past three years, more than six million customers,nearly half of those in fiscal 2006, visited Starbucks.com fornutrition information. This indicates to us that Starbuckscustomers are taking personal responsibility to make theirown well-informed choices.Addressing the Issue of Trans FatStarbucks has taken measures to reformulate our beverageingredients in order to reduce trans fat content while stillmaintaining the taste and quality our customers enjoy. We arealso working closely with our regional bakeries on efforts toreduce or eliminate trans fat content in our pastry items.Some of our accomplishments in fiscal 2006 are listed below:• Complied with the new labeling requirements for transfats. This includes the labeling of our prepackaged foodsand posting information about trans fat content in ournon-packaged foods and beverages online. Since dairyingredients contain small amounts of naturally occurringtrans fats, there will always be traces of these fats reportedfor our beverages made with dairy products.• Reformulated our Frappuccino® blended crème base,bringing all of Starbucks beverages to less than 0.5 gramsof artificial trans fat.• Reduced trans fats to 0 grams (per the U.S. Food andDrug Administration’s nutrition labeling rounding rule) inall of Starbucks national promotional pastry items offeredin the U.S., including our pumpkin cream cheese muffinsand gingerbread loafs.F U T U R E G O A LIn fiscal 2007, work with our regional bakeries toeliminate trans fats from all of our food offerings inour U.S. company-operated stores.Our Long-term Approach to Health and WellnessOur commitment to health and wellness is a deeplyembedded tenet of Starbucks history and culture. It’s reflectedin the way we care for our partners and in the relationshipswe have with our customers. In recent years, Starbucks hasbecome an advocate for healthcare reform in the U.S.We believe in being proactive when it comes to addressingthe shared concerns of our customers and the public at large.In early fiscal 2006, Starbucks held a roundtable discussionwith nutrition experts. We asked for feedback regarding ourhealth and nutrition efforts, and we listened to their advice.Starbucks valued this dialogue greatly and is now movingforward on plans for continued engagement.F U T U R E G O A LEstablish a Health and Wellness Advisory Panel tomeet on an ongoing basis, and include experts fromthe medical and nutrition communities who willprovide insight and advice to Starbucks on health andwellness issues; societal expectations of Starbuckswith respect to health and wellness; and our futureinitiatives and strategies globally.My Starbucks —Providing nutrition information enablesour customers to make well-informeddecisions, and customize their orders.Customization can help people cut calories,fat and sugar without sacrificing tasteand quality. Customers can tailor theirorder by asking for less syrup orsubstitute sugar-free syrup; requesta “light” version of their favoriteFrappuccino ® blended beverage; opt fornonfat milk; or ask to “hold the whip.”For instance, my favorite beverage - aDouble Tall Sugar Free Vanilla NonfatCaramel Macchiato - contains about 100calories, 1 gram of fat, 3 grams of addedsugar and provides 20 percent of mydaily calcium and 8 grams of protein.These types of simple adjustmentscan easily save 100 calories, whichday after day and over the courseof a year, can translate to a lossof 10 pounds of body weight.Katie Thomson, RDStarbucks nutritionistS O C I E T Y50

Being Responsive to Our CustomersStarbucks customers expect an outstanding coffeeexperience – at their local store and in every Starbucksaround the world – each time they visit. In the spiritof our fourth Guiding Principle, which inspires us to“develop enthusiastically satisfied customers all of thetime,” we are constantly looking for ways to meet or exceedtheir expectations.At the end of fiscal 2006, we were serving customers aroundthe world more than 40 million times per week. To ensuretheir Starbucks Experience is consistently excellent whereverthey are, it’s essential that we stay in touch. We strive torespond to every customer comment appropriately and ina timely manner. We use our customers’ feedback to makeimprovements that enhance their experience and earn theirloyalty and respect.Listening to Our CustomersSeveral channels are available for customers to provide theirfeedback. They can call Starbucks customer relations at atoll-free number, fill out in-store comment cards, or submitcomments online at Starbucks.com. We welcome the valuablecomments we receive from our customers, which we sharewith store partners, management and others as appropriate.In fiscal 2006, Starbucks received more than 890,000customer contacts. The majority of customer contactsconcerned the use of a Starbucks Card or the service in aStarbucks store. Less than two percent of the total volume ofcustomer contacts related to Starbucks social responsibility.Consistent with prior years, the areas of social responsibilitythat customers asked about most often pertained to Starbucksrecycling policies and our ethical sourcing of coffee.Starbucks is devoted to acting responsibly in all areas ofour business practices and we appreciate that our customersshare our concerns. To learn more about Starbucks ongoingenvironmental efforts or the way we source and purchasecoffee, please see pages 54 and 16 respectively.Customer FeedbackThrough various channels, customers also expressed theirinterest in other CSR-related issues in fiscal 2006, including:our support of the U.S. military; our policy on supportingrodeos; the presence of rBGH in our dairy products; thecaffeine content in our coffee; and our marketing practicesrelated to youth and Starbucks liqueur products. A summaryof Starbucks policies on each of these issues is provided inthis section.Starbucks Support of the U.S. MilitaryMore than three years ago a single e-mail erroneouslyaccused Starbucks of not supporting U.S. military personnel.The private e-mail began to circulate widely online. In asubsequent e-mail, the author apologized for the earliermisstatement and retracted it. Despite this, the original,inaccurate e-mail has continued to circulate, and customersfrequently ask about it. We assure them that this onlinerumor is absolutely false.Starbucks and our partners have consistently demonstratedsupport of U.S. military personnel in a number of ways. Wewere honored to receive a 2006 Freedom Award from theDepartment of Defense. For specific information about theFreedom Award and our ongoing efforts with the AmericanRed Cross to support U.S. military personnel, please visitStarbucks.com.rBGH-free DairyWe are actively working with our suppliers to secure anadequate milk supply that is rBGH-free. rBGH is a syntheticgrowth hormone given to dairy cows to stimulate milkproduction. See page 32 for more information about ourefforts to require our core dairy products to be rBGH-free.Starbucks Affiliation with RodeosAs a member of the communities we serve, and as a wayto share the joy of coffee, Starbucks often supports localactivities or events. We frequently donate coffee or host coffeeseminars, free of charge, with no expected recognition inreturn. These community efforts are not a sponsorship noran endorsement of any event or activity. They are simply away for Starbucks to lend a helping hand and support thecommunity. It is in this way that Starbucks has been affiliatedwith rodeo events in Texas, Wyoming and Calgary, Canada.We have never sponsored a rodeo event. Our goal is always tosupport, not offend, our community of neighbors.Caffeine Content in Starbucks CoffeeWe select the finest quality arabica coffees from around theworld and roast them to our signature Starbucks Roast. ® Nomatter how carefully or precisely we roast our coffee, notevery cup of Starbucks coffee will contain exactly the sameamount of caffeine. Many variables contribute to caffeinecontent from cup to cup, including where the beans weregrown and roasted, the brewing method, grind, and type ofcoffee beverage purchased. We recognize that some people aresensitive to caffeine. For customers concerned about caffeinecontent, we offer several decaffeinated coffees, teas andother beverages, including Frappuccino ® blended beverages,in most markets. Information about the health effects ofcaffeine is available online at www.coffeescience.org orwww.ico.org/caffeine.asp.S O C I E T Y51

Marketing to YouthStarbucks customers include people of every ethnicity,income, and age group with varying tastes and interests. Inaddition to our beverages and food items, Starbucks offersproducts meant to educate and entertain all age groups. Wealso seek out philanthropic opportunities, including eventsponsorships, to support the activities and programs that areimportant to the communities in which we operate.Some of our product offerings and community activitiesmay appeal to young people. We are extremely mindful ofconnecting with youth in a responsible manner.Responsible Marketing of LiqueursStarbucks and Jim Beam are committed to the responsiblemarketing of Starbucks Cream Liqueur and Starbucks Coffee Liqueur. The pricing, branding, packaging andmarketing are specifically designed to target matureconsumers. Additionally, Starbucks partners who manage ourliqueur brands are trained on the Distilled Spirits Council ofthe United States (DISCUS) Code of Responsible Practicesfor Beverage Alcohol Advertising and Marketing.Both products are available only in locations licensed to selldistilled spirits and are not sold in Starbucks retail locations.Customer SurveysCustomer surveys offer another mechanism to obtainfeedback about the quality of our customers’ experience.We recently altered our research methods, moving beyondsurveying for satisfaction and focusing instead on identifyingfactors that influence our customers’ experience and theirconnection to the Starbucks brand.In fiscal 2006 Starbucks launched a new survey tool to gatherongoing input from coffee consumers and our customers,including those who had visited Starbucks within 30 days ofthe time of the survey.When customers were surveyed between May and August2006 and asked whether they would recommend Starbucksto a friend or family, 87 percent responded that they wereextremely or very likely to recommend Starbucks.Our recent surveys also have found that the majority ofrespondents are unaware of the company’s socially responsibleinitiatives, including Starbucks support for communityactivities such as local education programs and clean waterprojects. Awareness among our customers was greater thanamong the general population, with 38 percent associatingStarbucks with good corporate citizenship, although westrive to do a better job informing customers about ourefforts to be socially responsible in all aspects of our globalbusiness operations.To gauge customer acceptance of Starbucks in theirneighborhoods, we recently asked survey respondents,specifically those who presently live near a Starbucks, whattheir overall feeling was about having a Starbucks coffeeshop near their home. We found that 66 percent had positivefeelings about having a Starbucks store in their neighborhood,while five percent indicated negative feelings. When we askedother respondents, those who do not currently live near aStarbucks, how they would feel about having a Starbuckscoffee shop open near their home, 53 percent indicatedpositive feelings and 10 percent indicated negative feelings.(See pie charts.)The level of positive consumer acceptance that already existsfor Starbucks is encouraging, particularly given our plansfor future growth. We believe Starbucks demonstratedcommitment to social and environmental responsibilitymatters to consumers and, if we are successful in increasingawareness, will help us continue to gain acceptance in localcommunities and among our neighbors.Q: What is your overall feeling about having a Starbucks coffee shop near your home?Somewhat positive16%Very positive25.8%Extremely positive23.8%Respondents who presently have a Starbucks near home.Neutral/neither positiveor negative29.3%Somewhat negative2.9%Very negative0.9%Extremely negative1.3%Q: How would you feel about a Starbucks coffee shop opening near your home?Somewhat positive12.7%Very positive17.9%Extremely positive22.4%Respondents who do not presently have a Starbucks located near home.Neutral/neither positiveor negative36.9%Somewhat negative3.6%Very negative1.7%Extremely negative4.9%S O C I E T Y52

Public Policy and Government AffairsAs a growing and increasingly more complex global business,Starbucks participates in the public policy arena, whichincludes direct and indirect lobbying at the local, state andfederal level in the U.S. In all of our efforts, we strive tocomply with all applicable laws and regulations, and workfairly and honestly with government officials and othersin our communities. Starbucks policy forbids partnersfrom offering or making payments or gifts on behalf of thecompany in order to influence a government official, or fromrepresenting their personal views as those of the company.Presently, Starbucks does not have a Political ActionCommittee established for our partners to make politicalcontributions, nor did the company make any corporatepolitical contributions in fiscal 2006.Public Policy Focus AreasStarbucks has a responsibility to maximize and protect thecompany’s value for our partners and shareholders. Ourefforts are focused on the following:• Tax Policy – Sound tax policy will continue to play akey role in the competitiveness of U.S.-based companies.Starbucks closely monitors tax policy developments andhas advocated for a tax structure that maintains incentivesfor increased productivity.• Trade Policy – Starbucks supports bilateral andmultilateral trade agreements that help to createopportunities for investment in emerging markets. Weprovide input to U.S. and foreign governments on specifictrade agreements that help to reduce barriers to U.S.exports, provide safeguards for intellectual property andtrademarks and promote transparency on both sides of thetrading relationship. In fiscal 2006, our advocacy effortsrelated to Peru and Colombia Free Trade Agreements aswell as general market access issues.• Healthcare – Providing healthcare benefits to our eligiblefull- and part-time partners is a commitment Starbucksstands by. However, we are greatly concerned about theimpact rising healthcare costs will have on our long-termability to sustain these benefits. In fiscal 2006, we focusedon identifying and prioritizing the macro issues that webelieve will help to solve Starbucks current healthcarechallenges, which we are using to inform our objectivesand action items for fiscal 2007.S O C I E T Y53

Our Commitment toEnvironmental StewardshipStarbucks commitment to contribute positivelyto the environment is a Guiding Principle of ourcompany. Ever since 1992, when we establishedStarbucks Environmental Mission Statement,we have been expanding our definition of whatenvironmental responsibility means within thecontext of our growing and increasingly morecomplex business.In this section we describe the initiatives we have undertakento be good environmental stewards, and report on ourperformance in this area. Specific topics covered include:• Starbucks climate change mitigation strategy– Purchasing renewable energy– Saving energy– Joining together with others to raise awareness ofclimate change• Reducing the environmental impacts of our cups• Understanding and improving our environmentalfootprint– Greening the store through design– Greening store operations– Waste and recycling• Looking to our supply chain: sustainable packaging• Portrait of a typical Starbucks store– Energy and water useAddressing Climate ChangeThe potentially disruptive changes in the earth’s climate dueto an increase in greenhouse gases (GHG) in the atmosphereis a major concern for our company, our customers, ourbusiness partners and other stakeholders. We agree with theconsensus of the scientific community that climate changecould pose an enormous threat to the future of our planet.Since 1992, Starbucks has been evolving and implementingan environmental strategy focused in part on the stewardshipof key coffee-growing regions. We revamped our coffeebuyingpractices several years ago to include specific criteriafor environmental preservation of these areas. We believethis approach will help to support and encourage ecologicalstability and resilience in coffee-growing areas across the globe.To address other aspects of our business operations, Starbucksestablished a three-year climate change mitigation strategyfocused on:1. Purchasing renewable energy2. Focusing on energy conservation3. Advocating the need for collaborative actionWe selected these areas by analyzing our greenhouse gasfootprint and identifying the points of greatest leverage in ourown operations and in the global community. We are now inthe second year of implementing the strategy. Our progress isdescribed throughout this section.Starbucks Greenhouse Gas EmissionsIn 2004, we conducted an inventory of our 2003 GHGemissions as part of a broader effort to better understand andquantify our environmental footprint. We used the WorldResources Institute Greenhouse Gas Protocol to conduct theinventory of major emissions from our company-operatedretail stores, coffee roasting, administrative operations anddistribution network. We did not include our internationalretail operations or other businesses. The inventory foundthat 81 percent of our GHG emissions are attributable toelectricity purchased for use in our stores, while 18 percentcomes from coffee roasting. We have used the inventory toguide development of our climate change strategy. Our focusis on emission sources under our direct control, primarilyelectricity used in our stores and coffee roasting (Scope 1 and2 in the WRI Protocol).2003 Baseline Greenhouse Gas Emissions – Scope 1 and 2Starbucks core business is high-quality coffee, an agriculturalproduct that flourishes in tropical microclimates around theglobe. Climatic conditions influence the yield and qualityof coffee crops. We are concerned that climate change couldthreaten the production of high-quality coffee crops andultimately impact our business.Starbucks believes that governments, organizations andindividuals have a responsibility to take meaningful actionto reduce GHG emissions, regardless of the scale of theircontribution to the issue. We have been working to betterunderstand the risks of climate change for our business, andidentify measures we can take to mitigate those risks.Purchasedelectricity81%Coffee roasting andnatural gas18%Company-ownedvehicles andaircraft1%E N V I R O N M E N T54

Powered by WindDuring fiscal 2006, we quadrupled our renewable energypurchase to equal 20 percent of the energy used in ourU.S. and Canada company-operated stores. Accordingto Starbucks GHG inventory more than 80 percent ofthe emissions within our direct control result from thesestore operations.An energy resource is considered renewable if it can benaturally replenished. For our renewable energy purchases,we worked through the World Resources Institute’s GreenPower Market Development Group to buy 100 percent windrenewable energy certificates*, offsetting 124 million pounds(56,000 metric tons) of CO 2 . Pooling our purchasing powerwith other companies has helped us obtain favorable rates forour renewable energy – less than a two percent premium overour average rate for conventional electricity.Starbucks is also a member of the U.S. EnvironmentalProtection Agency’s (EPA) Green Power Partnership. Thesize of our renewable energy purchase in fiscal 2006 rankedStarbucks sixth overall among other participating companies,and second in the retail sector. On October 24, 2005,Starbucks was recognized by the EPA with a 2005 GreenPower Leadership Award.Our plan is to begin offering Starbucks suppliers theopportunity to purchase renewable energy certificates throughour contract, at a “Starbucks preferred pricing” rate. In 2007,we will extend this offer initially to 388 of our major suppliersin the U.S.My Starbucks –Our reliance on fossil fuel sources forenergy is contributing to the rapidacceleration of global climate change.It’s imperative that we transitionto cleaner and renewable forms ofenergy to help contain environmentaldamage. Working with community-basedgroups involved with renewable energyprojects, I’ve seen how difficult it canbe to convince businesses to invest inenvironmentally sound forms of energy.The fact that some companies – suchas Starbucks - are willing to stepforward and support renewable energydevelopment is notable – and extremelyimportant to the future of our planet.Jeff Paulson, principalJeff Paulson & Associates, a lawfirm specializing in communitybasedrenewable energy projects* A Renewable Energy Certificate represents one megawatt-hour (MWh) ofrenewable electricity generated and delivered somewhere on the power grid. EachMWh of clean renewable electricity results in one less MWh of power comingfrom a CO 2 emitting process. Therefore a Renewable Energy Certificate alsorepresents the environmental benefits of replacing this type of power with cleanpower. (Source: 3 Phases Energy Services)E N V I R O N M E N T55

Energy ConsumptionSaving energy is often the cheapest, cleanest and mosteffective way to cut GHG emissions. During fiscal 2006,we continued to upgrade store equipment to more energyefficientversions, and installed more efficient technology atour coffee roasting plants.We also updated a performance tool geared for store managersto emphasize the importance of managing the environmentalaspects of store operations, and highlighted both the positiveand negative impacts their actions can have on the bottomline and the environment.F U T U R E G O A L SIn fiscal 2007, Starbucks will launch three interrelatedinitiatives designed to improve the energy andenvironmental performance in our stores. Theseinclude:• Our work with the U.S. Green Building Councilto develop LEED (Leadership in Energy andEnvironmental Design) standards for the retailsector. These standards set out best practices forenvironmentally sound design of new stores, andprovide a basis for third-party certification to ensurethe standards are met. In 2007, we will completeour participation in the pilot of these standards.• We will use a representative sample of stores asa “test bed” to monitor energy and water usageas part of a comprehensive audit. This audit willprovide us with baseline information on how andwhen our stores use energy and water in order todetermine conservation opportunities.• A complementary program is also being plannedto provide approximately 350 store managers insix regions with “resource report cards” that givefeedback on store energy and water use, as wellas trend data and comparisons to benchmarkoperations. The goal of this program is to helppartners identify ways to use water and energy moreefficiently and reduce costs. Based on experiencewith the first group of stores, the program will thenbe rolled out to all U.S. and Canada companyoperatedstores on a voluntary basis.Joining ForcesClimate change is believed to be the greatest environmentalthreat of our generation. We believe Starbucks can play a keyrole by helping to increase awareness of climate change, andencouraging collective action among multiple parties. Someof the steps we took in fiscal 2006 included:• Placing six full-page advertisements in The New York Timesthat highlighted the need for collective action on this issue.The advertisements discussed the problem; highlightedStarbucks emission reductions activities; provided simple,high-impact actions readers could take to contribute tosolutions; and informed readers of our partnership withGlobal Green USA, a nonprofit organization foundedby former Soviet President Mikhail Gorbachev(www.globalgreen.org).• Continuing to educate partners about the issue throughStarbucks internal communications.• Supporting and participating in organizations thatare taking effective action on the issue, includingthe World Resources Institute’s Green Power MarketDevelopment Group (www.wri.org); The Climate Group,an international organization dedicated to advancingbusiness and government leadership on climate change(www.theclimategroup.org); and Global Green USA.• Acting as a local leader. In Seattle, Washington, thehome of Starbucks global headquarters, Starbucksformer ceo Orin Smith co-chaired Mayor Greg Nickles’Green Ribbon Commission, which resulted in thecompany serving as a founding member of the SeattleClimate Partnership. Company staff also chaired theSeattle Chamber of Commerce Business SustainabilityCommittee.Greening the CupAs the country’s leading specialty coffee retailer, Starbucksgoes through a lot of cups – purchasing 2.3 billion in fiscal2006. The Environmental Defense paper calculator toolestimates that Starbucks move in 2006 to use new hot cupswith 10 percent post-consumer recycled fiber will achieve thefollowing environmental improvements in the first year alone:Resource savingsEquivalency11,300 fewer tons of wood about 78,000 treesconsumed58 billion BTUs of energy saved enough to supply 640 homes fora year47 million gallons (178 millionliters) of wastewater avoided3 million pounds (1 millionkilograms) of solid waste preventedenough to fill 71 Olympic-sizedswimming poolsequivalent to 109 fully loadedgarbage trucksSource: Environmental Defense (www.environmentaldefense.org), calculation bywww.papercalculator.org.E N V I R O N M E N T56

Paper Hot Beverage CupsPaper cups provide a convenient way to serve Starbuckshot beverages, but they also result in some environmentalimpacts.Paper cups account for nearly nine percent of typical in-storewaste by volume, although most cups are disposed of outsidethe store after their use. Our efforts to reduce environmentalimpacts of our disposable cups began in the mid-1990s. Overthe last decade, we have taken several actions, including:• Eliminating most double-cupping by utilizing corrugatedhot beverage sleeves made of 60 percent post-consumerrecycled fiber.• Offering customers a $0.10 discount when they use theirown reusable cups. Customers in the U.S. and Canadatook advantage of this offer more than 17 million times infiscal 2006, keeping 674,000 pounds (306,000 kilograms)of paper from going to the landfill.• Introducing hot beverage paper cups made with 10 percentpost-consumer recycled content. These cups, which arethe first direct contact food packaging containing postconsumerrecycled content to receive a favorable safetyreview by the U.S. Food and Drug Administration (FDA),were introduced in our U.S. and Canada stores in 2006.Starbucks paper cups, used for hot beverages, are made ofpaper fiber with a lining of low-density polyethylene plastic.The paper provides the rigidity for the cup, while the plasticlayer keeps the paper layer intact by protecting it from the hotbeverage. This plastic layer also makes the hot beverage cupsunrecyclable in most paper recycling systems.Understanding and Improving ourEnvironmental FootprintWhen a customer comes into a Starbucks store, we look at itas an opportunity to exceed their expectations. The customermay come for a cup of coffee, but we know they also takean interest in our how we run our business, including ourenvironmental performance.We continually strive to understand our environmentalfootprint and reduce our impacts. We are launchinginitiatives in fiscal 2007 that we believe will help us achievea consistent, high level of environmental performance acrossour operations and the life cycle of our products.Greening the StoreBoth the design and the operation of our stores affect theirenvironmental performance (See “Portrait of a StarbucksStore” on page 62). For several years, we have led a groupof retailers and worked collaboratively with the U.S. GreenBusiness Council (USGBC) to explore green buildingopportunities in our sector. The USGBC has developeda widely used and highly regarded set of standards calledLeadership in Energy and Environmental Design (LEED).Buildings that meet the standards receive LEED certification,signifying that their buildings use environmentally superiormaterials and incorporate energy- and water-efficient systems.Because we have many stores that generally use similarmaterials and building strategies, the process of certifyingeach individual store separately would be costly, repetitiveand time-consuming. During fiscal 2006, we registered ourprototype Single Tenant Building with the USGBC LEEDRetail Pilot. This represents a new certification model for theUSGBC and has the potential to multiply the impact of greenbuilding throughout the retail sector globally.Our focus is not just on validating the store buildingprocess through certification, but also on a comprehensiveapproach to reduce our environmental impacts. For severalyears, we have incorporated sustainable building materials,furnishings, and energy- and water-efficient fixtures to ourstores. For example, we require that the wood used to makeour hardwood furniture is certified by the Forest StewardshipCouncil (FSC), a nonprofit organization that ensures thewood is produced in a sustainable manner. We also conveneda meeting between our major furniture suppliers and the FSCto explore ways to expand the use of FSC-certified wood inproducts we buy. In addition, the cabinets in our stores use acore made of 100% post-industrial content.Greening OperationsTo gain a deeper understanding of how energy and water isused in our stores, it is our intention in fiscal 2007 to conductan energy and water audit that will help us implementstrategies to use both more efficiently.We also plan to provide stores in six regions (approximately350 stores) with “resource report cards” that give feedbackon each store’s energy and water usage, as well as trend dataand comparisons to benchmark operations. The goal of thisprogram is to help store operators identify ways to use waterand energy more efficiently and reduce costs. Depending onthe results of the first group of stores, the program will berolled out to all U.S. and Canada company-operated stores ona voluntary basis.1A Single Tenant Building is a free-standing building (coffee house) built from the ground up.E N V I R O N M E N T57

These efforts build on ongoing initiatives to install moreenergy- and water-efficient equipment at our stores globally.For example, Starbucks Japan stores began using electricsigns that require less energy to operate and last longer.Our team in Japan also installed water-saving faucets andbegan recycling the water used to cool ice cube dispensers aswash water.In the UK, severe droughts showed that environmental tradeoffsare sometimes needed. Stores in the worst-affected areasoffered customers paper cups rather than ceramic mugs toreduce the water used for dishwashing. While the use of papercups increased the volume of waste generated, the practicehelped to address the immediate threat of a water shortage.We also have initiatives to address transportation energy use.We collaborated on Business for Social Responsibility’s CleanCargo Working Group and used the Group’s EnvironmentalPerformance Survey to assess the performance of ourocean transporters.At our Starbucks Support Center (SSC) in Seattle, ourworldwide headquarters, we encourage partners to use avariety of transportation options to cut solo commuting.In fiscal 2006, 34 percent of our partners at the SSC tookadvantage of these options.Partners Participating in Transportation Options ProgramPercentage282934Fiscal year 2004 2005 2006Closing the Loop – Recycling and Waste ReductionStarbucks policy for company-operated stores is that whereboth space and recycling services are available, stores areexpected to recycle. During fiscal 2006, 79 percent ofstores in the U.S. and Canada recycled where Starbuckscontrols waste and recycling of one or more items, includingcardboard, paper, milk jugs, and organic wastes.Percentage70New Life for Old GroundsStore Recycling77 79Fiscal year 2004 2005 2006At a typical Starbucks store, coffee grounds make up morethan a third of the waste stream by weight (see “Portrait ofa Starbucks Store” on page 62). That’s why we introducedthe Grounds for Your Garden program, which offerscomplimentary five-pound (2.27-kilogram) bags of usedcoffee grounds to customers to add to their soil. The programhas spread to a variety of locations including Chile, Greece,Australia, Hong Kong, Canada, the UK and Korea.Since 2004, Starbucks Taiwan has encouraged all of its storesto implement the program. In fiscal 2006, customers and thegeneral public were welcome to pick up coffee grounds fromtheir most convenient store.Some locations in China offered the program in fiscal 2006,and it will be promoted throughout Starbucks Greater Chinaregion in fiscal 2007.In Winnipeg, Canada, partners took the Grounds for YourGarden approach a step farther, and are sending their organicwaste, including Starbucks paper cups, to the WrigglerWranch, a local worm composting facility.E N V I R O N M E N T58

Other Waste Reduction and Recycling InitiativesThe waste our stores generate varies by location. So do theingenious solutions our partners devise to handle the waste.Examples of this include:• Starbucks Chile donated 30,000 milk boxes to Un Techopara Chile, an organization in Chile that builds smallhouses for homeless people. The organization used theboxes to cover the floors of the houses.• More than 100 Starbucks UK stores participated in wastesegregation programs for cardboard and plastics, recyclingan average of 35 percent of their general waste.• Starbucks Hong Kong ran a “Mooncake box” recyclingprogram, where the company offered beverage couponsto customers who returned their used Mooncake boxes.The program resulted in the return of approximately5,000 boxes.• Starbucks Japan is working with suppliers to recycle 20percent of store food waste by March 2007 in response tothe Law for the Promotion of the Utilization of RecyclableFood Resources.New Life for Old MatsThe work areas behind the counters of our stores are equippedwith rubber mats designed to help partners work morecomfortably and safely. Since 2005, all new stores in theU.S. have been equipped with upgraded mats that have beenshown to reduce slip-type accidents. During fiscal 2006, wealso replaced the mats in more than 3,400 existing stores.The easiest course of action would have been to throw awaythe old mats. But with an estimated 315,000 pounds (143,000kilograms) of usable material involved, we decided to recyclethem instead. This required setting up a system for ourdelivery drivers to pick up the mats from the stores, collectthem at consolidation points and ship them to a recyclerfor shredding. The recycled rubber was used for gaskets andexpansion joints in concrete, among other things, extendingthe life of the material and reducing waste.Involving Our CustomersOur customers share our interest in reducing waste. To helpthem help us, we offer a discount of 10 cents in the U.S. andCanada to encourage customers to use their own “commuter”mugs for their beverages. Customers can also request thattheir beverage be served in a ceramic mug if it’s a “for-here”order. The discount is also offered in Japan (¥20), the UK(10P), several business units in Mainland China (2 RMB) andHong Kong (HK$1).On Earth Day 2006, Starbucks Canada promoted thecommuter mug program by inviting customers to enjoy acomplimentary cup of Fair Trade Certified Café EstimaBlend coffee when they used their own mug. Nearly 9,000customers took advantage of the offer, increasing commutermug usage by 14 percent compared to the same day theprevious year. The promotion also increased the sales ofcommuter mugs.During fiscal 2006, customers in the U.S. and Canadaused commuter mugs for their beverages 17 million times.Although this represents a significant achievement, on apercentage basis, commuter mug usage actually decreasedslightly from 2005. We will continue to evaluate additionalways to encourage customers to use commuter mugs.PercentageCommuter Mug Usage1.41.31.2Fiscal year 2004 2005 2006E N V I R O N M E N T59

Looking to Our Supply ChainBeyond our own stores and operations, we have theopportunity to positively influence the environmentalpractices of our suppliers. In other sections of this report,we discuss our work with coffee suppliers to encourageenvironmental stewardship (page 16), our sustainablesourcing policies (page 29), our approach to water sourcing(page 34) and our standards for purchasing manufacturedgoods (page 33). Through our membership in the SustainablePackaging Coalition, we are exploring more sustainablealternatives to conventional packaging and also methodsfor analyzing material choices. Our efforts to “green thecup” described earlier in this section are an example ofthis approach.We also consider environmental impacts when purchasingpaper and have tracked the recycled fiber and unbleachedfiber content of our paper purchase for six years (see charts).Starbucks recognizes that the environmental footprint ofpaper goes beyond post-consumer recycled and unbleachedfiber. To that end, we have been active participants in thePaper Working Group, a group of diverse companies led bythe nonprofit organization Metafore. The Paper WorkingGroup developed the Environmental Paper Assessment Tool(EPAT), designed to help paper buyers consider all majorenvironmental impacts over the life cycle of paper. The groupdefines environmentally preferable paper in terms of a set ofseven interconnected desired outcomes. They include:• Efficient use and conservation of raw materials• Minimization of waste• Conservation of natural systems• Clean production• Community and human well-being• Credible reporting and verification• Economic viabilityKey environmental indicators for these outcomes aremeasurable and within the normal range of attributesmonitored by the pulp and paper industry.In 2007, we will test the tool with our top two suppliers ofpaper products. We will review the results of the pilot anddetermine how to best incorporate the tool into our paperprocurement decision processes.PercentageFiscal yearPercentageFiscal yearPaper: Unbleached Paper Fiber48.12004 2005 2006With Hot Cups26.086.347.185.947.8Paper: Post-Consumer Fiber46.5With Hot Cups27.149.586.3Without Hot Cups38.866.42004 2005 2006Without Hot CupsStarbucks tracks the percentage of unbleached paper fiber and post-consumer fibercontained in our annual paper purchases.E N V I R O N M E N T60

Earthwatch ExpeditionsMaking Connections in the Rain ForestIn the Costa Rican rain forest, Starbucks customer ArleneGutterman worked side by side with scientists, Starbuckspartners and other customer volunteers to replant areas wherefarming had devastated the native forest. The experience wastransforming. “I cherish what I saw,” Arlene said. “It openedme up.”The reforestation project is taking place in southern CostaRica in the region of La Amistad Biosphere Reserve,established to protect the rich biodiversity of the area.Sixteen sites, most owned by Costa Rican farmers, are partof a long-term research project to find ways to acceleratethe reforestation of formerly farmed lands. The projectarea, once completely forested, is now less than 10 percentforested. This has impoverished the soil and reduced habitatfor the abundance of wildlife that thrives in rainforests.Deforestation poses a particular challenge because, oncecleared, it is difficult to re-establish natural rain forest.The project seeks not only to research the dynamics ofreforestation but also to establish a model of sustainable useof tropical forests. One aspect of this is supporting the localcoffee cooperative in its efforts to use sustainable farmingpractices and to set up a coffee mill that will allow it tocapture more of the value of coffee production locally.A diverse group of people participate in the project, includingacademic researchers, students, farmers of coffee and othercrops, community members and volunteers provided by theEarthwatch Institute (www.earthwatch.org), a nonprofitorganization that places volunteers with environmentalresearch and restoration projects around that world.Starbucks has worked with Earthwatch since 2000. Inthat time, Starbucks has sent partners on a variety ofenvironmental expeditions around the globe. Our partnershave come back from these expeditions with a newunderstanding of the world around them as well as Starbuckscommitment to the environment.In 2006, Starbucks enabled 19 customers and 11 partners toparticipate in the Costa Rica expedition. The customers andeight of the partners were winners of a sweepstakes and anessay contest, respectively, while the other three partners wentas escorts. The volunteers planted, measured and analyzedtrees, and woke before dawn to capture, count and identifybirds. Several volunteers from the 2006 trip, along with somevolunteers from previous years, became so interested in thecoffee cooperative’s mill project that they have continued tosupport it in various ways, including documenting it on awebsite: www.unatazacompartida.org.The scientists running the project have found the volunteers’help invaluable in extending their research resources. Thevolunteers have also been affected. Arlene Gutterman, forexample, has started composting, recycling more, driving lessand seeking out locally produced foods. “It’s never too late,”Arlene said. “Be positive. Plant a tree.”In 2006, Starbucks also sponsored volunteers for anEarthwatch Expedition to Brazil through the Urban CoffeeOpportunities program, a joint venture between Starbucksand Johnson Development Corporation (JDC). Five collegescholars, a Starbucks partner and a JDC representativeparticipated in an expedition to the Pantanal, the world’slargest wetland, researching and analyzing amphibians andbat habitat.In 2007 Starbucks will be working with Earthwatch ona project that takes place where Starbucks is purchasingcoffee. This will deepen our relationship with Earthwatchbecause the research will directly affect Earthwatch scientists,Starbucks and the coffee-buying world. Our partners andcustomers will have the opportunity to work on coffee farmsthat have been verified as using C.A.F.E. Practices and learnhow this has improved their growing practices.My Starbucks –On June 10 I left for the 17-hourjourney to San Jose, Costa Rica, andmet up with seven other partnersfrom North America. We continued ourjourney to the little town of Agua Buenain the southern rain forest borderingPanama, where we got to know ourfantastic hosts, the Corderos, a familyof coffee farmers. They would get manyopportunities to laugh at our Spanish!Over the next two weeks we workedwith Dr. Karen Holl and her teamat Earthwatch, planting trees andgathering scientific data on rain forestregeneration in afforested areas. Forthe farmers it’s a win/win situation.They lease the land they don’t use toothers so that in potentially five yearsthey can let the coffee grow backwithin the new forest – thus growingpremium organic shade grown coffee.When you see trees that have grownalmost 30 feet tall after three years,you begin to see how easy it can bewith dedication and commitment.That is what Starbucks is willing todo, and the eight of us were glad tobe a part of this crucial project.Rain Weigel, Starbucks store managerMaida Vale (#12436), LondonE N V I R O N M E N T61

Portrait of a Starbucks StoreAt the end of fiscal 2006, there were 12,440 Starbucksstores in 37 countries. Though there are local variations, thestores operate similarly around the world. A look at a typicalStarbucks store provides a better understanding of Starbucksenvironmental profile and challenges.Though the store may be located on a busy street or in abustling mall, it is appointed with furnishings and artworkin a style that lets someone know instantly they are in aStarbucks. Less obvious are some of the environmentalfeatures of materials we use in our new stores, and includeas stores are updated: high-efficiency lighting, flooringcontaining recycled material, and furniture made from woodcertified as sustainably harvested by the Forest StewardshipCouncil, for example.Out of sight is an area where materials are delivered tothe store. These include food (coffee and other beverages,pastries, sandwiches, salads, etc.), packaging (cups and othercontainers), disposable items (napkins and coffee stirrers),and merchandise for sale (coffee mugs and brewers, CDs,etc.) This is the area where many of our stores have containersfor recycling.The store gets its electricity, water and other utilities fromlocal service providers. On average, it uses about:• 6.57 kilowatt-hours of electricity per square foot permonth to light and cool the store and operate equipment.• .059 therms of natural gas per square foot per month toheat water and warm the store.• 26 gallons of water per square foot per month to make ourbeverages and clean up.As we continue to integrate sustainable practices intoour store design, development and operations, we willwork to drive these numbers lower, reducing our overallenvironmental footprint per store.As a result of all of these activities, waste is created. Thisincludes:By Volume• 32% cardboard• 15% milk jugs• 9% paper cups• 8% pastry boxes• 7% other dairy cartons• 29% other wasteSource: Starbucks 2002 Waste AuditBy Weight• 37% coffee grounds• 12% cardboard• 7% newspaper• 6% food waste• 38% other wasteElectricityGasWater6.216.406.57*0.061 0.060 0.059**23(89)24(92)26†(100)Kilowatt-hoursper square footper monthTherms per squarefoot per monthGallons (liters)per square footper monthFiscal year 2004 2005 2006* Based on data from 4,900 stores.Fiscal year2004 2005 2006** Based on data from 2,305 stores.Fiscal year 2004 2005 2006†Based on data from 2,052 stores.E N V I R O N M E N T62

Providing a Great Work EnvironmentWhen our customers enter a Starbucks store, they expect anddeserve a great cup of coffee. But their Starbucks Experiencegoes beyond the coffee – it is also based on the connectionthey have with their barista at their local Starbucks. Earningand maintaining the trust and respect of our more than145,000 employees – whom we call partners – meansimproving our customers’ experience and our success as well.Our goal is to create the best possible workplace environmentfor our partners, one that attracts and retains the mosttalented individuals and is regarded by them as a great placeto work.In this section we describe what we are doing to:• Gather ongoing feedback from our partners• Partner View Surveys• Mission Review• Business Ethics and Compliance Program• Offer comprehensive and competitive benefits• Partner benefits in the U.S. and Canada• Partner benefits internationally• Support our partners’ health and well being• Outreach to newly covered partners• Thrive Wellness Initiative• Advocating for healthcare reform• Recognize our partners’ efforts• Maintain a CUP (Caring Unites Partners) Fund• Provide training and career development opportunities• Uphold our workplace policies and respect forpartners’ rights• Ensure a safe and healthy work environmentStarbucks Employment Profile – Fiscal 2006Number of partners globally 145,800U.S. partners – retail 116,100U.S. partners – nonretail 7,500International partners – retail 21,200International partners – nonretail 1,000Net jobs created (Starbucks partners) infiscal 2006Total wages and benefits paid to U.S. andCanada partners*31,000$2.5 billion*Includes salaries, bonuses, vacation, payroll taxes, healthcarebenefits, workers’ compensation and 401(k) matchSTARBUCKS HONORED AS A GREATPLACE TO WORK IN 2006FORTUNE 100 BEST COMPANIES TO WORKFOR IN AMERICAStarbucks was named one of the “100 Best Companiesto Work For” in 2006 by Fortune magazine. Thismarks the eighth time Starbucks has received thisprestigious recognition.FINANCIAL TIMES 50 BEST WORKPLACESIN UKStarbucks UK was recognized in the Financial Times as oneof the 50 Best Workplaces in the UK. The award, sponsoredby the Great Place to Work ® Institute UK, is based onemployee surveys of the level of trust and the quality ofrelationships that exist within the company.CHEERS MOST SOUGHT AFTERENTERPRISE – TAIWANIn 2006, Starbucks earned ninth place in a study of themost “sought after enterprise” in Taiwan among 100private enterprises and 50 state-owned enterprises. Cheersmagazine sponsored the competition.W O R K P L A C E63

Listening to Our PartnersOur workplace culture is firmly rooted in our first GuidingPrinciple: “Provide a great work environment and treat eachother with respect and dignity.” This is a deeply held valuethat has inspired and driven our workplace practices fornearly two decades. This is the basis of our belief that ourpartners’ opinions should be heard and valued. We act on ourbelief by inviting partners to give us their feedback througha variety of channels. We then use partner input to shape ouractions and enhance the partner experience. One method weuse to get feedback is by conducting Partner View Surveys.Partner View SurveysStarbucks conducts a Partner View Survey approximatelyevery 18-24 months to solicit anonymous feedback frompartners around the globe. The survey touches on manyfacets of the partner experience, including development,communication, senior leadership, coffee knowledge andwork/life effectiveness. By participating in the survey,partners point out what Starbucks is doing well, and theyidentify issues at all levels of the company that need closerattention. We use this feedback to make adjustments andimprovements in order to increase our partners’ satisfactionand engagement – the connection our partners have totheir store or work group and to our company. Throughthis process, our partners are given a voice in shaping andenhancing their own workplace experience.The most recent survey was conducted in March 2006. Allpartners who work in company-operated stores, supportoffices and roasting plants or warehouses in the followingcountries were invited to participate: Australia, Canada,Costa Rica (Farmer Support Center), Germany, Hong Kong,Ireland, the Netherlands, Singapore, Switzerland, Thailand,United Kingdom and the United States. This was a significantexpansion over past Partner View Surveys in both its globalreach and response – 101,800 partners participated, an 84percent response rate.Partner View Survey Results – Fiscal 2006Partners’ overall satisfaction rate and level of engagementremained high – see chart at right. The survey called outspecific areas where Starbucks is succeeding in creating agreat work environment, including training and developmentopportunities and the focus on promoting coffee knowledge.Partners identified several areas that called for attention bythe company:• Pay and benefits• Communication within and between groups• Future job opportunitiesStarbucks began to address these issues in fiscal 2006.Specifically, we:• Increased wages for the majority of hourly store partners inall U.S. markets• Are working to improve our online tools, and consolidatepublications where appropriate• Are designing a global “Look Internal First” sourcingstrategy for filling all jobsPercentageFiscal year% of engaged partners % of satisfied partnersF U T U R E G O A L SPartner View Survey Results8273200373* We did not conduct a survey in fiscal 2004.In fiscal 2007, additional steps will be taken torespond to the survey results. We will:• Complete a study of pay for international storepartners.• Share the success of the company, consistent withour philosophy, through additional incentive andbenefits programs.• Look at new ways to communicate pay and benefitsinformation to our partners, including a new onlinetraining module for store partners.• Develop tools to enable internal talent sourcing andimprove career opportunity access and preparationfor partners.87200569862006W O R K P L A C E64

Other Channels for Partner FeedbackIn addition to the Partner View Survey, several otherresources offer partners the opportunity to communicateconcerns, provide input about our business practices, andreport matters that appear inconsistent with the company’sMission Statement and Guiding Principles and/or legaland ethical objectives. These include Mission Review andthe Business Conduct Helpline, as well as frequently heldOpen Forums.Mission ReviewMission Review allows partners a way to voice concerns whenthey believe company polices or practices are inconsistentwith Starbucks Mission Statement and Guiding Principles,and to offer suggestions on how the company can do better.Mission Review comments have helped shape and continueto influence a variety of programs: Tuition Reimbursement,Recognition, Risk Management’s Shoes for Work andthe Barista-Level Training Program are a few examples.Currently, the Mission Review team handles between350 and 500 comments each month. In fiscal 2006, ourMission Review team recorded more than 4,600 contactsfrom partners.Each partner submission receives a personal and timelyfollow-up, either by someone knowledgeable about theissue or topic raised or a member of the Mission Reviewteam. Executives receive a monthly summary of the volumeand types of issues raised through Mission Review, so thatemerging issues can be identified and addressed.We are working to improve partner access to MissionReview. Electronic submissions through Starbucks websitewere successfully tested in selected stores in fiscal 2006.Our goal is to make this capability available to all NorthAmerican company-operated stores in fiscal 2007. Some ofour international markets also have embraced this conceptand provide similar feedback forums to their partners.Efforts are currently underway to connect and coordinatethese programs.Business Ethics and ComplianceStarbucks Business Ethics and Compliance (BEC) programdevelops and distributes Starbucks Standards of BusinessConduct, facilitates legal compliance and ethics training,investigates sensitive issues including potential conflictsof interest, and provides mechanisms for partners tovoice concerns.The following channels are available for partners to raise anyquestions or concerns, including potentially sensitive mattersthey are uncomfortable reporting elsewhere:• Business Conduct Helpline, a toll-free phone number thatpartners may call anonymously, and which is answered24 hours a day, seven days a week by an independentcall center• Email via BusinessConduct@Starbucks.com• Direct contact with BEC team members• Auditline, a toll-free phone number for third parties, suchas vendors, investors, and customers, to report possibleaccounting or auditing irregularities• Referrals from other departments and programs, such asMission ReviewThe majority of reports received by the BEC programinvolve employee relations issues, a trend which is consistentwith other companies – retail or otherwise – that providealternative reporting mechanisms as part of a comprehensiveethics and compliance program. Starbucks does not limitthe types of issues or concerns that partners may report tothe BEC program through these communication methods.We welcome any and all concerns that partners are notcomfortable reporting to others or do not know how to reportto others. By providing these means of reporting, the programhelps to ensure that Starbucks continues to provide a greatwork environment for partners and to remain an employerof choice.Our comprehensive efforts to ensure an ethical workplace aredetailed in Starbucks Standards of Business Conduct, whichcan be reviewed in the “About Us” section of Starbucks.com.Employee RelationsPay, benefits,disciplinary action,and other categoriesthat impactday-to-day work83%Categories of Partner Concerns Reported toStarbucks Business Ethics and Compliance ProgramBusiness PracticesCorporate policy questionsand concerns (e.g., conflictsof interest, privacy andfinancial reporting)3%Safety & SecurityCategories involvingpartner and customersafety, facility conditionsand allegations of theft12%Customer RelationsComments or questionsthat involve customers –reported by partners, or inrare circumstances bycustomers who obtainedthe Business ConductHelpline number in error2%W O R K P L A C E65

Providing Benefits to Our PartnersStarbucks Total Pay package is the cornerstone of our pledgeto treat partners with respect and dignity. The Total Paypackage varies by country to make sure it is locally relevant.The components may include competitive base pay, bonuses,comprehensive health coverage, income protection, vacation,stock options, a savings program, adoption benefits, tuitionreimbursement and partner perks, including a discount onmerchandise in our stores.Pay at Starbucks reflects the knowledge, skills and experiencerequired for a specific job. We regularly consult industrysalary surveys to determine competitive rates, and payaccordingly. Partners are also eligible for merit pay increasesbased on performance.The chart below summarizes the core benefits that our eligiblepart- and full-time partners receive.Starbucks BenefitsPARTNER BENEFITSComprehensive healthcare benefits(U.S. and Canada)Bean Stock – Starbucks stockoption plan (eligible partners inthe U.S., Canada, UK, Hong Kong,Netherlands, Switzerland, Germany,Australia, Costa Rica, China,Thailand, Singapore, Chile, Republicof Ireland and Puerto Rico)S.I.P. – Stock Investment Plan (U.S.and Canada), Share Incentive Plan(UK)Future Roast – Starbucks 401(k)Plan (U.S.), RRSP – RegisteredRetirement Savings Plan (Canada)PROGRAM DESCRIPTIONSAND COVERAGEBenefits include medical, dental, vision,prescription drugs and alternative health coverage.In the U.S., Starbucks paid 77 percent of healthcoverage costs for partners and 60 percent fordependents. In Canada, 73 percent of costs werepaid for partners and 45 percent for dependents.The board of directors determines annual stockoption grants based on company performance upto 14 percent of our partners’ eligible base wages.Every partner through the director level receivesthe same percentage of his or her fiscal-yearwages. For fiscal 2006 performance, the basis forstock option grants was 14 percent.Partners can purchase company stock at adiscounted price on a quarterly basis (U.S. andCanada) or a semiannual basis (UK).Starbucks matches from 25 percent to 150 percent(based on the length of service from the partner’smost recent date of hire) on the first four percentof pay that partners contribute to the U.S. 401(k)Plan. Eligible Canadian partners receive a 25percent match on the first four percent of pay thatthey contribute to the RRSP.ELIGIBILITYOnce initially eligible, full- and part-time partners whoare paid a minimum of 240 hours per calendar quarterand their eligible dependents, including spouses,domestic partners and children. In fiscal 2006, 65percent of U.S. partners and 61 percent of Canadianpartners were eligible for these benefits.*Full- and part-time partners up through director levelwho have been employed by Starbucks since April1 and have been paid for at least 500 hours fromthe first of the fiscal year through March 31 or fromApril 1 through the end of the fiscal year. (Eligibilityrequirements may vary slightly by country.) More than70,000 partners qualified for Bean Stock for fiscal2006 performance.Partners who have worked as a regular Starbuckspartner for at least 90 days and have been paid for anaverage of 20 hours a week during the three monthspreceding the offering. No hours requirement in theUK. In fiscal 2006, 32 percent of eligible U.S. andCanadian partners participated in S.I.P.U.S. partners age 18 or older may participate after thecompletion of 90 days of service. Canadian partnersare eligible after one year of service. In fiscal 2006,21 percent of eligible U.S. partners participated inFuture Roast. Sixteen percent of eligible partners inCanada participated in the RRSP.*With approximately four company-operated stores opening daily in the U.S. and Canada, we have a large number of partners in their eligibility waiting period,typically three months.Partner Benefits – InternationallyWhile specific benefits differ between regions and countries,all of our international business partners share StarbucksTotal Pay philosophy. Below are several representativeexamples of benefits received by Starbucks partners outsideNorth America.• Japan: All partners who work 30 hours per month ormore are eligible for health insurance including annualmedical checkup. Stock and annual leave (vacation) arealso offered.• Chile: All partners are eligible for health insurance, paidvacation and sick leave, among other benefits.• Greece: All partners are eligible for health insurance, paidvacation and sick leave, among other benefits.• China: All eligible partners receive health insurance, sickleave and maternity leave.• Australia: Bean Stock, paid vacation, sick leave and careertraining are among the benefits offered.W O R K P L A C E66

My Starbucks —When I joined Starbucks in 1994 Ibegan acquiring Starbucks stockthrough Bean Stock and S.I.P., andinvested in my future through FutureRoast - Starbucks 401k plan. A coupleyears ago, I sold my Starbucks stockto buy a car and a house in Mexicofor my parents. Today I am a newmom and am buying my first home.When my sister joined Starbucks in 1996,I encouraged her to take full advantageof these benefits. She told me thisadvice is the best gift a sister could give.-Noemi Guevara, Starbucks storemanager in Missouri City, TXW O R K P L A C E67

Focusing on Healthcare and WellnessStarbucks remains committed to providing healthcarebenefits to eligible full- and part-time partners, despite rapidlyrising costs. Starbucks U.S. and Canada healthcare plans areself-insured, which means healthcare providers are paid withStarbucks funds, as well as the money our partners personallycontribute toward their coverage. In fiscal 2006, we didnot increase healthcare premiums to partners. Starbucks isworking in a variety of ways to ensure the continuation of ourhealth coverage plan, and assist our partners in their efforts toreach and maintain their optimal health.Outreach to Newly Covered PartnersIn fiscal 2006, Starbucks began testing a novel outreacheffort to newly enrolled partners. Partners receive a welcomecall from our health plan administrator who can answerquestions about their health coverage – from how to selecta physician to how to find weekend or after-hours care. Thisapproach is being tested in 10 locations in the U.S. We hopeto find that through a simple welcome call we can improvepartners’ health, and encourage efficiencies in the use ofhealthcare resources.Thrive Wellness InitiativeStarbucks commitment to the health and wellness of ourpartners – and our customers – is evident in many of ourprograms and policies. One very direct effort to care forour partners’ health is the Thrive Wellness Initiative, whichcombines education, communication and participation tohelp our partners live healthy lives. Over 15,000 partners haveregistered on the Thrive website since its inception. Below aresome of the components of the program.• A web-based health risk assessment that creates a personal“health map” for each partner.• Online programs for fitness, smoking cessation andimprovement of eating habits.• Health club discounts at contracted fitness facilities.• Partner Connection subsidies for up to 50 percent offees for clubs or sports teams that include three or moreactive partners.• Anti-slip work shoes at a discounted price online to helpreduce the risk of slip and fall injuries.Kinetix, the newest benefit in the Thrive Wellness Initiative,was piloted in fiscal 2006 and launched in October 2006at no cost to partners in our support offices in Seattle,Washington, the location of Starbucks global headquarters.Kinetix is a comprehensive wellness program that teachesproper nutrition and exercise through an interactive website,classes and workshops, an eight-week session with a personaltrainer and phone and e-mail support to keep partners ontrack to reach their personal fitness goals.Advocating for Healthcare ReformRising healthcare costs and other challenges of providinghealthcare benefits have led Starbucks to advocate for a moreaffordable and efficient U.S. healthcare system. For the pastseveral years, we have focused our efforts on building publicawareness about the seriousness of escalating healthcare costs,and seeking reform of the healthcare system generally.In fiscal 2006, we worked to become more strategic inour efforts. First, we analyzed the greatest challenges thatStarbucks faces in delivering affordable, accessible healthcare.We then identified the following areas where we will focusefforts: access, technology, innovation, quality and lifetimesolutions. In fiscal 2007, we will highlight specific initiativesin these key areas. Through our efforts, we hope to alleviatehealthcare challenges for Starbucks and our partners, andall other U.S. companies and employees whose healthcarebenefits are threatened.My Starbucks –Sean Couture, a Starbucks storemanager in Williston, Vermont, sawgolf as a great team-building activityfor fellow partners and managersin his region, but wondered whetherthe expensive golf fees could be putto better use. When Sean learnedabout Starbucks Partner Connectionprogram, he found a way to combinehis passion for golf with his desire tobring together a group of partnersfor camaraderie and a good cause.Sean formed a Starbucks PartnerConnection Golf Team and put out acall to the three stores in his region,asking partners if they’d like to join. Fortheir first outing, the team participatedin a Muscular Dystrophy CornerstoneCup Tournament that raised a total of$12,000 for the Muscular DystrophyAssociation (MDA). In addition tocontributing half of the team’s entryfees, Starbucks also donated cups andcoffee to the event. The team has teedup for other good causes including thelocal Chamber of Commerce and Chill, anintervention program for disadvantagedkids. According to Sean, “Once you get ateam set up, it’s easy. It’s a great wayfor partners to get to know each otherbetter, get closer, feel more like a teamand also contribute to a great cause.”W O R K P L A C E68

Recognizing Our PartnersStarbucks success reflects the quality, imagination andinitiative of our partners. We developed the Starbucks PartnerRecognition Program to honor our partners’ contributions.Currently there are 18 formal recognition programsthat partners can use as tools to reward and inspire oneanother. They range from company awards for leadershipand exceptional service to “on the spot” awards given byco‐workers for a job well done.In recognition of our outstanding performance as a company,Starbucks shared a special cash award with more than100,000 partners in May 2006.Department of Defense Freedom AwardStarbucks was honored by the U.S. Department of Defensewith the 2006 Secretary of Defense Employer SupportFreedom Award for outstanding support of activated partnerswho serve in the National Guard and Reserve. The FreedomAward is the highest award bestowed by the Department ofDefense in recognition of an employer. Starbucks partnerMatt Parkinson nominated Starbucks for the award afterserving 15 months in Iraq. Starbucks supports partners, likeMatt, by making up the difference between partners’ militaryand civilian pay as well as continuing benefits. Partners areable to continue medical, dental and vision coverage for upto 24 months of active duty and to continue Starbucks lifeand disability insurance for up to 12 monthsThe CUP FundSince 1999, the CUP (Caring Unites Partners) Fund hasassisted partners with financial support as a result of anunexpected event such as the death of a partner or familymember, fire or natural disaster. Starbucks partners supportthe CUP Fund with personal contributions. All Starbuckspartners are eligible to apply for assistance. In total, the CUPFund provided more than $1.4 million in direct financialassistance to more than 1,600 partners in fiscal 2006.My Starbucks –Starbucks CUP Fund rescued my familyfrom a difficult financial situation. Wewere drowning financially, due primarilyto tens of thousands of dollars inmedical expenses. My family is so thankfulfor the small but regular contributionsthat many Starbucks partners maketo the CUP Fund. These partnersembody the truth that “we are a peoplecompany that sells coffee.” In addition,the partners that I spoke with aboutthe CUP Fund were kind, compassionateand timely in their response to ourrequest. In times of need, it’s nice toknow Starbucks partners provide eachother a lifeline through the CUP Fund —caring really does unite partners.Dave Mahoney, barista, Memphis, TNW O R K P L A C E69

Partner Training and CareerDevelopmentStarbucks continually invests in training programs and careerdevelopment initiatives to help partners grow and advancetheir careers at Starbucks.All store partners receive comprehensive training. Baristasreceive two weeks of initial training to become experts in thepreparation and delivery of our products. After 90 days onthe job, they receive additional training to deepen their coffeeknowledge and build their confidence. When a barista movesinto another retail position, he or she receives four weeks oftraining as a shift supervisor, eight months of development asan assistant store manager, eight weeks as a store manager and15 weeks as a district manager trainee. In total, in fiscal 2006,our U.S. and Canadian retail partners received an estimated4.9 million hours of training, in addition to practice hours.In fiscal year 2006 Starbucks added two new careerdevelopment programs for store managers:• Store Manager 200 offers over 50 hours of in-placetraining to develop leadership and other keymanagerial skills.• Store Manager 301 is a year-long mentorship anddevelopment program that helps high-potential storemanagers build the competencies necessary for the nextlevel in their careers.We believe in looking internally first and offering ourpartners opportunities to grow and advance. Partners receiveinformation about career advancement opportunities onmypartnercareer.com, and through partner and leadershipcommunications.The following figures reflect internal promotions for certainpositions in fiscal 2006:• 86% of shift supervisor positions were filled byStarbucks baristas.• 67% (approximately) of assistant and store managers werefilled by internal partners.• 54% of district manager positions and over 70% ofregional director positions were filled by internal partners.Workplace Policies and RespectingPartners’ RightsStarbucks workplace policies provide for equal employmentopportunities, and strictly prohibit discrimination orharassment on the basis of age, race, gender, color, nationalorigin, religion, sexual orientation, physical or mentaldisability, as well as any other basis prohibited by federal,state, local or provincial laws. We follow all laws regarding theemployment of minors. The current standard minimum ageof employment at Starbucks is 16, although it may be higheror lower in some locations as required by local regulations.Starbucks also recognizes our partners’ right to organize.We have always focused on providing a great workplaceenvironment and a comprehensive Total Pay package. (Seepage 66 for information about Total Pay.) At the end of fiscal2006, 129 Canadian partners in two cities were the onlyStarbucks partners who had certified union representation.In March 2006 Starbucks entered into an informal settlementagreement with the National Labor Relations Board (NLRB),resolving all outstanding unfair labor practice charges filedby the International Workers of the World (IWW) Local660. The charges originally were filed in connection witha May 2004 petition by the IWW, which it subsequentlywithdrew, to unionize one Starbucks store in New York City.The settlement agreement provided that Starbucks admittedno wrongdoing or liability, but allowed Starbucks to resolveall charges without the distraction of a long and expensivehearing process.This settlement and the underlying claim have generated somenational and international press attention. We understandthat the press coverage stems from a belief that employeesshould be treated fairly, with dignity and respect. This is avalue very much shared by Starbucks.Starbucks has always sought to provide a great place towork for all our partners, while staying true to our MissionStatement and Guiding Principles. Starbucks is committedto following any and all labor laws in a fair and consistentmanner. We do not take action or retaliate against partnerswho express their views about unions or who take part inunion activity.Starbucks named to the TrainingMaga zine Top 100 list in 2006For the third year in a row, Starbucks has been named to theTraining magazine Top 100 list. This recognition is basedon an evaluation of the company’s training and developmentprograms and resources. Starbucks training programs notedin this award include those for career development, coffeeeducation, leadership and front-line manager training.W O R K P L A C E70

Health and SafetyStarbucks is committed to creating a safe environment forour partners and customers by reducing the risk of injuries.Safety programs for Starbucks stores and roasting plants aredesigned to meet or exceed the most stringent regulatorystandards wherever we do business.Partner and customer safety is a primary consideration inthe development and selection of all Starbucks productsand equipment in an effort to engineer out as many causesof injury as possible. Where potential risks of injury areidentified in our stores and production facilities, specificprograms are implemented to remove or mitigate those risksthrough design, engineering, equipment or materials changesthat further protect partners and customers from commoncauses of injury such as hot liquids, repetitive stress, liftingor falls. In addition, the company stresses partner awarenessof Starbucks safety standards and potential risks in the workenvironment, and reinforces awareness through partnertraining, safe work procedures, regular communication,inspections and audits.The Interstate Experience Modification Factor, a metricprovided in this report in previous years, has been removedgoing forward to ensure that we accurately report our partnerinjury experience. Starbucks has chosen to become selfinsuredfor Workers’ Compensation insurance in a numberof states, and the Experience Modification Factor – whichis calculated by an outside agency and does not take intoaccount Starbucks injury experience in self-insured states –does not accurately reflect the company’s partner injuryexperience. The Injury Rate per 200,000 Hours Workedcontinues to be the best measure of Starbucks workplaceinjury experience. (See graph.)8.006.004.00Injury Rate Per 200,000 Hours Worked – Starbucks Retail Stores*7.927.055.46Fiscal year 2004** 2005** 2006* Injury rate per 200,000 hours worked is an average for all U.S.full- and part-time store partners, the majority of whom are baristas.** Data have been retroactively adjusted to reflect new claimsthat were filed after the fiscal years ended.W O R K P L A C E71

Fostering Diversity andInclusionAt Starbucks, we “embrace diversity as anessential component in the way we do business.”This is a Guiding Principle of the company andone of our core values.As we expand throughout the world, Starbucksis recruiting and operating within a broad rangeof multicultural, multilingual, and multiracialenvironments. Not only must Starbucks activelyprepare to embrace and navigate diversity acrossthe globe, we must tailor our efforts to eachunique area of the world.Our continued success compels us to create a business that, atall levels, reflects the communities in which we operate, thecustomers and marketplaces we serve, and the shareholderswho invest in our company. Featured in this section are ourcompanywide efforts to embrace diversity, which includethe following:• Diversity and inclusion in the workplace• Supplier diversity• Urban Coffee Opportunities: Bringing the StarbucksExperience to diverse communitiesStarbucks Makes DiversityIncTop 50 ListStarbucks was recognized as one of the Top 50 Companiesfor Diversity in 2006 by DiversityInc magazine, whichreports and analyzes diversity issues and their impact onbusiness in the U.S. Starbucks also ranked in the Top 10Companies for DiversityInc’s Latinos sub list. The applicationprocess for the Top 50 list entails an in-depth analysis of acompany’s diversity management, leadership and marketing.Corporate Equalit y IndexIn 2006, Starbucks achieved a score of 85 out of 100 onThe Human Rights Campaign (HRC) Foundation’s CorporateEquality Index (CEI), a nationally recognized measure ofgay, lesbian, bisexual and transgender (GLBT) workplaceequality. This index is the principal method of evaluatingdiversity efforts toward GLBT employees and consumers.Scores are based on a voluntary survey of company policiesas well as independent research by HRC.To achieve a higher score, Starbucks must first have awritten nondiscrimination policy covering gender identityand expression. We are currently working on updating ournondiscrimination policy and hope to achieve a higher HRCscore in the future.Diversity and Inclusion in theWorkplaceAt Starbucks, our diverse workforce includes men andwomen of various ages, races, national origin, religiousaffiliations, sexual orientation, physical and mental attributes,and differing levels of education, skills and experiences.Our partners also come with their own ideas, opinions andcommunication styles. We respect the differences our partnersbring to the workplace. We view their differences as assetsthat can help us to be more creative and innovative in ourapproach and products, more competitive globally and moreattractive as an inclusive employer wherever we do business,We implemented the following initiatives and programs infiscal 2006 in an effort to reach our diversity and inclusionworkplace goals and objectives.• A “Diversity and Inclusion Scorecard” was createdfor our ceo and his direct reports, which includes keymetrics for diversity and inclusion in the workplace. Thescorecard establishes benchmarks related to workforcerepresentation, diversity leadership competencies,workplace environment, supplier diversity and customerexperience.• Partner Network Groups were initiated to bring partnerstogether voluntarily to partner with the business in anadvisory capacity. Additionally, these groups providepersonal and professional networking opportunities,address issues of concern and opportunity, and providemutual advocacy to help the company achieve our diversityand inclusion goals. The program was piloted with threegroups: The Pride Alliance Network: (lesbian, gay, bisexual,transgender), Partners with Disabilities Network,and Emerging Workforce, a group of partners that isworking to develop flexible workplace solutions in order toachieve both their business and personal goals. The PartnerNetwork Groups are currently available to partners at theStarbucks Support Center (SSC), the company’s globalheadquarters in Seattle.• Diversity and Inclusion Leadership Teams were organizedto identify strengths, gaps and opportunities withinspecific business units and regions as well as to createstructures to foster sustainable, robust diversity andinclusion strategies throughout the company. Teammembers are partners from all levels of the companybringing cross-functional expertise in efforts to driveownership of the diversity and inclusion strategy withinStarbucks. In fiscal 2006, two regional teams werelaunched in the U.S. and seven were launched withinspecific business units or functions at the SSC.D I V E R S I T Y72

• The Disability Standard Assessment, a comprehensivetool that addresses disability, access and accommodationas it affects every aspect of our company, was initiated.Starbucks is undertaking the Assessment in partnershipwith the Employer’s Forum on Disability, an organizationthat provides guidance on all aspects of disability,access and accommodation as a business and an equalrights issue. We will complete the assessment in fiscal2007 and use the results to guide the development of acomprehensive plan.• Executive diversity education was researched and designedin fiscal 2006, with plans to pilot and integrate it into acomprehensive educational plan for partners in fiscal 2007.Diversity and inclusion education at Starbucks includesintegration into existing and developing programs, standaloneofferings and experiences that extend beyond theclassroom, such as forums, facilitated discussions andreciprocal mentoring.• Several partner training programs, focused on workplacedisability matters, were enhanced or developed at manylevels. Additionally two new workshops were created andpiloted: “Best Practices: Creating a Deaf Friendly WorkEnvironment” and “Best Practices: Disability 101.”Starbucks is dedicated to developing our diversity andinclusion strategy globally. In fiscal 2006 we began workingto define diversity and inclusion priorities by region, but wehave not yet completed a global strategy.31%63%Women34%Fiscal year 2004 2005 2006Executives (vice presidentsand above)15%30%65%People of Color14%30%33%66%Total U.S. workforce15%30%F U T U R E G O A L SIn fiscal 2007, we will strive to:• Make Partner Network Groups a permanentdiversity and inclusion program at the StarbucksSupport Center.• Design and deliver customized diversity andinclusion educational programs to our PartnerResources (HR) department.• Audit Starbucks core educational offerings from adiversity and inclusion perspective.• Incorporate the new Best Practices: Creating a DeafFriendly Work Environment into our educationalofferings.• Develop a diversity and inclusion DVD in whichStarbucks partners, with a facilitator, share theirpersonal stories in an effort to increase awareness inthe areas of diversity and inclusion.• Continue the creation and implementation ofbusiness unit–specific Diversity and InclusionLeadership Teams across the company.• Solidify a strategic initiative to link the Diversity andStaffing organizations.Fiscal yearExecutives (vice presidentsand above)The following table represents the percentage of women andpeople of color holding senior positions at Starbucks:Starbucks Senior Officers*Women 28%People of color 22%*Senior vice presidents and above2004 2005 2006Total U.S. workforceFiscal 2006D I V E R S I T Y73

My Starbucks –The National Braille Press honoredStarbucks barista Cindy Rogers andStarbucks with its prestigious Hands On!Award in September 2006. The awardrecognized Cindy’s outstanding work onbehalf of braille literacy, and Starbuckssupportive workplace environment andemphasis on literacy. Cindy sharedthe honor this year with First LadyLaura Bush at a Gala event in Boston.Since June 2005, Cindy has hosteda Children’s Story Hour in her Mesa,Arizona, Starbucks store to read braillestorybooks to children and adults.She also has visited 75 schools in thepast year, talking to children abouther blindness, and passing out braillealphabet cards to help children learnletters. Cindy credits Starbucks forencouraging her to start her StoryHour series. “Starbucks inspires usto give back to our communities, so Idecided to make it my mission to sharemy passion for braille literacy as avehicle to transform lives,” Cindy said.Supplier DiversityTo operate and grow our business, Starbucks depends on abroad network of suppliers that ranges in size and scope. Weare dedicated to providing a world-class supplier program thatsupports diversity. Starbucks instituted a Supplier Diversityprogram several years ago to ensure that qualified andcertified diverse U.S. businesses have equal opportunities toprovide our goods and services. A diverse supplier is definedby Starbucks as a business that is certified by an independentthird party to be at least 51 percent owned, operated andmanaged by women, minorities, or individuals who aresocially or economically disadvantaged.The commitment we’ve made to supplier diversity is intendedto provide not only opportunities for diverse businesses, butalso to create a positive and sustained economic impact on thelocal communities where these businesses are based.In fiscal 2006, Starbucks did $213 million in business withfirst tier* women- and minority-owned businesses, exceedingour goal of $206 million.* First tier suppliers are paid directly or relationships are managed directly byStarbucks for their products and services. Only first tier suppliers are counted inour diverse supplier spending.In fiscal 2006, Starbucks made the following improvementsin our supplier diversity program:• Developed a new coding system to better identifyminority- and women-owned suppliers, which we plan toimplement in fiscal 2007.• Increased our presence at minority business events anddiversity trainings.• Increased our level of participation with the NationalMinority Supplier Development Council and Women’sBusiness Enterprise National Council.Spending with Diverse Suppliers(in millions)$213$114$166Fiscal year 2004 2005F U T U R E G O A L S2006Our goals for fiscal 2007 include:• Spending $250 million on purchases from certifieddiverse suppliers.• Implementing a supplier diversity training programfor all new buyers.• Developing a five-year supplier diversity plan thatenables Starbucks to further advance our diversesupplier base.• Creating a supplier diversity advisory council tosupport the advancement of supplier diversity atStarbucks.• Developing meaningful key performance indicators(KPIs) to help track and measure progress towardour supplier diversity goals.More information about Starbucks Supplier Diversityprogram is available at Starbucks.com.D I V E R S I T Y74

Urban Coffee OpportunitiesBringing the Starbucks Experience to DiverseCommunitiesIn 1998, Starbucks formed a joint venture with JohnsonDevelopment Corporation (JDC), which is owned byEarvin “Magic” Johnson. Together we created Urban CoffeeOpportunities, LLC (UCO), bringing Starbucks stores todiverse communities. We opened 15 new UCO stores in fiscal2006 and ended the year with a total of 102.We are close to meeting our goal of opening 125 UCO storesin the U.S. and expect to reach the 125 store benchmark bylate 2007 or early 2008.When scouting for new UCO locations, Starbucks and JDCconsider the economic vitality and long-term potential ofa given market. In many of the communities where UCOstores have opened, Starbucks arrival has helped to serve as aneconomic stimulus with the creation of new jobs, use of localsuppliers, our support for community-based organizations,and by attracting other retailers to the area. The collectiveeconomic impact that our UCO stores generated in fiscal2006 included:• Providing more than 2,100 jobs in 102 UCO stores.• Paying an estimated $29.8 million in salaries/wagesand benefits to UCO partners.• Providing healthcare benefits to eligible and participatingpart- and full-time store partners, their spouses, domesticpartners and eligible dependent children.D I V E R S I T Y75

Independent Assurance ReportTo the Stakeholders Starbucks Coffee Company:We have been engaged to provide assurance on the Corporate Social Responsibility (“CSR”) Fiscal 2006 Annual Report (the“Report”) of Starbucks Coffee Company (“Starbucks”), for the fiscal year ended October 1, 2006.We have performed evidence-gathering procedures on the following subject matter:• Key Performance Indicators Summary and Highlights for Fiscal 2006;• Information and data provided in each area of focus of the Report (Products, Society, Environment, Workplace, andDiversity) and• The management and reporting for the preparation of this information and data.We have considered the subject matter against the following evaluation criteria:• The procedures by which the CSR information and data were prepared, collated and compiled internally and• The control environment over the quality of the information and data.Our statement should be considered in conjunction with the inherent limitations of accuracy and completeness for CSR data,as well as in connection with Starbucks internal reporting guidelines.The Board of Directors of Starbucks is responsible for both the subject matter and the evaluation criteria.Our responsibility is to report on the internal reporting processes, information and data for CSR based on our evidencegatheringprocedures. Currently there are no statutory requirements or generally accepted verification standards in theUnited States of America that relate to the preparation, presentation, and verification of CSR reports. There are internationalstandards for the CSR reports that were approved by the International Auditing and Assurances Standards Board (IAASB) inJanuary 2005. Using the IAASB approved standards as a guideline, we planned and performed evidence-gathering proceduresto provide a basis for our conclusion. However, we have not performed an audit in accordance with the InternationalStandards on Auditing. Accordingly, we do not express such an opinion.Our evidence-gathering procedures included, among other activities, the following:• Testing the effectiveness of the internal reporting system used to collect and compile information on each area of focus inthe Report;• Performing specific procedures, on a sample basis, to validate the CSR data on site at Starbucks coffee buying operations inSwitzerland; C.A.F.E. Practices operations in Costa Rica; and corporate headquarters in Seattle, Washington;• Interviewing partners responsible for data collection and reporting;• Interviewing partners at retail locations;• Assessing the information gathering and compiling process of each area of focus in the Report;• Reviewing relevant documentation, including corporate policies, management and reporting structures and• Performing tests, on a sample basis, of documentation and systems used to collect, analyze and compile reported CSRinformation and data.In our opinion, based on our work described in this report, the CSR information contained in the Report gives a fairrepresentation of CSR performance and activities of Starbucks Coffee Company for the fiscal year ended October 1, 2006.Statements, assertions and data disclosed in the Report are reasonably supported by documentation, internal processes andactivities, and information provided by external parties.Moss Adams LLPSeattle, WashingtonJanuary 15, 200776

Your Feedback MattersIn preparing Starbucks Fiscal 2006 CSR Annual Report,we provided a copy of our previous year’s report to a broadcross-section of stakeholders, and asked for their candidfeedback and advice on the ways in which we could improvetransparency. We also received a great deal of feedback fromreaders of last year’s report via an online survey, something weare doing again. This collective input provided some excellentsuggestions that we incorporated into this year’s report,including the changes we made to print only an abridgedversion focused on our most material issues and to publish thefull report online.We invite our readers to help us improve our future reportingby providing feedback on Starbucks fiscal 2006 CSR AnnualReport. This can be done via an online survey at www.starbucks.com/csrsurvey. Please be assured that all feedbackwill be thoughtfully considered and greatly appreciated.VerificationExternal verification of the data and statements made inStarbucks CSR Annual Reports began in 2002, when thecompany retained Seattle-based Moss Adams LLP, the12th largest accounting and consulting firm in the U.S.The selection of Moss Adams met Starbucks criteria for ahigh-quality firm that had not worked with the companypreviously, and a firm that could develop a customizedapproach for verifying CSR-related data and content. (Seepage 76.)About the Paper Used for this ReportTo minimize the environmental impact, this report wasprinted on 100 percent post-consumer recycled fiber.For more information:Starbucks Coffee CompanyCustomer RelationsPO Box 3717Seattle, WA 98124-3717 USAPhone: 800-23-LATTE(800-235-2883)Contact us through the “customer service” section ofStarbucks.com.To receive a printed copy of this report, please call thenumber listed above. The report is also available online atwww.starbucks.com/csr.© 2007 Starbucks Coffee Company. All rights reserved.Printed in the USA. CSR-199 SKU-XXThis report includes forward-looking statements regarding trendsin or expectations regarding store openings. These forwardlookingstatements are based on currently available operating,financial and competitive information and are subject to variousrisks and uncertainties. Actual future results and trends maydiffer materially depending on a variety of factors including butnot limited to successful execution of expansion plans, fluctuationsin U.S. and international economies, the impact of initiatives bycompetitors, and other risks detailed in the company’s filings withthe Securities and Exchange Commission, including the “RiskFactors” section of Starbucks Annual Report on Form 10-K forthe fiscal year ended October 1, 2006. The company assumes noobligation to update any of these forward-looking statements.77