The purpose of this document is to address the questions that you are most likely to be asking in relation to the Best Global Brands survey. It is not exhaustive but it should cover most first-level questions. If you have questions relating to the method or on some of the specific findings, please contact one of our many brand valuation experts around the world. The people to contact are as follows:

WHAT IS BRAND VALUE?

Brand Value is the dollar value of a brand calculated as net present value (NPD) or today's value of the earnings the brand is expected to generate in the future. Like any other financial value brand value is at a point in time based on the assumptions and information available at that point in time. Brand value is calculated according to the most widely accepted and used valuation principles. Brand value is therefore comparable to business and all NPV based asset valuations.

The valuations in BGB are calculated in their current use to their current owner. They therefore do not necessarily represent the potential purchase, extension or licensing value of the brands.

WHY VALUE BRANDS?

The purpose of these valuations is to demonstrate to the business community that brands are very important business assets and, in many cases, the single most valuable company asset. We also aim to make branding and marketing key business issues that have direct impact on shareholder value. Through six years of publishing the Best Global Brands, we have created the world's most significant and influential brand and marketing survey. PRWeek prepared a survey of senior executives regarding what they conisder to be the most important rankings. Questioning the top 500 CEOs and CFOs in the US, their survey concluded our Best Global Brands study was regarded as the third most sought after benchmark report.

HOW DOES INTERBRAND DERIVE THE VALUE OF BRANDS?

Our valuation approach is a derivative of the way businesses and fi nancial assets are valued. It fi ts with current corporate fi nance theory and practice. There are three key elements and they are detailed below:

WHAT WAS THE BASIS OF THE FINANCIAL ASSESSMENTS?

Published annual reports were used to examine the revenues, earnings, and balance sheets of the brand-owning companies. Analyst reports from JP Morgan Chase, Citigroup and Morgan Stanley were used as the basis for identifying the specifi c brand revenues and earnings, and for forecasting future earnings.

WHAT WAS THE BASIS FOR THE MARKETING ASSESSMENTS?

Unlike other brand value league tables, Interbrand does not rely on a single source of marketing information. Using a single brand study would limit the type of information (usually limited to perceptual data) and the type of customer (usually general public) that can be considered. Because many leading brands operate in specific customer segments (especially b2b), only considering the general public can be very restrictive. Instead, Interbrand refers to a wide array of primary and secondary sources that are applicable to each brand. These include, among others, Datamonitor, ACNielsen, Gartner, Hall & Partners. Moreover, Interbrand engages its network of brand valuation experts from offi ces around the world to ensure that the league table considers the brands from a global perspective.

WHAT WAS BUSINESSWEEK'S ROLE IN THE BEST GLOBAL BRANDS RANKING?

BusinessWeek did not infl uence the selection of brands or the determination of any of the values. Their role was to publish the survey and to tie the reported performance of brand value to some of the wider issues affecting these brands. They also provided the specifi c one-line comments that appear in the table. Interbrand is not responsible for these and they do not necessarily represent our views.

WHY ARE CERTAIN BRANDS NOT ON THE LIST?

This is a frequent question especially from companies who would expect their brands to be on the list. There are fi ve reasons:

• The brand is not sufficiently global
• The brand has a pure b2b single audience and has no wider public profile and awareness
• The company does not produce public data that enables us to identify the branded business (the company has multiple brands or has unbranded production)
• The brand is not big enough (brand value below $2.7 billion falls below the 100 brand ranking)
• The business is driven by a number of intangible factors and it is difficult to separate the brand from the rest

WHAT PERCENTAGE OF THE BRANDED BUSINESS NEEDS TO BE OUTSIDE THE HOME COUNTRY TO BE CONSIDERED GLOBAL?

In most cases, one-third, however, if the home country of the brand is small (e.g. the Netherlands), we require a higher percentage. For US brands, the overseas sales ratio can be smaller due to the size of the US market, which is nearly as big as all of Europe. Applying the one-third overseas sales requirement would penalize US brands for being successful in their domestic market.

WAS THIS THE ONLY TEST FOR BEING GLOBAL?

No, we also wanted evidence that the brand was established in a wide number of markets around the world. At the very least it needed to have a substantial presence in at least one country in each of the following four regions: North America, Latin America, Europe and Asia-Pacifi c. It also needed to be managed consistently as a global brand. As an example, Wal-Mart is a valuable brand but it is not consistently branded as Wal-Mart around the globe.

CERTAIN OBVIOUS GLOBAL BRANDS ARE MISSING. WERE THEY CONSIDERED?

In each case, there was a reason why they could not be evaluated based on purely public data.

VISA - Clearly a brand with global reach, however, it is not a normal corporation with a standard profit and loss account. It is, instead, a membership organization that shows a surplus or a deficit. Its shareholders are the member banks but, since these banks are also customers and its main suppliers, any assessment of surplus becomes circular. It is possible to value these brands by modeling a traditional P&L, but this cannot be externally done. The same would be true of partnership consulting organizations, such as PwC, McKinsey, or Ernst & Young.

BBC - A unique organization, since it's a government-owned corporation that is not supposed to generate a profi t. There are, however, parts of it that are commercial and do generate profits, but these are still the minority of the business.

Red Cross - As a not-for-profit, it's not possible to value the brand based on an earnings model. This would be true of other global not-for-profit brands such as Greenpeace, National Geographic, or Unicef. It is, however, possible to assess the financial value of such brands but using a different kind of model.

Mars - This is a privately held and highly secretive organization. Other privately held brands, such as IKEA and Levi's, are able to be included since they produce reliable public accounts.

WITHIN CERTAIN LARGE INDUSTRY SECTORS, THERE ARE NO BRANDS THAT APPEAR ON THE LIST. WHY?

Airlines - There has clearly been signifi cant investment in airline brands (and many of them are, by definition, global), but they are still operating in situations where the brand plays only a marginal role. In most cases, the customer decides based on price, route, schedule, corporate policy or frequent flyer points. The brand may often only have a real impact when all these items are at parity. We have assessed the brand value for airlines by using internal data to strip out the impact of these other factors. But from purely public information, this is difficult to do reliably. The exception to this would be Virgin, which is clearly a brand-driven proposition. However, as a private company, it is not possible to value that brand from public information.

Insurance - With most insurance companies, we are not able to distill an accurate valuation from public data as they do not have an operating profit line. Insurance companies are a sell now/pay out later business employing embedded value.

Telecoms - Although there are many large telecom brands that are highly valuable, at present none of these brands fulfill our 'global' criteria.

WAS THERE A LIMIT TO THE NUMBER OF BRANDS INCLUDED FROM ANY ONE INDUSTRY?

No, however, one of the requirements of a leading global brand is that it is, in fact, leading. The mark of leadership is not just about market share, it is also about behaving as a leader - setting trends, quality standards, authority, and the like. Thus, there are brands that are in the top three of their category's market share that did not make the cut; and there are brands that are not top three that did make the global ranking. The rules described are guidelines and ultimately each brand was assessed for inclusion on its own merits.

ARE THERE ANY BRANDS THAT HAVE A VALUE OF $2.7BILLION BUT DID NOT MAKE THE LIST?

There are certainly strong national brands that have a value of over $2.7 billion but did not make the list because they do not meet our global criteria. This would be true of many of the financial services and telecom brands, but it is also surprisingly true of a lot of food, beer, and retail brands.

HOW DID YOU TAKE ACCOUNT OF THE FACT THAT SOME BRANDS ARE RUN THROUGH FRANCHISEES?

This was an issue with all the food retail brands - McDonald's, Pizza Hut, KFC and Starbucks. We based our valuation on the earnings that the brand owner makes from the brand and an estimate of the earnings that the franchisees make from the brand (what is called a total-system view). As in all other valuations, these earnings were then reduced to take account of a return for the use of the tangible and other intangible assets.

WHY ARE PHARMACEUTICAL BRANDS INCLUDED IN THE LIST?

It is clear that the main intangibles in a pharmaceutical business are the patents and technologies that they enjoy. That is why the two brands that appear (Novartis and Pfi zer) account for, respectively, only 5% and 6% of the market capitalization of these businesses (compared to, say, 51% for Nike). However, even in this context, brands do play a role. For prescription, drugs they play a b2b role for the doctors; for OTC drugs, they play a role directly with consumers. In addition, Pfi zer especially has a number of products (such as fertilizers) which are direct consumer sales and in which the role of the brand is quite significant.

WHAT IS THE RELATIONSHIP BET WEEN THE FOLLOWING TERMS: BRAND AWARENESS, BRAND EQUITY, BRAND SHARE AND BRAND VALUE?

Brand value is the only measure that looks at the economic benefit of the brand to its owner. In other words, it is an end in itself. Brand awareness and brand equity are a means to an end. Brand awareness is simply knowledge that a brand exists, thus brand awareness may prompt customers to consider buying a product. Brand equity is a measure of customer perceptions of a brand; thus, it may give a customer reason to prefer a product over the alternatives. Brand share is simply the market share achieved by the brand. Brand awareness, equity, and share are all measures of what a customer thinks or does, they are not assessments of the economic value created by those thoughts or actions.

DO THE VALUATIONS REFLECT THE UNDERLYING STATE OF THE ECONOMY?

Yes - in two ways. The forecasts reflect a lower level of business confidence and, in many cases, lower growth rates or lower margins. The formula for converting the brand strength score into a discount rate is tied to the underlying government bond yield.

HOW SHOULD WE UNDERSTAND THE BRAND VALUE AS A PERCENTAGE OF MARKET CAPITALIZATION?

The market capitalization represents the market's valuation of all the equity in a company. In theory, the market capitalization is the value of all tangible and intangible assets owned by the company less all the debt owed by the company. Brand value/market capitalization relationship can be read in a number of ways:

• If the brand value percentage of market capitalization is low, it suggests that the business is driven by other kinds of assets (tangible and intangible) and that the brand is relatively unimportant. It might also mean that the business is failing to leverage the brand as much as it could and that investors should be concerned about that.
• If the brand value percentage of market capitalization is high, it suggests that the business is driven by the brand and that investors should take care of how the brand is being managed, since this will have a very direct affect on shareholder value. It could also mean that the business is under-valued by the market and that they are failing to reflect the true value of all the assets of the business of which the brand is one (but only one).

The comparison of brand value to market capitalization is mainly useful for mono-branded businesses, as the market capitalization relates to all company assets. For companies that own and operate under many different brands, such as Nestlé and J&J, a comparison with market capitalization is less useful.

HOW DOES BRAND VALUE RANK AGAINST AD SPENDING?

It is not really appropriate to try to correlate these two. Brand value is a measure of the output from a series of brand investments and initiatives over a long period of time. Advertising is one element in a wide spectrum of communications that companies employ. Other communications include sponsorships, online, point of sale, customer service, etc. In some cases, brands are built with very little or no advertising, as in the case of Starbucks, where retail space and employees are the key communications channels.

IS IT POSSIBLE TO RECOGNIZE BRAND VALUE ON ABALANCE SHEET?

Several accounting standards - such as International Accounting Standards (IAS) 36 and 38, US GAAP, FASB 141, UK FRS 10 - allow and/or require the recognition of acquired goodwill, including brands, on the balance sheet. The standards clearly identify brands as intangible assets with an infi nite economic life. This means that, unlike other intangible assets (e.g. patents, databases) or goodwill (e.g. training, workforce) brand value does not have to be amortized through the income statement. However, they are subject to an annual impairment test and the carrying value needs to be reduced if the value decline. The technique is consistent with the way in which Interbrand has assessed brands for balance sheet inclusion - though, of course, using more extensive and proprietary data.

WHAT IS INTERBRAND'S VIEW ON BRANDS APPEARING ON BALANCE SHEETS?

We support the notion of different accounting standards to recognize the value of brands on the balance sheet. Interbrand has been leading the debate on this issue for many years. However, current accounting standards allow only for the recognition of acquired brands, not internally developed brands. Also, the impairment test for brands on the balance sheet allows only for a potential value reduction but not an increase. The acquisition criterion means the Gucci brand is recognized on the balance sheet of PPR as an intangible asset, while the Louis Vuitton brand does not show up on the balance sheet of LVMH.

We conclude that the recognition of acquired brands on the balance sheet is a step in the right direction for providing shareholders with better information about the assets they have invested in. However, it's still not sufficient, as the value of internally generated brands cannot be disclosed despite making up the vast majority of the most valuable brands around the world.

As the need for some formal statement about brand value (and the value of other intangible assets) is becoming increasingly important, we would advocate some type of statement in the annual report on the intangible business assets, including brands. Whether this happens on the traditional balance sheet or it happens on a new 'Statement of Intangible Value' would be secondary (note: there is a precedent for this in the way in which the Cash Flow Statement was developed to complement, but not replace, the Profi t & Loss Account.)

WHY IS INTERBRAND AN EXPERT IN ASSESSING BRAND VALUE?

In 1987, Interbrand developed and introduced the first valuation of a portfolio of brands that used a brand-specific valuation approach. Since then, we have continuously updated and improved our valuation approach to make it the global industry standard of brand valuation. The Interbrand brand valuation methodology is the most widely endorsed and used valuation approach around the world. Interbrand alone has valued more than 4,000 brands in all industries worldwide.

Our valuations have been endorsed by leading academic institutions, including Harvard, Thunderbird, Columbia, Emory, and St. Gallen. Our valuation approach has the widest breadth of application, including strategic brand management, marketing budget allocation, marketing ROI, portfolio management, brand extensions, M&A, balance sheet recognition, licensing, transfer pricing, and investor relations. Our valuations have been audited for inclusion on the balance sheet by all leading accounting firms. Also, many tax authorities and law courts around the world have accepted our valuation approach.

DOES INTERBRAND CONDUCT OTHER BRAND SURVEYS?

We have established national brand value league tables in Switzerland, France, Spain, Australia, Singapore, Taiwan, Mexico, Canada and Brazil. These follow an identical valuation process but only look at locally owned brands.

A US-specific survey would be redundant due to the great overlap with the global table - 51 out of 100 are US-based.

WHAT IS THE DIFFERENCE BET WEEN THE VALUATIONS IN BGB AND CONSULTING VALUATIONS FOR CLIENTS?

The valuation methodology is the same, however, the level of detail and the data input significantly differ. The Best Global Brands (BGB) valuations are based on publicly available marketing and financial data. Also, the BGB valuations are mostly consolidated top-line assessment, although we recognize segment differences for diversified brands by product or service but not geography or any other classification (eg. fi nancial services or technology). Only public data was used, and the valuations are only as reliable as the data that the brand-owning companies publish about themselves (in annual reports, analyst briefi ngs, press articles, syndicated market research, etc).

Consulting valuations are based on detailed customer segmentations, as well as in-depth marketing and financial analyses. They have a much higher level of accuracy and granularity. The purpose of a consulting valuation goes well beyond assessing financial numbers in identifying and quantifying value drivers and in managing brands for increasing the shareholder value of the underlying businesses. However, if clients undertake consulting valuations we are in a much better position to identify publicly available data that are likely to align the BGB valuation with the consulting valuation. In cases where companies make our consulting valuations publicly available, for example through a note in the balance sheet, these values will also be published as the BGB ranking value.