From Financial Reporting to Enhanced Business Reporting

1. From Financial Reporting toEnhanced Business Reporting “Interactive Data: The Revolution in Business Reporting” 14th XBRL International Conference, Philadelphia, PA December 4 – December 6, 2006 A market driven process to extend a conceptual framework. http://www.ebr360.org

2. Past Present Future The Need for Enhanced Business Reporting Business Reporting: A Changing Dynamic: Historical Financial Statements Enhanced Business Reporting • Lagging indicators… • One size fits all (GAAP) • Ignores non-financial measures • Reports results of past decisions • Periodic • Historical • Cost-basis • Financial only • Statements • Backward-looking • Leading indicators… • Tied to mission, vision and values • Tied to factors critical to success • Moves decision criteria to forefront • On-demand • Real-time/future • Value-basis • Comprehensive • Custom reports • Forward-looking

3. What is Enhanced Business Reporting? Value Creation Value Preservation Value Realization InvestmentCommunity Companies A Better Managed Company Companies create sustainable economic value by developing, operationalizing and executing superior strategies which guide the company towards delivering valuable products and services. These strategies yield future cash flows greater than investment or economic profit. Companies preserve the value of the underlying business unit cash flows through effective management controls, risk and tax management. Companies ensure that investors realize the value created by the business units and the corporate center by managing and delivering upon market expectations.

4. What is Enhanced Business Reporting? • Providing shareholders and other stakeholders the information they need to make decisions • Financial and nonfinancial value drivers • Tangible and intangible assets • Integrated management and reporting of risk and value • Voluntary transparency beyond regulatory reporting requirements • A way to move beyond The Earnings Game

5. Tier Three Company-Specific Information Tier Two Industry-Based Standards Tier One Global Generally Accepted Accounting Principles A Three-tier Reporting Model Source: Building Public Trust by Samuel DiPiazza and Robert Eccles

6. Example industry-specific value drivers • Key value drivers vary by industry • Following are example industry value drivers that extend the business reporting framework. • Note that many of these value drivers are not included in GAAP. • Financial and non-financial information is important • Tangible and intangible assets are important • For most value drivers, standard definitions and metrics for measurement and reporting do not exist

7. Banking Insurance • Fee-based Revenue Growth • Delivery Channels • Economic Profit • Performance by Business Segment • Market Risk Exposure • Cost/Income • Market Share • Assets Under Management • Employee Satisfaction • Brand Equity • Product Innovation • Investment Performance • Degree of Diversification • Regulatory Reputation • IT Expenditures • Performance by Business Segment • Expense Ratio • Capital Management • Risk Management Practices • Plans for Growth • Investment Performance • Distribution Channels • Quality of Management • Earnings • Asset/Liability Management • Return on Risk • Adjusted Capital • Market Growth • Customer Retention • Capital Adequacy • Claims Ratio • Economic Profit • Employee Satisfaction • Customer Penetration • Market Risk Exposure • Assets Under Management • Asset Quality • Embedded Value • IT Expenditures • Brand Equity • Product Innovation • Regulatory Reputation • Market Share • Loan Loss • Earnings • Capital Adequacy • Risk Management Practice • Customer Retention • Customer Penetration • Asset/Liability Management • Asset Quality • Return on Risk Adjusted Capital • Capital • Management • Quality of Management • Plans for Growth • Market Growth Example industry-specific value drivers Source: PwC ValueReporting Capital Markets Surveys Source of data: PricewaterhouseCoopers

8. Investment management High Technology Telecommunications • Competitive Landscape • Capital Expenditures • Market Growth • Customer Churn Rate • Regulatory Environment • Pricing Strategy • Network Reach, Quality & Capability • Earnings • Revenue Metrics by Driver (e.g. Average Revenue per user) • Significant Operating Costs by Category • Sales & Marketing Strategy • Cash Flow by Business Segment • Profit Margins • Investment Product Performance • Quality of Management • Asset Growth from Investment Performance • Asset Growth from Product Cash Flow • Employee Retention • Compensation Levels of Professional Staff • Asset Retention • Competitive Landscape • Product Diversification Strategy • Strategic Direction • Cash Flow • Market Growth • Gross Margins • Quality/Experience of Management Team • Market Size • Competitive Landscape • Earnings • Speed to Market (first to market) • Market Share • Compensation Strategy • Investment in Technology to Improve Business Processes • Assets under Management • Enterprise Risk Management • Market Share • Experience/Quality of Investment Research Professionals Example industry-specific value drivers Source: PwC ValueReporting Capital Markets Surveys Source of data: PricewaterhouseCoopers

9. Example industry-specific value drivers Source: PwC ValueReporting Capital Markets Surveys Chemicals Metals Mining • Free Cash Flow • Strategic Direction • Manufacturing Costs • Earnings • Market Growth • Performance by Business Segment • Product Quality • Quality of Management • Capital Expenditure • Utilization of Facilities • Market Share • Customer Loyalty • Market Share • Energy Prices & Supply • Earnings • Costs per Ton Delivered • Market Growth • Metals Prices • Capital Expenditures • Performance by Business Segment • Potential Supply Globally & Locally • Utilization of Facilities • Product Quality • Free Cash Flow • Age & Quality of Plant • Strategic Direction • Value of Tangible Assets • Implementation of New Processes & Technologies • Quality of Management • Regulatory Environment • Strategic Direction • Cash Cost per Ounce/Kg/Ton • Capital Expenditures • Earnings • Existing/Potential Environmental Liabilities • Health & Safety Performance Statistics • Metal Prices • Quality of Management • Acquisition Strategies • Ounces/Kilograms/Tons Produced per Year • Performance by Business Segment • Cost per Ounce/Kg/Ton • Labor Relations • Sustainable Development Strategy • Environmental Policy/Risks • Potential Supply/Production Globally & Locally Source of data: PricewaterhouseCoopers

10. Diversified Manufacturing Consumer Goods • Free Cash Flow • Performance by Business Segment • Market Growth • Earnings • Manufacturing Costs • Quality of Management • Strategic Direction • Capital Expenditures • Market Share • Product Quality • Capital Expenditure • Free Cash-flow • Sales Volume • Quality of Strategy • Growth of Strategy • Performance by Business Segment • Market Growth • Performance by Geographic Market • Marketing Strategy • Customer Loyalty & Advocacy • Customer Service • Weighted average cost of capital • Employee Satisfaction & Advocacy • Earnings • Sales & Gross Margins by Product Category • Market Share • Product Innovation • Marketing Costs • Brand Portfolio Management Date • Percent of New Products in Sales • Employment, Environmental Policies • Product Range Development • Stock Levels in the Supply Chain • Distribution Channel Complexity Example industry-specific value drivers Source: PwC ValueReporting Capital Markets Surveys Source of data: PricewaterhouseCoopers

11. Retail Real Estate • Market Growth • Earnings • Same Store Sales • Gross Margins • Free Cash-Flow • Market Share • Performance by Business Segment • Store Portfolio Changes (e.g., new stores) • Weighted Average Cost of Capital • Customer Satisfaction • Expected Return on New Stores Refurbishment • Quality of Management • Capital Expenditure • Sales per Square Foot • Inventory Turns • New Store Formats Tested & Performance Data • Brand Value • Product Availability • Financing Strategy • Occupancy Rate • Macro-Economic Factors (e.g., GDP growth, inflation, population & job growth, interest rates) • Investment Strategy • Return on Invested Capital • Revenue from New Developments or Acquisitions • Investment in New Acquisitions & Development Properties • Earnings • Market Rental Rate • Quality of Management • Free Cash Flow Example industry-specific value drivers Source: PwC ValueReporting Capital Markets Surveys Source of data: PricewaterhouseCoopers

12. Example industry-specific value drivers Source: PwC ValueReporting Capital Markets Surveys Automotive Entertainment Utilities • Earnings • Free cash flow • Market Share • Strategic direction • Product quality • Customer satisfaction • Market Growth • Facility or capacity investment strategy • Sales volume • Performance by business segment • ROIC • Market Growth • Market Share • Free Cash Flow • Performance by Business Segment • Customer Demographics • Quality of Management • Earnings • Strategic Direction • New Business • Capital Expenditure • Cost reduction • Investment/acquisition strategy • Margin improvement • Market growth • Operating cash flow growth • Operating profit growth • Quality of management • Regulatory environment and price controls • Risk Management processes • Strategic direction and focus - integrated vs. specialist player Source of data: PricewaterhouseCoopers

13. Pharmaceuticals Petroleum • Supply, Demand and Prices for Petroleum Products by Region • Cash Flow • Unit Cost by Refinery • Value of Proven & Probable Reserves • Refinery Margins by Region • Capital Expenditures • Strategic Direction • Reserve Replacement Costs • Refinery Utilization • Refinery Acquisition Cost of Crude • Earnings • Supply, Demand & Prices for Crude Oil & Natural Gas • Performance by Business Segment • Exploration Success Rate • Return On Average Capital Employed or Similar Return Measure • Quality of Management • Petroleum Product Sales by Volume by Refinery • Risk Management • Quality of Workforce • Hedging Strategy • Market Share • Operating Profit per Equivalent Measure by Geographic Location • Market Growth & Potential by Therapeutic Area • Product Focus Strategy • Earnings • R&D Pipeline • Market Share by Therapeutic Area • Regulatory Issues • Product Innovation Strategy • Performance by Business Segment • Effectiveness of Product Launch • Reputation with Prescribers • Quality of Management • Market Growth & Potential by Geographic Area • Market Growth by Geographic Market • Partnering Strategy • Cost/Revenue Ratios • Quality of Selection of Development Targets • Recruitment & Retention of Talented People • Risk Profile of Product • Efficiency of Manufacturing Facilities • Profitability of Licensing Arrangements • Economic Profit • Value of Key Intellectual Assets • Brand Awareness of Levels with Patients Example industry-specific value drivers Source: PwC ValueReporting Capital Markets Surveys Source of data: PricewaterhouseCoopers

14. What is Needed Versus What is Delivered Currently Disclosure of key value drivers through current company filings by industry Disclosure of Key Value Drivers through Company Filings by Industry Source: PwC ValueReporting Capital Markets Surveys, Analysis: Courtesy of EDGAR Online  Source of data: PricewaterhouseCoopers ValueReporting Capital Markets Survey, Analysis of data Edgar-Online

15. Performance Measures & the Pharmaceutical Industry CFOs recognize that a broad range of financial and non-financial measures are useful for managing their companies CFOs’ Perceptions of the Relative Importance of Performance Measures* High Importance Medium Importance Low Importance 1. Partnering strategy 1. Degree of diversification 1. R&D pipeline 2. Product focus strategy 2. Quality of selection of development targets 2. Attrition rates in development 3. Earnings 3. Cost / revenue ratios 4. Market growth and potential by therapeutic area 3. Outsourcing of non-value adding activities 4. Recruitment and retention of talented people 5. Performance by business segment 5. Market share by geographic area 6. Effectiveness of product launch 6. Risk profile of product 7. Product innovation strategy 7. Efficiency of manufacturing facilities 8. Quality of management 8. Profitability of licensing agreements 9. Market share by therapeutic area 9. Economic profit 10. Regulatory issues 10. Brand awareness levels with patients 11. Reputation with prescribers 12. Market growth and potential by geographic area 11. Value of key intellectual assets *Respondents were asked to evaluate measures on a percentage scale. Measures of High Importance had scores between 90 and 100, measures of Medium Importance had scores between 70 and 89, and measures of Low Importance had scores of 69 or below. • Source of data: PricewaterhouseCoopers

16. The Top Ten Performance Measures in the Pharmaceutical Industry Perceptions of the Relative Importance of Performance Measures Companies Analysts Investors 1. Market growth & potential by therapeutic area 1. Performance by business segment 1. Market growth & potential by therapeutic area 2. R&D pipeline 2. R&D pipeline 2. Performance by business segment 3. Product focus strategy 3. Earnings 4. Earnings 3. Effectiveness of product launch 4. Effectiveness of product launch 5. Performance by business segment 4. Product innovation strategy 5. Regulatory issues 6. Market growth & potential by therapeutic area 6. Effectiveness of product launch 5. R&D pipeline 7. Product innovation strategy 6. Product focus strategy 7. Product innovation strategy 7. Risk profile of product 8. Quality of management 8. Quality of management 8. Quality of management 9. Market share by therapeutic area 9. Market share by therapeutic area 9. Earnings 10. Regulatory issues 10. Partnering strategy 10. Partnering strategy Source of data: PricewaterhouseCoopers

17. Communication gaps prevent market value from reflecting underlying value Management’s Valuation Value gap Investors/Analysts Market Value Quality of Information Quality Gap Importance of a Measure Importance of a Measure Information Gap Reporting Gap How Adequately Information is Communicated How Actively a Measure is Communicated Source of data: PricewaterhouseCoopers

18. Information, Reporting and Quality Gaps in the Pharmaceutical Industry Information Gap Reporting Gap Companies Analysts Investors Companies 1. Market growth & potential by therapeutic area • Market growth & potential • by therapeutic area 2. R&D pipeline • R&D pipeline 3. Product focus strategy • Product focus strategy 4. Earnings 5. Performance by business segment 6. Effectiveness of product launch  Effectiveness of product launch 7. Product innovation strategy • Product innovation • strategy 8. Quality of management Quality of management  9. Market share by therapeutic area • Market share by • therapeutic area 10. Regulatory issues Regulatory issues Source of data: PricewaterhouseCoopers  Measures with quality gap

19. Barriers to Enhanced Business Reporting • Cynicism about how the capital markets work • Fear of increased litigation risk • Perceived benefits of playing the earnings game • Reluctance to be held accountable for a broader set of performance measures • Concerns about how competitors can use the information • Concerns about being the first or only one to report on a key value driver • Lack of the necessary information to measure a key value driver

20. Interdependencies between XBRL and EBR Enabling Greater Transparency • XBRL is about format • EBR is about content • XBRL taxonomies exist for US GAAP content • The EBR framework enables the development of meaningful taxonomies for other content (e.g. MD&A) • XBRL taxonomies can be developed for the broader EBR framework

21. From Financial Reporting to Enhanced Business Reporting in XBRL • Financial statement taxonomy to be completed by June 30, 2007 • During this period a working group in XBRL U.S. is formed to explore taxonomy extensions • Could be tied to MD&A and 10K • Establish a few industry-specific subgroups • Work with SEC to establish an extension of the voluntary filing program for Enhanced Business Reporting Content in a few industries • Develop industry roll-out program if warranted