As filed with the Securities and Exchange Commission on March 4, 200901, 2010
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
 
o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
OR
  
For the fiscal year ended December 31, 2009
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
o SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-15170
GlaxoSmithKline plc
(Exact name of Registrant as specified in its charter)
England
(Jurisdiction of incorporation or organization)
980 Great West Road, Brentford, Middlesex TW8 9GS England
(Address of principal executive offices)
Simon Bicknell
Company Secretary
GlaxoSmithKline plc
980 Great West Road
Brentford, TW8 9GS
England
+44 20 8047 5000
company.secretary@gsk.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
   
Title of Each Class Name of Each Exchange On Which Registered
   
American Depositary Shares, each representing 2 Ordinary Shares,
Par value 25 pence		 New York Stock Exchange
Ordinary Shares, Par value 25 pence
4.850% Notes due 2013 New York Stock Exchange
5.650% Notes due 2018 New York Stock Exchange
6.375% Notes due 2038 New York Stock Exchange
Floating Rate Notes due 2010 New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of class)
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Ordinary Shares of Par value 25 pence each 5,187,122,079
Ordinary Shares of Par value 25 pence each5,190,934,201
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
þ Yes      o No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
o Yes      þ No
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes      o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
o Yes      o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitionsdefinition of “accelerated filerfiler” and large“large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
     
Large accelerated filerþ Accelerated filero Non-accelerated filero
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
     
U.S. GAAPo
 International Financial Reporting Standards as issuedþ Othero
  by the International Accounting Standards Boardþ  
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17o      Item 18o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes      þ No
 
 

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Website
GlaxoSmithKline’s website www.gsk.com gives additional information on the Group. Information made available on the website does not constitute part of this Annual Report.
Notice regarding limitations on Director liability under English Law
Under the UK Companies Act 2006, a safe harbour limits the liability of Directors in respect of statements in and omissions from the Report of the Directors contained on pages 12 to 98. Under English law the Directors would be liable to the company (but not to any third party) if the Report of the Directors contains errors as a result of recklessness or knowing misstatement or dishonest concealment of a material fact, but would not otherwise be liable.
Report of the Directors
Pages 12 to 98 inclusive consist of a Report of the Directors that has been drawn up and presented in accordance with and in reliance upon English company law and the liabilities of the Directors in connection with that report shall be subject to the limitations and restrictions provided by such law.
Cautionary statement regarding forward-looking statements
The Group’s reports filed with or furnished to the US Securities and Exchange Commission (SEC), including this document and written information released, or oral statements made, to the public in the future by or on behalf of the Group, may contain forward-looking statements. Forward-looking statements give the Group’s current expectations or forecasts of future events. A shareholderAn investor can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as ‘anticipate’, ‘estimate’, ‘expect’, ‘intend’, ‘will’, ‘project’, ‘plan’, ‘believe’ and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. The Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements involve inherent risks and uncertainties. The Group cautions investors that a number of important factors, including those in this document, could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, those discussed under ‘Risk factors’ on pages 5043 to 5347 of this Annual Report.

 

01

Contents

Business review
This discusses our financial
and non-financial activities, resources,
development and performance
during 2009 and outlines the
factors, including the trends and
the principal risks and uncertainties,
which are likely to affect future
development.
Governance and remuneration
This discusses our management
structures and governance
procedures. It also sets out the
remuneration policies operated
for our Directors and Corporate
Executive Team members.
Financial statements
The financial statements provide a
summary of the Group’s financial
performance throughout 2009 and
its position as at 31st December
2009. The consolidated financial
statements are prepared in
accordance with the IFRS as adopted
by the European Union and also
IFRS as issued by the International
Accounting Standards Board.
Shareholder information
This includes the full product
development pipeline and discusses
shareholder return in the form of
dividends and share price movements.
Notice regarding limitations on Director Liability under English Law
Under the UK Companies Act 2006, a safe harbour limits the liability of Directors in respect of statements in and omissions from the Report of the Directors contained on pages 8 to 90. Under English law the Directors would be liable to the company, but not to any third party, if the Report of the Directors contains errors as a result of recklessness or knowing misstatement or dishonest concealment of a material fact, but would not otherwise be liable.
Report of the Directors
Pages 6 to 90 inclusive comprise the Report of the Directors that has been drawn up and presented in accordance with and in reliance upon English company law and the liabilities of the Directors in connection with that report shall be subject to the limitations and restrictions provided by such law.

Business review
2009 Performance overview
Financial trends
Products, intellectual property and competition
Global manufacturing and supply
Research and development
Our employees
Our responsibility
Regulation
World market, economy and outlook
Financial review 2009
Financial position and resources
Risk factors
Financial review 2008
Governance and remuneration
Our Board
Our Corporate Executive team
Governance and policy
Dialogue with shareholders
Internal control framework
Committee reports
Remuneration policy
Director terms and conditions
Director and Senior Management remuneration
Directors’ interests
Directors’ interests in contracts
 
Financial statements
Directors’ statement of responsibilities
Report of Independent Registered Public Accounting Firm
Financial statements
Notes to the financial statements







Shareholder information
Quarterly trend
Five year record
Product development pipeline
Share price and dividends
Nature of trading market
Annual General Meeting
Investor relations and Registrar
Taxation information for shareholders
Glossary of terms




GSK Annual Report 200812009

02

GrowChairman & CEO summary
Our strategy is delivering and we believe that GSK is now moving to a diversified global business
Deliver
more products of value
Simplify
the operating model
In 2008 we set out three new strategic priorities that aim to improve ourposition where it can deliver long-term financial performance.
We believe these priorities will enable us to navigate the coming years successfully and retain our leading-edge asperformance on a company able to meet patients’ and payers’ needs into the future.
Find out more about our priorities on the following pages.
Contents
sustainable basis for shareholders.
   
Chairman and CEO summary(PHOTO OF SIR CHRISTOPHER GENT)
 3
Strategy
4
Report of the Directors
Business review
12
Corporate governance
60
Remuneration Report
78
Financial statements
Directors’ statement of responsibilities
100
Independent Auditors’ report
101
Consolidated income statement
102
Consolidated balance sheet
103
Consolidated cash flow statement
104
Consolidated statement of recognised income and expense
105
Notes to the financial statements
106
Shareholder information
Financial record
182
Product development pipeline
193
Shareholder information
197
Taxation information for shareholders
200
Glossary of terms
201
(PHOTO OF ANDREW WITTY)


 

03

Chairman & CEO summary

Dear Shareholder
2 GSKSince our last Annual Report, 2008GSK has made significant progress to transform its business model.
Our strategy is delivering and we believe that GSK is now moving to a position where it can deliver long-term financial performance on a sustainable basis for shareholders.
Return to sales growth
In 2009, we saw GSK return to sales growth. Our missionstrategic priority, to diversify and drive growth in key investment areas such as Emerging Markets, Consumer Healthcare and Vaccines, has supported this growth.
In doing so we have developed many more engines of growth for the company. This increased diversification is helping to reduce risk through lower sales volatility – evident in that GSK absorbed the impact of losing more than £1 billion of sales to genericisation in the US market in 2009.
Of course, sales of our influenza products to governments responding to the H1N1 pandemic also contributed to sales.
For many years, we have invested in developing our influenza capabilities. Five months after the WHO declared H1N1 a global flu pandemic, GSK was able to supply an approved vaccine for governments across the world. We are continuing to work closely with them to respond to their needs.
New product momentum sustained
We remain focused on broadening and strengthening our product portfolio. Last year, GSK received 12 product approvals and completed 11 new filings.
In the last 3 years, GSK has obtained more FDA approvals for new medicines and vaccines than any other company.
Over the next 18 months we have the potential to launch a challengingnumber of brand new medicines and inspiring missionvaccines, includingBenlysta,which would be the first new treatment for systemic lupus in over 50 years.
This momentum is set against a continued goal of maintaining around 30 assets in our late stage pipeline.
Improving return on investment
We remain mindful of the need to improve and demonstrate better returns on investment. Across the qualityentire business, we continue to implement our restructuring programme to simplify operations and reduce costs. In 2009 this programme delivered £1 billion of human life by enabling peopleannual savings.
In particular, in Research and Development we are strongly focused on allocating capital to do more, feel better and live longer.
By focusing our business around our strategic priorities, we’re confident thatareas where we can fulfil this promise.
(PHOTO OF SIR CHRISTOPHER GENT and ANDREW WITTY) 

get the best return on investment.
GSK Annual Report 20083

We continue to look at how we can make better decisions around pipeline progression and maintain our strategy to increase the level of externally sourced compounds in our pipeline, through more option-based agreements.
Chairman and CEO summary
2008 marked a turning point for GSK andIn addition, we are nowreducing R&D investment and associated infrastructure in a pivotal periodtherapy areas where we believe the prospects for successful registration and launch of change asdifferentiated medicines are low.
Based on the investment made in our late stage pipeline and our long-term sales expectation, we redefineestimate our business modelprojected rate of R&D return to increase sales growth, reduce riskbe around 11%. We believe this is an improvement on the industry average over the last ten years. Our long-term goal is to go further and deliverrealise an aspirational rate of return for GSK’s R&D of around 14%.
More responsive, more flexible, more open
Equally important are GSK’s financial and social responsibilities to ensure the long-term sustainable financial performance to shareholders.
Financial performance*success and sustainability of our business.
We are pleased withdetermined to make our company more responsive, more flexible and more open to society’s expectations.
We continue to make progress in many areas such as improving access to medicines, enhancing research opportunities for neglected tropical diseases, raising the responseethical standards for conducting our research and our commercial activities, and being more transparent about the way we run our business.
Progressive dividend
As one of the business to whatFTSE 100’s top dividend payers, we always knew would be a challenging 12 months, due to the adverse impact of significant US patent expiries and further decline inAvandiasales. As anticipated, these factors led to a decline in earnings per share (EPS) for the year, which was compounded by an unexpected legal chargestrongly believe in the fourth quarter.
Total sales forimportance of returning funds to our shareholders. In line with GSK’s progressive dividend policy, the year were £24.4 billion, down 3% in constant exchange rate (CER) terms, and EPS excluding major restructuring was 104.7p,Board has approved a decrease of 9% over 2007 in CER terms. Cash generation remains strong, with net cash inflow from operating activities of £7.2 billion, up 17% in sterling terms.
The Board declared atotal dividend for the year of 57p, up from 53p for 2007. During the year we completed share repurchases of £3.7 billion. We do not expect to make any significant repurchases in 2009. Our financial strategy remains to maintain an efficient balance sheet, while using cash resources to invest in our strategic priorities and61 pence, a 7% increase returns to shareholders through our progressive dividend policy.on last year’s dividend.
The performance of our core pharmaceuticals business and the increasing diversification of its sales base are important indicators of GSK’s progress. Our pharmaceutical turnover declined 3% in CER terms, reflecting the adverse impact of generic competition to our patented products and lowerAvandiaand pandemic product sales. Excluding genericised products,Avandiaand pandemic products, which have significant sales volatility, the remaining pharmaceuticals business delivered £16.4 billion in sales and grew by 10% in CER terms. Within this, vaccines sales rose by 20% to £2.47 billion.
Our sales in emerging markets grew by 12% to £2.3 billion. Sales in Asia Pacific and Japan totalled £1.9 billion; we are now moving into a phase of converting our extensive pipeline in Japan into approved medicines.Improving long-term prospects
In 2008, we continued the good work of the previous year and launched 12 pharmaceutical products including vaccines. We are now also starting to see good traction with our new pharmaceutical products launched in the last two years, which contributed sales of almost £0.8 billion during the year.
Improved productivity and disciplined allocation of capital are key elements of our R&D strategy. We currently have around 30 assets in our late-stage pipeline, a level we aim to sustain. The augmentation of our pipeline, over the past few years, has been accomplished without substantial increases in total R&D expenditure.
*Constant exchange rates (CER) are explained on page 16.
Sales in Consumer Healthcare were just under £4 billion andconclusion, we are making progress against our strategic priorities. We have seen good progress within our strategy of investment in innovation, acquisitions and marketing excellence in this area of our business.
Strategic priorities
In 2008sales performance; we established our three strategic priorities to: groware maintaining a diversified global business; deliverstrong focus on cost reduction; we are delivering more products of value; and simplify the operating model.
These priorities are designed to radically transform our business by reducing our relative dependence on small molecule pharmaceuticals in developed Western markets. We expect to see an increase in the relative importance of our emerging markets and Japanese businesses and an increasingly greater contribution to our business fromnew medicines, vaccines and consumer products. We also anticipate a growing capabilityhealthcare products; and we continue to deliver more products of value from R&D which will not only deliver benefitstake new initiatives to patients but will also more readily meet payers’ needs and therefore enable us to achieve more rapid, reimbursed product approvals. Our expanded restructuring programme, which is expected to deliver annual savings of £1.7 billion by 2011, is a vital catalyst ofbuild society’s trust. In accomplishing this, change.
These priorities and the progress we made to implement them during 2008 are explained on the following pages. You can find more information, including regular updates on progress as we move through 2009, by visiting our website at www.gsk.com
Changes to the Board
Sir Ian Prosser and Dr Ronaldo Schmitz will retire from the Board after the Annual General Meeting. We thank them for their dedicated service to the Boards of GSK and our heritage companies and for the valuable contributions they have made to our business.
In May 2009, we welcome James Murdoch to the Board, as a Non-Executive Director. As the Chairman and Chief Executive of News Corporation Europe and Asia, James brings great experience and expertise to our boardroom, which will be particularly evident in his role as a member of GSK’s Corporate Responsibility Committee.
Outlook
We enter 2009 with confidence and expect to make further good progress in implementing our strategic priorities that will enable us to meet our long-term objective of reducing risk and delivering sustainable growth to shareholders.
Finally, we would especially like to recognise the enormous contribution of our employees and our wide network of partners. Their willingness, energy
There is no doubt that we are operating in a challenging environment. However, with further successful execution of our strategy, we believe GSK’s long-term prospects are improving and enthusiasm for change are strong foundations on which to buildthat we will enhance our new business model.position as a leading-edge healthcare company.
   
-s- Sir Christopher Gent-s- Sir Christopher Gent
 -s- Andrew Witty-s- Andrew Witty
Sir Christopher Gent
 Andrew Witty
Chairman Chief Executive Officer
(GRAPHICS)
To find out more visit us at
www.gsk.com


GSK Annual Report 2009

4 GSK Annual Report 2008

04

Our strategy


The pharmaceutical industry is experiencing a time of unprecedented challenge. Patent expiries, regulatory issues and increased pressures from healthcare providers have combined to create an environment where our sector is associated with lower growth and higher risk.
We are addressing these challenges throughfocused on delivering three key strategic priorities which we believe willto transform GSK into a company that delivers more growth, has less risk and an improved long-term financial performance.
To be a successful and sustainable business we must also fulfil our social responsibilities. We are doing this by making our company more responsive, more flexible and more open.
Key challengesStrategic priorities
The patents
Grow a diversified global business –We are diversifying our business to create a more balanced product portfolio and move away from a reliance on many medicines that have driven salestraditional ‘white pill/ western markets’. We are investing in key growth inareas such as Emerging Markets, Japan, Vaccines and our industry over the last decade are coming to an end. These medicines may not be replaced byConsumer Healthcare business.
Deliver more products of equivalent financial size.
In addition, there are increasing pressures on pharmaceutical companiesvalue –We aim to deliversustain an industry-leading pipeline of products, with demonstrable benefits over current treatments. No longer do we merely have to discover and develop productsensuring that help people do more, feel better and live longer. We now have to justify that our products represent the greatestthey demonstrate value for healthcare providers.
At Our R&D strategy is built around focusing on the same time,best science, diversifying through externalisation of research, and improving the pharmaceutical sector has been exposed to controversy regarding ethical and patient safety issues. As an industry, we are in danger of eroding what trust we already have when we actually need to be building stronger relationships with governments, regulators and the general public.
These factors have combined to move the industry from one which was expected to deliver high growth at low risk, to the very opposite.
Three strategic priorities
In 2008 we established the following three strategic priorities:
•Grow a diversified global business
•Deliver more products of value
•Simplify the operating model
We believe these priorities will enable us to navigate the coming years successfully and retain our leading-edge as a company able to meet patients’ and healthcare providers’ needs into the future.
Updatesreturns on our progress will be published on our website at www.gsk.com and also feature in our regular financial results.investment.
SimplifyCorporate responsibility
Running our business in a responsible way is fundamental to our success and inseparable from our strategic priorities.
We operate in a way that reflects our values, seeks to understand and respond to stakeholder views and connects our business decisions to ethical, social and environmental concerns. In this way we aim to minimise the negative impacts and maximise the positive benefits of our business.
Responsibility is vital in all parts of our business and we understand the need to be open about how we are operating. We also understand that transparencyoperating model –GSK is a key factor in building trust withlarge and complex organisation. We are transforming our stakeholdersoperational model to reduce complexities, improve efficiency and have implemented a number of initiatives to improve the transparency of our activities.reduce costs.

Comprehensive information on our approach to responsibility issues can be found in our annual Corporate Responsibility Report at www.gsk.com/responsibility.
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GSK Annual Report 2009

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06

GSK Annual Rerport 20085
Grow a diversified global business2009 performance overview

We are reducing risk by broadening and balancing our portfolio, diversifying into new product areas that show potential, while also fully capturing opportunities for our products across all geographic boundaries.Key performance indicators
The plans which underpin this strategic priority:(IMAGE)
•Drive growth in the pharmaceutical business in our core markets
•Deliver our ambitious vaccines forecast
•Fulfil the potential of emerging markets
•Expand our business in Japan
•Grow the Consumer Healthcare business
(IMAGE)To find out more go to page 6
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Deliver more products of value
We are striving to build one of the strongest pipelines in the industry. We are transforming R&D to ensure that we not only deliver the current pipeline but are also able to sustain a flow of new products for years to come.
The plans which underpin this strategic priority:
•Focus on the best science
•Diversify through externalisation
•Re-personalise R&D
•Focus on return on investment
(IMAGE)To find out more go to page 8
(IMAGE)


Simplify the operating model
GSK is a complex organisation. We recognise that we need to simplify our operating model further, changing the way we work, removing unnecessary processes and structures which slow us down and distract us from our mission.
The plans which underpin this strategic priority:
•Evolve our commercial model
•Re-shape manufacturing
•Streamline our processes
•Reduce working capital
(IMAGE)To find out more go to page 10
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6 GSK Annual Report 2008

We are reducing risk by broadening and balancing our portfolio, diversifying into new product areas that show potential, while also fully capturing opportunities for our products across all geographic boundaries.
Specifically, we expect to generate future sales growth by strengthening our core pharmaceuticals business and supplementing it with increased investment in growth areas such as vaccines, biopharmaceuticals and consumer healthcare.
We are also seeking to unlock the geographic potential of our businesses, particularly in emerging markets and Japan.
We have made good progress on this priority during 2008, and we believe there remain many opportunities for GSK to diversify further.
(GRAPHICS)


Grow a diversified global business

Our plans
Drive growth in the pharmaceutical business in our core markets
Our established strengths in the small molecule pharmaceutical sectors of larger markets such as the USA, UK, France, Germany, Italy and Spain remain central to our business. During 2008, we received European approval forTyverbfor advanced breast cancer,Volibrisfor the treatment of pulmonary arterial hypertension,Avamysa new allergic rhinitis treatment and US approval forPromactafor the treatment of thrombocytopenia andEnteregfor postoperative ileus. In our US pharmaceuticals business we have initiated a major change programme, refocusing marketing to demonstrate value and introducing new product offerings which focus on volume opportunities.
Deliver our ambitious vaccines forecast
Increasingly, healthcare providers recognise the important role that vaccines play in preventative healthcare. Our proven capability and strong pipeline, plus the high barriers to entry faced by our competitors, mean that this is expected to be a source of future growth for GSK.
We are targeting sustained growth in our vaccines portfolio, by launching new vaccines and working to expand our franchise in Japan and emerging markets.
During 2008,Cervarixour new cervical cancer vaccine, was successful in approximately 60% of all tenders, achieving several notable successes including Europe’s largest vaccination programme against cervical cancer, which is taking place in the UK. The year also sawRotarix,Boostrix (adult indication) andKinrixreceive approval from the FDA.
Fulfil the potential of emerging markets
Emerging markets feature a less-defined distinction between pharmaceutical, over-the-counter and retail market structure and our ability to operate across this spectrum is a clear competitive advantage. We have an opportunity to improve this capability and further energise our business in fast-growing emerging markets.


GSK Annual Rerport 20087
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In 2008, we entered into an alliance with Aspen Holdings of South Africa. This new relationship gives us priority access to commercialised products from a portfolio of over 1,000 potential products.
As the year ended we acquired a BMS portfolio in Egypt and reached agreement to acquire a BMS portfolio in Pakistan. In early 2009 we also agreed with UCB to acquire its current marketed product portfolio in a range of territories.
Expand our business in Japan
Japan is a key market for GSK investment and growth. We have an extensive product pipeline and expect to launch more than 40 products in this market over the next five years.
Major approvals in this market recently wereLamictal for epilepsy andAdoairfor COPD.
Grow the Consumer Healthcare business
Our Consumer Healthcare business continues to drive growth through a portfolio of powerful brands in three key segments: over-the-counter (OTC) medicines, Oral healthcare and Nutritional healthcare.
The brand portfolio, which includesallifor weight loss,Panadola range of analgesics,Sensodynetoothpaste andLucozadeis supported by a strategy focused on innovation, marketing excellence, geographic expansion and acquisitions.
In September 2008 we launchedSensodyneinto the Chinese market, our first major consumer launch in the country for a decade. We are now preparing to launchalli, the first OTC weight loss product approved by the European Commission, across Europe.
(IMAGE)  (IMAGE)
To find out more visit us at
www.gsk.com


8 GSK Annual Report 2008

We are striving to build one of the strongest pipelines in the industry. We are transforming R&D to ensure that we not only deliver our current pipeline of new pharmaceuticals, vaccines and Consumer Healthcare products, but are also able to sustain this flow of new products for years to come.
As we move towards a more diversified business we will concentrate on developing a higher volume of mid-size products for more clearly-defined patient populations. This will help develop a lower risk portfolio which is not dependent on the performance of one or two large products.
Positive steps have already been taken, with 30 late-stage assets currently in our pharmaceuticals and vaccines pipeline. Our objective is to sustain this throughput of products over the long-term.
Our plans
Focus on the best science
Around 75% of assets in our pipeline are entirely new compounds or vaccines, demonstrating our strong drive towards innovation.
During the year we rebalanced our Drug Discovery organisation to improve efficiency and focus on the areas of new science that we believe are most likely to lead to new medicines. Together with vaccines, GSK’s R&D is now focused on eight therapy areas: Biopharmaceuticals, Immuno-inflammation, Infectious diseases, Metabolic pathways, Neuroscience, Oncology, Ophthalmology and Respiratory.
Diversify through externalisation
We recognise that we do not have a monopoly on the best science. Therefore we have proactively expanded collaborations with external partners as well as with academia to access innovation and strengthen our early pipeline.
Recent alliances with organisations such as Cellzome and the Harvard Stem Cell Institute and acquisitions such as that of Sirtris and Genelabs are providing us with competitive advantage in important areas of research.
In the last year, we completed or expanded 21 new drug discovery alliances adding significant breadth and scale to our R&D activities. There are currently 70 discovery units working either inside the company or externally.
Biopharmaceuticals will play an increasingly important role in our future portfolio. Offering a worldwide market of approximately £40 billion with projected compound annual growth of 18% over the next five years, biopharmaceuticals are compounds capable of being manufactured by living organisms, usually cultured cells.
Currently only 6% of our pipeline comprises biopharmaceuticals, which is below the industry average. We have significantly expanded our biopharmaceutical pipeline through in-house discovery, the acquisition of Domantis and by in-licensing late-stage products. There are currently 10 clinical research programmes underway including five assets in late-stage development.


Deliver more products of value

GSK Annual Rerport 20089

Re-personalise R&D
We want to create an environment where there is no impediment to our best scientists making the kind of discoveries which will transform the company’s future by delivering value to patients, healthcare providers and shareholders.
2008 saw the creation of Discovery Performance Units (DPUs) within our Centres of Excellence for Drug Discovery (CEDDs). Each DPU is a compact, fully-empowered, focused and integrated team which has responsibility for a small part of the pipeline.
We have also created new, integrated R&D Units for Biopharmaceuticals and Oncology. The R&D centre we established in China in 2007 is now 200 people strong and has recruited experienced scientists who are dedicated solely to GSK’s neurodegenerative research.
Focus on return on investment
We have adopted a more disciplined approach to how and where we allocate resources within R&D. More than 35% of discovery projects have been terminated following our therapy area rebalancing exercise and reviews by the new Drug Discovery Investment Board.
As part of the same process, all our 35 Discovery Performance Units now have three year funding in place to develop their projects.
We realise that reimbursement is the key to long-term financial performance and we are working hard to bring a health outcome focus to R&D which will in turn deliver greater value to healthcare providers. For example, in Europe direct dialogue now exists between payer organisations and our R&D teams to improve our understanding of the perceived benefit and value of new products.
(IMAGE)  (IMAGE)
To find out more visit us
at www.gsk.com


(IMAGE)

10 GSK Annual Report 2008

GSK is a complex organisation. We recognise that we need to simplify our operating model further, changing the way we work, removing unnecessary processes and structures which slow us down and distract us from our mission.
Our global restructuring programme is a vital catalyst of our strategy. We believe it will radically change our business model giving us the capability to support a more diverse, growing business that is also expected to be more profitable in the long-term.
(IMAGE)


Simplify the operating model

Our plans
Evolve our commercial model
We have reorganised so that we now have one single commercial support structure for Europe, Emerging Markets and Asia Pacific/Japan. In the USA, we have radically restructured our pharmaceuticals business. This includes the transformation of the US sales force as well as the decision to designate a single headquarters for US Pharmaceuticals, located at Research Triangle Park, North Carolina to reduce complexity and streamline our US operations.
Re-shape manufacturing
Manufacturing is a key capability at GSK and we are taking an ambitious approach to re-shaping our operations. We are moving to match network capacity more closely to volume and are leveraging our network of sites and contractors to ensure the flexibility to sustain growth and adapt to changing business models.
We continue to improve the efficiency of our sites, by applying benchmarked studies and seizing opportunities to do more with less. In addition, we are simplifying our operating model to clarify roles and responsibilities, to improve prioritisation and decision making and to introduce simpler, more efficient ways of working.
Streamline our processes
We are simplifying our organisation to speed up decision-making and improve alignment to our business priorities. There are many different programmes and initiatives across GSK including a comprehensive programme to simplify and reduce costs in IT. Through an innovative partnership with Microsoft Online we will produce financial savings, improve productivity and enhance collaboration internally and with our external partners.


GSK Annual Report 2008  11
(IMAGE)

We are striving to ensure that cross-business processes and structures are simpler and more efficient. For example, a number of reviews are currently underway to simplify our support functions infrastructure and create a leaner corporate centre.
Reduce working capital
Our current working capital requirement is around £8 billion. In September 2008, we started a programme which has successfully delivered cash flow benefits of more than £500 million, which we are using to invest in our strategic priorities.
(IMAGE)  (IMAGE)
To find out more visit us at
www.gsk.com
(IMAGE)


12GSK Annual Report 2008
Report of the Directors

Financial trends and ratios



                             
  2008     Growth*  2007     Growth*  2006 
Total results £m  CER%  £%  £m  CER%  £%  £m 
 
 
Turnover  24,352   (3)  7   22,716   2   (2)  23,225 
 
Cost of sales  (6,415)  13   21   (5,317)  8   6   (5,010)
Selling, general and administration  (7,656)  2   10   (6,954)  –   (4)  (7,257)
Research and development  (3,681)  4   11   (3,327)  (1)  (4)  (3,457)
Other operating income  541           475           307 
 
Operating profit  7,141   (20)  (6)  7,593   3   (3)  7,808 
 
Profit before taxation  6,659   (24)  (11)  7,452   2   (4)  7,799 
Profit after taxation for the year  4,712   (25)  (11)  5,310   3   (3)  5,498 
 
Profit attributable to minority interests  110           96           109 
Profit attributable to shareholders  4,602           5,214           5,389 
 
Basic earnings per share (pence)  88.6p  (21)  (6)  94.4p  5   (1)  95.5p
Diluted earnings per share (pence)  88.1p          93.7p          94.5p
 
                             
Results before major restructuring
                            
                             
 
Turnover  24,352   (3)  7   22,716   2   (2)  23,225 
 
Cost of sales  (5,776)  4   11   (5,206)  6   4   (5,010)
Selling, general and administration  (7,352)  –   8   (6,817)  (2)  (6)  (7,257)
Research and development  (3,506)  2   8   (3,237)  (3)  (6)  (3,457)
Other operating income  541           475           307 
 
Operating profit  8,259   (10)  4   7,931   8   2   7,808 
 
Profit before taxation  7,782   (14)  –   7,790   6   –   7,799 
Profit after taxation for the year  5,551   (14)  –   5,571   8   1   5,498 
 
Profit attributable to minority interests  110           96           109 
Profit attributable to shareholders  5,441           5,475           5,389 
 
Basic earnings per share (pence)  104.7p  (9)  6   99.1p  10   4   95.5p
Diluted earnings per share (pence)  104.1p          98.3p          94.5p
 
 
Research and development — total
                            
 
Pharmaceuticals  3,557           3,215             
Consumer Healthcare  124           112             
 
Total  3,681           3,327             
 
 
Net finance cost cover — total
                            
 
Net finance costs  530           191             
Cover 14 times          40 times             
 
Net finance cost cover is profit before tax plus net finance costs, divided by net finance costs.
Tax rate — total  29.2%          28.7%            
Tax rate — before major restructuring  28.7%          28.5%            
 
 
Borrowings
                            
 
Net debt  10,173           6,039             
Gearing  122%          61%            
 
The gearing ratio is calculated as net debt as a percentage of total equity.
*CER% represents growth at constant exchange rates. Sterling% or £% represents growth at actual exchange rates. See page 13.
 The calculation of results before major restructuring is described in Note 1 to the financial statements, ‘Presentation of the financial statements’.
+The calculation of free cash flow is described on page 39.
‡The calculation of CER growth is described on page 10.
Our strategies
We have focused the business around the delivery of three strategic priorities.
 

Grow a diversified global business
Broadening and balancing our portfolio, diversifying into new product areas and capturing opportunities that exist beyond our established geographic footprint.
Deliver more products of value
Transforming R&D to ensure we not only deliver the current pipeline but are also able to sustain the flow of products for years to come.
Simplifying the operating model
Simplifying our operating model to ensure that it is fit for purpose and able to support our business in the most cost efficient way.


GSK Annual Report 2009

07

2009 performance overview
Our measuresOur progress in 2009
We use a number of measures to track our progress against the strategic priorities over the medium to long term. These include the following:We made good progress during the year, with a number of notable successes
•
Performance of core pharmaceuticals and vaccines businesses•The core pharmaceuticals and vaccines businesses delivered sales of £19.1 billion and grew 5% in the year. This excludes genericised products,Avandia and influenza products. Including pandemic products, sales were £20.9 billion, up 12% for 2009.
•
Diversification of sales•Sales from white pill/western markets fell from 36% of turnover in 2008 to 30% in 2009.
•
Contribution of Emerging Markets to our overall sales and growth•Sales in the Emerging Markets pharmaceutical business grew 20% to nearly £3 billion, now representing 10% of Group turnover.
•We completed 10 bolt-on acquisitions in 2009.
•
Growth of Consumer Healthcare market share•Consumer Healthcare market share gains were delivered in the OTC and Oral healthcare businesses, but share declined in Nutritional healthcare.
•Consumer Healthcare sales grew 7% to £4.7 billion, with growth in all categories: OTC up 8%; Oral healthcare up 7%; Nutritional healthcare up 3%.
•
Expansion of Japanese business•Sales reached £1.6 billion in 2009, up 22%, driven byAdoair andRelenza.
•Products launched in the last three years contributed around £260 million sales in 2009.
•
Build biopharmaceutical portfolio•Arzerra was launched in the USA, a positive opinion was received forProlia and positive phase III data was announced forBenlysta in 2009.
•Around 17% of our pipeline now comprises biopharmaceutical assets.
•
Contribution to sales of new products•New pharmaceutical products launched since 2007 contributed sales of £1.3 billion, or £2.1 billion including H1N1 pandemic vaccine.
•
Number of reimbursable product approvals and filings•We received 12 product approvals and completed 11 new filings in 2009. In the last three years we have obtained more FDA approvals for new molecular entities and vaccines than any other company.
•
Sustaining late-stage pipeline•We maintained around 30 assets in phase III and registration, with five new programmes entering phase III during 2009.
•
Enhanced R&D productivity and increased externalisation for Drug Discovery•Our projected rate of return based on investment made in our late stage pipeline and expected future long-term sales performance is around 11%. Our long-term goal is to improve our rate of return for R&D to around 14%.
•We have ‘externalised’ approximately 30% of our discovery research with 47 external partners.
•
Delivery of major restructuring programme•Annual cost savings of £1 billion have already been achieved. The programme has been expanded again to deliver annual savings of £2.2 billion by 2012.
GSK Annual Report 2009

08

Report of the Directors

     
     
GSK Annual Report 200813
2009 Performance overview
  6
Financial trends
  Report of the Directors9
Products, intellectual property and competition
  11
Global manufacturing and supply
  Report of the Directors

14		 
Research and development
15
Our employees
20
Our responsibility
21
Regulation
26
World market, economy and outlook
27
Financial review 2009
28
Financial position and resources
36
Risk factors
43
Financial review 2008
48 
     
Our Board
54
Our Corporate Executive Team
56
Governance and policy
58
Dialogue with shareholders
62
Share capital and control
63
Donations to political organisations and political expenditure
64
Annual General Meeting
65
Internal control framework
65
Committee reports
67
The Combined Code
71
US law and regulation
71
Letter from the Chairman of the Remuneration Committee
73
Remuneration policy
74
Executive Director terms and conditions
81
Non-Executive Director terms, conditions and fees
81
Directors and Senior Management remuneration
82
Annual remuneration
83
Non-Executive Directors’ remuneration
84
Directors’ interests
85
Incentive plans
86
Pension benefits
89
Directors and Senior Management
90
Directors’ interests in contracts
90
This report is prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union and also with IFRS as issued by the International Accounting Standards Board.
EX-1.1
EX-4.5
EX-12.1
EX-12.2
EX-13.1
EX-15.1

The Report of the Directors provides users of the financial statements with a more complete picture of GSK. It supplements the information in the financial statements with a discussion of other aspects of our activities, our future and the environment in which we operate.
The report is divided into a number of sections. These are:
Business review
This discusses our financial and non-financial activities, resources, development and performance during 20082009 and outlines the factors, including the trends and the principal risks and uncertainties, which are likely to affect future development. This is sub divided into:
Financial trends and ratios
12
2008 Performance overview
14
Products, intellectual property and competition
17
Global manufacturing and supply
20
Research and development
21
Our employees
26
Our responsibility
27
Regulation
32
Economy, world market and outlook
33
Financial review 2008
34
Financial position and resources
43
Risk factors
50
Financial review 2007
54
Corporate governance
This discusses our management structures and governance procedures. It includes disclosures on compliance with the Combined Code on Corporate Governance of the Financial Reporting Council (Combined Code) and with US laws and regulation.
Biographies of our Board
60
Biographies of our Corporate Executive Team
62
Governance and policy
64
Dialogue with shareholders
68
Share capital and control
68
Donations to EU political organisations and EU political expenditure
70
Annual General Meeting
71
Internal control framework
71
Committee reports
73
The Combined Code
76
US law and regulation
76
Directors’ remunerationRemuneration Report
This sets out the remuneration policies operated for our Directors and the Corporate Executive Team (CET) members. There are disclosures on Directors’ remuneration including those required by The Directors’ Remuneration ReportLarge and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2002 (the Regulations). The sections cover:
Letter from the Chairman of the Remuneration Committee
78
Remuneration policy
80-87
Executive Director terms, conditions and remuneration
87
Non-Executive Director terms, conditions and fees
88
Directors and Senior Management remuneration
89
Annual remuneration
90
Non-Executive Directors’ remuneration
91
Directors’ interests
92
Share options
92
Incentive plans
94
Pensions
97
Directors and Senior Management
98
Directors’ interests in contracts
98
Accounting presentation
This report is prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union and also with IFRS as issued by the International Accounting Standards Board.
Data for market share and market growth rates are GSK estimates based on the most recent data from independent external sources, and where appropriate, are valued in Sterling at relevant exchange rates. Figures quoted for product market share reflect sales by GSK and licensees.
Exchange rates
The Group operates in many countries and earns revenues and incurs costs in many currencies. The results of the Group, as reported in Sterling, are affected by movements in exchange rates between Sterling and other currencies. Average exchange rates prevailing during the period are used to translate the results and cash flows of overseas subsidiaries, associates and joint ventures into Sterling. Period end rates are used to translate the net assets of those entities.
Currencies
The currencies that most influence the Group’s results remain the US dollar, the euro, the yen and the pound.
In 2008 the pound weakened by 28% against the dollar, to $1.44/£1 at year-end. In addition, the pound weakened by 24% against the euro and by 40% against the yen. A new £/€ record low of 1.02 was set in December.2008.


GSK Annual Report 2009

14

09 GSK Annual Report 2008

Report of the Directors

2008 Performance overview



Key performance indicatorsFinancial trends
(PERFORMANCE GRAPH)
                             
  2009  Growth*  2008  Growth*  2007 
Total results
 £m  CER%  £%  £m  CER%  £%  £m 
                    
Turnover  28,368   3   16   24,352   (3)  7   22,716 
                    
Cost of sales  (7,380)  6   15   (6,415)  13   21   (5,317)
Selling, general and administration  (9,592)  6   25   (7,656)  2   10   (6,954)
Research and development  (4,106)  1   12   (3,681)  4   11   (3,327)
Other operating income  1,135           541           475 
                    
Operating profit  8,425   4   18   7,141   (20)  (6)  7,593 
                    
Profit before taxation  7,891   4   19   6,659   (24)  (11)  7,452 
Profit after taxation for the year  5,669   6   20   4,712   (25)  (11)  5,310 
                    
Profit attributable to minority interests  138           110           96 
Profit attributable to shareholders  5,531           4,602           5,214 
                    
Basic earnings per share (pence)  109.1p   8   23   88.6p   (21)  (6)  94.4p 
Diluted earnings per share (pence)  108.2p           88.1p           93.7p 
                   
                             
Results before major restructuring
                            
                             
                    
Turnover  28,368   3   16   24,352   (3)  7   22,716 
                    
Cost of sales  (7,095)  13   23   (5,776)  4   11   (5,206)
Selling, general and administration  (9,200)  6   25   (7,352)  –   8   (6,817)
Research and development  (3,951)  2   13   (3,506)  2   8   (3,237)
Other operating income  1,135           541           475 
                    
Operating profit  9,257   (1)  12   8,259   (10)  4   7,931 
                    
Profit before taxation  8,726   (1)  12   7,782   (14)  –   7,790 
Profit after taxation for the year  6,283   –   13   5,551   (14)  –   5,571 
                    
Profit attributable to minority interests  138           110           96 
Profit attributable to shareholders  6,145           5,441           5,475 
                    
Basic earnings per share (pence)  121.2p   2   16   104.7p   (9)  6   99.1p 
Diluted earnings per share (pence)  120.3p           104.1p           98.3p 
                    
Research and development – total
                            
                    
Pharmaceuticals  3,947           3,557           3,215 
Consumer Healthcare  159           124           112 
                    
Total  4,106           3,681           3,327 
                    
Net finance cost cover – total
                            
                    
Net finance costs  713           530           191 
Cover  12 times        14 times         40 times 
                    
Net finance cost cover is profit before tax plus net finance costs, divided by net finance costs.                
Tax rate – total  28.2%          29.2%          28.7%
Tax rate – before major restructuring  28.0%          28.7%          28.5%
                   
Borrowings
                            
                   
Net debt  9,444           10,173           6,039 
Gearing  88%          122%          61%
                   
The gearing ratio is calculated as net debt as a percentage of total equity.
 
(PERFORMANCE GRAPH)
(LINE GRAPH)
(LINE GRAPH)
*CER% represents growth at constant exchange rates. Sterling% or £% represents growth at actual exchange rates. See page 10.
 The calculation of results before major restructuring, is described in Note 1 to the financial statements, ‘Presentation of the financial statements’.
+Free cash flow is described on page 46.
GSK Annual Report 2009
Our strategies

During 2008 we set out three new strategic priorities. Full details are given on pages 4 to 11.
Grow a diversified global business
Broadening and balancing our portfolio, diversifying into new product areas while also fully capturing opportunities for our products across all geographic boundaries.
Deliver more products of value
Transforming R&D to ensure we not only deliver the current pipeline but are also able to sustain the flow of products for years to come.
Simplify the operating model
Simplifying our operating model to ensure that it is fit for purpose and able to support our business in the most efficient and effective way.



10

GSK Annual Report 200815
Report of the Directors


Our measuresProgress in 2008

We are developing a number of measures to track our progress against the strategic priorities over the medium to long term. These include the following:We made good progress during the year, with a number of notable successes
•Performance of core pharmaceuticals business, including growth in vaccines•Excluding genericised products, Avandia and pre-pandemic preparations, our core pharmaceuticals business had turnover of £16.4 billion and grew by 10%.
•Growth of Consumer Healthcare market share•Consumer Healthcare sales grew 3% to nearly £4 billion. Continued market share growth in Oral healthcare and Nutritional healthcare but sales fell in OTC due to lower sales of smoking cessation products.
•Contribution of Emerging Markets to our overall sales and growth•Sales in Emerging Markets grew 12% to £2.3 billion. Transactions with Aspen and BMS executed to build broader and more geographically diverse portfolio.
•Expansion of Japanese business•Major recent approvals in Japan for Lamictal for epilepsy andAdoair for COPD. Around 40 new product opportunities in development. Sales in Japan fell by 3% as a result of price cuts mandated by government.
•Contribution to sales of new products•New product launches in the last two years contributed sales of almost £0.8 billion in 2008.
•Number of reimbursable product approvals and filings•12 key product launches, including Tyverb, Volibris andAvamys in Europe and Treximet, Entereg, Promacta, Kinrix andRotarix in the USA.Secured 17% of all FDA approvals for new chemical entities and vaccines.
•Sustaining late-stage pipeline of around 30 assets•Late stage pipeline maintained at around 30 assets. Five new assets moved into phase III development during 2008, including darapladib for atherosclerosis and Syncria for type 2 diabetes.
•Enhanced productivity and increased externalisation for Drug Discovery•Created 35 Discovery Performance Units, small teams each with three-year funding in place. Entered or expanded 21 new drug discovery alliances.
•Delivery of major restructuring programme•Annual cost savings of £390 million already achieved. Programme expanded to deliver annual savings of £1.7 billion by 2011.
•Evolution of our commercial model•Rescaled and redeployed US pharmaceuticals sales force. Sales forces expanded in Emerging Markets.
•Reshaping of Global Manufacturing and Supply•Manufacturing network rationalisation continuing with multiple site exits ongoing.
•Reduction in working capital•Delivered more than £500 million of cash flow benefits from the working capital reduction programme which started in September 2008.

16 GSK Annual Report 2008
Report of the Directors

History and development of the company
GlaxoSmithKline plc is a public limited company incorporated on
6th December 1999 under English law. Its shares are listed on the London Stock Exchange and the New York Stock Exchange. On 27th December 2000 the company acquired Glaxo Wellcome plc and SmithKline Beecham plc, both English public limited companies, by way of a scheme of arrangement for the merger of the two companies. GSK and its subsidiary and associated undertakings constitute a major global healthcare group engaged in the creation, discovery, development, manufacture and marketing of pharmaceutical and consumer health-related products.
GSK has its corporate head office in London and has its US headquarters in Research Triangle Park, North Carolina, with operations in some 114120 countries, and products sold in over
150 countries.
Annual Report and Summary
This report is the Annual Report of GlaxoSmithKline plc for the year ended 31st December 2008,2009, prepared in accordance with United Kingdom requirements. It was approved by the Board of Directors on 3rd March 200924th February 2010 and published on 4th March 2009.25th February 2010.
A summary of the year, intended for the shareholder not needing the full detail of the Annual Report, is produced as a separate document and issued to all shareholders. The summary does not constitute a set of summary financial statements as defined by section 251428 of the Companies Act 1985.2006. The Annual Report is issued to shareholders who have elected to receive it. Both documents are available on GSK’s website.
In this Report ‘GlaxoSmithKline’, the ‘Group’ or ‘GSK’ means GlaxoSmithKline plc and its subsidiary undertakings; the ‘company’ means GlaxoSmithKline plc; ‘GlaxoSmithKline share’ means an Ordinary Share of GlaxoSmithKline plc of 25p; American Depositary Shares (ADS) each representsrepresent two GlaxoSmithKline shares.
Brand names
Brand names appearing in italics throughout this report are trademarks either owned by and/or licensed to GlaxoSmithKline or associated companies, with the exception ofBaycolandLevitra, trademarks of Bayer,Benlysta, a trademark of Human Genome Science,Boniva/Bonviva, a trademark of Roche,Citrucel, a trademark of Merrell Pharmaceuticals,Entereg, a trademark of Adolor Corporation in the USA,Volibris, a trademark of Gilead,NicoDerm, a trademark of Sanofi-Aventis, Pfizer Canada, Elan, Johnson & Johnson, Merrell, Novartis, MerrellSanofi-Aventis or GlaxoSmithKline,Prolia, a trademark of Amgen andVesicare, a trademark of Astellas Pharmaceuticals in many countries and of Yamanouchi Pharmaceuticals in certain countries, all of which are used in certain countries under licence by the Group.
Business segmentsCurrencies
GSK operatesThe currencies that most influence the Group’s results remain the US dollar, the Euro, the Yen and Sterling. Details of the exchange rates used by the Group are given in two industry segments:Note 5 ‘Exchange Rates’ on
page 106.
Pharmaceuticals (prescription pharmaceuticalsDuring 2009, average Sterling exchange rates were weaker against the US Dollar, the Euro and vaccines)the Yen compared with 2008. However, and as a result of the significant currency movements seen in Q4 2008, year end Sterling exchange rates were actually stronger against all three currencies compared with those at
31st December 2008.
Consumer Healthcare (OTC medicines, Oral healthcare and Nutritional healthcare).
Results before major restructuring
In October 2007, the Board approved the implementation of a detailed formal plan for, and GSK announced, a significant new Operational Excellence restructuring programme.programme to improve the effectiveness and productivity of its operations. A second formal plan, representing a significant expansion of the Operational Excellence programme, was approved by the Board and announced in February 2009. With an estimated total costA further expansion was approved by the Board and announced in February 2010. Total costs for the implementation of approximately £3.6 billion, the expanded programme isare expected to increase from £3.6 billion to approximately £4.5 billion, to be incurred over the period from 2007 to 2012. The programme is now expected to deliver total annual pre-tax savings of approximately £1.7£2.2 billion by 2012, with savings realised across the time it is substantially complete in 2011.business. GSK presents the restructuring costs incurred solely as a direct result of the Operational Excellence programme in a separate column in the income statement titled ‘Major restructuring’. In addition to the restructuring costs of the Operational Excellence programme, the major restructuring column in the income statement includes restructuring costs incurred solely as a direct result of any restructuring programmes that follow, and relate to, material acquisitions where the operations of the acquired business overlap extensively with GSK’s existing operations. The $1.65 billion (£814 million) acquisition of Reliant Pharmaceuticals in December 2007 isand the $3.6 billion (£2.2 billion) acquisition of Stiefel Laboratories in July 2009 are the only acquisitionacquisitions since October 2007 that meetsmeet these criteria.
The Group’s results before the costs of the Operational Excellence programme and acquisition-related restructuring programmes meeting the criteria described above are described as ‘Results before major restructuring’. This presentation, which GSK intends to apply consistently to future major restructuring programmes that have a material impact on GSK’s operating results and on the manner in which GSK’s business is conducted, has been adopted to show clearly the Group’s results both before and after the costs of these restructuring programmes. Management believes that this presentation assists shareholders in gaining a clearer understanding of the Group’s financial performance and in making projections of future financial performance, as results that include such costs, by virtue of their size and nature, have limited comparative value. This presentation is also consistent with the way management assesses the Group’s financial performance.
CER growth
In order to illustrate underlying performance, it is the Group’s practice to discuss its results in terms of constant exchange rate (CER) growth. This represents growth calculated as if the exchange rates used to determine the results of overseas companies in Sterling had remained unchanged from those used in the previous year. CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates.
All commentaries in this Report are presented in terms of CER unless otherwise stated.
Exchange rates
The Group operates in many countries and earns revenues and incurs costs in many currencies. The results of the Group, as reported in Sterling, are affected by movements in exchange rates between Sterling and other currencies. Average exchange rates prevailing during the period are used to translate the results and cash flows of overseas subsidiaries, associates and joint ventures into Sterling. Period end rates are used to translate the net assets of those entities.


GSK Annual Report 2009

11

GSK Annual Report 200817
Products, intellectual property and competition
Report of the Directors
Products, intellectual property and competition


Pharmaceutical products
GSK’s principal pharmaceutical products are currently directed to eightnine main therapeutic areas.areas including dermatologicals following the acquisition of Stiefel Laboratories in July 2009. A description of the products is on pages 1812 to 1913 and an analysis of sales by therapeutic area, is on page 35.29.
Competition
Our principal pharmaceutical competitors range from small to large pharmaceutical companies often with substantial resources. Some of these companies are:
•Abbott Laboratories
•Amgen
•AstraZeneca
•Bristol-Myers Squibb
•Eli Lilly
•Johnson & Johnson
•Merck
•Novartis
•Pfizer
•Roche Holdings
•Sanofi-Aventis
•Schering-Plough
•Wyeth
Abbott Laboratories
Amgen
AstraZeneca
Bristol-Myers Squibb
Eli Lilly
Johnson & Johnson
Merck
Novartis
Pfizer
Roche Holdings
Sanofi-Aventis
Pharmaceuticals may be subject to competition from other products during the period of patent protection and, once off patent, from generic versions. The manufacturers of generic products typically do not bearincur significant research and development or education and marketing development costs and consequently are able to offer their products at considerably lower prices than the branded competitors. As a research and development based company we will normally seek to achieve a sufficiently high profit margin and sales volume during the period of patent protection to repay the original investment, which is generally substantial, and to generate profits and fund research for the future. Competition from generic products generally occurs as patents in major markets expire. Increasingly patent challenges are made prior to patent expiry, claiming that the innovator patent is not valid and/or that it is not infringed by the generic product. For details of some of the challenges to our products see legal proceedings on pages 172 to 180. Following the loss of patent protection, generic products rapidly capture a large share of the market, particularly in the USA.
We believe that remaining competitive is dependent upon the discovery and development of new products, together with effective marketing of existing products.
Within the pharmaceutical industry, the introduction of new products and processes by our competitors may affect pricing or result in changing patterns of product use. There is no assurance that products will not become outmoded, notwithstanding patent or trademark protection. In addition, increased government and other pressures for physicians and patients to use generic pharmaceuticals, rather than brand-name medicines, may increase competition for products that are no longer protected by a patent.
Intellectual property
Intellectual property is a key business asset for our company, and the effective legal protection of our intellectual property (via patents, trademarks, registered designs, copyrights and domain name registrations) is critical in ensuring a reasonable return on investment in R&D.
Patents
It is our policy to try to obtain patents on commercially important, protectable inventions discovered or developed through our R&D activities. Patent protection for new active ingredients is available in most major markets and patents can also be obtained for new drug formulations, manufacturing processes, medical uses and devices for administering products. Although we may obtain patents for our products, this does not prevent them from being challenged before they expire. Further, the grant of a patent does not provide assurancemean that the issued patent will necessarily be held valid and enforceable by a court. Significant litigation concerning such challenges is summarised in Note 44 to the financial statements, ‘Legal proceedings’. If a court determines that a patent we hold is invalid, non infringed or unenforceable, it will not protect the market from third party entry prior to patent expiry. Significant litigation concerning such challenges is summarised in Note 44 to the financial statements, ‘Legal proceedings’.
The life of a patent in most countries is 20 years from the filing date. Patents protecting new active ingredients are generally applied for early indate, however the development process. The long development time for pharmaceutical products may result in a substantial amount of this patent life being used up before launch. In some markets (including the USA and in Europe) it is possible to have some of this lost time restored and this leads to variations in the amount of patent life actually available for each product we market. Further, certain countries provide a period of data or market exclusivity that prevents a third party company from relying on our clinical trial data to enter the market with its copy for the period of exclusivity.
The patent expiry dates for our significant products are in the following table. Dates provided are for expiry of patents in the USA and major European markets on the active ingredient, unless otherwise indicated, and include extensions of patent term (including for paediatric use in the USA) where available.


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Products, intellectual property and competitioncontinued

                    
Product Compounds Indication Major Patent expiry dates   
Products Compounds Indication(s) Major Patent expiry dates
 competitor brands USA EU competitor brands USA EU
          
Respiratory
                    
Seretide/Advair
 salmeterol xinafoate/
fluticasone propionate		 asthma/COPD Singulair, Symbicort,
Spiriva, Asmanex, Pulmicort		 2010 
(combination)		 20132
(combination)		 salmeterol xinafoate/ asthma/COPD Singulair, Symbicort, 2010 20131
 fluticasone propionate   Spiriva, Asmanex, Pulmicort, (combination) (combination)
     Foster 2011-2016 2011
       (Diskus device) (Diskus device)
          
Flixotide/Flovent
 fluticasone propionate asthma/COPD Qvar, Singulair expired expired fluticasone propionate asthma/COPD Qvar, Singulair 2011-2025 2011-2017
       (devices) (devices)
          
Serevent
 salmeterol xinafoate asthma/COPD Foradil, Spiriva expired expired salmeterol xinafoate asthma/COPD Foradil, Spiriva 2011-2016 2011-2019
       (Diskus device) (devices)
          
Veramyst
 fluticasone furoate rhinitis Nasacort 2021  2023  fluticasone furoate rhinitis Nasacort 2021 2023
Flixonase/Flonase
 fluticasone propionate rhinitis Nasonex, Rhinocort expired expired
          
Anti-virals
       2016  2019        2016 2016
Epzicom/Kivexa
 lamivudine and abacavir HIV/AIDS Truvada, Atripla (combination) (combination) lamivudine and abacavir HIV/AIDS Truvada, Atripla (combination) (combination)
          
Combivir
 lamivudine and zidovudine HIV/AIDS Truvada, Atripla 2012 
(combination)		 2013 
(combination)		 lamivudine and zidovudine HIV/AIDS Truvada, Atripla 2012 2013
       (combination) (combination)
          
Trizivir
 lamivudine, zidovudine and abacavir HIV/AIDS Truvada, Atripla 2016 
(combination)		 2016 
(combination)		 lamivudine, zidovudine HIV/AIDS Truvada, Atripla 2016 2016
 and abacavir     (combination) (combination)
          
Agenerase
 amprenavir HIV/AIDS Prezista, Kaletra, Reyataz 2013  2014  amprenavir HIV/AIDS Prezista, Kaletra, Reyataz 2013 2014
          
Lexiva
 fosamprenavir HIV/AIDS Prezista, Kaletra, Reyataz 2017  2019  fosamprenavir HIV/AIDS Prezista, Kaletra, Reyataz 2017 2019
          
Epivir
 lamivudine HIV/AIDS Truvada, Atripla 2010  2011  lamivudine HIV/AIDS Truvada, Atripla 2010 2011
          
Ziagen
 abacavir HIV/AIDS Truvada, Atripla 2012  2014  abacavir HIV/AIDS Truvada, Atripla 2012 2014
          
Valtrex
 valaciclovir genital herpes, coldsores,
shingles		 Famvir 2009  2009  valaciclovir genital herpes, coldsores, Famvir expired expired
   shingles      
          
Zeffix
 lamivudine chronic hepatitis B Hepsera 2010  2011  lamivudine chronic hepatitis B Hepsera 2010 2011
          
Relenza
 zanamivir influenza Tamiflu 2013  2014  zanamivir influenza Tamiflu 2013 2014
          
          
Central nervous system
Central nervous system
       
Central nervous system
        
Lamictal
 lamotrigine epilepsy, bipolar disorder Keppra, Dilantin expired expired lamotrigine epilepsy, bipolar disorder Keppra, Dilantin expired expired
          
Imigran/lmitrex
 sumatriptan migraine Zomig, Maxalt, Relpax expired expired
Imigran/Imitrex
 sumatriptan migraine Zomig, Maxalt, Relpax expired expired
          
Seroxat/Paxil
 paroxetine depression, various
anxiety disorders		 Effexor, Cymbalta,
Lexapro		 expired expired paroxetine depression, various Effexor, Cymbalta, expired expired
   anxiety disorders Lexapro    
          
Wellbutrin SR
 bupropion depression Effexor, Cymbalta, expired 2009  bupropion depression Effexor, Cymbalta, expired expired
     Lexapro         Lexapro    
          
Requip
 ropinirole Parkinson’s disease, Mirapex expired 2011  ropinirole Parkinson’s disease, Mirapex expired 2011
   restless legs syndrome     
(use in treating Parkinson’s disease)		   restless legs syndrome     (use in
         treating
         Parkinson’s
         disease)
          
Treximet
 sumatriptan and naproxen migraine Zomig, Maxalt, Relpax 2017 
(combination and use)		 NA sumatriptan and naproxen migraine Zomig, Maxalt, Relpax 2017 NA
       (combination  
       and use)  
          
Cardiovascular and urogenital
Cardiovascular and urogenital
       
Cardiovascular and urogenital
        
Avodart
 dutasteride benign prostatic hyperplasia Proscar, Flomax, finasteride 2015  2017  dutasteride benign prostatic hyperplasia Proscar, Flomax, finasteride 2015 2017
          
Lovaza
 formulation of omega-4 acid ethyl esters very high triglycerides Tricor 2017 
(Formulation)		   omega-3 acid ethyl esters very high triglycerides Tricor 2017 NA
       (Formulation)  
          
Coreg CR
 carvedilol phosphate mild-to-severe heart failure,
hypertension, left ventricular
dysfunction post MI		 Toprol XL 20231 NA carvedilol phosphate mild-to-severe heart failure, Toprol XL 20232 NA
   hypertension, left ventricular      
   dysfunction post MI      
          
Fraxiparine
 nadroparin deep vein thrombosis,
pulmonary embolism		 Lovenox expired expired nadroparin deep vein thrombosis, Lovenox, Fragmin expired expired
   pulmonary embolism Innohep    
          
Arixtra
 fondaparinux deep vein thrombosis,
pulmonary embolism		 Lovenox, Fragmin
Innohep		 expired expired fondaparinux deep vein thrombosis, Lovenox, Fragmin expired expired
   pulmonary embolism Innohep    
          
Vesicare
 solifenacin overactive bladder Detrol, Detrol LA, Enablex, Sanctura 2018  NA solifenacin overactive bladder Detrol, Detrol LA, Enablex, 2018 NA
     Sanctura    
          
1 The UK and Irish patents have been revoked by the courts     2 Generic competition possible in 2010 as a resultfollowing conclusion of patent settlement
2 The UK patent has been revoked by the UK courtsproceedings
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Products, intellectual property and competition continued
                    
Product Compounds Indication Major Patent expiry dates
Products Compounds Indication(s) Major Patent expiry dates
 competitor brands USA EU competitor brands USA EU
          
Metabolic
                    
Avandia
 rosiglitazone maleate type 2 diabetes Actos, Januvia 2012 2013 rosiglitazone maleate type 2 diabetes Actos, Januvia 2012 2013
          
Avandamet
 rosiglitazone maleate and metformin HCI type 2 diabetes Competact, Janumet Actoplus met 2012 2013 rosiglitazone maleate and type 2 diabetes Competact, Janumet 2012 2013
 metformin HCI   Actoplus met    
Bonviva/Boniva
 ibandronate osteoporosis Actonel, Fosamax 2012 2011
          
Anti-bacterials
                    
Augmentin
 amoxicillin/clavulanate potassium common infections   expired expired amoxicillin/clavulanate common infections   expired     expired    
 potassium        
          
Altabax
 retapamulin skin infections   2021 2022 retapamulin skin infections   2021 2022
          
          
Oncology and emesis
          
Oncology and emesis
        
Arzerra
 ofatumumab refractory chronic MabThera/Rituxan 2023 2023
   lymphocytic leukaemia      
          
Hycamtin
 topotecan ovarian cancer, small cell lung cancer Doxil, Gemzar 2010 2011 topotecan ovarian cancer, small cell Doxil, Gemzar 2010 2011
   lung cancer, cervical cancer     
Zofran
 ondansetron nausea and vomiting from cancer Kytril, Emend, Aloxi expired expired
          
Tykerb
 lapatanib advanced and metastatic Herceptin
 2020 2023
Promacta/
 eltrombopag idiopathic thrombocytopenic Nplate 2022 2024
Revolade
   purpura      
   breast cancer in HER2
                
Tykerb/Tyverb
 lapatanib advanced and metastatic Herceptin 2020 2023
   breast cancer in HER2      
   positive patients      
          
Votrient
 pazopanib metastatic renal cell carcinoma Sutent, Nexavar 2023 2025
   positive patients                
          
Vaccines
                    
Infanrix/Pediarix
 diphtheria, tetanus, pertussis, diphtheria, tetanus, pertussis, Pentavac, Pentaxim, 2017 2016 diphtheria, tetanus, pertussis, diphtheria, tetanus, pertussis, Pentavac, Pentaxim, 2017 2016
 polio, hepatitis B (HepB), polio, hepatitis B (HepB), Pediacel, Pentacel     polio, hepatitis B (HepB), polio, hepatitis B (HepB), Pediacel, Pentacel    
 inactivated antigens         inactivated antigens        
          
Fluarix
 split inactivated influenza virus seasonal influenza Vaxigrip, Mutagrip, Fluzone, none none split inactivated influenza virus seasonal influenza Vaxigrip, Mutagrip, Fluzone, 2022 2022
 subtypes A and type B antigens   Influvac, Aggripal, Fluad     subtypes A and type B antigens   Influvac, Aggripal, Fluad    
          
FluLaval
 split inactivated influenza virus seasonal influenza Vaxigrip, Mutagrip, Fluzone, none none split inactivated influenza virus seasonal influenza Vaxigrip, Mutagrip, Fluzone, none none
 subtypes A and type B antigens   Influvac, Aggripal, Fluad     subtypes A and type B antigens   Influvac, Aggripal, Fluad    
          
Cervarix
 HPV 16 & 18 virus like particles human papilloma virus Gardasil, Silgard 2026 2019 HPV 16 & 18 virus like particles human papilloma virus
type 16 & 18		 Gardasil, Silgard 2026 2019
 (VLPs), AS04 adjuvant (MPL + type 16 & 18       (VLPs), AS04 adjuvant (MPL +        
 aluminium hydroxide)         aluminium hydroxide)        
          
Synflorix
 conjugated pneumococcal invasive pneumococcal Prevenar NA 2020
 polysaccharide disease      
          
Rotarix
 live attenuated rotavirus rotavirus gastroenteritis Rotateq 2022 2020 live attenuated rotavirus rotavirus gastroenteritis Rotateq 2022 2020
 strain G1P(8)         strain GIP(8)        
          
Trademarks
All of GSK’s commercial products are protected by registered trademarks in major markets. There may be local variations, for example, in the USA the trademarkAdvaircovers the same product sold in the EU asSeretide. Trademark protection may generally be extended as long as the trademark is used by renewing it when necessary. GSK’s trademarks are important for maintaining the brand identity of its products. GSK enforces its trademark rights to prevent infringements.
Consumer Healthcare products
Our portfolio comprises three main categories: OTCOver-the-counter (OTC) medicines, Oral healthcare and Nutritional healthcare.
Sales of key Consumer Healthcare products in 20082009 are shown on page 37.30.
Our leading Consumer Healthcare products include the following:
OTC medicines
• alli, the first licensedlicenced weight loss medicine to be available without a prescription, launched in the USA in 2007 and has now won approval to launch across Europe in 2009

• Panadol, the global paracetamol/acetaminophen analgesic

• Smoking control productsNicoDerm,NiQuitin CQ,Nicabateand in the USA,Nicorette

• Other brands includeBreathe Rightnasal strips,Tums,Citrucel,ContacandFiberChoice.
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Products, intellectual property and competition continued

Oral healthcare
• Aquafresh, a range of toothpastes, toothbrushes and mouthwashes

• Sensodyne, a range of toothpastes, toothbrushes and toothbrushes,mouthwashes includingPronamelto protect from acid erosion

• Biotene, acquired late in 2008, and the leading treatment for dry mouth

• Polident,PoliGripPoligripandCorega, the denture care cleansers and adhesives

• Other brands includeOdol,MacleansandDr Best.

Nutritional healthcare
• Lucozade, a range of energy and sports drinks

• Horlicks, a range of milk-based malted food and chocolate drinks

• Ribena, a blackcurrant juice-based drink.
Consumer Healthcare competition
GSK holds leading global positions in all its key consumer product areas. Worldwide it is the second largest in OTC medicines and the third largest in Oral healthcare and in OTC medicines.healthcare. In Nutritional healthcare it holds the leading position in the UK, India and Ireland.
The environment in which the Consumer Healthcare business operates has become ever more challenging:
•consumers are demanding better quality, better value and improved performance

•retailers have consolidated and globalised which has strengthened their negotiation power

•cycle times for innovation have reduced.
consumers are demanding better quality, better value and improved performance
retailers have consolidated and globalised which has strengthened their negotiation power
cycle times for innovation have reduced.
The main competitors include the major international companies Colgate-Palmolive, Johnson & Johnson, Procter & Gamble, Unilever and Wyeth.Pfizer. In addition, there are many other smaller companies that compete with GSK in certain markets.
The major competitor products in OTC medicines are:
•in the USA: Metamucil (laxative), Pepcid (indigestion) and private label smoking control products

•in the UK: Lemsip (cold remedy), Nurofen and Anadin (analgesics), and Nicorette and Nicotinell (smoking control treatments).
in the USA: Metamucil (laxative), Pepcid (indigestion) and private label smoking control products
in the UK: Lemsip (cold remedy), Nurofen and Anadin (analgesics), and Nicorette and Nicotinell (smoking control treatments).
In Oral healthcare the major competitors are Colgate-Palmolive’s Colgate and Procter & Gamble’s Crest.
In Nutritional healthcare the major competitors toHorlicksare Ovaltine and Milo malted food and chocolate drinks. The competitorsCompetitors toRibenaare primarily local fruit juice products, whileLucozade competes with other energy drinks.
Global manufacturing and supply (GMS)
More than 31,00029,000 people work in GMS across our network of 78 sites in 3733 countries. GMS supports the commercial ambition of GSK by delivering quality medicines and consumer products to patients and customers around the world.
The scale of manufacturing in GSK is staggering,huge, with the manufacture of over 4 billion packs per year in 28,000 different presentations (including tablets, creams/ointments, inhalers, injections, liquids and steriles), which are then supplied to over 150 markets. Over £3.6£3.7 billion iswas spent by GMS on production each year.in 2009.
GMS operates a procurement operation on behalf of the Group. We spend over £2 billion annually with external suppliers, purchasing active ingredients, chemical intermediates, packaging components and part-finished and finished products.
During 2008,2009, as our commercialinternal customers sought every opportunity to grow their business,businesses, we focused on the cost-competitive supply of quality product to meet their ambition.ambitions. We began adaptingworked diligently to the emerging commercial model by leveragingleverage our network of sites and contractors to give us built-in flexibility to sustain future growth and adapt to emerging commercial business models. In an increasingly rigorous external regulatory environment, we have continued to leverage technology in support of process understanding, control, and capability.
Our Primary supply sites supply high quality, competitively priced bulk actives and focus on improvements in primary technologies and processes. Our new productNew Product and global supplyGlobal Supply sites work closely with R&D’s development teams to ensure that the right technical competencies are in place to support rapid and successful new product introduction. These sites serve as the focal point for developing and introducing new secondary manufacturing technologies. The sites in our Regional Pharma supply division focus on reducing costs, allowing GSK to compete more effectively in all its markets. Our Consumer Healthcare sites deliver high-quality, competitively priced products and support rapid new product introduction in a highly innovative and competitive business. New technologies have become a fundamental platform for driving innovation, lowering costs, and providing flexibility in operations.
We are embedding new ways of working that are simplifying the business and achieving greater efficiencies. It is our focus on customer service, including support for new product launches, our strong compliance culture, our commitment to health, safety and the environment, and our commitment to developing our people that have delivered strong results for GSK even as the external environment has become more demanding.
Vaccine manufacturing, which is managed as an integral part of the Biologicals business, is particularly complex as it requires the use of innovative technologies and living micro-organisms. Sophisticated quality assurance and quality control procedures are in place to ensure the vaccine’s quality and safety. This includes animal use according to health authorities’ requirements. Due to their biological nature, individual health authorities may subject vaccines to a second control to guarantee the highest quality standards.


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Research and development
Report of the Directors

Research and development

Research and development – Pharmaceuticals
GSK R&D is striving to buildhas built one of the strongest pipelines of potential new medicines in the industry. In 2008,2009, Pharmaceutical R&D was actively managing over 150 projects in human clinical trials across the globe. Delivering this pipeline to patients safely and efficiently is the number one goal.
Discovering potential medicines
•The early research identifies the biological targets interfering with a particular disease, and creates small molecules or biopharmaceuticals that interact with these disease targets. Drug Discovery (DD) is formed
Our early research identifies the biological targets interfering with a particular disease, and creates small molecules or biopharmaceuticals that interact with these disease targets.
A refocus on the best science led us to create an entrepreneurial environment in discovery, building on the success of the existing model of the Centres of Excellence for Drug Discovery (CEDDs), groups focused around defined Therapy Areas.

•A Therapy Area Review exercise conducted in 2007 and early 2008 helped R&D refocus its discovery effort around well identified promising areas of science that are more likely to deliver products of value. R&D invested in growth areas such as ophthalmology and ceased less promising areas of science such as urology. The focus of Drug Discovery at GSK is summarised in the table below.

•Following this Therapy Area Review, a major transformation of Drug Discovery was conducted in our company in 2008 to create an even more nimble, creative, and entrepreneurial environment, building on the success of the existing CEDD model. Each CEDD created Discovery Performance Units (DPU), gathering small integrated and empowered groups of scientists (size ranging from 5 to 70 people), focusing on a particular disease or pathway, taking the CEDD model one step further. The number of DPUs in each CEDD varies according to the science, and some standalone DPUs were created to explore new therapy areas (such as Ophthalmology), or new ways of working.

•Each of the CEDDs and standalone DPUs submits a 3-year business plan with overall budget and clearly defined objectives. The CEDDs are accountable for the production of quality proofs of concept, and are tackling this challenge through internal discovery as well as extensive collaborations with academia and biotech companies.
Centres of Excellence for Drug Discovery (CEDD)
All include several(CEDDs), groups focused around defined therapy areas. Taking the CEDD model one step further we created a number of smaller Discovery Performance Units (DPU)
•Immuno-Inflammation

•Infectious Diseases

•Metabolic Pathways

•Neurosciences

•Respiratory

•Centre of Excellence for External Drug Discovery (CEEDD)

Additional(DPUs) within each CEDD. These are small, integrated groups of 5-70 scientists, who focus on a particular disease or pathway. There are now 36 DPUs in GSK. The number of DPUs in each CEDD varies according to the science, and some standalone Discovery Performance Units (DPU)
•Macrolides

•Opthiris (focusing on ophthalmology)

•Virtual PoC

•Sirtris

•Academic DPU
DPUs were created to explore new therapy areas (such as Ophthalmology), or new ways of working (such as the academic DPU which forms drug discovery collaborations with academia).
The CEDDs are now one year into their 3-year business plan defining overall budget and clear objectives. The business plans have been reviewed at the end of year 1, and our discovery organisation is on track to deliver GSK’s objectives.
We continue to identify compounds from other companies that would enhance the portfolio and to create innovative collaborations to ensure that we are seen as a partner of choice for large and small companies. Our internal R&D expertise allows us to have a strong position in business development, and makes us able to complement our internal pipeline with acquisitions, in-licensing, co-marketing/co-promotion deals, or future options collaborations.
(IMAGE)
Delivering these medicines to patients
•Progression into late-stage development consists of optimising both the physical product properties of the medicine, (the chemical steps and formulation required to manufacture and deliver it), as well as the much larger scale studies in humans confirming efficacy and safety. The combination of the results of these two steps into a regulatory file for submission to regulatory agencies and approval for patient use is the responsibility of the regulatory team.

•Medicines Development is the collection of four therapeutically aligned Medicine Development Centres (MDCs): Cardiovascular and Metabolic (CVM), Infectious Diseases (ID), Neurosciences and Respiratory. Each MDC has ultimate accountability for developing experimental drugs into regulatory-approved medicines for patients. The MDCs are responsible for creating value through the execution of full product development plans and ensuring strong partnerships with the rest of R&D and GSK, in particular the CEDDs, preclinical development, the regulatory and commercial groups, and manufacturing.

•In 2008, emphasis was put on the creation of strongly empowered project teams, with the creation of Medicine Development Leader roles for all the key late stage assets. The Centre for Clinical Study Excellence was also created as a professional organisation providing study operations capabilities which, in partnership with the MDCs and the CEDDs, delivers GSK clinical trials.
Progression into late-stage development consists of optimising both the physical product properties of the medicine, i.e. the chemical steps and formulation required to manufacture and deliver it as well as the much larger scale studies in humans confirming efficacy and safety. The combination of the results of these two steps into a regulatory file for submission to regulatory agencies and approval for patient use is the responsibility of the regulatory team.
Medicines Development is organised by therapy areas in Medicine Development Centres (MDCs): Cardiovascular and Metabolic, Infectious Diseases, Neurosciences and Respiratory. Each MDC has ultimate accountability for developing experimental drugs into regulatory-approved medicines for patients. The MDCs are responsible for creating value through the execution of full product development plans and ensuring strong partnerships with the rest of R&D and GSK, in particular the CEDDs, preclinical development, the regulatory and commercial groups, and manufacturing.
In 2009 emphasis was put on the simplification of the clinical development organisation, and on focusing investment on project spend versus infrastructure. This reflects the increased focus of R&D on return on investment.
Adapting our structure to maximise our chance to succeed
R&D’s units in Oncology and Biopharmaceuticals are integrating the discovery and the late stage development group. This allows us to build critical mass in those two growth areas for GSK, and to focus on delivering a strong pipeline. Both integrated units are now fully set up, and have been very successful at progressing their pipeline in 2009 (see pipeline chart).
Our China Discovery team focused on neurodegeneration and neuroinflammation celebrated its second anniversary in 2009. It has grown to approximately 280 employees in 2009, and has developed an impressive early stage portfolio. As products enter the clinic, the team is now establishing clinical capabilities.


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Research and development continued

Major opportunity in oncology — creation of an Oncology R&D unit in 2008
In 2008, we created an integrated Oncology unit, spanning from drug target identification through to late stage development. Its strong pipeline of cancer medicines, as well as unique aspects of oncology medicines development, were behind the creation of the Oncology R&D unit. Oncology is an important investment area for GSK and 2008 has seen its late stage pipeline flourish.
Future growth in biopharmaceuticals — creation of a Biopharm R&D unit in 2008
With the goal of becoming a leader in biopharmaceuticals, we created the Biopharm R&D unit in 2008. Biopharmaceuticals are large molecules such as antibodies, proteins or peptides which are manufactured using living cells. Because they are very different to small molecules (which are made by chemical synthesis), the R&D process requires quite specific treatment from a discovery, development and manufacturing perspective. The Biopharm R&D unit brings all of these functions together in a single cohesive group with discovery, biopharmaceutical process development and late stage development forming part of one organisation.
Investment in global R&D: growth of R&D China
In line with our aim to access the best science and to ensure GSK is a truly global company, we announced in 2007 the creation of R&D China. In 2008, this group grew to 200 employees focusing on neurodegeneration and has created three DPUs during the year. R&D China is currently focusing on discovery, but as the unit grows and the pipeline matures, it will expand its capabilities to be a fully integrated R&D centre.
Governance
Key projects reaching significant milestones are reviewed each month by the Product Management Board (PMB), which isa product management board, responsible for determining if a medicine has met criteria for passing into the next phase of development.
GSK’s Chief Medical Officer, working with the Global Safety Board, is ultimately accountable for oversight of all major decisions regarding patient safety. Our Global Safety Board is responsible internally for approving pivotal studies and investigating any issues related to patient safety arising during the development programme. Information from GSK clinical trials is widelyprogramme and easily available at the Clinical Trial Register on GSK’s website.post-launch.
The oversight of strategic issues organisation choices and budget management across R&D is owned by RADEX, the R&D Executive team.
R&D employees
R&D employs staff with a wide variety of educational backgrounds, with biologists, chemists, clinical scientists and physicians being some of the more prominent qualifications. Given the number of structural changes in 2008, we are ensuring that staff retention is a top priority, through personal development programmes, staff engagement strategies and active talent management.team (RADEX).
Diseases of the developing world
Continued investment in research into diseases of the developing world is essential if there is to be a long-term improvement in the health of people who live in these regions. As part of our response to this challenge, we operate a drug discovery unit based at Tres Cantos (Spain), which focuses on malaria and tuberculosis. Additional R&D sites in the USA and the UK are focused on the development of new medicines to treat HIV/AIDS and drug resistant bacteria, while vaccine research is conducted in Rixensart (Belgium).
Through these R&D efforts, we are addressing the prevention and treatment of all three of the World Health Organization’s (WHO) priority infectious diseases.
Public/Private Partnerships (PPPs) remain essential to fund research where there is no commercially viable market for a potential product. We remain a leader in working in PPPs and continue to collaborate closely with many governments, academic centres, United Nations’ agencies and other global funding bodies in this area, to maximise expertise and knowledge.


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Report of the Directors

Research and development continued

Vaccines R&D
GSK is active in the fields of vaccine research, development and production and has a portfolio of over 30 vaccines approved for marketing. We have over 1,600 scientists devoted to discovering innovative vaccines that contribute to the health and well-being of people of all generations around the world. The discovery and development of a new vaccine is a complex process requiring long-term investment and with more than 20 vaccines in clinical development, we have one of the strongest vaccine pipelines in the industry. Although vaccines have traditionally been used to ward off illness, GSK’s vaccine division is developingworking to develop therapeutic immunotherapeutics aimed at educating the patient’s immune system to identify and attack cancer cells in a highly specific manner.
Vaccine discovery involves many collaborations with academia and the biotech industry to identify new vaccine antigens which are then expressed in yeast, bacteria or mammalian cells and purified to a very high level. This is followed by formulation of the clinical lots of the vaccine. This may involve mixing antigens with selected GSK novel proprietary adjuvant systems, which are combinations of selected adjuvants designed to elicit the most appropriate immune response to a specific antigen. The right combination of antigen and adjuvant system can help the body mobilise the most effective immunological pathway, which is designed to provide maximum protection against specific diseases in targeted populations.
Once formulated, the candidate vaccine is evaluated from a safety and efficacy perspective through the different phases of preclinical testing, then through the clinical trials involving healthy individuals. These will range from safety analysis in a small group of volunteers in phase I, dose adjustment and proof of concept in phase II to
large-scale safety and efficacy analysis in phase III. The results obtained during clinical trials and data regarding the development of a quality and large-scale production process and facilities are then combined into a regulatory file which is submitted to the authorities in the countries where the vaccine will be made available.
After launch, post marketing studies of considerable size are set up to assess vaccination programmes and to monitor vaccine safety.


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17

Research and development

Animals and research
For ethical, regulatory and scientific reasons, research using animals remains a small but vital part of research and development of new medicines and vaccines. We only use animals where there is no alternative and only inconstantly strive to reduce the numbers requiredused. We are committed to maintaining high standards for each test. We strive to exceed regulatory standards in the humane care and usetreatment of theall laboratory animals used and undertake internal and external review to assure these standards.
The vast majority of the experimental methods do not use animals. We are actively engaged in research to develop and validate more tests that either avoid the use of animals in research or reduce the numbers needed. When animals are used in research, unnecessaryall due measures are taken to prevent or minimise pain or suffering is scrupulously avoided.and distress.
We decided not to initiate funding of studies using great apes after 28th October 2008. This is a voluntary decision and provides a tangible demonstration of our commitment to the 3Rs of animal research, which advocates the replacement and reduction of animals in research and refining of experiments to improve animal welfare.
We understand that use of animals for research purposes commands a high level of public interest. Our Public Policy Position ‘The care and ethical use of animals in research’, and further information and reports, are available on our website.
Research and development —– Consumer
Healthcare
The continuous creation and development of innovative products keeps our brands relevant, vibrant and valuable. Our portfolio spans three major categories: over-the-counter (OTC)OTC medicines, Oral healthcare and Nutritional healthcare. For our major brands, dedicated R&D teams, including Regulatory, partner with and work alongside their commercial brand team colleagues in office-free hub environments that foster collaboration and fast decision-making. Hubs have quickly become a preferred way of working at our Innovation Centres in Weybridge, UK, and Parsippany, USA.USA, and we are expanding this model rapidly into other key Consumer Healthcare territories, including China and India.


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18GSK Annual Report 2008

Report of the Directors

Research and development continued


Research and development
We have a full and diverse product development pipeline. Our key late stage projects are highlighted here, comprising both new chemical entities and new combinations and formulations of existing assets. The most advanced status is shown and includes 2008 approvals in at least one major market.2009 approvals.
Key:
Phase III(IMAGE)
Large comparative study (compound versus placebo and/or established treatment) in patients to establish clinical benefit and safety.
Filed(IMAGE)
Following successful Phase III trials, we file the product for approval by the regulatory authorities.
Approval(IMAGE)
Only when approval is granted can we begin to market the medicine or vaccine.
Our full pipeline is on pages 199189 to 202 and on our websitewww.gsk.com192.
   
Therapeutic area Compound
CompoundBiopharmaceuticals
Arzerra (ofatumumab)†
   
  Arzerra (ofatumumab)†
Biopharmaceuticals
 belimumab
Arzerra (ofatumumab)1†
Benlysta (belimumab)†
ofatumumab†
   
  otelixizumab1†
Prolia (denosumab)†
   
  Syncria1†
   
Cardiovascular& Metabolic
 ofatumumab1Arixtra
   
 
Bosatria(mepolizumab)
Cardiovascular & Metabolic
 Avandamet XR
   
  Avandia + simvastatin
   
  darapladib1†
Neurosciences
almorexant†
   
  Arixtra
Neurosciences
almorexantHorizant (1838262)1†*
   
  retigabine1†
   
rosiglitazone XR
Lamictal XR
Lunivia1
Solzira (1838262)1
Oncology
 Avodart
   
  elesclomolDuodart (Avodart +
alpha blocker)
Votrient (pazopanib) +
Tyverb/Tykerb
Revolade/Promacta1 2†
   
  pazopanib +Revolade/Promacta†
Revolade/Promacta†
Tyverb/Tykerb
   
  Tyverb/Tykerb
   
  
pazopanib
Duodart (Avodart + alpha blocker)Tyverb/Tykerb
   
  Zunrisa/RezonicTyverb/Tykerb
   
  Revolade/PromactaVotrient (pazopanib)
Votrient (pazopanib)
Votrient (pazopanib)
Respiratory
6424441†
   
 Relovair (642444† +
655698)
Vaccines
 Hib-MenCY-TTCervarix†
   
  MAGE-A3 ASCI(ASCI)
   
  MAGE-A3 (ASCI)
  MenACWY-TT
Menhibrix (Hib-MenCY-TT)
Mosquirix
   
  New generation flu vaccine
   
  SimplirixNimenrix (MenACWY-TT)
   
  SynflorixSimplirix
Cervarix1
Prepandrix (Flu pre-pandemic)1
   
1† In-licenceIn-license or other alliance relationship with a third party.party
 
2* See Note 40 to the financial statements, ‘Post balance sheet events’.
ASCI = Antigen Specific Cancer Therapeutic


GSK Annual Report 2009

19

Research and development
    
IndicationPhase 3FiledApproved 
     
  GSK Annual Report 200825  
chronic lymphocytic leukaemia (refractory patients) Report of the Directors

(GIF)
  
diffuse large B cell lymphoma (relapsed patients) Research and development continued


      (Gif)
 
follicular lymphoma (refractory patients)      (Gif)
systemic lupus erythematosus      (Gif)
rheumatoid arthritis      (Gif)
type 1 diabetes      (Gif)
post-menopausal osteoporosis      (GIf)
type 2 diabetes      (Gif)
treatment of acute coronary syndrome(GIF)
type 2 diabetes – extended release      (Gif)
type 2 diabetes      (Gif)
atherosclerosis      (Gif)
insomnia      (Gif)
restless legs syndrome      (GIf)
epilepsy – partial seizures      (GIf)
reduction in the risk of prostate cancer      (GIf)
benign prostatic hyperplasia – fixed dose combination      (GIf)
 
     
(IMAGE)

    
inflammatory breast cancer      (Gif)
 
     
  26GSK Annual Report 2008  
idiopathic thrombocytopaenic purpura Report of the Directors

(GIF)
  
chronic liver disease induced thrombocytopaenia Our employees



      (Gif)
 
hepatitis C induced thrombocytopaenia      (Gif)
breast cancer, first line therapy(GIF)
breast cancer, adjuvant therapy      (Gif)
gastric cancer      (Gif)
head & neck squamous cell carcinomas (resectable disease)      (Gif)
renal cell cancer(GIF)
ovarian cancer, maintenance therapy      (Gif)
sarcoma      (Gif)
COPD      (Gif)
COPD      (Gif)
 
     
cervical dysplasia and cancer prophylaxis caused by HPV 16/18(GIF)
treatment of melanoma      (Gif)
treatment of non-small cell lung cancer      (Gif)
Neisseria meningitis groups C & Y disease & Haemophilus influenzae type b disease prophylaxis      (GIf)
malaria prophylaxis (Plasmodium falciparum)      (Gif)
seasonal influenza prophylaxis for the elderly      (Gif)
Neisseria meningitis groups A, C, W & Y disease prophylaxis      (Gif)
genital herpes prophylaxis      (Gif)
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20

Our employees

GSK Values and Behaviours
Changes in the healthcare market over the past decade necessitate the transformation of our business model to one that is more customer-centric and innovative; how we perform as a collective organisation will determine our success. In order to be effective with growing complexity and exponential speed of change in our external environment, GSK needs to create an internal learning culture that is embodied by GSK Values and Behaviours. For more details on GSK Values and Behaviours, see our Corporate Responsibility Report.
Recruitment, talent management and leadership development
In 2008, as with2009, like every year, recruiting, retaining and developing our employees waswere critical to enhancing and sustaining our performance and reputation. Some areasProactive talent acquisition initiatives underpin our ability to attract specialist and leadership talent externally. Our assessment process is aligned to a core set of focus:competencies, of which ethics and integrity are central.
•Our recruiters proactively identify, engage and attract top external talent and assess their potential fit with the organisation. This takes places across all functions, businesses and geographical areas. Our assessment process is aligned to a core set of competencies, of which ethics and integrity are central.

•Our streamlined annualA global view of talent and strategic capabilities required looking at the quality, depth and breadth of our talent across the world. We need good succession plans, not just for senior roles but for all our critical positions across the organisation. We maintain a robust leadership strategy to identify and develop our highly skilled leadership cadre and use a systematic, disciplined approach to leadership development, providing tools and programmes to help leaders master skills needed to meet customer, employees and investor expectations. In 2009, we launched a First Line Leader programme for all new leaders – whether new to GSK or new to managing people. We also launched a GSK-wide mentoring scheme where each senior leader will mentor at least one individual in 2010.
Performance and reward
The performance and development planning (PDP) process means employees have business-aligned objectives and behavioural goals. With regular reviews, the progress is ongoing, culminating with an end-of-year review.

•We have an annual talent management cycle to identify the highest performing people in each business, followed up with tailored management and leadership programmes for key talent.

Performance and reward
Our reward systems support high performance and help to attract and retain the best people. Performance-based pay & bonuses and bonuses, share rewards and share optionsshare-based equity plans align employee interests with business targets.
Communication and employee involvement
When new full-time employees join our organisation, they have the opportunity to take part in the GSK Experience, an interactive induction programme offered at many locations across the UK and USA. Programme modules are also provided to support local induction and awareness seminars around the world. This experience gives employees a flavour of the communications and engagement activities on offer throughout GSK.
Our communication channels are designed to keep employees informed, engaged and involved in activities across all areas of our organisation. We encourage two-way, open and honest communication with employees, and in 20082009 improvements in web usage technology was used increasingly to engageengaged more employees in a more immediate way. New or updated communication channels in 2008 include:employees.
•myCEO — an area on the GSK intranet that allows employees to engage directly with the CEO via discussion and Q&A

•The Ambassador community — provides slides, statements and films which give employees company information and keep them up-to-date on the issues affecting GSK and the pharmaceutical industry

•GSKtv — a web-based library of all GSK’s video assets including presentations on strategy and employee broadcasts

•Interactive multimedia events such as web broadcasts, multi-site Q&A sessions — give regular updates globally from CEO, business or function leaders
Face to face communications activities — town hall presentations led by senior executives, lunches with CET and senior executives.
To ensure our communications activities are effective and to enable us to continue to improve, there are a number of evaluation processes. Feedback and monitoring mechanisms are part of every major communication event, and Q&A and feedback facilities are a core feature of our web communications channels. Other broader processes include a Global Leadership Survey every twoan internal online opinion survey where in 2009 more than 93,000 employees were invited to three years. The survey asks over 10,000 managers worldwide to commentprovide feedback on critical issues such as cultureindividual empowerment, employee engagement and confidence in GSK’s future.our company values.
As our business evolves, there will be changes that affect employees and we remain committed to consulting on these changes via a number of internal consultation forums and discussions with the European Employee Consultation Forum and similar bodies in countries where this is national practice.
(PIE CHART)
(PIE CHART)
DiversityInclusion and diversity
We are committed to employment policies free from discrimination against existing or potential employees on the grounds of age, race, ethnic and national origin, gender, sexual orientation, faith or disability. GSK is committed to offering people with disabilities access to the full range of recruitment and career opportunities. Every effort is made to retain and support employees who become disabled while working at GSK. For more details on diversity measures, see our Corporate Responsibility Report.
Healthy and safe high performance
To be able to meet our mission and strategy, our Employee Health and Performance initiatives focus on the health factors that enable employees to perform at the highest level by sustaining energy and engagement. The programmes developed to deliver this health strategy range from the traditional —– such as immunisations, smoking control, and weight management —– to cutting-edge programmes in the areas of team and personal resilience, ergonomics and Energy for Performance. These programmes, available in many languages, are designed to address the root causes of excessive work pressure and low energy and engagement at work and at home. They are complimented by our commitment to flexible working that enables employees to do their best work in an environment that helps them integrate their work and personal lives. For more details on the scope and impact of these programmes, see our Corporate Responsibility Report.


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21

GSK Annual Report 200827
Our responsibility
Report of the Directors

Our responsibility



Commitment to corporate responsibility
GSK is committed to connecting business decisions to ethical, social and environmental concerns. Thus, corporate responsibility is an integral and embedded part of the way GSK does business.
Improving access to medicines
Access to healthcare in the developing world
There are no easy solutions to the challenge of providing sustainable access to healthcare in developing countries. Poverty is the single biggest barrier. In many countries people do not have enough food, access to a clean water supply, hospitals or clinics in which to receive treatment and healthcare professionals to care for them.
We are committed to playing a full part in addressing the healthcare challenges of the developing world by taking an innovative, responsible and, above all, sustainable approach. GSK is making a vital contribution to developing country healthcare through action in a number of areas including: preferential pricing of our anti-retrovirals and anti-malarials; tiered pricing of our vaccines; investing in R&D that targets diseases particularly affecting the developing world (see page 28)16); community investment activities and partnerships that foster effective healthcare (see page 29)22); and seeking innovative partnerships and solutions. We cover our contribution to improving access to medicines extensively in our Corporate Responsibility Report.
In 2008, weWe were a clear leader in the first Access to Medicines (ATM) Index produced by the ATM Foundation.Foundation in 2008. We will continue to build on our product, pricing and partnership commitments to help improve healthcare in the developing world. In February 2009, we announced a new approach to pricing inseries of commitments for the UN defined list of least developed countries. However,countries, including a more flexible approach to intellectual property for research into neglected diseases, a commitment to invest in healthcare infrastructure and price caps on our patented medicines. A significant increase in fundingresources from the global community is still needed to support R&D and to provide access to the resultant medicines and vaccines.
While much has been achieved, sustainable progress will only occur if the significant barriers that stand in the way of better access to healthcare are tackled as a shared responsibility by all sectors of global society -– governments, international agencies, charities, academic institutions, the pharmaceutical industry and others.
Access to medicines in the developed world

Programmes in the USA
We are working to provide access to medicines for people with limited financial resources and without prescription drug insurance.
For uninsured Americans who do not qualify for Medicare or Medicaid, GSK and 11nine other pharmaceutical companies created Together Rx Access, a programme for qualified individuals offering reductions in the pharmacy cost on more than 300 medicines. Over 820,0002 million Together Rx Access cardholders saved about $24$20 million in 2008.2009.
Programmes in other countries
We have also introduced Orange Cards providing discounts on certain GSK prescription medicines for eligible patients in a number of other countries. The nature of the discounts varies between countries and the ways in which the healthcare systems operate.
Patient Advocacy
The Patient Advocacy initiative has demonstrated significant progress since its inception in 2002. Initially launched as a US programme, it is now a critical initiative throughout GSK. Patient Advocacy teams in the USA and Europe share best practices and established processes to optimise interaction with patient groups. Typically these relationships provide mutual opportunities: to learn about patient needs and priorities and for patient groups to develop an understanding of drug development challenges.
In 2008,2009, we continued to partner with patient groups on common issues: advocating for access to medicines and treatment, increasing funding for health programs and improving health care delivery. We are considered to be a trustworthy partner with patient groups and we have worked with patient groups and our trade associations to increase the transparency of all of our interactions.
Our work with communities
We work as a partner with under-served communities in the developed and developing world supporting programmes that are innovative, sustainable and bring real benefits to these communities. Our global community investment in 20082009 was £124£163 million. This compares with £109£124 million in 20072008 on a like for like basis, anbasis. This increase is due to expansion of 13%. Thisour US patient assistance programme, increased humanitarian product donations and scale up of our donation of albendazole for the Lymphatic Filariasis (LF) programme. Our 2009 giving comprised product donations valued at £68of £101 million, cash giving of £37��£43 million, in-kind donations of £4£2 million plus costs of £15£17 million to manage and deliver community programmes in overalmost 100 countries. The product donations include £56£80 million for GSK’s patient assistance programmes, £7£13 million worth of albendazole for the Lymphatic filariasis (LF) programme and £5£8 million for humanitarian product donations. ProductSince 2008 our product donations are for the first timehave been valued at cost (average cost of goods) rather than wholesale price (WAC). Our new approach to valuing donations as this is a more accurate reflection of the cost to GSK and is therefore more transparent.GSK. We believe we are the first pharmaceutical company to adopt this practice. For comparative purposes the total value of donations in 20082009 using WAC for products would be £343£467 million compared with £282£343 million in 2007.2008.
We do not operate a single charitable foundation for our community investment programmes, but have a number of country basedcountry-based foundations and their 20082009 grants are included in the investment total.


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22

28GSK Annual Report 2008
Report of the Directors

Our responsibility continued



Our cash giving was targeted primarily at health and education initiatives as follows:
(IMAGE)(PIE CHART)
Global Health Programmes
Eliminating lymphatic filariasis (LF)
Our effort to eliminate LF, one of the world’s most disabling disease, LF from the world,diseases, continued in close partnership with the governments of countries where the disease is endemic, the WHOWorld Health Organization and over 40 partner organisations. WeAs a founding partner and leader in the global elimination effort, we are committed to donating as much of the anti-parasitic drug albendazole as required to treatreach the one billion people at risk in over 80 countries. In 2008, 2662009, 425 million albendazole treatments were donated to 3028 countries. We have donated over one1.4 billion albendazole treatments since the global elimination programme started in 2000.
Positive Action on HIV/AIDS
Positive Action is our pioneering global programme working with communities affected by AIDS. Started in 1992, it supports community-based organisations to deliver effective HIV and AIDS education, prevention and healthcare services. During 2008,In July 2009 we announced the creation of a new Positive Action worked with 16 partnersfor Children Fund. The Fund will make £50 million available over ten years to help prevent mother-to-child transmission of HIV and to support orphans and vulnerable children. This new Fund will complement our ongoing work and support to the HIV community. With the launch of ViiV Healthcare, our Positive Action programmes in 21 countries. Positive Action’s larger programmes operate in Mexico, Kenya, India, China, Cambodia and Vietnam.will be managed by this new HIV-focused company.
The GlaxoSmithKline African Malaria Partnership
OurIn 2009, Coalitions Against Malaria created by our malaria advocacy programme ‘Mobilising for Malaria’ has launched country Coalitions Against Malaria in the UK, Belgium, France, Ethiopia and Camerooncontinued to increase awareness of malaria and mobilise resources. During 2008, GSK co-sponsored The Guardianresources in the target countries: UK, Belgium, France, Ethiopia, Mozambique and Cameroon. This year we announced the launch of the next phase of the African Malaria Partnership with projects focused on community health workers and education/behaviour change in the community. Four new malaria grants were awarded in 2009, with a total commitment of £1.5 million over three years. They include partnerships with: Save the Children (UK) in Kenya; Family Health International Development Journalism Awards to recognise the workin Ghana; African Medical and Research Foundation (AMREF) in Tanzania; and Planned Parenthood Federation of NGOs in addressing the UN Millennium Development Goals - which included a focus on malaria.Nigeria.
PHASE
The PHASE programme (Personal Hygiene And Sanitation Education), initiated by us in 1998, is now providing education to hundreds of thousands of school children in 13 countries to improve their health and hygiene to fight infectious diseases. In 2008,2009 we committedexpanded our programme in Uganda, and extended PHASE to the slum areas of Mumbai, India. We have also brought PHASE to the UK and it is being piloted in three years funding of £320,000 to extend the programme into India.schools in Hounslow, near our global headquarters.
Humanitarian product donations
During 2008,2009, we donated essential products, such as antibiotics, through non-profit partners including AmeriCares, Direct Relief International, MAP International and Project HOPE, to support humanitarian relief efforts and community healthcare. TheFollowing a series of natural disasters in the Asia-Pacific region and Central America, the total value of our international humanitarian product donations was £5£8 million at average cost.
Immediately following the devastating earthquake that struck Haiti in January 2010, GSK provided donations of medicines of over £1 million from stocks held in warehouses of several non-profit partners. We are continuing to donate requested medicines to support medium and longer-term needs. We have also donated £250,000 to the British Red Cross to support the deployment of a Mass Sanitation Unit for water and sanitation needs.
Community initiatives
We are dedicated to strengthening the fabric of communities through providing health and education initiatives and support for local civic and cultural institutions that improve the quality of life. In the UK, we contributed £6£5.6 million in 20082009 to our continuing programme of charitable activities supporting over 7080 organisations in health, medical research, science education, the arts and the environment.
Programmes in North America at a national and local level focused on improving public education, increasing access to healthcare for children and the homeless, and healthcare (prevention and (prevention/access) for people dealing with breast or gynaecologic cancers. FundingGSK’s IMPACT Awards recognise organisations that have significantly improved the health of their local communities and were expanded beyond UK and Philadelphia to reach communities near our Research Triangle Park, North Carolina facility. Total funding for theseour North American programmes was of $24$20 million.
GSK was one of 21 companies, and the only manufacturing company,continues to be a CommunityMark company – this award for excellence in community investment was awarded the new CommunityMark, following independent assessment. The Mark created by Business in the Community (BitC) was given2008 for our work at local and national level in the UK as well as for our larger international programmes.three years.


GSK Annual Report 2009

23

GSK Annual Report 200829
Report of the Directors

Our responsibilitycontinued
Health initiatives
Our contribution to improve healthcare included the following grants:
     
Non ProfitNon-profit partner Amount in 20082009 Purpose of grant
 
 
Children’s Health Fund USA $888,000  $1,461,000 To extendcontinue the Referral Management Initiative (RMI) which ensures continuity of specialist medical care for high-risk children who are often homeless and for general support
 
Pittsburgh Mercy Foundation USA $450,000 To provide access to healthcare for homeless men and women in Pittsburgh, USA
 
GSK IMPACT Awards UK and PhiladelphiaUSA £489,000  £787,000 To recognise excellence in non-profit community health organisations. Charities receive unrestricted grants for their work dealing with diverse and difficult social issues and access to healthcare
 
Medical Research Charities
UK		 £449,000  £400,000 To support medical research programmes
 
Education initiatives
Education initiatives
     
Non ProfitNon-profit partner Amount in 20082009 Purpose of grant
 
 
Institute for a Competitive Workforce
USA		$100,000 To improve education and create a skilled workforce for the future, working in partnership with a broad business coalition and staffed by the US Chamber of Commerce
 
‘Science in the Summer’ Philadelphia, Pittsburgh and North Carolina $575,000 558,000 To teach basic scientific concepts and inspire school children through a library-basedan enquiry-based science education programme
 
Project ENTHUSE
UK		 £200,000 To support Continuing Professional Development (CPD) for science teachers and ultimately encourage children to engage with science and pursue careers in science and technology
 
CREST Star InvestigatorsRoyal Society of Chemistry
UK		 £120,000 100,000 To support a programme to target science teachers in the UK, who are not chemistry specialists, and provide science activities and awards for after school clubs in 5,000 UK primary schools, working in partnershipthem with the British Association for the Advancement of Sciencekey skills and confidence to be effective in their chemistry teaching
 
Further information about GSK grants and programmes are available on gsk.com.
Employee involvement
Our employees are encouraged to contribute to their local communities through employee volunteering schemes. Support includes employee time, cash donations to charities where employees volunteer and matching gift programmes.
Through the US GSK Matching Gift Program, we matched 17,00015,000 employee and retiree gifts at a value of $5$4.7 million in 20082009 plus over $1 million to the United Way campaign. GSK’s GIVE programme provided grants of over $416,000$314,000 to 437353 organisations where US employees volunteered and £244,000£272,000 to 400410 UK-based non-profit organisations via the GSK Making a Difference programme.
In 2009, our Group-wide volunteer initiative was launched to give every GSK employee one paid day off each year to volunteer for a good cause. Employees supported a wide range of charities and projects including work in local schools, shelters for the homeless, community gardens, nursing homes and aiding communities affected by natural disasters.
The GSK PULSE Volunteer Partnership is a new initiative launched in April 2009 that empowers high-performing employees to volunteer for a period of three to six months lending their professional expertise. PULSE volunteers work full-time with one of our partner non-governmental organisations (NGO) to create sustainable change for impoverished communities around the world. From our 2009 in-take, we had 58 PULSE volunteers, working in 18 different countries for 25 non-governmental organisations. Employees continue to receive their GSK salary during their placement and in 2009 this represented an in-kind donation of £428,000.
GSK Annual Report 2009

24

30GSK Annual Report 2008
Report of the Directors

Our responsibilitycontinued

Responsibility for environment, health and safety
Caring for the environment and the healthenvironment
GlaxoSmithKline’s environmental responsibility spans our demand for raw materials, through converting them into products, to their impacts after use.
Our vision for environmental sustainability is ultimately to transform how we do business following the principles of industrial ecology, using renewable resources and safety (EHS) of employees is a key partconverting wastes to by-products that become inputs to other processes.
The first steps towards this goal are to optimise the efficiency of our drive to be a sustainable company.
Traditional environmental control programmes address risks and impacts from wastes generated by manufacturingprocesses, minimising the use of energy and other activities. We meet this responsibility with treatmentresources and waste disposal systems that comply with laws, regulations and our own standards of performance. This was the standard of practice for most companies beginning in the 1970’s and 1980’s. Even now we continue to improve our handlingamount of waste but we recognise that these changes are incremental rather than transformative.
generate. In the early 1990’s, the concept of sustainability was emerging. Sustainability meansdoing so, we also need to be concerned not only with the short term impacts of pollution but also with the long term impact of resource consumption, the types of materialsreduce carbon dioxide emissions from energy used, and the persistence of waste in the environment. Our journey to sustainability started with looking holistically at continuing to treat the waste while also finding ways to prevent waste from being produced. This requires what is now called sustainable technologies — more efficient chemistries and more efficient processes. We recognise that sustainability principles apply to all aspects of our operations. They apply to minimising waste and consumption of natural resources and possibly using renewable materials in discovering, manufacturing, packaging and selling our products and even the impacts from consumers’ use of our products.
While traditional environmental programmes are seen as a cost without a financial return, a sustainable approach, using less resource, being concerned with the social impact of our operations, also has a financial benefit. By using less resource, we spend less money on operations.contribution to tackling climate change.
We need to continue to address traditionalOur environmental issues at the same time as we integrate sustainability into all aspects of our business from discovering and developing to manufacturing and selling pharmaceutical and consumer healthcare products, all of which use energy and resources and produce emissions and waste.
EHS and sustainability strategy and plan
The 10-year strategic plan for EHS that extends to 2015 is aligned with our strategic priorities and includes management objectives with performance measures and targets. In 2008, GSK’s progress was evaluated against the targets set in 2006.
The focus for 2008 was embedding EHS in the business which is fundamental to making GSK a sustainable business. It involves caring for the present while thinking to the future in making decisions. This supports all three aspirations in the 2006 to 2015 plan — embedding EHS in the business, environmental sustainability and open and transparent stakeholder relations. In 2008 we reviewed our EHS and sustainability priorities with our external and internal stakeholders. This review identified the following key issues:
•Manufacturing efficiency: The mass efficiency of processes in development continues to improve and progress is being made to achieve the target to double mass efficiency and thereby halve the waste per unit of product for the manufacturing processes for all phase III compoundsactivities are overseen by 2010. Late stage products have been evaluated since 2005 for efficiency and we are making progress toward our goal.

•Climate change: A comprehensive strategy on climate change and energy efficiency was approved and is available on GSK’s website. A climate change and energy reduction team has been formed to manage a special fund which is used to support climate change projects. The team identified more than 400 projects for 2007 and 2008 to reduce energy consumption and to increase our use of renewable energy.

•Pharmaceuticals in the Environment: We apply product stewardship principles to the issue of pharmaceuticals in the environment — principally unmetabolised drugs excreted from patients.

•Process safety: Our Process Safety Management System is being enhanced, with new engineering standards and training programmes under development. The standards will be used to design new process plant and to upgrade existing plants where needed. The training programmes will increase process safety awareness and competencies for engineers, chemists and managers.


GSK Annual Report 200831
Report of the Directors

Our responsibilitycontinued

EHS management
Responsibility for EHS is at the highest level. The Corporate Responsibility Committee of the Board of Directors provides oversight and a Sustainability Council was formedcomposed of senior executives. We manage environmental issues (as well as occupational health and safety) using a management system aligned with recognised international standards. Our central audit group includes environmental issues in 2008 with representatives from all areas of the company. There is a corporate department reporting to the Chief of Staff that has overall responsibility for providing governance and leadership on EHS and sustainability issues. The head of this department makes regular reports to the Corporate Executive Team (CET) and the Audit and Corporate Responsibility Committees of the Board. Within the businesses all executives and managers are responsible for EHS and are supported by site-based EHS and occupational medical staff.
As part of our governance responsibility, we conduct EHSits routine audits of our sites operating entities and key suppliers, assessingprocesses.
Strategy and plans
Our strategy has three elements, beginning with embedding the environmental fundamentals such as energy management and waste reduction to eliminate adverse impacts from our operations. The second stage is to embrace sustainability in all of key risksour businesses, developing a culture of product stewardship and impactssustainable resource use. The strategy also requires transparency, informing stakeholders of our actions and performance against– we provide fuller disclosure in our global EHS standards. This includes providing audited sites and suppliersCorporate Responsibility Report.
We have a ten-year strategic plan with quantitative performance information as well as highlighting areas for risk reduction and improvement.
EHS targets
As part of the EHS plan, targets that are setrefreshed every five yearsyears. In 2010 we will update the plan with 2006 as the baseline year for thenew, more challenging targets to 2010.
We selected our measures of performance improvement based on the potential2020. Key targets for adverse impact on people, the environment, business continuity or business reputation.
Most of the measures selected are similar to those reported by other companies and are recommended by the Global Reporting Initiative, a long-term, multi-stakeholder, international undertaking, to develop and disseminate globally applicable sustainability reporting guidelines.
Targets2010 that we have been pursuing since 2006, and progress towards them, include:
a 20% reduction per unit of sales in energy use and emissions from operations and transport – we have achieved 6% reduction in energy use and 5% in emissions
2% average material efficiency for products transferred from research and development – the current average is 2.8%
2% annual reduction in water use per unit of sales – we have achieved 15% reduction since 2006
Mass efficiency
Increasing the efficiency with which we use materials is a priority. In 2009 we increased a target originally introduced in 2005, aiming for a 2.5% efficiency by 2015 for new products launched after 2010. For the first time, we also set a mass efficiency target for our manufacturing sites to eliminate chlorofluorocarbons (CFCs)achieve additional improvements after they take over processes from all usesR&D. Our long-term aspiration is to achieve 5% efficiency by 2020 – five times the typical level in the pharmaceutical industry, which will reduce input materials and waste by 80%.
Mass efficiency (average 2005-2009)
(Graph)
Climate change
Our biggest direct climate impact comes from propellants used in inhalers for diseases such as asthma. We have reduced this impact by replacing CFC gases and continue to research ways to minimise greenhouse gases released by these products.
Since 2007 we have been implementing a climate change programme with ambitious targets for our emissions and energy use in operations and transport. We are aiming for a 20% reduction per unit of sales by 2010 and each yeara cut of 45% by 2015 (from 2006 levels). In 2009 emissions and energy consumption per unit of sales fell by 5% and 6% respectively. These reductions follow two years of limited progress, which means that we need an outstanding performance in 2010 to reduce non-hazardous waste disposedmeet our interim 20% target.
Energy reduction has been identified as a key objective for the business. As a result, energy consumption is now included in the key business metrics and in 2009 the remuneration of senior managers in manufacturing was linked to the achievement of energy reduction targets. We have also created a central fund to finance energy saving projects. A climate change team has identified more than 800 energy saving projects which have helped in the last two years to avoid around 85,000 tonnes of greenhouse gas emissions.


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25

Our responsibility

As well as mitigating our climate change impact, we also aim to identify ways that we can respond to changing disease patterns caused by 1%climate change.
GSK’s carbon footprint
(GRAPH)
Other environmental concerns
Sustainability requires a holistic view of everything that we do, especially relating to the optimal use of all resources. Water is a particularly important natural resource, and we recognise that businesses can play a positive role in managing it more sustainably. We endorsed the United Nations CEO Water Mandate in 2009. Water consumption in 2009 fell by 5% (per unit of sales), reduce water use and volatile organic compound (VOC) releases to air by 2%, reduce pollutionwhich exceeds our target.
We also have targets for improving the quality of wastewater, measured as chemical oxygen demand, by 3%reducing waste disposal and reduce energy usageemissions to air. In 2009 we exceeded targets in each of these areas and related greenhouse gas emissions by 20% by 2010 and 45% by 2015. All targets are normalised by sales based on constant exchange rates.
In 2008, GSK remained on track to completely eliminate the use ofozone-depleting CFCs by the end of 2010. Our environmental audit scores are also moving close to our 2010 targets.
Packaging provides opportunities to reduce resources use and we have several projects to meet its target for water consumption. Progress was made to meet its 2010 targets for wastewater pollution, disposalreduce the environmental impact of waste and emissions of volatile organic compounds to air due to a combination of conservation programmes and reduced production of several products. The rate of injuries and illnesses also improved in line with the target due to continued emphasis on employee safety behaviours.
There was no progress towards the 2010 energy and related greenhouse gas emissions targets and therefore our carbon footprint remained unchanged. Our energy efficiency projects continue with 171 projects completed in 2008 and another 600 identified. The gains from the 2008 projects will be fully realised in 2009 and beyond. The gains experienced in 2008 in some parts of the business were offset by the continued expansion of the vaccines business.
Final EHS performance data for 2008 with explanations of the trends will be published in the Corporate Responsibility report.
Sustainability
In working towards sustainability,packaging. For instance, we are addressing the economic, environmental and social issues in research, manufacturing, sales and distributionnow using lighter toothpaste caps, saving 90 tonnes of our medicines and consumer healthcare products. Sustainability starts with healthcare solutions found by R&D and continues with innovations to improve the efficiency of manufacturing processes for new products. This reduces resource use which in turn lowers waste and cost. With lower costs our products may be available toplastic a wider population around the world. In the future, the EHS plan for excellence proposes investigating the use of renewable resources in manufacturing.year.
We seek dialogue with external stakeholders and consider their views when developing approaches to sustainable development. More information on EHS programmes and performance may be found on GSK’s website.


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26

32
RegulationGSK Annual Report 2008
Report of the Directors

Regulation



Regulation —– Pharmaceuticals
GSK operates within a highly regulated environment. RegionalRegion and country-specific laws and regulations define the data requiredinformation needed to show the safety and efficacy of pharmaceutical products, as well as governgoverning their testing, approval, manufacturing, labelling and marketing of drugs.marketing. These regulatory requirements are a major factor in determining whether a marketable product may be successfully developed and approved.
In this highly regulated environment, there is increasing cooperation and exchange of information among the amountmajor regulatory authorities. Consequently, in 2009 we have transformed the structure of timeour Regulatory Affairs department to better match the global regulatory environment in which we operate. The existing US, EU and expense associatedInternational groups have been integrated into one department, Global Regulatory Affairs. This change enables us to more effectively formulate global strategies to obtain regulatory approvals for GSK products, based on regional expertise. The new structure will also make us better positioned to interact with the development.our regulatory customers in this dynamic, globally-connected external environment.
Drug safety remains a primary focus ofAlthough the FDA and US congressional oversight committees and, as in Europe, evaluation of benefit and risk continuescontinue to be a paramount considerationconsiderations for the approval of a new drug.drug in the USA, there is an increased focus on the safety of medicines. The FDA Amendments Act US legislation passed inof 2007 renewed the User Fee system for drug reviews and mandates a rigorous FDA review of safety from approval through the post-marketing phase of the product. The legislation also providesproduct, and the FDA with the authorityis examining better ways to convene Advisory Committees to review all new drugs prior to approval decisions by FDA, to require sponsors to complete post-marketing studiesidentify counterfeit medicines and to direct companiescommunicate new risk information to make product labelling changes. The FDA are routinely exercisingthe public. We remain engaged in these new authorities.
Regulations requiring developmentkey areas of prescription drugs and biologics for paediatric populations are now in place in the US and EU. GSK fully supports the objective of ensuring the development of better medicines for children.interest.
In Europe, proposals for further legislative change were announced by the European Commission during 2008. These aim to strengthen the EU system fornew regulations aimed at strengthening the safety monitoring of medicines, improve citizen’simproving citizens’ access to reliable information on medicines and strengthenstrengthening EU laws to protect citizens better from the threats posed by fake medicines.medicines are under discussion by EU legislators. Meanwhile, preparation continues for the implementation in 2010 of new rules aimed at simplifying and harmonising the EU regulatory framework on changes to authorised medicinal products. It is hoped that these changes will minimise inefficiencies in the procedures, and reduce the overall administrative burden.
The regulatory environment in Emerging Markets and Asia-Pacific continues to evolve, with a number of countries continuing to develop their regulatory review systems. GSK actively participates in a number of specific regional and national regulatory initiatives, which provide opportunities for meaningful scientific and regulatory dialogue between industry, agencies and other stakeholders. GSK continues to include broader sets of patient populations from a number of these countries in medicine development programmes in order to increase global patient access to new innovative medicines, and optimise regulatory approvals.
Regulation —– Consumer Healthcare
The consumer healthcare industry is subject to national regulation comparable to that for prescription medicines for the testing, approval, manufacturing, labelling and marketing of products. High standards of technical appraisal frequently involve a lengthy approval process before a new product is launched.
Generally, national regulatory authorisation is also required to approveJanuary 2009 saw the switch of products from prescription to OTC. However, in a history-making first for the OTC industry when the European Medicines Agency granted centralised approval of the weight loss medicinealli received a centralised European positive opinion from the Committee for Medicinal Products for Human Use (CHMP) in October.. This resulted in approval to marketthe pan-European launch ofalliacross all 27 EU member countries as the first licensedlicenced weight loss treatment available without a prescription.prescription across all 27 EU countries. With additional national licences,allihas now been granted approval in 38 countries.
Value for money
Payers around the world are concerned about the cost of healthcare and the pricing of medicines. The requirement to satisfy healthcare purchasers on value for money is becoming an additional hurdle for product acceptance over and above the regulatory tests of safety, efficacy and quality.
Price controls
In many countries the prices of pharmaceutical products are controlled by law. Governments may also influence prices through their control of national healthcare organisations, which may bear a large part of the cost of supplying medicines to consumers.
Recent government healthcare reforms in countries such as France, Spain and Germany may restrict pricing and reimbursement.
InCurrently in the USA, recent legislative proposals on healthcare reform, cross-border trade, the acceleration of generics to market and comparative effectiveness have further increased the focus on pricing. Currently, there are no government price controls over private sector purchases, but federal law requires pharmaceutical manufacturers to pay prescribed rebates on certain drugs to be eligible for reimbursement under Medicaid and otherseveral state and federal healthcare programmes. Healthcare remainsIn 2009, the US President and Congress dedicated much of the year’s legislative process to reforming America’s healthcare system to drive down cost, improve quality, and increase access to millions of Americans without health insurance. These reforms had the potential to create positive changes in the US healthcare system and expand access to GSK’s products. They also had the potential to increase prescribed rebates under government-run programmes and change the balance between private and public sector purchases. The pressure to control healthcare costs and the need for health reform will continue into 2010 and beyond. Issues such as cross-border trade, the acceleration of generics to market, comparative effectiveness research, and pharmaceutical pricing will continue to be part of the ongoing reform debate in the USA. Fortunately, GSK is positioned to be a leading domestic issue. During the 2008 US Presidential elections the candidates focused on health reformsconstructive contributor to addressthese debates since there has been increased recognition that chronic disease asis the primary healthcare cost driver rather than focusing on drug prices alone.
Medicare
From 2006, the US Medicare program, a federally funded healthcare insurance programme benefiting senior citizens and certain disabled Americans, included coverage for prescription medicines. The coverage is voluntary, includes brand-name and generic drugs and is open to the 41 million Americans with Medicare coverage.
Value for money
Payers around the world are concerned about the cost of healthcare spending and the pricing of medicines. The requirement to satisfypharmaceutical products deliver important interventions that help hold down healthcare purchasers on value for money is becoming an additional hurdle for product acceptance over and above the regulatory tests of safety, efficacy and quality.costs.


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27

World market, economy and outlook

World market – pharmaceuticals
Global pharmaceutical sales in 2009 were £468 billion compared with £366 billion in 2008.
         
World market by Value  % of 
geographic region £bn  total 
     
USA
  187   40 
Europe
  131   28 
France  25   5 
Germany  24   5 
Italy  16   3 
UK  12   3 
Rest of World
  150   32 
Emerging markets  66   14 
Asia Pacific  20   4 
Japan  50   11 
Canada  11   2 
     
Total  468             100 
     
Market growth on a CER basis was USA 3.6%, Europe 4% and Rest of World 9.9%.
At 30th September 2009, GSK had two of the world’s top 60 pharmaceutical products. These wereSeretide/Advair and Valtrex.
         
World market – Value  % of 
top six therapeutic classes £bn  total 
     
Central nervous system  74   16 
Cardiovascular  68   15 
Alimentary tract and metabolic  57   12 
Antineoplastic/Immunomodulatory  52   11 
Anti-infectives (bacterial, viral and fungal)
excluding vaccines		  50   11 
Respiratory  32                  7 
     
GSK Annual Report 200833
Report of the Directors

Economy, world market and outlook



(Note: data based on 12 months to 30th September 2009)
Data for market share and market growth rates are GSK estimates based on the most recent data from independent external sources, and where appropriate, are valued in Sterling at relevant exchange rates. Figures quoted for product market share reflect sales by GSK and licensees.

World economy
The world economy deteriorated sharplyfurther during 2008the early part of 2009 as the international financial crisis deepened, particularly followingdeepened. The economies of many countries contracted during the bankruptcy of Lehman Brothers in September. Despite aggressiveyear, although some emerging markets still showed growth.
Aggressive cuts in official interest rates, fiscal stimulus measures and national initiatives to support the international banking system the International Monetary Fund forecasts that global growth will slow from an estimated 3.4% in 2008 to a mere 0.5% in 2009, the lowest rate since World War II. The advanced economies are expected to contract by 2% in 2009, the first annual contraction in the post-war period.
The slump in global demand led to a collapse in equitysome improvements towards the end of the year. However, the economic recovery during 2010 is likely to remain fragile and uneven, with the emerging markets providing the strongest growth.
Equity prices strengthened during 2009, with the FTSE 100 Index fallingincreasing by 31%22% and the Dow Jones Industrial Average by 33%19%. Inflationary pressures remained well under control, however, and only a modest increase in 2008, and also a collapseinflation is expected in commodity prices. Weak economic activity and lower commodity prices have dampened inflationary pressures. In the advanced economies the headline inflation rate is forecast by the IMF to decline from an estimated 3.5% in 2008 to a record low of 0.3% in 2009.2010.
In order to engender economic recovery, the Federal Open Market Committee (FOMC) decided in December to cut the target for the federal funds rate from 1% to 0-0.25%. The decision signalled that the FOMC would effectively target the supply of credit rather than the price of credit. Nonetheless, the IMF forecasts that real GDPpotential healthcare reforms in the USA will contract by 2%create some uncertainty for 2010 but our strategy is designed to put the Group in 2009. The housing market remains of particular concern.
Like the FOMC, the Monetary Policy Committee of the Bank of England aggressively eased its monetary stance in 2008, cutting the bank rate from 5.5%a position to 2%. The bank rate has already been cut further in 2009be able to 1%. To reinforce the impact of the cuts in the bank rate, the Government has empowered the Bank of England to purchase high quality assets like corporate bonds and commercial paper from commercial banks. The IMF forecasts that real GDP in the UK will contract by 2.8% in 2009, more than in any other advanced economy.
The European Central Bank maintained a more cautious approach to monetary relaxation, cutting the refinancing rate from 4.25% to 2.5% in 2008. The refinancing rate was cut another 0.5 percentage point in January 2009. Additional monetary easing is anticipated. The IMF forecasts that real GDP in the euro-zone will contract by 2% in 2009, with real GDP in Germany plunging by 2.5%.
Like the other major industrialised economies, Japan fell into recession in 2008. The prime factor was the downturn in external demand. The Bank of Japan cut the overnight call money rate from 0.5% to 0.1%. Real GDP is forecast by the IMF to contract by 2.6% in 2009.
China and India remained on a path of economic expansion in 2008. However, the pace of expansion decelerated. Further deceleration is expected in 2009. Economic activity in Brazil remained buoyant in 2008 but is expected to slow markedly in 2009. Uncertainties surrounding the economic outlook are unusually large, with downside risks continuing to dominate.
World market — pharmaceuticals
Global pharmaceutical sales in 2008 were £366 billion compared with £329 billion in 2007.
             
World market by Value  % of  Growth 
geographic region £bn  total  £% 
 
USA
  145   39   1 
Europe
  112   31   18 
France  21   6   18 
Germany  20   6   20 
Italy  13   3   19 
UK  12   3   2 
Rest of World
  109   30   19 
Emerging markets  49   13   24 
Asia Pacific  17   5   16 
Japan  33   9   16 
Canada  10   3   17 
 
Total  366   100   11 
 
The US market has increased by 1%. This represents 39% of the global prescription pharmaceutical market compared with 30% a decade ago.
At 30th September 2008, GSK held second position in the world pharmaceutical market with a market share of 5.3%, behind Pfizer with a market share of 6.4%. GSK had three of the world’s top 60 pharmaceutical products. These wereLamictal,Seretide/Advair and Valtrex.
             
World market — Value  % of  Growth 
top six therapeutic classes £bn  total  £% 
 
Central nervous system  60   16   11 
Cardiovascular  54   15   4 
Alimentary tract and metabolic  44   12   10 
Antineoplastic/Immunomodulatory  40   11   20 
Anti-infectives (bacterial,  38   10   11 
viral and fungal) excluding vaccines            
Respiratory  25   7   8 
 
(Note: data based on 12 months to 30th September 2008)deliver long-term sustainable financial performance despite such uncertainties.
Outlook
2008 markedIn 2009, GSK returned to sales growth. The company’s strategy is delivering and it is confident of its prospects in 2010. GSK believes it is moving to a turning point and those factors which impacted our performance, in particular declines inAvandiasales, are now starting to reduce. 2008 also saw the first steps towards a radical transformationposition where it can deliver its goal of our business model. We enter 2009 with confidence and expect to make further good progress in implementing our strategic priorities that will enable us to meet our long-term objective of reducing risk and delivering sustainable growth to shareholders.financial performance.


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34
Financial review 2009GSK Annual Report 2008
Report of the Directors

Financial review 2008



Pharmaceutical turnover
All growth rates included in the review of turnover are at constant exchange rates (CER) unless otherwise stated. Sterling growth rates may be found in the tables of pharmaceutical turnover by therapeutic areas on page 3529 and by geographic region on page 36.30.
Total pharmaceuticalPharmaceutical turnover grew 2% to £23.7 billion. Pharmaceuticals growth was helped by sales of pandemic related products, includingRelenzaand H1N1 vaccine products. On a regional basis, the USA declined 3% for the year13% reflecting continued erosion of several products due to £20.4 billion, driven largely by US performance, down 11% to £8.9 billion,generic competition. Strong performances were delivered in Europe (up 9%), Emerging Markets (up 20%) and Asia Pacific/Japan (up 16%). The sales contribution of Stiefel, which was impacted by expected generic competition to several mature brands and further declines inAvandiasales. Sales in Asia Pacific and Japan fell 1% to £1.9 billion, reflecting lower government orders for Relenza and the impact of pharmaceutical price cuts in Japan. These declines were partly offset by growth in Europe, up 3% to £6.5 billion, and Emerging Markets, up 12% to £2.3 billion. In sterling terms, pharmaceutical turnover grew by 6%, reflecting the weakness of Sterling against most major currencies.acquired on 22nd July 2009, totalled £248 million.
Pharmaceutical turnover by therapeutic area
GSK turnover declinedgrew by 3%2% in 20082009 as the impact of lowerAvandiasales, US generic competition to a range of GSK’s products, lowerAvandiasales and lower flu pre-pandemic salesa declining HIV business was partlymore than offset by strong growth of key products such asSeretide/Advair,Valtrex,Epzicom,Avodart,Lovaza,Relenzaand the vaccines franchise.franchise including the H1N1 pandemic vaccine.
Respiratory
Respiratory sales increased 5% to £5.8£7.0 billion.
Sales ofSeretide/Seretide/Advairfor asthma and COPD rose 8%grew 5% to £4.1 billion. In the USA,Advairsales rose 6% to £2.2£5.0 billion, with a return to volumeespecially strong growth in the second half of the year. During 2008, the FDA grantedAdvairan indication in COPD for prevention of exacerbations and this has helped grow the COPD segment of ourAdvairbusiness. In Europe, sales increased by 4% to £1.4 billion.Advairperformance was particularly strong in Emerging Markets up(up 21% to £276 million) and Japan (up 79% to £195 million).Ventolinsales grew 26% to £215£477 million, and Japan,driven by its performance in the USA where sales of the product more than doubled to £83 million following its launch in 2007.£153 million.Veramystsales rose 72% to £142 million.
Anti-virals
Anti-virals decreased 4%increased 12% to £3.2£4.2 billion.
GSK’sRelenzasales were £720 million in 2009 (2008 – £57 million) reflecting the successful capacity expansion to meet government orders across the world and a strong retail performance in Japan (£191 million). Sales ofValtrexdeclined 8% to £1.3 billion as a result of generic competition to the product in the USA which began in November 2009.
Sales of HIV business continuesmedicines totalled £1.6 billion (down 7%) for the year.Epzicomsales grew 8% to experience strong competition.Epzicom/Kivexagrew by 23% to £442£546 million but this was more than offset by declines across the rest of the portfolio. Sales ofValtrex, for herpes, rose 16% to £1.2 billion with US sales up 20% fuellingViiV Healthcare, the growth. Sales of flu anti-viralRelenzafell 80% to £57 million reflecting fewer government orders for pre-pandemic stockpiling.new specialist HIV company established by GSK and Pfizer, was officially launched on 3rd November 2009.
CNS
CNS sales decreased 21%44% to £2.9£1.9 billion.
The majority of GSK’s CNS franchise is now impacted by generic competition in the USA, as generic competition toUSA. TheLamictalWellbutrin,Imigranand decline of 67% primarily reflected the remaining presentationsale ofWellbutrin XLstarted duringin the courseUSA to Biovail in the second quarter of 2008. There was, however, some positive news asTreximetwas approved for migraine by the FDA in April 2008.2009.
Cardiovascular and urogenital
Cardiovascular and urogenital sales increased 8% to £1.8£2.3 billion.
StrongContinued strong growth across most of the portfolio ofkey products wassuch asArixtra, up 29% to £254 million,Avodart, up 16% to £530 million, andLovaza, up 31% to £450 million, were partly offset by generic competition toCoreg IR.Lovaza, for very high triglycerides, which was acquired from Reliant Pharmaceuticals in 2007, grew 71% on a proforma basis to £290 million and grew its US market share by 33%.Avodart, for benign prostatic hyperplasia (enlarged prostate), grew 27% to £399 million taking a further percentage point of market share,Arixtra, for deep vein thrombosis and pulmonary embolism, grew 53% to £170 million andCoreg CRgrew 73% to £165 million.
Metabolic
Metabolic sales decreased 28%14% to £1.2 billion.
Strong growthSales ofBonviva/BonivaAvandia, for postmenopausal osteoporosis, up 34%down 16% to £237£771 million, was not enoughcontinued to offset a full year impact todecline across all regions.AvandiaBonviva/Bonivawhose sales started to fall in May 2007 (see Financial review 2007 on page 54).Avandiaproduct sales declined 40% during the year to £805 million, with US sales falling 49% to £434 million and European sales down 22% to £198 million. In Emerging Markets,Avandiaproduct sales returned to growth in the second halfUSA by 16% but grew in Europe and the Rest of the year (Q4 sales were up 12%).World.
Oncology and emesis
Oncology and emesis sales decreased 6%increased 10% to £0.5£0.6 billion.
Tyverb/Tykerb, for breast cancer, continuedup 45% to grow£169 million, grew strongly in Europe and the Rest of World following approval in the USA last year. Approvals in other countries were achieved throughout 2008, with the European approval being achieved in June.product approvals gained during 2008.Zofrandeclined 11% as a result of generic competition.
Vaccines
Vaccine sales increased 30% to £3.7 billion.
Pandemic vaccine sales of £883 million were recorded during the year, most of which were delivered in the fourth quarter, as GSK partnered with governments to respond to the H1N1 pandemic.
Sales of GSK’s newSynflorixvaccine totalled £73 million, reflecting launches in several markets and the beginning of shipments to the Brazilian Government as part of the 10-year, $1.5 billion agreement signed in August 2009. Other strong contributors to growth for the year includedBoostrix (up 73% to £139 million),Cervarix(up 38% to £187 million) andRotarix(up 50% to £282 million). Partially offsetting these performances, sales ofInfanrix/Pediarixfell 15% to £2.5 billion.
Within£649 million primarily as a result of the vaccines portfolio, there were strong performances fromcontinued impact of increased competition in the DTPa sector in the USA. Hepatitis vaccines (up 14%sales also fell (down 11% to £665 million) and combination paediatric vaccinesInfanrix/Pediarix(up 12%in part due to £682 million).Rotarix, for rotavirus gastroenteritis, rose 71%a competitor product returning to £167 million, largely driven by government tender orders in Latin America and the launch of the product in the USA in August. New cervical cancer vaccine,Cervarix, recorded sales of £125 million for the year, following several tender wins, including national government orders in the UK and the Netherlands.US market.


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GSK Annual Report 200835
Report of the Directors

Financial review 2008continued
Financial review 2009
Pharmaceutical turnover by therapeutic area 20082009
                                                         
  Total  USA  Europe  Rest of World 
Therapeutic area/ % of  2008  2007      Growth  2008      Growth  2008      Growth  2008      Growth 
major products total  £m  £m  CER%  £%  £m  CER%  £%  £m  CER%  £%  £m  CER%  £% 
 
Respiratory
  29   5,817   5,032   5   16   2,720   6   14   1,982   2   14   1,115   9   22 
Seretide/Advair
      4,137   3,499   8   18   2,161   6   14   1,416   4   17   560   29   42 
Flixotide/Flovent
      677   621   (2)  9   317   3   12   175   (4)  11   185   (9)  3 
Serevent
      263   269   (12)  (2)  72   (9)  (3)  136   (9)  1   55   (23)  (10)
Veramyst
      72   21   >100   >100   56   >100   >100   11   —   —   5   >100   >100 
Flixonase/Flonase
      186   199   (15)  (7)  52   (29)  (28)  52   (6)  6   82   (8)  5 
 
Anti-virals
  16   3,206   3,027   (4)  6   1,600   (1)  7   850   (12)  —   756   (1)  10 
HIV      1,513   1,442   (5)  5   640   (7)  —   636   (6)  7   237   4   13 
Epzicom/Kivexa
      442   324   23   36   178   15   25   209   25   40   55   48   67 
Combivir
      433   455   (14)  (5)  180   (14)  (8)  166   (19)  (8)  87   1   10 
Trizivir
      212   233   (18)  (9)  106   (18)  (12)  92   (18)  (6)  14   (20)  (7)
Agenerase, Lexiva
      160   141   2   13   83   (1)  6   61   —   15   16   40   60 
Epivir
      139   156   (20)  (11)  47   (19)  (11)  58   (22)  (9)  34   (18)  (13)
Ziagen
      106   109   (11)  (3)  45   (9)  —   36   (11)  —   25   (14)  (11)
Valtrex
      1,195   934   16   28   870   20   30   144   9   25   181   4   20 
Zeffix
      188   168   —   12   15   8   15   27   —   17   146   (1)  11 
Relenza
      57   262   (80)  (78)  20   (86)  (85)  6   (92)  (92)  31   (49)  (44)
 
Central nervous system
  14   2,897   3,348   (21)  (13)  1,815   (29)  (24)  565   (1)  12   517   (3)  11 
Lamictal
      926   1,097   (22)  (16)  711   (26)  (20)  147   (8)  3   68   2   10 
Imigran/Imitrex
      687   685   (8)  —   550   (9)  (1)  96   (3)  8   41   (8)  8 
Seroxat/Paxil
      514   553   (19)  (7)  79   (49)  (45)  115   (14)  (4)  320   (7)  10 
Wellbutrin
      342   529   (40)  (35)  310   (44)  (39)  18   >100   >100   14   8   8 
Requip
      266   346   (31)  (23)  102   (60)  (57)  133   29   46   31   65   82 
Requip XL
      43   —   —   —   9   —   —   34   —   —   —   —   — 
Treximet
      25   —   —   —   25   —   —   —   —   —   —   —   — 
 
Cardiovascular and urogenital
  9   1,847   1,554   8   19   1,107   6   14   512   10   28   228   15   25 
Avodart
      399   285   27   40   242   27   38   118   21   39   39   48   56 
Lovaza
      290   5   >100   >100   289   >100   >100   —   —   —   1   —   — 
Coreg
      203   587   (68)  (65)  200   (68)  (66)  —   —   —   3   (67)  (50)
Coreg CR
      165   88   73   88   163   72   85   —   —   —   2   —   — 
Coreg IR
      38   499   (93)  (92)  37   (93)  (92)  —   —   —   1   (83)  (83)
Fraxiparine
      226   184   7   23   —   —   —   178   —   18   48   36   45 
Arixtra
      170   100   53   70   88   49   60   71   56   82   11   67   83 
Vesicare
      71   50   32   42   71   32   42   —   —   —   —   —   — 
Levitra
      60   49   12   22   57   11   21   3   —   50   —   —   — 
 
Metabolic
  6   1,191   1,508   (28)  (21)  590   (39)  (34)  294   (11)  1   307   (14)  (5)
Avandia products
      805   1,219   (40)  (34)  434   (49)  (44)  198   (22)  (12)  173   (25)  (19)
Avandia
      512   877   (46)  (42)  299   (53)  (49)  82   (33)  (26)  131   (30)  (25)
Avandamet
      256   292   (21)  (12)  109   (32)  (26)  111   (13)  —   36   —   6 
Bonviva/Boniva
      237   161   34   47   156   25   36   74   48   68   7   >100   >100 
 
Anti-bacterials
  7   1,429   1,323   (2)  8   174   (17)  (11)  635   (6)  8   620   7   15 
Augmentin
      587   530   —   11   49   (31)  (27)  272   —   14   266   11   18 
Altabax
      16   11   36   45   15   27   36   1   —   —   —   —   — 
 
Oncology and emesis
  2   496   477   (6)  4   243   (17)  (11)  169   9   25   84   9   20 
Hycamtin
      140   119   7   18   81   7   16   49   5   23   10   11   11 
Zofran
      110   196   (51)  (44)  3   (97)  (96)  63   (21)  (10)  44   (17)  (8)
Tykerb
      102   51   80   100   47   22   31   42   >100   >100   13   >100   >100 
 
Vaccines
  12   2,539   1,993   15   27   629   (7)  —   1,155   28   44   755   21   34 
Hepatitis      665   529   14   26   275   28   38   263   —   14   127   16   27 
Infanrix/Pediarix
      682   543   12   26   212   1   8   377   21   39   93   11   22 
Fluarix, FluLaval
      215   174   11   24   85   (20)  (13)  78   63   90   52   37   49 
Flu-prepandemic      66   146   (55)  (55)  1   (99)  (99)  64   25   25   1   —   — 
Cervarix
      125   10   >100   >100   —   —   —   104   >100   >100   21   >100   >100 
Rotarix
      167   91   71   84   21   —   —   43   61   87   103   46   51 
Boostrix
      70   66   (5)  6   35   (20)  (13)  26   21   37   9   14   29 
 
Other
  5   959   901   (3)  6   16   (78)  (75)  321   14   26   622   (1)  7 
 
   100   20,381   19,163   (3)  6   8,894   (11)  (4)  6,483   3   17   5,004   5   16 
 
CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates. Turnover by quarter is given in the Financial record on pages 190 to 193.
                                                         
  Total  USA  Europe  Rest of World 
Therapeutic area/ % of  2009  2008      Growth  2009      Growth  2009      Growth  2009      Growth 
major products total  £m  £m  CER%  £%  £m  CER%  £%  £m  CER%  £%  £m  CER%  £% 
                                        
Respiratory
  29   6,977   5,817   5   20   3,323   3   22   2,201   3   11   1,453   14   30 
Avamys/Veramyst
      142   72   72   97   68   2   21   45   >100   >100   29   >100   >100 
Flixonase/Flonase
      171   186   (20)  (8)  27   (56)  (48)  43   (21)  (17)  101   2   23 
Flixotide/Flovent
      775   677   –   14   396   5   25   178   (4)  2   201   (6)  9 
Seretide/Advair
      4,977   4,137   5   20   2,592   1   20   1,609   5   14   776   23   39 
Serevent
      236   263   (19)  (10)  73   (14)  1   116   (18)  (15)  47   (31)  (15)
Ventolin
      477   339   26   41   153   >100   >100   150   1   9   174   2   12 
Zyrtec
      75   38   58   97   –   –   –   –   –   –   75   58   97 
                                        
Anti-virals
  18   4,150   3,206   12   29   1,897   –   19   1,074   16   26   1,179   32   56 
HIV      1,605   1,513   (7)  6   716   (6)  12   635   (10)  –   254   (3)  7 
Agenerase, Lexiva
      178   160   (4)  11   99   1   19   62   (8)  2   17   (13)  6 
Combivir
      425   433   (13)  (2)  187   (12)  4   151   (17)  (9)  87   (7)  – 
Epivir
      129   139   (19)  (7)  48   (13)  2   49   (24)  (16)  32   (18)  (6)
Epzicom/Kivexa
      546   442   8   24   223   6   25   244   6   17   79   25   44 
Trizivir
      201   212   (17)  (5)  104   (17)  (2)  82   (21)  (11)  15   –   7 
Ziagen
      105   106   (13)  (1)  51   (4)  13   35   (14)  (3)  19   (28)  (24)
 
Valtrex
      1,294   1,195   (8)  8   942   (9)  8   160   –   11   192   (13)  6 
 
Relenza
      720   57   >100   >100   137   >100   >100   212   >100   >100   371   >100   >100 
Zeffix
      217   188   (1)  15   17   (7)  13   29   (4)  7   171   –   17 
                                        
Central nervous system
  8   1,870   2,897   (44)  (35)  651   (69)  (64)  574   (7)  2   645   4   25 
Imigran/Imitrex
      266   687   (65)  (61)  123   (79)  (78)  96   (8)  –   47   (2)  15 
Lamictal
      500   926   (53)  (46)  267   (68)  (62)  154   (4)  5   79   6   16 
Requip
      209   266   (30)  (21)  26   (78)  (75)  138   (5)  4   45   16   45 
Requip XL
      123   43   >100   >100   32   >100   >100   89   >100   >100   2   –   – 
Seroxat/Paxil
      523   514   (15)  2   42   (51)  (47)  99   (21)  (14)  382   (5)  19 
Treximet
      55   25   88   >100   55   84   >100   –   –   –   –   –   – 
Wellbutrin, Wellbutrin XL
      132   342   (67)  (61)  88   (76)  (72)  30   50   67   14   (7)  – 
                                        
Cardiovascular and urogenital
  10   2,298   1,847   8   24   1,415   8   28   583   3   14   300   18   32 
Arixtra
      254   170   29   49   141   35   60   95   18   34   18   55   64 
Avodart
      530   399   16   33   319   11   32   148   13   25   63   51   62 
Coreg
      172   203   (29)  (15)  171   (28)  (15)  –   –   –   1   (67)  (67)
Fraxiparine
      229   226   (7)  1   –   –   –   173   (10)  (3)  56   6   17 
Levitra
      75   60   7   25   70   4   23   4   33   33   1   –   – 
Lovaza
      450   290   31   55   448   31   55   –   –   –   2   100   100 
Vesicare
      104   71   24   46   104   24   46   –   –   –   –   –   – 
Volibris
      19   2   >100   >100   –   –   –   18   >100   >100   1   –   – 
                                        
Metabolic
  5   1,181   1,191   (14)  (1)  581   (17)  (2)  275   (15)  (6)  325   (8)  6 
Avandiaproducts
      771   805   (16)  (4)  425   (17)  (2)  171   (21)  (14)  175   (9)  1 
Avandia
      462   512   (21)  (10)  276   (22)  (8)  67   (24)  (18)  119   (18)  (9)
Avandamet
      268   256   (8)  5   122   (6)  12   99   (19)  (11)  47   19   31 
Bonviva/Boniva
      255   237   (7)  8   155   (16)  (1)  89   7   20   11   57   57 
                                        
Anti-bacterials
  7   1,592   1,429   2   11   173   (16)  (1)  662   (4)  4   757   13   22 
Augmentin
      667   587   4   14   45   (22)  (8)  295   –   8   327   14   23 
                                        
Oncology and emesis
  3   629   496   10   27   308   7   27   204   10   21   117   23   39 
Hycamtin
      172   140   7   23   100   4   23   59   10   20   13   20   30 
Promacta
      13   –   –   –   13   –   –   –   –   –   –   –   – 
Tyverb/Tykerb
      169   102   45   66   54   (4)  15   75   62   79   40   >100   >100 
Zofran
      109   110   (11)  (1)  9   >100   >100   52   (24)  (17)  48   (5)  9 
                                        
Vaccines
  16   3,706   2,539   30   46   815   9   30   1,744   37   51   1,147   37   52 
Boostrix
      139   70   73   99   73   77   >100   40   38   54   26   >100   >100 
Cervarix
      187   125   38   50   4   –   –   138   23   33   45   100   >100 
Fluarix/FluLaval
      211   215   (13)  (2)  73   (27)  (14)  71   (18)  (9)  67   17   29 
Flu pandemic      883   66   >100   >100   187   >100   >100   525   >100   >100   171   >100   >100 
Hepatitis (Engerix/      665   665   (11)  –   257   (21)  (7)  262   (8)  –   146   2   15 
Fendrix, Havrix, Twinrix)
                                                        
Infanrix, Pediarix
      649   682   (15)  (5)  134   (47)  (37)  406   (3)  8   109   5   17 
Rotarix
      282   167   50   69   76   >100   >100   53   14   23   153   33   49 
Synflorix
      73   –   –   –   –   –   –   32   –   –   41   –   – 
                                        
Other
  4   1,063   959   1   11   17   –   6   364   7   13   682   (2)  10 
                                        
       23,466   20,381   1   15   9,180   (13)  3   7,681   9   18   6,605   16   32 
                                        
Stiefel products      248       –   –                                 
                                               
   100   23,714       2   16                                     
                                                    
 
CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates. Turnover by quarter is given in the financial record on pages 180 to 183.
GSK Annual Report 2009

30

36 GSK Annual Report 2008
Report of the Directors

Financial review 2008continued
Financial review 2009

Regional analysis
Pharmaceutical turnover by geographic region in 2008 on an invoiced basis
The turnover reported in the table below represents sales invoiced by GSK’s local entity to its customers in the local market plus co-promotion income within each market.
                     
Region/ % of  2008  2007  Growth* 
major markets total  £m  £m  CER%  £% 
 
USA
  44   8,894   9,273   (11)  (4)
 
Europe
  32   6,483   5,560   3   17 
France      1,069   991   (7)  8 
UK      900   822   9   9 
Italy      757   620   5   22 
Germany      707   602   2   17 
Spain      700   605   —   16 
Other Europe      2,350   1,920   6   22 
 
Rest of World
  24   5,004   4,330   5   16 
Emerging Markets      2,290   1,895   12   21 
Japan      1,027   867   (3)  18 
Asia Pacific      891   834   1   7 
Canada      503   477   (4)  5 
Other      293   257   4   14 
 
   100   20,381   19,163   (3)  6 
 
                 
  2009  2008  Growth* 
  £m  £m  CER%  £% 
          
USA  9,180   8,894   (13)  3 
Europe  7,681   6,483   9   18 
Emerging Markets  2,973   2,290   20   30 
Asia Pacific/Japan  2,700   1,918   16   41 
Other trading‡
  1,180   796            31            48 
          
   23,714   20,381   2   16 
          
* CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates.
‡Including Stiefel
USA
Individual governments determine the pricing of medicines in most countries within Europe, which can result in wide price variations for the same product. Parallel trade occurs when third parties exploit this price differential by purchasing products in markets where low prices are enforced and selling them to governments and other purchasers in those markets where higher prices have been agreed. This parallel trade is permitted under the single market rulesSales in the European Union. GSK does not derive any benefitUSA declined 13% to £9.2 billion, principally reflecting continued decline ofAvandia(down 22%), competition toInfanrix/Pediarix(down 47%), a return to market of a competitor to the Hepatitis franchise (down 21%) and generic competition to significant products such asLamictal(down 68%),Imigran(down 79%),Valtrex(down 9%),Requip(down 78%) andCoreg(down 28%). In addition,Wellbutrin XL(down 82%), was sold to Biovail in Q2 2009. These declines were partly offset by significant sales ofRelenzaand pandemic vaccines, a doubling ofVentolinsales, good growth ofLovaza(up 31%) and contributions from recently launched products such asBoostrixandRotarix.
Europe
Sales in Europe increased 9% to £7.7 billion with continued growth ofSeretideandRelenzaand particularly strong vaccines growth, driven by pandemic vaccine, offsetting the profit on resale atimpact of generic competition to a number of products and continued price cuts from governments across the higher price.region.
As a result, management believes that withinEmerging Markets
Sales in Emerging Markets increased 20% to £3.0 billion with strong growth across the European region turnoverand all therapeutic areas, helped by market, on an invoiced basis as presented above, does not properly represent the consumptionacquisitions of the products within each market. GSK employees basedUCB and BMS businesses in each market are instrumental in the promotiondifferent countries of the Group’s products withinregion.
Asia Pacific/Japan
Sales in Asia Pacific/Japan grew 16% to £2.7 billion reflecting continuedSeretide/Advairgrowth, strongRelenzasales, particularly to the retail market thereby creating a product salein Japan, and final consumption in that market.strong vaccines growth.
The following table gives the adjustments made in order to restate theConsumer Healthcare turnover for markets within Europe on a turnover created basis.
                         
  2008  2007 
Region/ Invoiced  Adjustment  Created  Invoiced  Adjustment  Created 
major markets £m  £m  £m  £m  £m  £m 
 
Europe
  6,483   —   6,483   5,560   —   5,560 
France  1,069   (55)  1,014   991   (43)  948 
UK  900   83   983   822   101   923 
Italy  757   (19)  738   620   (14)  606 
Germany  707   107   814   602   87   689 
Spain  700   (10)  690   605   (12)  593 
Other Europe  2,350   (106)  2,244   1,920   (119)  1,801 
 
These adjustments are GSK’s estimates based on the most recent data from independent external sources, valued in Sterling at relevant exchange rates. Management believes that this turnover created basis of reporting turnover by market provides a better reflection of the performance of the businesses in each market within Europe.
The total turnover for the Europe region is unaffected by these adjustments.
Parallel trade occurs occasionally elsewhere in the world, but it is not sufficiently material to affect significantly the turnover data by market presented on an invoiced basis.
Pharmaceutical turnover by geographic region in 2008 on a turnover created basis
Turnover by market within Europe has been adjusted for the effects of parallel trade to show turnover on the basis of the country where the product is finally consumed, not where the product was sold by GSK.
                     
  % of  2009  2008  Growth* 
  total  £m  £m  CER%  £% 
             
Over-the-counter medicines
  50   2,319   1,935   8   20 
alli
      203   75   >100   >100 
Breathe Right
      92   81   (1)  14 
Cold sore franchise      96   89   (3)  8 
Nicotine replacement therapy      339   299   (1)  13 
Panadol franchise
      393   324   10   21 
Tums
      106   91   (1)  16 
                     
Oral healthcare
  32   1,484   1,240   7   20 
Aquafresh franchise
      496   452   (1)  10 
Biotene
      26   1   >100   >100 
Denture care      336   271   8   24 
Sensodyne franchise
      457   363   13   26 
                     
Nutritional healthcare
  18   851   796   3   7 
Lucozade
      376   382   (3)  (2)
Horlicks
      255   204   17   25 
Ribena
      160   161   (4)  (1)
             
   100   4,654   3,971   7   17 
             
                     
Region/ % of  2008  2007  Growth* 
major markets total  £m  £m  CER%  £% 
 
USA
  44   8,894   9,273   (11)  (4)
 
Europe
  32   6,483   5,560   3   17 
France      1,014   948   (8)  7 
UK      983   923   7   7 
Italy      738   606   5   22 
Germany      814   689   2   18 
Spain      690   593   1   16 
Other Europe      2,244   1,801   7   25 
 
Rest of World
  24   5,004   4,330   5   16 
Emerging Markets      2,290   1,895   12   21 
Japan      1,027   867   (3)  18 
Asia Pacific      891   834   1   7 
Canada      503   477   (4)  5 
Other      293   257   4   14 
 
   100   20,381   19,163   (3)  6 
 
* CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates. Turnover by quarter is given in the Financialfinancial record on pages 190184 to 193.185.


GSK Annual Report 200837
Report of the Directors

Financial review 2008continued

USA
Sales in the USA declined 11% to £8.9 billion, principally reflecting a full year impact onAvandia(down 49%) and generic competition to significant products such asLamictal(down 26%),Imigran(down 9%),Wellbutrin XL (down 45%),Requip(down 60%) andCoreg IR(down 93%). These declines were partly offset byAdvair(up 6%),Valtrex(up 20%) andLovaza(up 71% on proforma basis).
Europe
Sales in Europe increased 3% to £6.5 billion with continued growth ofSeretideand particularly strong vaccines growth offsetting the impact of generic competition to a number of products and continued price cuts from governments across the region.
Emerging Markets
Sales in Emerging Markets increased 12% to £2.3 billion with strong growth in Russia (up 36%), China (up 22%) and Latin America (up 16%). The growth was fuelled primarily by vaccines, up 32% to £0.5 billion, and the respiratory franchise, up 16% to £0.4 billion.
Asia Pacific/Japan
Increased sales ofSeretide/Advair(up 48% to £204 million) were offset by lower Government orders forRelenzain Japan and some price cuts.
Consumer Healthcare turnover
                     
  % of  2008  2007  Growth 
  total  £m  £m  CER%  £% 
 
Over-the-counter medicines
  49   1,935   1,788   (2)  8 
Panadol franchise
      324   263   12   23 
Smoking cessation products      299   314   (12)  (5)
Tums
      91   88   (5)  3 
Cold sore franchise      89   79   3   13 
Breathe Right
      81   63   17   29 
alli
      75   150   (53)  (50)
 
Oral healthcare
  31   1,240   1,049   6   18 
Aquafresh franchise
      452   398   3   14 
Sensodyne franchise
      363   293   12   24 
Dental care      271   222   8   22 
 
Nutritional healthcare
  20   796   716   8   11 
Lucozade
      382   347   7   10 
Horlicks
      204   174   13   17 
Ribena
      161   156   —   3 
 
   100   3,971   3,553   3   12 
 
*CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates. Turnover by quarter is given in the Financial record on pages 188 to 189.
Total Consumer Healthcare sales for the year rose 3%7% to £4 billion. This compares£4.7 billion, with growth of 14% in 2007, which benefited from launch stocking of new anti-obesity treatmentalli. 2008 sales ofalliwere £75 million, down 53%. Excludingalli, Consumer Healthcare sales rose 5% in 2008 (up 9% in 2007).all regions and categories.
OTC medicines
OTC product sales declined 2%grew 8% to £1.9£2.3 billion in 2008, with2009, driven by sales of smoking cessationPanadol(up 10% to £393 million) andalli, which more than doubled to £203 million, as a result of launches throughout Europe which began in April 2009. Sales of nicotine replacement therapy products down 12% to £299 million.Panadolsales grew 12% to £324 million, twice the global average in 2008.declined by 1%.
Oral healthcare
Sales of Oral healthcare products rose 6%7% to £1.2 billion, whereas£1.5 billion.Sensodyneperformed strongly with sales up 13% to £457 million. Denture care sales grew 8% to £336 million. Sales ofAquafresh declined 1%, as a reduction in the US ‘white trays’ market grew just 2%. There were strong performances fromSensodyne, up 12% to £363 million, andoffset growth of 5% in the USAquafresh, up 3% to £452 million.Sensodyne’s growth represented 35%toothpaste brands, which were helped by the launch of world toothpaste growth in 2008 in markets where GSK competes.the new iso-active product.
Nutritional healthcare
Within Nutritionals,Nutritional healthcare sales grew 3% to £0.9 billion, driven by the very strong performance ofHorlickssales rose 13%(up 17% to £204 million,£255 million) partly offset by a decline inLucozadesales rose 7%(down 3% to £382 million andRibena£376 million) which was impacted by lower sales were flat at £161 million, although sales ofLucozadeandRibenain the second half‘impulse’ market of the year declined slightly, largely as a result of poor weather in the UK.UK market.


GSK Annual Report 2009

31

Financial review 2009

Results before major restructuring and
total results
In October 2007 the Board approved the implementation of a detailed formal plan for, and GSK announced, a significant new Operational Excellence restructuring programme. A second formal plan, representing a significant expansion of the Operational Excellence programme, was approved by the Board and announced in February 2009. ThisHaving conducted a further series of business reviews, GSK has announced a further expansion of the restructuring programme to deliver £0.5 billion of incremental pre-tax savings by 2012. Approximately 70% of these savings will be directed to the bottom line to enhance profitability, with the remainder being reinvested in the business. The charges for this incremental programme are expected to total £0.9 billion and be phased: 65% in 2010 and 30% in 2011, with the balance mostly in 2012. In total, approximately 70% will be cash expenditures and 30% will be asset write-downs. Cumulative savings for the new programme will be phased approximately as follows: £150 million in 2010, £350 million in 2011 and the majority of the balance in 2012.
The restructuring programme, comprising these detailed formal plans, covers all areas of GSK’s business, including manufacturing, selling, R&D and infrastructure. With an estimated total cost of approximately £3.6£4.5 billion, the expanded programme is expected to deliver annual pre-tax savings of approximately £1.7£2.2 billion by the time it is substantially complete in 2011.2012. Approximately 40%50% of these costs were incurred by 31st December 2008, and2009, approximately 35%30% are expected to be incurred in 2009, 20% in 2010 and the balance mostly in 2011. In total, approximately 75% of these costs are expected to be cash expenditures and 25% are expected to be accounting write-downs.
Uncertainties exist over the exact amount and timing of cash outflows, as a result of potential future exchange rate fluctuations and as many elements of the restructuring programme are subject to employee consultation procedures, making it difficult to predict with precision when these procedures will be completed. However, the majority of the remaining cash payments are expected to be made in 20092010 and 2010.2011. Given the extent and cost of the Operational Excellence restructuring programme, management believes it has a material impact on GSK’s operating results and on the manner in which GSK’s business is conducted. GSK presents the restructuring costs incurred solely as a direct result of the Operational Excellence restructuring programme, which in 20082009 amounted to £1,089£764 million before tax (2007 — £338(2008 – £1,089 million), in a separate column in the income statement titled ‘Major restructuring’.


38GSK Annual Report 2008
Report of the Directors

Financial review 2008continued

In addition to the restructuring costs of the Operational Excellence programme, the major restructuring column in the income statement includes restructuring costs incurred solely as a direct result of any restructuring programmes that follow, and relate to, material acquisitions where the operations of the acquired business overlap extensively with GSK’s existing operations.
The restructuring activities that follow, and relate to, such acquisitions are of the same nature as those undertaken under the Operational Excellence programme and are also carried out following a detailed formal plan. Management therefore considers it appropriate to present the costs of these restructuring activities in the same manner. The $1.65 billion (£814 million) acquisition of Reliant PharmaceuticalsStiefel Laboratories, Inc. in December 2007July 2009 is the only acquisition since October 2007during the year that meets the criteria set out above and thusabove. This is the only acquisition during the year where the costs incurred as a direct result of a related restructuring programme havehas been included withinin the major restructuring column. The totalrestructuring costs expected to be incurred as a direct result of this acquisition are estimated to be approximately £205 million, of which £71 million was charged in 2009. The restructuring costs incurred as a direct result of thisthe acquisition of Reliant Pharmaceuticals Inc., the only other acquisition since October 2007 that meets the criteria set out above, were £34 million, all of which have been charged and paid in 2008.
The Group’s results before the costs of the Operational Excellence programme and acquisition-related restructuring programmes meeting the criteria described above are also presented in a separate column in the income statement and are described as ‘Results before major restructuring’. This presentation, which GSK intends to apply consistently to future major restructuring programmes that have a material impact on GSK’s operating results and on the manner in which GSK’s business is conducted, has been adopted to show clearly the Group’s results both before and after the costs of these restructuring programmes. Management believes that this presentation assists shareholders in gaining a clearer understanding of the Group’s financial performance and in making projections of future financial performance, as results that include such costs, by virtue of their size and nature, have limited comparative value. This presentation is also consistent with the way management assesses the Group’s financial performance.
Only the restructuring costs incurred solely as a direct result of the Operational Excellence programme and the restructuring programmeprogrammes following the Reliant acquisitionand Stiefel acquisitions have been reported in the major restructuring column in the income statement. These restructuring costs principally have arisen from impairments to property, plant and equipment and the termination of the employment contracts of staff made redundant as part of the restructuring activities. As set out in Note 7 to the financial statements, ‘Major restructuring programmes’programme’, asset impairments and staff redundancies together accounted for £887£574 million of the £1,123£835 million restructuring costs incurred in 20082009 and reported in the major restructuring column (2007 — £338 million).column.
The remaining costs of £236£261 million in 20082009 arose from miscellaneous expenditures incurred solely as a direct result of the restructuring programmes, including the termination of leases, accelerated depreciation, site closure costs and consultancy and project management fees, the termination of leases, site closure costs and, with respect to 2008, the recognition of foreign exchange losses following the liquidation of a subsidiary in Puerto Rico.fees. No costs arising from GSK’s ongoing operating activities have been reported in the major restructuring column.


GSK Annual Report 2009

32

Financial review 2009

Any restructuring costs that do not arise solely as a direct result of the Operational Excellence programme and restructuring programmes following, and relating to, acquisitions meeting the criteria described above continue to be reported in operating expenses within results before major restructuring. These costs included restructuring costs related to minor acquisitions and £20£4 million of costs in 2008 (2007 — £922009 (2008 – £20 million) that related to restructuring activity initiated before the commencement of the Operational Excellence programme. None of this restructuring activity had a material impact on GSK’s operating results or on the manner in which its business is conducted.
During the anticipated duration of the Operational Excellence programme, GSK does not currently expect to incur any material restructuring costs except those related to that programme and acquisitions meeting the criteria described above. If any further, unanticipated material restructuring costs were to arise during this period, GSK would expect also to include them also in the major restructuring column.
GSK’s operating profit, profit before taxation, taxation and profit for the year are discussed below in terms of both total results, which include major restructuring costs, and results before major restructuring.
Operating profit —– total results
Total results include restructuring costs related to the new Operational Excellence programme which commenced in October 2007, and the acquisitions of Reliant restructuring programme.and Stiefel.
                                                
 2008 2007 Growth  2009 2008 Growth 
 £m % £m % CER% £%  £m % £m % CER% £% 
          
Turnover 24,352 100 22,716 100.0  (3) 7  28,368 100 24,352 100 3 16 
          
Cost of sales  (6,415)  (26.3)  (5,317)  (23.4) 13 21   (7,380)  (26.0)  (6,415)  (26.3) 6 15 
Selling, general
and administration		  (7,656)  (31.4)  (6,954)  (30.6) 2 10   (9,592)  (33.8)  (7,656)  (31.4) 6 25 
Research and development  (3,681)  (15.2)  (3,327)  (14.7) 4 11   (4,106)  (14.4)  (3,681)  (15.2) 1 12 
Other operating income 541 2.2 475 2.1 11 14  1,135 3.9 541 2.2 95 110 
          
Operating profit 7,141 29.3 7,593 33.4  (20)  (6) 8,425 29.7 7,141 29.3 4 18 
          


GSK Annual Report 200839
Report of the Directors

Financial review 2008 continued

Cost of sales
Cost of sales increased to 26.3% of turnover (2007 — 23.4%). At constant exchange rates, cost of sales as a percentage of turnover increased by 3.8 percentage pointsreduced marginally to 27.2%26.0% of turnover (2008 – 26.3%), principally reflecting charges relatedthe impact of generic competition to higher margin products in the USA and changes to the major restructuring programmes of £639 million (2007 — £111 million) and unfavourable product and regional mix, compared with 2007, partly offset by savingsbenefits from the restructuring programmes.programme and lower restructuring costs of £285 million (2008 – £639 million).
Selling, general and administration
SG&A costs includingas a percentage of turnover increased by 2.4 percentage points to 33.8%. This included full year legal charges were 31.4% of turnover (2007 — 30.6%), a increase of 0.8 percentage points. At constant exchange rates, the increase was 1.4 percentage points. Legal costs of£591 million (2008 – £611 million (2007 — £255 million) included a £278 million charge announced in January 2009 related to the US investigation into GSK’s marketing and promotional practices which originated in Colorado. SG&A costs included charges of £304 million (2007 — £137 million) related to the major restructuring programmes.programme of £392 million (2008 – £304 million). Excluding legal and restructuring costs, SG&A decreasedcosts were 30.3% of turnover (2008 – 27.7%). This reflected investment in growth markets, the acquisition of Stiefel, increased pension costs, the donation of H1N1 product to WHO and exchange losses on inter-company transactions (compared with exchange gains last year), partially offset by 1.6%.the benefits of the current restructuring programme.
Research and development
R&D expenditure increased 4% andwas 14.4% (2008 – 15.2%) of total turnover, which included £167 million of intangible asset write-offs (2008 – £85 million) partially offset by lower charges relatedrelating to the major restructuring programmesprogramme of £155 million (2008 – £175 million (2007 — £90 million). Excluding these charges, R&D expenditure increased 2% in CER terms as and a provision release due to reassessment of a receivable balance. Increased investment in thevaccines R&D and late stage pipeline was partlypharmaceutical R&D were broadly offset by savings from the restructuring savings.programme.
Other operating income
Other operating income was £1,135 million including gains from asset disposals of £541£579 million (2007 — £475(2008 – £293 million) included strong growth inprimarily reflecting the disposal ofWellbutrin XLand various assets to Aspen Pharmacare, royalty income toof £296 million (2008 – £307 million), a royalty dispute settlement gain of £78 million, (2007 — £216 million). Product, intellectual property and a one-time accounting gain of £296 million on the creation of ViiV Healthcare, partially offset by equity investment disposals realised £230 million in 2008 compared with £90 million in 2007. The Roche litigation settlement was included in 2007.impairments of £135 million.
Operating profit —– total results
Total operating profit for the year was £8,425 million, an increase of £7,141 million decreased by 6%4% CER and 18% in sterling terms and 20% in CERSterling terms, compared with 2007. Pharmaceuticals2008. The operating profit was £6,331 million, down 21%, while Consumer Healthcaremargin increased 0.4 percentage points reflecting higher other operating profit fellincome and broadly flat R&D expenditure, partially offset by only 2% to £810 million.
In the year, gains from asset disposalsincreases in cost of sales and settlements were £293 million (2007 — £213 million), costs for legal matters were £611 million (2007 — £255 million), fair value movements on financial instruments resulted in a charge of £10 million (2007 — income of £41 million) and charges relating to previous restructuring programmes were £20 million (2007 — £92 million). Charges related to the major restructuring programmes were £1,118 million (2007 — £338 million). The impact of all these items on total operating profit was a £1,466 million charge in 2008 compared with a £431 million charge in 2007.SG&A.
Profit before taxation —– total results
Net finance costs
                
 2008 2007  2009 2008 
Finance income £m £m  £m £m 
  
Interest and other finance income 322 255  67 321 
Unwinding of discounts on assets 2 1 
Fair value adjustments and hedges  (9) 7  1  (9)
 313 262    
 70 313 
    
 
Finance costs
  
  
Interest costs  (829)  (434)  (770)  (829)
Unwinding of discount on liabilities  (16)  (27)
Unwinding of discounts on liabilities  (11)  (16)
Fair value adjustments and hedges 2 8   (2) 2 
  
  (843)  (453)  (783)           (843)
  


GSK Annual Report 2009

33

Financial review 2009
Profit on disposal of interest in associate
Profit on disposal of interest in associate was £115 million as 5.7 million shares from the Group’s holding in Quest Diagnostics Inc. were sold in the first quarter of 2009.
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates of £64 million (2008 – £48 million) arises principally from the Group’s holding in Quest.
Profit before taxation – total results
Taking account of net finance costs, the profit on disposal of interest in associates and the share of profits of associates, total profit before taxation was £7,891 million (2007 — £50compared with £6,659 million in 2008, a 4% CER increase and a 19% sterling increase.
Operating profit – results before major
restructuring
The results before major restructuring are set out below:
                         
  2009  2008  Growth 
  £m  %  £m  %  CER%  £% 
                
Turnover  28,368   100   24,352   100   3   16 
                
Cost of sales  (7,095)  (25.0)  (5,776)  (23.7)  13   23 
Selling, general and administration  (9,200)  (32.4)  (7,352)  (30.2)  6   25 
Research and development  (3,951)  (13.9)  (3,506)  (14.4)  2   13 
Other operating income  1,135   3.9   541   2.2   95   110 
                
Operating profit  9,257   32.6   8,259   33.9   (1)  12 
                
Cost of sales
Cost of sales increased to 25.0% of turnover (2008 – 23.7%), principally reflecting the impact of generic competition to higher margin products in the USA and changes to the product mix, partly offset by benefits from the restructuring programme. In 2010 cost of sales as a percentage of turnover is expected to be around 26%.
Selling, general and administration
SG&A costs as a percentage of turnover increased by 2.2 percentage points to 32.4%, including full year legal charges of £591 million. The increase reflected investment in growth markets, the acquisition of Stiefel, increased pension costs, the donation of H1N1 product to WHO and exchange losses on inter-company transactions (compared with exchange gains last year), partially offset by the benefits of the current restructuring programme. In 2010 SG&A costs excluding legal charges are expected to be around 29% of turnover.
Research and development
R&D expenditure was 13.9% (2008 – 14.4%) of total turnover, which included £167 million of intangible asset write-offs
(2008 – £85 million) partially offset by a provision release due to reassessment of a receivable balance. Increased investment in vaccines R&D and late-stage pharmaceutical R&D were broadly offset by savings from the restructuring programme. In 2010 R&D costs as a percentage of turnover are expected to remain at around 14%.
Other operating income
Other operating income was £1,135 million including gains from asset disposals of £579 million (2008 – £293 million) primarily reflecting the disposal ofWellbutrin XLand various assets to Aspen Pharmacare, royalty income of £296 million (2008 – £307 million), a royalty dispute settlement gain of £78 million, and a one-time accounting gain of £296 million on the creation of ViiV Healthcare, partially offset by equity investment impairments of £135 million.
In 2009 other operating income and profit on disposal of associates amounted to £1,250 million. An equivalent overall income of around £800-900 million is expected for 2010.
Operating profit – results before major restructuring
Operating profit before major restructuring for the year was £9,257 million, a 1% CER decline, but up 12% in Sterling terms, compared with 2008. The operating profit margin was 32.6% compared with a 2008 margin of 33.9%. The decline in margin was primarily due to generic competition in the USA which impacted cost of goods and increased investment to support the Group’s diversification strategy which impacted SG&A, partly offset by a higher level of other operating income.
As the impact of generic competition reduces and SG&A investment levels stabilise, GSK’s operating profit margin in 2010 is currently expected to be broadly similar to 2009 (excluding legal costs and the ViiV Healthcare accounting gain).
Further information on operating profit before major restructuring is provided in Note 6, ‘Segment information’.
Profit before taxation – results before major restructuring
Net finance costs
            
  2009  2008 
Finance income £m  £m 
    
Interest and other income  67   321 
Unwinding of discounts on assets  2   1 
Fair value adjustments and hedges  1   (9)
    
   70   313 
    
         
Finance costs
        
    
Interest costs  (770)  (829)
Unwinding of discounts on liabilities  (8)  (11)
Fair value adjustments and hedges  (2)  2 
    
   (780)     (838)
    
Profit on disposal of interest in associate
Profit on disposal of interests in associates was £115 million as 5.7 million Quest shares were sold in the first quarter of 2009.


GSK Annual Report 2009

34

Financial review 2009

Share of after tax profits of associates and joint ventures
The share of after tax profits of associates of £64 million (2008 – £48 million) arises principally from the Group’s holding in Quest Diagnostics Inc.
Profit before taxation — total– results before major restructuring
Taking account of net finance costs, and the shareprofit on disposal of profits ofinterests in associates total profit before taxation was £6,659 million compared with £7,452 million in 2007, a 24% CER decline and an 11% sterling decline.
Operating profit — results before major restructuring
The results before major restructuring are set out below:
                         
  2008  2007  Growth 
  £m  %  £m  %  CER%  £% 
 
Turnover  24,352   100   22,716   100.0   (3)  7 
 
Cost of sales  (5,776)  (23.7)  (5,206)  (22.9)  4   11 
Selling, general
and administration		  (7,352)  (30.2)  (6,817)  (30.0)  —   8 
Research and development  (3,506)  (14.4)  (3,237)  (14.3)  2   8 
Other operating income  541   2.2   475   2.1   11   14 
 
Operating profit  8,259   33.9   7,931   34.9   (10)  4 
 
Cost of sales
Cost of sales increased by 0.8 percentage points to 23.7% of turnover. At constant exchange rates the increase was 1.5 percentage points of turnover, principally reflecting the impact of generic competition to higher margin products in the USA, lowerAvandiasales and a higher proportion of sales generated in lower margin vaccines, brands sold in Emerging Markets and Consumer Healthcare products. This was partly offset by savings from the restructuring programmes.


40GSK Annual Report 2008
Report of the Directors

Financial review 2008continued

Selling, general and administration
SG&A costs, including legal charges, were 30.2% of turnover (2007 — 30.0%). At constant exchange rates, SG&A costs increased by 0.7 percentage points to 30.7% of turnover. Legal costs of £611 million (2007 — £255 million) included a £278 million charge announced in January 2009 related to the US investigation into GSK’s marketing and promotional practices which originated in Colorado. Excluding legal costs, SG&A as a percentage of turnover fell 1.2 percentage points to 27.7% (2007 — 28.9%). This was a 3% growth in sterling terms, but a 4% reduction at constant exchange rates, reflecting the benefits of the restructuring programmes. Selling and distribution fell by 1%, advertising and promotion by 5% and general and administration expenditure, excluding legal charges, by 7%.
Research and development
R&D expenditure increased by 2% to 14.4% of turnover (2007 — 14.3%) as investment in the late stage pipeline was partly offset by restructuring savings.
Other operating income
Other operating income of £541 million (2007 — £475 million) included strong growth in royalty income to £307 million (2007 — £216 million). Product, intellectual property and equity investment disposals realised £230 million in 2008 compared with £90 million in 2007. The Roche litigation settlement was included in 2007.
Operating profit — results before major restructuring
Operating profit before major restructuring of £8,259 million for the year increased by 4% in sterling terms but decreased by 10% in CER terms compared with 2007. Pharmaceuticals operating profit was £7,427 million, down 11%, while Consumer Healthcare operating profit was flat in CER terms at £832 million. Excluding legal costs, operating profit decreased by 6%, which was greater than the turnover decline of 3%, primarily due to higher cost of sales as a percentage of turnover.
In the year, gains from asset disposals and settlements were £293 million (2007 — £213 million), costs for legal matters were £611 million (2007 — £255 million), fair value movements on financial instruments resulted in a charge of £10 million (2007 — income of £41 million) and charges relating to previous restructuring programmes were £20 million (2007 — £92 million). The impact of these items on operating profit before major restructuring was a £348 million charge in 2008 (2007 — £93 million).
Profit before taxation — results before major restructuring
Net finance costs
         
  2008  2007 
Finance income £m  £m 
 
Interest and other income  322   255 
Fair value adjustments and hedges  (9)  7 
 
   313   262 
 
         
 
Finance costs
        
 
Interest costs  (829)  (434)
Unwinding of discount on liabilities  (11)  (27)
Fair value adjustments and hedges  2   8 
 
   (838)  (453)
 
Taking account of net finance costs and the share of profits of associates, profit before tax before major restructuring was £7,782£8,726 million compared with £7,790£7,782 million in 2007,2008, a 14%1% CER decline but flat12% increase in sterling terms.
Taxation
                
 2008 2007  2009 2008 
 £m £m  £m £m 
  
UK corporation tax 289 452  456 289 
Overseas taxation 1,589 1,962  1,958 1,589 
  
Current taxation 1,878 2,414  2,414 1,878 
Deferred taxation 69  (272)  (192) 69 
  
Taxation on total profits 1,947 2,142  2,222      1,947 
  
The charge for taxation on total profits amounted to £2,222 million and represented an effective tax rate of 28.2% (2008 – 29.2%). The charge for taxation on profit before major restructuring charges amounting to £2,231£2,443 million (2007 — £2,219 million), and represents an effective tax rate of 28.0% (2008 – 28.7% (2007 — 28.5%). The charge for taxation on total profits amounted to £1,947 million (2007 — £2,142 million) and represented anGSK currently expects a similar effective tax rate of 29.2% (2007 — 28.7%).in 2010. The Group’s balance sheet at 31st December 20082009 included a tax payable liability of £780£1,451 million and a tax recoverable asset of £76£58 million.
The Group’s main open tax issues are in the USA, Canada and Japan.
In July, following discussions with HMRC, the Group settled substantially all outstanding UK tax issues for all periods up to and including 31st December 2006.
Following its audit of the period 2001 to 2003,On 19th November 2009 the IRS issued Statutory Notices of Deficiency to GSK asserting income and withholdingconceded all asserted tax deficiencies and associated penalties arising from its reclassification of an intercompany financing arrangement in those years from debt to equity resulting in no additional tax cost to GSK. The IRS claim had previously been estimated at $864 million for 2001–2003. GSK and its consequent recharacterisationthe IRS are now in the process of finalising the tax computations for the 2001–2003 tax years. It is anticipated that resolution of the amounts paid as dividends subjectissue in the years 2004 to withholding tax under the US — UK treaty. All amounts due under the financing arrangement were timely paid, with the final payment made2008 will be reflected in April 2008.


GSK Annual Report 200841
Report of the Directors

Financial review 2008 continued

The IRS commenced its audita closing agreement. Resolution of the period 2004 to 2006 in June 2008, and is examiningissue had no impact on the issue for these years. GSK disagrees with the IRS’s position and, in August 2008, initiated actions in the United States Tax Court to contest the Statutory Notices of Deficiency. GSK estimates that the IRS claim for tax, penalties, and interest at 31st December 2008, net of federal tax relief, for 2001 through 2003 is $864 million. GSK believes that this claim has no merit and that no adjustment is warranted. If, contrary to GSK’s view, the IRS prevailed in its argument before a court in respect of the years 2001-2003, GSK would expect to have an additional liability for the five year period 2004-2008 in the amount of $1,059 million in tax, penalties, and interest at 31st December 2008, net of federal tax relief for those years. In the event that the company is not able to resolve this issue with the IRS, a court decision would not be expected before 2011.
Lower courts in Japan have upheld claims by the tax authorities for Yen 39 billion (£177 million) relating to Japanese CFC legislation. The company has paid and fully provided for the full tax but is pursuing a claim for refund to the Japanese Supreme Court. In Canada a court decision in respect of transfer pricing in the early 1990s was completed in May 2008. GSK filed an appeal in June and a court date is awaited.Group’s results.
GSK continues to believe that it has made adequate provision for the liabilities likely to arise from open assessments. The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of litigation proceedings and negotiations with the relevant tax authorities.
Profit for the year
                                
 2008 2007 Growth  2009 2008 Growth 
 £m £m CER% £%  £m £m CER% £% 
      
Total profit after taxation for the year 4,712 5,310  (25)  (11) 5,669 4,712 6 20 
Total profit attributable to shareholders 4,602 5,214  (26)  (12) 5,531 4,602 6 20 
Basic earnings per share (pence) 88.6p 94.4p  (21)  (6) 109.1p 88.6p 
Basic earnings per ADS (US$) $3.28 $3.77  $3.40 $3.28 
      
Results before major restructuring profit after taxation for the year 5,551 5,571  (14) —  6,283 5,551 – 13 
Results before major restructuring profit attributable to shareholders 5,441 5,475  (15)  (1) 6,145 5,441 – 13 
Adjusted earnings per share (pence) 104.7p 99.1p  (9) 6  121.2p 104.7p 2      16 
Adjusted earnings per ADS (US$) $3.87 $3.96  $3.78 $3.87 
Weighted average number of shares (millions) 5,195 5,524  5,069 5,195 
      
Diluted total earnings per share (pence) 88.1p 93.7p  108.2p 88.1p 
Diluted total earnings per ADS (US$) $3.26 $3.75  $3.38 $3.26 
Diluted weighted average number of shares (millions) 5,226 5,567  5,108 5,226 
      
Total results including restructuring costs produced a basic EPS of 88.6p109.1p compared with 94.4p88.6p in 2007.2008. This was a 21% decline atan 8% growth In CER terms and a 6% decline23% growth in sterling terms. Excluding major restructuring costs, EPS was 104.7p121.2p compared with 99.1p.104.7p. This was a 9% decline2% growth at CER butand a 6%16% increase in sterling terms. The 1514 percentage point currency benefit arose from the weakness of Sterling against most major currencies.currencies during the year.
Dividend
The Board has declared a fourth interim dividend of 1718 pence per share resulting in a dividend for the year of 57 pence,61 pence; a four pence increase over the dividend of 5357 pence per share for 2007.2008. The equivalent fourth interim dividend receivable by ADR holders is 49.456457.3696 cents per ADS based on an exchange rate of £1/$1.4546.1.5936. The ex-dividend date will be 11thwas 10th February 2009,2010, with a record date of 13th12th February 20092010 and a payment date of 9th8th April 2009.2010.
Critical accounting policies
The consolidated financial statements are prepared in accordance with IFRS, as adopted for use in the European Union, and also with IFRS as issued by the IASB, following the accounting policies approved by the Board and described in Note 2 to the financial statements, ‘Accounting principles and policies’. Management is required to make estimates and assumptions that affect the amounts of assets, liabilities, revenue and expenses reported in the financial statements. Actual amounts and results could differ from those estimates.


GSK Annual Report 2009

35

Financial review 2009

The critical accounting policies adopted relate to the following areas:
•Turnover
•Taxation
•Legal and other disputes
•Property, plant & equipment
•Goodwill
•Other intangible assets
•Pensions and other post-employment benefits.
Turnover
Taxation
Legal and other disputes
Property, plant & equipment
Goodwill
Other intangible assets
Pensions and other post-employment benefits.
Information on the judgements and estimates made in these areas is given in Note 3 to the financial statements, ‘Key accounting judgements and estimates’.
In respect of the Turnover accounting policy, the Group’s largest business is US pharmaceuticals, and the US market has the most complex arrangements for rebates, discounts and allowances. The following briefly describes the nature of the arrangements in existence in the Group’s US pharmaceuticals business.
GSK has arrangements with certain indirect customers whereby the customer is able to buy products from wholesalers at reduced prices. A chargeback represents the difference between the invoice price to the wholesaler and the indirect customer’s contractual discounted price. Accruals for estimating chargebacks are calculated based on the terms of each agreement, historical experience and product growth rates.


Customer rebates are offered to key managed care and group purchasing organisations (GPO) and other direct and indirect customers. These arrangements require the customer to achieve certain performance targets relating to value of product purchased, formulary status or pre-determined market shares relative to competitors. The accrual for customer rebates is estimated based on the specific terms in each agreement, historical experience and product growth rates.

42GSK Annual Report 2008
Report of the Directors

Financial review 2008continued
The US Medicaid programme is a state-administered programme providing assistance to certain poor and vulnerable patients. In 1990, the Medicaid Drug Rebate Program was established to reduce state and federal expenditure on prescription drugs. GSK participates by providing rebates to states. Accruals for Medicaid rebates are calculated based on the specific terms of individual state agreements using a combination of historical experience, product and population growth, anticipated price increases and the impact of contracting strategies.

•Customer rebates are offered to key managed care and group purchasing organisations (GPO) and other direct and indirect customers. These arrangements require the customer to achieve certain performance targets relating to value of product purchased, formulary status or pre-determined market shares relative to competitors. Rebates given under Medicare, Part D are included in this category. The Medicare, Part D programme was introduced in 2006 and replaced the Government Medicaid subsidies for some individuals with subsidised coverage provided through private prescription plans. The accrual for these rebates is estimated based on the specific terms in each agreement, historical experience and product growth rates.
•The US Medicaid programme is a state-administered programme providing assistance to certain poor and vulnerable patients. In 1990, the Medicaid Drug Rebate Program was established to reduce state and federal expenditure on prescription drugs. GSK participates by providing rebates to states. Accruals for Medicaid rebates are calculated based on the specific terms of individual state agreements using a combination of historical experience, product and population growth, anticipated price increases and the impact of contracting strategies.
•Cash discounts are offered to customers to encourage prompt payment. These are accrued for at the time of invoicing and adjusted subsequently to reflect actual experience.
•Where there is historical experience of customer returns, GSK records an accrual for estimated sales returns by applying historical experience of customer returns to the amounts invoiced, together with market related information such as stock levels at wholesalers, anticipated price increases and competitor activity.
Where there is historical experience of customer returns, GSK records an accrual for estimated sales returns by applying historical experience of customer returns to the amounts invoiced, together with market related information such as stock levels at wholesalers, anticipated price increases and competitor activity.
A reconciliation of gross turnover to net turnover for the US pharmaceuticals business is as follows:
                                               
 2008 2007 2006  2009 2008 2007 
 £m % £m % £m %  £m % £m % £m % 
          
Gross turnover 11,602 100 11,826 100 13,131 100  12,504 100 11,602 100 11,826 100 
 
Chargebacks 892 8 917 8 846 6   (1,193) 10  (892) 8  (917) 8 
Managed care, Medicare Part D and GPO rebates 764 6 727 6 912 7   (917) 7  (764) 6  (727) 6 
US government and state programmes 554 5 481 4 507 4   (663) 5  (554) 5  (481) 4 
Cash discounts 207 2 208 2 248 2   (219) 2  (207) 2  (208) 2 
Customer returns 126 1 131 1 140 1   (179) 1  (126) 1  (131) 1 
Prior year adjustments  (38) —  (73) —  (69) —  30 – 38 – 73 – 
Other items 203 1 162 1 194 1   (183) 2  (203) 1  (162) 1 
          
Total deductions 2,708 23 2,553 22 2,778 21   (3,324) 27  (2,708) 23  (2,553) 22 
          
Net turnover 8,894 77 9,273 78 10,353 79  9,180 73 8,894 77 9,273 78 
          
Sterling values have increased by approximately 8%16% compared with 2007 as a result of exchange rate movements.
Chargebacks have decreased in 2008 as a result of salesaverage exchange rate movements.
Chargebacks have increased in 2009 as a result of products into US government stockpiles during 2007, which did not arise in 2008.higher direct chargebacks onRelenzasales. Managed care, Medicare Part D and GPO rebates were flatincreased slightly as a result of higher contracting discounts arising from competitive pressures in dollar terms, despite additional Tricare prescription rebates. In January 2008, the National Defense Authorisation Act was approved, which authorises the Department of Defense to access discounted federal pricing on drugs dispensed at Tricare network retail pharmacies to members of the US armed forces, their dependants and military retirees. Rebates given under the US government and state programmes have risen in 2008 mainly due to pricing adjustments onImitrexandLamictal following the introduction of generic competition, together with the inclusion of new products from the Reliant Pharmaceuticals acquisition.market place.
The total accruals for rebates, discounts, allowances and returns in the US pharmaceuticals business were as follows:
                
 At 31st At 31st  At 31st At 31st 
 December December  December December 
 2008 2007  2009 2008 
 £m £m  £m £m 
  
Chargebacks 50 38  46 50 
Managed care, Medicare Part D and GPO rebates 474 340  429 474 
US government and state programmes 345 240  354 345 
Cash discounts 25 21  20 25 
Customer returns 259 194  205 259 
Other 50 37  27 50 
  
Total 1,203 870  1,081 1,203 
  
Sterling values have increaseddecreased largely as a result of year-end exchange rate movements. Inmovements; in dollar terms, the 20082009 provision is largely unchanged from 2007. 2008.
A monthly process is operated to monitor inventory levels at wholesalers for any abnormal movements. This process uses gross sales volumes, prescription volumes based on third party data sources and information received from key wholesalers. The aim of this is to maintain inventories at a consistent level from year to year based on the pattern of consumption.
On this basis, US pharmaceutical inventory levels at wholesalers and in other distribution channels at 31st December 20082009 were estimated to amount to approximately one month of turnover. This calculation uses third party information, the accuracy of which cannot be totally verified, but is believed to be sufficiently reliable for this purpose.


GSK Annual Report 2009

36

GSK Annual Report 200843
Financial position and resources
Report of the Directors

Financial position and resources

Financial position
                
 2008 2007  2009 2008 
 £m £m  £m £m 
  
Assets
  
Non-current assets
  
Property, plant and equipment 9,678 7,821  9,374 9,678 
Goodwill 2,101 1,370  3,361 2,101 
Other intangible assets 5,869 4,456  8,183 5,869 
Investments in associates and joint ventures 552 329  895 552 
Other investments 478 517  454 478 
Deferred tax assets 2,760 2,196  2,374 2,760 
Derivative financial instruments 107 1  68 107 
Other non-current assets 579 687  583 579 
  
Total non-current assets
 22,124 17,377  25,292 22,124 
  
Current assets
  
Inventories 4,056 3,062  4,064 4,056 
Current tax recoverable 76 58  58 76 
Trade and other receivables 6,265 5,495  6,492 6,265 
Derivative financial instruments 856 475  129 856 
Liquid investments 391 1,153  268 391 
Cash and cash equivalents 5,623 3,379  6,545 5,623 
Assets held for sale 2 4  14 2 
  
Total current assets
 17,269 13,626  17,570 17,269 
  
Total assets
 39,393 31,003  42,862 39,393 
  
Liabilities
  
Current liabilities
  
Short-term borrowings  (956)  (3,504)  (1,471)  (956)
Trade and other payables  (6,075)  (4,861)  (6,772)  (6,075)
Derivative financial instruments  (752)  (262)  (168)  (752)
Current tax payable  (780)  (826)  (1,451)  (780)
Short-term provisions  (1,454)  (892)  (2,256)  (1,454)
  
Total current liabilities
  (10,017)  (10,345)  (12,118)  (10,017)
  
Non-current liabilities
  
Long-term borrowings  (15,231)  (7,067)  (14,786)  (15,231)
Deferred tax provision  (714)  (887)
Deferred tax liabilities  (645)  (714)
Pensions and other post-employment benefits  (3,039)  (1,383)  (2,981)  (3,039)
Other provisions  (1,645)  (1,035)  (985)  (1,645)
Derivative financial instruments  (2)  (8) –  (2)
Other non-current liabilities  (427)  (368)  (605)  (427)
  
Total non-current liabilities
  (21,058)  (10,748)  (20,002)  (21,058)
  
Total liabilities
  (31,075)  (21,093)  (32,120)  (31,075)
  
Net assets
 8,318 9,910  10,742 8,318 
  
Equity
  
Share capital 1,415 1,503  1,416 1,415 
Share premium account 1,326 1,266  1,368 1,326 
Retained earnings 4,622 6,475  6,321 4,622 
Other reserves 568 359  900 568 
  
Shareholders’ equity
 7,931 9,603  10,005 7,931 
  
Minority interests 387 307  737 387 
  
Total equity
 8,318 9,910  10,742 8,318 
  
Property, plant and equipment
GSK’s business is science-based, technology-intensive and highly regulated by governmental authorities. The Group allocates significant financial resources to the renewal and maintenance of its property, plant and equipment to minimise risks of interruption of production and to achieve compliance with regulatory standards. A number of its processes use chemicals and hazardous materials.
The total cost of the Group’s property, plant and equipment at 31st December 20082009 was £18,987£18,757 million, with a net book value of £9,678£9,374 million. Of this, land and buildings represented £3,756£3,762 million, plant and equipment £3,644£3,433 million and assets in construction £2,278£2,179 million. In 2008,2009, GSK invested £1,444£1,423 million in new and renewal property, plant and equipment. This is mainly related to a large number of projects for the renewal, improvement and expansion of facilities at various worldwide sites. Property is mainly held freehold. New investment is financed from Group liquid resources. At 31st December 2008,2009, GSK had capital contractual commitments for future expenditure of £489£416 million and operating lease commitments of £448£337 million. GSK believes that its facilities are adequate for its current needs.
The Group observes stringent procedures and uses specialist skills to manage environmental risks from these activities. Environmental issues, sometimes dating from operations now modified or discontinued, are reported under ‘Responsibility for environment, health and safety’the environment’ (page 30)24) and in Note 44 to the financial statements, ‘Legal proceedings’.
Goodwill
Goodwill has increased during the year from £1,370£2,101 million at 31st December 20072008 to £2,101£3,361 million. The increase primarily reflects the goodwill arising on the acquisition of Sirtris PharmaceuticalsStiefel Laboratories, Inc. of £242£885 million, the Pfizer HIV business of £255 million and that arising on the acquisitioncertain businesses from UCB S.A. of the BMS Egypt business of £52 million as well as a significant strengthening of overseas currencies on the translation of existing foreign currency goodwill balances.£87 million.
Other intangible assets
Other intangible assets include the cost of intangibles acquired from third parties and computer software. The net book value of other intangible assets as at 31st December 20082009 was £5,869£8,183 million (2007 — £4,456(2008 – £5,869 million). The increase in 20082009 reflects additions of £847£3,167 million andpartly offset by currency movements partly offset byand the amortisation and impairment of existing intangibles. The largest element of the additions is £106£1,513 million relating to the acquisition of Sirtris PharmaceuticalsStiefel Laboratories, Inc., reflecting the existencebrands acquired together with the Stiefel trade name. In addition, £595 million relates to the fair value of the technologyPfizer HIV intellectual property acquired following the creation of the ViiV Healthcare business during the year and a large patent application portfolio covering areasfurther £445 million arises from the acquisition of sirtuin biology.certain businesses from UCB S.A.


GSK Annual Report 2009

37

44GSK Annual Report 2008
Report of the Directors

Financial position and resourcescontinued

Investments
GSK held investments, including associates and joint ventures, with a carrying value at 31st December 20082009 of £1,030£1,349 million (2007 — £846(2008 – £1,030 million). The market value at 31st December 20082009 was £1,883£2,225 million (2007 — £1,517(2008 – £1,883 million). The largest of these investments isare in an associate,two associates: Quest Diagnostics Inc., which had a book value at 31st December 20082009 of £410 million (2008 – £463 million (2007 — £299 million). and Aspen Pharmacare Holdings Limited, acquired this year, which had a book value at 31st December 2009 of £372 million. The investments include equity stakes in companies where the Group has research collaborations, which provide access to biotechnology developments of potential interest orand interests in companies that arise from business divestments.
Derivative financial instruments: assets
GSK had both non-current and current derivative financial instruments held at fair value of £963£197 million (2007 — £476(2008 – £963 million). The increasedecrease primarily reflects fluctuations in far forward valuations on foreign exchange contracts hedging inter-company loans and deposits. Exchange movements are largely due to changeslower currency volatility in Euro, US dollar and Yen market rates.
Inventories
Inventory of £4,056£4,064 million has increased by £994£8 million during the year. The majority of this increase arises from a strengtheningH1N1 vaccine andSynflorix stock-builds following regulatory approval in key markets; the acquisition of overseas currencies, with the remainder caused partly byStiefel Laboratories, Inc.; strategic stock building to support growth in specific products.Emerging Markets and Japan, offset by a weakening of overseas currencies and improvements following implementation of the working capital reduction programme.
Trade and other receivables
Trade and other receivables of £6,265£6,492 million have increased from 20072008 reflecting the relatively high vaccine sales of H1N1 in the last quarter together with the Stiefel acquisition, partly offset by the impact of strengtheninga weakening of overseas currencies on the translation of foreign currency receivables, partly offset by the completionsale of non-recourse factoring arrangementslong outstanding debt in Japancertain European markets and Taiwan and reductions in overdue receivables in certain European and Asian markets.
Derivative financial instruments: liabilities
GSK held both non-current and current derivative financial instruments held at fair value of £754£168 million (2007 — £270 million)(2008 – £752 million current and £2 million non-current) relating primarily to hedging exchange on translation of currency assets on consolidation. The increasedecrease again reflects lower currency volatility on the impact from Euro, US dollar and Yen currency fluctuations.Yen.
Trade and other payables
Trade and other payables amounting to £6,075£6,772 million have increased from 20072008 primarily reflecting working capital improvement initiatives to extend supplier terms towards the strengtheningGroup’s 60 day term objective and the acquisition of overseas currencies.Stiefel Laboratories Inc., partly offset by a weakening of year-end foreign exchange rates.
Provisions
The Group carried deferred tax provisions and other short-term and non-current provisions of £3,813£3,886 million at 31st December 2008 (2007 — £2,8142009 (2008 – £3,813 million) in respect of estimated future liabilities, of which £1,903£2,020 million related to legal and other disputes. Provision has been made for legal and other disputes, indemnified disposal liabilities and the costs of restructuring programmes to the extent that at the balance sheet date an actual or constructive obligation existed and could be reasonably estimated.
Pensions and other post-employment benefits
The Group accounts for pension and other post-employment arrangements in accordance with IAS 19. The deficits, net deficitsof surpluses before allowing for deferred taxation were £1,736£1,745 million (2007 — £411(2008 – £1,697 million) on pension arrangements and £1,303£1,213 million (2007 — £972(2008 – £1,303 million) on unfunded post-employment liabilities. The pension liabilities increased following declines in asset values and a negative impactweakening of exchange movements only partially offset by further special funding contributions to the UK pension funds of £200 million (2007 — £285 million to the UK pension schemes); a strengthening of long-termlong term interest rates, including an increasea reduction in the rate used to discount UK pension liabilities from 5.75%6.20% to 6.20%5.70% and a decreasean increase in the estimated long term inflation rate in the UK.UK, partly offset by a positive impact of exchange movements and higher asset values.
Net debt
                
 2008 2007  2009 2008 
 £m £m  £m £m 
  
Cash, cash equivalents and liquid investments 6,014 4,532  6,813 6,014 
Borrowings — repayable within one year  (956)  (3,504)
Borrowings — repayable after one year  (15,231)  (7,067)
Borrowings – repayable within one year  (1,471)  (956)
Borrowings – repayable after one year  (14,786)  (15,231)
  
Net debt  (10,173)  (6,039)  (9,444)  (10,173)
  
Net debt increaseddecreased by £4,134£729 million primarily due to share repurchases, further acquisition of businesses andfrom a significant strengtheningweakening of the foreign currencies in which groupGroup debt is denominated, partly offset by increased cash inflows from operating activities.denominated.
Total equity
A summary of the movements in equity is set out below.
                
 2008 2007  2009 2008 
 £m £m  £m £m 
  
Total equity at beginning of year 9,910 9,648  8,318 9,910 
Total recognised income and expense for the year 4,829 6,134 
Total comprehensive income for the year 4,996 4,829 
Dividends to shareholders  (2,929)  (2,793)  (3,003)  (2,929)
Ordinary Shares issued 62 417  43 62 
Ordinary Shares purchased and held as Treasury shares —  (3,537)
Ordinary Shares purchased and cancelled  (3,706)  (213) –  (3,706)
Changes in minority shareholdings 338 – 
Put option over minority interest  (2) – 
Consideration received for shares transferred by ESOP Trusts 10 116  13 10 
Ordinary Shares acquired by ESOP Trusts  (19)  (26)  (57)  (19)
Share-based incentive plans 241 237  171 241 
Tax on share-based incentive plans  (1) 4  14  (1)
Distributions to minority interests  (79)  (77)  (89)  (79)
  
Total equity at end of year 8,318 9,910  10,742 8,318 
  
At 31st December 2008,2009, total equity had decreasedincreased from £9,910£8,318 million at 31st December 20072008 to £8,318£10,742 million. The decreaseincrease arises principally from retained profit for the year partly offset by actuarial losses on defined benefit pension plans in the year and further share repurchases, partially offset by recognised income and expenses for the year.plans.


GSK Annual Report 2009

38

GSK Annual Report 200845
Report of the Directors

Financial position and resourcescontinued

Share purchases
In 2008,2009, the Employee Share Ownership Plan (ESOP) Trusts acquired £19£57 million of shares in GSK plc (2007 — £26(2008 – £19 million). Shares are held by the Trusts to satisfy future exercises of options and awards under the Group share option and award schemes. A proportion of the shares held by the Trusts are in respect of awards where the rules of the scheme require GSK to satisfy exercises through market purchases rather than the issue of new shares. The shares held by the Trusts are matched to options and awards granted.
At 31st December 2008,2009, the ESOP Trusts held 118 million
(2008 – 129 millionmillion) GSK shares against the future exercise of share options and share awards. The carrying value of £1,138 million
(2008 – £1,445 million (2007 — £1,617 million) has been deducted from other reserves. The market value of these shares was £1,657£1,554 million (2007 — £1,721(2008 – £1,657 million).
GSK repurchased £3,706 million ofdid not repurchase any shares for cancellation in 2009
(2008 (2007 — £213– £3,706 million) and £nil ofor any shares to be held as Treasury shares (2007 — £3,537 million)
(2008 – £nil). In order to ensure that GSK has sufficient flexibility to deliver its strategic priorities the company does not expect to make any significant repurchases under the existing share buy-back programme during 2009.2010. The exact amount and timing of future purchases, and the extent to which repurchased shares will be held as Treasury shares rather than being cancelled, will be determined by the company and is dependent on market conditions and other factors. At 31st December 2008,2009, GSK held 474.2 million shares as Treasury shares (2007 — 504.2(2008 – 474.2 million shares), at a cost of £6,286 million (2007 — £6,683(2008 – £6,286 million), which has been deducted from retained earnings.
There have been no purchases since 3131st December 20082009 under the existing programme.
Commitments and contingent liabilities
Financial commitments are summarised in Note 39 to the financial statements, ‘Commitments’. Other contingent liabilities and obligations in respect of short and long-term debt are set out in Note 31 to the financial statements, ‘Contingent liabilities’ and Note 32 to the financial statements, ‘Net debt’.
Amounts provided for pensions and post-retirement benefits are set out in Note 28 to the financial statements, ‘Pensions and other post-employment benefits’. Amounts provided for restructuring programmes and legal, environmental and other disputes are set out in Note 29 to the financial statements, ‘Other provisions’.
Contractual obligations and commitments
The following table sets out the Group’s contractual obligations and commitments at 31st December 20082009 as they fall due for payment.
                                        
 Total Under 1 yr 1-3 yrs 3-5 yrs 5 yrs+  Total Under 1 yr 1-3 yrs 3-5 yrs 5 yrs+ 
 £m £m £m £m £m  £m £m £m £m £m 
   
Loans 16,051 911 703 4,600 9,837  16,127 1,431 2,647 2,538 9,511 
Interest on loans 11,868 782 1,525 1,339 8,222  10,733 757 1,507 1,130 7,339 
Finance lease obligations 136 48 62 19 7  130 40 56 19 15 
Finance lease charges 18 5 7 4 2  16 4 8 3 1 
Operating lease commitments 448 140 185 76 47  337 111 122 35 69 
Intangible assets 13,048 660 1,269 1,556 9,563  12,280 694 1,189 2,022 8,375 
Property, plant & equipment 489 388 100 1 —  416 300 74 42 – 
Investments 56 46 10 — —  86 37 12 37 – 
Purchase commitments 145 70 74 1 —  82 60 21 1 – 
Business combinations 227 227 — — — 
Pensions 597 334 132 131 —  1,460 365 730 365 – 
Other commitments 46 17 19 5 5  52 8 17 22 5 
   
Total 43,129 3,628 4,086 7,732 27,683  41,719 3,807 6,383 6,214 25,315 
   
Commitments in respect of loans and future interest payable on loans are disclosed afterbefore taking into account the effect of derivatives. The Group has entered into a number of research collaborations to develop new compounds with other pharmaceutical companies. The terms of these arrangements can include up-frontupfront fees, equity investments, loans and commitments to fund specified levels of research. In addition, the Group will often agree to make further payments if future ‘milestones’ are achieved. As some of these agreements relate to compounds in the early stages of development, milestone payments will continue for a number of years if the compounds move successfully through the development process. Generally the closer the product is to marketing approval the greater the possibility of success. The payments shown above within intangible assets represent the maximum that would be paid if all milestones are achieved.
A number of new commitments were made in 20082009 under licensing and other agreements, including arrangements with ActelionChroma Therapeutics Limited, Concert Pharmaceuticals, Limited, Archemix Corporation, Dynavax Technologies Corporation, and MpexInc., Idenix Pharmaceuticals, Inc. The commitments relating to business combinations reflect agreements to acquire the issued share capital of Genelabs Technologies,Prosensa B.V. and Seattle Genetics, Inc., Bristol Myers Squibb Pakistan (Private) Limited and AZ Tika SNC, the latter being subject to clearance by the Swedish Competition Authority.
In 2006,2009, GSK formalisedreached an agreement with the trustees of the UK pension schemes to make additional contributions in addition to the normal contributions, over a fourfive year period, ending 31st December 2009 in order to eliminate the then funded pension deficits on an IAS 19 basis by that point.deficit identified at the 31st December 2008 actuarial funding valuation. The table above shows this commitment net of £166 million of additional contributions made in 2008, but excludes the normal ongoing annual funding requirement of approximately £150 million. GSK has also committed to eliminate any future deficits that may arise over a rolling five-year period. This agreement will be reviewed during 2009. For further information on pension obligations, see Note 28 to the financial statements, ‘Pensions and other post-employment benefits’.


GSK Annual Report 2009

39

46GSK Annual Report 2008
Report of the Directors

Financial position and resourcescontinued

Contingent liabilities
The following table sets out contingent liabilities, comprising discounted bills, performance guarantees, letters of credit and other items arising in the normal course of business, and when they are expected to expire.
                                        
 Total Under 1 yr 1-3 yrs 3-5 yrs 5 yrs+  Total Under 1 yr 1-3 yrs 3-5 yrs 5 yrs+ 
 £m £m £m £m £m  £m £m £m £m £m 
  
Guarantees 98 73 14 — 11  110 72 28 – 10 
Other contingent liabilities 36 3 12 3 18  40 5 12 2 21 
  
Total 134 76 26 3 29  150 77 40 2 31 
  
In the normal course of business, GSK has provided various indemnification guarantees in respect of business disposals in which legal and other disputes have subsequently arisen. A provision is made where an outflow of resources is considered probable and a reasonable estimate can be made of the likely outcome of the dispute and this is included in Note 29 to the financial statements, ‘Other provisions’.
It is the Group’s policy to provide for the settlement costs of asserted claims and environmental disputes when an outflow of resources is considered probable and a reasonable estimate may be made. Prior to this point no liability is recorded. Legal and environmental costs are discussed in ‘Risk factors’ on pages 5043 to 5347 and Note 44 to the financial statements, ‘Legal proceedings’. GSK continues to believe that it has made adequate provision for the liabilities likely to arise from open taxation assessments. The ultimate liability for such matters may vary significantly from amounts provided and is dependent upon the outcome of litigation proceedings and negotiations with the relevant tax authorities. This is discussed further in Note 14 to the financial statements, ‘Taxation’.
Cash flow
A summary of the consolidated cash flow is set out below.
                
 2008 2007  2009 2008 
 £m £m  £m £m 
  
Net cash inflow from operating activities 7,205 6,161  7,841 7,205 
Net cash outflow from investing activities  (1,149)  (3,048)  (4,013)  (1,149)
Net cash outflow from financing activities  (4,908)  (1,702)  (2,774)  (4,908)
  
Increase/(decrease) in cash and bank overdrafts 1,148 1,411 
 
Increase in cash and bank overdrafts 1,054 1,148 
Exchange adjustments 1,103 48   (158) 1,103 
Cash and bank overdrafts at beginning of year 3,221 1,762  5,472 3,221 
  
Cash and bank overdrafts at end of year 5,472 3,221  6,368 5,472 
  
 
Cash and bank overdrafts at end of year comprise:  
Cash and cash equivalents 5,623 3,379  6,545 5,623 
Overdrafts  (151)  (158)  (177)  (151)
  
 5,472 3,221  6,368 5,472 
  
The net cash inflow from operating activities after taxation paid was £7,205£7,841 million, an increase of £1,044£636 million over 20072008 reflecting an unchangedhigher profit before tax, (excludingexcluding the impact of the significant increase in non-cash charges made in the year, primarily from the major restructuring programmes), together with improved working capital management.programmes.

The net cash outflow from investing activities was £1,149£4,013 million, a decreasean increase of £1,899£2,864 million which primarily reflected marginally lower capital expenditure, repayments of liquid investments and a reducedsignificant increase in the cost of business purchases during 2009, including Stiefel Laboratories, Inc. for £1,993 million net of cash acquired of £74 million, certain businesses from UCB S.A. for £472 million net of cash acquired of £5 million, and AZ Tika for £146 million. In 2008, includingthe comparable acquisitions comprised Sirtris Pharmaceuticals for £324 million net of cash acquired of £52 million, and the Egyptian business of BMS for £130 million net of deferred consideration of £10 million. In 2007, the comparable acquisitions comprisedaddition sales of Reliant Pharmaceuticals for £794liquid investments realised cash of £905 million and Domantis for £218 million, net ofin 2008.
Free cash acquired.flow
(BAR GRAPH)(BAR GRAPH)
Free cash flow is the amount of cash generated by the business after meeting its obligations for interest, tax and dividends paid to minority interests, and after capital expenditure on non-current tangible and intangible assets. ItFor 2009 free cash flow was £4,679£5,254 million, an increase of 21%12% over 2007,2008. This principally reflectingreflected the higher operating profit before non-cash charges primarily(primarily from the major restructuring programmes,programmes) and working capital improvements,lower expenditure on intangible assets. This was partly offset by higher levels of net interest paid as a result of the significant debt issuancesissuance during the year of US $9 billion under the US shelf registration and £0.7€1.6 billion under the EMTN programme.programme and reduced interest income on deposits.
Free cash flow is used by GSK’s management for planning and reporting purposes and in discussions with and presentations to investment analysts and rating agencies. GSK’s free cash flow measure is not defined in IFRS. This measure may not be directly comparable with similarly described measures used by other companies. A reconciliation of net cash inflow from operating activities, which is the closest equivalent IFRS measure, to free cash flow is shown below.
Reconciliation of free cash flow
                
 2008 2007  2009 2008 
 £m £m  £m £m 
  
Net cash inflow from operating activities 7,205 6,161  7,841 7,205 
Purchase of non-current tangible assets  (1,437)  (1,516)
Purchase of property, plant and equipment  (1,418)  (1,437)
Purchase of non-current intangible assets  (632)  (627)  (455)  (632)
Disposal of non-current tangible fixed assets 20 35 
Disposal of property, plant and equipment 48 20 
Interest paid  (730)  (378)  (780)  (730)
Interest received 320 247  90 320 
Dividends received from joint ventures and associated undertaking 12 12  17 12 
Dividends paid to minority interests  (79)  (77)  (89)  (79)
  
Free cash flow 4,679 3,857  5,254         4,679 
  


GSK Annual Report 2009

40

GSK Annual Report 200847
Report of the Directors

Financial position and resourcescontinued

Movements in net debt
                
 2008 2007  2009 2008 
 £m £m  £m £m 
  
Net debt at beginning of year  (6,039)  (2,450)  (10,173)  (6,039)
Increase in cash and bank overdrafts 1,148 1,411  1,054 1,148 
Cash (inflow)/outflow from liquid investments  (905) 39 
Cash inflow from liquid investments  (87)  (905)
Net increase in long-term loans  (5,523)  (3,276)  (1,358)  (5,523)
Net repayment of/(increase in) short-term loans 3,059  (1,632)
Net repayment of short-term loans 102 3,059 
Debt of subsidiary undertakings acquired  (9) – 
Exchange movements  (1,918)  (88) 1,041  (1,918)
Other movements 5  (43)  (14) 5 
  
Net debt at end of year  (10,173)  (6,039)  (9,444)  (10,173)
  
Investment appraisal
GSK has a formal process for assessing potential investment proposals in order to ensure decisions are aligned with the Group’s overall strategy. This process includes an analysis of the impact of the project on earnings, its return on invested capital and an assessment of the return based on discounted cash flows. The discount rate used to perform financial analysis is decided internally, to allow determination of the extent to which investments cover the Group’s cost of capital. For specific investments the discount rate may be adjusted to take into account country or other risk weightings.
Capital expenditure and financial investment
Cash payments for tangible and intangible fixed assets amounted to £1,873 million (2008 – £2,069 million (2007 —million; 2007 – £2,143 million, 2006 — £1,590 million). Disposals realised £404 million (2008 – £191 million (2007 —million; 2007 – £44 million, 2006 — £218 million). Cash payments to acquire equity investments of £154 million (2008 – £87 million (2007 —million; 2007 – £186 million, 2006 — £57 million) were made in the year and sales of equity investments realised £59 million (2008 – £42 million (2007 —million; 2007 – £45 million, 2006 — £32 million).
Future cash flow
The Group expects that future operating cash flow will be sufficient to fund its operating and debt service costs, to satisfy normal levels of capital expenditure, to meet obligations under existing licensing agreements, to meet the expenditure arising from the major restructuring programmes (the precise timing of which is uncertain) outlined in Note 7 to the financial statements, ‘Major restructuring programmes’. and to meet other routine outflows including tax and dividends, subject to the ‘Risk factors’ discussed on pages 5043 to 53.47. GSK may from time to time have additional demands for finance, such as for acquisitions. It has access to other sources of liquidity from short and long-term capital markets and banks and other financial institutions, in addition to the cash flow from operations, for such needs.
Payment policies
Group companies are responsible for monitoring and managing their working capital. The terms of sales collections and supplier payments reflect local commercial practice.
In the UK, the company and each of its UK subsidiaries have policies to ensure that suppliers are paid on time. In particular, the UK companies seek:
• to settle terms of payment with suppliers when agreeing the terms of the transaction
 
• to ensure that suppliers are made aware of the agreed terms of payment
 
• to abide by the terms of payment.
The policy permits arrangements for accelerated payment to small suppliers.
Payment performance
At 31st December 2008,2009, the average number of days’ payable outstanding represented by trade payables of the parent company was nil (2007 —(2008 – nil) and in respect of the company and its UK subsidiaries in aggregate was 2044 days (2007 — 21(2008 – 20 days).
Treasury policies
GSK reports in Sterling and pays dividends out of Sterling profits. The role of Corporate Treasury is to manage and monitor our external and internal funding requirements and financial risks in support of our corporatestrategic objectives. Treasury activities are governed by policies and procedures approved by the Board of Directors, most recently on 25th September 2008.1st October 2009.
A Treasury Management Group (TMG)(“TMG”) chaired by our Chief Financial Officer, meets on a monthly basis to review treasury activities. Its members receive management information relating to treasury activities.
Capital management
Our operations areGSK operates on a global basis, primarily through subsidiary companies established in the markets in which we trade. With significant levels of patent or trademark protection, our products compete largely on product efficacy or differentiation rather than on price. Selling margins are sufficient to cover normal operating costs and our operating subsidiaries are generally cash generative.
Operating cash flow is used to fund investment in research and development of new products. It is also used to make the routine outflows of capital expenditure, tax, dividends, repayment of maturing debt and, to the extent determined by the Board, share repurchases.
Our policy is to borrow centrally using a variety of capital market issues and borrowing facilities to meet anticipated funding requirements.


48GSK Annual Report 2008
Report of the Directors

Financial position and resourcescontinued

These borrowings, together with cash generated from operations, are on-lent, contributed as equity to certain subsidiaries or used to pay dividends and make acquisitions or fundacquisitions. GSK did not make any share buy-backs.repurchases in 2009.


For further details of GSK’s share buy-back programme, please see Note 33, ‘Share capitalGSK Annual Report 2009

41

Financial position and share premium account’.resources

Liquidity
As at 31st December 2008,2009, our cash and liquid investments were held as follows:
         
  2008  2007 
  £m  £m 
 
Bank balances and deposits  3,778   1,431 
Treasuries and treasury-repo only money market funds  1,852   1,713 
Corporate debt instruments  75   1,170 
Government securities  309   218 
 
   6,014   4,532 
 
£4.3 billion of this amount is managed centrally and available within three months. We had net debt at 31st December  2008 of £10.2 billion. The table below summarises cash and gross debt.
         
  2008  2007 
  £m  £m 
 
Cash and liquid investments  6,014   4,532 
Gross debt – fixed  (13,814)  (6,254)
– floating  (2,373)  (4,317)
 
Net debt  (10,173)  (6,039)
 
The maturity profile of gross debt is shown in the table below:
         
  2009  2008 
  £m  £m 
    
Bank balances and deposits  5,206   3,778 
US Treasury and Treasury repo
only money market funds		  1,305   1,852 
Corporate debt instruments  10   75 
Government securities  292   309 
    
   6,813           6,014 
    
 
£4.9 billion of this amount is managed centrally and available within three months. We had net debt at 31st December 2009 of £9.4 billion. The table below summarises cash and gross debt after the effects of hedging.
 
  2009  2008 
  £m  £m 
    
Cash and liquid investments  6,813   6,014 
Gross debt – fixed  (13,706)  (13,814)
– floating  (2,550)  (2,373)
– non-interest bearing  (1)  – 
    
Net debt  (9,444)          (10,173)
    
At 31st December 2008,2009, we had centrally available cash reserves of £4.3£4.9 billion and committed undrawn bank facilities of $3.9 billion. As at that date we had short-term debt and bank overdrafts and loans repayable within one year of £1.0£1.5 billion.
We manage our net borrowing requirements through a portfolio of long-term borrowings, including bonds, together with short-term finance under a $10 billion commercial paper programme. During the year, our committed undrawn bank facilities reduced from $5 billion toThe commercial paper programme is backed by $3.9 billion as a consequence of Royal Bank of Scotland’s acquisition of ABN AMRO and the collapse of Lehman Brothers.committed facilities. The facilities were last renewed in October 2008.2009. We consider this level of committed facilities to be adequate given our current cash holdings. For further information on these facilities, please refer tosee Note 32 to the financial statements, ‘Net debt’. We also benefit from strong positive cash flow from operating units.
We have a European Medium Term Note programme of £10£15 billion. At 31st December 2008,2009, we had £7.9£8.5 billion of notes in issue under this programme. We also have a US shelf registration statement. At 31st December 2008,2009, we had $11.1$11 billion (£7.76.9 billion) of notes in issue under this programme. The TMG monitors the cash flow forecast on a monthly basis.
The long-term borrowings mature at dates between 20102012 and 2042. Our long-term debt ratings have remained stable since February 2008. Currently we are rated A+ stable outlook by Standard and Poor’s and A1 negativestable outlook by Moody’s. Our short-term debt ratings are A-1 and P-1 with Standard and Poor’s and Moody’s respectively.


(BAR GRAPH)The maturity profile of gross debt is shown in the table below:
Maturity profile of gross debt
(BAR GRAPH)
GSK Annual Report 2009

42

GSK Annual Report 200849
Report of the Directors

Financial position and resourcescontinued

Treasury operations
The objective of treasury activity is to manage the post-tax net cost or income of financial operations to the benefit of earnings. Corporate Treasury does not operate as a profit centre. We use a variety of financial instruments including derivatives, to finance our operations and derivative financial instruments to manage market risks from thosethese operations.
Derivatives, These derivatives, principally comprising forward foreign currency contracts, interest rate and currency swaps, are used to swap borrowings and liquid assets into our required currencies and to manage exposure to funding risks from changes in foreign exchange and interest rates.
We do not hold or issue derivative financial instrumentsderivatives for speculative purposes. Our treasury policies specifically prohibit such activity. All transactions in financial instruments are undertaken to manage the risks arising from underlying business activities, not for speculation.
Foreign exchange management
Foreign currency transaction exposureexposures arising on internal and external trade flows isare not hedged. The exposure of overseas operating subsidiaries to transaction risk is minimised by matching local currency income with local currency costs.
For this purpose, our internal trading transactions are matched centrally and we manage intercompany payment terms to reduce foreign currency risk. Exceptional foreign currency cash flows are hedged selectively under the management of Corporate Treasury.
We manage the short-term cash surpluses or borrowing requirements of subsidiary companies centrally using forward contracts to hedge future repayments back into the originating currency.
We seek to denominate borrowings in the currencies of our principal assets and cash flows. These are primarily denominated in US dollars, Euros and Sterling. Certain borrowings are swapped into other currencies as required.
Borrowings denominated in, or swapped into, foreign currencies that match investments in our overseas assets aremay be treated as a hedge against the relevant assets. Forward contracts are also used in major currencies to reduce our exposure to our investment in overseas Group assets (see ‘Net Investment Hedges’ section of Note 41 for further details). The TMG reviewreviews the ratio of borrowings to assets for major currencies.
Interest rate risk management
The policy on interest rate risk management requireslimits the minimum amount of net borrowings at fixed ratesfloating interest payments to increase with the ratioa prescribed percentage of forecast interest payable to trading profit. The fixed to floating ratio is reviewed monthly by the TMG.
We use an interest rate swap to redenominatere-denominate one of our external borrowings into the interest rate coupon required by GSK. The duration of this swap matches the duration of the principal instrument. Interest rate derivative instruments are accounted for as fair value or cash flow hedges of the relevant assets or liabilities.
Counterparty risk management
Our policy on counterparty risk management is to work with a select group of relationship banks. Global counterparty limits are assigned to each of GSK’s banking and investment counterparties based on long-term credit ratings from Moody’s and Standard and Poor’s. Corporate Treasury’s usage of these limits is monitored daily by a Corporate Compliance Officer (CCO) independentwho operates independently of Corporate Treasury. Any breach of these limits is reported to the CFO immediately. The CCO also monitors the credit rating of these counterparties and, when changes in ratings occur, notifies Corporate Treasury so the appropriate amendmentthat changes can be made to limits.investment levels or authority limits as appropriate. A full counterparty analysis is presented to the TMG annually for approval.
Since July 2007, we have tightened our criteria for holding cash equivalents and liquid investments in response to the credit crisis.
On 15th September 2008, Lehman Brothers filed for Chapter 11 proceedings in the USA and appointed administrators in the UK. Although Lehman was one of GSK’s relationship banks, our exposure to Lehman at the time of the collapse was limited to immaterial costs on foreign exchange contracts and the termination of the Quest Collar referred to in more detail in Note 20 to the financial statements, ‘Investments in associates and joint ventures’.
Financial assets and liabilities
An analysis of net debt is given in Note 32 to the financial statements, ‘Net debt’. An analysis of financial assets and liabilities at carrying value and fair value is given in Note 41 to the financial statements, ‘Financial instruments and related disclosures’.
We continue to benefit from strong positive cash flow from operating activities. Our net debt would havehas decreased in the year to 31st December 2008, but for our purchase of our own shares2009, despite GSK’s acquisition activities in the market of £3.7 billionperiod which totalled approximately £2.8 billion. For further information on these activities, see Note 38 to the financial statements, ‘Acquisitions and acquisitions of approximately £0.5 billion.Disposals’.
The financial assets and liabilities at 31st December 20082009 are representative of our treasury policies and strategies applied since July 2007. In 2009 GSK raised £8.0approximately £1.4 billion (2008 – £6.3 billion) in the Capital Markets between December 2007 and May 2008 of which £2.4 billion was raised in 2007.Markets. We dodid not expect to make any significant share repurchases in 2009.


GSK Annual Report 2009

43

50GSK Annual Report 2008
Report of the Directors

Risk factors

Risk factors

There are risks and uncertainties relevant to the Group’s business, financial condition and results of operations that may affect future performance. These include R&D, anticipated sales growththe Group’s performance and expected earnings.ability to achieve its objectives. The factors below are among those that the Group thinks, based on the CET’s most recent annual workshop to identify the most significant risks facing the Group, could cause its actual results to differ materially from expected and historical results. There are other risks and uncertainties not currently known to the Group or which are deemed immaterial.
For each of the risks described below, the Group has implemented a system of internal control that involves policies and procedures, communication and training programmes, supervision and monitoring and processes for escalating issues to the appropriate level of senior management. Such a system helps facilitate the Group’s ability to respond appropriately to risks and to achieve Group objectives and helps ensure compliance with applicable laws, regulations and internal policies. It is not possible, however, for the Group to implement controls to respond to all the risks that it may face, and there can be no assurance that the steps the Group has taken to address certain risks will manage these risks effectively or at all.
The Group’s management and mitigation of riskthese risks is further discussed on page 7266 ‘Corporate Governance’.
The major risks that might affect GSK’s business are:
Risk that R&D will not deliver commercially successful
new products
Continued development of commercially viable new products as well as the development of additional uses for existing products is critical to the Group’s ability to replace sales of older products that decline upon expiration of exclusive rights, and to increase overall sales. Developing new products is a costly, lengthy and uncertain process.
A new product candidate can fail at any stage of the process, and one or more late-stagelate stage product candidates could fail to receive regulatory approval.
New product candidates may appear promising in development but, after significant investment, fail to reach the market or have only limited commercial success. This, for example, could be as a result of efficacy or safety concerns, an inability to obtain necessary regulatory approvals, difficulty manufacturing or excessive manufacturing costs, to manufacture, erosion of patent termterms as a result of a lengthy development period, infringement of patents or other intellectual property rights of others or an inability to differentiate the product adequately from those with which it competes.
Health Furthermore, health authorities such as the US FDA, the European Medicines Agency and the Japan Pharmaceuticals and Medicines Device Agency have increased their focus on safety when assessing the benefit/risk balance of drugs.drugs, which has made it more difficult for pharmaceutical products to gain regulatory approval.
There is also increasing pressure on healthcare budgets as the average age of the population in developed markets increases and the absolute population in developing markets grows. Payers are also becominghave therefore increasingly more demanding with regard to thedemanded greater incremental benefit requiredfrom drugs before agreeing to gain reimbursementreimburse suppliers at prices suppliers consider appropriate. A failure to develop commercially successful products or develop additional uses for existing products for any of these reasons could materially and secure appropriate pricing.adversely affect the Group’s financial results.
Risk of unplanned loss of patents
Patent infringement litigation
The Group’s patents, in common with all patents, can be challenged at any time. Efforts by generic manufacturers may involve challenges to the validity or enforceability of a patent or assertions that their generic product does not infringe the Group’s patents. If GSK is not successful in defending an attack on its patents and maintaining exclusive rights to market one or more of its major products, particularly in the USA where the Group has its highest turnover and margins, the Group’s turnoverfinancial results may be materially and margins would be adversely affected. See Note 44 to the financial statements, ‘Legal proceedings’, for a discussion of patent-related proceedings in which the Group is involved and page 1812 for a description of resolutionthe resolutions of prior proceedings which affect the dates on which generic versions of the Group’s products may be introduced.

Generic drug manufacturers are seeking to market generic versions of many of the Group’s most important products, prior to the expiration of the Group’s patents, and have exhibited a readiness to do so for other products in the future. The US launch of generic products competing withLamictal,Imitrex,Paxil CR,Requipand,Wellbutrin XLandValtrexhad a significant impact on the Group’s overall turnover and earnings for 2008.2009.
Potential changes in intellectual property laws and
regulations
Proposals to change existing patent and data exclusivity laws and regulations in major markets in which the Group sells its products are a continuing feature of the political process in those countries. These include proposals that could have the effect of making prosecution of patents for new products more difficult and time-consuming or adversely affectingaffect the exclusivity period for the Group’s products, including biological products. Should such proposals be enacted they could have an adverse impact onmay materially and adversely affect the Group’s future sales and results of operations.financial results.
Weakness of intellectual property protection in
certain countries
In some of the countries in which the Group operates, patent protection may be significantly weaker than in the USA or the European Union. In an effort to control public health crises, someSome developing countries such as South Africa, Thailand and Brazil, have considered plans for substantial reductions in the scope ofreduced, or threatened to reduce, effective patent protection for pharmaceutical products. Inproducts generally, or in particular these countries couldtherapeutic areas, to facilitate early competition within their markets from generic manufacturers who would otherwise be unable to introduce competing products for a number of years.
manufacturers. Any loss of patent protection, including abrogationreducing the scope of patent rights or compulsory licensing, is likely tocould materially and adversely affect adversely the Group’s operatingfinancial results in those national markets but is not expected to be material to the Group overall. Absence of adequate patent protection could limit the opportunity to look to such markets for future sales growth.
Risk of substantial adverse outcome of litigation and
government investigations
See Note 44 to the financial statements, ‘Legal proceedings’, for a discussion of proceedings and governmental investigations —- involving matters which if proven could give rise to civil and/or criminal liabilities —– in which the Group is currently involved. Unfavourable resolution of these and similar future proceedings or investigations may have a material adverse effect on the Group’s financial condition and results of operations. The Group has made material provisions in 2006, 20072009 and 2008prior years related to legal proceedings and investigations which reduced its earnings.


GSK Annual Report 2009

44

Risk factors

The Group may also make additional significant provisions related to legal proceedings and investigations in the future, which would reduce its earnings. In many cases the practice of the plaintiff bar is to claim damages in amounts that bear no relationship to the underlying harm. Accordingly it ismay be potentially misleading for the Group to quantify, based on the amount of damages claimed, its potential exposure to claims, proceedings and investigations of the type described in Note 44 to the financial statements, ‘Legal proceedings’.


GSK Annual Report 200851
Report of the Directors

Risk factorscontinued

Recent insurance loss experience, including pharmaceutical product liability exposures, has increased the cost of, and narrowed the coverage afforded by, insurance for pharmaceutical companies generally, including the Group.
In order to contain insurance costs in recent years the Group has continued to adjust its coverage profile, accepting a greater degree of un-insured exposure. In addition, where claims are made under insurance policies, insurers may reserve the right to deny coverage on various grounds. If denial of coverage is ultimately upheld on these claims, this could result in material additional charges.charges that may materially and adversely affect the Group’s financial results.
Product liability litigation
Pre-clinical and clinical trials are conducted during the development of potential products to determine the safety and efficacy of products for use by humans following approval by regulatory bodies. Notwithstanding these efforts, when drugs and vaccines are introduced into the marketplace, unanticipated side effects may become evident.
In other instances third parties may perform analyses of published clinical trial results which, although not necessarily accurate or meaningful, may raise questions regarding the safety of pharmaceutical products which may be publicised by the media and may result in product liability claims. The Group is currently a defendant in a number of product liability lawsuits, including class actions, that involve substantial claims for damages related to the Group’s pharmaceutical products. Litigation, particularly in the USA, is inherently unpredictable and excessive verdicts that are not justified by the evidence can occur. Class actions that sweep together all persons who were prescribed the Group’s products can inflate the potential liability by the force of numbers. Claims for pain and suffering and punitive damages are frequently asserted in product liability actions and, if allowed, can represent potentially open-ended exposure.open ended exposure and thus could materially and adversely affect the Group’s financial results.
Anti-trust litigation
In the USA it has become increasingly common that following publicity around government investigations or an adverse outcome in prosecution offor patent infringement actions to prompt claims that anti-trust laws have been violated during the defendants and direct and indirect purchasers and other payers initiate anti-trust actions as well. Claimsinitial prosecution of the patent or during litigation involving the defence of that patent. Such claims by direct and indirect purchasers and other payers are typically filed as class actions. The relief sought may include treble damages and restitution claims. Damages in adverse anti-trust verdicts are subject to automatic trebling in the USA. Similarly, anti-trust claims may be brought following settlement of patent litigation, alleging that such settlements are anticompetitiveanti-competitive and in violation of anti-trust laws. A successful anti-trust claim against the Group could materially and adversely affect the Group’s financial results.
Sales, marketing and regulation
The Group operates globally in complex legal and regulatory environments that often vary among jurisdictions. The failure to comply with applicable laws, rules and regulations in these jurisdictions may result in civil and criminal legal proceedings. As those rules and regulations change or as governmental interpretation of those rules and regulations evolve, prior conduct may be called into question.
In the USA, for example, the Group is responding to federal and state governmental investigations into pricing, marketing and reimbursement of its prescription drug products. These investigations could result in related restitution or civil false claims act litigation on behalf of the federal or state governments, as well as related proceedings initiated against the Group by or on behalf of consumers and private payers. Such proceedings may result in trebling of damages awarded or fines in respect of each violation of law. Criminal proceedings may also be initiated against the Group. Any of these consequences could materially and adversely affect the Group’s financial results.
Risks of competition, price controls and limitations on sales
Third party competition
The Group operates in highly competitive markets. In the pharmaceuticals business, it faces competition both from proprietary products of large international manufacturers and producers of generic pharmaceuticals. Significant product innovations, technical advances or the intensification of price competition by competitors couldmay materially and adversely affect the Group’s operatingfinancial results. The Group cannot predict the timing or impact of competitive products or their potential impact on sales of the Group’s products. Continued consolidation in the pharmaceutical industry couldmay adversely affect the Group’s competitive position, while continued consolidation among the Group’s customers may increase pricing pressures.
The Group had eightnine pharmaceutical products with over £500 million in annual global sales in 2008.2009. Among these products areAugmentin IRandES,ImitrexLamictal IR,PaxilandLamictalValtrexfor which there is generic competition andAvandia andValtrex, with respect to which the Group’s intellectual property rights in the USA are currently the subject of litigation or settlement agreements related to such litigation.USA.
If any of the Group’s major products were to become subject to a problem such as unplanned loss of patent protection, unexpected side effects, regulatory proceedings, publicity affecting doctor or patient confidence or pressure from competitive products, or if a new, more effective treatment should be introduced, the adverse impact on the Group’s revenuesfinancial results may be materially and operating results could be significant. adversely affected.
In particular, the Group faces intense competition from manufacturers of generic pharmaceutical products in all of its major markets. Generic products often enter the market upon expiration of patents or data exclusivity periods for the Group’s products. Introduction of generic products typically leads to a dramatic loss of sales and reduces the Group’s revenues and margins for its proprietary products. The expiration dates for patents for the Group’s major products and a description of litigation settlements which may affect the dates on which generic versions of the Group’s products may be introduced are set out on page 18.12. Legal proceedings involving patent challenges are set out in Note 44 to the financial statements, ‘Legal proceedings’.
Governmental and payer controls
Pharmaceutical products are subject to price controls or pressures and other restrictions in many markets, including Japan, Germany, Spain, France and Italy. Some governments intervene directly in setting prices.


GSK Annual Report 2009

45

52GSK Annual Report 2008
Report of the Directors

Risk factorscontinued

In addition, in some markets major purchasers of pharmaceutical products (whether governmental agencies or private health care providers) have the economic power to exert substantial pressure on prices or the terms of access to formularies.
The Group cannot accurately predict whether existing controls, pressures or restrictions will increase or whether new controls, pressures or restrictions will be introduced that will reduceintroduced. Such measures may materially and adversely affect the Group’s margins or affect adversely its ability to introduce new products profitably.profitably and its financial results.
For example, in the USA, where the Group has its highest margins and the most sales for any country, pricing pressures could significantly increase as experience developscontinues to develop under the outpatient pharmaceutical programme covering Medicare beneficiaries that began in 2006. The private insurers through which coverage is offered, through their enormous purchasing power underAlso, changes to the programme, could demand discounts that may implicitly create price controls on prescription drugs.
Changes to therelated enabling legislation could afford the US government a direct role in negotiating prices under the Medicare programme.
In addition, the US Congress is considering comprehensive health care reform legislation that could significantly expand the scope of government health care programs that include specific price control mechanisms or that could increase the Group’s rebate liability with respect to those programs.
Additionally, a number of states have proposed or implemented various schemes to control prices for their ownlow-income and senior citizens’ programmes, including increasing the rebate liability of pharmaceutical companies, importation from other countries and bulk purchases of drugs. The growth in the number of patients covered through large managed care institutions in the USA, which has increased with implementation of the Medicare benefit, also increases pricing pressures on the Group’s products. TheseAny of these trends may materially and adversely affect the Group’s revenues and margins from sales in the USA.financial results.
Regulatory controls
The Group must comply with a broad range of regulatory controls on the testing, approval, manufacturing and marketing of many of its pharmaceutical and consumer healthcare products, particularly in the USA and countries of the European Union, that affect not only the cost of product development but also the time required to reach the market and the uncertainty of successfully doing so. Health authorities have increased their focus on safety when assessing the benefit risk/balance of drugs in the context of not only initial product approval but also in the context of approval of additional indications and review of information regarding marketed products. Stricter regulatory controls also heighten the risk of changes in product profile or withdrawal by regulators on the basis of post-approval concerns over product safety, which could reduce revenues and can result in product recalls and product liability lawsuits. There is also greater regulatory scrutiny, especially in the USA, on advertising and promotion and in particular on direct-to-consumer advertising.
In addition, in some cases the Group may voluntarily cease marketing a product or face declining sales based on concerns about efficacy or safety (for example, declinesthe decline in sales ofAvandia beginning in 2007 following publicity around questions regarding risks associated with the product), whether or not scientifically justified, even in the absence of regulatory action. The development of the post-approval adverse event profile for a product or the product class may have a major impact onmaterially and adversely affect the marketing and sale of the product.Group’s financial results.

Risk of interruption of product supply
The manufacture of pharmaceutical products and their constituent materials requires compliance with good manufacturing practice regulations. The Group’s manufacturing sites are subject to review and approval by the FDA and other regulatory agencies. Compliance failure by suppliers of key services and materials or the Group’s own manufacturing facilities could lead to product recalls and seizures, interruption of production and delays in the approvals of new products pending resolution of manufacturing issues. Non-compliance can also result in fines and disgorgement of profits.
Any interruption of supply or the incurrence of fines or disgorgement remedy could materially and adversely affect the Group’s financial results. For example, during resolution of FDA observations of deficiencies in manufacturing practices at the Group’s Cidra, Puerto Rico facility, as referred to in Note 44 to the financial statements, ‘Legal proceedings’, supplies of certain products manufactured at that site were curtailed or constricted which had an adverse impact on sales in 2005 and 2006.
Although the Group undertakes business continuity planning, single sourcing for certain components, bulk active materials and finished products creates a risk of failure of supply in the event of regulatory non-compliance or physical disruption at the manufacturing sites.
Risk from concentration of sales to wholesalers
In the USA, in line with other pharmaceutical companies, the Group sells its products through a small number of wholesalers in addition to hospitals, pharmacies, physicians and other groups. Sales to the three largest wholesalers amounted to approximately 84%85% of the Group’s US pharmaceutical sales.sales in 2009. At 31st December 20082009 the Group had trade receivables due from these three wholesalers totalling £1,067£867 million (31st December 2007 — £9152008 – £1,067 million). The Group is exposed to a concentration of credit risk in respect of these wholesalers such that, if one or more of them is affected by financial difficulty, it could materially and adversely affect the Group’s financial results.
Reliance on information technology
The Group is increasingly dependent on information technology systems, including Internet-based systems, for internal communication as well as communication with customers and suppliers. Any significant disruption of these systems, whether due to computer viruses or other outside incursions, could materially and adversely affect the Group’s operations.
Global political and economic conditions
As described on page 33,27, many of the world’s largest economies, including the major markets in which the Group operates, and financial institutions currently facehave recently faced extreme financial difficulty, including a decline in asset prices, liquidity problems and limited availability of credit. It is uncertain how long this crisis will last, but many countries are concerned that theirMany of these economies have experienced sharp recessions. While some economies have shown signs of recovery, the rate of recovery may enter a deep and prolonged recession.be slow.


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Report of the Directors

Risk factorscontinued

Such a decline inContinued economic activityweakness may have a material adverse effect on the Group’s sales, results of operations, financial condition and ability to raise capital. Some of the Group’s businesses, including Consumer Healthcare, may be particularly sensitive to declines in consumer spending. In addition, the financial crisisfurther or renewed declines in asset prices may result in a lower return on the Group’s financial investments and may cause the value of the Group’s investments in its pension plans to decrease, requiring the Group to increase its funding of those pension plans.
The Group conducts a substantial portion of its operations outside the UK. The Group’s management of foreign exchange rates is discussed in Business Review, ‘Foreign exchange management’ (see page 49)42). Fluctuations in exchange rates between Sterling and other currencies, especially the US dollar, the Euro and the Japanese Yen, could materially and adversely affect the Group’s financial results.
The Group has no control over changes in inflation and interest rates, foreign currency exchange rates and controls or other economic factors affecting its businesses or the possibility of political unrest, legal and regulatory changes or nationalisation in jurisdictions in which the Group operates.


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46

Risk factors

Taxation and treasury
The Group’s effective tax rate onis driven by rates of tax in jurisdictions that are both higher and lower than that applied in the UK. In addition, many jurisdictions such as the UK, Belgium and the USA currently offer regimes that encourage innovation and new scientific endeavours by providing tax incentives, for example R&D tax credits. Furthermore, given the scale and international nature of the Group’s earnings benefits from the fact that a portion of its earningsbusiness, intra-group transfer pricing is taxed at more favourable rates in some jurisdictions outside the UK.an inherent tax risk as it is for other international businesses. Changes in tax laws or in their application with respect to matters such as transfer pricing, foreign dividends, controlled companies, R&D tax credits or a restriction in tax relief allowed on the interest on intra-Group debt, could increase the Group’s effective tax rate and materially and adversely affect its financial results.
The tax charge included in the financial statements is the Group’s best estimate of its tax liability but, until such time as audits by tax authorities are concluded, there is a degree of uncertainty regarding the final tax liability for the period. The Group’s policy is to submit tax returns within the statutory time limits and engage tax authorities to ensure that the Group’s tax affairs are as current as possible and that any differences in the interpretation of tax legislation and regulation are resolved as quickly as possible. In exceptional cases where matters cannot be settled by agreement with tax authorities GSK may have to resolve disputes through formal appeals or other proceedings. The Group has open issuesis currently appealing a court decision in respect of transfer pricing with the revenue authorities in the USA, Japan and Canada. These matters areCanadian Tax Authorities as discussed in Note 14 to the financial statements, ‘Taxation’.
The Group deals in high value transactions on a frequent basis which may result in an increased risk of financial loss due to the mismanagement of cash or entering into high risk positions on hedge transactions, any of which could materially and adversely affect the Group’s financial results.
Disruption fromPandemic influenza
The market for pandemic influenza
In vaccines is experiencing significant volatility given changes in risk perception, developing epidemiology and the eventrelative mild nature of the virus, which was not anticipated by governments or the medical community. Some governments that have placed orders for the pandemic vaccine or that have announced changes in their planned immunisation programmes have renegotiated their contracts, and other governments are seeking, or may in the future seek, to renegotiate their contracts. While deliveries of pandemic influenza,vaccines provided significant contributions to the Group’s results in 2008 (H5N1 vaccines) and 2009 (H1N1 vaccines), and the Group couldexpects the level of sales in 2010 (H1N1, possibly stockpile agreements) to be subject to disruption from a range of factors. National governments mayroughly the same as in 2009, there can be more willing to abrogate intellectual property rights for medicines that might otherwise be in short supply.
In a country afflicted by pandemic ‘flu, there would be a risk that employees and their families will be affected with the consequenceno assurance that sales and distribution and manufacturing activities could be shut down and supply continuity — for active ingredients and finished goods — affected.of influenza vaccines will meet these estimates or contribute significantly to the Group’s results in 2011 or beyond.
Environmental liabilities
The environmental laws of various jurisdictions impose actual and potential obligations on the Group to remediate contaminated sites. The Group has also been identified as a potentially responsible party under the US Comprehensive Environmental Response Compensation and Liability Act at a number of sites for remediation costs relating to the Group’s use or ownership of such sites.
Failure to manage properly the environmental risks could result in additional remedial costs that couldmay materially and adversely affect the Group’s operations.financial results. See Note 44 to the financial statements, ‘Legal proceedings’, for a discussion of environmental-related proceedings in which the Group is involved.
Accounting standards
New or revised accounting standards, rules and interpretations circulated from time to time by an international standard setting board could result in changes to the recognition of income and expense that may materially and adversely impactaffect the Group’s reported financial results.
International standard changes in the market valuation of certain financial instruments are reflected in the Group’s reported results before those gains or losses are actually realised and could have a significant impact on the income statement in any given period.
Accounting for deferred taxation on inter-company inventory may give rise to volatility depending upon the ownership of the inventory.
Regulators regularly review the financial statements of listed companies for compliance with accounting and regulatory requirements.
The Group believes that it complies with the appropriate regulatory requirements concerning its financial statements and disclosures. However, other companies have experienced investigations into potential non-compliance with accounting and disclosure requirements that have resulted in restatements of previously reported results and sometimes significant penalties.
Human resources
The Group has approximately 99,000 employees globallypenalties, which may materially and is subject to laws and regulations concerning its employees — ranging from discrimination and harassment to personal privacy to labour relations - that vary significantly from jurisdiction to jurisdiction. The Group faces intense competition for qualified individuals from other pharmaceutical and biotechnology companies, universities, governmental entities and other research institutions. Failure to continue to recruit and retainadversely affect the right people and maintain a culture of compliance may have a significant adverse effect.Group’s financial results.
Failure of third party providers
Unaffiliated third-party suppliers provide a number of goods and services to the Group’s operations. Many of these services, for example services provided by clinical research organizationsorganisations to support development of key products, are very important to the operations of the Group’s businesses. Materials provided by third-party suppliers are necessary for the commercial production of our products, including speciality chemicals, commodities and components necessary for the manufacture, fill-finish and packaging of many of the Group’s pharmaceutical and consumer healthConsumer Healthcare products. While the Group does not believe that any of these third-party relationships are individually significant in the context of the overall Group, the failure of any third-party supplier to fulfil its contractual obligations in a timely manner may result in delays or service interruptions, which could constrainmay materially and adversely affect the salesGroup’s financial results.
Protection of electronic information and assets
The Group relies on critical and sensitive data, such as personally identifiable information, trade secrets, intellectual property and corporate strategic plans. The security of such data is exposed to increasing threats. The Group is also subject to various standards for the protection of personally identifiable information. Failure to implement appropriate safeguards to adequately protect against any unauthorised or unintentional access, acquisition, use, modification, loss or disclosure of this critical or sensitive data may adversely affect the Group’s operations.


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47

Risk factors

Alliances and acquisitions
As part of the Group’s products.strategy to diversify into new product areas and markets, the Group has grown, and expects to continue to grow, in part through acquisitions and business alliances. There is intense competition for alliance and acquisition candidates in the pharmaceutical industry, and, as such, the Group may be unable to make these deals on acceptable terms or at all. In acquiring or forming alliances with companies, the Group may assume significant debt, become subject to unknown or contingent liabilities or fail to realise the benefits expected from these transactions. For example, most pharmaceutical companies, including those that the Group may consider acquiring, are involved in patent disputes, product liability litigation, government investigations and other legal proceedings whose outcome is subject to considerable uncertainty. The assumption of debt or unknown or contingent liabilities or the failure to realise the expected benefits may materially and adversely affect the Group’s financial results.
The process of integrating companies the Group may acquire may result in disruption to the ongoing business as the effort of integrating organisations in different locations and with, among other things, differing systems and corporate cultures may divert attention and resources, result in the loss of key employees or have other adverse consequences, any of which may materially and adversely affect the Group’s financial results.
Attraction and retention
The Group relies heavily on recruiting and retaining talented employees with a range of skills to meet its objectives. The Group faces intense competition for qualified individuals, as the supply of people with specific skills or in specific geographic regions may be limited, particularly given the Group’s plans to expand its operations in emerging markets, Biologicals and Consumer Healthcare.
The inability to attract staff with specific technical and leadership skills, retain key employees or ensure effective succession planning for critical positions may materially and adversely affect the Group’s financial results.
Implementing the Group’s strategic priorities
The Group has established three strategic priorities: to grow a diversified business, deliver more products of value and simplify its operating model. There can be no assurance that the Group will be able to implement its strategic priorities fully or that the strategic priorities will deliver the expected benefits.
For example, the strategic priority to grow a diversified business involves expanding the Group’s business into emerging markets. The Group’s pharmaceutical sales in emerging markets grew 20% in 2009 to nearly £3 billion, which represents 10% of the Group’s 2009 turnover. There is no guarantee that the Group’s sales in emerging markets will continue to grow or that these markets will continue to experience relatively high growth rates. Some emerging markets may be especially vulnerable to the after-effects of the recent global financial crisis, or may have very limited resources to spend on healthcare. Competition in these markets for staff with the skills and training suitable for employment at an enterprise such as the Group’s may be intense. In some emerging markets, the Group may be required to rely on third-party agents, which may put the Group at risk of liability, and some emerging markets lack sufficient protection against crimes such as counterfeiting. A failure to continue to expand its business in emerging growth markets could materially and adversely affect the Group’s financial results.
In addition, the Group is undertaking an Operational Excellence restructuring programme that has an estimated cost of approximately £4.5 billion and is expected to deliver annual pre-tax savings of approximately £2.2 billion by the time it is substantially complete in 2012. There can be no assurance that the Group will be able to execute fully this transformation of its business. Furthermore, changes in the Group’s structure, operations, revenues, costs or efficiency resulting from these restructuring activities or other strategic initiatives could result in higher than expected costs or other difficulties. Failure to realise the expected cost savings by the end of the restructuring programme or to achieve and maintain a competitive cost base could materially and adversely affect the Group’s financial results.


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48

54GSK Annual Report 2008
Report of the Directors

Financial review 2007
Financial review 2008

In accordance with US SEC disclosure requirements, the following discussion compares results for the year to 31st December 20072008 with the results for the year to 31st December 2006.
In 2008, the Group realigned the regional reporting structure within the Pharmaceuticals business and reallocated entities and expenses between the Pharmaceuticals and Consumer Healthcare businesses. Comparative information for 2007 and 2006 below has been restated on a consistent basis. See Note 2 to the financial statements, ‘Accounting principles and policies’.2007.
Exchange
The currencies that most influence the Group’s results areremain the US dollar, the Euro and the Japanese Yen.
In 2007,2008, the pound weakened by 28% against the US dollar, fellto $1.44/£1 at year-end. In addition, the pound weakened by 2%24% against the pound, to $1.99 atEuro and by 40% against the year-end. The year-end rates for the Euro strengthened by 8% and the Japanese yen by 5% against Sterling.Yen. A new £/€ record low of 1.02 was set in December.
World market —– pharmaceuticals
Global pharmaceutical sales in 20072008 were £329£366 billion compared with £328£329 billion in 2006.2007.
             
World market by Value  % of  Growth 
geographic region £bn  total  £% 
 
USA  140.8   43   (3)
Europe  97.6   30   5 
Rest of World  90.4   27   1 
 
Total  328.8   100   — 
 
The US market has decreased by 3%, but it still represents 43% of the global prescription pharmaceutical market compared with 30% a decade ago.
            
World market by Value  % of 
geographic region £bn  total 
    
USA
  145   39 
Europe
  112   31 
France  21   6 
Germany  20   6 
Italy  13   3 
UK  12   3 
Rest of World
  109   30 
Emerging markets  49   13 
Asia Pacific  17   5 
Japan  33   9 
Canada  10   3 
    
Total  366           100 
    
At 30th September 2007, GSK held second position in the world pharmaceutical market with a market share of 5.9%, behind Pfizer with a market share of 7%.2008, GSK had fourthree of the world’s top 60 pharmaceutical products. These wereAvandia,Lamictal,Seretide/AdvairandValtrex.
                       
World market - Value % of Growth  Value % of 
top six therapeutic classes £bn total £%  £bn total 
  
Central nervous system 54.4 17 1  60 16 
Cardiovascular 50.7 15  (6) 54 15 
Alimentary tract and metabolic 39.7 12  (1) 44 12 
Antineoplastic/Immunomodulatory 35.6 11 8  40 11 
Anti-infectives (bacterial, 32.9 10  (1)
viral and fungal) excluding vaccines 
Anti-infectives (bacterial, viral and fungal) excluding vaccines 38         10 
Respiratory 22.1 7 2  25 7 
  
(Note: data based on 12 months to 30th September 2008.)
(Note: data based on 12 months to 30th September 2007.)
Pharmaceutical turnover
All growth rates included in the review of turnover are at constant exchange rates (CER) unless otherwise stated. Sterling growth rates may be found in the tables of pharmaceutical turnover by therapeutic areas on page 49.
Total pharmaceutical turnover declined 3% for the year to £20.4 billion, driven largely by US performance, down 11% to £8.9 billion, which was impacted by expected generic competition to several mature brands and further declines inAvandiasales. Sales in 2007 was £19,163 million compared with £20,013 millionAsia Pacific and Japan fell 1% to £1.9 billion, reflecting lower government orders forRelenzaand the impact of pharmaceutical price cuts in 2006,Japan. These declines were partly offset by growth in line with 2006 turnover at CER.

Europe, up 3% to £6.5 billion, and Emerging Markets, up 12% to £2.3 billion. In sterling terms, total pharmaceutical turnover decreased 4%grew by 6%, four percentage points less than CER, principally due toreflecting the strengthweakness of Sterling against the US dollar.most major currencies.
Pharmaceutical turnover by therapeutic area
TurnoverGSK turnover declined by 3% in 2007 was in line with 20062008 as high-value growth products were offset bythe impact of lowerAvandiasales, and US generic competition toCoreg IR,Flonase,Wellbutrin XL a range of GSK’s products andZofran. The high-value lower flu pre-pandemic sales was partly offset by strong growth of key products includedsuch asSeretide/Advair, vaccines,Lamictal,Valtrex,RequipEpzicom,Avodart,LovazaandBoniva. the vaccines franchise.
Respiratory
We continuedRespiratory sales increased 5% to be a global leader in respiratory pharmaceuticals with sales£5.8 billion.
Sales of our three key products,Seretide/Seretide/Advair,Flixotide/ FloventandSereventamounting to £4.4 billion, up 8%. Total sales ofSeretide/Advair, for asthma and COPD rose 10%8% to £3.5£4.1 billion. In the USA,Advairsales grew 9%rose 6% to £1.9 billion.£2.2 billion, with a return to volume growth in the second half of the year. During 2008, the FDA grantedAdvairan indication in COPD for prevention of exacerbations and this has helped grow the COPD sector of ourAdvairbusiness. In Europe, sales grew 8.1%increased by 4% to £1.2 billion£1.4 billion.Advairperformance was particularly strong in Emerging Markets, up 26% to £215 million, and in RestJapan, where sales of World markets sales grew 24%the product more than doubled to £393£83 million enhanced byfollowing its launch in Japan in June.
CNS
CNS sales decreased 2% to £3.3 billion. Sales decreased in the USA and Europe, reflecting generic competition toSeroxat/Paxilin both regions. Rest of World sales grew 6% which included 4% growth inPaxilin Japan. TotalSeroxat/Paxilsales declined 6% to £553 million. TotalWellbutrinsales declined 37% to £529 million, owing to US generic competition toWellbutrin SR/IRandWellbutrin XL 300mg tablet.
Sales ofLamictal, for the treatment of epilepsy and bipolar disorder, grew 18% to £1.1 billion, driven by sales in the USA which were up 26% to £892 million, benefiting from its new indication.
Sales ofRequip, for Parkinson’s disease and Restless Legs Syndrome (RLS), grew 36% to £346 million.2007.
Anti-virals
Total sales ofAnti-virals decreased 4% to £3.2 billion.
GSK’s HIV products were £1.4 billion, down 1%. Competitionbusiness continues to older products,experience strong competition.CombivirEpzicom/Kivexa down 10%grew by 23% to £455£442 million andEpivirdown 20% to £156 million,but this was largelymore than offset by strong sales growthdeclines across the rest of new productsEpzicom/Kivexa, which grew 39% to £324 million andLexiva/Agenerase, up 13% to £141 million.
the portfolio. Sales ofValtrex, for herpes, rose 18%16% to £934 million,£1.2 billion with US sales up 20% to £668 million driven by increased use offuelling the product for prevention of disease transmission. Sales in Europe grew 9% to £115 million and in Rest of World grew 14% to £151 million.growth. Sales of flu anti-viralRelenza, an antiviral treatment for flu, were £262 fell 80% to £57 million (2006 — £91 million), driven primarily by one-offreflecting fewer government orders for stockpiling against a possible ’flu pandemic.
Metabolic
In 2007, sales of theAvandiaproduct group, for type 2 diabetes, declined 22% to £1.2 billion. In the USA sales fell 29% to £780 million, with fourth quarter sales down 55% to £130 million.pre-pandemic stockpiling.


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49

GSK Annual Report
Financial review 200855
Report of the Directors

Financial review 2007continued






Pharmaceutical turnover by therapeutic area 2007 (restated)2008
                                                        
 Total USA Europe Rest of World  Total USA Europe Rest of World 
Therapeutic area/ % of 2007 2006 Growth 2007 Growth 2007 Growth 2007 Growth  % of 2008 2007 Growth 2008 Growth 2008 Growth 2008 Growth 
major products total £m £m CER% £% £m CER% £% £m CER% £% £m CER% £%  total £m £m CER% £% £m CER% £% £m CER% £% £m CER% £% 
                          
Respiratory
 26 5,032 4,991 5 1 2,377 4  (3) 1,740 4 4 915 10 6  29 5,817 5,032 5 16 2,720 6 14 1,982 2 14 1,115 9 22 
Seretide/Advair
 3,499 3,313 10 6 1,891 9 1 1,215 8 9 393 24 21  4,137 3,499 8 18 2,161 6 14 1,416 4 17 560 29 42 
Flixotide/Flovent
 621 659  (1)  (6) 284 3  (5) 158  (7)  (7) 179  (3)  (7) 677 621  (2) 9 317 3 12 175  (4) 11 185  (9) 3 
Serevent
 269 291  (4)  (8) 74  (7)  (14) 134  (5)  (4) 61 —  (6) 263 269  (12)  (2) 72  (9)  (3) 136  (9) 1 55  (23)  (10)
Veramyst
 21 — — — 20 — — — — — 1 — —  72 21 >100 >100 56 >100 >100 11 – – 5 >100 >100 
Flixonase/Flonase
 199 309  (34)  (36) 72  (60)  (61) 49 — — 78 5 3  186 199  (15)  (7) 52  (29)  (28) 52  (6) 6 82  (8) 5 
                          
Anti-virals
 16 3,027 2,826 13 7 1,494 19 10 846 — 1 687 15 9  16 3,206 3,027  (4) 6 1,600  (1) 7 850  (12) – 756  (1) 10 
HIV 1,442 1,515  (1)  (5) 637  (2)  (9) 595  (3)  (3) 210 9 4  1,513 1,442  (5) 5 640  (7) – 636  (6) 7 237 4 13 
Epzicom/Kivexa
 324 241 39 34 142 23 14 149 54 54 33 74 74  442 324 23 36 178 15 25 209 25 40 55 48 67 
Combivir
 455 528  (10)  (14) 195  (11)  (18) 181  (15)  (15) 79 6 1  433 455  (14)  (5) 180  (14)  (8) 166  (19)  (8) 87 1 10 
Trizivir
 233 268  (9)  (13) 120  (8)  (15) 98  (14)  (13) 15 14 7  212 233  (18)  (9) 106  (18)  (12) 92  (18)  (6) 14  (20)  (7)
Agenerase, Lexiva
 141 131 13 8 78 14 5 53 10 10 10 22 11  160 141 2 13 83  (1) 6 61 – 15 16 40 60 
Epivir
 156 202  (20)  (23) 53  (16)  (23) 64  (27)  (27) 39  (11)  (13) 139 156  (20)  (11) 47  (19)  (11) 58  (22)  (9) 34  (18)  (13)
Ziagen
 109 117  (3)  (7) 45 2  (6) 36  (10)  (10) 28  (3)  (3) 106 109  (11)  (3) 45  (9) – 36  (11) – 25  (14)  (11)
Valtrex
 934 845 18 11 668 20 11 115 9 10 151 14 8  1,195 934 16 28 870 20 30 144 9 25 181 4 20 
Zeffix
 168 162 8 4 13 8 — 23 — — 132 10 5  188 168 – 12 15 8 15 27 – 17 146  (1) 11 
Relenza
 262 91 >100 >100 131 — — 76 21 23 55 >100 90  57 262  (80)  (78) 20  (86)  (85) 6  (92)  (92) 31  (49)  (44)
                          
Central nervous system
 17 3,348 3,642  (2)  (8) 2,377  (1)  (8) 505  (15)  (14) 466 6 —  14 2,897 3,348  (21)  (13) 1,815  (29)  (24) 565  (1) 12 517  (3) 11 
Lamictal
 1,097 996 18 10 892 26 17 143  (17)  (17) 62 10 5  926 1,097  (22)  (16) 711  (26)  (20) 147  (8) 3 68 2 10 
Imigran/Imitrex
 685 711 3  (4) 558 9 1 89  (25)  (25) 38  (2)  (10) 687 685  (8) – 550  (9)  (1) 96  (3) 8 41  (8) 8 
Seroxat/Paxil
 553 620  (6)  (11) 143  (12)  (18) 120  (19)  (18) 290 5  (3) 514 553  (19)  (7) 79  (49)  (45) 115  (14)  (4) 320  (7) 10 
Wellbutrin
 529 900  (37)  (41) 512  (38)  (42) 4 100 100 13  (13)  (19) 342 529  (40)  (35) 310  (44)  (39) 18 >100 >100 14 8 8 
Requip
 346 268 36 29 238 46 35 91 11 12 17 64 55  266 346  (31)  (23) 102  (60)  (57) 133 29 46 31 65 82 
Requip XL
 43 – – – 9 – – 34 – – – – – 
Treximet
 25 – – – 25 – – – – – – – – 
                          
Cardiovascular and urogenital
 8 1,554 1,636 —  (5) 970  (2)  (10) 401 3 4 183 7 2  9 1,847 1,554 8 19 1,107 6 14 512 10 28 228 15 25 
Avodart
 285 216 38 32 175 44 34 85 22 23 25 63 56  399 285 27 40 242 27 38 118 21 39 39 48 56 
Lovaza
 5 — — — 5 — — — — — — — —  290 5 >100 >100 289 >100 >100 – – – 1 – – 
Coreg
 587 779  (18)  (25) 581  (19)  (25) — — — 6 17 —  203 587  (68)  (65) 200  (68)  (66) – – – 3  (67)  (50)
Coreg CR
 165 88 73 88 163 72 85 – – – 2 – – 
Coreg IR
 38 499  (93)  (92) 37  (93)  (92) – – – 1  (83)  (83)
Fraxiparine
 184 209  (12)  (12) — — — 151  (13)  (11) 33  (10)  (15) 226 184 7 23 – – – 178 – 18 48 36 45 
Arixtra
 100 58 81 72 55 88 72 39 70 70 6 100 100  170 100 53 70 88 49 60 71 56 82 11 67 83 
Vesicare
 50 32 69 56 50 69 56 — — — — — —  71 50 32 42 71 32 42 – – – – – – 
Levitra
 49 43 23 14 47 24 15 2 100 100 —  (100)  (100) 60 49 12 22 57 11 21 3 – 50 – – – 
                          
Metabolic
 8 1,508 1,870  (15)  (19) 895  (24)  (30) 290 15 16 323  (2)  (6) 6 1,191 1,508  (28)  (21) 590  (39)  (34) 294  (11) 1 307  (14)  (5)
Avandia products
 1,219 1,645  (22)  (26) 780  (29)  (35) 225 3 4 214  (6)  (9) 805 1,219  (40)  (34) 434  (49)  (44) 198  (22)  (12) 173  (25)  (19)
Avandia
 877 1,399  (34)  (37) 592  (40)  (45) 111  (11)  (10) 174  (14)  (16) 512 877  (46)  (42) 299  (53)  (49) 82  (33)  (26) 131  (30)  (25)
Avandamet
 292 204 49 43 147 85 71 111 20 21 34 35 31  256 292  (21)  (12) 109  (32)  (26) 111  (13) – 36 – 6 
Bonviva/Boniva
 161 95 79 69 115 49 39 44 >100 >100 2 — —  237 161 34 47 156 25 36 74 48 68 7 >100 >100 
                          
Anti-bacterials
 7 1,323 1,363  (1)  (3) 195  (3)  (10) 588  (4)  (3) 540 3 —  7 1,429 1,323  (2) 8 174  (17)  (11) 635  (6) 8 620 7 15 
Augmentin
 530 570  (6)  (7) 67  (23)  (29) 238  (9)  (8) 225 6 4  587 530 – 11 49  (31)  (27) 272 – 14 266 11 18 
Altabax
 11 — — — 11 — — — — — — — —  16 11 36 45 15 27 36 1 – – – – – 
                          
Oncology and emesis
 2 477 1,069  (54)  (55) 272  (65)  (67) 135  (10)  (9) 70  (13)  (17) 2 496 477  (6) 4 243  (17)  (11) 169 9 25 84 9 20 
Hycamtin
 119 113 10 5 70 6  (3) 40 18 21 9 13 13  140 119 7 18 81 7 16 49 5 23 10 11 11 
Zofran
 196 847  (77)  (77) 78  (88)  (89) 70  (34)  (34) 48  (21)  (23) 110 196  (51)  (44) 3  (97)  (96) 63  (21)  (10) 44  (17)  (8)
Tykerb
 51 — — — 36 — — 13 — — 2 — —  102 51 80 100 47 22 31 42 >100 >100 13 >100 >100 
                          
Vaccines
 11 1,993 1,692 20 18 628 44 35 800 14 15 565 7 6  12 2,539 1,993 15 27 629  (7) – 1,155 28 44 755 21 34 
Hepatitis 529 479 14 10 199 33 24 230 5 6 100 3 —  665 529 14 26 275 28 38 263 – 14 127 16 27 
Infanrix/Pediarix
 543 511 9 6 196 23 14 271  (4)  (3) 76 26 25  682 543 12 26 212 1 8 377 21 39 93 11 22 
Fluarix, FluLaval
 174 170 7 2 98 16 8 41 11 14 35  (16)  (19) 215 174 11 24 85  (20)  (13) 78 63 90 52 37 49 
Flu-prepandemic 146 — — — 95 — — 51 — — — — — 
Flu pandemic 66 146  (55)  (55) 1  (99)  (99) 64 25 25 1 – – 
Cervarix
 10 — — — — — — 9 — — 1 — —  125 10 >100 >100 – – – 104 >100 >100 21 >100 >100 
Rotarix
 91 44 >100 >100 — — — 23 >100 >100 68 79 74  167 91 71 84 21 – – 43 61 87 103 46 51 
Boostrix
 66 60 15 10 40 5  (2) 19 27 27 7 75 75  70 66  (5) 6 35  (20)  (13) 26 21 37 9 14 29 
                          
Other
 5 901 924 —  (2) 65  (18)  (22) 255  (1) 1 581 3  (1) 5 959 901  (3) 6 16  (78)  (75) 321 14 26 622  (1) 7 
                          
 100 19,163 20,013 —  (4) 9,273  (3)  (10) 5,560 1 2 4,330 6 3  100 20,381 19,163  (3) 6 8,894  (11)  (4) 6,483 3 17 5,004 5 16 
                          
       CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates.


 
56GSK Annual Report 2008
Report of the Directors

Financial review 2007continued






CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates.
GSK Annual Report 2009

50

Financial review 2008

This followed publicationCNS
CNS sales decreased 21% to £2.9 billion.
The majority of an articleGSK’s CNS franchise is now impacted by generic competition in the New England JournalUSA, as generic competition toLamictal,Imigranand the remaining presentation of Medicine. This article suggested that there may be cardiovascular risk associated withAvandiaWellbutrin. Despite GSK’s efforts, doctors became reluctant to start new patients onAvandiawithout further guidance fromstarted during the FDA. Following clarification fromcourse of 2008. There was, however, some positive news asTreximetwas approved for migraine by the FDA in October, there was a new approved label forAvandia. Outside the USA, sales in Europe grew 3% to £225 million, and in Rest of World markets, sales declined 6% to £214 million.
We recorded in turnover a £161 million share of co-promotion income forBoniva/Bonviva, a once-monthly oral bisphosphonate for the treatment of postmenopausal osteoporosis.
Vaccines
Vaccine sales increased 20% to £2.0 billion, with good performances in all regions: US sales rose 44% to £628 million; European sales grew 14% to £800 million and sales in Rest of World were up 7% to £565 million. Sales of hepatitis vaccines grew 14% to £529 million, driven by US growth of 33%.
Infanrix/Pediarix grew 9% to £543 million, again driven by US growth of 23%. Sales of the new two-dose vaccine,Rotarix, to prevent rotavirus gastroenteritis, doubled to £91 million, with strong growth in both Europe and Rest of World. Sales ofCervarix, GSK’s vaccine to prevent cervical cancer, were £10 million.April 2008.
Cardiovascular and urogenital
SalesCardiovascular and urogenital sales increased 8% to £1.8 billion.
Strong growth across most ofCoreg, for heart disease, fell 18% to £587 million, following the introductionportfolio of USproducts was partly offset by generic competition toCoreg IRin September. Sales of.Coreg CRLovaza, for very high triglycerides, which was launchedacquired from Reliant Pharmaceuticals in March 2007, were £88 million.grew 71% on a proforma basis to £290 million and grew its US market share by 33%.Avodart, for benign prostatic hyperplasia (enlarged prostate), continuedgrew 27% to perform strongly with sales up 38%£399 million taking a further percentage point of market share,Arixtra, for deep vein thrombosis and pulmonary embolism, grew 53% to £285£170 million andCoreg CRgrew 73% to £165 million.
Anti-bacterialsMetabolic
Anti-bacterialMetabolic sales decreased 28% to £1.2 billion.
Strong growth ofBonviva/Boniva, for postmenopausal osteoporosis, up 34% to £237 million was not enough to offset a full year impact toAvandiawhose sales started to fall in May 2007.Avandiaproduct sales declined 1%40% during the year to £1,323£805 million, reflecting generic competitionwith US sales falling 49% to £434 million and European sales down 22% to £198 million. In Emerging Markets,Avandia product sales returned to growth in all regions.the second half of the year (Q4 sales were up 12%).
Oncology and emesis
Oncology and emesis sales decreased 6% to £0.5 billion.
Tykerbachieved sales of £51 million in its first year, £36 million of which arose, for breast cancer, continued to grow following approval in the USA following its launchlast year. Approvals in March. Sales ofZofrandeclined 77%other countries were achieved throughout 2008, with the European approval being achieved in June.
Vaccines
Vaccine sales increased 15% to £196 million, reflecting generic competition in£2.5 billion.
Within the USA, Europe and Rest of World where sales declined 88%, 34% and 21% respectively.
Consumer Healthcare sales
OTC medicines
Over-the-counter medicine sales grew 20% to £1.8 billion, withPanadolupvaccines portfolio, there were strong performances from Hepatitis vaccines (up 14% to £263£665 million) and combination paediatric vaccinesInfanrix/Pediarix(up 12% to £682 million).Rotarix, for rotavirus gastroenteritis, rose 71% to £167 million, largely driven by government tender orders in Latin America andallisales the launch of £150 million since launchthe product in the USA in June. Smoking control products declined 6% to £314August. New cervical cancer vaccine,Cervarix, recorded sales of £125 million due to strong competitionfor the year, following several tender wins, including national government orders in the US market.UK and the Netherlands.
Regional analysis
USA
Sales in the USA declined 11% to £8.9 billion, principally reflecting a full year impact onBreathe RightAvandia(down 49%) and generic competition to significant products such asLamictal(down 26%),Imigran(down 9%),Wellbutrin XL(down 45%),Requip(down 60%) andCoreg IR(down 93%). These declines were partly offset byAdvair(up 6%),Valtrex(up 20%) andLovaza(up 71% on proforma basis).
Europe
Sales in Europe increased 3% to £6.5 billion with continued growth ofSeretideandFiberChoice particularly strong vaccines growth offsetting the impact of generic competition to a number of products and continued price cuts from governments across the region.
Emerging Markets
Sales in Emerging Markets increased 12% to £2.3 billion with strong growth in Russia (up 36%), addedChina (up 22%) and Latin America (up 16%). The growth was fuelled primarily by vaccines, up 32% to £0.5 billion, and the portfolio with the acquisition of CNS in December 2006, achieved combinedrespiratory franchise, up 16% to £0.4 billion.
Asia Pacific/Japan
Increased sales of £81 million.Seretide/Advair(up 48% to £204 million) were offset by lower orders forRelenzain Japan and some price cuts.
Consumer Healthcare turnover
                                        
 % of 2007 2006  Growth  % of 2008 2007 Growth 
 total £m £m CER% £%  total £m £m CER% £% 
        
Over-the-counter medicines
 50 1,788 1,561 20 15 
Over-the-counter
 49 1,935 1,788  (2) 8 
medicines
 
Panadol franchise
 263 234 14 12  324 263 12 23 
Smoking cessation products 314 353  (6)  (11)Smoking cessation products 299 314  (12)  (5)
Tums
 88 93 2  (5) 91 88  (5) 3 
Cold sore franchise 79 69 19 14  89 79 3 13 
Breathe Right
 63 2 >100 >100  81 63 17 29 
alli
 150 — — —  75 150  (53)  (50)
        
Oral healthcare
 30 1,049 993 8 6  31 1,240 1,049 6 18 
Aquafresh franchise
 398 374 9 6  452 398 3 14 
Sensodyne franchise
 293 257 16 14  363 293 12 24 
Dental care 222 217 6 2  271 222 8 22 
        
Nutritional healthcare
 20 716 658 9 9  20 796 716 8 11 
Lucozade
 347 301 16 15  382 347 7 10 
Horlicks
 174 156 12 12  204 174 13 17 
Ribena
 156 169  (7)  (8) 161 156 – 3 
        
 100 3,553 3,212 14 11  100 3,971 3,553 3 12 
        
* CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates.
Total Consumer Healthcare sales for the year rose 3% to £4 billion. This compares with growth of 14% in 2007, which benefited from launch stocking of new anti-obesity treatmentalli. 2008 sales ofalliwere £75 million, down 53%. Excludingalli, Consumer Healthcare sales rose 5% in 2008 (up 9% in 2007).


GSK Annual Report 2009

51

Financial review 2008

OTC medicines
OTC product sales declined 2% to £1.9 billion in 2008, with sales of smoking cessation products down 12% to £299 million.Panadolsales grew 12% to £324 million, twice the global average in 2008.
Oral healthcare
Sales of Oral healthcare salesproducts rose 6% to £1.2 billion, whereas the market grew 8%just 2%. There were strong performances fromSensodyne, up 12% to over £1 billion. Sales of
£363 million, andAquafreshwere, up 9%3% to £398 million, helped by the success£452 million.Sensodyne’s growth represented 35% of the newAquafreshWhite Trays.Sensodynealso grew strongly, up 16% for the year to £293 million, driven by a successful launch ofSensodyne ProNamel.world toothpaste growth in 2008 in markets where GSK competes.
Nutritional healthcare
Nutritional healthcare product Within Nutritionals,Horlickssales grew 9%rose 13% to £716 million.£204 million,Lucozadegrew 16%sales rose 7% to £347£382 million andHorlicksRibena grew 12% to £174 million.Ribenasales were down 7%flat at £161 million, although sales ofLucozade andRibenain the second half of the year declined slightly, largely as a result of poor weather in the UK.
Results before major restructuring and total
results
In October 2007, GSK announced a significant new Operational Excellence restructuring programme. A second plan, representing a significant expansion of the Operational Excellence programme, was approved by the Board and announced in February 2009. This restructuring programme covers all areas of GSK’s business, including manufacturing, selling, R&D and infrastructure. With an estimated total cost of approximately £3.6 billion, the expanded programme had been expected to £156 million.deliver annual pre-tax savings of approximately £1.7 billion by the time it was expected to be substantially complete in 2011. Approximately 40% of these costs were incurred by 31st December 2008. Given the extent and cost of the Operational Excellence programme, GSK presents the restructuring costs incurred solely as a direct result of the Operational Excellence programme, which in 2008 amounted to £1,089 million before tax (2007 – £338 million), in a separate column in the income statement titled ‘Major restructuring’.
In addition to these restructuring costs, this column in the income statement includes restructuring costs incurred solely as a direct result of any restructuring programmes that follow, and relate to material acquisitions where the operations of the acquired business overlap extensively with GSK’s existing operations.
The $1.65 billion (£814 million) acquisition of Reliant Pharmaceuticals Inc. in December 2007 is the only acquisition since October 2007 that meets these criteria. The total restructuring costs incurred as a direct result of this acquisition were £34 million, all of which have been charged and paid in 2008.
As set out in Note 7 to the financial statements, ‘Major restructuring programme’, asset impairments and staff redundancies together accounted for £887 million of the £1,123 million restructuring costs incurred in 2008 and reported in the major restructuring column (2007 – £338 million).
The remaining costs of £236 million in 2008 arose from miscellaneous expenditures incurred solely as a direct result of the restructuring programmes, including consultancy and project management fees, the termination of leases, site closure costs and, with respect to 2008, the recognition of foreign exchange losses following the liquidation of a subsidiary in Puerto Rico.
No costs arising from GSK’s ongoing operating activities have been reported in the major restructuring column.
Any restructuring costs that do not arise solely as a direct result of the Operational Excellence programme and restructuring programmes following, and relating to, acquisitions meeting the criteria described above were reported in operating expenses within results before major restructuring. These costs included restructuring costs related to minor acquisitions and £20 million of costs in 2008 (2007 – £92 million) that related to restructuring activity initiated before the commencement of the Operational Excellence programme. None of this restructuring activity had a material impact on GSK’s operating results or on the manner in which its business is conducted.
GSK’s operating profit, profit before taxation, taxation and profit for the year are discussed below in terms of both total results, which include major restructuring costs, and results before major restructuring.
Operating profit —– total results
Total results include restructuring costs related to the new Operational Excellence programme, which commenced in October 2007.2007, and the Reliant restructuring programme.
                                                
 2007 2006 Growth  2008 2007 Growth 
 £m % £m % CER% £%  £m % £m % CER% £% 
          
Turnover 22,716 100.0 23,225 100.0 2  (2) 24,352 100 22,716 100.0  (3) 7 
          
Cost of sales  (5,317)  (23.4)  (5,010)  (21.6) 8 6   (6,415)  (26.3)  (5,317)  (23.4) 13 21 
Selling, general
and administration		  (6,954)  (30.6)  (7,257)  (31.2) —  (4)Selling, general and administration (7,656)  (31.4)  (6,954)  (30.6) 2 10 
Research and development  (3,327)  (14.7)  (3,457)  (14.9)  (1)  (4)  (3,681)  (15.2)  (3,327)  (14.7) 4 11 
Other operating income 475 2.1 307 1.3  541 2.2 475 2.1 11 14 
          
Operating profit 7,593 33.4 7,808 33.6 3  (3) 7,141   29.3 7,593 33.4     (20)     (6)
          


GSK Annual Report 200857
Report of the Directors

Financial review 2007continued





Cost of sales
Cost of sales as a percentageincreased to 26.3% of turnover increased by 1.8 percentage points.(2007 – 23.4%). At constant exchange rates, cost of sales as a percentage of turnover increased by 1.33.8 percentage points to 27.2%, reflecting charges related to the new Operational Excellence programmemajor restructuring programmes of £639 million (2007 – £111 million (2006 — £nil)million) and unfavourable product and regional mixesmix compared with 2006.2007, partly offset by savings from the restructuring programmes.
Selling, general and administration
Selling, general and administration (SG&A)SG&A costs, as a percentageincluding legal charges, were 31.4% of turnover reduced 0.6(2007 – 30.6%), an increase of 0.8 percentage points. At constant exchange rates, the decreaseincrease was 0.71.4 percentage points, reflecting flat expenditure compared withpoints. Legal costs of £611 million (2007 – £255 million) included a £278 million charge announced in January 2009 related to the prior year on a turnover growth of 2%.US investigation into GSK’s marketing and promotional practices which originated in Colorado. SG&A costs included charges of £304 million (2007 – £137 million) related to the new Operational Excellence programme of £137 million (2006 — £nil). Advertising and promotion increasedmajor restructuring programmes. Excluding legal costs, SG&A decreased by 2%, selling and distribution increased by 2%, and general and administration expenditure declined 5%1.6%.


GSK Annual Report 2009

52

Financial review 2008

Research and development
R&D expenditure declined 1%increased 4% and included charges related to the new Operational Excellence programmemajor restructuring programmes of £175 million (2007 – £90 million (2006 — £nil)million). The benefit arose from lower impairment charges and the winding-down of previous restructuring activities. Excluding these items,charges, R&D expenditure declinedincreased 2% on last year. Pharmaceutical R&D expenditure represented 16.7% (2006 — 16.7%) of pharmaceutical turnover.in CER terms as investment in the late stage pipeline was partly offset by restructuring savings.
Other operating income
Other operating income includesof £541 million (2007 – £475 million) included strong growth in royalty income to £307 million (2007 - £216 million). Product, intellectual property and equity investment disposals and impairments, product disposals and fair value adjustments to financial instruments. Other operating income was £475realised £230 million in 2007 (2006 — £307 million). The increase is primarily due to higher royalty income (£2162008 compared with £90 million in 2007 compared with £94 million in 2006), favourable fair value movements on financial instruments (£41 million in 2007 compared with £29 million in 2006), and the2007. The Roche litigation settlement relating to carvedilol, partially offset by lower asset disposal profits.was included in 2007.
Operating profit —– total results
Overall, theTotal operating profit marginof £7,141 million decreased 0.2 percentage points as operating profit decreased 3%by 6% in sterling terms and 20% in CER terms compared with 2007. Pharmaceuticals operating profit was £6,331 million, down 21%, while Consumer Healthcare operating profit fell by only 2% to £7,593£810 million. Operating profit increased 3% at constant exchange rates and the CER margin increased 0.5 percentage points, reflecting flat SG&A expenditure and higher other operating income, partially offset by an increase in cost of sales.
In 2007,the year, gains from asset disposals and settlements were £109£293 million (£169 million in 2006)(2007 – £213 million), costs for legal matters were £611 million (2007 – £255 million (£333 million in 2006)million), fair value movements on financial instruments resulted in ana charge of £10 million (2007 - - income of £41 million (income of £29 million in 2006), charges related to old restructuring activity were £92 million (£205 million in 2006)million) and charges relating to previous restructuring programmes were £20 million (2007 – £92 million). Charges related to the new Operational Excellence programmemajor restructuring programmes were £1,118 million (2007 – £338 million (2006 — £nil)million).
The impact of all these items on total operating profit impact of these items was a £535£1,466 million charge in 2007 (£3402008 compared with a £431 million charge in 2006).2007.
Profit before taxation —– total results
Net finance costs
         
  2007  2006 
Finance income £m  £m 
 
Interest and other income  255   285 
Fair value adjustments and hedges  7   2 
 
   262   287 
 
         
 
Finance costs
        
 
Interest costs  (434)  (314)
Unwinding of discount on liabilities  (27)  (36)
Fair value adjustments and hedges  8   (2)
 
   (453)  (352)
 
Finance costs increased owing to increased levels of debt to finance the share buy-back programme.
         
  2008  2007 
Finance income 
£m
  £m 
    
Interest and other finance income  322   255 
Fair value adjustments and hedges  (9)  7 
    
   313   262 
    
         
Finance costs
        
    
Interest costs  (829)  (434)
Unwinding of discount on liabilities  (16)  (27)
Fair value adjustments and hedges  2   8 
    
   (843)          (453)
    
Share of after tax profits of associates and joint ventures
The share of after tax profits of associates of £48 million (2007 – £50 million) arises principally from the Group’s holding in Quest Diagnostics Inc.
Profit before taxation —– total results
Taking account of net finance costs and the contribution fromshare of profits of associates, total profit before taxation was £7,452£6,659 million compared with £7,799£7,452 million in 2006,2007, a 24% CER decline and an increase of 2% at constant exchange rates, but a 4%11% sterling decline.
Major restructuring programmes
In October 2007, GSK announced a significant new £1.5 billion Operational Excellence programme to improve the effectiveness and productivity of its operations.
An expansion to the programme was announced in February 2009 and this programme is now expected to deliver annual pre-tax savings of £1.7 billion by 2011. One-off charges of £338 million before tax relating to the programme were recorded in Q4 2007. There were no significant acquisition-related restructuring costs incurred in 2006 or 2007.
Because of the extent and cost of the Operational Excellence programme, a columnar presentation has been adopted in the income statement. The analysis below of operating profit and the subsequent discussion excludes restructuring costs related to the new Operational Excellence programme. Management believes that this presentation assists shareholders in gaining a clearer understanding of the Group’s financial performance and is consistent with the way management assesses the Group’s financial performance.


58GSK Annual Report 2008
Report of the Directors

Financial review 2007continued





Operating profit —– results before major

restructuring
                         
  2007  2006  Growth 
  £m  %  £m  %  CER%  £% 
 
Turnover  22,716   100.0   23,225   100.0   2   (2)
 
Cost of sales  (5,206)  (22.9)  (5,010)  (21.6)  6   4 
Selling, general
and administration		  (6,817)  (30.0)  (7,257)  (31.2)  (2)  (6)
Research and development  (3,237)  (14.3)  (3,457)  (14.9)  (3)  (6)
Other operating income  475   2.1   307   1.3         
 
Operating profit  7,931   34.9   7,808   33.6   8   2 
 
The results before major restructuring are set out below:
                         
  2008  2007  Growth 
  £m  %  £m  %  CER%  £% 
                
Turnover  24,352   100   22,716   100.0   (3)  7 
                
Cost of sales  (5,776)  (23.7)  (5,206)  (22.9)  4   11 
Selling, general and administration  (7,352)  (30.2)  (6,817)  (30.0)  –   8 
Research and development  (3,506)  (14.4)  (3,237)  (14.3)  2   8 
Other operating income  541   2.2   475   2.1   11   14 
                
Operating profit  8,259      33.9   7,931   34.9     (10)       4 
                
Cost of sales
Cost of sales as a percentage of turnover increased by 1.3 percentage points. At constant exchange rates, cost of sales as a percentage of turnover increased by 0.8 percentage points to 23.7% of turnover. At constant exchange rates the increase was 1.5 percentage points of turnover, principally reflecting unfavourable productthe impact of generic competition to higher margin products in the USA, lowerAvandiasales and regional mix.a higher proportion of sales generated in lower margin vaccines, brands sold in Emerging Markets and Consumer Healthcare products. This was partly offset by savings from the restructuring programmes.
Selling, general and administration
Selling, generalSG&A costs, including legal charges, were 30.2% of turnover (2007 – 30.0%). At constant exchange rates, SG&A costs increased by 0.7 percentage points to 30.7% of turnover. Legal costs of £611 million (2007 – £255 million) included a £278 million charge announced in January 2009 related to the US investigation into GSK’s marketing and administration (SG&A)promotional practices which originated in Colorado. Excluding legal costs, SG&A as a percentage of turnover reducedfell 1.2 percentage points andto 27.7% (2007 – 28.9%). This was a 3% growth in sterling terms, but a 4% reduction at constant exchange rates, reflecting the decrease was 1.3 percentage points, reflecting a 2% decline in expenditure compared with prior year on a turnover growthbenefits of 2%. SG&A costs were down 2% due to lower sellingthe restructuring programmes. Selling and distribution fell by 1%, advertising and promotion by 5% and general and administration expenditure, partly offsetexcluding legal charges, by higher advertising and promotion. Advertising and promotion increased 2% and accounted for less than a 1% increase in total SG&A. Selling and distribution declined 1% and general and administration expenditure declined 7%. Collectively these items accounted for a 2% decline in total SG&A, of which one percentage point was due to lower charges related to legal matters.
Research and development
R&D expenditure decreased 3%increased by 2% to 14.4% of turnover (2007 – 14.3%) as investment in the late stage pipeline was partly as a result of lower impairment charges and the winding-down of previousoffset by restructuring activities. Excluding these items, R&D expenditure was flat. Pharmaceutical R&D expenditure represented 16.2% (2006 — 16.7%) of pharmaceutical turnover.savings.


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53

Financial review 2008

Other operating income
Other operating income wasof £541 million (2007 – £475 million) included strong growth in royalty income to £307 million (2007 – £216 million). Product, intellectual property and equity investment disposals realised £230 million in 2007 (2006 — £307 million). The increase is primarily due to higher royalty income (£2162008 compared with £90 million in 2007 compared with £94 million in 2006), favourable fair value movements on financial instruments (£41 million in 2007 compared with £29 million in 2006), and the2007. The Roche litigation settlement relating to carvedilol, partially offset by lower asset disposal profits.was included in 2007.
Operating profit —– results before major restructuring
Overall,Operating profit before major restructuring of £8,259 million for the operating profit marginyear increased 1.3 percentage points as operating profit increased 2%by 4% in sterling terms but decreased by 10% in CER terms compared with 2007. Pharmaceuticals operating profit was £7,427 million, down 11%, while Consumer Healthcare operating profit was flat in CER terms at £832 million. Excluding legal costs, operating profit decreased by 6%, which was greater than the turnover decline of 3%, primarily due to £7,931 million. Operating profit increased 8% at constant exchange rates and the margin increased 2higher cost of sales as a percentage points, reflecting declines in SG&A and R&D expenditure on turnover growth of 2%, and higher other operating income.turnover.
In 2007,the year, gains from asset disposals and settlements were £109£293 million (2006 — £169(2007 – £213 million), costs for legal matters were £255£611 million (2006 — £333(2007 – £255 million), fair value movements on financial instruments resulted in ana charge of £10 million (2007 – income of £41 million (2006 — £29 million) and charges relatedrelating to oldprevious restructuring activityprogrammes were £92£20 million (2006 — £205(2007 – £92 million). The operating profit impact of these items on operating profit before major restructuring was a £197£348 million charge in 2007 (2006 — £3402008 (2007 – £93 million).
Profit before taxation —– results before major
restructuring
Net finance costs
         
  2007  2006 
Finance income £m  £m 
 
Interest and other income  255   285 
Fair value adjustments and hedges  7   2 
 
   262   287 
 
         
 
Finance costs
        
 
Interest costs  (434)  (314)
Unwinding of discount on liabilities  (27)  (36)
Fair value adjustments and hedges  8   (2)
 
   (453)  (352)
 
Profit before taxation — results before major restructuring
         
  2008  2007 
Finance income £m  £m 
    
Interest and other income  322   255 
Fair value adjustments and hedges  (9)  7 
    
   313   262 
    
         
Finance costs
        
    
Interest costs  (829)  (434)
Unwinding of discount on liabilities  (11)  (27)
Fair value adjustments and hedges  2   8 
    
   (838)  (453)
    
Taking account of net finance costs and the contribution fromshare of profits of associates, resultsprofit before tax before major restructuring profit before taxation was £7,790£7,782 million compared with £7,799£7,790 million in 2006, an increase of 6%2007, a 14% CER decline but flat in sterling terms.
Taxation
                    
 2007 2006  2008 2007 
 £m £m  £m £m 
  
UK corporation tax 452 400  289 452 
Overseas taxation 1,962 2,310  1,589 1,962 
  
Current taxation 2,414 2,710  1,878         2,414 
Deferred taxation  (272)  (409) 69  (272)
  
Taxation on total profits 2,142 2,301  1,947 2,142 
  
The charge for taxation on total profit before major restructuring charges, amounting to £2,142£2,231 million (2007 – £2,219 million), and represents an effective tax rate of 28.7% (2006 — 29.5%(2007 – 28.5%). The charge for taxation on results before major restructuring profit, amountingtotal profits amounted to £2,219£1,947 million represents(2007 – £2,142 million) and represented an effective tax rate of 28.5% (2006 — 29.5%29.2% (2007 – 28.7%).


GSK Annual Report 200859
Report of the Directors
Financial review 2007continued

The GroupGroup’s balance sheet at 31st December 20072008 included a tax payable liability of £826£780 million and a tax recoverable asset of £58£76 million.
The integrated nature of the Group’s worldwide operations, involving significant investment in research and strategic manufacture at a limited number of locations, with consequential cross-border supply routes into numerous end-markets, gives rise to complexity and delay in negotiations with revenue authorities as to the profits on which individual Group companies are liable to tax. Disagreements with, and between, revenue authorities as to intra-Group transactions, in particular the price at which goods should be transferred between Group companies in different tax jurisdictions, can produce conflicting claims from revenue authorities as to the profits to be taxed in individual territories. Resolution of such issues is a continuing fact of life for GSK.
In 2007, our main open tax issues wereare in the UK, USA, Canada and Japan.
For the latest position on Taxation see ‘Taxation’ in the 20082009 Financial Review on page 40.34.
Profit for the year
                                
 2007 2006 Growth  2008 2007 Growth 
 £m £m CER% £%  £m £m CER% £% 
      
Total profit after taxation for the year 5,310 5,498 3  (3) 4,712 5,310  (25)  (11)
Total profit attributable to shareholders 5,214 5,389 3  (3) 4,602 5,214  (26)  (12)
Basic earnings per share (pence) 94.4p 95.5p 5  (1) 88.6p 94.4p  (21)  (6)
Basic earnings per ADS (US$)  $3.77  $3.53  $3.28 $3.77 
      
Results before major restructuring profit after taxation for the year 5,571 5,498 8 1  5,551 5,571  (14) – 
Results before major restructuring profit attributable to shareholders 5,475 5,389 8 2  5,441 5,475  (15)  (1)
Adjusted earnings per share (pence) 99.1p 95.5p 10 4  104.7p 99.1p  (9) 6 
Adjusted earnings per ADS (US$)  $3.96  $3.53  $3.87 $3.96 
Weighted average number of shares (millions) 5,524 5,643  5,195 5,524 
      
Diluted total earnings per share (pence) 93.7p 94.5p  88.1p 93.7p 
Diluted total earnings per ADS (US$)  $3.75  $3.50  $3.26 $3.75 
Weighted average number of shares (millions) 5,567 5,700 
Diluted weighted average number of shares (millions) 5,226 5,567 
      
Total results including restructuring costs related to the new Operational Excellence programme produced a basic EPS of 94.4p88.6p compared with 95.5p94.4p in 2006.2007. This was a 5% increase in21% decline at CER terms compared with 2006, butand a 1%6% decline in sterling terms.
Results before major restructuring profit for the year were £5,571 million, an increase of 8% (1% in sterling terms). Profit attributable to minority interests was £96 million and profit attributable to shareholders was £5,475 million, an increase of 8% (2% in sterling terms). The interest cost of the share buy-back programme adversely impacts the Group’s profits but benefits EPS. Results before major restructuring EPS increased 10%, reflecting higher profits and also the reduction in the weighted average number of shares resulting from the Group’s share buy-back programme. At actual rates of exchange, earnings per share increased 4%. The unfavourable currency impact on EPS of six percentage points reflected a strengthening of Sterling against the US dollar and compared with a four percentage point unfavourable currency impact on turnover.
Dividend
The Board has declared a fourth interim dividend of 1617 pence per share resulting in a dividend for the year of 5357 pence, a fivefour pence increase over the dividend of 4853 pence per share for 2006.2007.


GSK Annual Report 2009

54

Our Board
   
(PHOTO OF SIR CHRISTOPHER GENT)
(PHOTO OF PROFESSOR SIR ROY ANDERSON)(PHOTO OF LARRY CULP)(PHOTO OF JULIAN HESLOP)
Sir Christopher Gent
(Aged 61)
Appointed on 1st June 2004.
Chairman.
Sir Christopher is a Non-Executive Director of Ferrari SpA and was the Chief Executive Officer of Vodafone Group plc, until his retirement in July 2003. He is a Non-Executive Director of Lehman Brothers Holdings Inc, a member of KPMG’s Chairman’s Advisory Group, a Senior Adviser at Bain & Co. and a member of the Advisory Board of Reform.
Professor Sir Roy Anderson
(Aged 62)
Appointed on 1st October 2007.
Non-Executive Director.
Professor Anderson is Professor of Infectious Disease Epidemiology in the Faculty of Medicine, Imperial College, London. He is a member of the International Advisory Board of Hakluyt & Co. Ltd. He is a fellow of the Royal Society and a Foreign Associate Member of the Institute of Medicine at the US National Academy of Sciences and the French Academy of Sciences. His former positions include Rector of Imperial College and Chief Scientific Adviser at the Ministry of Defence in the UK.
Larry Culp (Aged 46)
Appointed on 1st July 2003.
Non-Executive Director.
Mr Culp is President and Chief Executive Officer of Danaher Corporation. Prior to joining Danaher, he held positions in Accenture, previously Andersen Consulting.
Julian Heslop (Aged 56)
Appointed on 1st April 2005.
Chief Financial Officer.
Mr Heslop joined Glaxo Wellcome as Financial Controller in April 1998. In January 2001 he was appointed Senior Vice President, Operations Controller. Prior to joining the Group he held senior finance roles at Grand Metropolitan.
(PHOTO OF ANDREW WITTY)
(PHOTO OF DR STEPHANIE BURNS)(PHOTO OF SIR CRISPIN DAVIS)(PHOTO OF SIR DERYCK MAUGHAN)
Andrew Witty (Aged 45)
Appointed on 31st January 2008. Chief Executive Officer.
Mr Witty was named Chief Executive Officer Designate for GSK in October 2007 and was appointed Chief Executive Officer (CEO) on 21st May 2008. He joined the Group in 1985 and has held senior positions in Asia, Africa and the USA. Immediately prior to being appointed CEO, Andrew was President, Pharmaceuticals Europe, a position he held from January 2003. He is a member of the Business Council for Britain, a Board Member of PhRMA, President of EFPIA, a Member of the Singapore Economic Development Board’s International Advisory Council and an Adviser to the Governor of Guangzhou, China.
Dr Stephanie Burns
(Aged 55)
Appointed on 12th February 2007.
Non-Executive Director.
Dr Burns is Chairman, President and Chief Executive Officer of Dow Corning Corporation. She is also a member of the American Chemical Society and sits on the Executive Committee of the Society of Chemical Industry, America Section, serves on the Board of Directors of the American Chemistry Council, and on the Board of Directors for the Society for Women’s Health Research. Dr Burns holds a PhD in organic chemistry from Iowa State University.
Sir Crispin Davis (Aged 60)
Appointed on 1st July 2003.
Non-Executive Director.
Until March 2009 Sir Crispin was Chief Executive Officer of Reed Elsevier PLC. Prior to that appointment, he was Chief Executive of Aegis Group plc, which he joined from Guinness plc, where he was a member of the main Board and Group Managing Director of United Distillers. He spent his early career with Procter & Gamble, including as President of the company’s US Food Division.
Sir Deryck Maughan
(Aged 62)
Appointed on 1st June 2004.
Non-Executive Director.
Sir Deryck is a Partner of Kohlberg Kravis Roberts & Co, and a Non-Executive Director of Thomson Reuters and BlackRock Inc. He was formerly Chairman and Chief Executive Officer of Citigroup International and of Salomon Brothers Inc.
GSK Annual Report 2009

55

Our Board
(PHOTO OF JAMES MURDOCH)
(PHOTO OF DR MONCEF SLAOUI)(PHOTO OF SIR ROBERT WILSON)
James Murdoch (Aged 37)
Appointed on 20th May 2009.
Non-Executive Director.
Mr Murdoch is Chairman and Chief Executive, Europe and Asia of News Corporation. He is also Non-Executive Chairman of BSkyB and a member of the Board of News Corporation. He served as Chief Executive Officer of BSkyB from 2003 to 2007 and was also previously Chairman and Chief Executive Officer of Star TV. He also serves on the Leadership Council of The Climate Group.
Dr Moncef Slaoui (Aged 50)
Appointed on 17th May 2006.
Chairman, Research & Development.
Dr Slaoui joined GSK Biologicals in 1988 where he engineered the development of a robust vaccines pipeline and subsequently led Worldwide Business Development for pharmaceuticals before his appointment to lead R&D. He is a member of the Board of the Agency for Science, Technology & Research (A*STAR) and has a PhD in Molecular Biology and Immunology from Université Libre de Bruxelles.
Sir Robert Wilson
(Aged 66)
Appointed on 1st November 2003.
Non-Executive Director & Senior Independent Director.
Sir Robert is Non-Executive Chairman of BG Group plc. He was previously Executive Chairman of Rio Tinto plc until his retirement in October 2003 and Chairman of The Economist Group between 2003 and 2009.		  
     
60GSK Annual Report 2008  
(PHOTO OF DR DANIEL PODOLSKY)
 Report of the Directors
(PHOTO OF TOM DE SWAAN)    
Dr Daniel Podolsky
(Aged 56)
Appointed on 1st July 2006.
Non-Executive Director.
Dr Podolsky is President of the University of Texas Southwestern Medical Center in Dallas and holds the Phillip O’Bryan Montgomery, Jr., M.D. Distinguished Presidential Chair in Academic Administration, and the Doris and Bryan Wildenthal Distinguished Chair in Medical Science. He is a member of the Institute of Medicine of the US National Academy of Sciences. He is also Chairman of the Board and Scientific Co-Founder of the GI Company.		 
TheTom de Swaan (Aged 63)
Appointed on 1st January 2006.
Non-Executive Director.
Mr de Swaan is Chairman of the Supervisory Board of VanLanschot Bankiers and a member of the Board of Directors of Zurich Financial Services. He is also Vice Chairman of the Supervisory Board and Chairman of the Audit Committee of Royal Ahold and a member of the Supervisory Board of Royal DSM. Until January 2006, he was a member of the Managing Board and Chief Financial Officer of ABN AMRO.		 
(IMAGE)
1 Sir Christopher Gent (Aged 60)
Appointed on 1st June 2004. Chairman.Sir Christopher was the Chief Executive Officer of Vodafone Group plc, until his retirement in July 2003. He is a Non-Executive Director of Lehman Brothers Holdings Inc, a Non-Executive Director of Ferrari SpA, a member of KPMG’s Chairman’s Advisory Group, a Senior Adviser at Bain & Co. and a member of the Advisory Board of Reform.
2 Andrew Witty (Aged 44)
Appointed on 31st January 2008. Chief Executive Officer. Mr Witty was named Chief Executive Officer Designate for GSK in October 2007 and was appointed Chief Executive Officer (CEO) on 21st May 2008. He joined the Group in 1985 and has held senior positions in Asia, Africa and the USA. Immediately prior to being appointed CEO, Andrew was President, Pharmaceuticals Europe, a position he held from January 2003. He is a member of the Business Council for Britain, a Board Member of PhRMA, a Vice-President of EFPIA and a Member of the Singapore Economic Development Board’s International Advisory Council.
3 Professor Sir Roy Anderson (Aged 61)
Appointed on 1st October 2007. Non-Executive Director. Professor Anderson is Professor of Infectious Disease Epidemiology in the Faculty of Medicine, Imperial College, London, and is Rector of Imperial College. He is a fellow of the Royal Society and a Foreign Associate Member of the Institute of Medicine at the US National Academy of Sciences. Until September 2007, Professor Anderson was the Chief Scientific Adviser at the Ministry of Defence in the UK.
4 Dr Stephanie Burns (Aged 54)
Appointed on 12th February 2007. Non-Executive Director. Dr Burns is Chairman, President and Chief Executive Officer of Dow Corning Corporation. She is also a member of the American Chemical Society and sits on the Executive Committee of the Society of Chemical Industry, America Section, serves on the Board of Directors of the American Chemistry Council, and on the Board of Directors for the Society for Women’s Health Research. Dr Burns holds a PhD in organic chemistry from Iowa State University.
5 Lawrence Culp (Aged 45)
Appointed on 1st July 2003. Non-Executive Director. Mr Culp is President and Chief Executive Officer of Danaher Corporation. Prior to joining Danaher, he held positions in Accenture, previously Andersen Consulting.
6 Sir Crispin Davis (Aged 59)
Appointed on 1st July 2003. Non-Executive Director. Sir Crispin is Chief Executive Officer of Reed Elsevier PLC. Prior to that, he was Chief Executive of Aegis Group plc, which he joined from Guinness plc, where he was a member of the main Board and Group Managing Director of United Distillers. He spent his early career with Procter & Gamble.
7 Julian Heslop (Aged 55)
Appointed on 1st April 2005. Chief Financial Officer. Mr Heslop joined Glaxo Wellcome as Financial Controller in April 1998. In January 2001 he was appointed Senior Vice President, Operations Controller. Prior to joining the Group he held senior finance roles at Grand Metropolitan.


GSK Annual Report 200861
Report of the Directors
(IMAGE)
8 Sir Deryck Maughan (Aged 61)
Appointed on 1st June 2004. Non-Executive Director.
Sir Deryck is a Partner of Kohlberg Kravis Roberts & Co, and a Non-Executive Director of Thomson Reuters and BlackRock Inc. He was formerly Chairman and Chief Executive Officer of Citigroup International and of Salomon Brothers Inc.
9 Dr Daniel Podolsky (Aged 55)
Appointed on 1st July 2006. Non-Executive Director.
Dr Podolsky is President of the University of Texas Southwestern Medical Center in Dallas and holds the Phillip O’Bryan Montgomery, Jr., M.D. Distinguished Presidential Chair in Academic Administration, and the Doris and Bryan Wildenthal Distinguished Chair in Medical Science. He is a member of the Board of the Southwest Medical Foundation, and is also Chairman of the Board and Scientific Co-Founder of the GI Company.
10 Sir Ian Prosser (Aged 65)
Appointed on 23rd May 2000. Senior Independent Director.
Sir Ian was formerly a Non-Executive Director of SmithKline Beecham plc. He is Non-Executive Deputy Chairman of BP plc, Chairman of the Navy, Army and Air Force Institutes (NAAFI), a Non-Executive Director of Sara Lee Corporation and a member of the CBI President’s Committee.
11 Dr Ronaldo Schmitz (Aged 70)
Appointed on 23rd May 2000. Non-Executive Director.
Dr Schmitz was formerly a Non-Executive Director of Glaxo Wellcome plc. He is a Non-Executive Director of Legal & General Group plc, a member of the Board of Directors of Rohm and Haas Company and Cabot Corporation and of the Supervisory Board of SICK AG.
Details of membership of the Board Committees may be found on page 66.
12 Dr Moncef Slaoui (Aged 49)
Appointed on 17th May 2006. Chairman, Research & Development.Dr Slaoui joined GSK Biologicals in 1988 where he engineered the development of a robust vaccines pipeline and subsequently led Worldwide Business Development for pharmaceuticals before his appointment to lead R&D. He is a member of the Board of the Agency for Science, Technology & Research (A*STAR) and has a PhD in Molecular Biology and Immunology from Université Libre de Bruxelles.
13 Tom de Swaan (Aged 62)
Appointed on 1st January 2006. Non-Executive Director.
Mr de Swaan is a member of the Board of Directors of Zurich Financial Services and Vice Chairman of the Supervisory Board and Chairman of the Audit Committee of Royal Ahold, a member of the Supervisory Board of Royal DSM, and Chairman of the Supervisory Board of VanLanschot Bankiers. Until January 2006, he was a member of the Managing Board and Chief Financial Officer of ABN AMRO.
14 Sir Robert Wilson (Aged 65)
Appointed on 1st November 2003. Non-Executive Director.
Sir Robert is Non-Executive Chairman of BG Group plc and The
Economist Group and was previously Executive Chairman of Rio Tinto.
James Murdoch (Aged 36)
To join the Board on 20th May 2009. Non-Executive Director.
Mr Murdoch is Chairman and Chief Executive of News Corporation, Europe and Asia. He is also Non-Executive Chairman of BSkyB and a member of the Board of News Corporation. He served as Chief Executive Officer of BSkyB from 2003 to 2007 and was also previously Chairman and Chief Executive Officer of Star TV. He also serves on the Leadership Council of The Climate Group.
Other Directors
Sir Ian Prosser and Dr Jean-Pierre Garnier, formerly Chief Executive Officer,Ronaldo Schmitz both retired from the Board on 21st20th May 2008. Mr Christopher Viehbacher, formerly President, North American Pharmaceuticals, who was appointed to the Board on 31st January 2008, resigned from the Board with effect from 8th September 2008.


2009.  
62GSK Annual Report 2008
Report of the Directors
The
GSK Annual Report 2009

56

Our Corporate Executive Team (CET)
(PHOTO)

1 Andrew Witty
Chief Executive Officer.Andrew succeeded JP Garnier as Chief Executive Officer in May 2008. He joined Glaxo UK in 1985. During his career with the company he has held the roles of Managing Director South Africa, Vice President and General Manager Marketing in the US and Senior Vice President, Asia Pacific. He was appointed President, Pharmaceuticals Europe for GlaxoSmithKline in January 2003.
2 Simon Bicknell
Senior Vice President, Company Secretary and Compliance Officer.Simon ensures that compliance and risk management are effectively embedded within the business and oversees corporate governance for the Group. Simon joined the Corporate Secretariat in 1984. He was appointed Deputy Company Secretary of Glaxo Wellcome in 1995 and Company Secretary of GlaxoSmithKline plc in 2000.
3 John Clarke
President, Consumer Healthcare.John is responsible for the Consumer Healthcare business which produces oral healthcare, over-the-counter and nutritional healthcare products. He joined Beecham in 1976 and was the President of the Futures Group before his current appointment in January 2006.
4 Deirdre Connelly
President, North American Pharmaceuticals.Deirdre joined GSK in February 2009 after working at Eli Lilly and Company for 24 years. She held a variety of positions including sales professional, General Manager of Puerto Rico, Executive Director of Human Resources and most recently President of US operations.
5 Marc Dunoyer
President, Pharmaceuticals Asia Pacific/Japan.Marc was appointed President, Pharmaceuticals Asia Pacific/Japan in May 2008. He joined the Group in 1999 and was President, Pharmaceuticals Japan from January 2000 until his current appointment.
6 Eddie Gray
President, Pharmaceuticals Europe.Eddie became responsible for the Group’s operations in Europe in January 2008. He joined Beecham in 1988 and, prior to his current appointment, was Senior Vice President and General Manager, Pharmaceuticals UK.
7 Julian Heslop
Chief Financial Officer.Julian became Chief Financial Officer in April 2005. As head of the finance function he is responsible for activities such as financial reporting and control, tax and treasury, finance systems, internal audit and insurance. He joined Glaxo Wellcome as Financial Controller in April 1998.
8 Abbas Hussain
President, Emerging Markets.Abbas joined GSK in June 2008 from Eli Lilly and Company, where he spent 20 years overseeing markets throughout Europe, Africa/Middle East and Australasia.
9 Duncan Learmouth
Senior Vice President, Corporate Communications and Community Partnerships.Duncan is responsible for the Group’s investor relations, internal and external communications, its image and partnerships with communities. He joined Glaxo in 1991 and was Vice President, Global Investor Relations, before appointment to his current position in July 2006.
10 Bill Louv
Chief Information Officer.Bill was appointed Chief Information Officer in January 2007. He is responsible for information technology across GSK. Bill joined Glaxo in 1994 as Vice President, Medical Data Sciences. Prior to his current role, Bill was Senior Vice President, R&D Information Technology.


GSK Annual Report 200863
Report of the Directors
(PHOTO OF ANDREW WITTY)
Andrew Witty
Chief Executive Officer
Andrew was appointed Chief Executive Officer in May 2008. He joined Glaxo UK in 1985. During his career with the company he has held the roles of Managing Director South Africa, Vice President and General Manager Marketing in the USA and Senior Vice President, Asia Pacific. He was appointed President, Pharmaceuticals Europe for GlaxoSmithKline in January 2003.
(PHOTO OF SIMON BICKNELL)
Simon Bicknell
Senior Vice President,
Company Secretary & Corporate Compliance Officer
Simon ensures that compliance and risk management are effectively embedded within the business and oversees corporate governance for the Group. He is also responsible for internal audit and assurance. Simon joined the Corporate Secretariat in 1984. He was appointed Deputy Company Secretary of Glaxo Wellcome in 1995 and Company Secretary of GlaxoSmithKline plc in 2000.
(PHOTO OF JOHN CLARKE)
John Clarke
President, Consumer Healthcare
John is responsible for the Consumer Healthcare business which produces oral healthcare, over-the-counter and nutritional healthcare products. He joined Beecham in 1976 and was the President of the Future Group before his current appointment in January 2006.
(PHOTO OF DEIRDRE CONNELLY)
Deirdre Connelly
President, North America Pharmaceuticals
Deirdre joined GSK in February 2009 after working at Eli Lilly and Company for 24 years. She held a variety of positions including sales professional, General Manager of Puerto Rico, Executive Director of Human Resources and most recently President of US Operations.
(PHOTO OF MARC DUNOYER)
Marc Dunoyer
President, Pharmaceuticals Asia Pacific/Japan
Marc was appointed President, Pharmaceuticals Asia Pacific/ Japan in May 2008. In addition to his current role he was appointed Chairman GSK Japan in January 2010 and in February 2010 to lead the rare diseases business of GSK from R&D to commercialisation. He joined the Group in 1999 and was President, Pharmaceuticals Japan from January 2000 until his current appointment.
(PHOTO OF EDDIE GRAY)
Eddie Gray
President, Pharmaceuticals Europe
Eddie became responsible for the Group’s operations in Europe in January 2008. He joined Beecham in 1988 and, prior to his current appointment, was Senior Vice President and General Manager, Pharmaceuticals UK.
(PHOTO OF JULIAN HESLOP)
Julian Heslop
Chief Financial Officer
Julian became Chief Financial Officer in April 2005. As head of the finance function he is responsible for activities such as financial reporting and control, tax and treasury, finance systems and insurance. He joined Glaxo Wellcome as Financial Controller in April 1998.
(PHOTO OF ABBAS HUSSAIN)
Abbas Hussain
President, Emerging Markets
Abbas joined GSK in June 2008 from Eli Lilly and Company, where he spent 20 years overseeing markets throughout Europe, Africa/Middle East and Australasia.
(PHOTO OF DUNCAN LEARMOUTH)
Duncan Learmouth
Senior Vice President, Global Communications
Duncan is responsible for the Group’s investor relations, internal and external communications, corporate responsibility and partnerships with communities. He joined Glaxo in 1991 and was Vice President, Global Investor Relations, before appointment to his current position in July 2006.
(PHOTO OF BILL LOUV)
Bill Louv
Chief Information Officer
Bill was appointed Chief Information Officer in January 2007. He is responsible for information technology across GSK. Bill joined Glaxo in 1994 as Vice President, Medical Data Sciences. Prior to his current role, Bill was Senior Vice President, R&D Information Technology.


GSK Annual Report 2009

57

Our Corporate Executive Team (CET)
(PHOTO)
11 Dan Phelan
Chief of Staff.Dan is responsible for Corporate Strategy and Development, IT, HR, Real Estate and Facilities, Environmental Health and Safety, and Global Security. He joined Smith Kline & French in 1981 and previously held the role of Senior Vice President Human Resources until his appointment as Chief of Staff in May 2008.
12 David Pulman
President, Global Manufacturing and Supply.David is responsible for the Global Manufacturing and Supply organisation and Global Procurement. He joined Glaxo in 1978. He has broad experience of manufacturing operations having previously led the Primary Supply, European manufacturing, North American manufacturing, Global Logistics and Manufacturing Strategy organisations.
13 David Redfern
Chief Strategy Officer.David is responsible for proactive exploration of new business opportunities and strategic planning. He began his career with GSK in 1994 in Corporate Development before being appointed Finance Director of Europe Pharmaceuticals in 1999. He was appointed Area Director for Central Europe in 2003 and Northern Europe in 2005.
14 Moncef Slaoui
Chairman, Research & Development.Moncef leads the Group’s drug discovery and development activities. He joined the Group in 1988 and was a key player in building GSK’s vaccines pipeline. In 2003 he was appointed Senior Vice President, Worldwide Business Development until his current appointment in June 2006.
15 Jean Stéphenne
President and General Manager, Biologicals.Jean has led GSK’s global vaccines business since 1989. Previously he was Vice President of Human Vaccines Research and Development and Production. He joined the company in 1974 as Head of Bacterial and Viral Vaccines production. Jean was named Baron by King Albert II of the Belgians in 2000 in recognition of his leading contribution to R&D and industry in Belgium.
16 Claire Thomas
Senior Vice President, Human Resources.Claire leads the global Human Resources (HR) function. Previously, she oversaw HR in Pharmaceuticals International and in Pharmaceuticals Europe. Claire joined the company in 1996 and was appointed Director of Human Resources for UK Pharmaceuticals in 1997. Claire was honoured as an Outstanding European Woman of Achievement in 2007.
17 Dan Troy
Senior Vice President and General Counsel.Dan joined GSK as Senior Vice President and General Counsel in September 2008. Previously he was a Partner at the Washington law firm Sidley Austin LLP and Chief Counsel for the FDA where he served as a primary liaison to the White House and the US Department of Health and Human Services (HHS).
Other members
Bob Ingram continues to act as a special consultant to the Group and attends some CET meetings in that capacity.
Changes to the CET in 2008
JP Garnier, Chief Executive Officer, retired from GSK in May 2008. Rupert Bondy, Senior Vice President and General Counsel, left GSK in March 2008. Russell Greig, President, Pharmaceuticals International, left the CET in May 2008 for a new role as President of the GSK Venture Fund. Chris Viehbacher, President, US Pharmaceuticals, left GSK in December 2008.


64GSK Annual Report 2008
Report of the Directors
Corporate governance continued
Governance and policy
This section discusses GSK’s management structures and governance procedures. It includes disclosures on compliance with the Combined Code on Corporate Governance of the Financial Reporting Council (Combined Code) and with US laws and regulation.
The Board and Corporate Executive Team
The Directors are listed under ‘The Board’ on page 60.(PHOTO OF DAN PHELAN)
Dan Phelan
Chief of Staff
Dan is responsible for Corporate Strategy and Development, IT, HR, Real Estate and Facilities, Environmental Health and Safety, and Global Security. He joined Smith Kline & French in 1981 and previously held the role of Senior Vice President, Human Resources until his appointment as Chief of Staff in May 2008.
(PHOTO OF DAVID PULMAN)
David Pulman
President, Global
Manufacturing and Supply
David is responsible for the Global Manufacturing and Supply organisation and Global Procurement. He joined Glaxo in 1978. He has broad experience of manufacturing operations having previously led the Primary Supply, European manufacturing, North American manufacturing, Global Logistics and Manufacturing Strategy organisations.
(PHOTO OF DAVID REDFERN)
David Redfern
Chief Strategy Officer
David is responsible for proactive exploration of new business opportunities and strategic planning. He began his career with GSK in 1994 in Corporate Development before being appointed Finance Director of Europe Pharmaceuticals in 1999. He was appointed Area Director for Central Europe in 2003 and Northern Europe in 2005.
(PHOTO OF MONCEF SLAOUI)
Moncef Slaoui
Chairman, Research & Development
Moncef leads the Group’s drug discovery and development activities. He joined the Group in 1988 and was a key player in building GSK’s vaccines pipeline. In 2003 he was appointed Senior Vice President, Worldwide Business Development until his current appointment in June 2006.
(PHOTO OF Jean Stéphenne)
Jean Stéphenne
President and General Manager, Biologicals
Jean has led GSK’s global vaccines business since 1989. Previously he was Vice President of Human Vaccines Research and Development and Production. He joined the company in 1974 as Head of Bacterial and Viral Vaccines production. Jean was named Baron by King Albert II of the Belgians in 2000 in recognition of his leading contribution to R&D and industry in Belgium.
(PHOTO OF CLAIRE THOMAS)
Claire Thomas
Senior Vice President, Human Resources
Claire leads the global Human Resources (HR) function. Previously, she oversaw HR in Pharmaceuticals International and in Pharmaceuticals Europe. Claire joined the company in 1996 and was appointed Director of Human Resources for UK Pharmaceuticals in 1997. Claire was honoured as an Outstanding European Woman of Achievement in 2007.
(PHOTO OF DAN TROY)
Dan Troy
Senior Vice President and General Counsel
Dan joined GSK as Senior Vice President and General Counsel in September 2008. Previously he was a Partner at the Washington law firm Sidley Austin LLP and Chief Counsel for the FDA. From 2006-2007 he chaired the America Bar Association’s Section of Administrative Law, and was previously adjunct scholar at the American Enterprise Institute in Washington, DC.


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58

Corporate governance

Governance and policy
This section discusses GSK’s management structures and governance procedures. The section, together with the Remuneration Report on pages 73 and 90, includes details of how the company applies and complies with the principles and provisions of the Combined Code on Corporate Governance of the Financial Reporting Council (Combined Code) and with US laws and regulation.
The Board and Corporate Executive Team
The Directors are listed under ‘Our Board’ on pages 54 to 55.
The Board is responsible for the Group’s system of corporate governance and is ultimately accountable for the Group’s activities, strategy, risk management and financial performance.
Independence
The Board considers all its Non-Executive Directors to be independent in character and judgement.
Dr Schmitz has served on the Board for more than ten years until his retirement as a Director on 20th May 2009, having been appointed to the Board of Glaxo Wellcome plc on 1st January 1997. During consideration of the Annual Review of Board effectiveness at its meeting in January 2009, the Board concluded that Dr Schmitz remained independent, notwithstanding his length of service. In the opinion of the Board, Dr Schmitz continued to demonstrate the characteristics of independence, such as objectively challenging management and taking part in rigorous debate, while at the same time possessing an outstanding knowledge of the company’s business and affairs, together with his experience gained as Chairman of the Audit Committee. In a long cycle investment business, such as GSK, it was considered to be particularly important to have experienced members on the Board. Sir Ian Prosser was also considered to be independent in accordance with the recommendations of the Combined Code prior to his retirement from the Board.
When Sir Christopher Gent was appointed to the Board as Deputy Chairman, he was determined by the Board to be independent. Upon taking up the chairmanship of the Board on 1st January 2005, in accordance with the Combined Code, he was excluded from the determination of whether at least half the Board are independent Non-Executive Directors. Sir Christopher Gent is a member of the Remuneration Committee, as permitted by the Combined Code, in light of his independence upon appointment as Chairman.
The Board considers that Professor Sir Roy Anderson, Dr Burns, Mr Culp, Sir Crispin Davis, Sir Deryck Maughan, Mr Murdoch, Dr Podolsky, Mr de Swaan and Sir Robert Wilson are independent in accordance with the recommendations of the Combined Code.
At the date of publication and throughout 2009, the Board concluded that Dr Schmitz remained independent, notwithstanding his length of service. In the opinion of the Board, Dr Schmitz continued to demonstrate the characteristics of independence, such as objectively challenging management and taking part in rigorous debate, while at the same time possessing an outstanding knowledge of the company’s business and affairs, together with his experience gained as Chairman of the Audit Committee. In a long cycle investment business, such as GSK, it was considered to be particularly important to have experienced members on the Board.
When Sir Christopher Gent was appointed to the Board as Deputy Chairman, he was determined by the Board to be independent. Upon taking up the chairmanship of the Board on 1st January 2005, in accordance with the Combined Code, he was excluded from the determination of whether at least half the Board are independent Non-Executive Directors. Sir Christopher Gent is a member of the Remuneration Committee, as permitted by the Combined Code, in light of his independence upon appointment as Chairman.
The Board considers that Professor Sir Roy Anderson, Dr Burns, Mr Culp, Sir Crispin Davis, Sir Deryck Maughan, Dr Podolsky, Sir Ian Prosser, Dr Schmitz, Mr de Swaan and Sir Robert Wilson are independent in accordance with the recommendations of the Combined Code.
Mr James Murdoch will join the Board with effect from 20th May 2009 and the Board has determined that he will be an independent Non-Executive Director in accordance with the Combined Code.
Sir Ian Prosser and Dr Schmitz will retire from the Board following the AGM in May 2009.
At the date of publication and throughout 2008, a majority of the Board members, excluding the Chairman, were independent Non-Executive Directors.
Chairman and CEO
Sir Christopher Gent has chaired the company since 1st January 2005 and was Chairman throughout 2008. 2009.
Mr Witty is the Chief Executive Officer (CEO). He succeeded Dr Garnier, who retired from the Board at the end of the AGM on 21st May 2008. Mr Witty’s biographical details can be found on page 60.pages 54 and 56. The Chairman leads the Board, and represents the Board to the CEO and other CET members as necessary between Board meetings. The CEO manages the Group and implements the strategy and policies adopted by the Board. The Chairman and the chairmenChairmen of Board Committees communicate regularly with the CEO and other CET members. The division of responsibilities between the role of Chairman and the CEO has been set out in writing, and agreed by the Board and appears in full on the company’s website.Board.
The CEO is responsible for executive management of the Group and is assisted by the CET. The CET meets at least 11 times per year and otherwise as necessary. The members and their responsibilities are listed under ‘Corporate‘Our Corporate Executive Team’ (page 62)(pages 56 to 57).
Senior Independent Director
Sir Ian ProsserRobert Wilson was appointed Senior Independent Director (SID) on 1st January 2005 and held this role throughout 2008. Sir Robert Wilson will become the SID20th May 2009, following Sir Ian’sIan Prosser’s retirement from the Board in May 2009.on that date. Sir Ian had held the role since January 2005.
Board process
The Board has the authority, and is accountable to shareholders, for ensuring that the companyGroup is appropriately managed and achieves the strategic objectives it sets. The Board discharges those responsibilities through an annual programme of meetings which includes the approval of overall budgetary planning and business strategy. The Board reviews the company’sGroup’s internal controls and risk management policies and approves its governance structure and code of ethics.
The Board appraises and approves major financing, investment and licensing decisions in excess of defined thresholds. In addition, the Board evaluates and monitors the performance of the Group as a whole. This includes:
•engaging at Board meetings with the CEO, the other Executive Directors and members of the CET as appropriate, on the financial and operating performance of GSK and external issues material to the Group’s prospects
•evaluating progress towards the achievement of the Group’s financial and business objectives and annual plans
•monitoring, through reports received directly or from various committees, the significant risks facing the Group.
engaging at Board meetings with the CEO, the other Executive Directors and members of the CET as appropriate, on the financial and operating performance of GSK and external issues material to the Group’s prospects
evaluating progress towards the achievement of the Group’s financial and business objectives and annual plans
monitoring, through reports received directly or from various committees, the significant risks facing the Group.


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59

GSK Annual Report 200865
Report of the Directors
Corporate governance continued

The Board has overall responsibility for succession planning for the CEO and the other Executive Directors. The Board has given the CEO broad authority to operate the business of the Group, and the CEO is accountable for, and reports to the Board on, the performance of the business. CET members make regular presentations to the Board on their areas of responsibility, and the Board meets with all the CET members on an annual basis to discuss collectively the Group’s strategy.
A primary element of the induction process for new Non-Executive Directors is undertaken by members of the CET, and all Non-Executive Directors are encouraged to have separate informal discussions at their discretion with any CET members.
The Board met six times in 2008,2009, with each member attending as follows:
                  
 Number of meetings    Number of meetings   
 held whilst a Board Number of  held whilst a Board Number of 
Name member meetings attended 
 member     meetings attended 
  
Sir Christopher Gent 6 6  6 6 
Mr A Witty* 6 6 
Mr A Witty 6 6 
Mr J Heslop 6 6  6 6 
Dr M Slaoui 6 6  6 6 
Professor Sir Roy Anderson 6 6  6 6 
Dr S Burns 6 6  6 6 
Mr L Culp 6 6  6 6 
Sir Crispin Davis 6 6  6 6 
Sir Deryck Maughan 6 6  6 6 
Mr J Murdoch* 4 4 
Dr D Podolsky 6 6  6 6 
Sir Ian Prosser 6 6 
Dr R Schmitz 6 6 
Mr T de Swaan 6 6  6 6 
Sir Robert Wilson 6 6  6 6 
Dr JP Garnier* 3 3 
Mr C Viehbacher* 4 4 
Sir Ian Prosser* 3 3 
Dr R Schmitz* 3 3 
  
* Mr Witty and Mr Viehbacher wereJames Murdoch was appointed to the Board on 31st January 2008.20th May 2009. Sir Ian Prosser and Dr GarnierRonaldo Schmitz retired from the Board on 21st20th May 2008. Mr Viehbacher resigned from the Board on 8th September 2008.2009.
In addition to the six scheduled meetings, the Board also met on a quorate basis on six occasions.
Business environment development
To ensure that the Board is kept up-to-date on important matters, including legal, governance and regulatory developments, presentations are made on a regular basis by both external and internal advisers.
In addition, Non-Executive Directors gain greater insight and understanding of the business through visits to Group operational facilities and attendance at various internal management meetings, including CET, Research & Development Executive and Product Marketing Board meetings, on an ad hoc basis.
A customised induction process is conducted for each of the new Non-Executive Directors focusing on their particular experience and taking account of their different backgrounds. This process includes meeting members of the CET and other senior executives and visiting particular operational facilities of the Group.
Independent advice
The Board recognises that there may be occasions when one or more of the Directors feel it is necessary to take independent legal and/or financial advice at the company’s expense. There is an agreed procedure to enable them to do so. This is explained in the Governance section of the company’s website.
Indemnification of Directors
Qualifying third party indemnity provisions (as defined in section 234 of the Companies Act 2006) are in force for the benefit of the Directors and former Directors who held office during 2008.2009.
Directors’ Conflictsconflicts of Interestinterest
Directors have a duty to avoid a situation in which they have, or can have, a direct or indirect conflict of interest or possible conflict of interest with the company. The duty applies in particular to the exploitation of any property, information or opportunity, whether or not GSK could take advantage of it. The company’s Articles of Association include a general power for the Board to authorise such conflicts. There is no breach of duty if the relevant matter has been so authorised in advance.
The Board has established procedures for handling situational conflicts of interest, which are in line with the best practice guidance issued by the General Counsel 100 Group and in accordance with the company’s Articles. It has authorised the Nominations Committee to grant and review periodically, but in any event annually, any potential or actual conflict authorisations. Directors are not counted in the quorum for the authorisation of their own actual or potential conflicts. The Company Secretary minutes the consideration of any conflict. Authorisations granted are recorded by the Company Secretary in a register of conflict authorisations which are noted by the Board at its next meeting. On an ongoing basis, the Directors are responsible for informing the Company Secretary of any new, actual or potential conflicts that may arise or, if there are any changes in circumstances that may affect an authorisation previously given. Even when provided with authorisation, a Director is not absolved from his or her duty to promote the success of the company. If an actual conflict arises post authorisation, the Board will choose to exclude the Director from the relevant information and debate, or suspend the Director from the Board, or, as a last resort, require the Director to resign.
Company Secretary
The Company Secretary is responsible to the Board and is available to individual Directors in respect of Board procedures. The Company Secretary is Mr Simon Bicknell, who was appointed in May 2000. He is a barrister and joined the Group in 1984. He is Secretary to all of the Board Committees except the Remuneration Committee. The Deputy Company Secretary, Mrs Victoria Whyte, was appointed Secretary to the Remuneration Committee with effect from 27th January 2009. She is a solicitor and a Fellow of the Institute of Chartered Secretaries and Administrators.
Board Committees
The Board has established a number of Committeescommittees and provides sufficient resources to enable them to undertake their duties. Executive Directors are not members of the Audit & Risk, Remuneration, Nominations or Corporate Responsibility Committees, although they may be invited to attend meetings. Each Director is a member of the Corporate Administration & Transactions and Finance Committees.


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66GSK Annual Report 2008
Report of the Directors
Corporate governance continued
Corporate governance framework
(ORGANIZATION CHART)(FLOW CHART)
Current membership of these Committees is shown in the table below.
                 
              Corporate 
  Audit & Risk      Remuneration      Nominations      Responsibility 
          
Sir Christopher Gent  –   M   C   C 
Professor Sir Roy Anderson  M   –   –   – 
Dr S Burns  –   –   –   M 
Mr L Culp  –   M   M   – 
Sir Crispin Davis  –   C   M   – 
Sir Deryck Maughan  M   –   M   – 
Mr J Murdoch  –   M   –   M 
Dr D Podolsky  M   –   –   M 
Mr T de Swaan  C   M   –   – 
Sir Robert Wilson  M   M   M   – 
          
 
Corporate
AuditRemunerationNominationsResponsibility
Sir Christopher Gent—Key: C = Chairman MCC
Professor Sir Roy Anderson————
Dr S Burns———M
Mr L Culp—MM—
Sir Crispin Davis—M——
Sir Deryck MaughanM———
Dr D PodolskyM——M
Sir Ian ProsserM—MM
Dr R SchmitzMMM—
Mr T de SwaanC——M
Sir Robert WilsonMCM—
= Member
Key: C = Chairman M = Member
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GSK Annual Report 200867
Report of the Directors
Corporate governancecontinued

Each Committee has written terms of reference which have been approved by the Board. The following is a summary of the role and terms of reference of each Committee. The current full terms of reference of each Committee may be obtained from the Company Secretary or the Governance section of the company’s website.Secretary.
           
      No of meetings Committee Report
Committee Role and Terms of Reference Membership comprises per year on page
 
Audit & Risk
 Reviews the financial and internal reporting process, the system of internal controls, the identification and management of risks and the external and internal audit process. The Committee also proposes to shareholders the appointment of the external auditors and is directly responsible for their remuneration and oversight of
their work.		 Independent Non-
ExecutiveNon-Executive Directors		 ³4 73-74  67–69
 
Remuneration
 Determines the terms of service and remuneration of the Executive Directors and members of the CET and, with the assistance of external independent advisers, it evaluates and makes recommendations to the Board on overall executive remuneration policy. Independent Non-
ExecutiveNon-Executive Directors
& and the Chairman		 ³4 78-98  
73–90
  (The Chairman and the CEO are responsible for evaluating and making recommendations to the Board on the remuneration of Non-Executive Directors.)        
 
Nominations
 Reviews the structure, size and composition of the Board and appointment of members to the Board and the CET, and makes recommendations to the Board as appropriate. The Committee also monitors the planning of succession to the Board and Senior Management. Independent Non-
ExecutiveNon-Executive Directors
& and the Chairman		 ³1 270
  75 
 
Corporate
Responsibility
 Provides a Board-level forum for the regular review of external issues that have the potential for serious impact upon the Group’s business and reputation. The Committee is also responsible for oversight of GSK’s worldwide donations and community support. Independent Non-
ExecutiveNon-Executive Directors
& and the Chairman		 ³371
  75-76 
 
Finance
 Reviews and approves, on behalf of the Board, the Annual Report and Form 20-F, and convening of the AGM, together with the preliminary and quarterly statements of trading results. It also approves certain major licensing and capital transactions and changes to the Group’s Investment Instrument and Counterparty Limits. Executive & Non-
Executiveand Non-Executive Directors		 As necessary –
 — 
 
Corporate
Administration
& Transactions
 Reviews and approves matters in connection with the administration of the Group’s business and certain corporate transactions. Executive & Non- Executiveand Non-Executive Directors, CET members and the Company Secretary As necessary —  

–
     
 68GSK Annual Report 2008
Report of the Directors
Corporate governancecontinued
     
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Corporate governance

Evaluation of the Board, Board Committees and Directors
In previous years the evaluation of the performance of the Chairman, the Board, its Committees and Directors has been undertaken by the SID, in collaboration with the Committee Chairmen. In 2008 the Board engagedcommissioned Dr Long of Boardroom Review to act as an independent facilitator for the Board’s evaluation process. The actions from this process formed the basis of the Board’s internal review process for 2009 namely:
Identify how to utilise the time spent in Board and Committee meetings more effectively and facilitate further contribution by Non-Executive Directors on a broader range of issues
Seek to enhance further the Non-Executive Directors’ continuing education process beyond their initial induction
Provide greater visibility to the Board of GSK’s executive talent and the management succession planning process.
The Senior Independent Director, Sir Robert Wilson, conducted the 2009 evaluation of the performance of the Chairman, the Board and its Committees and Directors in collaboration with the Committee Chairmen.
The Board evaluation process.
The process included a tailored questionnaire, a one-to-one interview with each Director and the Company Secretary, observation of the Board and Committee meetings held in December 2008 and a review of associated papers.Director. The questions coveredtopics discussed included a variety of aspects associated with Board effectiveness including Board and Committee roles and responsibilities, culture and dynamics, processes and support and individual effectiveness. Feedback from the reviewevaluation was provided in the form of a written report and presentation to the Board, which then discussed its findings.
The Chairman of each of the Board Committees undertook separate evaluations and the outcome of each was reported to the respective Committee and the Board.
The Board review concluded that the Chairman, the Board and its Committees were operating effectively tothere was a high level. The Board agreed the following actions to generate more inclusive engagementlevel of satisfaction with the executive management teamway in which Mr Witty had grown into the CEO role and further improve its collective decision making process:
•Identify how to utilise the time spent in Board and Committee meetings more effectively and facilitate further contribution by Non-Executive Directors on a broader range of issues
•Seek to enhance further the Non-Executive Directors’ continuing education process beyond their initial induction
•Provide greater visibility to the Board of GSK’s executive talent and the management succession planning process.
Thewith the openess of dialogue between the Executive Directors and Non-Executive Directors. Board members also met separately, without the Chairman being present, to discuss the Chairman’s performance and contribution. ItThere was agreed during this meeting thatalso a high level of confidence in Sir Christopher’s Chairmanship of the Chairman was performing well andBoard. He had the unanimous and unequivocal support of the other Directors, both Executive and Non-Executive.
The Board and its Committees were believed to be operating effectively at a high level.
The Board agreed the following actions after discussion of the evaluation report:
Identify how to increase further the amount of Board time devoted to strategic discussion and the indicators of success in delivery of the R&D pipeline
Devote more time to focused consideration of the company’s key risks on an ongoing basis
Provide the Board with more regular updates and insights into the newly enhanced management succession planning process.
The Board has taken a policy decision to undertake an externally facilitated evaluation process every three years. In the intervening period the review will be facilitated by the SID or the Chairman.
Dialogue with shareholders
Financial results are announced quarterly.
The company reports formally to shareholders twice a year, when its half-year and full-year results are announced. The full-year results are included in the company’s Annual Report which is published for shareholders.
The company now produces an annual Summary which is sent to all shareholders to advise them of the availability of the Annual Report and Notice of Meeting on www.gsk.com. The CEO and CFO give presentations on the full-year results to institutional investors, analysts and the media.
There are normally webcast teleconferences after the release of the first, second and third quarter results for institutional investors, analysts and the media. The Annual Report, Summary and quarterly results are available on the company’s website.
The AGM takes place in London, and formal notification is sent to shareholders at least one month in advance. At the Meeting, a business presentation is made to shareholders and all Directors able to attend are available, formally during the AGM, and informally afterwards, for questions. Committee Chairmen ordinarily attend the AGM to respond to shareholders’ questions. The entire Board was in attendance at the company’s AGM in May 2008.2009, save for Sir Deryck Maughan who was prevented from attending due to urgent business commitments which arose shortly before the meeting. All resolutions at the AGM are decided on a poll as required by the company’s Articles of Association. The results of the poll are announced to the London Stock Exchange and posted on the company’s website. Details of the 20092010 AGM are set out in the section ‘Annual General Meeting’ (see page 71)65) and the Notice of AGM is published on the company’s website.
To ensure that the Non-Executive Directors are aware of and understand the views of major shareholders about the company, the Board has in place a process focusing on sector-specific issues, as well as general shareholder preferences.
The CEO, CFO and CFOChairman maintain a dialogue with institutional shareholders on performance, plans and objectives through a programme of regular meetings. FollowingSince his appointment as CEO in May 2008, AndrewMr Witty has undertaken an extensive ongoing series of meetings with GSK’s institutional shareholders.
The Group’s Investor Relations department, with offices in London and Philadelphia, acts as a focal point for contact with investors throughout the year.
The Chairman meets regularly with institutional investors to hear their views and discuss issues of mutual importance and communicates the views of investors to the Board as a whole. The SID is also available to shareholders.
The Chairman of the Remuneration Committee, meetsthe Chairman, and the SVP, Human Resources meet annually with major shareholders to discuss executive remuneration policy.
All Non-Executive Directors, including new appointees, are available to meet with major shareholders if requested.


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63

Corporate governance

Share capital and control
Details of the company’s authorised and issued share capital and the number of shares held in Treasury, as at 31st December 2008,2009, can be found in Note 33 to the financial statements, ‘Share capital and share premium account’. GSK’s shares are listed on the London Stock Exchange and are also quoted on the New York Stock Exchange (NYSE) in the form of American Depositary shares (ADS). Each ADS represents two Ordinary Shares.


GSK Annual Report 200869
Report of the Directors
Corporate governancecontinued
The holders of Ordinary Shares are entitled to receive dividends, when declared, and the company’s reportsreport and accounts, to attend and speak at General Meetings of the company, to appoint proxies and to exercise voting rights.
There are no restrictions on transfer, or limitations on the holding of Ordinary Shares and no requirements to obtain prior approval to any transfers. No Ordinary Shares carry any special rights with regard to control of the company and there are no restrictions on voting rights. Major shareholders have the same voting rights per share as all other shareholders. There are no known arrangements under which financial rights are held by a person other than the holder of the shares and no known agreements on restrictions on share transfers or on voting rights.
Shares acquired through GSK share schemes and plans rank equally with the other shares in issue and have no special rights. The trustees of the company’s Employee Share Ownership Plan (ESOP) trusts have waived their rights to dividends on shares held by the ESOP trusts.
Change of control and essential contracts
The company does not have contracts or other arrangements which individually are essential to the businesses nor is it party to any significant agreements that would take effect, alter or terminate upon a change of control following a takeover bid.
The company does not have agreements with any Director or Officer that would provide compensation for loss of office or employment resulting from a takeover, except that provisions of the company’s share plans may cause options and awards granted under such plans to vest on a takeover. Details of the termination provisions in the company’s framework contracts for Executive Directors are given on page 81.
Interests in voting rights
Other than as stated below, as far as the company is aware, there are no persons with significant direct or indirect holdings in the company. Information provided to the company pursuant to the Financial Services Authority’s (FSA) Disclosure and Transparency Rules (DTRs) is published on a Regulatory Information Service and on the company’s website.Service.
At 24th19th February 2009,2010, the company had received notifications in accordance with the FSA’s DTRs of the following notifiable interests, in the voting rights in the company’s issued share capital:
         
  No . of  Percentage of issued 
  shares  capital (%)* 
 
Barclay PLC  186,518,653   3.59 
 
         
  No . of  Percentage of issued 
  shares  capital (%)* 
    
BlackRock, Inc.  334,849,249   6.45 
Legal & General Group Plc  217,546,535   4.19 
    
* Percentage of Ordinary Shares in issue, excluding Treasury shares as at 24th19th February 2009.2010.
The Bank of New York Mellon is the Depositary for the company’s ADS, which are listed on the New York Stock Exchange. Ordinary Shares representing the company’s ADSADR program, which are managed by the Depositary, are registered in the name of BNY (Nominees) Limited. Details of the number of Ordinary Shares held by the Depositary can be found on page 181.177.
The company has not acquired or disposed of any interests in its own shares other than in connection withduring the company’s share buy-back programme.period under review. Details of the shares purchased in prior years, those cancelled, and those held inas Treasury shares are disclosed in Note 33 to the financial statements ‘Share capital and share premium account’.
Directors and Officers
The interests of Directors and Officers and their connected persons in the issued share capital of the company are given in the Remuneration Report (pages 7873 to 98)90).
The rules about the appointment and replacement of Directors are contained in the company’s Articles of Association. The company’s Articles must be approved by shareholders in accordance with the legislation in force from time to time.
The Articles provide that Directors may be appointed by an ordinary resolution of the members or by a resolution of the Directors, provided that, in the latter instance, a director appointed in this way retires at the first AGM following his appointment.
The Articles also provide that Directors should be subject to re-election at the AGM at intervals of three years or annually if they have held office for a continuous period of nine years or more. The company’s members may remove a director by passing an ordinary resolution of which special notice has been given.given, or by passing a special resolution. A Director may automatically cease to be a Director if:
• he becomes bankrupt or compounds with his creditors generally
 
• he ceases to be a Director by virtue of the Companies Acts or the Articles
 
• he is suffering from mental ill health
 
• he has missed Directors’ meetings for a continuous period of six months without permission and the Board resolves that he shall cease to be a Director
 
• he is prohibited from being a Director by law
 
• he resigns
 
• he offers to resign and the Board accept that offer, or
 
• all other Directors (being at least three in number) require him to resign.


GSK Annual Report 2009

64

70GSK Annual Report 2008
Report of the Directors
Corporate governancecontinued

Memorandum and Articles of Association
The powers of the Directors are determined by UK legislation and the company’s Memorandum and Articles of Association, available on GSK’s website.Association. The articlesArticles may be amended by a special resolution of the members. The Directors may exercise all the company’s powers provided that the Articles or applicable legislation do not stipulate that any such powers must be exercised by the members. The Directors have been authorised to issue and allot Ordinary Shares under current Article 10. The power under current Article 10 and the authority for the company is authorised to make purchases of its own shares under Article 7. The powers under Articles 8 and 10 are subject to shareholder authorities which are sought on an annual basis at the AGM. Any shares purchased by the company may be cancelled or held as Treasury shares.
Share buy-back programme
A £12 billion programme of share repurchases commenced in July 2007. Shares costing £6.2 billion have been repurchased under this programmeprogramme. No repurchases were made during 2009, and the company does not expect to make any significant repurchases in 2009.2010. The programme covered purchases by the company of shares for cancellation or to be held as Treasury shares, in accordance with the authority renewed by shareholders at the company’s AGM in 2008.
In May 2008,2009, when the company was authorised to purchase a maximum of 584just under 519 million shares. Details of shares purchased in prior years, those cancelled, and those held as Treasury shares and those cancelled are disclosed in Note 33 to the financial statements ‘Share capital and share premium account’. In total, the company has purchased £15.3 billion of its own shares since 1st January 2001.
The exact amount and timing of any future purchases, and the extent to which repurchased shares will be held as Treasury shares rather than being cancelled, will be determined by the company and is dependent on market conditions and other factors.
Donations to EU political organisations and EU political expenditure
With effect from 1st January 2009, to ensure a consistent approach to political contributions across the Group, GSK introduced a global policy to stop voluntarily all political contributions.
         
  2009  2008 
Political donations to: £  £ 
    
EU political organisations  –   – 
    
Non-EU political organisations        
comprising:        
USA  –   319,000 
Canada  –   28,000 
    
   –       347,000 
    
Prior to the introduction of the Group’s new approach to political contributions, the USA was the largest recipient of political donations. In line with US law, the corporate donations were not made at a federal level, but only to candidates and political parties at the state and local levels. In 2008, GSK supported those candidates who sought an environment that appropriately rewarded high-risk, high-investment industries.
The situation was similar in Canada, and in the Rest of the World donations were very rare and of low value.
Notwithstanding the new policy, the company continues to support a GSK Political Action Committee (PAC) for employees in the USA which gives political donations. A PAC is an employee organisation which allows employees to contribute to a fund for political donations. Employees decide upon the recipients of the PAC donations. In 2009, a total of £540,551 (£539,359 in 2008) was donated to political organisations by the GSK PAC.
At the AGM in May 2001, shareholders first authorised the company to make donations to EU political organisations and to incur EU political expenditure, under the provisions of the Political Parties, Elections and Referendums Act 2000, of up to £100,000 each year. This authority has since been renewed annually. The law requires companies to continue to obtain shareholder approval before they can make donations to EU political organisations or incur EU political expenditure. However, the company does not make and does not intend to make donations to political parties or independent election candidates, nor does it make any donations to EU political organisations or incur EU political expenditure.
The definitions of political donations, political expenditure and political organisations used in the legislation are very wide. In particular, the definition of EU political organisations may extend to bodies such as those concerned with policy review, law reform, the representation of the business community and special interest groups such as those concerned with the environment, which the company and its subsidiaries might wish to support. As a result, the definitions may cover legitimate business activities not in the ordinary sense considered to be political donations or political expenditure. Such activities are not designed to support any political party or independent election candidate. The authority which the Board has sought annually is a precautionary measure to ensure that the company and its subsidiaries do not inadvertently breach the legislation.
With effect from 1st January 2009, to ensure a consistent approach to political contributions across the GSK group, GSK introduced a global policy to stop voluntarily all political contributions.
         
  2008  2007 
Political Donations to: £  £ 
 
EU Political Organisations  —   — 
 
Non-EU Political Organisations comprising:        
USA  319,000   249,000 
Canada  28,000   27,000 
 
   347,000   276,000 
 
Prior to the introduction of the Group’s new approach to political contributions, the USA was the largest recipient of political donations. In line with US law, the corporate donations were not made at a federal level, but only to candidates and political parties at the state and local levels. In 2008, GSK supported those candidates who sought an environment that appropriately rewarded high-risk, high-investment industries.
The situation was similar in Canada, and in the rest of the world donations were very rare and of low value.
Notwithstanding the new policy, the company continues to support a GSK Political Action Committee (PAC) for employees in the USA which gives political donations. A PAC is an employee organisation which allows employees to contribute to a fund for political donations. Employees decide upon the recipients of the PAC donations. In 2008, a total of £539,359 (£522,172 in 2007) was donated to political organisations by the GSK PAC.


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65

GSK Annual Report 200871
Report of the Directors
Corporate governancecontinued

Annual General Meeting
The AGM will be held at 2.30pm on Wednesday, 20thThursday, 6th May 20092010 at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE. The business to be transacted at the meeting will include:
Receiving and adopting GlaxoSmithKline’s 2009 Annual Report
• Receiving and adopting GlaxoSmithKline’s 2008 Annual Report
•Approving the 20082009 Remuneration Report
 
  The Remuneration Report on pages 7873 to 9890 sets out the remuneration policies operated by GlaxoSmithKline and disclosures on Directors’ remuneration, including those required by the Companies Act 2006 and the Directors’ Remuneration ReportThe Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2002.2008. A resolution will be proposed to approve the Remuneration Report.
• Retirement election and re-election of Directors
 
  Dr Stephanie Burns, Mr Larry Culp,Julian Heslop, Sir Crispin Davis,Deryck Maughan, Dr Moncef SlaouiDaniel Podolsky and Mr Tom de SwaanSir Robert Wilson will each retire and offer themselves for re-election to the Board under current Article 85 of the company’s Articles of Association.
• Sir Ian Prosser and Dr Ronaldo Schmitz will also be retiring by rotation but will not be seeking re-appointment as they will be retiring from the Board after the conclusion of the AGM. Mr James Murdoch has been appointed a Director with effect from 20th May 2009 and will offer himself for election to the Board.
•Re-appointment and remuneration of Auditorsauditors
 
  Resolutions will be proposed to authorise the Audit & Risk Committee to re-appoint
PricewaterhouseCoopers LLP as auditors and to authorise the Audit Committee to determine their remuneration.
• Special business
 
  The company will seek authority to:
 • make donations to EU political organisations and incur EU political expenditure, each capped at £50,000
 
 • allot Ordinary Shares in the company
 
 • give the Directors authority to disapply pre-emption rights when allotting new shares in connection with rights issues or otherwise up to a maximum of 5% of the current issued share capital and purchase its own Ordinary Shares up to a maximum of just under 10% of the current issued share capital
 
 • exempt the Auditorsauditors from having to state the name of their senior statutory auditor for the company in GSK’s Annual Report
 
 • reduce the notice required to call a general meeting to not less than 14 clear days
 
 • adopt new Performance Share, Share Optionamend the company’s Articles of Association in line with the Companies Act 2006, the Shareholder Rights Directive and Deferred Annual Bonus plans.to include a limit on annual fees paid to Directors.
Shareholders are entitled to appoint one or more proxies to attend the AGM and to speak and vote on their behalf.behalf provided that, in the event that a single shareholder appoints multiple proxies, each proxy is appointed to exercise the rights attached to a different share or shares held by that member.
Details on how to appoint or be appointed a corporate representative or proxy can be found on page 198.194. The Notice of AGM will be published on the company’s website.
Internal control framework
The Board recognises its responsibility to present a balanced and understandable assessment of the Group’s position and prospects.
The Board has accountability for reviewing and approving the adequacy and effectiveness of internal controls operated by the Group, including financial, operational and compliance controls and risk management. The Board has delegated responsibility for such review to the Audit & Risk Committee, which receives reports from those individuals identified in the Committee’s Report on pages 73 to 74.regular reporting aligned with GSK’s Assurance Programme. It is the responsibility of management, through the CET, to implement Board policies on risk and control. The CET is responsible for identifying, approving, monitoring and enforcing key policies that go to the heart of how the Group conducts business. The internal control framework includes central direction, resource allocation and risk management of the key activities of research and development, manufacturing, marketing and sales, legal, human resources, information systems and financial practice. As part of this framework, there is a comprehensive planning system with an annual budget approved by the Board. The results of operating units are reported monthly and compared with the budget. Forecasts are prepared regularly during the year.
The Group also has in place established procedures to identify and consolidate reporting entities. The Group’s control activities include policies and practices covering appropriate authorisation and approval of transactions, application of financial reporting standards and reviews of significant judgements and financial performance.
Extensive financial, regulatory and operational controls, procedures and risk activities are reviewed by the Group’s internal auditors. Commercial and financial responsibility,Responsibility, however, is clearly delegated to local business units, supported by a regional management structure. These principles are designed to provide an environment of central leadership coupled with local operating autonomy as the framework for the exercise of accountability and control within the Group.
The Group also attaches importance to clear principles and procedures designed to achieve appropriate accountability and control. A Group policy, ‘Risk Management and Legal Compliance’, mandates that business units establish processes for managing and monitoring risks significant to their businesses and the Group.

The internal control framework also relies on the following for overseeing and reporting risk and compliance issues.


72GSK Annual Report 2008
Report of the Directors
Corporate governancecontinued
Risk Oversight and Compliance Council (ROCC)
The ROCC is a council of senior executives authorised by the Board to assist the Audit & Risk Committee oversee the risk management and internal control activities of the Group. Membership comprises several CET members and some of the heads of departments with internal control, risk management, assurance, audit and compliance responsibilities.
The ROCC meets on a regular basis to review and assess significant risks and their mitigation plans and provide oversight of internal controls to ensure compliance with applicable laws, regulations and internal GSK policies. The ROCC, responding to the Group policy referred to above, has provided the business units with a framework for risk management and upward reporting of significant risks. Mitigation planning and identification of a manager with overall responsibility for management of any given risk is a requirement.


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66

Corporate governance
(FLOW CHART)

Risk Management and Compliance Boards (RMCBs)
Risk Management and Compliance Boards (RMCBs)RMCBs have been established in each of the major business units. Membership often comprises members of the senior executive team of the respective business unit, augmented by specialists where appropriate. The RMCBs oversee management of all risks that are considered important for their respective business units, including those risks that are designated as significant to GlaxoSmithKline as a whole, thus increasing the number of risks that are actively managed across the Group.
Each RMCB regularly reportsbusiness unit and corporate function must periodically review the status regarding its significant risks facing their businesses. This review should include identifying operational risks, legal compliance risks and risks to the ROCC.achievement of strategic goals and objectives. The review must occur at least annually, should be embedded within, and aligned with, the annual planning process to ensure that significant risks are identified with changes in management direction and the external environment.
Compliance functionsAssurance
In a number2009, an Assurance Programme was implemented to further enhance governance and provide an independent assessment of governance, risk management and control processes for the organisation. Within GSK this comprises four main elements:
Internal Audit
GSK’s Internal Audit group has responsibility for independently assessing the adequacy and effectiveness of the management over significant risk areas specific standards that meet or exceed requirements of applicable lawand reporting it to the Audit & Risk Committee in line with an agreed annual Assurance Plan. GSK’s internal audit functions have undergone significant transformation as the four global audit functions (Group Internal Audit, Manufacturing Internal Audit, R&D Internal Audit, and Environment, Health, Safety and Sustainability Internal Audit) have been established. Specialist audit and compliance functions (for example Corporate Environment, Health & Safety Audit, Global Manufacturing and Supplyconsolidated into a single organisation under the leadership of the Head of Audit and Assurance. The Head of Audit and Assurance reports to GSK’s Company Secretary & Corporate Compliance Officer with a separate reporting responsibility to the Chairman of the Audit & Risk Management,Committee.
This new alignment of the global audit functions further strengthens GSK’s governance model by affording the Internal Audit group greater independence, reduces fragmentation among global audit functions and Researchprovides a direct reporting line from the Internal Audit group to GSK’s Company Secretary & Corporate Compliance Officer and Development Global Qualityto the Chairman of the Audit & Risk Committee to ensure significant issues are escalated in a timely manner. This has helped eliminate overlaps, gaps and Compliance) assistpotential for over/under auditing that existed in the dissemination, implementationprevious structure.
It also provides a clear platform for developing a common approach to the conduct of internal audits which helps ensure consistency and that audit of these standards. These audit functionsactivities are coordinated by a Corporate performed in the most efficient and effective way.
Assurance groupreporting
Assurance reporting to the Audit & Risk Committee will follow a structured programme integrating reporting from business units, Assurance and Internal Audit.
Business units and corporate functions are required to present reports annually to the ROCC and Audit & Risk Committee that detail its risk management and compliance approach, providing a balanced assessment of the status of internal controls over key risks, and highlighting any significant compliance issues. Management must oversee risks that are considered important for their respective business units, including those risks that are designated as significant to the Group. Information regarding the controls in place to manage these risks will be provided to assure the Audit & Risk Committee that these risks are adequately managed within the internal control framework.
Internal Audit reports to the Audit & Risk Committee at the same time as the business unit and provides an independent assessment of whether adequate controls are in place to manage significant risks.


GSK Annual Report 2009

67

Corporate Compliance Officer.governance

When issues or control deficiencies are identified, Internal Audit recommends processes for improvement. GSK managers develop corrective action plans to eliminate the causes of non-compliance and address gaps in internal controls. Internal Audit tracks these plans to completion and reports results to senior management and the Audit & Risk Committee.
Significant compliance issues and internal audit results are escalated to the Audit & Risk Committee at the earliest opportunity.
Risk management
The Group’s risk management programme extends beyond the legal and regulatory issues and considers the Group’s overall strategy and changes in the external environment. Furthermore, risk management principles are embedded within management practices and are part of the business strategy and objectives setting process.
For details of risks affecting the Group, see ‘Risk factors’ on pages 43 to 47 and Note 44 to the financial statements, ‘Legal proceedings’.
Strategic Risk Evaluations (SREs)
SREs are a new approach to delivering enterprise-wide assurance on significant issues facing GSK and are conducted by our assurance teams in partnership with the business. The approach is designed to evaluate areas where there is an incomplete understanding of risk, and enable the development and implementation of appropriate mitigation plans. Each SRE is sponsored by a CET member or ‘risk owner’ with oversight for each SRE provided by the ROCC.
Corporate Ethics & Compliance (CEC)
The ROCC is also supported by the Corporate Ethics & ComplianceCEC department, which is responsible for supporting the development and implementation of practices that facilitate employees’ compliance with laws and Group policy. The department provides assistance to help employees meet high ethical standards and comply with applicable laws and regulations and corporate responsibility.
The thrust of the Group’s compliance effort is due diligence in preventing and detecting misconduct or non-compliance with law or regulation by promoting ethical behaviour, compliance with all laws and regulations, corporate responsibility at all levels and effective compliance systems.
The CEC department is managed by the Company Secretary & Corporate Compliance Officer, who reports directly to the CEO. The Company Secretary & Corporate Compliance Officer chairs the ROCC and provides summary reports on the ROCC’s activities and the Group’s significant risks to the CET and the Audit & Risk Committee on a regular basis. The Corporate Compliance Officer’s direct reporting line to the Audit & Risk Committee provides a mechanism for bypassing the executive management should the need ever arise.
Areas of potentially significant risk
For details of risks affecting the Group, see ‘Risk factors’ on pages 50 to 53 and Note 44 to the financial statements, ‘Legal proceedings’.
Effectiveness of controls
The internal control framework has been in operation for the whole of the year under review and continues to operate up to the date of approval of this report. The system of internal controls is designed to manage rather than eliminate the risk of not achieving business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.
The Audit & Risk Committee receives reports on areas of significant risk to the Group and on related internal controls. Following consideration of these reports and those received via the Assurance framework, the Audit & Risk Committee reports annually to the Board on the effectiveness of controls. Such controls may mitigate but cannot eliminate risks. In addition, there
There are areas of the Group’s business where it is necessary to take risks to achieve a satisfactory return for shareholders, such as investment in R&D and in acquiring new products or businesses.

In these cases, it is the Group’s objective to apply its expertise in the prudent management rather than elimination of risk. The Directors’ review relates to the company and its subsidiaries and does not extend to material associated undertakings, joint ventures or other investments.
The Board, through the Audit & Risk Committee, has reviewed the assessment of risks and the internal control framework that operates in GlaxoSmithKline and has considered the effectiveness of the system of internal control in operation in the Group for the year covered by this report and up to the date of its approval by the Board. The process followed by the Board in reviewing the system of internal controls accords with the guidance on internal control issued by the Turnbull Committee.


GSK Annual Report 200873
Report of the Directors
Corporate governancecontinued
Committee reports
Board Committees report regularly to the Board on the performance of the activities they have been assigned.
Audit & Risk Committee Report
(PHOTO)
Tom de Swaan
Audit & Risk Committee Chairman
       
    Attendance at meetings
    during 2008
  full meetings FullQuorate
Members Committee member since meetingsduring 2009
 meetings
 
Mr TomT de Swaan 1st January 2006 6/6 5/5
(Chairman from      
1st September 2006)      
Professor Sir Roy20th May 20092/3
Anderson
       
Sir Deryck Maughan 21st January 2005 6/5/6 4/5
       
Dr DanielD Podolsky 1st January 2007 6/5/6 5/5
  
Sir Ian Prosser27th December 20006/64/5
Dr Ronaldo Schmitz27th December 20006/65/5
       
Sir Robert Wilson 12th December 2003 6/6 
4/5
Sir Ian Prosser*27th December 20003/3
 
Dr R Schmitz*27th December 20003/3
*Sir Ian Prosser and Dr Schmitz retired from the Board on 20th May 2009.
In addition to the six scheduled meetings, the Committee also met on a quorate basis on five occasions.


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68

Corporate governance

Other attendees at Committee meetings:
• CEO
 
• CFO
 
• Chairman
 
• General Counsel
 
• Head of Global Internal Audit & Assurance
 
• Company Secretary & Corporate Compliance Officer
 
•Head of Global Internal Audit, as appropriate
• External Auditors.
The Committee’s main responsibilities include:
• Reviewing the corporate accounting and financial reporting process
 
• Monitoring the integrity of the financial statements
 
• Evaluating the system of internal control and managementidentifying and managing risks, including in relation to the financial reporting process and the preparation of risksconsolidated accounts
 
• Overseeing activities of each of the Group’s compliance and audit functions and overseeing compliance with laws, regulations and ethical codes of practice.
The Committee’s oversight role requires it to address regularly the relationships between management and the internal and external auditors and understand and monitor the reporting relationships and tiers of accountability between them.
The Committee receives regular reports from members of the CET and senior managers covering the key risk management and compliance activities of the Group, including those concerningcovering R&D, manufacturing, sales and marketing and Environment, Healthcorporate functions. Further details of the reporting framework to the Committee are set out on pages 65 to 67 ‘Internal control framework’.
In December 2009 the Committee’s terms of reference were amended to reflect its role in overseeing the identification and management of risk under the new assurance-based audit framework referred to on pages 66 to 67. At the same time the name of the Audit Committee was changed to the Audit & Safety.Risk Committee.
Qualifications of Audit & Risk Committee Members
Committee members, with the exception of Professor Sir Roy Anderson and Dr Podolsky, bring considerable financial and accounting experience to the Committee’s work. Members have past employment experience in either finance or accounting roles or comparable experience in corporate activities. Professor Sir Roy and Dr Podolsky’s backgroundbackgrounds as a world renowned researcher enables himmedical scientists and researchers enable them to bring scientific expertise to the Committee’s deliberations.
   
  Financial & Accounting Experienceaccounting experience
 
Mr Tom de Swaan 
•
Chief Financial Officer of ABN AMRO until 31st December 2005
  
•
Determined by the Board to be the Audit Committee Financial Expert, as defined by the Sarbanes Oxley Act of 2002 (Sarbanes-Oxley)
 
Sir Deryck Maughan 
•
A Partner of Kohlberg Kravis Roberts & Co. (KKR) and Chairman of KKR Japan
  
•
Former Chairman & CEO of Citigroup International and Vice Chairman of Citigroup Inc.
  
•
Former Chairman and Co-Chief Executive Officer of Salomon Smith Barney
  
•
Former Chairman and Chief Executive Officer of Salomon Brothers Inc.
Sir Ian Prosser•Former CFO and subsequently CEO of Bass plc
•Chartered Accountant
Dr Ronaldo Schmitz•Former Member of Glaxo Wellcome plc’s Audit Committee
•Former Member of Executive Board of Directors of Deutsche Bank AG
•Former Head of Investment Banking of Deutsche Bank
•Former member of the Executive Board of Directors of BASF from 1980 to 1990. CFO of BASF from 1985 to 1990
•Former Chairman of the Committee from April 2001 to September 2006
•MBA from INSEAD
   
Sir Robert Wilson 
•
Economist, and former Non-Executive Chairman of The Economist Group
  
• Chairman of BG Group plc
  
•
Chairman of BG Group plc
•Retired from Rio Tinto in 2003 where he held Senior Management positions culminating in his appointment as Executive Chairman
   
 Scientific expertise
  Scientific Expertise
Professor Sir Roy Anderson
• A world renowned medical scientist with advanced knowledge of infectious disease epidemiology
  
• Professor of Infectious Disease Epidemiology in the Faculty of Medicine, Imperial College, London
• Fellow of the Royal Society
• Foreign Associate Member of the Institute of Medicine at the US National Academy of Sciences
• Foreign Associate Member of the French Academy of Sciences
• Former Rector of Imperial College, London
• Former Chief Scientific Adviser at the Ministry of Defence in the UK
   
Dr Daniel Podolsky 
•
A world renowned researcher with advanced knowledge of underlying mechanisms of disease and new therapies for gastrointestinal disorders
  
•
President of the University of Texas Southwestern Medical Centre and Professor of Internal Medicine
• Member, Institute of Medical/National Academy of Sciences
• Former Mallinckrodt Professor of Medicine, Harvard Medical School
• Former Chief Academic Officer, Partners Healthcare
   
•Former Mallinkrodt Professor of Medicine and Chief of Gastroenterology at Massachusetts General Hospital and Harvard Medical School.


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69

74 GSK Annual Report 2008
Report of the Directors

Corporate governance continued

In 2008,2009, the Committee worked to a structured programme of activities, with standing items that the Committee is required to consider at each meeting together with other matters focused to coincide with key events of the annual financial reporting cycle:
   
External Auditorsauditors
 reported on all critical accounting policies, significant judgements and practices used by the Group, alternative accounting treatments which had been discussed with management and their resultant conclusion, material written communications with management and any restrictions on access to information
 
CFO
 reported on the financial performance of the company and on technical financial and accounting matters
 
General Counsel
 reported on material litigation
 
Company Secretary
& Corporate
Compliance Officer
 reported on corporate governance and on the activities undertaken by the ROCC
 
Heads of audit and assurance and the
Group’s Compliance
compliance and Audit Groupsaudit groups
 the majority of the Heads of these groups reported on their audit scope, annual coverage, audit resources and on the results of audits conducted throughout the year
 
Company Secretary, as Chairman of the Disclosure Committee
 reported on matters that affected the quality and timely disclosure of financial and other material information to the Board, to the public markets and to shareholders. This enabled the Committee to review the clarity and completeness of the disclosures in the published annual financial statements, interim reports, quarterly and preliminary results announcements and other formal announcements relating to financial performance prior to their releaseapproval by the Board.
 
The Audit & Risk Committee, management, internal auditors and the full Board work together to ensure the quality of the company’s corporate accounting and financial reporting. The Committee serves as the primary link between the Board and the external and internal auditors. This facilitates the necessary independence from management and encourages the external and internal auditors to communicate freely and regularly with the Committee. In 2008,2009, the Committee met both collectively and separately with the external auditors and the Head of Global Internal Audit and Assurance, and the Corporate Compliance Officer without members of management being present.
The Committee has primary responsibility for making a recommendation to shareholders on the appointment, reappointmentre-appointment and removal of the external auditors by annually assessing the qualifications, expertise, resources and independence of the external auditors and the effectiveness of the audit process.

In evaluating the effectiveness of the audit process prior to making a recommendation on the re-appointment of the external auditors, the Committee reviews the effectiveness of their performance against criteria which it agrees, in conjunction with management, at the beginning of each year’s audit. As part of this process, the Committee considers feedback on the prior year’s external audit gathered through a survey facilitated by the auditors’ client service review team, which is independent of the engagement team that undertook the audit work. The survey seeks feedback from a number of sources, including certain members of the Board who were involved in the audit process and the financial management team at corporate and business unit level.
Before agreeing the audit fee proposed by the external auditors the Committee considers cost comparisons to ensure that it is fair and appropriate for GSK. There are no contractual obligations that restrict the Committee’s capacity to recommend a particular firm as external auditors to the Group. PricewaterhouseCoopers LLP have remained in place as auditors since the Group’s inception in December 2000.
In making its assessment, the Committee considers papers which detail the relevant UK legislative, regulatory and professional requirements relating to external auditors and evaluates reports from the external auditors on their compliance with the requirements. requirements, on the safeguards that have been established and on their own internal quality control procedures. Consideration is also given by the Committee to the need to include the risk of the withdrawal of the external auditors from the market in its risk evaluation and planning.
Where the external auditors provide non-audit services, the Committee ensures that auditor objectivity and independence are safeguarded by a policy requiring pre-approval by the Committee for such services. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the particular service or categories of services, and is subject to a specific budget.
The external auditors and management report regularly to the Committee regarding the extent of services provided in accordance with this pre-approval and the fees for the services performed. The Committee may also pre-approve additional services on a case-by-case basis. Expenditure on audit and non-audit services is set out in Note 9 to the financial statements, ‘Operating profit’.

The guidelines set out in the company’s policy on engaging the external auditors to provide non-audit services include ascertaining that: the skills and experience of the external auditors make them a suitable supplier of the non-audit services; adequate safeguards are in place so that the objectivity and independence of the audit are not threatened or compromised; and the fee levels relative to the annual audit fee are within the limits set by the Committee.
The company also has well-established policies, including a Code of Ethics, which is available on its website, and a help-line facility for the reporting and investigation of unlawful conduct. No waivers to the Code were made in 2008.2009.


GSK Annual Report 2009

70

GSK Annual Report 200875
Report of the Directors

Corporate governancecontinued
Corporate governance

Nominations Committee Report
(PHOTO OF SIR CHRISTOPHER GENT)

Sir Christopher Gent
Nominations Committee Chairman
          
      Attendance at 
      full meetings during
2008
Full 
Members Committee member since  meetingsduring 2009 
 
Sir Christopher Gent 9th December 2004   3/35/5 
(Chairman from        
1st January 2005)        
Mr LarryL Culp 28th March 2008   5/5
Sir Crispin Davis9th July 20092/2 
Sir Deryck Maughan9th July 20092/2
Sir Robert Wilson28th March 20085/5
Sir Ian ProsserProsser* 27th December 2000   2/32 
(Committee Chairman

February-December 2003)		        
Dr Ronaldo SchmitzR Schmitz* 17th May 20043/3
Sir Robert Wilson28th March 2008   2/2 
 
*Sir Ian Prosser and Dr Schmitz retired from the Board on 20th May 2009.
Other attendees at Committee meetings:
• CEO
• Chief of Staff
• Head of HR
• Company Secretary.
•CEO
•Chief of Staff
•Head of HR
•Company Secretary
•where relevant, appropriate external advisers.
The Committee’s main responsibilities include proposing the appointment of Board and Committee members.
During 2008,2009, the Committee’s main focus was on the recruitment of new Non-Executive Directors to refresh the Board.Board and on the appointment of a new Head of North American Pharmaceuticals.
When recruiting Non-Executive Directors, the Committee considers the particular skills, knowledge and experience that would benefit the Board most significantly for each appointment. Broad selection criteria are used which focus on achieving a balance between the representation of European, UK and US markets, and having individuals with CEO experience and skills developed in various sectors and specialities. During 2008,2009, particular focus was placed upon recruiting replacements for Sir Ian Prosser and Dr Ronaldo Schmitz who will retireretired at the AGM in 2009. The Committee recommended the appointment of Mr James Murdoch as a Non-Executive Director.
The process continues into 2009,2010, with the Committee placing emphasis on candidates who are current CEOs or have had government or administration experience.financial expertise. Professional search agencies are engaged specialising in the recruitment of high calibre Non-Executive Directors. Dossiers of potential Non-Executive appointees are provided to the Committee and candidates are shortlisted for interview on merit and against objective criteria after considering their relevant qualifications.
A customised induction process is conducted for each of the new Non-Executive Directors focusing on their particular experience and taking account of their different backgrounds. This process includes meeting members of the CET and other senior executives and visiting particular operational facilities of the Group.
When appointing new Executive Directors andor CET members, the Committee considers the skills, knowledge and experience required for the particular executive position. The Committee will consider potential external and internal candidates before recommending to the Board to approve the new appointment. All new Directors offer themselves for election at the company’s next AGM. Their appointments are announced publicly.
The Committee recommended the appointment of Mr Larry CulpMs Deirdre Connelly was appointed President, North America Pharmaceuticals on 9th February 2009 and Sir Robert Wilson to the Nominations Committee in March 2008.
The Committee also recommended to the Board the appointment of Mr James Murdoch as a Non-Executive Director and asbecame a member of the Corporate Responsibility Committee with effect from 20th May 2009.CET.
Additionally, onOn the Committee’s recommendation, the Board approved the following changes which taketook effect on the retirement of Sir Ian Prosser and Dr Schmitz’s retirementSchmitz from the Board at the conclusion of the AGM in May 2009;2009: Sir Robert Wilson will replacereplaced Sir Ian as the SID, Sir Crispin Davis will replacereplaced Sir Robert as the Chairman of the Remuneration Committee, Professor Sir Roy Anderson will becomebecame a member of the Audit & Risk Committee, Mr de Swaan stepped down from the Corporate Responsibility Committee and became a member of the Remuneration Committee, Mr Murdoch became a member of the Corporate Responsibility Committee. In addition, on the Committee’s recommendation, the Board approved the appointment of Sir Crispin and Sir Deryck Maughan will becomeas members of the Nominations Committee.Committee with effect from 9th July 2009. The Committee also recommended and the Board approved the appointment of Mr Murdoch as a member of the Remuneration Committee with effect from 1st October 2009.
Remuneration Report
The Remuneration Report can be found on pages 7873 to 98.90.


GSK Annual Report 2009

71

Corporate governance

Corporate Responsibility Committee Report
(SIR CHRISTOPHER GENT PHOTO)

Sir Christopher Gent
Corporate Responsibility Committee Chairman
       
       Attendance at 
    full meetings during
2008
Full 
Members Committee member since meetingsduring 2009 
 
Sir Christopher Gent 9th December 2004 3/35/5 
(Chairman from

1st January 2005)		     
Dr StephanieS Burns 6th December 2007 5/5
Mr J Murdoch 3/320th May 20092/2 
Dr DanielD Podolsky 1st July 2006 3/34/5 
Sir Ian ProsserProsser* 17th May 2004 3/2/3 
Mr TomT de SwaanSwaan* 1st July 2006 3/3
Following his appointment to the Board with effect from 20th May 2009, Mr James Murdoch will also become a member of the Committee.
Other attendees at Committee meetings may include:
• CEO
• General Counsel
• Head of Corporate Communications & Community
   Partnerships
• Head of Corporate Responsibility
• Chief of Staff
• Head of HR
• Company Secretary.


76GSK Annual Report 2008
Report of the Directors

Corporate governancecontinued
 
     
*Sir Ian Prosser retired from the Board on 20th May 2009 and Mr de Swaan also ceased to be a member of the Committee on that date.
Other attendees at Committee meetings may include:
•CEO
•General Counsel
•Head of Corporate Communications & Community Partnerships
•Head of Corporate Responsibility
•Company Secretary.
To augment GSK’s engagement with stakeholder opinion, in March 2009 Ms Sophia Tickell was appointed as an independent external adviser to the Committee. Ms Tickell is the Director of the Pharma Futures Series which aims to align better societal and shareholder value, and she chairs the International Advisory Group of the Medicines Transparency Alliance. Ms Tickell attends the meetings of the Committee and advises the company in this capacity.
The main responsibilities of the Corporate Responsibility Committee are set out on page 67.61. The Committee has a rolling agenda and receives reports from the members of the CET and senior managers to ensure that progress on meeting GSK’s Corporate Responsibility Principles is reviewed. Five Principles: access to medicines; standards of ethical conduct; research and innovation; employment practices; and global community partnerships are reviewed annually. Other Principles are discussed at least once every two years. The Committee also reviews and approves the Corporate Responsibility Report.
During the year the Committee reviewed the following areas:areas including:
•pandemic ‘flu, including access to vaccine and antiviral medicine in developing countries
• access toand pricing of medicines in developing countries
 
•R&D on diseases of the developing world and a patent pool
• community partnerships and investment
 
• humanitarian donations
 
•employee volunteering
• sales and marketing practices including harmonisation of GSK Codes of Practice
 
• disclosure of funding of medical education and patient advocacy groupspayments to healthcare professionals
 
• product safety and communication of clinical trial results
 
•R&D on diseases of the developing world
• use of animals in research
 
• globalisationemployment practices including diversity and externalisation of R&Dinclusion
 
• reduction of employee numbers through restructuringwellbeing
 
• employee relations including consultation requirementsarrangements and employment litigation in the USA
 
• employment litigation in the USA.supply chain management
•climate change, energy use reduction and manufacturing efficiency
•data privacy
•corruption prevention.
GSK’sGSK publishes a comprehensive Corporate Responsibility Report is available on the company’s website.Report.
The Combined Code
Throughout 2008,2009, the company complied with the provisions and applied the Main Principles of Section 1 of the Combined Code, except as follows:regards an aspect of the following provision:
B.1.1 — In designing schemes of performance-related remuneration, the Remuneration Committee should follow the provisions in Schedule A to the Code. Item 6 of Schedule A states that, in general, only basic salary should be pensionable. The company’s position is explained in the Remuneration Report on pages 78 to 98.
•D.2.3 – The chairman should arrange for the chairmen of the audit, remuneration and nomination committees to be available to answer questions at the AGM and for all directors to attend.
The entire Board was in attendance at the company’s AGM in May 2009, save for Sir Deryck Maughan who was prevented from attending due to urgent business commitments which arose shortly before the meeting. He therefore needed to convey his apologies for absence.
US law and regulation
A number of provisions of US law and regulation apply to GSK because the company’s shares are quoted on the NYSE in the form of ADS.
NYSE RULESrules
In general, the NYSE rules permit the company to follow UK corporate governance practices instead of those applied in the USA, provided that the company explains any significant variations. This explanation is contained in the company’s Form 20-F filing, which can be accessed from the Securities and Exchange Commission’s (SEC) EdgarEDGAR database or via the company’s website. NYSE rules that came into effect in 2005 require the company to file annual and interim written affirmations concerning the Audit & Risk Committee and the company’s statement on significant differences in corporate governance.


GSK Annual Report 2009

72

Corporate governance

Sarbanes-Oxley Act of 2002
Following a number of corporate and accounting scandals in the USA, Congress passed the Sarbanes-Oxley Act of 2002. Sarbanes-Oxley is a wide ranging piece of legislation concerned largely with financial reporting and corporate governance.
As recommended by the SEC, GSK has established a Disclosure Committee. The Committee reports to the CEO, the CFO and to the Audit & Risk Committee. It is chaired by the Company Secretary and the members consist of senior managers from finance, legal, compliance, corporate communications and investor relations.
External legal counsel and the external auditors are invited to attend its meetings periodically. It has responsibility for considering the materiality of information and, on a timely basis, determining the disclosure of that information. It has responsibility for the timely filing of reports with the SEC and the formal review of the Annual Report and Form 20-F. In 2008,2009, the Committee met 116 times.
Sarbanes-Oxley requires that the Annual Report contains a statement as to whether a member of the company’s Audit & Risk Committee is an Audit Committee Financial Expert as defined by Sarbanes-Oxley. For a summary regarding the Board’s judgement on this matter, refer to page 73.68. Additional disclosure requirements arise under Sectionsection 302 and Sectionsection 404 of Sarbanes-Oxley in respect of disclosure controls and procedures and internal control over financial reporting.


GSK Annual Report 200877
Report of the Directors

Corporate governancecontinued
Section 302: Corporate responsibility for financial reports
Sarbanes-Oxley also introduced a requirement for the CEO and the CFO to complete formal certifications, confirming that:
• they have each reviewed the Annual Report and Form 20-F
 
• based on their knowledge, it contains no material misstatements or omissions
 
• based on their knowledge, the financial statements and other financial information fairly present, in all material respects, the financial condition, results of operations and cash flows as of the dates, and for the periods, presented in the Annual Report and Form 20-F
 
• they are responsible for establishing and maintaining disclosure controls and procedures that ensure that material information is made known to them, and have evaluated the effectiveness of these controls and procedures as at the year-end, the results of such evaluation being contained in the Annual Report and Form 20-F
 
• they are responsible for establishing and maintaining internal control over financial reporting that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles
 
• they have disclosed in the Annual Report and Form 20-F any changes in internal controls over financial reporting during the period covered by the Annual Report and Form 20-F that have materially affected, or are reasonably likely to affect materially, the company’s internal control over financial reporting
 
• they have disclosed, based on their most recent evaluation of internal control over financial reporting, to the external auditors and the Audit & Risk Committee, all significant deficiencies and material weaknesses in the design or operation of internal controlcontrols over financial reporting which are reasonably likely to affect adversely the company’s ability to record, process, summarise and report financial information, and any fraud (regardless of materiality) involving persons that have a significant role in the company’s internal control over financial reporting.
The Group has carried out an evaluation under the supervision and with the participation of the Group’s management, including the CEO and CFO, of the effectiveness of the design and operation of the Group’s disclosure controls and procedures as at 31st December 2008.2009.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based on the Group’s evaluation, the CEO and CFO have concluded that, as at 31st December 2008,2009, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that the Group files and submits under the US Securities Exchange Act of 1934, as amended, is recorded, processed, summarised and reported as and when required and that it is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding disclosure.
The CEO and CFO completed these certifications on 4th1st March 2009.2010.
Section 404: Management’s annual report on internal control over financial reporting
In accordance with the requirements of section 404 of Sarbanes-Oxley, the following report is provided by management in respect of the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the US Securities Exchange Act of 1934):
• Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Group. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS
 
• Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control —– Integrated Framework issued by the Committee of Sponsoring Organisations of the Treadway Commission
 
• Management has assessed the effectiveness of internal control over financial reporting, as at 31st December 20082009 and has concluded that such internal control over financial reporting was effective. In addition, there have been no changes in the Group’s internal control over financial reporting during 20082009 that have materially affected, or are reasonably likely to affect materially, the Group’s internal control over financial reporting
 
• PricewaterhouseCoopers LLP, which has audited the consolidated financial statements of the Group for the year ended 31st December 2008,2009, has also assessed the effectiveness of the Group’s internal control over financial reporting under Auditing Standard No. 5 of the Public Company Accounting Oversight Board (United States). Their audit report may be found on page 101.93.


GSK Annual Report 2009

78

73GSK Annual Report 2008

Report of the Directors

Remuneration Report
Remuneration Report
(PHOTO OF SIR CRISPIN DAVIS)

Sir Crispin Davis
Remuneration Committee Chairman
Dear Shareholder
On behalfAs the new Chairman of the Board,GSK’s Remuneration Committee I am pleased to present the Committee’s Remuneration Report on Remuneration for 20082009 for which we will be seeking approval from shareholders at our AGM in May.
BackgroundAs you know, we made some important changes to GSK’s remuneration policy for our UK Executive Directors last year to deliver appropriately structured pay through alignment with the market and principles for proposedGSK’s key strategic priorities. There was a high level of shareholder engagement in relation to these changes, and we were pleased to receive such a strong vote in favour of last year’s Remuneration Report at the AGM.
Senior management alignment and competitiveness
FollowingSince then, we have made further progress in simplifying and aligning the appointmentremuneration structures across the Corporate Executive Team (CET). As a result of this, primary pay benchmarks will be based on the nature of each individual role rather than the industry benchmark previously used. Share options will normally no longer be granted; instead, CET members will receive Performance Share Plan awards, and will also be eligible to participate in GSK’s Deferred Annual Bonus Plan. There will also be a more standardised pay mix across CET roles below the Executive Directors.
The Committee would not want to reward failure and so considers that severance terms should be more limited. We have therefore determined that the contracts of any new CET appointees would normally include severance terms of one year’s base salary only, with no bonus entitlement. In addition, I am pleased to report that the CEO has agreed to remove his contractual entitlement to bonus in the event of termination of his employment and also to note the increase in his holding of GSK shares.
Strategic alignment
The introduction of a second performance measure in the Performance Share Plan has provided a clear focus on cash generation in the business. We are continuing to develop measures that further align our remuneration with the ongoing work to transform GSK. Given the importance of long term organic growth and R&D productivity to the future of GSK, we are assessing the most meaningful ways of measuring success in these areas so that they may be considered as performance measures for future awards.
Good governance
There have been a number of corporate governance developments in the past year in response to the economic turmoil, with more likely to come in 2010.
When we reviewed our arrangements last year we wanted to ensure that we did not motivate excessive risk taking. We introduced a new Chief Executive OfficerDeferred Annual Bonus Plan, and were one of the first companies to introduce a ‘clawback’ mechanism for annual bonuses should problems arise in May 2008, the Remuneration Committee decidedyears after a bonus award has been made. We continue to review senior executivemonitor best practice governance developments, and commit to regular reviews of our remuneration arrangements to ensure that they continue to encourage the right behaviours from our remuneration policy supports the future direction of the business.
Our current long-term incentive plans expire in 2010 and we are therefore reviewing them a year earlier than necessary. The current economic climate, as well as the change from a US-based to a UK-based Chief Executive Officer, has provided an opportunity to make some fundamental changes to GSK’s remuneration policy. The proposed changes are designed to strengthen the alignment of GSK’s remuneration arrangements with views expressed by investors, particularly those in the UK, and to reflect better GSK’s UK home base. As such, the most fundamental changes will apply largely to some of the company’s UK-based executives, including the Chief Executive Officer and the Chief Financial Officer.leadership team.
The following sets out the key principles for the review and highlights some of the main changes proposed:
Aligning pay with the relevant market
Remuneration for some of the UK-based members of the CET,report provides further detail on GSK’s current remuneration arrangements including the Chief Executive Officerchanges made and the Chief Financial Officer, will be benchmarked primarily against a UK cross-industry comparator group although, for obvious reasons, we cannot ignore intra-industry comparison. Remuneration for the Chairman, Research & Development, as well as certain other roles, will continuethose to be benchmarked against other global pharmaceutical companies to reflect the market in which GSK competes for that talent.
As far as benchmarking the Chief Executive Officer role is concerned, this shift from global pharmaceuticals to UK cross-industry companies represents a major change and will have a significant impact on the structure and quantum of his remuneration. At this time, at least, the proposed remuneration package of the Chief Executive Officer would be well below the median of his pharmaceutical industry peers.
Managing the balance of quantum versus risk
The current economic crisis has emphasised the need to ensure that the potential quantum and the stretch of performance targets do not implicitly encourage inappropriate behaviour. We are satisfied that our proposed structure does not do this. It also improves alignment to UK investor expectations through the capping of long-term incentive plans.
Reflecting perhaps the problems in the banking sector, several shareholders have raised the question of whether there should be a ‘claw-back’ mechanism if and when problems arise years after awards have been made. In an effort to address this, we propose that where there has been continuity of executive responsibility (between initiation of an adverse event and its emergence as a problem), the adverse event should be taken into account in assessing annual bonuses in the year the problem can be identified. This means, of course, that we do not intend to penalise an executive for the misjudgements of his predecessor as far as annual bonus is concerned, although the consequences of an adverse event for the share price will inevitably reduce the potential value of long-term incentives.
Rebalancing long-term incentives
Under the new policy those executives (including the Chief Executive Officer and Chief Financial Officer) whose remuneration is benchmarked primarily against a UK cross-industry comparator group, will not receive share option grants for the foreseeable future. Instead, their long-term incentives will be focused on performance shares. In order to remain competitive against the global pharmaceutical market, certain other Executives, including the Chairman, Research & Development, will continue to receive share options, although their weighting in the overall package will be kept under review.
Annual Bonus Plan
We will not operate the additional bonus flagged in the 2007 Remuneration Report, but will integrate it within the existing annual bonus structure. The maximum annual bonus opportunity will remain at 200% of salary. We are reducing the 96% performance threshold for annual plans to 90%, reflecting more stretching annual bonus plan targets.
In addition, the Chief Executive Officer and Chief Financial Officer (and other Executives who do not participate in the share option plan) will also have the opportunity to invest up to half of their annual bonus in GSK shares and this will be matched subject to relative total shareholder return performance over three years.


GSK Annual Report 2008 79
Report of the Directors

Remuneration Reportcontinued
Aligning performance measures to strategy
The performance conditions for the performance share plan will be broadened so that the CET is incentivised against a range of measures. It is intended that broadly half of the award will continue to be based on relative total shareholder return against other global pharmaceutical companies. The remaining half will be based on an additional measure or measures to support GSK’s strategy over the coming years.
For awards made in 2009, 60% of the award will remain on relative total shareholder return against global pharmaceutical companies. The remaining 40% will be targeted at generating cash for investment and/or return to shareholders. Accordingly, for 2009 awards, 40% will be subject to the achievement of adjusted free cash flow targets. The Committee may make adjustments for acquisitions and divestments, currency movements and other distortions which may arise. Subject to shareholder approval, the 2009 performance share awards will be made following the AGM in May 2009. To satisfy concerns about transparency, we will disclose the adjusted free cash flow targets for the performance share awards in the announcement to the London Stock Exchange each time an award is made.
Reflecting the long-term nature of the pharmaceutical industry
To reflect better the long-term nature of the pharmaceutical industry, the performance period for the performance shares granted to members of the CET will be extended so that half of the total shareholder return element of each award will be measured over three years and half over four years. The performance period for share options granted to CET members in 2009 will similarly be extended.

In addition, to support further our emphasis on long-term decision making, the timeframes for vesting of awards on retirement and redundancy will be extended to maturity rather than vesting in the year of departure.
Over time, the Committee would like to see the range of long-term performance measures more fully reflect the company’s strategic direction (eg turnover growth and R&D productivity). However, before introducing such metrics, the Committee wants to be satisfied that the measures are robust and not capable of creating unintended behaviour.
implemented. The Committee believes that the new policy represents a significant step forward in supportingthese changes support the future direction of the business and isare in the best interests of shareholders.
Sir Robert WilsonCrispin Davis
Chairman of the
Remuneration Committee Chairman
3rd March24th February 2010
GSK Annual Report 2009


74

80GSK Annual Report 2008
Report of the Directors

Remuneration Reportcontinued
This Directors’ Remuneration Report has been prepared in accordance with the Directors’ Remuneration Report Regulations 2002 (the Regulations) and meets the relevant requirements of the FSA Listing Rules.

The Remuneration Committee
Sir Robert Wilson has been ChairmanRole of the Committee since 17th May 2004. Sir Crispin Davis, Mr Culp, Sir Christopher Gent and Dr Schmitz were members of the Committee throughout 2008. The Board deemed all of the members of the Committee to be independent Non-Executive Directors in accordance with the Combined Code, with the exception of the Chairman of the company, Sir Christopher Gent, who was independent on appointment to the company.
The Committee met 7 times during 2008, with each member attending as follows:
Attendance at
full meetings
MembersCommittee member sinceduring 2008
Sir Robert Wilson1st January 2004
(Committee Chairman
since May 2004)7/7
Mr L Culp1st January 20047/7
Sir Crispin Davis1st July 20037/7
Sir Christopher Gent1st January 20077/7
Dr R Schmitz25th May 20057/7
Sir Robert will step down as Chairman of the Committee following the conclusion of the 2009 AGM and will be succeeded by Sir Crispin Davis. Sir Robert will remain a member of the Committee.
The role of the Committee is to set the company’s remuneration policy for Executive Directors and CET members (together the Executives), ensuring that it is consistent with the company’s scale and scope of operations, supports the business strategy and growth plans and helps drive the creation of shareholder value. In setting remuneration policy and levels for the most senior executives, the Committee gives consideration to remuneration policy and levels for the wider employee population.
Terms of reference
The Committee’s full terms of reference, are available onwhich conform with the company’s website.
During the course of 2008, the Committee’s principal focus was to review the appropriateness of GSK’s current remuneration policy in lightrequirements of the appointmentCombined Code can be obtained from the Company Secretary.
Governance
The Board considers all of a new CEO, changesthe members of the Committee to be independent Non-Executive Directors, in accordance with the Combined Code, with the exception of the Chairman of the company, Sir Christopher Gent, who was independent on appointment to the management team and GSK’s new strategy. This led to the development of a policy which will appropriately support the business going forward, including the design of new long-term incentive (LTI) plans to replace the existing plans which expire in 2010.company.
The Committee met 6 times during 2009, with each member attending as follows:
              
      Number of  Number of 
      meetings  meetings 
      held in  attended in 
  Committee member  2009 whilst  2009 whilst 
Members since  a member  a member 
          
Sir Crispin Davis 1st July 2003   6   6 
(Chairman from
20th May 2009)		            
Sir Robert Wilson 1st January 2004   6   6 
(Chairman from 17th May
2004 to 20th May 2009)		            
Mr L Culp 1st January 2004   6   5 
Sir Christopher Gent 1st January 2007   6   6 
Mr J Murdoch 1st October 2009   1   1 
Mr T de Swaan* 20th May 2009   4   4 
Dr Ronaldo Schmitz** 25th May 2005   2   2 
         
*Mr de Swaan is also the Chairman of the Audit & Risk Committee.
**Dr Schmitz retired from the Board on 20th May 2009 having been a member of the Committee prior to that date.
Two quorate meetings were held during the year to approve the formal grant of share options and performance sharelong-term incentive (LTI) awards in accordance with GSK’s remuneration policy.
With the exceptionsexception of Mr Bicknell (Company Secretary) and Mrs Whyte (Deputy Company Secretary)Secretary and Secretary to the Committee), no employees of the company were involved in the conduct of Committee meetings. Dr Garnier (former CEO), Mr Witty (CEO), Mr Heslop (CFO), Mr Bicknell (Senior Vice President, Company Secretary & Corporate Compliance Officer), Mr Phelan (Chief of Staff) and, Ms Thomas (Senior Vice President, Human Resources) and Mr Powley (Senior Vice President, Corporate Compensation) were invited to attend part of some meetings of the Committee as required. They do not attend where their individual remuneration is discussed and no director is involved in deciding his own remuneration.
The Committee has access to external advice as required. Deloitte LLP has been appointed by the Committee to provide it with independent advice on executive remuneration. TheyDuring the year, Deloitte LLP provided independent commentary on matters under consideration by the Committee, and provided updates on best practice, legislative requirements and market practice.
Deloitte LLP also provided other tax and consulting services to GSK during the year, but did not provide advice on executive remuneration matters other than tofor the Committee. Towers PerrinWatson provided additional market data to the Committee.
Commitment to shareholders
The Committee engages in regular dialogue with shareholders and holds an annual meeting with GSK’s largest investors to discuss and take feedback on its remuneration policy and any key developments during the year. In particular, the Committee will discussdiscusses any significant changes to the policy or the measures used to assess performance. In line with this commitment, GSK’s largest investors were consulted on the proposed changes set out in this report.
Summary of proposalspolicy
Until now, GSK’s remuneration policy has been based on the principle of achieving competitiveness with the global pharmaceutical industry, which has been the primary pay comparator. The essential policy change underlying these new proposals is that the Committee will decide on an individual executive basis whether the primary pay comparator should be the global pharmaceutical sector, the UK-based large cross-industry multinationals or some other comparator group. For example,As a result of the three Executive Directors,remuneration review in 2008, changes were made to the Committee proposes that the primary comparator group forremuneration packages of the CEO and the CFO at this time, should be UK-based large cross-industry multinationals. Forfor 2009.
The remuneration structure of all CET members (including the Chairman, Research & Development (Chairman, R&D),Development) has now been harmonised with that of the comparator group should continueCEO and CFO. As a result of this, with effect from 2010, share options will normally no longer be granted to any CET members. Instead, CET members will receive additional performance share awards, and will also be the global pharmaceutical companies.eligible to participate in GSK’s Deferred Annual Bonus Plan.


GSK Annual Report 2009

75

Remuneration Report
Key elements of remuneration
     
   
  GSK Annual Report 200881 
Report of the Directors

Remuneration ReportcontinuedPolicy for 2010 onwards
    
The following charts summarise the proposed changes to GSK’s remuneration policy and more particularly to GSK’s individual remuneration elements.
Summary of proposed changes to GSK’s Remuneration Policy
Salary    
• CurrentProposed policy for 2009Salary levels reviewed annually influenced by the Executive’s role and experience. Benchmarked against relevant comparator group(s)
All Executive DirectorsCEO & CFOChairman, R&D
RemunerationGlobal pharmaceuticalUK-based large cross-industryGlobal pharmaceutical
benchmarkingcomparator groupcomparator groupcomparator group
    
Annual bonus Bonus based on financial and• Some changes to calculationThe majority of bonus and target ranges to reflect
personal performancechanges in target setting in line with new strategy
Operational bonusN/AOperational targets will be included within the overall annual bonus
framework and there will be no stand-alone operational bonus
LTI and share mixLTIs provided though a mix ofEligible for performance shares andEligible for performance shares
c.60% performance shares anddeferred annual bonus withand share options.
c.40% share options by valuea performance based match.Not eligible for deferred annual
Will not receive share optionsbonus and performance based
for the foreseeable futurematch
Plan limitsLevels of LTI awards set annuallyAnnual individual limits will be introduced
BenchmarkingProjected valueExpected value
methodology
Key terms for remuneration elements
CurrentProposed policy for 2009
Salary
•   Benchmarked against the global
pharmaceutical comparator group
•   Benchmarked against a UK cross-industry comparator
group or the global pharmaceutical comparator group
or another comparator group as appropriate
Annual bonus
•   Most of the bonus is based on the achievement of financial targets (based on Group profit before interest and tax, and on business unit operating profit).
•Individual performance against pre-determined personal objectives is also taken into account in determining individual bonus payments
•There are R&D specific key performance indicators for R&D employees. Individual performance is also taken into account in determining individual bonus paymentsemployees
 
•   In addition to the current targets, achievementAchievement of additional operational efficiency goals will also be taken into account in determining the annual bonuses in respect of 2009 and 2010
•No individual, including the CEO, will have a maximum bonus opportunity of more than 200% of salary
•The Committee reviews the ongoing financial impact of any prior year activities and an Executive’s role in them and may make appropriate adjustments to individual bonus awards to reflect the circumstances
Deferred•Individuals may elect to defer up to 50% of any bonus earned
Annual•In respect of 2009, only the CEO and CFO were eligible to participate
Bonus Plan•From 2010, all Executives may participate
•Deferred bonuses may be matched up to one-for-one subject to relative Total Shareholder Return (TSR) performance over three years (TSR vesting as for PSP)
Performance
Share		• 60%•Vesting based on relative TSR using a comparator group currently comprising 10 other pharmaceutical
companies
Plan (PSP)•Half of TSR component is measured over three years and half over four years
•30% vesting at median, with 100% vesting for upper quartile performance
•Twelve-month averaging period for TSR
     
Performance
Share
Plan (PSP)		 
• Based on relative total shareholder return (TSR) against comparator group of 14 pharmaceutical companies
•   Measured over three years
•   Further two-year holding period
•   35% vesting at median, with 100% vesting for performance in line with the second company
•   Three-month averaging period for TSR
•   Dividend equivalents
40%		 
•   60%Vesting based on relative TSR against comparator group currently comprising 12 pharmaceutical companies and 40% based on adjusted free cash flow
•   TSR component measured half over three years and half over four years
•   Adjusted free cash flow measured over three years
•   Two-year holding period removed
•   For the TSR elements, 30% vesting at median, with 100% vesting for upper quartile performance
•   For the cash flow element,
25% vesting at threshold, rising to 100% for stretching performance exceeding the set threshold by a specified margin
•   Twelve-month averaging period for TSR
•   Dividend equivalents
Share Option
Plan
•   Based on EPS growth relative to RPI
•   Measured over three years
•   50% vesting for threshold performance
•   Intended only for certain Executives
•   Based on EPS growth relative to RPI
•   Will be measured over three and/or four years
•   30% vesting for threshold performance
Deferred Annual
Bonus Plan		N/A
•   Only for individuals not eligible for share options
•   50% of bonus may be deferred
•   Up to one-for-one match subject to relative TSR performance over three years (vesting as for PSP)
•   Dividend equivalents

82GSK Annual Report 2008
Report of the Directors

Remuneration Reportcontinued
     
   •The operating maximum face value of annual performance share awards is as follows: 500% of salary for the CEO and Chairman, Research & Development and 400% for the CFO
Share Option
Plan		•Options no longer normally to be granted to any Executives
Pension•For UK Executives, defined contribution plan and legacy final salary plans (closed to new entrants since 2001). Executives participating in the defined contribution plan benefit from a company contribution of 20% of base salary, plus a matched contribution of 5% of base salary
•For US Executives, GSK operates a US Cash Balance Plan, and Executives benefit from contributions of up to 38% of salary
GSK Annual Report 2009

76

Remuneration Report

Total remuneration benchmarking
The Committee reviews GSK’s total remuneration against comparable companies on a regular basis, to ensure that remuneration arrangements are competitive, are structured appropriately andto deliver value for money for shareholders. Undershareholders over the new remuneration policy, thelonger term and are competitive. The relevant comparator group(s) will beare now determined for each individual Executive.
For benchmarking purposes, total remuneration incorporates base salary, annual bonus (including any deferred element) and LTIs .LTIs. When setting pay, the Committee also takes into accountconsiders pension arrangements.
      
UK cross-industry comparator group  Global pharmaceutical comparator groupgroup*
    
AngloAmerican  France Sanofi-Aventis
AstraZeneca  Switzerland Novartis
Barclays    Roche Holdings
BG Group  UK AstraZeneca
BHP Billiton  USA Abbott Laboratories
BP    Amgen**
British American Tobacco    Bristol-Myers Squibb
Diageo    Eli Lilly
HSBC    Johnson & Johnson
Reckitt Benckiser    Merck
Royal Dutch Shell    Pfizer
Rio Tinto    Schering-Plough
Standard Chartered    Wyeth
Tesco     
Unilever     
Vodafone     
    
* Revised to reflect the de-listing of Schering-Plough and Wyeth during 2009 (see page 88)
 
** Amgen is included for pay benchmarking but as of 2009 is not in the current TSR comparator group.
Since 2004, GSK has used a projected value methodology to benchmark remuneration. The principal reason for this was to recognise the difference in LTI arrangements and, in particular, the less common use of performance targets in other global pharmaceutical companies.
Given the increased emphasis on benchmarking against UK companies and the increasing introduction of performance targets for LTIs in the pharmaceutical comparators, the Committee has decided to move to an expected value benchmarking methodology. This approach provides a benchmark which takes all possible outcomes into account based on the probability of achieving different performance levels.
Individual elements of remuneration
The balance between the fixed (base salary) and variable (annual bonus and LTI) elements of remuneration varies depending on performance. The charts oppositeto the right show the anticipated mix between fixed and variable pay on an expected value basis under the new remuneration policy. The actual mix may be higher or lower, depending on the performance of GSK and the individual. Typically, a significant portion (approximately 75%— – 85%) of an Executive Director’s package is variable.
(PIE CHART)
(PIE CHART)
(PIE CHART)
Base salary
Base salaries are set by reference to the relevant comparator group at a level considered appropriate to secure the talent needed to deliver GSK’s strategic priorities.
Until 2008, GSK’s remuneration policy was based on the principle of achieving competitiveness with the global pharmaceutical industry, which was the primary pay comparator. The Committee now decides on an individual Executive basis whether the primary pay comparator should be the global pharmaceutical sector, the UK-based large cross-industry multinationals and/or some other comparator group(s).
Primary Comparator GroupUK cross-industryGlobal pharmaceutical
Mr Witty, CEOü
Mr Heslop, CFOü
Dr Slaoui, Chairman, R&Dü
Salary levels are reviewed annually and are influenced by the Executive’s role, experience and experience.the pay environment.
(PIE CHART)
CEO
1 Salary
2 Cash bonus
3 Deferred bonus including match
4 Performance shares



CFO
1 Salary
2 Cash bonus
3 Deferred bonus including match
4 Performance shares



Chairman, R&D
1 Salary
2 Cash bonus
3 Deferred bonus including match
4 Performance shares





For 2010, the Committee considered the current economic conditions and the new GSK harmonised pay philosophy. Accordingly, it agreed with the CEO and CFO that their pay would be held at 2009 levels. As part of the alignment of pay structures across the CET, Dr Slaoui’s base salary will be adjusted to reflect the new balance and also the market rate of pay for his responsibilities. The table belowimmediately following sets out current base salaries and those proposed for 2009.2010.
Mr Witty and Mr Heslop’s salary increases form part of the wider changes proposed to their remuneration packages and, in particular, reflect the move to benchmark remuneration against a UK cross-industry comparator group. Mr Witty’s proposed salary increase also reflects the Committee’s assessment of his performance in his role since appointment. Dr Slaoui’s increase reflects his progression within the role and is intended to bring him more in line with the market. Salary increases typically take effect infrom 1st April 2009. However, as an integral part of the wider remuneration policy, Mr Witty’s and Mr Heslop’s salary increases will not be implemented until after the 2009 AGM.each year.
                 
  2008 base  Effective date for  2009 base  Effective date for 
  salary  2008 salary  salary  2009 salary 
 
Mr Witty £850,000* 22nd May 2008   £1,000,000  1st April 2009 
Mr Heslop  £485,000  1st April 2008   £525,000  1st April 2009 
Dr Slaoui  $825,000  1st April 2008   $875,000  1st April 2009 
 
*This reflects Mr Witty’s base salary which took effect on his succession as CEO in May 2008.
                     
  2009 base  Effective date for  2010 base  Effective date for  % 
  salary  2009 salary  salary  2010 salary  change 
  
Mr Witty  £1,000,000  1st April 2009  £1,000,000  1st April 2010  0 
Mr Heslop  £525,000  1st April 2009  £525,000  1st April 2010  0 
Dr Slaoui  $875,000  1st April 2009  $975,000  1st April 2010  11.43 
  


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Annual bonus
The annual bonus is designed to drive the achievement of GSK’s annual financial and strategic business targets as well as personal objectives.
For 2010 the on-target bonus for the Executive Directors is given in the table below.
     
  On-target bonus as a % of base salary
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CEO  125%
CFO  80%
Chairman, R&D85%
 
AnnualMaximum bonuses are set by reference to individual on-target bonus
The annual levels. There is a cap on bonus is designed to drive the achievementpayments of GSK’s annual financial targets and personal objectives.
The maximum annual bonus for the CEO remains at 200% of salary and the maximum bonuses for Executives other than the CEO range between 100% and 200% of salary. There will be no increases to the maximumThat cap remains unchanged for 2010. Annual bonus opportunity of 200% in 2009.

As part of the wider remuneration review,is not pensionable.
Last year, the Committee revised the annual bonus plan to strengthen the alignment to the new business strategy (details of which are set out in pages 4 to 7) and budgeting process.
For 2009, the(IMAGE)
The majority of the annual bonus opportunity will beis based on a formal review of performance against stretching financial targets based on Group profit before interest and tax and business unit operating profit targets, with the remainder being based on achievements against specific individual objectives. Annual bonuses will beare calibrated to reflect the stretching targets which have been established to drive significant changes to GSK’s business model. The bonus threshold will be 90% of target with the maximum being payable for achievement of 110% of target. The reductionbonus threshold of 90% reflects the stretching nature of the bonus threshold from 96% to 90% reflects more stretching bonus targets.
In the 2007 Remuneration Report, reference was made to the possible introduction of additional bonuses to encourage delivery of operational targets in 2009 and 2010. After further review, the Committee determined not to increase the overall bonus opportunity and that these measures should be incorporated within the existing overall bonus.

Bonus targets for the CEO are set by the Board. In setting the objectives for the CEO, the Board focuses on the strategies that have been developed for the company, which are set out on page 5pages 4 to 7 of the Annual Report. For reasons of commercial sensitivity, the specific objectives are kept confidential. Following the end of the financial year, the Board reviews the CEO’s performance generally and against the set objectives, and the Committee then determines the bonus payable.
For the other Executives, the CEO makes recommendations to the Committee regarding performance against their objectives. These recommendations are considered by the Committee inwhen determining the level of bonuses payable. The Committee considered whether to reduce any individual Executive’s bonus award for 2008 to reflect revised provisions relating to any prior
Each year, activities, and determined that no current Executives were materially involved in the management of any relevant issues and therefore that no reduction of bonus payments would be appropriate. For future bonus years, the Committee will continue to reviewreviews the ongoing financial impact of any prior year activities and the role of individual Executives in such activities, and the Committee may make appropriate adjustments to future individual bonus awards to reflect those circumstances.
The strategic objectives set for 2008 focused in particularChairman of the Audit & Risk Committee is a member of the Committee and provides input on the continued development and launchAudit & Risk Committee’s review of late-stage pipeline assets, deliverythe Group’s performance. No such adjustments were made in respect of commercial targets and execution of restructuring programmes to simplify the operating model.bonuses for 2009.
Bonus measures for R&D employees, including Dr Slaoui, are linked to the pipeline. A robust governance structure has been established to ensure that the bonus payable fairly reflects R&D productivity and performance as well as performance against profit targets. AsThis process requires the plan is relatively new,review of progress against targets by the R&D Bonus Compensation Review Committee which includes the CEO and the company’s two Non-Executive Directors who are designated as Scientific Experts, Professor Sir Roy Anderson and Dr Podolsky. The Committee reviewed itsthe plan operation during the year and decided that it should continue as the annual bonus for R&D. The Committee will continue to keep its operation under review and may in future consider extending it to other Executives including the CEO.
2009 bonus awards
The objectives set for the company for 2009 focused in particular on the continued development and launch of late stage pipeline assets, delivery of commercial targets and execution of restructuring programmes to simplify the operating model.
The Committee took into account GSK’s success in achieving the above objectives, as well as each individual’s performance, when determining the bonus awards for 2008.2009. Actual bonus payments for Executive Directors are shown on page 9083 and ranged from 86%115% to 118%200% of base salaries as at 31st December 2008.2009.
LTIs
Currently, LTI awards are provided through a mix of performance shares and share options. GSK’s existing LTI plans (the performance share and share option plans) expire in 2010 and in light of changes within the company,The bonuses set by the Committee decided itreflect GSK’s increased sales, profit and cash flow performance during the year, in challenging market conditions, and with significant loss of sales to generics in the USA. It also includes the achievement of key strategic and individual objectives, including:
•delivering continued growth of the vaccine portfolio
•further geographic diversification, particularly within emerging markets and consumer healthcare
•achieving key milestones in the transformation of R&D productivity, particularly in relation to the late stage R&D pipeline products
•simplification of GSK’s business model and achievement of operational efficiencies.


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Deferred annual bonus plan
A new Deferred Annual Bonus Plan was appropriateintroduced in 2009 to reviewencourage long-term shareholding, to discourage excessive risk taking and to help drive long-term shareholder returns relative to other global pharmaceutical companies.
Eligibility for the terms of2009 bonus year was restricted to the LTI plansCEO and CFO, but all CET members will be invited to participate from the 2010 bonus year onwards, as part of the widersimplification of the CET remuneration review during 2008.structure.
Up to 50% of any annual bonus earned may be deferred for three years. The new long-termcompany will match shares up to one-for-one depending on the company’s relative TSR over this period. The performance measure and vesting schedule will be consistent with the three-year TSR component of the Performance Share Plan described below.
The CEO has elected to participate in GSK’s Deferred Annual Bonus plan in respect of his bonus for 2009. As a result, 15% of the CEO’s bonus has been deferred into 24,291 shares in the company, and a matching award of the same number of shares has been made which may vest in February 2013 subject to the company’s relative TSR performance and his continued employment.
Dividend equivalents will accrue and be delivered in respect of any deferred shares and matching shares that vest.
Long-term incentive plans will therefore be submitted for shareholder approval
New LTI plans were approved by shareholders at the 2009 AGM.
In line with the new remuneration policy based on individual market focus, and toTo provide better alignment to UK market practice, it is intended thatin 2009 the CEO and the CFO willdid not receive share option grants for the foreseeable future.grants. Instead, their LTIs will bewere only in the form of performance shares. They will also havehad the opportunity to defer part of any bonus earned into shares, and as outlined above, to be eligible to receive matching shares subject to the achievement of additional performance conditions. These changes are based on established practices within the UK cross-industry comparator group.
The Chairman, R&D and certain other Executives will continueResearch & Development continued to receive share option grants as well as performance sharesoptions in 2009, and was not eligible to remain competitive againstparticipate in the global pharmaceutical market.new deferred annual bonus arrangement. However, from 2010 onwards the useremuneration arrangements of all CET members (including the Chairman, Research & Development) have been aligned with those of the CEO and CFO. As a result, share options will normally no longer be kept under review and their relative importance may be reduced in the future. Share optionsgranted. Instead, CET members will continue to be used to incentivise our employees below the CET.receive performance share awards.
Under the proposed new LTI plans, the Committee may reduce the grant or vesting levels if it determines that a participant has engaged in conduct which is contrary to the legitimate expectations of the company for an employee in the participant’s position.


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Typically, performance shares and share optionsawards are delivered to US resident executives in the form of ADS. Awards are delivered in the form of Ordinary Shares to executives resident in the UK and other countries. All awards are made under plans which incorporate dilution limits consistent with the guidelines provided by the Association of British Insurers. Current estimated dilution from existing awards under all GSK employee share schemes made since the merger is approximately 6.7%6.4% of the company’s share capital at 31st December 2008.2009.
The newLTI plans are summarised in the relevant sections below together with the basis on which awards will be made to the Executives in 2009.2010.
a)Performance shares
The Performance Share Plan ensures focus on GSK’s long-term shareholder returns relative to other pharmaceutical companies and on the delivery of GSK’s strategic priorities.
Under the plan, measurement of performance will behas been broadened so that the most senior team is incentivised against operational measures aligned with GSK’s business strategy as well as TSR. TSR is considered to remainremains an appropriate comparative measure since it focuses on the return to shareholders, is a well-understood and tested mechanism to measure performance and allows comparison between companies operating in different countries. Therefore, typically between 40% and 60%a proportion of any award made to Executives will continue to be subject to relative TSR. The balance will be based on strategic or operational measures to support theour business strategy. For 2009 and 2010 the emphasis has and will be on working capital and cash management.
There will be no retesting of performance.
20092010 Awards
Performance share awards to Executives for 2009 will be2010 were made following approval of the new Performance Share Plan at the 2009 AGM.in February 2010.
•TSR measure
For awards made in 2009,2010, 60% of the award will be based on relative TSR againstusing a comparator group currently comprising 1210 other global pharmaceutical companies. For this TSR element, the percentage vesting at median is 30%, with full vesting for upper quartile TSR performance. The graph below shows the TSR vesting schedule for awards granted in 2010.
In orderProportion vesting

(LINE CHART)
TSR rank position
To provide a focus on sustained longer-term performance, the performance period was extended for all awards made from 2009 so that half of the TSR element of each award will be measured over three years and half over four years.
To measure performance on a stable basis and to reflect better the long-term nature of the pharmaceutical industry, the TSR averaging period is twelve months for awards made from 2009 onwards.


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()

•Adjusted free cash flow measure
To recognise the importance of effective working capital management and of generating cash management, the remaining 40% will vest subject to the achievement of adjusted free cash flow targets. The adjusted free cash flow target may be adjusted for material factors which could distort free cash flow as a performance measure. These will typically include exchange rate movements and may also include legal and major taxation settlements and special pension contributions, which could materially distort this calculation in either direction.calculation. The impact of any acquisition or divestment will be quantified and adjusted for at the time ofafter the event. Major adjustments in the calculation will be disclosed to shareholders. For the awards in 2009,2010, the threshold free cash flow targettargets are:
Adjusted free cash flow targets% vesting
Threshold vesting£17.3 billion25%
£17.8 billion50%
£19.6 billion75%
Maximum vesting£20.5 billion100%
Between the above points, vesting will be £13.5 billion, with maximum vesting for £16 billion.
To providecalculated on a focus on sustained longer-term performance, the performance period will be extended so that half of the TSR element of each award will be measured over three years and half over four years.straight-line basis. The element based on adjusted free cash flow will be measured over three years.
•Award values
There will be no retesting of performance.
For the TSR element, the percentage vesting at median will be reduced from 35% to 30% to align better the remuneration policy with shareholder expectations. Full vesting will take place for upper quartile performance. For the adjusted free cash flow element, 25% will vest for threshold performance, rising to 100% for stretching performance exceeding the set threshold by a specified margin. The graph below shows the TSR vesting schedule for awards to be granted in 2009. Where GSK’s performance falls between two companies, vesting is calculated on a straight-line basis.
(Graph)
Anan individual annualaward limit on the maximum initial value of performance shares that may be granted to an individual in any one year will be introduced.year. Other than in exceptional circumstances, the maximum face value of performance shares that may be granted to an individual in any one year will be six times salary. It is intended that theThe value of performance sharesshare awards granted to the CEOExecutive Directors in 2009 will be five times salary. The CFO will receive an award of four times salary and2010 is shown in the Chairman, R&D will receive an award of 69,000 ADS.table below:
To provide a stable assessment of performance and to reflect better the long-term nature of the pharmaceutical industry, the TSR averaging period will be twelve months for awards from 2009 onwards.
         
  % of base  2010
  salary  Award
      
CEO  500%   415,454 Shares
CFO ��400%   174,491 Shares
Chairman, R&D  500%*  130,627 ADS
      


 

* 
GSK Annual Report 200885
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Remuneration Reportcontinued
share options.
To provide a closer link between shareholder returns and payments to the Executives, notional dividends are reinvested and paid out in proportion to the vesting of the award. The value of reinvested dividends has beenis incorporated into the benchmarking of award levels.
Vesting of 2007 Awards
The Performance Share PlanCommittee reviewed performance of the performance share awards granted to the Executive Directors excluding Dr Slaoui, in February 2006,2007, with the three-year performance period starting on 1st January 20062007 and ending on 31st December 2008 did not vest as GSK’s TSR performance was below median.2009. The company ranked at the median of the revised comparator group and therefore 35% of the awards vested. The awards made to other senior executives in 2006, including Dr Slaoui (who was not on the CET at the time the awards were made),2007 were dependent in part on TSR performance and in part on EPS performance. The TSR elementEPS portion of those awards did not vest, but the EPS element vested in full.vest.
The vesting tables for recent performance share awards together with share option awards are shown on page 96.80.
b)Share options
GSK’s share option plan is designed to ensure GSK remains competitive against its global pharmaceutical peers. It also incentivises sustained delivery of earnings growth and shareholder value creation.
As noted earlier, the Chairman, R&D as well as certain other Executives will continue to be granted share options but will not participate in the new deferred annual bonus. The CEO and CFO will not receive share options for the foreseeable future.
As part of the widerremuneration review undertaken in 2008, it was decided that share options would no longer be granted to the Committee reviewedCEO and CFO, to align their packages better with the UK market. As outlined above, it has since been decided to simplify the remuneration structure for all CET members, and so share options will normally no longer be granted to CET members from 2010 onwards.
Details of subsisting options, and the performance measure used for share options and concluded that EPS remains an important measureconditions attached to each grant, are provided in the audited section of success. The vestingthis report.
Vesting of share options granted to Executives will therefore continue to be linked to the achievement of compound annual EPS growth over the performance period. Targets will be reviewed and set annually taking into account company and market expectations.
20092007 Awards
The targetsperformance conditions for the 2009 awards will remain unchanged.
To reflect better the long-term nature of the pharmaceutical industry, the performance period will be extended so that half of each share option grant will be measured over three yearsawards granted in 2007 were not met and, half will be measured over four years. There will be no retesting of performance.as a result, these awards lapsed.
From 2009, the percentagec) Historical vesting for threshold performance will be reduced from 50% to 30% of the award to reflect better shareholder expectations. Threshold vesting will take place for compound EPS growth of RPI plus 3% p.a. with full vesting for compound EPS growth of RPI plus 6% p.a. EPS is measured at CER in line with GSK’s practice to measure performance on a CER basis.
The vesting schedule for the 2009 awards is shown below.
(Graph)
An individual annual limit on the maximum value of share options that may be granted to an individual in any one year will be introduced. Where an individual receives an award of both performance shares and share options, the expected value of share options granted in any year will typically not exceed 60% of the expected value of the aggregate LTIs. Where an individual is not granted performance shares, the annual award limit for share options will be calculated on an equivalent basis to that which applies to the performance share plan.
The Committee will set out the basis of its decision if it considers it appropriate to make any significant adjustments to the calculation of EPS for performance measurement purposes.
No significant adjustments were made in respect of the share options granted in February 2006, of which 50.7% vested.
c)Deferred annual bonusLTIs
A new deferred annual bonus plan will be introduced for those Executives who will no longer receive share option grants, including the CEO and the CFO. The plan is designed to encourage long-term shareholding and to help drive long-term shareholder returns relative to other global pharmaceutical companies.
Up to 50% of any annual bonus earned may be invested in shares and will be deferred for three years. The company will match these shares up to one-for-one depending on the company’s relative TSR over this period. The performance measure and vesting schedule will be the same as under the three-year TSR component of the performance share plan described above.
Dividend equivalents will accrue and be delivered in respect of any invested shares and matching shares that vest.


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GSK’s LTI performance conditions continue to be challenging as is demonstrated by the table below.on page 80. TSR has been an important part of the LTI measures for many years. This measure has been maintainedretained under the proposed policy and, for the reasons set out on page 84, it remains the primary measure under the PSP despite the TSR element not paying out.current policy.


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The following table shows the vesting levels of GSK’s Performance Shareperformance share and Share Optionshare option awards to Executives since 2001.the remuneration review during 2003. A totalTSR vesting percentage of 0% indicates that GSK’s TSR performance was below the median of the comparator group for that performance period.
                           
 Share  Performance Share Share Option 
 Performance Share Plan Option    Plan Plan 
     Plan  Vesting Vesting 
 Vesting Vesting Vesting  under TSR under EPS 
 Performance under TSR under EPS Total under EPS  Performance period measure % measure % 
 Period measure % measure % vesting % measure % 
2001 01/01/02 — 31/12/04 0 100 50 100 
2002 01/01/03 — 31/12/05 0 100 50 100 
2003 01/01/04 — 31/12/06 0 — 0 100  01/01/04 – 31/12/06  0   100 
2004 01/01/05 — 31/12/07 38.47 — 38.47 100  01/01/05 – 31/12/07  38.47   100 
2006 01/01/06 — 31/12/08 0 — 0 50.7  01/01/06 – 31/12/08  0   50.7 
2007 01/01/07 – 31/12/09  35   0 
        
 Average annual vesting  18.37   62.67 
        
The performance measure for PSP awards for Executives was changed to exclude EPS following the Remuneration Review during 2003. No award was made during 2005 due to a change in the award cycle.
Pensions
Pensions provide an important tool for creating a long-term culture and loyalty.
The Executives participate in GSK senior executive pension plans. The pension arrangements are structured in accordance with the plans operated for Executives in the country in which they are likely to retire. Details of individual arrangements for the Executive Directors are set out on page 97.89.
New Executives to GSK will be eligible for either a defined contribution scheme or a cash balance plan. Existing obligations under defined benefit schemes in the UK will continue to be honoured.
During the year, the Committee reviewed the competitiveness of its pension policy for new employees to ensure that it remains competitive and enables the company to attract the talent required to run the business successfully. The review highlighted that the defined contribution pension policy was uncompetitive for UK Executives. The Committee therefore made some changes to align this better to evolving practice in the wider market.
a)UK pension arrangements
The company currently operates a defined contribution plan, and legacy final salary plans which are closed to new entrants. Newly hired Executives in the UK will participate in the defined contribution plan.
During 2009 the UK Government announced a series of changes to pensions, which will impact the pensions of approximately 600 executives in GSK. The proposed pension legislation (if implemented in full) could have significant negative consequences for UK executives and the effectiveness of pensions will be significantly reduced. Pensions have been and continue to be an important tool for creating a long-term culture and promoting employee retention, and therefore GSK is keeping the situation under active review.
Executives participating in the defined contribution plan will now benefit fromreceive a company contribution of 15%—–20% of base salary depending on grade. They will also have the opportunity to receive up to a further 4%5% in matched contributions in line with the policy for all other members of the pension plan.
The legacy final salary plans provide for up to two-thirds of final salary at age 60. For employees subject to the cap, benefits in excess of the cap are currently provided through unfunded arrangements. Under the legacy final salary plans, actuarial reduction factors apply where a participant leaves employment of his/her own accord before the age of 60.
If employment is terminated by the company other than for cause the reduction factors will not applythen, in the same way as for all other members of the legacy final salary plans.plans, the reduction factors will not apply.
b)US pension arrangements
In the USA, GSK operates a US Cash Balance Plan which provides for an annual contribution and interest on the sum accumulated in the cash balance plan but with no contractual promise to provide specific levels of retirement income. The plan incorporates an Executive Pension Credit for senior US executives. Contribution rates under the plan range from 15% to 38% of base salary depending on grade. All current senior US executives are eligible for the new executiveExecutive Pension Credit.
For capped employees in the USA, benefits above the cap are provided through an unfunded non-qualified plan.


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Share ownership requirements
To align the interests of Executives with those of shareholders, Executives are required to build up and maintain significant holdings of shares in GSK over time. The CEO is required to build a shareholding to the value of four times base salary. Other Executive Directors are required to build a value of three times base salary and other members of the CET a value of two times base salary.
Shareholdings for the purpose ofCurrent share ownership requirements (SOR) as at 31st December 2008 were:are set out in the table below:
   
 
 Holding for SOR purposesShare Ownership Requirement
 
Mr WittyCEO 73,753 Ordinary Shares4 x base salary
Mr HeslopExecutive Directors 47,750 Ordinary Shares3 x base salary
Dr SlaouiCET members 49,799 Ordinary Shares2 x base salary
 
During the year, Mr Witty has been building up his shareholding by actively purchasing shares in the market. He has spent a total of £300,000 of after tax earnings since the publication of the last Annual Report to help build towards his SOR, in addition to the acquisition of shares through dividend reinvestment. He has also elected to participate in GSK’s Deferred Annual Bonus plan in respect of £300,000 (15%) of his 2009 pre-tax bonus. The resultant award of 24,291 deferred shares is included in Mr Witty’s SOR in the table below.
Shareholdings for the purpose of SOR as at 24th February 2010 were:
            
  Holding for  Holding for   
  SOR purposes  SOR purposes  % increase in
  (as at 31/12/08)  (as at 24/02/10)    shareholding
         
Mr Witty  73,753   144,879   96
  Ordinary shares  Ordinary shares    
Mr Heslop  47,750   74,250   55
  Ordinary shares  Ordinary shares    
Dr Slaoui  49,799   95,836   92
  Ordinary shares  Ordinary shares    
         
Executives are required to continue to satisfy these shareholding requirements for a minimum of twelve months following retirement from the company to support the long-term nature of the business. As at 31st December 2008, Dr Garnier’s holding was in excess of the share ownership requirements.
Other remuneration elements
The Executives participate in various all-employee share plans in either the UK or the USA.
The SharesaveShareSave plan and the ShareReward plan are UK HM Revenue & Customs approved plans open to all UK employees on the same terms.
Mr Witty and Mr Heslop are members of the SharesaveShareSave plan. Mr Witty contributes £250 a month into the plan and up until the maturity of his savings contract in December 2008, Mr Heslop also contributedcontribute £250 a month into the plan. This provides them with the option to buy shares at the end of the three-year savings period in line with the opportunity available to all UK employees.


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Mr Witty and Mr Heslop also contribute £125 per month to buy shares under the ShareReward plan. The company matches the number of shares bought each month.
The Executives also receive other benefits including healthcare (medical and dental), personal financial advice and life assurance. The cash value of the benefits received by the Executive Directors in 20082009 is shown on page 90.83.
On 19th February 2008, the company made a conditional award of 111,750 ADS to Mr Viehbacher, with vesting subject to his continued employment with GSK and the Committee’s assessment of his performance over the vesting period. Following Mr Viehbacher’s resignation on 8th September 2008 the award lapsed.
Executive Director terms conditions and remunerationconditions
Executive Director contracts
The policy set out below provides the framework for contracts for Executive Directors.
   
 
Notice period on
termination by the
employing company or
executive		 12 calendar months
 
Termination payment 1 x annual salary and
  1 x annual ‘on-target’on-target bonus1*
  No mitigation required2**
 
Vesting of LTIs Rules of relevant incentive plan,3 as approved by shareholders
 
Pension Based on existing arrangements and terms of the relevant pension plan
 
Non-compete clause 12 months from termination notice date2**
 
1
* Mr Witty’s targetThe CEO has agreed an amendment to his contract to remove a contractual entitlement to bonus is 125%as part of salary, Dr Slaoui’s is 85%his termination package. The contracts of new Executives will not normally include a bonus element in any termination payment. However, to the extent that the company imposes non-compete provisions and Mr Heslop’s is 75% of salary. When reviewingrestricts the policy for the level of severance payments, the Committee considered shareholder and Department for Business Enterprise & Regulatory Reform guidance. However, it determined that in line with competitive practice it is appropriate to provide for theindividual from working elsewhere, a compensatory payment of salary and target bonus on termination.may be made.
 
2** The imposition ofability to impose a 12-month non-compete period (and a non-solicitation restriction) on the Executivesan Executive is considered vitally important by the company in order to have the ability to protect the Group’s intellectual property and staff. In light of the non-compete clause and competitor practice,this, the Committee believes that it would not be appropriate to provide for mitigation in the contracts.
3As approved by shareholders of GlaxoSmithKline, Glaxo Wellcome and SmithKline Beecham, as appropriate.
The following table sets out the details of the Executive Directors’ service contracts:
             
Current Directors Date of contract  Effective date  Expiry date 
          
Mr A Witty*  18.06.08   22.05.08   31.08.24 
Mr J Heslop  16.03.05   01.04.05   31.01.14 
Dr M Slaoui  16.05.06   01.06.06   01.08.19 
          
* Mr Witty’s contract was renewed in June 2008 following his appointment as CEO.CEO, and was supplemented on 4th February 2010 to reflect the changes to his severance terms outlined above.
No termination payments will be made in respect of any part of a notice period extending beyond the contract expiry date.


88GSK Annual Report 2008
Report of the Directors

Remuneration Reportcontinued

Other entitlements
In addition to the contractual provisions outlined above, in the event that Executive Directors’ service agreements are terminated by their employing company, the following will apply:
• in the case of outstanding awards under the GlaxoSmithKline Annual Investment Plan (which was closed to new deferrals with effect from the first quarter of 2006) provided that their agreement is terminated other than for cause, any deferred amount, and any income and gains, are automatically distributed as soon as administratively practicable after termination. If they resign, retire or the termination is for cause, then any deferred amount is not distributed until the end of the minimum three-year deferral period
 
• in line with the policy applicable to US senior executives, Dr Garnier is entitled to receive continuing medical and dental insurance after retirement. Dr Slaoui is a member of the same plan and may become eligible, at a future date, to receive continuing medical and dental cover intoinsurance after retirement.
Following the merger, those participants in the legacy share option schemes who elected to exchange their legacy options for options over GlaxoSmithKline shares will receive an additional cash benefit equal to 10% of the grant price of the original option. This additional benefit is triggered when the new option is exercised or lapses. To qualify for this additional cash benefit, participants had to retain their options until at least the second anniversary of the effective date of the merger.
Outside appointments for Executive Directors
Any outside appointments must be approved by the Chairman on behalf of the Board. It is the company’s policy that remuneration earned from such appointments may be kept by the individual Executive Director.
Non-Executive Director terms conditions and feesconditions
Non-Executive Directors of GlaxoSmithKline do not have service contracts but instead have letters of appointment under which it is agreed that they serve the company as a Non-Executive Director until the conclusion of the AGM following the third anniversary of their appointment. In each case this can be extended for a further term of three years by mutual agreement. No Directors serve a term longer than three years without offering themselves for re-election by the shareholders.
Non-Executive Directors are not entitled to compensation if their appointment is terminated.
The following table shows the date of the initial letter of appointment of each Non-Executive Director:
     
Non-Executive Director Date of letter of appointment 
 
 
Professor Sir Roy Anderson  28.09.07 
Dr S Burns  12.02.07 
Mr L Culp  09.06.03 
Sir Crispin Davis  09.06.03 
Sir Deryck Maughan  26.05.04 
Mr JamesJ Murdoch  26.02.09 
Dr D Podolsky  03.07.06
Sir Ian Prosser19.06.00
Dr R Schmitz19.06.00 
Mr T de Swaan  21.12.05 
Sir Robert Wilson  09.06.03 
Sir Ian Prosser*19.06.00
Dr R Schmitz*19.06.00
 
The fee structures for
*Sir Ian Prosser and Dr Ronaldo Schmitz retired from the Board at the conclusion of the AGM on 20th May 2009.


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82

Remuneration Report

Non-Executive Directors and the Chairman were reviewed during the year and some changes were made by the Board to ensure that these remained competitive. Directors’ fees
The company aims to provide Non-Executive Directors with fees that are competitive with those paid by other companies of equivalent size and complexity. Fees applying from 2008at 31st December 2009 are as follows:
   
  Per annum
 
 
Standard annual cash retainer fee £75,000
   
Supplemental fees
  
  
Chairman of the Audit & Risk Committee £80,000
   
Senior Independent Director the Audit Committee£30,000
Chairman
and Scientific/Medical Experts		 £30,000
   
Chairman of the Remuneration and Corporate Responsibility Committee £20,000
Responsibility Committee
   
Non-Executive Director undertaking£7,500

intercontinental travel to meetings		 £7,500
per meeting
 
The Chairman is the current Chairman of the Corporate


Responsibility Committee, but does not receive the additional fee listed above.
To reflect the increased focus within the company on compliance and risk, GSK has significantly enlarged the remit and responsibilities of the Audit & Risk Committee, and the commitment required from its Chairman. The company agreed that the time requirement for his role as Committee Chairman moving from approximately 30 days to approximately 80 days per annum should be reflected through an increase in the fees payable. Further details of the changes to the Committee’s terms of reference and the new Audit and Assurance model are given on pages 66 to 69.
Following an independent review, the supplemental fee for the Chairman of the Audit & Risk Committee was increased from £30,000 per annum to £80,000 per annum with effect from 1st October 2009.
Exchange rate

Fees that are paid in US dollars were converted at the following exchange rates:

     
     Exchange rate
Date of approvalPeriod rate applied  GSK Annual Report 2008 89
Report of the Directors

Remuneration Reportcontinued£1/US$
     
29.07.0401.10.04 – 31.03.08US $1.8162
28.03.0801.04.08 – 30.09.09US $1.9918
03.12.09*01.10.09 – 31.12.09US $1.6395
01.01.10 – 31.12.10US $1.6326
     
Exchange rate
Fees that are paid in US dollars were converted at a rate of £1/US$1.8162 for the period from 1st January to 31st March 2008, being the exchange rate that applied on 29th July 2004 when the fee arrangements were initially approved by the Board. Following the approval of the new fee arrangements, the exchange rate applicable was set by the Board at £1/US$1.9918. This rate applied from 1st April to 31st December 2008.
*Given the recent fluctuations in the US dollar exchange rate; it was agreed that with effect from 1st October 2009 the exchange rate would be set annually based on the average daily rate for the last quarter of the year prior to payment. The rate would be reviewed if exchange rates moved significantly during the year.
Non-Executive Directors’ share allocation plan
To enhance the link between Directors and shareholders, GlaxoSmithKlineGSK requires Non-Executive Directors to receive a significant part of their fees in the form of shares. At least 25% of the Non-Executive Directors’ total fees, excluding the Chairman, are paid in the form of shares or ADS and allocated to a share account. The Non-Executive Directors may also take the opportunity to invest part or all of the balance of their fees into the same share account.
The shares or ADS which are notionally awarded to the Non-Executive Directors and allocated to their interest accounts are included within the Directors’ interests tables on page 92.85. The accumulated balance of these shares or ADS, together with notional dividends subsequently reinvested, are not paid out to the Non-Executive Directors until retirement from the Board. Upon retirement, the Non-Executive Directors will receive either the shares or ADS or a cash amount equal to the value of the shares or ADS at the date of retirement. Non-Executive Directors are not entitled to compensation if their appointment is terminated.
Chairman
Sir Christopher Gent’s letter of appointment to the Board was dated 26th May 2004, under which it was agreed that he would serve the company as Deputy Chairman until 31st December 2004 and from 1st January 2005 as Chairman until the conclusion of the AGM following the third anniversary of his appointment. This was extended for a further term of three years by mutual agreement.agreement, with effect from his re-election as a Director at the AGM held on 21st May 2008.
The Chairman’s fees were increased from £460,000 toare currently £540,000 per annum plus an allocation of shares to the value of £135,000 per annum (previously £115,000) with effect from 1st April 2008. This was in line with GSK’s policy to ensure Non-Executive Directors’ fees remained competitive.annum.
TSR performance graph
The following graph sets out the performance of the company relative to the FTSE 100 Index of which the company is a constituent and to the pharmaceutical performance comparator group from 1st January 20032004 to 31st December 2008.2009. The graph has been prepared in accordance with the Regulations and is not an indication of the likely vesting of awards granted under any of the company’s incentive plans.
(GRAPHICS)TSR performance
(LINE CHART)
Directors and Senior Management remuneration
The following tables set out, for the Directors of GlaxoSmithKline plc, the remuneration earned in 2008,2009, their interests in shares of GlaxoSmithKline plc, their interests in share options and incentive plans and their pension benefits. The members of the CET also participate in the same remuneration plans as the Executive Directors. The aggregate remuneration and interests of the Directors and Senior Management are also provided.


GSK Annual Report 2009

83

90GSK Annual Report 2008
Report of the Directors

Remuneration Reportcontinued
Annual remuneration
                                    
                                     2009 2008 
 2008 2007  Total Total 
 Total Total
  Fees and Other Annual annual Fees and Other Annual annual 
 Fees and Other Annual annual Fees and Other Annual annual  salary benefits bonus remuneration salary benefits bonus remuneration 
 salary benefits bonus remuneration salary benefits bonus remuneration  Footnote 000 000 000 000 000 000 000 000 
 Footnote 000 000 000 000 000 000 000 000                   
 
Executive Directors
  
Mr A Witty a,b  £687  £92  £999  £1,778 — — — —  a,b,c  £948  £180  £2,000  £3,128  £687  £92  £999  £1,778 
Mr J Heslop b  £476  £32  £418  £926  £438  £16  £410  £864  b  £507  £56  £602  £1,165  £476  £32  £418  £926 
Dr M Slaoui b,d  $865  $507  $1,439  $2,811  $805  $405  $942  $2,152 
                   
Dr M Slaoui c  $805  $405  $942  $2,152  $701  $321  $843  $1,865 
 
Non-Executive Directors
  
Professor Sir Roy Anderson  £116 — —  £116  £23 — —  £23   £120 – –  £120  £116 – –  £116 
Sir Crispin Davis  £86 — —  £86  £70 — —  £70   £102 – –  £102  £86 – –  £86 
Sir Christopher Gent  £650  £1 —  £651  £575  £1 —  £576   £675  £5 –  £680  £650  £1 –  £651 
Sir Ian Prosser  £111 — —  £111  £95 — —  £95 
Dr R Schmitz  £86 — —  £86  £70 — —  £70 
Mr J Murdoch e  £54 – –  £54 – – – – 
Mr T de Swaan  £116 — —  £116  £100 — —  £100   £133 – –  £133  £116 – –  £116 
Sir Robert Wilson  £106 — —  £106  £90 — —  £90   £116 – –  £116  £106 – –  £106 
Dr S Burns  $194 — —  $194  $124 — —  $124   $188 – –  $188  $194 – –  $194 
Mr L Culp  $179 — —  $179  $127 — —  $127   $188 – –  $188  $179 – –  $179 
Sir Deryck Maughan  $179 — —  $179  $136 — —  $136   $188 – –  $188  $179 – –  $179 
Dr D Podolsky  $252 — —  $252  $191 — —  $191   $245 – –  $245  $252 – –  $252 
                   
 
Former Directors
  
Dr M Barzach i  £80 – –  £80  £71 – –  £71 
Mr J Coombe —  £3 —  £3 —  £69 —  £69  –  £2 –  £2 –  £3 –  £3 
Dr M Barzach d  £71 — —  £71  £56 — —  £56 
Sir Richard Sykes — — — — —  £1 —  £1 
Sir Ian Prosser h  £48  £5 –  £53  £111 – –  £111 
Dr R Schmitz h  £37  £5 –  £42  £86 – –  £86 
Dr JP Garnier b,c  $756  $1,586  $759  $3,101  $1,810  $1,516  $2,709  $6,035  b –  $5,885 –  $5,885  $756  $1,586  $759  $3,101 
Dr L Shapiro f – – – –  $85 – –  $85 
Mr C Viehbacher f  $687  $123 —  $810 — — — —  b,g – – – –  $687  $123 –  $810 
Dr T Yamada b —  $2,243 —  $2,243 —  $250 —  $250  b –  $19 –  $19 –  $2,243 –  $2,243 
Dr L Shapiro e  $85 — —  $85  $85 — —  $85 
                   
Total remuneration  £4,201  £2,483  £2,336  £9,020  £3,104  £1,131  £2,186  £6,421   £3,893  £4,363  £3,525  £11,781  £4,201  £2,483  £2,336  £9,020 
                   
 
Analysed as:  
Executive Directors  £1,598  £343  £1,926  £3,867  £789  £177  £831  £1,797   £2,009  £561  £3,525  £6,095  £1,598  £343  £1,926  £3,867 
Non-Executive Directors  £1,706  £1 —  £1,707  £1,312  £1 —  £1,313   £1,719  £5 –  £1,724  £1,706  £1 –  £1,707 
Former Directors  £897  £2,139  £410  £3,446  £1,003  £953  £1,355  £3,311   £165  £3,797 –  £3,962  £897  £2,139  £410  £3,446 
                   
Total remuneration  £4,201  £2,483  £2,336  £9,020  £3,104  £1,131  £2,186  £6,421   £3,893  £4,363  £3,525  £11,781  £4,201  £2,483  £2,336  £9,020 
                   
Remuneration for Directors on the US payroll is reported in Dollars. Dollar amounts are included in the totals based on conversion to Sterling at the average exchange rates for each year.
Remuneration for Directors on the US payroll is reported in Dollars. Dollar amounts are included in the totals based on conversion to Sterling at the average exchange rates for each year.
a) Mr Witty joined the Board on 31st January 2008 and his remuneration is disclosed from this date.
 
b) Following the merger, and in order to encourage employees to convert their non-savings related options held over Glaxo Wellcome or SmithKline Beechamlegacy shares or ADS, for options over GlaxoSmithKline shares or ADS, employees were granted an additional cash benefit equal to 10% of the grant price of the original option. This additional benefit, known as the Exchange Offer Incentive (EOI), is only payable when the new option is exercised or lapses.lapses underwater. To qualify for this additional cash benefit, participants had to retain these options until at least the second anniversary of the effective date of the merger. During the year, Mr Witty received £9,374 in EOI payments£49,499 (2008 – £9,374), Mr Heslop received £32,000 (2008 – £14,499) and Dr Slaoui received $32,281 as a result of options granted to himthem in March 1998 lapsing1999 lapsing. Dr Garnier received $5,512,369 (2008 – $1,227,599), Mr Viehbacher received $nil (2008 – $50,744) and Mr HeslopDr Yamada received £14,499$nil (2008 – $2,225,018) as a result of options granted to himthem in July 19981999 lapsing. Dr Garnier received $1,227,599 (2007 — $1,132,994), Mr Viehbacher received $50,744 and Dr Yamada received $2,225,018 (2007 — $184,516).
 
c) Dr Garnier retired as a Director on 21st May 2008 and retired from the company on 31st May 2008. He is a Non-Executive Director of United Technologies Corporation,Mr Witty has elected to participate in GSK’s Deferred Annual Bonus plan in respect of which he received $89,651 up to the end of May 2008 (2007 — $230,000) in the form of deferred stock units which is not included above. his bonus for 2009 as described on page 78.
d)Dr Slaoui is a Non-Executive Director of the Agency for Science, Technology and Research (A*STAR) in respect of which he received $3,961$3,951 (2008 – $3,961) during 2008 (2007 — $667)2009 which areis not included above.
 
d)e) Dr Barzach received fees of €89,700 (2007 — €81,933)Mr Murdoch was appointed to the Board with effect from GlaxoSmithKline France for healthcare consultancy provided. These are included within fees and salary above.20th May 2009.
 
e)f) Dr Shapiro retired from the Board on 17th May 2006 and stepped down as a member of GlaxoSmithKline’sGSK’s Scientific Advisory Board on 21st July 2008. During 2008 she received fees of $85,000 (2007 — $85,000), of which $30,000 (2007 — $30,000) was in the form of ADS. These are included within fees and salary above.
 
f)g) Mr Viehbacher was appointed to the Board on 31st January 2008 and his remuneration is disclosed from this date. He resigned from the Board on 8th September 2008 and left the company on 31st December 2008.
 
h)Sir Ian Prosser and Dr R Schmitz retired as Non-Executive Directors of the company on 20th May 2009. On leaving the Board both Sir Ian Prosser and Dr R Schmitz received the accumulated balance of shares previously awarded under the Non-Executive Directors’ share arrangements based on the then current share price.
This differs from the value as at the dates of allocation as set out in the table on page 85. These are not included within fees and salaries above.
i)Dr Barzach received fees of €89,700 (2008 – €89,700) from GlaxoSmithKline France for healthcare consultancy provided. These are included within fees and salary above.
None of the above Directors received reimbursement for expenses during the year requiring separate disclosure as required by the Regulations.
None of the above Directors received reimbursement for expenses during the year requiring separate disclosure as required by the Regulations.
GSK Annual Report 2009

84

GSK Annual Report 2008 91
Report of the Directors

Remuneration Reportcontinued
Non-Executive Directors’ remuneration
                                      
 2008 2007  2009 2008 
 Total Cash Shares/ADS Total Cash Shares/ADS  Total Cash Shares/ADS Total Cash Shares/ADS 
Fees 000 000 000 000 000 000  000 000 000 000 000 000 
             
Current Non-Executive Directors
  
Professor Sir Roy Anderson  £116  £87  £29  £23  £17  £6   £120  £90  £30  £116  £87  £29 
Sir Crispin Davis  £86 —  £86  £70 —  £70   £102 –  £102  £86 –  £86 
Sir Christopher Gent  £650  £520  £130  £575  £460  £115   £675  £540  £135  £650  £520  £130 
Sir Ian Prosser  £111  £56  £55  £95  £48  £47 
Dr R Schmitz  £86  £51  £35  £70  £42  £28 
Mr J Murdoch  £54  £40  £14 – – – 
Mr T de Swaan  £116  £87  £29  £100  £75  £25   £133  £99  £34  £116  £87  £29 
Sir Robert Wilson  £106  £79  £27  £90  £68  £22   £116  £87  £29  £106  £79  £27 
 
Dr S Burns  $194  $97  $97  $124  $62  $62   $188  $141  $47  $194  $97  $97 
Mr L Culp  $179 —  $179  $127 —  $127   $188  $141  $47  $179 –  $179 
Sir Deryck Maughan  $179 —  $179  $136 —  $136   $188  $141  $47  $179 –  $179 
Dr D Podolsky  $252  $126  $126  $191  $96  $95   $245  $184  $61  $252  $126  $126 
             
Former Non-Executive Directors
 
Sir Ian Prosser  £48  £31  £17  £111  £56  £55 
Dr R Schmitz  £37  £26  £11  £86  £51  £35 
             
Total Remuneration  £1,706  £1,001  £705  £1,312  £789  £523   £1,804  £1,302  £502  £1,706  £1,001  £705 
             
The table above sets out the remuneration received as Non-Executive Directors of GlaxoSmithKline.the company.
Non-Executive Directors are required to take at least a part of their total fees in the form of shares allocated to a share account which is not paid out until retirement from the Board (see page 8982 for further details). The total value of these shares and ADS as at the date of award, together with the cash payment, forms their total fees, which are included within the Annual remuneration table under ‘Fees and salary’. The table above sets out the value of their fees received in the form of cash and shares and ADS.
The table below sets out the accumulated number of shares and ADS held by the Non-Executive Directors in relation to their fees received as Board members as at 31st December 2008,2009, together with the movements in their accounts over the year.
                             
 Number of shares and ADS  Number of shares and ADS 
 Dividends      Allocated Dividends     
Non-Executive Directors’ share arrangements At 31.12.07 Elected reinvested At 31.12.08  Footnote At 31.12.08 & elected reinvested Paid out At 31.12.09 
             
Current Non-Executive Directors Shares
 
Current Non-Executive Directors
 
Shares
 
Professor Sir Roy Anderson 438 2,526 37 3,001  3,001 2,578 151 – 5,730 
Sir Crispin Davis 24,069 7,511 1,103 32,683  32,683 8,725 1,501 – 42,909 
Sir Christopher Gent 27,153 11,192 1,244 39,589  a 39,589 11,614 1,822 – 53,025 
Sir Ian Prosser 24,861 4,828 1,113 30,802 
Dr R Schmitz 19,639 3,005 875 23,519 
Mr J Murdoch b – 1,075 2 – 1,077 
Mr T de Swaan 3,156 2,526 102 5,784  5,784 2,891 277 – 8,952 
Sir Robert Wilson 6,607 2,310 304 9,221  9,221 2,488 424 – 12,133 
  
ADS
  
Dr S Burns 1,184 2,378 83 3,645  3,645 1,293 158 – 5,096 
Mr L Culp 11,747 4,347 728 16,822  16,822 1,293 717 – 18,832 
Sir Deryck Maughan 9,800 4,347 609 14,756  14,756 1,293 629 – 16,678 
Dr D Podolsky 2,796 3,084 184 6,064  6,064 1,689 264 – 8,017 
 
Former Non-Executive Directors
 
Sir Ian Prosser 30,802 1,599 1,308 32,469 1,240 
Dr R Schmitz 23,519 995 997 25,511 – 
             
 

a)The Chairman receives an allocation of shares to the value of £135,000 per annum.
b)Mr Murdoch was appointed to the Board with effect from 20th May 2009.

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85

Remuneration Report
The table below sets out the settlement of former Non-Executive Directors’ share arrangements on their leaving the Board:
     
   
  92GSK Annual Report 2008  
  ReportValue of the Directors

  
Value of  Remuneration Reportcontinued  
     Date ofawards onawards onPayments
Footnoteleavingallocationleavingin 2009
Sir Ian Prossera,b20.05.09£382,142£356,644£343,525
Dr R Schmitza,c20.05.09£285,566£269,906£269,906
   
a)The change in value of awards between allocation and leaving is attributable to dividends re-invested and the change in share price between the dates of award and dates of leaving.
b)Awards to Sir Ian Prosser under the Non-Executive Directors’ share arrangements were partially settled in shares during 2009 with the balance of 1,240 shares to be settled in 2010.
c)Awards to Dr R Schmitz under the Non-Executive Directors’ share arrangements were settled in cash during 2009.
Directors’ interests
The following interests of the Directors of the company and their connected persons are shown in accordance with the FSA Listing Rules.
               
                             Shares ADS 
 Shares ADS      1st January       
 24th February 31st December 1st January 24th February 31st December 1st January  19th February 31st December 2009 or date of 19th February 31st December 1st January 
 Footnote 2009 2008 2008 2009 2008 2008  Footnote 2010 2009 appointment 2010 2009 2009 
            
Executive Directors
  
Mr A Witty a,c 74,535 73,753 51,740 — — —  a 100,658 91,472 73,753 – – – 
Mr J Heslop c 48,304 47,750 41,529 — — —  a 49,631 49,350 47,750 – – – 
Dr M Slaoui b 59,518 48,636 40,961 485 411 286  b 61,402 60,948 48,636 666 592 411 
            
Non-Executive Directors
  
Professor Sir Roy Anderson d 3,001 3,001 438 — — —  c 5,730 5,730 3,001 – – – 
Dr S Burns d 44 44 44 3,805 3,805 1,344  c 44 44 44 5,161 5,161 3,805 
Mr L Culp d — — — 16,822 16,822 11,747  c – – – 18,832 18,832 16,822 
Sir Crispin Davis d 39,443 39,443 29,236 — — —  c 49,669 49,669 39,443 – – – 
Sir Christopher Gent d 39,589 39,589 27,153 — — —  c 53,025 53,025 39,589 – – – 
Sir Deryck Maughan d — — — 14,756 14,756 9,800  c – – – 16,678 16,678 14,756 
Mr J Murdoch c,d 2,077 2,077 – – – – 
Dr D Podolsky d — — — 6,065 6,065 2,796  c – – – 8,017 8,017 6,065 
Sir Ian Prosser d 31,712 31,712 25,771 — — — 
Dr R Schmitz d 29,199 29,199 25,319 — — — 
Mr T de Swaan d 5,784 5,784 3,156 — — —  c 8,952 8,952 5,784 – – – 
Sir Robert Wilson d 15,349 15,349 12,736 — — —  c 18,262 18,262 15,349 – – – 
            
One GlaxoSmithKline ADS represents two GlaxoSmithKline shares. The interests of the above-mentioned Directors at 24th19th February 20092010 reflect the change between the year-end and that date.
a) Includes shares purchased through the GlaxoSmithKline ShareReward Plan for Mr Witty joined the Board ontotalling 2,216 at 31st JanuaryDecember 2009 (31st December 2008 – 1,853) and his holdings are disclosed from this date.2,281 shares at 19th February 2010 and Mr Heslop totalling 2,216 at 31st December 2009 (31st December 2008 – 1,853) and 2,281 shares at 19th February 2010.
 
b) Includes ADS purchased in the GlaxoSmithKline Stock Fund within the US Retirement Savings Plan and US Executive Supplemental Savings Plan.
 
c) Includes shares purchased through the GlaxoSmithKline ShareReward Plan for Mr Heslop totalling 1,853 at 31st December 2008 (31st December 2007 — 1,523) and 1,911 shares at 24th February 2009 and Mr Witty totalling 1,853 at 31st December 2008 and 1,911 shares at 24th February 2009.
d)Includes shares and ADS received as part or all of their fees, as described under Non-Executive Directors’ share allocation plan on page 89.82. Dividends received on these shares and ADS were converted to shares and ADS as at 31st December 2008.2009.
d)Mr Murdoch was appointed to the Board with effect from 20th May 2009. His holdings are shown from that date.
GSK Annual Report 2009

86

Remuneration Report
Incentive plans
Share options
 
                                     
Options — Shares         Granted          
  Footnote  At 31.12.07  Date of grant  Exercise period  Grant price  Number  Exercised  Lapsed  At 31.12.08 
 
Mr A Witty  a,c   999,244   19.02.08   19.02.11 — 18.02.18   £11.47   525,000   —   5,630   1,664,623 
           23.07.08   23.07.11 — 22.07.18   £12.21   145,000             
           01.12.08   01.12.11 — 31.05.15   £9.51   1,009             
Mr J Heslop  c   785,254   19.02.08   19.02.11 — 18.02.18   £11.47   242,750   —   7,643   1,020,361 
Dr M Slaoui  b   170,712   —   —       —   —   —   170,712 
Mr C Viehbacher  d   778,367   —   —       —   —   778,367   — 
 
                                     
Options — ADS         Granted          
      At 31.12.07  Date of grant  Exercise period  Grant price  Number  Exercised  Lapsed  At 31.12.08 
 
Dr M Slaoui  b,c   162,320   19.02.08   19.02.11 — 18.02.18   $44.75   162,320   —   —   324,640 
Dr JP Garnier  e   4,453,448   —   —   —   —   —   225,324   4,228,124 
Mr C Viehbacher  d   364,000   19.02.08   19.02.11 — 18.02.18   $44.75   97,750   —   461,750   — 
 
                                 
Options – Shares         Granted       
  Footnote  At 31.12.08  Date of grant  Exercise period  Grant price  Number  Lapsed  At 31.12.09 
                      
Mr A Witty      1,664,623   –   –   –   –   114,921   1,549,702 
Mr J Heslop  a   1,020,361   01.12.09   01.12.12 – 31.05.16   £9.72   933   131,894   889,400 
Dr M Slaoui  b   170,712   –   –   –   –   15,522   155,190 
                      
                                 
Options – ADS         Granted       
      At 31.12.08  Date of grant  Exercise period  Grant price  Number  Lapsed  At 31.12.09 
                      
Dr M Slaoui  b   324,640   17.02.09   17.02.12 – 16.02.19   $33.42   164,690   –   489,330 
                      
a) The grant of share options to Mr Witty joinedHeslop is in respect of his participation in the Board on 31st January 2008 and his options are disclosed from this date.2009 ShareSave plan.
 
b) These details include the interests of Dr Slaoui’s connected person who is also an employee of GSK.
c)As part of the main option grant that occurred on 17th February 2009, Dr Slaoui and his connected person were awarded 164,690 ADS options with a grant price of $33.42. The options granted to Dr Slaoui will vest in two parts, with 50% of awards vesting in February 2012 and the remaining 50% vesting in February 2013. In line with the new remuneration policy, Mr Witty and Mr Heslop will not receive share options for the forseeable future.
d)Mr Viehbacher joined the Board on 31st January 2008 and his options are disclosed above from this date until 8th September 2008 when he resigned from the Board. His unvested options lapsed on 1st December 2008 when he left the company.
e)Dr Garnier retired from the Board on 21st May 2008 and the closing balance of his options is disclosed as at that date.

GSK Annual Report 200893
Report of the Directors

Remuneration Reportcontinued
For those options outstanding at 31st December 2008,2009, the earliest and latest vesting and lapse dates for options above and below the market price for a GlaxoSmithKline share at the year-end are given in the table below.
                           
    Weighted average      Vesting date  Lapse date 
Mr A Witty   grant price  Number  earliest  latest  earliest  latest 
 
Options above market price at year-end: vested  £17.17   234,298   24.03.02   28.11.04   23.03.09   27.11.11 
  unvested  £14.78   373,000   21.02.09   20.02.10   20.02.16   19.02.17 
 
Options below market price at year-end: vested  £11.85   386,316   03.12.05   27.10.08   27.04.09   01.12.14 
  unvested  £11.63   671,009   18.02.11   01.12.11   31.05.12   21.07.18 
 
Total share options as at 31st December 2008    £13.17   1,664,623                 
 
                             
    Weighted average        Vesting date  Lapse date 
Mr J Heslop     grant price  Number  earliest  latest  earliest  latest 
 
Options above market price at year-end: vested  £16.96   186,795   24.03.02   28.11.04   22.03.09   27.11.11 
  unvested  £14.78   473,750   21.02.09   20.02.10   20.02.16   19.02.17 
 
Options below market price at year-end: vested  £11.91   117,066   28.10.06   27.10.08   27.04.09   01.12.14 
  unvested  £11.47   242,750   19.02.11   19.02.11   18.02.18   18.02.18 
 
Total share options as at 31st December 2008      £14.06   1,020,361                 
 
                     
Mr A Witty Weighted average Vesting date Lapse date 
 grant price Number earliest latest earliest latest 
          
Options above market price vested 16.29 297,693 25.02.03 20.02.09 24.02.10 19.02.16 
at year-end: unvested 14.88 195,500 19.02.10 19.02.10 17.02.17 17.02.17 
          
Options below market price vested 11.85 385,500 02.12.05 30.11.07 30.11.12 01.12.14 
at year-end: unvested 11.63 671,009 18.12.11 01.12.11 31.05.12 20.07.18 
                                       
 Weighted average Vesting date Lapse date    
Total share options as at 31st December 2009   12.99 1,549,702 
          
Mr J Heslop Weighted average Vesting date Lapse date 
 grant price Number earliest latest earliest latest 
          
Options above market price vested 15.93 286,717 25.02.03 20.02.09 24.02.10 19.02.16 
at year-end: unvested 14.88 242,750 19.02.10 19.02.10 17.02.17 17.02.17 
          
Options below market price vested 11.90 116,250 27.10.06 30.11.07 25.10.13 01.12.14 
at year-end: unvested 11.46 243,683 18.02.11 30.11.12 31.05.13 16.02.18 
          
   
Total share options as at 31st December 2009   13.89 889,400 
          
Dr M Slaoui Weighted average Vesting date Lapse date 
 grant price Number earliest latest earliest latest   grant price Number earliest latest earliest latest 
          
Options above market price at year-end: vested  £18.56 15,522 24.11.02 24.11.02 23.11.09 23.11.09  vested 14.68 73,340 20.02.09 20.02.09 19.02.16 19.02.16 
 unvested  £14.68 73,340 21.02.09 21.02.09 20.02.16 20.02.16            
Options below market price at year-end: vested 11.59 81,850 02.12.05 30.11.07 30.11.12 01.12.14 
          
   
Total share options as at 31st December 2009   13.05 155,190 
          
   
Options above market price at year-end: unvested 51.38 324,640 19.02.10 18.02.11 17.02.17 16.02.18 
          
Options below market price at year-end: vested  £11.59 81,850 03.12.05 02.12.07 02.10.12 01.12.14  unvested 33.42 164,690 17.02.12 17.02.12 15.02.19 15.02.19 
          
Total share options as at 31st December 2008  £13.55 170,712 
   
Options above market price at year-end: unvested  $51.38 324,640 20.02.10 19.02.11 19.02.17 18.02.18 
Total ADS options as at 31st December 2009   45.33 489,330 
          
Total ADS options as at 31st December 2008  $51.38 324,640 
This includes those share options held by Dr Slaoui’s connected person, who is also an employee of GSK.
                             
    Weighted average        Vesting date  Lapse date 
Dr JP Garnier     grant price  Number  earliest  latest  earliest  latest 
 
Options above market price at year-end: vested  $52.13   2,728,124   15.03.02   02.12.07   14.03.09   01.12.14 
  unvested  $54.68   1,050,000   21.02.09   20.02.10   20.02.16   19.02.17 
 
Options below market price at year-end: vested  $37.25   450,000   03.12.05   03.12.05   02.12.12   02.12.12 
 
Total ADS options as at 21st May 2008      $51.18   4,228,124                 
 
 
 
GSK Annual Report 2009

87

94GSK Annual Report 2008
Report of the Directors

Remuneration Reportcontinued
GSK grantsgranted share options to Executive Directors and Senior Managers on an annual basis.basis until 2009. The Directors hold these options under the various share option plans referred to in Note 42 to the financial statements, ‘Employee share schemes’. None of the Non-Executive Directors had an interest in any option over the company’s shares.
The table below sets out, for share options granted in respect of 2006, 2007 and 2008, the performance period,periods, the performance targets and whether or not the options have vested at 31st December 2008 and the performance targets.2009.
                     
              Performance target
          Vesting status Annualised growth  Percentage of
Grant Footnote  Performance period  at 31.12.0831.12.09 in EPS  award vesting
 
 
February 20062007  a   01.01.06 — 31.12.08Unvested³ RPI + 6%100%
February 200701.01.07 —– 31.12.09  Unvested > RPI + 5%6%  83100%
February 2008      01.01.08 —– 31.12.10  Unvested RPI + 5%83%
RPI + 4%  67%
              RPI + 3%  50%
              < RPI + 3%  0%
 
a)The performance targets for these share options were partiallynot met, and as a result part of the option grant vestedthey lapsed on the third anniversary of the date of grant.
The table below sets out, for share options granted in respect of 2009 the performance period and targets.
The table below sets out, for share options granted in respect of 2009, the performance period and targets.
                 
          Performance target
      Vesting status Annualised growth Percentage of
Grant Performance period  at 31.12.0831.12.09 in EPS award vesting
 
 
February 2009 —– 50% of award  01.01.09 —– 31.12.11  Unvested > RPI + 6%  100%
February 2009 —– 50% of award  01.01.09 —– 31.12.12  Unvested RPI + 5%  85%
          RPI + 4%  65%
          RPI + 3%  30%
          < RPI + 3%  0%
 
                         
  2008  2007 
          Grant  Market       
Options exercised Date  Number  price  price  Gain  Gain 
 
Dr JP Garnier  —   —   —   —   —  $4,222,318 
 
Aggregate gain on options exercised                  —  £2,111,159 
 
The highest and lowest closing prices during the year ended 31st December 20082009 for GlaxoSmithKline shares were £13.85£13.34 and £9.95,£9.87, respectively. The highest and lowest prices for GlaxoSmithKline ADS during the year ended 31st December 20082009 were $54.36$42.91 and $32.02,$27.27, respectively. The market price for a GlaxoSmithKline share on 31st December 20082009 was £12.85£13.20 (31st December 2007 — £12.79)2008 – £12.85) and for a GlaxoSmithKline ADS was $37.27$42.25 (31st December 2007 — $50.39)2008 – $37.27). The prices on 24th19th February 20092010 were £11.06£12.35 per GlaxoSmithKline share and $32.19$38.26 per GlaxoSmithKline ADS.
Incentive plans
Performance Share Plan (PSP) awards
                                     
          Market                  Additional    
Mr A Witty - Shares     Number  price on  Vested      shares by    
  Unvested  granted in  date of      Market          dividends  Unvested 
Performance period at 31.01.08  2008  grant  Number  price  Gain  Lapsed  reinvested  at 31.12.08 
 
01.01.05 — 31.12.07  85,250   —  £11.63   33,271  £11.23  £373,633   53,215   1,236   — 
01.01.06 — 31.12.08  81,838   —  £14.68   —   —   —   —   4,104   85,942 
01.01.07 — 31.12.09  87,436   —  £14.88   —   —   —   —   4,385   91,821 
01.01.08 — 31.12.10  —   225,000  £11.47   —   —   —   —   7,908   232,908 
01.01.08 — 31.12.10  —   62,000  £12.21   —   —   —   —   1,443   63,443 
 
Performance share awards are made to Executive Directors on an annual basis. The Directors hold these options under the various PSP plans referred to in Note 42 to the financial statements.
                                     
Mr A Witty – Shares         Market                  Additional    
     Number  price on  Vested      shares by    
  Unvested  granted in  date of      Market          dividends  Unvested 
Performance period at 31.12.08  2009  grant  Number  price  Gain  Lapsed  reinvested  at 31.12.09 
                           
01.01.06 – 31.12.08  85,942   –   £14.68   –   –   –   87,126   1,184   – 
01.01.07 – 31.12.09  91,821   –   £14.88   –   –   –   –   3,589   95,410 
01.01.08 – 31.12.10  232,908   –   £11.47   –   –   –   –   9,102   242,010 
01.01.08 – 31.12.10  63,443   –   £12.21   –   –   –   –   2,480   65,923 
01.01.09 – 31.12.11  –   470,809   £10.51   –   –   –   –   5,337   476,146 
                            
                                     
Mr J Heslop – Shares         Market                  Additional    
     Number  price on  Vested      shares by    
  Unvested  granted in  date of      Market          dividends  Unvested 
Performance period at 31.12.08  2009  grant  Number  price  Gain  Lapsed  reinvested  at 31.12.09 
                           
01.01.06 – 31.12.08  111,613   –   £14.68   –   –   –   113,150   1,537   – 
01.01.07 – 31.12.09  113,426   –   £14.88   –   –   –   –   4,433   117,859 
01.01.08 – 31.12.10  108,690   –   £11.47   –   –   –   –   4,248   112,938 
01.01.09 – 31.12.11  –   197,740   £10.51   –   –   –   –   2,242   199,982 
                            
GSK Annual Report 2009

88

GSK Annual Report 200895
Report of the Directors

Remuneration Reportcontinued
                                         
            Market                  Additional    
Mr J Heslop - Shares       Number  price on  Vested      shares by    
    Unvested  granted in  date of      Market          dividends  Unvested 
Performance period   at 31.12.07  2008  grant  Number  price  Gain  Lapsed  reinvested  at 31.12.08 
 
01.01.05 - 31.12.07    16,982   —  £11.63   6,698  £11.23  £75,219   10,712   428   — 
01.01.06 - 31.12.08    105,178   —  £14.68   —   —   —   —   6,435   111,613 
01.01.07 - 31.12.09    106,887   —  £14.88   —   —   —   —   6,539   113,426 
01.01.08 - 31.12.10    —   105,000  £11.47   —   —   —   —   3,690   108,690 
 
                                         
            Market                  Additional    
Dr M Slaoui - Shares       Number  price on  Vested      shares by    
    Unvested  granted in  date of      Market          dividends  Unvested 
Performance period   at 31.12.07  2008  grant  Number  price  Gain  Lapsed  reinvested  at 31.12.08 
 
01.01.05 - 31.12.07    14,260   —  £11.63   10,122  £11.23  £113,670   4,498   360   — 
01.01.06 - 31.12.08    30,208   —  £14.68   —   —   —   —   1,847   32,055 
 
                                         
          Market                  Additional        
Dr M Slaoui - ADS     Number  price on  Vested      ADS by      Number 
  Unvested  granted in  date of      Market          dividends  Unvested  granted 
Performance period at 31.12.07  2008  grant  Number  price  Gain  Lapsed  reinvested  at 31.12.08  in 2009 
 
01.01.07 - 31.12.09  71,840   —  $58.00   —   —   —   —   4,444   76,284   — 
01.01.08 - 31.12.10  —   70,570  $44.75   —   —   —   —   2,545   73,115   — 
01.01.09 - 31.12.11  —   —   —   —   —   —   —   —   —   2,620 
 
This includes those performance shares held by Dr Slaoui’s connected person, who is also an employee of GSK.
                                         
              Market                  Additional    
Dr JP Garnier - ADS    Vested &  Number  price on  Vested      ADS by    
  Unvested  deferred at  granted in  date of      Market          dividends  Unvested 
Performance period at 31.12.07  31.12.07  2008  grant  Number  price  Gain  Lapsed  reinvested  at 21.05.08 
 
01.01.01 - 31.12.03 (Deferred)  —   39,216   —  $51.30   40,599  $47.53  $1,929,657   —   1,383   —
01.01.01 - 31.12.03 (Deferred)  —   36,826   —  $37.25   38,125  $35.44  $1,351,156   —   1,299   — 
                                         
01.01.05 - 31.12.07  218,945   —   —  $43.73   86,326  $44.75  $3,863,089   138,072   5,453   — 
01.01.06 - 31.12.08  231,300   —   —  $51.02   —   —   —   —   8,549   239,849 
01.01.07 - 31.12.09  244,320   —   —  $58.00   —   —   —   —   9,029   253,349 
 
As set out in Dr Garnier’s contract, his unvested PSP awards all vest, subject to achievement of the performance conditions, at the end of the performance periods set out above.
                                         
            Market                  Additional    
Mr C Viehbacher - ADS*       Number  price on  Vested      ADS by    
    Unvested  granted in  date of      Market          dividends  Unvested 
Performance period   at 31.01.08  2008  grant  Number  price  Gain  Lapsed  reinvested  at 08.09.08 
 
01.01.05 - 31.12.07    42,585   —  $43.73   16,618  $44.75  $743,656   26,579   612   — 
01.01.06 - 31.12.08    40,898   —  $51.02   —   —   —   42,982   2,084   — 
01.01.07 - 31.12.09    43,715   —  $58.00   —   —   —   45,942   2,227   — 
01.01.08 - 31.12.10    —   42,500  $44.75   —   —   —   44,033   1,533   — 
 
                                     
Dr M Slaoui – Shares         Market                  Additional    
     Number  price on  Vested      shares by    
  Unvested  granted in  date of      Market          dividends  Unvested 
Performance period at 31.12.08  2009  grant  Number  price  Gain  Lapsed  reinvested  at 31.12.09 
                           
01.01.06 – 31.12.08  32,055   –   £14.68   16,248   11.91   193,518   16,248   441   – 
                           
 
Dr M Slaoui – ADS         Market                  Additional    
     Number  price on  Vested      ADS by    
  Unvested  granted in  date of      Market          dividends  Unvested 
Performance period at 31.12.08  2009  grant  Number  price  Gain  Lapsed  reinvested  at 31.12.09 
                           
01.01.07 – 31.12.09  76,284   –   $58.00   –   –   –   –   3,002   79,286 
01.01.08 – 31.12.10  73,115   –   $44.75   –   –   –   –   2,876   75,991 
01.01.09 – 31.12.11  –   2,620   $33.42   –   –   –   –   66   2,686 
01.01.09 – 31.12.11  –   69,000   $33.50   –   –   –   –   804   69,804 
                           
*Mr Viehbacher joined the Board on 31st January 2008 and his PSPs are disclosed from this date until 8th September when he resigned from the Board. All unvested
PSPs lapsed when Mr Viehbacher left the company on 1st December 2008.
This includes those performance shares held by Dr Slaoui’s connected person, who is also an employee of GSK.
Under the terms of the PSP the number of shares actually vesting is determined following the end of the relevant measurement period and is dependent on GSK’s performance during that period as described on pages 8478 to 85.

96GSK Annual Report 2008
Report of the Directors

Remuneration Reportcontinued

79. The Committee adjusted the comparator group by removing Schering-Plough and Wyeth following their de-listing during 2009, and revised the vesting schedule accordingly. For outstanding and future awards, TSR performance will be measured against the revised comparator group including GSK, as set out below.
Dividends are reinvested on the performance shares awarded to Executives, throughout the performance period and up to the date of the final award. The dividend reinvestment is calculated as of the ex-dividenddividend payment date. Under the terms of the PSP, US participants may defer receipt of all or part of their vested awards. The total gain on vesting of PSP awards made by Executive Directors and connected persons is £4,826,067 (2007 — £74,400)£193,518 (2008 – £4,826,067).
The PSP awards granted to Executive Directors in February 2006, excluding Dr Slaoui, with the performance period starting on 1st January 2006 and ending on 31st December 2008 lapsed because GSK’s relative TSR performance was below the median of the comparator group.
The awards made to other senior Executives, including Dr Slaoui who was not a member of the CET at the time of the award, in 2006 were dependent in part on TSR performance and in part on EPS performance. The TSR portion lapsed and the EPS portion vested in full.
The following vesting schedule appliesschedules apply to PSP awards made in 2006.2007 and 2008.
             
      Vesting schedule
       
Award Performance Period  TSR rank with 13 companies  Percentage of award vesting*
 
2006  01.01.06 - 31.12.08   1   100%
       2   100%
       3   87%
       4   74%
       5   61%
       6   48%
      Median   35%
      Below median   0%
 
 
The following vesting schedules apply to PSP awards made in 2007 and 2008.
             
      Vesting schedule
       
Award Performance Period  TSR rank with 14 companies  Percentage of award vesting*
 
2007  01.01.07 - 31.12.09   1   100%
2008  01.01.08 - 31.12.10   2   100%
       3   90%
       4   80%
       5   70%
       6   60%
       7   50%
      Median   35%
      Below median   0%
 
*TSR is measured on a pro-rata basis. Where GlaxoSmithKline’s performance falls between two of the comparators, the level of vesting will be determined by the actual relative level of TSR rather than simple ranking. Dividends will be treated as reinvested during the performance period.
                 
          TSR vesting schedule
Award % of Award  Performance Period  TSR rank with 12 other companies  Percentage of award vesting
            
2007  100   01.01.07 – 31.12.09   1   100%
2008  100   01.01.08 – 31.12.10   2   100%
           3   87%
           4   74%
           5   61%
           6   48%
          Median   35%
          Below median   0%
            
The 2009following vesting schedules apply to PSP awards will be made following approval of the new PSP at thein 2009.
                 
          TSR vesting schedule
Award % of Award  Performance Period  TSR rank with 10 other companies  Percentage of award vesting
            
2009  30   01.01.09 – 31.12.11   1   100%
   30   01.01.09 – 31.12.12   2   100%
           3   100%
           4   80%
           5   55%
          Median   30%
          Below median   0%
            
                 
             Adjusted free cash flow vesting schedule
          Cash flow Targets    
Award % of Award  Performance Period  £bn  Percentage of award vesting
            
2009  40   01.01.09 – 31.12.11   13.5 – 16.0   25% – 100%
            
GSK Annual Report 2009 AGM.

89

Remuneration Report
Share Value Plan awards
                                                                
 Market       
Dr M Slaoui - Shares and ADS Number price on Vested & deferred     
 Unvested granted in date of Market Unvested Number of ADS 
Dr M Slaoui – Shares and ADS

 Market     
 Number price on Vested & deferred   
Unvested granted in date of Market Unvested 
Plan year at 31.12.07 2008 grant Number price Gain Lapsed at 31.12.08 granted in 2009  at 31.12.08 2009 grant Number price Gain at 31.12.09 
2006 (shares) 1,200 — £14.68 — — — — 1,200 — 
2006 (Shares) 1,200 –  £14.68 1,200  £11.33  £13,596 – 
2007 (ADS) 890 — $58.00 — — — — 890 —  890 –  $58.00 – – – 890 
2008 (ADS) — 890 $44.75 — — — — 890 —  890 –  $44.75 – – – 890 
2008 (ADS) — 2,980 $48.55 — — — — 2,980 —  2,980 –  $48.55 – – – 2,980 
2009 (ADS) — — — — — — — — 1,490  – 1,490  $33.42 – – – 1,490 
             
As an Executive Director, Dr Slaoui is not eligible to receive awards under the Share Value Plan. The awards shown above reflect the holdings of Dr Slaoui’s connected person, an employee of GSK. The awards are subject to three-year vesting periods and vesting is contingent on continued employment with GSK.

GSK Annual Report 200897
Report of the Directors

Remuneration Reportcontinued

                         
  Vested and  Additional ADS              Vested and 
  deferred  by dividends              deferred 
  participations  reinvested              participations 
Mid-Term Incentive Plan - ADS at 31.12.07  in 2008  Exercised  Market Price  Gain  at 21.05.08 
 
Dr JP Garnier  180,137   6,353   186,490   $47.53  $8,863,870   — 
 
The Mid-Term Incentive Plan (MTIP) was a share award scheme operated by SmithKline Beecham. The plan closed to new entrants upon completion of the merger and no further participations have been granted.

Where a final award of ADS is made, receipt of the award may be deferred by a Director. Dr Garnier deferred receipt of the full amounts which vested in each year between 1999 and 2003. The deferred awards, together with any additional ADS subsequently received through dividend reinvestment, are not included in the Directors’ interests table on page 92 since they are retained in the MTIP until paid out.
On 19th February 2008, the company made a conditional award of 111,750 ADS to Mr Viehbacher. Following Mr Viehbacher’s resignation from the Board, with effect from 8th September 2008, this conditional award lapsed in full.
Pension benefits
The accrued annual pension benefits and transfer values for Executive Directors in office on 31st December 20082009 on retirement are set out below.
The Companies Act 19852006 requires disclosure of the accrued benefit at the end of the year, the change in accrued benefit over the year, the transfer value at both the beginning and end of the year and the change in the transfer value over the year. The Listing Rules require additional disclosure of the change in the accrued benefit, net of inflation and the transfer value of this change. Pensions for the Executive Directors have been disclosed in the currency in which the pension is payable.
                                                                        
 Change in    Change in   
 Change in Personal accrued Transfer value  Change in Personal accrued Transfer value 
 Accrued Accrued accrued contributions Transfer Transfer Change benefit over of change  Accrued Accrued accrued contributions Transfer Transfer Change benefit over of change 
 benefit at benefit at benefit made during value at value at in transfer year net in accrued  benefit at benefit at benefit made during value at value at in transfer year net in accrued 
 31.12.07 31.12.08 over year the year 31.12.07 31.12.08 value of inflation benefit* 
Executive Directors 31.12.08 31.12.09 over year the year 31.12.08 31.12.09 value of inflation benefit*
 000 000 000 000 000 000 000* 000 000  000 000 000 000 000 000 000* 000 000 
                 
Mr A Witty £218 £315 £97 £22 £2,598 £3,848 £1,228 £89 £1,112   £315  £446  £131  £30  £3,848  £6,272  £2,394  £115  £1,638 
Mr J Heslop £142 £170 £28 £14 £2,609 £2,837 £214 £23 £374   £170  £201  £31  £16  £2,837  £3,787  £934  £23  £471 
Dr M Slaoui $72 $131 $59 — $399 $731 $332 $58 $332   $131  $187  $56 –  $731  $1,101  $370  $54  $370 
Dr M Slaoui €53 €55 €2 — €572 €608 €36 €1 €36   €55  €59  €4 –  €608  €647  €39  €3  €39 
                   
Former Executive Directors
 
Dr JP Garnier $1,235 $1,353 $118 — $16,239 $17,423 $1,184 $106 $1,184 
Mr C Viehbacher $126 $187 $61 — $682 $1,013 $331 $60 $331 
* These are shown net of contributions made by the individual.
Mr Witty and Mr Heslop participate in the Glaxo Wellcome Defined Benefit Plan with an accrual rate of 1/30th of final pensionable salary per annum. In 2000 all benefits accrued under the Glaxo Wellcome UK pension arrangements were augmented by the Trustees of the plans by 5% to reflect a distribution of surplus. This augmentation will apply to that element of Mr Witty and Mr Heslop’s pension earnings before 31st March 2000.
Mr Witty’s and Mr Heslop’s transfer values have been calculated on the basis of actuarial advice in accordance with pensions regulation. The transfer value represents the present value of future payments to be made under the pension plan. Mr Witty’s annual accrued benefit has increased by £97,331£130,556 (£88,814114,770 excluding the effects of inflation), and the transfer value less personal contributions has increased by £1,228,350£2,394,197 over the year. The increase in Mr Witty’s pensionable salary of £300,000 reflecting his appointment to CEO is the primary reason for the increase in transfer value. Mr Heslop’s annual accrued benefit has increased by £28,459£31,040 (£22,91122,504 excluding the effects of inflation) and the transfer value less personal contributions has increased by £214,095£934,150 over the year.
GSK Annual Report 2009

90

98
Remuneration ReportGSK Annual Report 2008
Report of the Directors

Remuneration Reportcontinued

Pension benefits
Dr Slaoui and Mr Viehbacher are membersis a member of the US Executive Cash Balance Pension Plan. The plan provides for an Executive Pension Credit, under which GSK makes annual contributions calculated as a percentage of the executive’s base salary. GSK makes contributions at 38% of base pay. The fund increases at an interest rate set annually in advance based on the 30 year US Treasury bond rate to provide a cash sum at retirement. The plan has no entitlement to a spouse’s pension or to pension increases.
Mr Viehbacher resigned from the Board on 8th September 2008 and left the company on 1st December 2008.
The transfer value, or cash sum, has increased by $331,860$369,981 for Dr Slaoui and $331,407 for Mr Viehbacher over the year as a result of further accumulation of interest and contributions paid by the company.
Dr Slaoui was an active participant in the Belgium Fortis Plan until 31st May 2006. This plan is a defined benefit plan with a lump sum payable at normal retirement which is age 60 for the plan. The transfer value, or cash sum, of Dr Slaoui’s plan has increaseincreased by €36,380€38,893 over the year as a result of further accumulation of interest.
Dr Garnier retired from the company on 31st May 2008. He wasSlaoui is a member of the US Cash Balance Pension Plan, under which GSK made annual contributions calculated as a percentage of base salary and bonus. GSK made annual contributions of 15% of Dr Garnier’s annual salary and bonus as detailed in his contract. The fund increased at an interest rate set annually based on the 30 year US Treasury bond rate to provide a cash sum at retirement. The plan has no entitlement to a spouse’s pension or to pension increases. Dr Garnier has selected to receive his pension payments on an annual basis paid over 15 years commencing January 2009. The transfer value, or cash sum, has increased by $1,184,468 over the year for Dr Garnier’s plan as a result of further accumulation of interest and contributions paid by the company.
Dr Slaoui, Dr Garnier and Mr Viehbacher are also members of the US Retirement Savings Plan, a 401k savings scheme open to all US employees and the Executive Supplemental Savings Plan, a savings scheme open to executives to accrue benefits above US government limits imposed on the Retirement Savings Plan. Contributions to both plans are invested in a range of funds and the value of the accumulated funds is paid at retirement.
During 2008,2009, contributions of $98,474$108,249 (£53,229)69,390) were paid into these two schemes by GSK in respect of Dr Slaoui, $143,314 (£77,467) in respect of Dr Garnier and $96,958 (£52,410) in respect of Mr Viehbacher.
Slaoui.
Directors and Senior Management
Further information is also provided on compensation and interests of Directors and Senior Management as a group (‘the group’). For this purpose, the group is defined as the Executive and Non-Executive Directors and members of the CET. For the financial year 2008,2009, the total compensation paid to members of the group for the periods during which they served in that capacity was £17,352,130,£23,187,437, the aggregate increase in accrued pension benefits, net of inflation, was £772,637£1,225,166 and the aggregate payment to defined contribution schemes was £485,612.£393,409.
During 2008,2009, the members of the group were granted 1,454,517941,000 share options and 607,836665,940 ADS options under the Share Option Plan,plan, were awarded 629,1761,073,049 shares and 291,547308,370 ADS under the Performance Share Plan, were awarded 2,5202,500 shares and 3,8701,490 ADS under the Share Value Plan andPlan. No notional shares or ADS were awarded 35,778 notional sharesgranted under the Deferred Investment Award Plan.Plan in 2009. Members of the group were also awarded through the reinvestment of dividends 71,75561,370 shares and 54,11020,218 ADS in the Performance Share Plan and 2,1004,854 notional shares and 144 notional ADS in the Deferred Investment Award Plan.
At 24th19th February 2009,2010, the group (comprising 2827 persons) owned 765,249872,256 shares and 78,77085,156 ADS, constituting less than 1%2% of the issued share capital of the company.company (with none of such 27 persons beneficially owning 1% or more of the issued share capital of the company). The group also held, at that date: options to purchase 6,742,2867,269,817 shares and 2,170,0342,109,720 ADS; 1,124,0132,263,230 shares and 417,316748,782 ADS awarded under the Performance Share Plan, including those shares and ADS that are vested and deferred; 38,11340,139 vested and deferred ADS under the legacy SmithKline Beecham Mid-Term Incentive Plan; 20,130 shares and 6,250 ADS awarded under the Share Value Plan and 83,46088,435 notional shares awarded under the Deferred Investment Award Plan. These holdings were issued under the various executive share option plans described in Note 42 to the financial statements, ‘Employee share schemes’.
Directors’ interests in contracts
Except as described in Note 35 to the financial statements, ‘Related party transactions’, during or at the end of the financial year no Director or connected person had any material interest in any contract of significance in relation to the Group’s business with a Group company.
Basis of preparation
The Directors’ Remuneration Report has been prepared in accordance with the Companies Act 2006 and The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (the Regulations) and meets the relevant requirements of the FSA Listing Rules.
The Remuneration report has been approved by the Board of Directors and signed on its behalf by
Sir Christopher Gent
Chairman
3rd March 200924th February 2010



GSK Annual Report 2009

91

GSK Annual Report 200899
Financial statements

Financial statements

Financial statements
The financial statements set out below/(overleaf) provide a summary of the Group’s financial performance throughout 20082009 and its position as at 31st December 2008.2009. The consolidated financial statements are prepared in accordance with the IFRS as adopted by the European Union and also IFRS as issued by the International Accounting standards board. Standards Board.
Financial statements
The consolidated financial statements comprisepresent the profit and cash flow for the year and the balance sheet position at the end of the following audited primary statements and related notes:year.
•Consolidated income statement;
•Consolidated balance sheet;
•Consolidated cash flow statement, and
•Consolidated statement of recognised income and expense.

 
Notes to the financial statements
The notes to the financial statements provide supporting analyses to the primary statements.
         
Directors’ statements of responsibility  100 
         
Independent Auditors’ report  101 
         
Financial statements    
Consolidated income statement  102 
Consolidated balance sheet  103 
Consolidated cash flow statement  104 
Consolidated statement of recognised income and expense  105 
         
Notes to the financial statements    
 1.  
Presentation of the financial statements
  106 
 2.  
Accounting principles and policies
  107 
 3.  
Key accounting judgements and estimates
  111 
 4.  
New accounting requirements
  112 
 5.  
Exchange rates
  113 
 6.  
Segment information
  114 
 7.  
Major restructuring programmes
  117 
 8.  
Other operating income
  119 
 9.  
Operating profit
  119 
 10.  
Employee costs
  120 
 11.  
Finance income
  120 
 12.  
Finance costs
  121 
 13.  
Associates and joint ventures
  121 
 14.  
Taxation
  122 
 15.  
Earnings per share
  124 
 16.  
Dividends
  125 
 17.  
Property, plant and equipment
  125 
 18.  
Goodwill
  127 
 19.  
Other intangible assets
  129 
 20.  
Investments in associates and joint ventures
  131 
 21.  
Other investments
  132 
 22.  
Other non-current assets
  132 
 23.  
Inventories
  132 
 24.  
Trade and other receivables
  133 
 25.  
Cash and cash equivalents
  133 
 26.  
Assets held for sale
  133 
 27.  
Trade and other payables
  134 
 28.  
Pensions and other post-employment benefits
  134 
 29.  
Other provisions
  142 
 30.  
Other non-current liabilities
  144 
 31.  
Contingent liabilities
  144 
 32.  
Net debt
  144 
 33.  
Share capital and share premium account
  146 
 34.  
Movements in equity
  147 
 35.  
Related party transactions
  149 
 36.  
Adjustments reconciling profit after tax to operating cash flows
  149 
 37.  
Reconciliation of net cash flow to movement in
net debt
  150 
 38.  
Acquisitions and disposals
  150 
 39.  
Commitments
  154 
 40.  
Post balance sheet events
  155 
 41.  
Financial instruments and related disclosures
  156 
 42.  
Employee share schemes
  164 
 43.  
Principal Group companies
  169 
 44.  
Legal proceedings
  172 

         
         
Directors’ statement of responsibilities  92 
Report of Independent Registered Public Accounting Firm  93 
         
Financial statements    
Consolidated income statement  94 
Consolidated statement of comprehensive income  94 
Consolidated balance sheet  96 
Consolidated statement of changes in equity  97 
Consolidated cash flow statement  98 
         
Notes to the financial statements    
1. 
Presentation of the financial statements
  99 
2. 
Accounting principles and policies
  100 
3. 
Key accounting judgements and estimates
  104 
4. 
New accounting requirements
  106 
5. 
Exchange rates
  106 
6. 
Segment information
  107 
7. 
Major restructuring programmes
  110 
8. 
Other operating income
  112 
9. 
Operating profit
  112 
10. 
Employee costs
  113 
11. 
Finance income
  113 
12. 
Finance costs
  114 
13. 
Associates and joint ventures
  114 
14. 
Taxation
  115 
15. 
Earnings per share
  117 
16. 
Dividends
  118 
17. 
Property, plant and equipment
  118 
18. 
Goodwill
  120 
19. 
Other intangible assets
  123 
20. 
Investments in associates and joint ventures
  125 
21. 
Other investments
  126 
22. 
Other non-current assets
  126 
23. 
Inventories
  126 
24. 
Trade and other receivables
  127 
25. 
Cash and cash equivalents
  127 
26. 
Assets held for sale
  127 
27. 
Trade and other payables
  128 
28. 
Pensions and other post-employment benefits
  128 
29. 
Other provisions
  136 
30. 
Other non-current liabilities
  138 
31. 
Contingent liabilities
  138 
32. 
Net debt
  138 
33. 
Share capital and share premium account
  140 
34. 
Movements in equity
  141 
35. 
Related party transactions
  142 
36. 
Adjustments reconciling profit after tax to operating cash flows
  142 
37. 
Reconciliation of net cash flow to movement in net debt
  143 
38. 
Acquisitions and disposals
  143 
39. 
Commitments
  151 
40. 
Post balance sheet events
  151 
41. 
Financial instruments and related disclosures
  152 
42. 
Employee share schemes
  161 
43. 
Principal Group companies
  166 
44. 
Legal proceedings
  169 



GSK Annual Report 2009

100

92GSK Annual Report 2008

Financial statements
Directors’ statement of responsibilities

Directors’ statement of responsibilities

Directors’ statement of responsibilities in relation to the Group financial statements
The Directors are responsible for preparing the Annual Report, the Remuneration Report and the Group financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have preparedelected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. In preparing the Group financial statements, the Directors have also elected to comply with IFRS, as issued by the International Accounting Standards Board (IASB). TheUnder company law the Directors must not approve the Group financial statements unless they are required by law tosatisfied that they give a true and fair view of the state of affairs of the Group as at the end of the financial period and of the profit or loss of the Group for that period.
In preparing those financial statements, the Directors are required to:
•select suitable accounting policies and then apply them consistently;
•make judgements and estimates that are reasonable and prudent;
•state that the Group financial statements comply with IFRS as adopted by the European Union and IFRS as issued by the IASB, subject to any material departures disclosed and explained in the financial statements.
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state that the Group financial statements comply with IFRS as adopted by the European Union and IFRS as issued by the IASB, subject to any material departures disclosed and explained in the financial statements.
The Directors are responsible for keeping properadequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the Group financial statements and the Directors’ Remuneration Report comply with the Companies Acts 1985 andAct 2006 and Article 4 of the IAS Regulation. They are also responsible for taking reasonable steps to safeguardsafeguarding the assets of the Group and ensuring the operation of systems of internal control, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Group financial statements for the year ended 31st December 2008,2009, comprising principal statements and supporting notes, are set out in ‘Financial statements’ on pages 10294 and 180176 of this Report.
The responsibilities of the auditors in relation to the Group financial statements are set out in the Report of Independent Auditors’ reportRegistered Public Accounting Firm on page 101.93.
The Group financial statements for the year ended 31st December 20082009 are included in the Annual Report, which is published in hard-copy printed form and made available on the company’s website.Report. The Directors are responsible for the maintenance and integrity of the Annual Report on the website in accordance with UK legislation governing the preparation and dissemination of financial statements. Access to the website is available from outside the UK, where comparable legislation may be different.
Each of the current Directors, whose names and functions are listed in the Corporate governance section of the Annual Report 20082009 confirms that, to the best of his or her knowledge:
the Group financial statements, which have been prepared in accordance with IFRS as adopted by the EU and IFRS as issued by IASB, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
•the Group financial statements, which have been prepared in accordance with IFRS as adopted by the EU and IFRS as issued by IASB, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
•the Business review section contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
the Business review section contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
Disclosure of information to auditors
The Directors in office at the date of this Report have each confirmed that:
•so far as he or she is aware, there is no relevant audit information of which the company’s auditors are unaware; and
•he or she has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the company’s auditors are aware of that information.
so far as he or she is aware, there is no relevant audit information of which the company’s auditors are unaware; and
he or she has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the company’s auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of Section 234 ZA418 of the Companies Act 1985.2006.
Going concern basis
The Business review on pages 6 to 53 contains information on the performance of the Group, its financial position, cash flows, net debt position and borrowing facilities. Further information, including Treasury risk management policies, exposures to market and credit risk and hedging activities, is given in Note 41 to the financial statements, ‘Financial instruments and related disclosures’.
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
Internal control
The Board, through the Audit & Risk Committee, has reviewed the assessment of risks and the internal control framework that operates in GSK and has considered the effectiveness of the system of internal control in operation in the Group for the year covered by this report and up to the date of its approval by the Board of Directors.
The Combined Code
The Board considers that GlaxoSmithKline plc applies the principlesMain Principles of the Combined Code on Corporate Governance of the Financial Reporting Council, as described under ‘Corporate governance’ on pages 6054 to 77,72, and has complied with its provisions except as described on page 76.71.
As required by the Listing Rules of the Financial Services Authority, the auditors have considered the Directors’ statement of compliance in relation to those points of the Combined Code which are specified for their review.
Annual Report
The Annual Report for the year ended 31st December 2008,2009, comprising the Report of the Directors, the Remuneration Report, the Financial statements and additional information for investors, has been approved by the Board of Directors and signed on its behalf by
Sir Christopher Gent
Chairman
3rd March 200924th February 2010


GSK Annual Report 2009

93

GSK Annual Report 2008101
Financial statements

Report of Independent Registered Public Accounting Firm
to
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of GlaxoSmithKline plc

In our opinion, the accompanying consolidated balance sheets and the related consolidated income statement, consolidated statementstatements of cash flows, and, consolidated statements of recognisedcomprehensive income and, expenseconsolidated statement of changes in equity present fairly, in all material respects, the financial position of GlaxoSmithKline plc and its subsidiaries at 31st December 20082009 and 31st December 2007,2008, and the results of their operations and their cash flows for each of the three years in the period ended 31st December 20082009, in conformity with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board. Also, in our opinion the companyCompany maintained, in all material respects, effective internal control over financial reporting as of 31st December 2008,2009, based on criteria established in Internal Control —– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).COSO. The Group’sCompany’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in ‘Managements annual report on internal control over financial reporting’ on page 77.72. Our responsibility is to express opinions on these financial statements and on the company’sCompany’s internal control over financial reporting based on our audits (which were integrated audits in 2008 and 2007).audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorisedunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
PricewaterhouseCoopers LLP
London
4thUnited Kingdom
1st March 2009
2010


GSK Annual Report 2009

94

102GSK Annual Report 2008
Financial statements
Consolidated income statement
for the year ended 31st December 2008
                                 
      2008  2007  2006 
      Results          Results          
      before major  Major  Total  before major  Major  Total  Total 
  Notes  restructuring  restructuring  £m  restructuring  restructuring  £m  £m 
 
Turnover  6   24,352   —   24,352   22,716   —   22,716   23,225 
Cost of sales      (5,776)  (639)  (6,415)  (5,206)  (111)  (5,317)  (5,010)
 
Gross profit      18,576   (639)  17,937   17,510   (111)  17,399   18,215 
Selling, general and administration      (7,352)  (304)  (7,656)  (6,817)  (137)  (6,954)  (7,257)
Research and development      (3,506)  (175)  (3,681)  (3,237)  (90)  (3,327)  (3,457)
Other operating income  8   541   —   541   475   —   475   307 
 
Operating profit
  9,10   8,259   (1,118)  7,141   7,931   (338)  7,593   7,808 
                                 
Finance income  11   313   —   313   262   —   262   287 
Finance costs  12   (838)  (5)  (843)  (453)  —   (453)  (352)
Share of after tax profits of associates and joint ventures  13   48   —   48   50   —   50   56 
 
Profit before taxation
      7,782   (1,123)  6,659   7,790   (338)  7,452   7,799 
                                 
Taxation  14   (2,231)  284   (1,947)  (2,219)  77   (2,142)  (2,301)
 
Profit after taxation for the year
      5,551   (839)  4,712   5,571   (261)  5,310   5,498 
 
Profit attributable to minority interests      110   —   110   96   —   96   109 
Profit attributable to shareholders      5,441   (839)  4,602   5,475   (261)  5,214   5,389 
 
       5,551   (839)  4,712   5,571   (261)  5,310   5,498 
 
Basic earnings per share (pence)  15           88.6p          94.4p  95.5p
Diluted earnings per share (pence)  15           88.1p          93.7p  94.5p
 
Consolidated income statement
for the year ended 31st December 2009
                    
     2009 
         Results         
         before major  Major     
         restructuring  restructuring  Total 
  Notes     £m  £m  £m 
            
Turnover  6      28,368   –   28,368 
Cost of sales         (7,095)  (285)  (7,380)
            
Gross profit         21,273   (285)  20,988 
Selling, general and administration         (9,200)  (392)  (9,592)
Research and development         (3,951)  (155)  (4,106)
Other operating income  8      1,135   –   1,135 
            
Operating profit
  9,10      9,257   (832)  8,425 
                    
Finance income  11      70   –   70 
Finance costs  12      (780)  (3)  (783)
Profit on disposal of interest in associate         115   –   115 
Share of after tax profits of associates and joint ventures  13      64   –   64 
            
Profit before taxation
         8,726   (835)  7,891 
                    
Taxation  14      (2,443)  221   (2,222)
            
Profit after taxation for the year
         6,283   (614)  5,669 
          
                    
Profit attributable to minority interests         138   –   138 
Profit attributable to shareholders         6,145   (614)  5,531 
            
          6,283   (614)  5,669 
            
                    
Basic earnings per share (pence)  15              109.1p
Diluted earnings per share (pence)  15              108.2p
            
The calculation of ‘Results before major restructuring’ is described in Note 1, ‘Presentation of the financial statements’.
Consolidated statement of comprehensive income
for the year ended 31st December 2009

     
     
  GSK Annual Report 2008103  
Financial statements2009 
     £m
  Consolidated balance sheet
 
Profit for the year5,669 
     
  at 31st December 2008  
Exchange movements on overseas net assets and net investment hedges(194)
Reclassification of exchange on liquidation of overseas subsidiary(44)
Tax on exchange movements19
Fair value movements on available-for-sale investments42
Deferred tax on fair value movements on available-for-sale investments(24)
Reclassification of fair value movements on available-for-sale investments–
Deferred tax reversed on reclassification of available-for-sale investments13
Actuarial (losses)/gains on defined benefit plans(659)
Deferred tax on actuarial movements in defined benefit plans183
Fair value movements on cash flow hedges(6)
Deferred tax on fair value movements on cash flow hedges2
Reclassification of cash flow hedges to income and expense1
Fair value movement on subsidiary acquisition(6)
    
     
             
      2008  2007 
  Notes  £m  £m 
 
Non-current assets
            
Property, plant and equipment  17   9,678   7,821 
Goodwill  18   2,101   1,370 
Other intangible assets  19   5,869   4,456 
Investments in associates and joint ventures  20   552   329 
Other investments  21   478   517 
Deferred tax assets  14   2,760   2,196 
Derivative financial instruments  41   107   1 
Other non-current assets  22   579   687 
 
Total non-current assets      22,124   17,377 
 
Current assets
            
Inventories  23   4,056   3,062 
Current tax recoverable  14   76   58 
Trade and other receivables  24   6,265   5,495 
Derivative financial instruments  41   856   475 
Liquid investments  32   391   1,153 
Cash and cash equivalents  25   5,623   3,379 
Assets held for sale  26   2   4 
 
Total current assets      17,269   13,626 
 
Total assets      39,393   31,003 
 
Current liabilities
            
Short-term borrowings  32   (956)  (3,504)
Trade and other payables  27   (6,075)  (4,861)
Derivative financial instruments  41   (752)  (262)
Current tax payable  14   (780)  (826)
Short-term provisions  29   (1,454)  (892)
 
Total current liabilities      (10,017)  (10,345)
 
Non-current liabilities
            
Long-term borrowings  32   (15,231)  (7,067)
Deferred tax liabilities  14   (714)  (887)
Pensions and other post-employment benefits  28   (3,039)  (1,383)
Other provisions  29   (1,645)  (1,035)
Derivative financial instruments  41   (2)  (8)
Other non-current liabilities  30   (427)  (368)
 
Total non-current liabilities      (21,058)  (10,748)
 
Total liabilities      (31,075)  (21,093)
 
Net assets      8,318   9,910 
 
Equity
            
Share capital  33   1,415   1,503 
Share premium account  33   1,326   1,266 
Retained earnings  34   4,622   6,475 
Other reserves  34   568   359 
 
Shareholders’ equity      7,931   9,603 
 
Minority interests  34   387   307 
 
Total equity      8,318   9,910 
 
Approved by the Board on 3rd March 2009
Sir Christopher Gent
Chairman

 
Other comprehensive (expense)/income for the year(673)
    
     
  104GSK Annual Report 2008
Financial statements
     
Total comprehensive income for the yearConsolidated cash flow statement
     
  the year ended 31st December 2008  
4,996 
    
     
                 
      2008  2007  2006 
  Notes  £m  £m  £m 
 
Cash flow from operating activities
                
Profit after taxation for the year      4,712   5,310   5,498 
Adjustments reconciling profit after tax to operating cash flows  36   4,343   2,770   2,705 
 
Cash generated from operations      9,055   8,080   8,203 
Taxation paid      (1,850)  (1,919)  (3,846)
 
Net cash inflow from operating activities      7,205   6,161   4,357 
 
                 
Cash flow from investing activities
                
Purchase of property, plant and equipment      (1,437)  (1,516)  (1,366)
Proceeds from sale of property, plant and equipment      20   35   43 
Purchase of intangible assets      (632)  (627)  (224)
Proceeds from sale of intangible assets      171   9   175 
Purchase of equity investments      (87)  (186)  (57)
Proceeds from sale of equity investments      42   45   32 
Share transactions with minority shareholders  38   —   —   (157)
Purchase of businesses, net of cash acquired  38   (454)  (1,027)  (273)
Disposal of businesses and interest in associates  38   —   —   5 
Investments in associates and joint ventures  38   (9)  (1)  (13)
Decrease/(increase) in liquid investments      905   (39)  (55)
Interest received      320   247   299 
Dividends from associates and joint ventures      12   12   15 
 
Net cash outflow from investing activities      (1,149)  (3,048)  (1,576)
 
                 
Cash flow from financing activities
                
Proceeds from own shares for employee share options      9   116   151 
Shares acquired by ESOP Trusts      (19)  (26)  — 
Issue of share capital  33   62   417   316 
Purchase of own shares for cancellation      (3,706)  (213)  — 
Purchase of Treasury shares      —   (3,538)  (1,348)
Increase in long-term loans      5,523   3,483   — 
Repayment of long-term loans      —   (207)  — 
Net (repayment of)/increase in short-term loans      (3,059)  1,632   (739)
Net repayment of obligations under finance leases      (48)  (39)  (34)
Interest paid      (730)  (378)  (414)
Dividends paid to shareholders      (2,929)  (2,793)  (2,598)
Dividends paid to minority interests      (79)  (77)  (87)
Other financing cash flows      68   (79)  16 
 
Net cash outflow from financing activities      (4,908)  (1,702)  (4,737)
 
                 
Increase/(decrease) in cash and bank overdrafts  37   1,148   1,411   (1,956)
                 
Exchange adjustments      1,103   48   (254)
Cash and bank overdrafts at beginning of year      3,221   1,762   3,972 
 
Cash and bank overdrafts at end of year      5,472   3,221   1,762 
 
                 
Cash and bank overdrafts at end of year comprise:                
Cash and cash equivalents      5,623   3,379   2,005 
Overdrafts      (151)  (158)  (243)
 
       5,472   3,221   1,762 
 

     
Total comprehensive income for the year attributable to:     
GSK Annual Report 2008105Shareholders  
  Financial statements 4,895
Minority interests101 
    
Total comprehensive income for the year  Consolidated statement of recognised income and expense 4,996 
    
for the year ended 31st December 2008
             
  2008  2007  2006 
  £m  £m  £m 
 
Exchange movements on overseas net assets  1,101   411   (359)
Tax on exchange movements  15   21   (78)
Fair value movements on available-for-sale investments  (81)  (99)  84 
Deferred tax on fair value movements on available-for-sale investments  8   19   (15)
Actuarial (losses)/gains on defined benefit plans  (1,370)  671   429 
Deferred tax on actuarial movements in defined benefit plans  441   (195)  (161)
Fair value movements on cash flow hedges  6   (6)  (5)
Deferred tax on fair value movements on cash flow hedges  (3)  2   2 
 
Net profits/(losses) recognised directly in equity  117   824   (103)
Profit for the year  4,712   5,310   5,498 
 
Total recognised income and expense for the year  4,829   6,134   5,395 
 
 
Total recognised income and expense for the year attributable to:            
Shareholders  4,670   6,012   5,307 
Minority interests  159   122   88 
 
   4,829   6,134   5,395 
 
GSK Annual Report 2009

95

106GSK Annual Report 2008
Financial statements
                       
2008 2007 
Results          Results       
before major  Major      before major  Major    
restructuring  restructuring  Total  restructuring  restructuring  Total 
£m  £m  £m  £m  £m  £m 
               
 24,352   –   24,352   22,716   –   22,716 
 (5,776)  (639)  (6,415)  (5,206)  (111)  (5,317)
               
 18,576   (639)  17,937   17,510   (111)  17,399 
 (7,352)  (304)  (7,656)  (6,817)  (137)  (6,954)
 (3,506)  (175)  (3,681)  (3,237)  (90)  (3,327)
 541   –   541   475   –   475 
               
 8,259   (1,118)  7,141   7,931   (338)  7,593 
                       
 313   –   313   262   –   262 
 (838)  (5)  (843)  (453)  –   (453)
 –   –   –   –   –   – 
 48   –   48   50   –   50 
               
 7,782   (1,123)  6,659   7,790   (338)  7,452 
                       
 (2,231)  284   (1,947)  (2,219)  77   (2,142)
               
 5,551   (839)  4,712   5,571   (261)  5,310 
               
                       
 110   –   110   96   –   96 
 5,441   (839)  4,602   5,475   (261)  5,214 
               
 5,551   (839)  4,712   5,571   (261)  5,310 
               
                       
         88.6p          94.4p
         88.1p          93.7p
               
     
2008  2007 
£m  £m 
   
4,712  5,310 
     
1,017  411 
84  – 
15  21 
(47) (53)
5  8 
(34) (46)
3  11 
(1,370) 671 
441  (195)
6  (6)
(3) 2 
–  – 
–  – 
   
     
117  824 
   
     
4,829  6,134 
   
     
     
4,670  6,012 
159  122 
   
4,829  6,134 
   
GSK Annual Report 2009

96

Consolidated balance sheet
as at 31st December 2009
             
      2009  2008 
  Notes  £m  £m 
         
Non-current assets
            
Property, plant and equipment  17   9,374   9,678 
Goodwill  18   3,361   2,101 
Other intangible assets  19   8,183   5,869 
Investments in associates and joint ventures  20   895   552 
Other investments  21   454   478 
Deferred tax assets  14   2,374   2,760 
Derivative financial instruments  41   68   107 
Other non-current assets  22   583   579 
         
Total non-current assets      25,292   22,124 
         
Current assets
            
Inventories  23   4,064   4,056 
Current tax recoverable  14   58   76 
Trade and other receivables  24   6,492   6,265 
Derivative financial instruments  41   129   856 
Liquid investments  32   268   391 
Cash and cash equivalents  25   6,545   5,623 
Assets held for sale  26   14   2 
         
Total current assets      17,570   17,269 
         
Total assets      42,862   39,393 
         
Current liabilities
            
Short-term borrowings  32   (1,471)  (956)
Trade and other payables  27   (6,772)  (6,075)
Derivative financial instruments  41   (168)  (752)
Current tax payable  14   (1,451)  (780)
Short-term provisions  29   (2,256)  (1,454)
         
Total current liabilities      (12,118)  (10,017)
         
Non-current liabilities
            
Long-term borrowings  32   (14,786)  (15,231)
Deferred tax liabilities  14   (645)  (714)
Pensions and other post-employment benefits  28   (2,981)  (3,039)
Other provisions  29   (985)  (1,645)
Derivative financial instruments  41   –   (2)
Other non-current liabilities  30   (605)  (427)
         
Total non-current liabilities      (20,002)  (21,058)
         
Total liabilities      (32,120)  (31,075)
         
Net assets      10,742   8,318 
       
Equity
            
Share capital  33   1,416   1,415 
Share premium account  33   1,368   1,326 
Retained earnings  34   6,321   4,622 
Other reserves  34   900   568 
         
Shareholders’ equity      10,005   7,931 
         
Minority interests      737   387 
         
Total equity      10,742   8,318 
         
Approved by the Board on 24th February 2010
Sir Christopher Gent
Chairman
GSK Annual Report 2009

97

Consolidated statement of changes in equity
for the year ended 31st December 2009
                             
  Shareholders’ equity       
  Share  Share  Retained  Other      Minority  Total 
  capital  premium  earnings  reserves  Total  interests  equity 
  £m  £m  £m  £m  £m  £m  £m 
                     
At 1st January 2007  1,498   858   6,965   65   9,386   262   9,648 
Profit for the year  –   –   5,214   –   5,214   96   5,310 
Other comprehensive income for the year  –   –   890   (92)  798   26   824 
Distributions to minority interests  –   –   –   –   –   (77)  (77)
Dividends to shareholders  –   –   (2,793)  –   (2,793)  –   (2,793)
Ordinary shares issued  9   408   –   –   417   –   417 
Ordinary shares purchased and cancelled  (4)  –   (213)  4   (213)  –   (213)
Ordinary shares purchased and held as Treasury shares  –   –   (3,537)  –   (3,537)  –   (3,537)
Ordinary shares acquired by ESOP Trusts  –   –   –   (26)  (26)  –   (26)
Ordinary shares transferred by ESOP Trusts  –   –   –   116   116   –   116 
Write-down of shares held by ESOP Trusts  –   –   (292)  292   –   –   - 
Share-based incentive plans  –   –   237   –   237   –   237 
Tax on share-based incentive plans  –   –   4   –   4   –   4 
                     
At 31st December 2007  1,503   1,266   6,475   359   9,603   307   9,910 
Profit for the year  –   –   4,602   –   4,602   110   4,712 
Other comprehensive income for the year  –   –   121   (53)  68   49   117 
Distributions to minority interests  –   –   –   –   –   (79)  (79)
Dividends to shareholders  –   –   (2,929)  –   (2,929)  –   (2,929)
Ordinary shares issued  2   60   –   –   62   –   62 
Ordinary shares purchased and cancelled  (90)  –   (3,706)  90   (3,706)  –   (3,706)
Ordinary shares acquired by ESOP Trusts  –   –   –   (19)  (19)  –   (19)
Ordinary shares transferred by ESOP Trusts  –   –   –   10   10   –   10 
Write-down of shares held by ESOP Trusts  –   –   (181)  181   –   –   - 
Share-based incentive plans  –   –   241   –   241   –   241 
Tax on share-based incentive plans  –   –   (1)  –   (1)  –   (1)
                     
At 31st December 2008  1,415   1,326   4,622   568   7,931   387   8,318 
Profit for the year  –   –   5,531   –   5,531   138   5,669 
Other comprehensive expense for the year  –   –   (663)  27   (636)  (37)  (673)
Distributions to minority interests  –   –   –   –   –   (89)  (89)
Changes in minority shareholdings  –   –   –   –   –   338   338 
Put option over minority interest  –   –   –   (2)  (2)  –   (2)
Dividends to shareholders  –   –   (3,003)  –   (3,003)  –   (3,003)
Ordinary shares issued  1   42   –   –   43   –   43 
Ordinary shares acquired by ESOP Trusts  –   –   –   (57)  (57)  –   (57)
Ordinary shares transferred by ESOP Trusts  –   –   –   13   13   –   13 
Write-down of shares held by ESOP Trusts  –   –   (351)  351   –   –   - 
Share-based incentive plans  –   –   171   –   171   –   171 
Tax on share-based incentive plans  –   –   14   –   14   –   14 
                     
At 31st December 2009  1,416   1,368   6,321   900   10,005   737   10,742 
                     
GSK Annual Report 2009

98

Consolidated cash flow statement
for the year ended 31st December 2009
                 
      2009  2008  2007 
  Notes  £m  £m  £m 
            
Cash flow from operating activities
                
Profit after taxation for the year      5,669   4,712   5,310 
Adjustments reconciling profit after tax to operating cash flows  36   3,876   4,343   2,770 
            
Cash generated from operations      9,545   9,055   8,080 
Taxation paid      (1,704)  (1,850)  (1,919)
            
Net cash inflow from operating activities      7,841   7,205   6,161 
            
                 
Cash flow from investing activities
                
Purchase of property, plant and equipment      (1,418)  (1,437)  (1,516)
Proceeds from sale of property, plant and equipment      48   20   35 
Purchase of intangible assets      (455)  (632)  (627)
Proceeds from sale of intangible assets      356   171   9 
Purchase of equity investments      (154)  (87)  (186)
Proceeds from sale of equity investments      59   42   45 
Purchase of businesses, net of cash acquired  38   (2,792)  (454)  (1,027)
Investments in associates and joint ventures  38   (29)  (9)  (1)
Decrease/(increase) in liquid investments      87   905   (39)
Interest received      90   320   247 
Dividends from associates and joint ventures      17   12   12 
Proceeds from disposal of associates      178   –   – 
                 
            
Net cash outflow from investing activities      (4,013)  (1,149)  (3,048)
            
                 
                 
Cash flow from financing activities
                
Proceeds from own shares for employee share options      13   9   116 
Shares acquired by ESOP Trusts      (57)  (19)  (26)
Issue of share capital  33   43   62   417 
Purchase of own shares for cancellation      –   (3,706)  (213)
Purchase of Treasury shares      –   –   (3,538)
Increase in long-term loans      1,358   5,523   3,483 
Repayment of long-term loans      –   –   (207)
Increase in short-term loans      646   275   2,057 
Repayment of short-term loans      (748)  (3,334)  (425)
Net repayment of obligations under finance leases      (48)  (48)  (39)
Interest paid      (780)  (730)  (378)
Dividends paid to shareholders      (3,003)  (2,929)  (2,793)
Dividends paid to minority interests      (89)  (79)  (77)
Other financing cash flows      (109)  68   (79)
            
Net cash outflow from financing activities      (2,774)  (4,908)  (1,702)
            
                 
Increase in cash and bank overdrafts  37   1,054   1,148   1,411 
                 
Exchange adjustments      (158)  1,103   48 
Cash and bank overdrafts at beginning of year      5,472   3,221   1,762 
            
Cash and bank overdrafts at end of year      6,368   5,472   3,221 
          
                 
Cash and bank overdrafts at end of year comprise:                
Cash and cash equivalents      6,545   5,623   3,379 
Overdrafts      (177)  (151)  (158)
            
       6,368   5,472   3,221 
            
GSK Annual Report 2009

99

Notes to the financial statements

1Presentation of the financial statements
Description of business
GlaxoSmithKline is a major global healthcare Groupgroup which is engaged in the creation and discovery, development, manufacture and marketing of pharmaceutical products including vaccines, over-the-counter (OTC) medicines and health-related consumer products. GSK’s principal pharmaceutical products include medicines in the following therapeutic areas: respiratory, anti-virals, central nervous system, anti-virals, anti-bacterials, metabolic, vaccines, cardiovascular and urogenital, metabolic, anti-bacterials, oncology and emesis.emesis, dermatalogicals and vaccines.
Compliance with applicable law and IFRS
The financial statements have been prepared in accordance with the Companies Act 1985,2006, Article 4 of the IAS Regulation and International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and related interpretations, as adopted by the European Union.
The financial statements are also in compliance with IFRS as issued by the International Accounting Standards Board.
Composition of financial statements
The consolidated financial statements are drawn up in Sterling, the functional currency of GlaxoSmithKline plc, and in accordance with IFRS accounting presentation. The financial statements comprise:
•Consolidated income statement
•Consolidated balance sheet
•Consolidated cash flow statement
•Consolidated statement of recognised income and expense
•Notes to the financial statements.
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the financial statements.
Accounting convention
The financial statements have been prepared using the historical cost convention, as modified by the revaluation of certain items, as stated in the accounting policies.
Financial period
These financial statements cover the financial year from 1st January to 31st December 2008,2009, with comparative figures for the financial years from 1st January to 31st December 20072008 and, where appropriate, from 1st January to 31st December 2006.2007.
Composition of the Group
A list of the subsidiary and associated undertakings which, in the opinion of the Directors, principally affected the amount of profit or the net assets of the Group is given in Note 43, ‘Principal Group companies’.
Presentation of restructuring costs
In October 2007, the Board approved the implementation of a detailed formal plan for, and GSK announced, a significant new Operational Excellence restructuring programme. A second formal plan, representing a significant expansion of the Operational Excellence programme, was approved by the Board and announced in February 2009. A further expansion was approved by the Board and announced in February 2010. This restructuring programme, comprising these detailed formal plans, covers all areas of GSK’s business, including manufacturing, selling, R&D and infrastructure.
With an estimated total cost of approximately £3.6£4.5 billion, the expanded programme is expected to deliver annual pre-tax savings of approximately £1.7£2.2 billion by the time it is substantially complete in 2011.2012. Given the extent and cost of the Operational Excellence programme, management believes it has a material impact on GSK’s operating results and on the manner in which GSK’s business is conducted. GSK presents the restructuring costs incurred solely as a direct result of the Operational Excellence programme in a separate column in the income statement titled ‘Major restructuring’.
In addition to the restructuring costs of the Operational Excellence programme, the major restructuring column in the income statement includes restructuring costs incurred solely as a direct result of any restructuring programmes that follow, and relate to, material acquisitions where the operations of the acquired business overlap extensively with GSK’s existing operations. The restructuring activities that follow, and relate to, such acquisitions are of the same nature as those undertaken under the Operational Excellence programme and are also carried out following a detailed formal plan. Management therefore considers it appropriate to present the costs of these restructuring activities in the same manner. The $1.65 billion (£814 million) acquisition of Reliant Pharmaceuticals in December 2007 isand the $3.6 billion (£2.2 billion) acquisition of Stiefel Laboratories in July 2009 are the only acquisitionacquisitions since October 2007 that meetsmeet the criteria set out above and thus isare the only acquisitionacquisitions where the costs incurred as a direct result of a related restructuring programme have been included within the major restructuring column.
The Group’s results before the costs of the Operational Excellence programme and acquisition-related restructuring programmes meeting the criteria described above are also presented in a separate column in the income statement and are described as ‘Results before major restructuring’. This presentation, which GSK intends to apply consistently to future major restructuring programmes that have a material impact on GSK’s operating results and on the manner in which GSK’s business is conducted, has been adopted to show clearly the Group’s results both before and after the costs of these restructuring programmes. Management believes that this presentation assists investors in gaining a clearer understanding of the Group’s financial performance and in making projections of future financial performance, as results that include such costs, by virtue of their size and nature, have limited comparative value. This presentation is also consistent with the way management assesses the Group’s financial performance.
Any restructuring costs that do not arise solely as a direct result of the Operational Excellence programme and restructuring programmes following, and relating to, acquisitions meeting the criteria described above continue to be reported in operating expenses within results before major restructuring.


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GSK Annual Report 2008107
Financial statements
Notes to the financial statementscontinued

1 Presentation of the financial statements
continued
Accounting principles and policies
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The financial statements have been prepared in accordance with the Group’s accounting policies approved by the Board and described in Note 2, ‘Accounting principles and policies’. Information on the application of these accounting policies, including areas of estimation and judgement is given in Note 3, ‘Key accounting judgements and estimates’. Where appropriate, comparative figures are reclassified to ensure a consistent presentation with current year information.
Restated comparative informationImplementation of new accounting standards
As a resultWith effect from 1st January 2009, GSK has implemented IFRS 8 ‘Operating segments’, IAS 1 (Revised) ‘Presentation of the review of the strategic direction of the Group, the regional reporting structure within the Pharmaceuticals business has been realigned. Russiafinancial statements’, IAS 23 (Revised) ‘Borrowing costs’ and minor amendments to a number of developing Eastern European markets, previously reported within Europe are now included within the Emerging Markets sectorother accounting standards. The implementation of IFRS 8 has resulted in the Rest of World. No change has been madechanges to the reporting structure in the Consumer Healthcare business where these markets are stillsegmental information reported within Europe.
The Group has also taken the opportunity to review the allocation of entities and expenses between the Pharmaceuticals and Consumer Healthcare businesses. As a result, one entity in China has been reclassified from Pharmaceuticals to Consumer Healthcare.by GSK. Comparative information has been restated ontopresented on a consistent basis. Further information is given in Note 6, ‘Segment information’.
These reallocations have no impact on Group turnover or Group operating profit.
2Accounting principles and policies
Consolidation
The consolidated financial statements include:
•the assets and liabilities, and the results and cash flows, of the company and its subsidiaries, including ESOP Trusts
•the Group’s share of the results and net assets of associates and joint ventures.
the assets and liabilities, and the results and cash flows, of the company and its subsidiaries, including ESOP Trusts
the Group’s share of the results and net assets of associates and joint ventures.
The financial statements of entities consolidated are made up to 31st December each year.
Entities over which the Group has the power to govern the financial and operating policies are accounted for as subsidiaries. Where the Group has the ability to exercise joint control, the entities are accounted for as joint ventures, and where the Group has the ability to exercise significant influence, they are accounted for as associates. The results and assets and liabilities of associates and joint ventures are incorporated into the consolidated financial statements using the equity method of accounting.
Interests acquired in entities are consolidated from the date the Group acquires control and interests sold are de-consolidated from the date control ceases.
Transactions and balances between subsidiaries are eliminated;eliminated and no profit before tax is taken on sales between subsidiaries or on sales to joint ventures and associates until the products are sold to customers outside the Group. The relevant proportion of profits on transactions with joint ventures and associates is also deferred until the products are sold to third parties. Deferred tax relief on unrealised intra-Group profit is accounted for only to the extent that it is considered recoverable.
Goodwill arising on the acquisition of interests in subsidiaries, joint ventures and associates, representing the excess of the acquisition cost over the Group’s share of the fair values of the identifiable assets, liabilities and contingent liabilities acquired, is capitalised as a separate item in the case of subsidiaries and as part of the cost of investment in the case of joint ventures and associates. Goodwill is denominated in the currency of the operation acquired. Where the cost of acquisition is below the fair value of the net assets acquired, the difference is recognised directly in the income statement.


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101

Notes to the financial statements

2 Accounting principles and policiescontinued
Foreign currency translation
Foreign currency transactions are booked in the functional currency of the Group company at the exchange rate ruling on the date of transaction. Foreign currency monetary assets and liabilities are retranslated into the functional currency at rates of exchange ruling at the balance sheet date. Exchange differences are included in the income statement.
On consolidation, assets and liabilities, including related goodwill, of overseas subsidiaries, associates and joint ventures, are translated into Sterling at rates of exchange ruling at the balance sheet date. The results and cash flows of overseas subsidiaries, associates and joint ventures are translated into Sterling using average rates of exchange.
Exchange adjustments arising when the opening net assets and the profits for the year retained by overseas subsidiaries, associates and joint ventures are translated into Sterling, less exchange differences arising on related foreign currency borrowings which hedge the Group’s net investment in these operations, are taken to a separate component of equity.


108GSK Annual Report 2008
Financial statements
Notes to the financial statementscontinued

2 Accounting principles and policies continued
When translating into Sterling the assets, liabilities, results and cash flows of overseas subsidiaries, associates and joint ventures which are reported in currencies of hyper-inflationary economies, adjustments are made where material to reflect current price levels. Any loss on net monetary assets is charged to the consolidated income statement.
Revenue
Revenue is recognised in the income statement when goods or services are supplied or made available to external customers against orders received, title and risk of loss is passed to the customer, and reliable estimates can be made of relevant deductions. Turnover represents net invoice value after the deduction of discounts and allowances given and accruals for estimated future rebates and returns. The methodology and assumptions used to estimate rebates and returns are monitored and adjusted regularly in the light of contractual and legal obligations, historical trends, past experience and projected market conditions. Market conditions are evaluated using wholesaler and other third-party analyses, market research data and internally generated information. Turnover also includes co-promotion income where the Group records its share of the revenue but no related cost of sales. Value added tax and other sales taxes are excluded from revenue.
Where the Group co-promotes a product and the third party records the sale, the Group records its share of revenue as co-promotion income within turnover. The nature of co-promotion activities is such that the Group records no costs of sales. Pharmaceutical turnover includes co-promotion revenue of £439 million (2008 – £378 million; 2007 – £274 million).
Royalty income is recognised in other operating income on an accruals basis in accordance with the terms of the relevant licensing agreements.
Expenditure
Expenditure is recognised in respect of goods and services received when supplied in accordance with contractual terms. Provision is made when an obligation exists for a future liability in respect of a past event and where the amount of the obligation can be reliably estimated. Manufacturing start-up costs between validation and the achievement of normal production are expensed as incurred. Advertising and promotion expenditure is charged to the income statement as incurred. Shipment costs on intercompany transfers are charged to cost of sales; distribution costs on sales to customers are included in selling, general and administrative expenditure.
Restructuring costs are recognised and provided for, where appropriate, in respect of the direct expenditure of a business reorganisation where the plans are sufficiently detailed and well advanced, and where appropriate communication to those affected has been undertaken.
Research and development
Research and development expenditure is charged to the income statement in the period in which it is incurred. Development expenditure is capitalised when the criteria for recognising an asset are met, usually when a regulatory filing has been made in a major market and approval is considered highly probable. Property, plant and equipment used for research and development is depreciated in accordance with the Group’s policy.
Environmental expenditure
Environmental expenditure related to existing conditions resulting from past or current operations and from which no current or future benefit is discernible is charged to the income statement. The Group recognises its liability on a site-by-site basis when it can be reliably estimated. This liability includes the Group’s portion of the total costs and also a portion of other potentially responsible parties’ costs when it is probable that they will not be able to satisfy their respective shares of the clean-up obligation. Recoveries of reimbursements are recorded as assets when virtually certain.
Legal and other disputes
Provision is made for the anticipated settlement costs of legal or other disputes against the Group where an outflow of resources is considered probable and a reasonable estimate can be made of the likely outcome. In addition, provision is made for legal or other expenses arising from claims received or other disputes. In respect of product liability claims related to products where there is sufficient history of claims made and settlements, an incurred but not reported (IBNR) actuarial technique is used to determine a reasonable estimate of the Group’s exposure to unasserted claims for those products and a provision is made on that basis.
No provision is made for other unasserted claims or where an obligation exists underclaims. In respect of a dispute butnumber of legal proceedings in which the Group is involved, it is not possible to make a reasonable estimate.estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. In these cases, the Group may disclose information with respect to the nature and facts of the case but no provision is typically made. Costs associated with claims made by the Group against third parties are charged to the income statement as they are incurred.


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102

Notes to the financial statements

2 Accounting principles and policiescontinued
Pensions and other post-employment benefits
The costs of providing pensions under defined benefit schemes are calculated using the projected unit credit method and spread over the period during which benefit is expected to be derived from the employees’ services, consistent with the advice of qualified actuaries. Pension obligations are measured as the present value of estimated future cash flows discounted at rates reflecting the yields of high quality corporate bonds.


GSK Annual Report 2008109
Financial statements
Notes to the financial statementscontinued

2 Accounting principles and policiescontinued
Pension scheme assets are measured at fair value at the balance sheet date. Actuarial gains and losses, differences between the expected and actual returns of assets and the effect of changes in actuarial assumptions, are recognised in the statement of recognisedcomprehensive income and expense in the year in which they arise. The Group’s contributions to defined contribution plans are charged to the income statement as incurred. The costs of other post-employment liabilities are calculated in a similar way to defined benefit pension schemes and spread over the period during which benefit is expected to be derived from the employees’ services, in accordance with the advice of qualified actuaries.
Employee share plans
Incentives in the form of shares are provided to employees under share option and share award schemes.
The fair values of these options and awards are calculated at their grant dates using a Black-Scholes option pricing model and charged to the income statement over the relevant vesting periods.

The Group provides finance to ESOP Trusts to purchase company shares on the open market to meet the obligation to provide shares when employees exercise their options or awards. Costs of running the ESOP Trusts are charged to the income statement. Shares held by the ESOP Trusts are deducted from other reserves. A transfer is made between other reserves and retained earnings over the vesting periods of the related share options or awards to reflect the ultimate proceeds receivable from employees on exercise.
Property, plant and equipment
Property, plant and equipment (PP&E) is stated at the cost of purchase or construction less provisions for depreciation and impairment. Financing costs are not capitalised.capitalised within the cost of qualifying assets in construction.
Depreciation is calculated to write off the cost less residual value of PP&E, excluding freehold land, using the straight-line basis over the expected useful life. Residual values and lives are reviewed, and where appropriate adjusted, annually. The normal expected useful lives of the major categories of PP&E are:
   
Freehold buildings 20 to 50 years
Leasehold land and buildings Lease term or 20 to 50 years
buildings
Plant and machinery 10 to 20 years
Fixtures and equipment 3 to 10 years
 
On disposal of PP&E, the cost and related accumulated depreciation and impairments are removed from the financial statements and the net amount, less any proceeds, is taken to the income statement.
Leases
Leasing agreements which transfer to the Group substantially all the benefits and risks of ownership of an asset are treated as finance leases, as if the asset had been purchased outright. The assets are included in PP&E or computer software and the capital elements of the leasing commitments are shown as obligations under finance leases. Assets held under finance leases are depreciated on a basis consistent with similar owned assets or the lease term if shorter. The interest element of the lease rental is included in the income statement. All other leases are operating leases and the rental costs are charged to the income statement on a straight-line basis over the lease term.
Goodwill
Goodwill is stated at cost less impairments. Goodwill is deemed to have an indefinite useful life and is tested for impairment annually.

Where the fair value of the interest acquired in an entity’s assets, liabilities and contingent liabilities exceeds the consideration paid, this excess is recognised immediately as a gain in the income statement.
Other intangible assets
Intangible assets are stated at cost less provisions for amortisation and impairments.
Licences, patents, know-how and marketing rights separately acquired or acquired as part of a business combination are amortised over their estimated useful lives, generally not exceeding 2520 years, using the straight-line basis, from the time they are available for use. The estimated useful lives for determining the amortisation charge take into account patent lives, where applicable, as well as the value obtained from periods of non-exclusivity. Asset lives are reviewed, and where appropriate adjusted, annually. Contingent milestone payments are recognised at the point that the contingent event becomes certain. Any development costs incurred by the Group and associated with acquired licences, patents, know-how or marketing rights are written off to the income statement when incurred, unless the criteria for recognition of an internally generated intangible asset are met, usually when a regulatory filing has been made in a major market and approval is considered highly probable.
Acquired brands are valued independently as part of the fair value of businesses acquired from third parties where the brand has a value which is substantial and long-term and where the brands either are contractual or legal in nature or can be sold separately from the rest of the businesses acquired. Brands are amortised over their estimated useful lives of up to 20 years, except where it is considered that the useful economic life is indefinite.
The costs of acquiring and developing computer software for internal use and internet sites for external use are capitalised as intangible fixed assets where the software or site supports a significant business system and the expenditure leads to the creation of a durable asset. ERP systems software is amortised over seven years and other computer software over three to five years.


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110GSK Annual Report 2008
Financial statements
Notes to the financial statementscontinued

2Accounting principles and policiescontinuedcontinued
Impairment of non-current assets
The carrying values of all non-current assets are reviewed for impairment when there is an indication that the assets might be impaired. Additionally, goodwill, intangible assets with indefinite useful lives and intangible assets which are not yet available for use are tested for impairment annually. Any provision for impairment is charged to the income statement in the year concerned.
Impairments of goodwill are not reversed. Impairment losses on other non-current assets are only reversed if there has been a change in estimates used to determine recoverable amounts and only to the extent that the revised recoverable amounts do not exceed the carrying values that would have existed, net of depreciation or amortisation, had no impairments been recognised.
Investments in associates and joint ventures
Investments in associates and joint ventures are carried in the consolidated balance sheet at the Group’s share of their net assets at date of acquisition and of their post-acquisition retained profits or losses together with any goodwill arising on the acquisition.
Available-for-sale investments
Liquid investments and other investments are classified as available-for-sale investments and are initially recorded at fair value plus transaction costs and then remeasured at subsequent reporting dates to fair value. Unrealised gains and losses on available-for-sale investments are recognised directly in equity.other comprehensive income. Impairments arising from the significant or prolonged decline in fair value of an equity investment reduce the carrying amount of the asset directly and are charged to the income statement.
On disposal or impairment of the investments, any gains and losses that have been deferred in equityother comprehensive income are recycled intoreclassified to the income statement. Dividends on equity investments are recognised in the income statement when the Group’s right to receive payment is established. Equity investments are recorded in non-current assets unless they are expected to be sold within one year.
Purchases and sales of equity investments are accounted for on the trade date and purchases and sales of other available-for-sale investments are accounted for on settlement date.
Inventories
Inventories are included in the financial statements at the lower of cost (including raw materials, direct labour, other direct costs and related production overheads) and net realisable value. Cost is generally determined on a first in, first out basis. Pre-launch inventory is held as an asset when there is a high probability of regulatory approval for the product. Before that point a provision is made against the carrying value to its recoverable amount; the provision is then reversed at the point when a high probability of regulatory approval is determined.
Trade receivables
Trade receivables are carried at original invoice amount less any provisions for doubtful debts. Provisions are made where there is evidence of a risk of non-payment, taking into account ageing, previous experience and general economic conditions. When a trade receivable is determined to be uncollectable it is written off, firstly against any provision available and then to the income statement.
Subsequent recoveries of amounts previously provided for are credited to the income statement. Long-term receivables are discounted where the effect is material.
Trade payables
Trade payables are held at amortised cost which equates to nominal value. Long-term payables are discounted where the effect is material.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, current balances with banks and similar institutions and highly liquid investments with original maturities of three months or less. They are readily convertible into known amounts of cash and have an insignificant risk of changes in value.
Borrowings
All borrowings are initially recorded at the amount of proceeds received, net of transaction costs. Borrowings are subsequently carried at amortised cost, with the difference between the proceeds, net of transaction costs, and the amount due on redemption being recognised as a charge to the income statement over the period of the relevant borrowing.
Taxation
Current tax is provided at the amounts expected to be paid applying tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is provided using rates of tax that have been enacted or substantively enacted by the balance sheet date. Deferred tax liabilities and assets are not discounted.


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104

Notes to the financial statements

2 Accounting principles and policiescontinued
Derivative financial instruments and hedging
Derivative financial instruments are used to manage exposure to market risks from treasury operations. The principal derivative instruments used by GlaxoSmithKline are foreign currency swaps, interest rate swaps and forward foreign exchange contracts. The Group does not hold or issue derivative financial instruments for trading or speculative purposes.


GSK Annual Report 2008 111
Financial statements
Notes to the financial statementscontinued
2 Accounting principles and policiescontinued
Derivative financial instruments are classified as held-for-trading and are carried in the balance sheet at fair value. Derivatives designated as hedging instruments are classified on inception as cash flow hedges, net investment hedges or fair value hedges.
Changes in the fair value of derivatives designated as cash flow hedges are recognised in equity,other comprehensive income to the extent that the hedges are effective. Ineffective portions are recognised in profit or loss immediately. Amounts deferred in equityother comprehensive income are recycledreclassified to the income statement when the hedged item affects profit or loss.
Net investment hedges are accounted for in a similar way to cash flow hedges.
Changes in the fair value of derivatives designated as fair value hedges are recorded in the income statement, together with the changes in the fair value of the hedged asset or liability.
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement.
Discounting
Where the time effect of money is material, balances are discounted to current values using appropriate rates of interest. The unwinding of the discounts is recorded in finance income/income and finance costs.
3Key accounting judgements and estimates
In preparing the financial statements, management is required to make estimates and assumptions that affect the amounts of assets, liabilities, revenue and expenses reported in the financial statements. Actual amounts and results could differ from those estimates. The following are considered to be the key accounting judgements and estimates made.
Turnover
Revenue is recognised when title and risk of loss is passed to the customer and reliable estimates can be made of relevant deductions. Gross turnover is reduced by rebates, discounts, allowances and product returns given or expected to be given, which vary by product arrangements and buying groups. These arrangements with purchasing organisations are dependent upon the submission of claims some time after the initial recognition of the sale. Accruals are made at the time of sale for the estimated rebates, discounts or allowances payable or returns to be made, based on available market information and historical experience.
Because the amounts are estimated they may not fully reflect the final outcome, and the amounts are subject to change dependent upon, amongst other things, the types of buying group and product sales mix.
The level of accrual is reviewed and adjusted regularly in the light of contractual and legal obligations, historical trends, past experience and projected market conditions. Market conditions are evaluated using wholesaler and other third-party analyses, market research data and internally generated information. Future events could cause the assumptions on which the accruals are based to change, which could affect the future results of the Group.
Where the Group co-promotes a product and the third party records the sale, the Group records its share of revenue as co-promotion income within turnover. The nature of co-promotion activities is such that the Group records no costs of sales. Pharmaceutical turnover includes co-promotion revenue of £378 million (2007 — £274 million, 2006 - £182 million).
Taxation
Current tax is provided at the amounts expected to be paid, and deferred tax is provided on temporary differences between the tax bases of assets and liabilities and their carrying amounts, at the rates that have been enacted or substantively enacted by the balance sheet date.
The Group has open tax issues with a number of revenue authorities. GSK continues to believe that it has made adequate provision for the liabilities likely to arise from open assessments. Where open issues exist the ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of negotiations with the relevant tax authorities or, if necessary, litigation proceedings.


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105

Notes to the financial statements

3 Key accounting judgements and estimates
continued
Legal and other disputes
GSK provides for anticipated settlement costs where an outflow of resources is considered probable and a reasonable estimate may be made of the likely outcome of the dispute and legal and other expenses arising from claims against the Group.
The company’s Directors, having taken legal advice, have established provisions after taking into account the relevant facts and circumstances of each matter and in accordance with accounting requirements. Provisions for product liability claims on certain products have been made on an ‘incurred but not reported’ basis where sufficient history of claims made and settlements is available. No provisions have been made for other unasserted claims or for claims forclaims. In respect of a number of legal proceedings in which nothe Group is involved, it is not possible to make a reasonable estimate of the likely outcome can yet beexpected financial effect, if any, that will result from ultimate resolution of the proceedings. In these cases, the Group may disclose information with respect to the nature and facts of the cases but no provision is typically made. At 31st December 2009 provisions for legal and other disputes amounted to £2,020 million (2008 – £1,903 million).
The ultimate liability for pending and unassertedlegal claims may vary from the amounts provided if any, and is dependent upon the outcome of litigation proceedings, investigations and possible settlement negotiations.


112GSK Annual Report 2008
Financial statements
Notes to the financial statementscontinued

3 Key accounting judgements The position could change over time and estimatescontinuedthere can, therefore, be no assurance that any losses that result from the outcome of any legal proceedings will not exceed the amount of the provisions reported in the Group’s financial statements.
Property, plant and equipment
The carrying values of property, plant and equipment are reviewedtested for impairment when there is an indication that the values of the assets might be impaired. Impairment is determined by reference to the higher of fair value less costs to sell and value in use, measured by assessing risk-adjusted future cash flows discounted using appropriate interest rates. These future cash flows are based on business forecasts and are therefore inherently judgemental. Future events could cause the assumptions used in these impairment reviewstests, as set out in Note 17, ‘Property, plant and equipment’, to change with a consequent adverse effect on the future results of the Group.
Goodwill
Goodwill arising on business combinations is capitalised and allocated to an appropriate cash generating unit. It is deemed to have an indefinite life and so is not amortised. Annual impairment tests of the relevant cash generating units are performed. Impairment tests are based on established market multiples or risk-adjusted future cash flows discounted using appropriate interest rates. These future cash flows are based on business forecasts and are therefore inherently judgemental. Future events could cause the assumptions used in these impairment reviewstests, as set out in Note 18, ‘Goodwill’, to change with a consequent adverse effect on the future results of the Group.
Other intangible assets
Where intangible assets are acquired by GSK from third parties the costs of acquisition are capitalised. Licences to compounds in development are amortised from the point at which they are available for use, over their estimated useful lives, which may include periods of non-exclusivity. Estimated useful lives are reviewed annually and impairment tests are undertaken if events occur which call into question the carrying values of the assets. Brands acquired with businesses are capitalised independently where they are separable and have an expected life of more than one year. Brands are amortised on a straight-line basis over their estimated useful lives, not exceeding 2520 years, except where the end of the useful economic life cannot be foreseen. Where brands are not amortised, they are subject to annual impairment tests. Impairment
Both initial valuations and valuations for subsequent impairment tests are based on established market multiples or risk-adjusted future cash flows discounted using appropriate interest rates. These future cash flows are based on business forecasts and are therefore inherently judgemental. Future events could cause the assumptions used in these impairment reviews to change with a consequent adverse effect on the future results of the Group.
Pensions and other post-employment benefits
The costs of providing pensions and other post-employment benefits are charged to the income statement in accordance with IAS 19 over the period during which benefit is derived from the employee’s services. The costs are assessed on the basis of assumptions selected by management. These assumptions include future earnings and pension increases, discount rates, expected long term rates of return on assets and mortality rates, and are disclosed in Note 28, ‘Pensions and other post-employment benefits’.
The expected long term rates of return on bonds are determined based on the portfolio mix of index-linked, government and corporate bonds. An equity risk premium is added to this for equities.
Discount rates are based on appropriate long-term indices, including the iBoxx over 15 yearderived from AA index for the UK, and Moody’s Aa index for the USA.rated corporate bond yields except in countries where there is no deep market in corporate bonds where government bond yields are used. Sensitivity analysis is provided in Note 28, ‘Pensions and other post-employment benefits’, but a 0.25% reduction in the discount rate would lead to an increase in the net pension deficit of approximately £349£440 million and an increase in the annual pension cost of approximately £4£7 million. The selection of different assumptions could affect the future results of the Group.


GSK Annual Report 2009

106

Notes to the financial statements

4New accounting requirements
The following IFRSnew and amended accounting standards and IFRIC interpretations have been issued by the IASB and are likely to affect future Annual Reports, although none is expected to have a material impact on the results or financial position of the Group.
IFRS 8 ‘Operating segments’ was issued in November 2006 and is required to be implemented by GSK from 1st January 2009. This standard replaces IAS 14 and aligns the segmental reporting requirements with those of the equivalent US standard, whereby segmental information is to be disclosed on the same basis as that used for internal reporting purposes. GSK is assessing the impact of this standard on the presentation of its segmental information.
IAS 23 (Revised) ‘Borrowing costs’ was issued in March 2007 and will be implemented prospectively from 1st January 2009. It requires borrowing costs attributable to the acquisition or construction of certain assets to be capitalised. The option currently taken by GSK of expensing such costs as incurred will no longer be available.


GSK Annual Report 2008113
Financial statements
Notes to the financial statementscontinued

IAS 1 (Revised) ‘Presentation of financial statements’ was issued in September 2007 and will be effective from 1st January 2009. The amendments to the Standard mandate various presentation formats and disclosures, many of which are already adopted by GSK. Movements in equity will be presented in a Statement of changes in equity rather than as a note to the financial statements.
IFRS 2 (Revised) ‘Share-based payment’ was issued in January 2008. The revised Standard will apply retrospectively from 1st January 2009 and specifies that all cancellations of share-based payment arrangements, including those by an employee or other counterparty, should receive the same accounting treatment of requiring immediate recognition in the income statement of the charge that would otherwise have been recognised over the remainder of the service period.
The IASB’s annual improvements project was published in May 2008 and will be effective from 1st January 2009. The project makes minor amendments to a number of Standards on topics including investments in associates, intangible assets, borrowing costs and impairment of assets.
IFRS 3 (Revised) ‘Business combinations’ was issued in January 2008 and will apply to business combinations arising from 1st January 2010. Amongst other changes, the new Standard will require recognition of subsequent changes in the fair value of contingent consideration in the income statement rather than against goodwill, and transaction costs to be recognised immediately in the income statement. Fair value gains or losses on existing investments in an acquired company will be recognised in the income statement at the date of acquisition.
IAS 27 (Revised) ‘Consolidated and separate financial statements’ was issued in January 2008 and will be implemented at the same time as IFRS 3 (Revised). In respect of transactions with non-controlling interests in Group entities that do not result in a change of control, the revised Standard requires that the difference between the consideration paid or received and the recorded non-controlling interest is recognised in equity. In the case of divestment of a subsidiary, any retained interest will be remeasured to fair value and the difference between fair value and the previous carrying value will be recognised immediately in the income statement.
IFRS 3 (Revised) and IAS 27 (Revised) will both be applied prospectively to transactions occurring on or after 1st January 2010.
An amendment to IAS 39 ‘Financial instruments: Recognition and measurement – Eligible hedged items’ was issued in July 2008 and will be implemented by GSK from 1st January 2010. The amendment clarifies two aspects of hedge accounting relating to hedging with options and the implementation date. It is thereforeidentification of inflation as a hedged risk.
An amendment to IAS 32 ‘Financial instruments: Presentation – Classification of rights issues’ was issued in October 2009 and will be implemented by GSK from 1st January 2011. The amendment requires an issue to all existing shareholders of rights to acquire additional shares to be recognised in equity, regardless of the currency of the shares.
IFRIC 17 ‘Distributions of non-cash assets to owners’ was published in November 2008 and will be implemented by GSK from 1st January 2010. The Interpretation specifies how an entity should account for distributions of non-cash assets to its owners.
The following new standards and interpretations have not possibleyet been endorsed by the EU:
The IASB’s annual improvements project was published in April 2009 and most of the changes are effective from 1st January 2010. The project makes minor amendments to assessa number of Standards in advance their impact onareas including operating segments, share-based payments, leases, intangible assets and financial instruments.
An amendment to IFRS 2 ‘Share-based payment – Group cash-settled share-based payment transactions’ was issued in June 2009 and will be implemented by GSK from 1st January 2010. The amendment clarifies the scope of IFRS 2 and the accounting for group cash-settled share-based payment transactions in the financial statements of individual group entities.
IAS 24 (Revised) ‘Related party disclosures’ was issued in November 2009 and will be implemented by GSK from 1st January 2011. The revised Standard clarifies the Group.
definition of a related party and provides some exemptions for government related entities.
IFRS 9 ‘Financial instruments’ was issued in November 2009 and will be implemented by GSK from 1st January 2013. The Standard is the first step in the project to replace IAS 39 and covers the classification and measurement of financial assets. The IASB intends to expand IFRS 9 to add new requirements for the classification and measurement of financial liabilities, derecognition of financial instruments, impairment and hedge accounting to become a complete replacement of IAS 39 by the end of 2010.
IFRIC 19 ‘Extinguishing financial liabilities with equity instruments’ was issued in November 2009 and will be implemented by GSK from 1st January 2011. The Interpretation addresses the accounting by an entity that issues equity instruments in order to settle a financial liability in part or in full.
An amendment to IFRIC 14 ‘Pre-payments of a minimum funding requirement’ was issued in November 2009 and will be implemented by GSK from 1st January 2011. The amendment permits a voluntary prepayment of a minimum funding requirement to be recognised as an asset.
5Exchange rates
The Group uses the average of exchange rates prevailing during the period to translate the results and cash flows of overseas subsidiaries, joint ventures and associated undertakings into Sterling and period end rates to translate the net assets of those undertakings. The currencies which most influence these translations and the relevant exchange rates were:
                        
 2008 2007 2006  2009 2008 2007 
      
Average rates:  
£/US$ 1.85 2.00 1.85  1.56 1.85 2.00 
£/Euro 1.26 1.46 1.47  1.12 1.26 1.46 
£/Yen 192 235 215  146 192 235 
  
Period end rates:  
£/US$ 1.44 1.99 1.96  1.61 1.44 1.99 
£/Euro 1.04 1.36 1.48  1.13 1.04 1.36 
£/Yen 131 222 233  150 131 222 
      


GSK Annual Report 2009

107

114GSK Annual Report 2008
Financial statements
Notes to the financial statementscontinued

6Segment information
The Group’s primary segment reporting isGSK has implemented IFRS 8 ‘Operating segments’ with effect from 1st January 2009 and this has resulted in a change to the segmental information reported by business sector with geographical reporting being the secondary format. The business sectors consist of Pharmaceuticals and Consumer Healthcare. The geographical sectors of the USA, Europe and Rest of World reflect the Group’s most significant regional markets and are consistent with the Group’s regional market management reporting structure. Business sector data includes an allocation of corporate costs to each sector on an appropriate basis. There are no sales between business sectors. The Group’s activities are organised on a global basis. The geographical sector figures are influenced by the location of the Group’s operating resources, in particular manufacturing and research, and by variations over time in intra-Group trading and funding arrangements. Turnover is shown by business sector, by location of customer and by location of subsidiary. Operating profit is shown by business sector and by location of subsidiary. Other geographic information is given by location of subsidiary. Following a review of the strategic direction of the Group during the year, several entities have been reclassified from Europe to Rest of World. In addition, one entity in China has been reclassified from Pharmaceuticals to Consumer Healthcare.GSK. Comparative information has been restated ontopresented on a consistent basis.
             
      2007  2006 
  2008  (restated)  (restated) 
  £m  £m  £m 
 
             
Turnover by business sector
            
 
Pharmaceuticals  20,381   19,163   20,013 
Consumer Healthcare  3,971   3,553   3,212 
 
Turnover  24,352   22,716   23,225 
 
             
Profit by business sector
            
 
Pharmaceuticals  6,331   6,877   7,108 
Consumer Healthcare  810   716   700 
 
Operating profit  7,141   7,593   7,808 
Finance income  313   262   287 
Finance costs  (843)  (453)  (352)
Share of after tax profits of associates and joint ventures:            
Pharmaceuticals  48   50   56 
Consumer Healthcare  —   —   — 
 
Profit before taxation  6,659   7,452   7,799 
Taxation  (1,947)  (2,142)  (2,301)
 
Profit after taxation for the year  4,712   5,310   5,498 
 
             
Property, plant and equipment and other intangible assets by business sector
            
 
Additions            
Pharmaceuticals  2,173   2,562     
Consumer Healthcare  138   327     
 
Total additions  2,311   2,889     
 
Depreciation/amortisation            
Pharmaceuticals  (1,175)  (931)    
Consumer Healthcare  (56)  (91)    
 
Total depreciation/amortisation  (1,231)  (1,022)    
 
Impairment            
Pharmaceuticals  (391)  (216)    
Consumer Healthcare  —   (2)    
 
Total impairment  (391)  (218)    
 
Impairment reversal            
Pharmaceuticals  18   67     
Consumer Healthcare  2   —     
 
Total impairment reversal  20   67     
 
GSK’s operating segments are being reported based on the financial information provided to the Chief Executive Officer and the responsibilities of the Corporate Executive Team (CET). Individual members of the CET are responsible for geographic regions of the Pharmaceuticals business and for the Consumer Healthcare business as a whole, respectively, before major restructuring.
R&D investment is essential for the sustainability of the pharmaceutical businesses. However, for segment reporting, the USA, Europe, Emerging Markets and Asia Pacific/Japan regional pharmaceutical operating profits exclude allocations of globally funded R&D as well as central costs, principally corporate functions and unallocated manufacturing costs. GSK’s management reporting process allocates all intra-Group profit on a product sale to the market in which that sale is recorded, and the profit analyses below have been presented on that basis.
The Other trading pharmaceuticals segment includes Canada, Puerto Rico, Stiefel, central vaccine tender sales and contract manufacturing sales. The Stiefel business is being integrated into GSK and with effect from 1st January 2010, results will be reported within the relevant geographical pharmaceuticals segments, in line with the way in which the business will be managed.
GSK acquired the HIV business of Pfizer with effect from 30th October 2009 in return for a 15% minority stake in the combined HIV businesses, now called ViiV Healthcare Limited. In line with the way the ViiV Healthcare business is to be managed, it will be reported as a separate segment from 1st January 2010. For 2009, the GSK HIV business is reported within the relevant Pharmaceuticals segments; incremental income and costs since the creation of ViiV Healthcare have been reported within Other trading pharmaceuticals.
The Pharmaceuticals R&D segment is the responsibility of the Chairman, Research & Development and is therefore being reported as a separate segment.
Unallocated pharmaceuticals costs include costs such as vaccines R&D and central manufacturing costs not attributed to other segments.
Corporate and other unallocated costs and disposal profits include corporate functions, costs for legal matters, fair value movements on financial instruments and investments and unallocated profits on asset disposals.
             
      2008  2007 
Turnover by segment 2009  (restated)  (restated) 
 £m  £m  £m 
         
US pharmaceuticals  9,180   8,894   9,273 
Europe pharmaceuticals  7,681   6,483   5,560 
Emerging Markets pharmaceuticals  2,973   2,290   1,895 
Asia Pacific/Japan pharmaceuticals  2,700   1,918   1,701 
Other trading pharmaceuticals  1,180   796   734 
         
Pharmaceuticals turnover  23,714   20,381   19,163 
Consumer Healthcare turnover  4,654   3,971   3,553 
         
   28,368   24,352   22,716 
         
 
Pharmaceutical turnover by therapeutic area 2009  2008  2007 
 £m  £m  £m 
         
Respiratory  6,977   5,817   5,032 
Anti-virals  4,150   3,206   3,027 
Central nervous system  1,870   2,897   3,348 
Cardiovascular and urogenital  2,298   1,847   1,554 
Metabolic  1,181   1,191   1,508 
Anti-bacterials  1,592   1,429   1,323 
Oncology and emesis  629   496   477 
Vaccines  3,706   2,539   1,993 
Other  1,311   959   901 
         
   23,714   20,381   19,163 
         
 
Consumer Healthcare turnover by category 2009  2008  2007 
 £m  £m  £m 
         
OTC medicines  2,319   1,935   1,788 
Oral healthcare  1,484   1,240   1,049 
Nutritional healthcare  851   796   716 
         
   4,654   3,971   3,553 
         
GSK Annual Report 2009

108

GSK Annual Report 2008115
Financial statements
Notes to the financial statementscontinued




6Segment informationcontinued continued
         
      2007 
  2008  (restated) 
  £m  £m 
 
         
Investments in associates and joint ventures by business sector
        
 
Pharmaceuticals  552   329 
Consumer Healthcare  —   — 
 
Investment in associates and joint ventures  552   329 
 
         
Total assets by business sector
        
 
Pharmaceuticals  25,060   20,221 
Consumer Healthcare  3,966   3,187 
 
Total operating assets  29,026   23,408 
Investments in associates and joint ventures  552   329 
Liquid investments  391   1,153 
Derivative financial instruments  963   476 
Cash and cash equivalents  5,623   3,379 
Current and deferred taxation  2,836   2,254 
Assets held for sale  2   4 
 
Total assets  39,393   31,003 
 
         
Total liabilities by business sector
        
 
Pharmaceuticals  (11,520)  (7,633)
Consumer Healthcare  (1,120)  (906)
 
Total operating liabilities  (12,640)  (8,539)
Short-term borrowings  (956)  (3,504)
Long-term borrowings  (15,231)  (7,067)
Derivative financial instruments  (754)  (270)
Current and deferred taxation  (1,494)  (1,713)
 
Total liabilities  (31,075)  (21,093)
 
         
Net assets by business sector
        
 
Pharmaceuticals  13,540   12,588 
Consumer Healthcare  2,846   2,281 
 
Net operating assets  16,386   14,869 
Net debt  (10,173)  (6,039)
Investments in associates and joint ventures  552   329 
Derivative financial instruments  209   206 
Current and deferred taxation  1,342   541 
Assets held for sale  2   4 
 
Net assets  8,318   9,910 
 
During 2009, the US pharmaceuticals business made sales to three wholesalers of approximately £2,760 million (2008 – £2,460 million; 2007 – £2,060 million), £2,710 million (2008 – £2,710 million; 2007 – £2,880 million) and £1,680 million (2008 – £1,980 million; 2007 – £2,360 million) respectively, after allocating final-customer discounts to the wholesalers.
             
      2008  2007 
Segment profit 2009  (restated)  (restated) 
 £m  £m  £m 
         
US pharmaceuticals  6,420   5,947   6,364 
Europe pharmaceuticals  4,509   3,765   3,110 
Emerging Markets pharmaceuticals  1,048   947   686 
Asia Pacific/Japan pharmaceuticals  1,424   1,078   896 
Other trading pharmaceuticals  490   476   358 
Pharmaceuticals R&D  (3,082)  (2,875)  (2,707)
Other unallocated pharmaceuticals costs  (1,334)  (726)  (841)
         
Pharmaceuticals operating profit  9,475   8,612   7,866 
Consumer Healthcare operating profit  952   881   805 
         
Segment profit  10,427   9,493   8,671 
Corporate and other unallocated costs and disposal profits  (1,170)  (1,234)  (740)
         
Operating profit before major restructuring  9,257   8,259   7,931 
Major restructuring  (832)  (1,118)  (338)
         
Total operating profit  8,425   7,141   7,593 
Finance income  70   313   262 
Finance costs  (783)  (843)  (453)
Profit on disposal of interest in associate  115   –   – 
Share of after tax profits of associates and joint ventures  64   48   50 
         
Profit before taxation  7,891   6,659   7,452 
Taxation  (2,222)  (1,947)  (2,142)
         
Profit after taxation for the year  5,669   4,712   5,310 
         
 
      2008  2007 
Depreciation and amortisation by segment 2009  (restated)  (restated) 
 £m  £m  £m 
         
US pharmaceuticals  112   110   46 
Europe pharmaceuticals  37   36   31 
Emerging Markets pharmaceuticals  39   22   18 
Asia Pacific/Japan pharmaceuticals  21   10   11 
Other trading pharmaceuticals  58   4   5 
Pharmaceuticals R&D  363   318   334 
Other unallocated pharmaceuticals  623   541   479 
         
Pharmaceuticals depreciation and amortisation  1,253   1,041   924 
Consumer Healthcare depreciation and amortisation  63   60   44 
         
Segment depreciation and amortisation  1,316   1,101   968 
Corporate and other unallocated depreciation and amortisation  78   77   54 
         
Depreciation and amortisation before major restructuring  1,394   1,178   1,022 
Major restructuring  168   53   – 
         
Total depreciation and amortisation  1,562   1,231   1,022 
         
GSK Annual Report 2009

109

116GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued




6Segment informationcontinuedcontinued
             
      2007  2006 
  2008  (restated)  (restated) 
  £m  £m  £m 
 
             
Turnover by location of customer
            
 
USA  9,746   10,168   11,102 
Europe  8,262   7,107   6,905 
Rest of World  6,344   5,441   5,218 
 
Turnover  24,352   22,716   23,225 
 
             
Turnover by location of subsidiary undertaking
            
 
USA  10,209   10,400   11,362 
Europe  14,744   14,009   14,007 
Rest of World  8,782   10,911   9,349 
 
Turnover including inter-segment turnover  33,735   35,320   34,718 
 
USA  398   341   339 
Europe  5,671   6,042   6,337 
Rest of World  3,314   6,221   4,817 
 
Inter-segment turnover  9,383   12,604   11,493 
 
USA  9,811   10,059   11,023 
Europe  9,073   7,967   7,670 
Rest of World  5,468   4,690   4,532 
 
External turnover  24,352   22,716   23,225 
 
             
Operating profit by location of subsidiary undertaking
            
 
USA  1,951   2,849   2,495 
Europe  2,963   3,671   2,701 
Rest of World  2,227   1,073   2,612 
 
Operating profit  7,141   7,593   7,808 
 
             
Property, plant and equipment and other intangible asset additions by location
            
     
USA  589   1,172     
Europe  1,512   1,456     
Rest of World  210   261     
     
Total additions  2,311   2,889     
     
             
Total assets by location
            
     
USA  8,147   6,125     
Europe  15,584   12,812     
Rest of World  5,610   5,106     
Inter-segment trading balances  (315)  (635)    
     
Total operating assets  29,026   23,408     
     
             
PP&E and intangible asset impairment by segment 2009  2008  2007 
 £m  £m  £m 
         
US pharmaceuticals  1   1   1 
Europe pharmaceuticals  7   2   – 
Emerging Markets pharmaceuticals  –   –   – 
Asia Pacific/Japan pharmaceuticals  1   2   – 
Other trading pharmaceuticals  –   –   – 
Pharmaceuticals R&D  118   107   49 
Other unallocated pharmaceuticals  124   30   60 
         
Pharmaceuticals impairment  251   142   110 
Consumer Healthcare impairment  1   –   2 
         
Segment impairment  252   142   112 
Corporate and other unallocated impairment  23   52   – 
         
Impairment before major restructuring  275   194   112 
Major restructuring  57   197   106 
         
Total impairment  332   391   218 
         

GSK Annual Report 2008117
Financial statements
Notes to the financial statementscontinued




             
PP&E and intangible asset impairment reversals by segment 2009  2008  2007 
 £m  £m  £m 
         
US pharmaceuticals  (1)  –   (1)
Europe pharmaceuticals  –   –   – 
Emerging Markets pharmaceuticals  –   –   – 
Asia Pacific/Japan pharmaceuticals  –   –   – 
Other trading pharmaceuticals  –   –   – 
Pharmaceuticals R&D  (1)  (10)  – 
Other unallocated pharmaceuticals  (9)  –   (66)
         
Pharmaceuticals impairment reversals  (11)  (10)  (67)
Consumer Healthcare impairment reversals  –   –   – 
         
Segment impairment reversals  (11)  (10)  (67)
Corporate and other unallocated impairment reversals  –   (10)  – 
         
Impairment reversals before major restructuring  (11)  (20)  (67)
Major restructuring  –   –   – 
         
Total impairment reversals  (11)  (20)  (67)
         
6SegmentGeographical informationcontinued
             
  2008  2007     
  £m  £m     
     
             
Net operating assets by location
            
     
USA  2,245   2,385     
Europe  10,119   9,212     
Rest of World  4,022   3,272     
     
Net operating assets  16,386   14,869     
     
UK segment
The UK is included inregarded as being the Group’s Europe market region.country of domicile.
             
  2008  2007  2006 
  £m  £m  £m 
 
Turnover by location of customer  1,642   1,553   1,501 
 
 
Turnover including inter-segment turnover  5,181   4,977   4,890 
Inter-segment turnover  3,127   2,956   3,086 
 
Turnover by location of subsidiary  2,054   2,021   1,804 
     
Non-current assets  4,404   4,380     
     
             
      2008  2007 
Turnover by location of customer 2009  (restated)  (restated) 
 £m  £m  £m 
         
UK  1,852   1,636   1,570 
USA  10,201   9,746   10,168 
Rest of World  16,315   12,970   10,978 
         
External turnover  28,368   24,352   22,716 
         
             
Non-current assets by location 2009  2008    
 £m  £m     
         
UK  5,266   4,368     
USA  7,956   6,264     
Rest of World  8,758   8,137     
         
   21,980   18,769     
       
Non-current assets by location excludes amounts relating to other investments, deferred tax assets, derivative financial instruments, pension assets, amounts recoverable under insurance contracts and certain other non-current receivables.
GSK Annual Report 2009

110

Notes to the financial statements
6 Segment informationcontinued
         
      2008 
Total assets by segment 2009  (restated) 
 £m  £m 
      
US pharmaceuticals  2,536   2,957 
Europe pharmaceuticals  2,450   2,538 
Emerging Markets pharmaceuticals  1,925   1,303 
Asia Pacific/Japan pharmaceuticals  1,278   1,095 
Other trading pharmaceuticals  3,804   108 
Pharmaceuticals R&D  2,842   3,087 
Other unallocated pharmaceuticals  12,956   13,399 
      
Pharmaceuticals operating assets  27,791   24,487 
Consumer Healthcare operating assets  3,799   3,859 
      
Segment operating assets  31,590   28,346 
Corporate and other unallocated assets  921   680 
      
Total operating assets  32,511   29,026 
Investments in associates and joint ventures  895   552 
Liquid investments  268   391 
Derivative financial instruments  197   963 
Cash and cash equivalents  6,545   5,623 
Current and deferred taxation  2,432   2,836 
Assets held for sale  14   2 
      
Total assets  42,862   39,393 
      
The other unallocated pharmaceuticals segment includes assets for the centrally managed pharmaceutical and vaccine manufacturing operations, the depreciation on which, totalling £618 million (2008 – £536 million; 2007 – £475 million) is recovered through the standard cost of product charged to businesses.
7Major restructuring programmesprogramme
In October 2007, GSK announced a significant new Operational Excellence programme to improve the effectiveness and productivity of its operations. A significant expansion of the Operational Excellence programme was approved by the Board and announced in February 2009. A further expansion was approved by the Board and announced in February 2010. Total costs for the implementation of the expanded programme are expected to beincrease from £3.6 billion to approximately £3.6£4.5 billion, to be incurred over the period from 2007 to 2011.2012. Approximately 40%50% of these costs were incurred by 31st December 2008,2009, and approximately 35%30% are expected to be incurred in 2009, 20% in 2010 andwith the balance mostly in 2011. In total, approximately 75% of these costs are expected to be cash expenditures and 25% are expected to be accountingasset write-downs. Uncertainties exist over the exact amount and timing of cash outflows as a result of potential future exchange rate fluctuations and as many elements of the restructuring programme are subject to employee consultation procedures, making it difficult to predict with precision when these procedures will be completed. However, the majority of the remaining cash payments are expected to be made in 20092010 and 2010.2011. The programme is expectednow estimated to deliver total annual pre-tax savings of up to £1.7£2.2 billion by 2011,2012, with savings realised across the business. CostsOf the total restructuring costs of £1,084£832 million incurred in 20082009, £761 million was incurred under the Operational Excellence programme have arisen in the following areas:
•the commencement of the closure of a number of manufacturing sites, including Dartford and Crawley in the UK and Cidra in Puerto Rico, giving rise to asset write-downs, staff reductions and a foreign exchange loss on the liquidation of a subsidiary;
•the adoption of more customised sales approaches, leading to staff reductions in a number of sales forces, principally in the USA;
•cost saving projects in R&D, focused primarily on the simplification and streamlining of support infrastructure, and
•projects to eliminate unnecessary processes and simplify continuing processes, leading to staff reductions in administrative and support functions.
the closure of a number of manufacturing sites, including Dartford and Crawley in the UK and Cidra in Puerto Rico, giving rise to asset write-downs and staff reductions;
the adoption of more customised sales approaches, leading to staff reductions in a number of sales forces, principally in France;
cost saving projects in R&D, focused primarily on the simplification and streamlining of support infrastructure, including some site rationalisations, and
projects to simplify or eliminate processes, leading to staff reductions in administrative and support functions.
In addition, costs of £34£71 million were incurred during the year under the restructuring programme related to the integration of the Reliant Pharmaceuticals,Stiefel Laboratories, Inc. business in the USA, following its acquisition in December 2007.July 2009.
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Financial statements

Notes to the financial statementscontinued




7Major restructuring programmesprogrammecontinuedcontinued
The analysis of the costs incurred under these programmes in 2009, 2008 and 2007 is as follows:
                                
 Asset Staff Other   
2008 impairment reductions costs Total 
2009 Asset Staff Other   
impairment reductions costs Total 
 £m £m £m £m  £m £m £m £m 
        
Cost of sales  (181)  (370)  (88)  (639)  (41)  (112)  (132)  (285)
Selling, general and administration  (2)  (177)  (125)  (304)  (1)  (337)  (54)  (392)
Research and development  (14)  (143)  (18)  (175)  (15)  (68)  (72)  (155)
        
Effect on operating profit  (197)  (690)  (231)  (1,118)  (57)  (517)  (258)  (832)
Net finance expense  (5)  (3)
        
Effect on profit before taxation  (1,123)  (835)
Effect on taxation 284  221 
        
Effect on earnings  (839)  (614)
        
                            
 Asset Staff   
2007 impairment reductions Total 
2008 Asset Staff Other   
impairment reductions costs Total 
 £m £m £m  £m £m £m £m 
        
Cost of sales  (77)  (34)  (111)  (181)  (370)  (88)  (639)
Selling, general and administration  (1)  (136)  (137)  (2)  (177)  (125)  (304)
Research and development  (28)  (62)  (90)  (14)  (143)  (18)  (175)
        
Effect on operating profit  (197)  (690)  (231)  (1,118)
Net finance expense  (5)
        
Effect on profit before taxation  (106)  (232)  (338)  (1,123)
Effect on taxation 77  284 
        
Effect on earnings  (261)  (839)
        
                 
2007 Asset  Staff  Other    
 impairment  reductions  costs  Total 
  £m  £m  £m  £m 
            
Cost of sales  (77)  (34)  –   (111)
Selling, general and administration  (1)  (136)  –   (137)
Research and development  (28)  (62)  –   (90)
            
Effect on profit before taxation  (106)  (232)  –   (338)
Effect on taxation              77 
            
Effect on earnings              (261)
            
Asset impairments of £57 million (2008 – £197 million, (2007 —2007 – £106 million) and other net costs totalling £124 million (2008 – £137 million, (2007 —2007 – £nil) are non-cash items. All other charges have been or will be settled in cash.
These restructuring costs are reported in the major restructuring column of the Income statement on page 102. There were no costs related to major restructuring programmes in 2006.94. Other costs related to minor restructuring activity initiated prior to October 2007 amounting to £20£4 million (2007 — £92(2008 – £20 million) are reported within ‘Results before major restructuring’.
The costs of the major restructuring programmes have arisen as follows:
                    
 2008 2007 
 £m £m 
The costs of the major restructuring programmes have arisen as follows: 2009 2008 2007 
£m £m £m 
      
Increase in provision for major restructuring programmes (see Note 29)  (740)  (220)  (487)  (740)  (220)
Amount of provision reversed unused (see Note 29) 7 —  15 7 – 
Impairments to property, plant and equipment (see Note 17)  (197)  (106)  (57)  (197)  (106)
Foreign exchange loss recognised on liquidation of subsidiary  (84) — 
Foreign exchange gain/(loss) recognised on liquidation of subsidiary 44  (84) – 
Other non-cash charges  (53) —   (168)  (53) – 
Other cash costs  (51)  (12)  (179)  (51)  (12)
Net finance expense  (5) —   (3)  (5) – 
      
Effect on profit before taxation  (1,123)  (338)  (835)  (1,123)  (338)
      
Other non-cash charges are principally accelerated depreciation arising where asset lives have been shortened as a result of the major restructuring programmes. Other cash costs include consultancy and project management fees, the termination of leases and site closure costs.costs and consultancy and project management fees.
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Notes to the financial statementscontinued


8 Other operating income
                        
 2008 2007 2006  2009 2008 2007 
 £m £m £m  £m £m £m 
      
Royalty and milestone income 318 223 112 
Royalty income 296 307 216 
Milestone income 90 11 7 
Impairment of equity investments  (63)  (19)  (14)  (135)  (63)  (19)
Disposal of equity investments 33 32 18  40 33 32 
Disposal of other assets and legal settlements 260 181 151  539 260 181 
Gain recognised on creation of ViiV Healthcare 296 – – 
Fair value adjustments on derivative financial instruments  (10) 41 29   (5)  (10) 41 
Other income 3 17 11  14 3 17 
      
 541 475 307  1,135 541 475 
      
Royalty and milestone income is principally a core of recurring income from the out-licensing of intellectual property. Fair value adjustments on derivative financial instruments include movements on the now expired Quest collar and Theravance put and call options.
9Operating profit
                        
 2008 2007 2006 
The following items have been included in operating profit: 2009 2008 2007 
 £m £m £m  £m £m £m 
      
Employee costs (Note 10) 6,524 5,733 5,495  7,167 6,524 5,733 
Advertising 805 744 759  923 805 744 
Distribution costs 310 270 276  363 310 270 
Depreciation of property, plant and equipment 920 796 732  1,130 920 796 
Impairment of property, plant and equipment, net of reversals 149 256 97 
Amortisation of intangible assets 311 226 226  432 311 226 
Net foreign exchange (gains)/losses  (145)  (1) 36 
Impairment of intangible assets, net of reversals 172 115 54 
Net foreign exchange losses/(gains) 163  (145)  (1)
Inventories:  
Cost of inventories included in cost of sales 5,734 4,784 4,480  6,743 5,734 4,784 
Write-down of inventories 258 265 146  276 298 265 
Reversal of prior year write-down of inventories  (118)  (103)  (93)  (116)  (118)  (103)
Operating lease rentals:  
Minimum lease payments 143 121 114  160 143 121 
Contingent rents 15 13 11  13 15 13 
Sub-lease payments 1 2 2  6 1 2 
Fees payable to company’s auditor for the audit of parent company and consolidated financial statements 1.6 1.8 1.7 
Fees payable to the company’s auditor and its associates for other services 17.6 14.5 15.9 
Fees payable to the company’s auditor and its associates in relation to the Group
(see below)		 24.1 19.2 16.3 
      
The reversals of prior year write-downs of inventories principally arise from the reassessment of usage or demand expectations prior to inventory expiration.
             
  2008  2007  2006 
Fees payable to the company’s auditor and its associates for other services £m  £m  £m 
 
Audit of accounts of the Group’s UK and overseas subsidiaries and related pension schemes of the company, pursuant to legislation  9.3   7.9   7.7 
Other assurance services, pursuant to such legislation  2.9   2.9   4.4 
Other tax services  2.5   2.5   1.9 
All other services, including regulatory, compliance and treasury related services  2.9   1.2   1.9 
 
   17.6   14.5   15.9 
 
             
Fees payable to the company’s auditor and its associates 2009  2008  2007 
 £m  £m  £m 
         
Audit of parent company and consolidated financial statements  2.0   1.6   1.8 
Audit of accounts of the Group’s UK and overseas subsidiaries, pursuant to legislation  10.2   9.3   7.9 
Other assurance services, pursuant to legislation, including attestation under s.404 of Sarbanes-Oxley Act 2002  3.0   2.9   2.9 
         
Audit and assurance services  15.2   13.8   12.6 
Other tax services  7.3   2.5   2.5 
All other services, including regulatory, compliance and treasury related services  1.6   2.9   1.2 
         
   24.1   19.2   16.3 
         
At 31st December 2008,2009, the amount due to PricewaterhouseCoopers LLP and its associates for fees yet to be invoiced was £4.5£4.9 million, comprising statutory audit £4.0£4.4 million, taxation services £0.4£0.2 million and other services £0.1£0.3 million.
In 2008,2009, fees payable to PricewaterhouseCoopers LLP and its associates increased by 10%for audit and assurance services remained flat in CER terms.

Fees in respect of the GlaxoSmithKline pension schemes included above:
                        
 2008 2007 2006 
 £m £m £m 
In addition to the above, fees paid in respect of the GSK pension schemes were: 2009 2008 2007 
£m £m £m 
      
Audit 0.4 0.2 0.3  0.4 0.4 0.2 
Other services — 0.1 0.1  – – 0.1 
      
 0.4 0.3 0.4 
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Financial statements

Notes to the financial statementscontinued

10Employee costs
                        
 2008 2007 2006  2009 2008 2007 
 £m £m £m  £m £m £m 
      
Wages and salaries 4,640 4,444 4,363  5,387 4,640 4,444 
Social security costs 653 527 461  661 653 527 
Pension and other post-employment costs, including augmentations (Note 28) 505 313 377  491 505 313 
Cost of share-based incentive plans 241 237 226  179 241 237 
Severance and other costs from integration and restructuring activities 485 212 68  449 485 212 
      
 6,524 5,733 5,495  7,167 6,524 5,733 
      
In 2008,2009, wages and salaries declinedincreased by 4% in CER terms.
The Group provides benefits to employees, commensurate with local practice in individual countries, including, in some markets, healthcare insurance, subsidised car schemes and personal life assurance.
                        
The average number of persons employed by the Group (including 2008 2007 2006 
Directors) during the year: Number Number Number 
The average number of persons employed by the Group (including Directors) during the year: 2009 2008 2007 
Number Number Number 
      
Manufacturing 33,372 33,975 32,403  31,467 33,372 33,975 
Selling, general and administration 52,115 53,707 53,665  53,183 52,115 53,707 
Research and development 15,646 15,719 15,734  14,204 15,646 15,719 
      
 101,133 103,401 101,802  98,854 101,133 103,401 
      
The average number of Group employees excludes temporary and contract staff. The numbers of Group employees at the end of each financial year are given in the Financialfinancial record on page 192.188. The average number of persons employed by GlaxoSmithKline plc in 20082009 was nil (2007 —(2008 – nil).
The compensation of the Directors and Senior Management (members of the CET) in aggregate, was as follows:
                        
 2008 2007 2006  2009 2008 2007 
 £m £m £m  £m £m £m 
      
Wages and salaries 17 16 15  23 17 16 
Social security costs 1 1 1  1 1 1 
Pension and other post-employment costs 3 3 3  3 3 3 
Cost of share-based incentive plans 12 15 14  4 12 15 
      
 33 35 33  31 33 35 
      
11
11Finance income
                        
 2008 2007 2006  2009 2008 2007 
 £m £m £m  £m £m £m 
      
Interest income arising from:  
— cash and cash equivalents 107 98 168 
— available-for-sale investments 31 49 35 
— derivatives at fair value through profit or loss 159 79 59 
— loans and receivables 22 27 21 
cash and cash equivalents 46 107 98 
available-for-sale investments 15 31 49 
derivatives at fair value through profit or loss  (5) 159 79 
loans and receivables 11 22 27 
Realised gains on liquid investments 2 1 1  – 2 1 
Fair value adjustments on derivatives at fair value through profit or loss 4 — 4   (3) 4 – 
Net investment hedge ineffectiveness  (13) 7  (2) 4  (13) 7 
Unwinding of discounts on assets 1 1 1  2 1 1 
      
 313 262 287  70 313 262 
      
All derivatives at fair value through profit or loss other than designated and effective hedging instruments (see Note 41, ‘Financial instruments and related disclosures’) are classified as held-for-trading financial instruments under IAS 39. Interest income arising from derivatives at fair value through profit or loss relates to swap interest income.
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Financial statements
Notes to the financial statementscontinued

12Finance costs
                        
 2008 2007 2006  2009 2008 2007 
 £m £m £m  £m £m £m 
      
Interest expense arising on:  
financial liabilities at amortised cost  (664)  (313)  (241)  (790)  (664)  (313)
derivatives at fair value through profit or loss  (165)  (121)  (73) 20  (165)  (121)
Fair value hedges:  
fair value adjustments on derivatives designated as hedging instruments 92 10  (31)  (37) 92 10 
fair value adjustments on hedged items (90)  (8) 28  38  (90)  (8)
Fair value adjustments on other derivatives at fair value through profit or loss  — 6 1   (2) – 6 
Reclassification of cash flow hedge from other comprehensive income  (1) – – 
Unwinding of discounts on provisions  (16)  (27)  (36)  (11)  (16)  (27)
      
  (843)  (453)  (352)  (783)  (843)  (453)
      
All derivatives at fair value through profit or loss except designated and effective hedging instruments are classified as held-for-trading financial instruments under IAS 39.
13Associates and joint ventures
                        
 2008 2007 2006  2009 2008 2007 
 £m £m £m  £m £m £m 
      
Associates:  
Share of after tax profits of Quest Diagnostics Inc. 47 48 59  73 47 48 
Share of after tax profits of Aspen Pharmacare Holdings Limited 2 – – 
Share of after tax losses of other associates  (3)  (3)  (2)  (3)  (3)  (3)
      
 44 45 57  72 44 45 
Share of after tax profits/(losses) of joint ventures 4 5  (1)
Share of after tax (losses)/profits of joint ventures  (8) 4 5 
      
 64 48 50 
 48 50 56      
 
Share of turnover of joint ventures 13 13 21  13 13 13 
Sales to joint ventures and associates 9 9 18  26 9 9 
      
Summarised income statement information in respect of the Group’s associates is set out below:
                        
 2008 2007 2006  2009 2008 2007 
 £m £m £m  £m £m £m 
      
Total turnover:  
Quest Diagnostics Inc. 3,919 3,352 3,389  4,779 3,919 3,352 
Aspen Pharmacare Holdings Limited 67 – – 
Others 3 — 3  7 3 – 
      
 3,922 3,352 3,392  4,853 3,922 3,352 
    
  
Total profit:  
Quest Diagnostics Inc. 314 170 317  467 314 170 
Aspen Pharmacare Holdings Limited 12 – – 
Others  (7)  (3)  (2)  (14)  (7)  (3)
      
 307 167 315  465 307 167 
      
The results of Aspen Pharmacare Holdings Limited included in the summarised income statement information above represent the estimated earnings of the Aspen group in the period since becoming an associated undertaking and are based on analysts forecasts.
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Notes to the financial statementscontinued

14Taxation
             
Taxation charge based on profits for the year 2008  2007  2006 
 £m  £m  £m 
 
UK corporation tax at the UK statutory rate  2,213   791   2,512 
Less double taxation relief  (1,924)  (339)  (2,112)
 
   289   452   400 
Overseas taxation  1,589   1,962   2,310 
 
Current taxation  1,878   2,414   2,710 
Deferred taxation  69   (272)  (409)
 
   1,947   2,142   2,301 
 
             
Reconciliation of the taxation rate on Group profits 2008  2007  2006 
 %  %  % 
 
UK statutory rate of taxation  28.5   30.0   30.0 
Overseas taxes  1.9   4.3   4.2 
Benefit of special tax status  (2.4)  (3.6)  (5.2)
R&D credits  (1.3)  (1.5)  (1.3)
Intercompany stock profit  2.1   (0.8)  (1.9)
Impact of share based payments  0.7   0.6   0.5 
Tax on profit of associates  (0.4)  (0.3)  (0.4)
Other differences  1.2   (0.3)  0.3 
Prior year items  (1.6)  0.1   3.3 
Restructuring  0.5   0.2   — 
 
Tax rate  29.2   28.7   29.5 
 
             
Taxation charge based on profits for the year 2009  2008  2007 
 £m  £m  £m 
         
UK corporation tax at the UK statutory rate  600   2,213   791 
Less double taxation relief  (183)  (1,924)  (339)
         
   417   289   452 
Overseas taxation  1,997   1,589   1,962 
         
Current taxation  2,414   1,878   2,414 
Deferred taxation  (192)  69   (272)
         
   2,222   1,947   2,142 
         
Additional UK corporation tax and double taxation relief in 2008 arisearose from dividends received from overseas subsidiaries.
             
Reconciliation of the taxation rate on Group profits 2009  2008  2007 
 %  %  % 
         
UK statutory rate of taxation  28.0   28.5   30.0 
Differences in overseas taxation rates  3.5   1.9   4.3 
Benefit of special tax status  (1.8)  (2.4)  (3.6)
R&D credits  (1.9)  (1.3)  (1.5)
Intercompany stock profit  0.5   2.1   (0.8)
Impact of share based payments  0.1   0.7   0.6 
Tax on profit of associates  (0.2)  (0.4)  (0.3)
Other differences  (0.3)  1.2   (0.3)
Prior year items  0.1   (1.6)  0.1 
Restructuring  0.2   0.5   0.2 
         
Tax rate  28.2   29.2   28.7 
         
             
Tax on items charged to equity and statement of comprehensive income 2009  2008  2007 
 £m  £m  £m 
         
Current taxation            
     Share based payments  1   4   21 
     Foreign exchange movements  19   15   21 
         
   20   19   42 
         
             
Deferred taxation            
     Share based payments  13   (5)  (17)
     Defined benefit plans  183   441   (195)
Fair value movement on cash flow hedges  2   (3)  2 
Fair value movements on available-for-sale investments  (11)  8   19 
         
   187   441   (191)
         
   207   460   (149)
         
All of the above items have been charged to the statement of comprehensive income except for tax on share based payments.
The Group operates in countries where the tax rate differs from the UK tax rate. The impact of these overseas taxes on the overall rate of tax is shown above. Profits arising from certain operations in Singapore Puerto Rico and Ireland are accorded special status and are taxed at reduced rates compared with the normal rates of tax in these territories.this territory. The effect of this reduction in the taxation charge increased earnings per share by 2.8p in 2009, 2.8p in 2008 and 4.9p in 2007 and 7.2p in 2006.2007. The Group is required under IFRS to create a deferred tax asset in respect of unrealised intercompany profit arising on inventory held by the Group at the year-end by applying the tax rate of the country in which the inventory is held (rather than the tax rate of the country where the profit was originally made and the tax paid, which is the practice under UK and US GAAP). As a result of this difference in accounting treatment the Group tax rate on current period intercompany profit under IFRS increased by 0.5% in 2009 (2008 – 2.1% in 2008 (2007 —increase; 2007 – 0.8% decrease, 2006 — 1.9% decrease) arising from changes in the location of work-in-progress and finished goods.
The integrated nature of the Group’s worldwide operations, involving significant investment in research and strategic manufacture at a limited number of locations, with consequential cross-border supply routes into numerous end-markets, gives rise to complexity and delay in negotiations with revenue authorities as to the profits on which individual Group companies are liable to tax. Resolution of such issues is a continuing fact of life for GSK. The Group’s main open tax issues are in
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116

Notes to the USA, Canada and Japan.financial statements
In July, following discussions with HMRC, the Group settled substantially all outstanding UK tax issues for all periods up to and including 31st December 2006.14 Taxationcontinued
Following its audit of the period 2001 to 2003, the IRS issued Statutory Notices of Deficiency to GSK asserting income and withholding tax deficiencies, and associated penalties, arising from itsthe IRS’s reclassification of an intercompany financing arrangement in those years from debt to equity, and its consequent recharacterisation of the amounts paid as dividends subject to withholding tax under the US —– UK treaty. All amounts due under the financing arrangement were paid on a timely basis, with the final payment made in April 2008. The IRS commenced its audit of the period 2004 to 2006 in June 2008 and is examining the issue for these years. GSK disagreesdisagreed with the IRSIRS’s position and, in August 2008, initiated actions in the United States Tax Court to contest the Statutory Notices of Deficiency. On 19th November 2009, GSK estimates thatand the IRS filed a Stipulation with the Tax Court in which the IRS conceded all asserted tax deficiencies and penalties arising from its reclassification of the above intercompany financing arrangement from debt to equity, resulting in no additional tax cost to GSK. The IRS claim had previously been estimated at $864m for 2001-2003. GSK and the IRS are now in the process of finalising the tax penalties, and interest at 31st December 2008, net of federal tax relief,computations for the 2001 to 2003 tax years. It is $864 million. GSK believesanticipated that this claim has no merit and that no adjustment is warranted. If, contrary to GSK’s view, the IRS prevailed in its argument before a court in respectresolution of the years 2001 to 2003, GSK would expect to have an additional liability for the five year period 2004-2008issue in the amountyears 2004 to 2008 will be reflected in a closing agreement. Resolution of $1,059 million in tax, penalties, and interest at 31st December 2008, net of federal tax relief for those years. In the event thatissue had no impact on the company is not able to resolve this issue with the IRS, a court decision would not be expected before 2011.Group’s results.

GSK Annual Report 2008123
Financial statements
Notes to the financial statementscontinued

14Taxationcontinued
Lower courts in Japan have upheld claims by the tax authorities for Yen 39 billion (£177 million) relating to Japanese CFC legislation. The company has paid and fully provided for the full tax but is pursuing a claim for refund to the Japanese Supreme Court. In Canada, GSK is continuing to contest a court decision in respect of transfer pricing in the early 1990s was completed in May 2008. GSK filed an1990s. The date of the appeal in June and a court date is awaited.
hearing has been set for March 2010. GSK continues to believe that it has made adequate provision for the liabilities likely to arise from periods which are open assessments.and not yet agreed by tax authorities. The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of litigation proceedings and negotiationswhere appropriate or by agreement with the relevant tax authorities.
No provision has been made for taxation which would arise on the distribution of profits retained by overseas subsidiary and associated undertakings,subsidiaries, on the grounds that no remittancethe Group is able to control the timing of profit retained at 31st December 2008the reversal of these temporary differences and it is requiredprobable that they will not reverse in such a way that incremental tax will arise.the foreseeable future. The aggregate amount of these unremitted profits at the balance sheet date was approximately £29 billion (2008 – £28 billion (2007 — £31 billion). The introduction of the UK dividend exemption on 1st July 2009, now enables the reasonable quantification of the incremental liability from repatriation of profits to the UK. The deferred tax on unremitted earnings at 31st December 2009 is estimated to be approximately £500 million, which relates to taxes payable on repatriation and dividend withholding taxes levied by overseas tax jurisdictions.
                        
Movement on current tax account Payable Recoverable Net  Payable Recoverable Net 
£m £m £m  £m £m £m 
      
At 1st January 2008  (826) 58  (768)
At 1st January 2009  (780) 76  (704)
Exchange adjustments  (109) 15  (94) 12 1 13 
Charge for the year  (1,687)  (191)  (1,878)  (2,056)  (358)  (2,414)
Cash paid 1,663 187 1,850  1,393 311 1,704 
Transfer to/from deferred tax 138 — 138 
Other movements 41 7 48   (20) 28 8 
      
At 31st December 2008  (780) 76  (704)
At 31st December 2009  (1,451) 58  (1,393)
      
Movement in deferred tax assets and liabilities
                                                 
              Pensions &          Manu-      Share  Other       
Deferred taxation
asset/(liability)		 Accelerated      Intra-  other post      Legal  facturing  Stock  option  net  Offset    
 capital      group  retirement  Tax  & other  restruct-  valuation  and award  temporary  within    
 allowances  Intangibles  profit  benefits  losses  disputes  uring  adjustments  schemes  differences  countries  Total 
 £m  £m  £m  £m  £m  £m  £m  £m  £m  £m  £m  £m 
 
Deferred tax asset at 1st January 2008  4   94   1,140   458   137   170   108   18   101   640   (674)  2,196 
Deferred tax liability at 1st January 2008  (596)  (782)  —   (2)  —   —   —   (127)  —   (54)  674   (887)
 
At 1st January 2008  (592)  (688)  1,140   456   137   170   108   (109)  101   586   —   1,309 
Exchange adjustments  (44)  (145)  250   182   52   72   17   (55)  —   196   —   525 
(Charge)/credit to income statement  (69)  61   (156)  52   (41)  3   83   (68)  6   60   —   (69)
Credit/(charge) to equity  —   —   —   441   —   —   —   —   (5)  6   —   442 
Transfer to/from current tax  2   —   —   (69)  —   4   (46)  —   —   (29)  —   (138)
Acquisitions  —   (46)  —   —   25   —   —   —   —   (2)  —   (23)
 
At 31st December 2008  (703)  (818)  1,234   1,062   173   249   162   (232)  102   817   —   2,046 
 
                                                 
Deferred tax assets at
31st December 2008		  23   152   1,234   1,062   196   249   162   15   102   830   (1,265)  2,760 
Deferred tax liability at
31st December 2008		  (726)  (970)  —   —   (23)  —   —   (247)  —   (13)  1,265   (714)
 
   (703)  (818)  1,234   1,062   173   249   162   (232)  102   817   —   2,046 
 
                                                 
              Pensions &          Manu-      Share  Other       
Deferred taxation
assets/(liabilities)		 Accelerated      Intra-  other post      Legal  facturing  Stock  option  net  Offset    
 capital      group  retirement  Tax  & other  restruct-  valuation  and award  temporary  within    
 allowances  Intangibles  profit  benefits  losses  disputes  uring  adjustments  schemes  differences  countries  Total 
 £m  £m  £m  £m  £m  £m  £m  £m  £m  £m  £m  £m 
                                    
Deferred tax assets at 1st January 2009
  23   152   1,234   1,062   196   249   162   15   102   830   (1,265)  2,760 
Deferred tax liabilities at 1st January 2009
  (726)  (970)  –   –   (23)  –   –   (247)  –   (13)  1,265   (714)
                                    
At 1st January 2009  (703)  (818)  1,234   1,062   173   249   162   (232)  102   817   –   2,046 
Exchange adjustments  15   36   (45)  (87)  (13)  (28)  (7)  22   –   (59)  –   (166)
Credit/(charge) to income                                          –     
statement  89   74   (6)  (113)  (52)  82   (11)  52   11   66   –   192 
Credit/(charge) to equity  –   –   –   –   –   –   –   –   13   –   –   13 
Credit/(charge) to statement of comprehensive income  –   –   –   183   –   –   –   –   –   (9)  –   174 
Acquisitions  (5)  (591)  –   (2)  75   –   13   (10)  –   (10)  –   (530)
                                    
At 31st December 2009  (604)  (1,299)  1,183   1,043   183   303   157   (168)  126   805   –   1,729 
                                  
                                                 
Deferred tax assets at 31st December 2009
  24   177   1,183   1,043   211   303   157   30   126   822   (1,702)  2,374 
Deferred tax liabilities at 31st December 2009
  (628)  (1,476)  –   –   (28)  –   –   (198)  –   (17)  1,702   (645)
                                    
   (604)  (1,299)  1,183   1,043   183   303   157   (168)  126   805   –   1,729 
                                    
GSK Annual Report 2009

117

Notes to the financial statements
14 Taxationcontinued
The deferred tax charge to income relating to changes in tax rates is £18£9 million. All other deferred tax movements arise from the origination and reversal of temporary differences. Other net temporary differences include accrued expenses and other provisions.

124GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

14Taxation continued
At 31st December 2008,2009, the Group had recognised a deferred tax asset of £173£183 million (2007 — £137(2008 – £173 million) in respect of income tax losses of approximately £566£617 million (2007 — £494(2008 – £566 million). Of these losses, £142£76 million (2007 — £139(2008 – £142 million) are due to expire between 2009—2019,2010-2019, £445 million (2008 – £357 million (2007 — £327 million) are due to expire between 2020—20282020 – 2029 and £67£96 million (2007 — £28(2008 – £67 million) are available indefinitely. At 31st December 2008,2009, the Group had not recognised any deferred tax asset in respect of income tax losses of approximately £4,526£4,397 million (2007 — £3,688(2008 – £4,526 million), of which £37£34 million (2007 — £62(2008 – £37 million) are due to expire between 2009—2019,2010-2019, £159 million (2008 – £66 million (2007 — £45 million) are due to expire between 2020—20282020 – 2029 and £4,423£4,204 million (2007 — £3,581(2008 – £4,423 million) which are available indefinitely. The Group had capital losses at 31st December 20082009 of approximately £5£4.3 billion in respect of which no deferred tax asset has been recognised. Deferred tax assets are recognised where it is probable that future taxable profit will be available to utilise losses.
Factors affecting the tax charge in future years
As a global organisation there are many factors which could affect the future effective tax rate of the Group. The mix of profits across different territories, transfer pricing and other disputes with tax authorities and the location of research and development activity can all have a significant impact on the Group’s effective tax rate.
Changes to tax legislation in territories where GSK has business operations could also impact the Group’s effective tax rate. The UK tax authorities have proposed some significant changes to the UK taxation system. In December 2009 the UK Government announced that it intends to introduce a Patent Box regime applying a reduced rate of corporation tax to income from patents. The changes are expected to have effect from April 2013, following a period of consultation. The UK Government also continues to consult with business on proposed changes to the Controlled Foreign Company regime. These changes are expected to be enacted in 2011.
15Earnings per share
                        
 2008 2007 2006  2009 2008 2007 
 pence pence pence  pence pence pence 
      
Basic earnings per share 88.6 94.4 95.5  109.1 88.6 94.4 
Adjustment for major restructuring 16.1 4.7  12.1 16.1 4.7 
       
Results before major restructuring earnings per share (basic) 104.7 99.1 
Basic earnings per share before major restructuring 121.2 104.7 99.1 
      
Diluted earnings per share 88.1 93.7 94.5  108.2 88.1 93.7 
Adjustment for major restructuring 16.0 4.6  12.1 16.0 4.6 
       
Results before major restructuring earnings per share (diluted) 104.1 98.3 
Diluted earnings per share before major restructuring 120.3 104.1 98.3 
       
Basic and adjusted earnings per share have been calculated by dividing the profit attributable to shareholders by the weighted average number of shares in issue during the period after deducting shares held by the ESOP Trusts and Treasury shares.
Adjusted earnings per share is calculated using results before major restructuring earnings. The calculation of results before major restructuring is described in Note 1 ‘Presentation of the financial statements’.
Diluted earnings per share have been calculated after adjusting the weighted average number of shares used in the basic calculation to assume the conversion of all potentially dilutive shares. A potentially dilutive share forms part of the employee share schemes where its exercise price is below the average market price of GSK shares during the period and any performance conditions attaching to the scheme have been met at the balance sheet date.
The numbers of shares used in calculating basic and diluted earnings per share are reconciled below.
                        
Weighted average number of shares in issue 2008 2007 2006  2009 2008 2007 
millions millions millions  millions millions millions 
      
Basic 5,195 5,524 5,643  5,069 5,195 5,524 
Dilution for share options 31 43 57  39 31 43 
      
Diluted 5,226 5,567 5,700  5,108 5,226 5,567 
      
Shares held by the ESOP Trusts are excluded. The trustees have waived their rights to dividends on the shares held by the ESOP Trusts.
GSK Annual Report 2009

118

GSK Annual Report 2008125
Financial statements
Notes to the financial statementscontinued

16Dividends
                     
 
  First interim  Second interim  Third interim  Fourth interim  Total 
 
 
2008
                    
 
Total dividend (£m)  683   679   730   860   2,952 
Dividend per share (pence)  13   13   14   17   57 
Paid/payable 10th July 2008  9th October 2008  8th January 2009  9th April 2009     
 
                     
2007
                    
 
Total dividend (£m)  670   667   708   859   2,904 
Dividend per share (pence)  12   12   13   16   53 
Paid  12th July 2007   11th October 2007   10th January 2008   10th April 2008     
 
                     
2006
                    
 
Total dividend (£m)  619   620   671   785   2,695 
Dividend per share (pence)  11   11   12   14   48 
Paid 6th July 2006  5th October 2006  4th January 2007  12th April 2007    
 
Under IFRS interim dividends are only recognised in the financial statements when paid and not when declared.
16 Dividends
                     
2009 First interim  Second interim  Third interim  Fourth interim  Total 
               
Total dividend (£m)  701   713   763   913   3,090 
Dividend per share (pence)  14   14   15   18   61 
Paid/payable 9th July 2009  8th October 2009  7th January 2010  8th April 2010     
             
                     
2008  
                    
               
Total dividend (£m)  683   679   730   859   2,951 
Dividend per share (pence)  13   13   14   17   57 
Paid 10th July 2008  9th October 2008  8th January 2009  9th April 2009     
             

2007  
                    
               
Total dividend (£m)  670   667   708   859   2,904 
Dividend per share (pence)  12   12   13   16   53 
Paid 12th July 2007  11th October 2007  10th January 2008  10th April 2008     
               
 
Under IFRS interim dividends are only recognised in the financial statements when paid and not when declared. GSK normally pays a dividend two quarters after the quarter to which it relates and one quarter after it is declared. The 2009 financial statements recognise those dividends paid in 2009, namely the third and fourth interim dividends for 2008 and the first and second interim dividends for 2009.
 
The amounts recognised in each year are as follows:
 
          2009  2008  2007 
          £m  £m  £m 
                 
Dividends to shareholders          3,003   2,929   2,793 
                 
 
17 Property, plant and equipment
 
          Plant,        
      Land and  equipment  Assets in    
      buildings  and vehicles  construction  Total 
      £m  £m  £m  £m 
                
Cost at 1st January 2008      4,634   8,497   1,956   15,087 
Exchange adjustments      1,046   1,471   442   2,959 
Additions      124   425   895   1,444 
Additions through business combinations      13   7   –   20 
Disposals and write-offs      (128)  (356)  (27)  (511)
Reclassifications      292   643   (944)  (9)
Transfer to assets held for sale      (2)  (1)  –   (3)
                
Cost at 31st December 2008      5,979   10,686   2,322   18,987 
Exchange adjustments      (343)  (493)  (154)  (990)
Additions      188   432   803   1,423 
Additions through business combinations      67   76   8   151 
Capitalised borrowing costs      –   –   1   1 
Disposals and write-offs      (184)  (614)  (5)  (803)
Reclassifications      309   430   (735)  4 
Transfer to assets held for sale      (14)  (2)  –   (16)
                
Cost at 31st December 2009      6,002   10,515   2,240   18,757 
                
GSK normally pays a dividend two quarters afterAnnual Report 2009

119

Notes to the quarter to which it relates and one quarter after it is declared. The 2008 financial statements recognise those dividends paid in 2008, namely the third and fourth interim dividends for 2007 and the first and second interim dividends for 2008. The amounts recognised in each year are as follows:
             
  2008  2007  2006 
  £m  £m  £m 
 
Dividends to shareholders  2,929   2,793   2,598 
 
17 Property, plant and equipmentcontinued
                 
      Plant,       
  Land and  equipment  Assets in    
  buildings  and vehicles  construction  Total 
  £m  £m  £m  £m 
 
Cost at 1st January 2007  4,244   7,776   1,423   13,443 
Exchange adjustments  143   229   61   433 
Additions  140   401   1,042   1,583 
Additions through business combinations  1   7   —   8 
Disposals and write-offs  (20)  (309)  (16)  (345)
Reclassifications  134   418   (552)  — 
Transfer to assets held for sale  (8)  (25)  (2)  (35)
 
Cost at 31st December 2007  4,634   8,497   1,956   15,087 
Exchange adjustments  1,046   1,471   442   2,959 
Additions  124   425   895   1,444 
Additions through business combinations  13   7   —   20 
Disposals and write-offs  (128)  (356)  (27)  (511)
Reclassifications  292   643   (944)  (9)
Transfer to assets held for sale  (2)  (1)  —   (3)
 
Cost at 31st December 2008  5,979   10,686   2,322   18,987 
 

126 GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

17Property, plant and equipmentcontinued
                                
 Plant,      Plant,     
 Land and equipment Assets in    Land and equipment Assets in   
 buildings and vehicles construction Total  buildings and vehicles construction Total 
 £m £m £m £m  £m £m £m £m 
        
Depreciation at 1st January 2007  (1,325)  (4,805) —  (6,130)
Depreciation at 1st January 2008  (1,534)  (5,290) –  (6,824)
Exchange adjustments  (45)  (125) —  (170)  (385)  (914) –  (1,299)
Provision for the year  (177)  (619) —  (796)  (228)  (692) –  (920)
Disposals and write-offs 10 242 — 252  85 265 – 350 
Transfer to assets held for sale 3 17 — 20  – 1 – 1 
        
 
Depreciation at 31st December 2007  (1,534)  (5,290) —  (6,824)
Depreciation at 31st December 2008  (2,062)  (6,630) –  (8,692)
Exchange adjustments  (385)  (914) —  (1,299) 128 312 – 440 
Provision for the year  (228)  (692) —  (920)  (283)  (847) –  (1,130)
Disposals and write-offs 85 265 — 350  129 478 – 607 
Transfer to assets held for sale — 1 — 1  1 1 – 2 
        
Depreciation at 31st December 2008  (2,062)  (6,630) —  (8,692)
Depreciation at 31st December 2009  (2,087)  (6,686) –  (8,773)
        
 
Impairment at 1st January 2007  (141)  (231)  (11)  (383)
Exchange adjustments  (2)  (3)  (1)  (6)
Disposals and write-offs 7 32 5 44 
Impairment losses  (29)  (53)  (82)  (164)
Reversal of impairments 43 16 8 67 
Impairment at 31st December 2007  (122)  (239)  (81)  (442)
Impairment at 1st January 2008  (122)  (239)  (81)  (442)
Exchange adjustments  (22)  (27)  (14)  (63)  (22)  (27)  (14)  (63)
Disposals and write-offs 50 67 27 144  50 67 27 144 
Impairment losses  (70)  (176)  (20)  (266)  (70)  (176)  (20)  (266)
Reclassifications —  (44) 44 —  –  (44) 44 - 
Reversal of impairments 3 7 — 10  3 7 – 10 
        
 
Impairment at 31st December 2008  (161)  (412)  (44)  (617)  (161)  (412)  (44)  (617)
Exchange adjustments 6 10 4 20 
Disposals and write-offs 28 104 4 136 
Impairment losses  (27)  (108)  (25)  (160)
Reversal of impairments 1 10 – 11 
        
Impairment at 31st December 2009  (153)  (396)  (61)  (610)
        
Total depreciation and impairment at 31st December 2007  (1,656)  (5,529)  (81)  (7,266)
 
Total depreciation and impairment at 31st December 2008  (2,223)  (7,042)  (44)  (9,309)  (2,223)  (7,042)  (44)  (9,309)
 
Net book value at 1st January 2007 2,778 2,740 1,412 6,930 
Total depreciation and impairment at 31st December 2009  (2,240)  (7,082)  (61)  (9,383)
        
 
Net book value at 31st December 2007 2,978 2,968 1,875 7,821 
Net book value at 1st January 2008 2,978 2,968 1,875 7,821 
        
 
Net book value at 31st December 2008
 3,756 3,644 2,278 9,678  3,756 3,644 2,278 9,678 
        
 
Net book value at 31st December 2009
 3,762 3,433 2,179 9,374 
        
The net book value at 31st December 20082009 of the Group’s land and buildings comprises freehold properties £3,510£3,462 million (2007 — £2,752(2008 – £3,510 million), properties with leases of 50 years or more £185£239 million (2007 — £168(2008 – £185 million) and properties with leases of less than 50 years £61 million (2007 — £58(2008 – £61 million).
Included in land and buildings at 31st December 20082009 are leased assets with a cost of £519£561 million (2007 — £424(2008 – £519 million), accumulated depreciation of £263£261 million (2007 — £198(2008 – £263 million), impairment of £nil (2008 – £8 million (2007 — £nil)million) and a net book value of £248£300 million (2007 — £226(2008 – £248 million). Included in plant, equipment and vehicles at 31st December 20082009 are leased assets with a cost of £77£126 million (2007 — £180(2008 – £77 million), accumulated depreciation of £36£44 million (2007 — £81(2008 – £36 million), and a net book value of £41£82 million (at 1st January 2008 — £99(2008 – £41 million). Some lease agreements include renewal or purchase options or escalation clauses.

GSK Annual Report 2008127
Financial statements
Notes to the financial statementscontinued

17Property, plant and equipmentcontinued
The impairment losses principally arise from decisions to rationalise facilities and are calculated based on either fair value less costs to sell or value in use. The value in use calculations determine the net present value of the projected risk-adjusted, post-tax cash flows of the relevant asset or cash generating unit, applying a discount rate of the Group post-tax weighted average cost of capital (WACC) of 8%, adjusted where appropriate for country specific risks. Where an impairment is indicated and a pre-tax cash flow calculation is expected to give a materially different result, the test would be reperformed using pre-tax cash flows and a pre-tax discount rate. The Group WACC is equivalent to a pre-tax discount rate of approximately 11%. The impairment losses have been charged throughto cost of sales (£20995 million), R&D (£47 million) and SG&A (£1018 million), and include £197£57 million (2007 — £106(2008 – £197 million) arising from the major restructuring programmes.
Reversals of impairment arise from subsequent reviews of the impaired assets where the conditions which gave rise to the original impairments are deemed no longer to apply. All of the reversals have been credited to cost of sales.
18Goodwill
             
      2008  2007 
      £m  £m 
 
Cost at 1st January      1,370   758 
Exchange adjustments      437   81 
Additions through business combinations      294   533 
Impairments      —   (2)
 
Cost at 31st December      2,101   1,370 
 
 
Net book value at 1st January      1,370   758 
 
 
Net book value at 31st December
      2,101   1,370 
 
The additions in the year, translated at acquisition exchange rates, comprise £242 million on the acquisition of Sirtris Pharmaceuticals Inc. and £52 million on the acquisition of the BMS Egypt business. See Note 38, ‘Acquisitions and disposals’ for further details.
The carrying value of goodwill, translated at year-end exchange rates, is made up of balances arising on acquisition of the following companies:
             
      2008  2007 
  Cash generating unit £m  £m 
 
Reliant Pharmaceuticals, Inc. US Pharmaceuticals  485   356 
ID Biomedical Corporation Vaccines  404   367 
Sirtris Pharmaceuticals, Inc. Worldwide Pharmaceuticals  329   — 
GlaxoSmithKline K.K. Japan Pharmaceuticals  238   140 
Domantis Limited Worldwide Pharmaceuticals  181   181 
CNS, Inc. Consumer Healthcare  153   111 
Polfa Poznan S.A. Poland Pharmaceuticals  128   111 
BMS Egypt Emerging Markets Pharmaceuticals  48   — 
Corixa Corporation Vaccines  33   24 
Others      102   80 
 
       2,101   1,370 
 
GSK Annual Report 2009

120

Notes to the financial statements
18 Goodwill
         
  2009  2008 
  £m  £m 
      
Cost at 1st January  2,101   1,370 
Exchange adjustments  (116)  437 
Additions through business combinations  1,376   294 
      
Cost at 31st December  3,361   2,101 
      
         
Net book value at 1st January  2,101   1,370 
      
         
Net book value at 31st December
  3,361   2,101 
      
The additions in the year, translated at acquisition exchange rates, arise on acquisition of the following businesses:
     
     
 128 GSK Annual Report 2008£m 
  Financial statements

 
Stiefel Laboratories Inc.885
Pfizer HIV business255
UCB S.A.87
NovaMin Technology Inc.53
AZ Tika50
Laboratoire Pharmaceutique Algérien35
Others11 
  Notes to the financial statementscontinued

  
     1,376
See Note 38, ‘Acquisitions and disposals’ for further details.
The carrying value of goodwill, translated at year-end exchange rates, is made up of balances arising on acquisition of the following businesses:
             
      2009  2008 
  Cash generating unit £m  £m 
        
Stiefel Laboratories, Inc. Stiefel Laboratories Inc.  901   – 
Reliant Pharmaceuticals, Inc. US pharmaceuticals  434   485 
ID Biomedical Corporation Five pharmaceutical segments  426   404 
Sirtris Pharmaceuticals, Inc. Five pharmaceutical segments  294   329 
Pfizer HIV business ViiV Healthcare group  255   – 
GlaxoSmithKline K.K. Japan pharmaceuticals  208   238 
Domantis Limited Five pharmaceutical segments  181   181 
CNS, Inc. Consumer Healthcare  137   153 
Polfa Poznan S.A. Poland pharmaceuticals  118   128 
Certain businesses from UCB S.A. Emerging Markets and Asia Pacific/Japan pharmaceuticals  87   – 
NovaMin Technology Inc. Consumer Healthcare  50   – 
Others      270   183 
        
       3,361   2,101 
        
GSK Annual Report 2009

121

Notes to the financial statements
18Goodwillcontinued
Goodwill is allocated to cash generating units which are tested for impairment at least annually. The valuationsFollowing the implementation of IFRS 8 ‘Operating segments’ in 2009 the cash generating units to which some of the Worldwidegoodwill balances are allocated have changed. The goodwill arising on the acquisitions of ID Biomedical, Sirtris Pharmaceuticals and Domantis has been split between the five pharmaceutical segments (USA, Europe, Emerging Markets, Asia Pacific/Japan and Other) for impairment testing purposes as either the benefit of the acquired businesses is split among the five pharmaceutical segments or they do not generate independent cash flows.
The valuation of the US pharmaceuticals cash generating unit (for Sirtrisfor Reliant Pharmaceuticals and Domantis) and the US Pharmaceuticals cash generating unit (for Reliant Pharmaceuticals) have bothhas been prepared on a fair value less costs to sell basis, using turnover and earnings multiples derived from observed market data. In each case theThe value of goodwill inherent in the US pharmaceuticals cash generating unitsunit is considerably in excess of the book valuesvalue of the acquired goodwill.
The recoverable amounts of the other cash generating units are assessed using either a value in use or a fair value less costs to sell model. Value in use is calculated as the net present value of the projected risk-adjusted post-tax cash flows plus a terminal value of the cash generating unit to which the goodwill is allocated. Initially a post-tax discount rate is applied to calculate the net present value of the post-tax cash flows. The post-tax discount rate used is based on the Group WACC of 8%, as most cash generating units have integrated operations across large parts of the Group. The Group WACC is equivalent to a pre-tax discount rate of approximately 11%. The discount rate is increased where specific country risks are sufficiently significant to have a material impact on the outcome of the impairment test. The Group WACC is equivalent to a pre-tax discount rate of approximately 11%. Where the impairment test indicates that the recoverable value of the unit is close to or below its carrying value, itthe test is reperformed using a pre-tax discount rate and pre-tax cash flows in order to determine if an impairment exists and to establish its magnitude.
Fair value is calculated using a similar discounted cash flow approach based on the Group’s acquisition valuation model. A post-tax discount rate is applied to the projected risk-adjusted post-tax cash flows and terminal value.
Details relating to the discounted cash flow models used in the impairment tests of the other significant goodwill balances are as follows:
        
 Vaccines CGU Japan Pharmaceuticals CGU Consumer Healthcare CGU Poland Pharmaceuticals CGU      
 for ID Biomedical for GlaxoSmithKline KK for CNS for Polfa Poznan Stiefel Laboratories CGU ViiV Healthcare CGU Five pharmaceutical segments CGUs
      
Valuation basis Fair value less costs to sell Fair value less costs to sell Fair value less costs to sell Value in use Fair value less costs to sell Fair value less costs to sell Value in use
      
Key assumptions Sales growth rates
Profit margins
Discount rate		 Sales growth rates
Profit margins
Discount rate		 Sales growth rates Advertising and promotion investment Terminal growth rate Sales growth rates
Profit margins
Discount rate		 Sales growth rates Sales growth rates Sales growth rates
 Profit margins Profit margins Profit margins
 Achievement of synergy targets Discount rate Discount rate
 Discount rate    
      
Determination of assumptions Growth rates are internal forecasts based on both internal and external market information. Margins reflect past experience, adjusted for expected changes. Discount rate based on Group WACC. Growth rates are internal forecasts based on both internal and external market information. Margins reflect past experience, adjusted for expected changes. Discount rate based on Group WACC. Growth rates are internal forecasts based on both internal and external market information. Advertising and promotion investment based on historical levels adjusted for management’s view of support needed for innovation and expansion. Terminal growth rate based on management’s estimate of future long- term average growth rates. Growth rates are internal forecasts based on both internal and external market information. Margins reflect past experience, adjusted for expected changes. Discount rate based on Group WACC. Growth rates are internal forecasts based on both internal and external market information. Margins reflect past experience, adjusted for expected changes. Post-acquisition synergy targets reflect management expectations of cost savings that can be achieved.
Discount rate based on Group WACC.		 Growth rates are internal forecasts based on both internal and external market information. Margins reflect past experience, adjusted for expected changes. Discount rate based on Group WACC. Growth rates are internal forecasts based on both internal and external market information. Margins reflect past experience, adjusted for expected changes. Discount rate based on Group WACC.
      
Period of specific projected cashflows 5 years 5 years 4 years 5 years
Period of specific
projected cash flows		 10 years 20 years 5 years
      
Discount rate 8%  8%  8%  8%  8%  8%  8% 
      
Terminal
growth rate		 2% p.a. 2% p.a. 3% p.a. 13% p.a. decline. 2% p.a. 2% p.a. 2% p.a.
      
GSK Annual Report 2009

122

Notes to the financial statements
18 Goodwillcontinued
       
  Japan Pharmaceuticals CGU Consumer Healthcare CGU Poland Pharmaceuticals CGU
  for GlaxoSmithKline KK for CNS for Polfa Poznan
       
Valuation basis Fair value less costs to sell Fair value less costs to sell Value in use
       
Key assumptions Sales growth rates
Profit margins
Discount rate		 Sales growth rates
Advertising and promotion investment
Terminal growth rate
Discount rate		 Sales growth rates
Profit margins
Discount rate
       
Determination of assumptions Growth rates are internal forecasts based on both internal and external market information. Margins reflect past experience, adjusted for expected changes. Discount rate based on Group WACC. Growth rates are internal forecasts based on both internal and external market information. Advertising and promotion investment based on historical levels adjusted for management’s view of support needed for innovation and expansion. Terminal growth rate based on management’s estimate of future long-term average growth rates. Discount rate based on Group WACC. Growth rates are internal forecasts based on both internal and external market information. Margins reflect past experience, adjusted for expected changes. Discount rate based on Group WACC, adjusted for country- specific risks.
       
Period of specific
projected cash flows		 5 years 4 years 5 years
       
Discount rate 8%  8%  9.75% 
       
Terminal growth rate 2% p.a. 3% p.a. 13% p.a. decline.
       
The terminal growth rates do not exceed the long-term projected growth rates for the relevant markets. The terminal growth rate used in the value in use calculation for the Poland Pharmaceuticals CGUcash generating unit reflects the impact of future generic competition and takes no account of new product launches. The Consumer Healthcare cash generating unit comprises a collection of smaller cash generating units including brands with indefinite lives with a carrying value of £1,796 million (2008 – £1,794 million (2007 — £1,332 million) as detailed. The Stiefel Laboratories cash generating unit also comprises a collection of smaller cash generating units including assets with indefinite lives with a carrying value of £660 million. Details of indefinite life brands are given in Note 19 ‘Other intangible assets’.
In each case the valuations indicate sufficient headroom such that a reasonably possible change to key assumptions is unlikely to result in an impairment of the related goodwill.
GSK Annual Report 2009

123

GSK Annual Report 2008129
Financial statements
Notes to the financial statementscontinued

19Other intangible assets
                                        
 Computer Licences, Amortised Indefinite life    Computer Licences, Amortised Indefinite life   
 software patents, etc. brands brands Total  software patents, etc. brands brands Total 
 £m £m £m £m £m  £m £m £m £m £m 
          
Cost at 1st January 2007 715 2,282 64 1,309 4,370 
Cost at 1st January 2008 801 3,393 266 1,353 5,813 
Exchange adjustments 9 128  (1) 44 180  110 738 65 371 1,284 
Capitalised internal development costs 41 6 — — 47  27 – – – 27 
Additions through business combinations 1 670 — — 671  – 171 – – 171 
Other additions 44 333 203 — 580  58 492 – 99 649 
Disposals and asset write-offs  (8)  (26) — —  (34)  (2) – – –  (2)
Transfer to assets held for sale  (1) — — —  (1) 9 – – – 9 
          
Cost at 31st December 2007 801 3,393 266 1,353 5,813 
Cost at 31st December 2008 1,003 4,794 331 1,823 7,951 
Exchange adjustments 110 738 65 371 1,284   (36)  (193)  (23)  (99)  (351)
Capitalised internal development costs 27 — — — 27  13 – – – 13 
Additions through business combinations — 171 — — 171  30 1,883 51 758 2,722 
Other additions 58 492 — 99 649  41 391 – – 432 
Disposals and asset write-offs  (2) — — —  (2)  (17)  (26) – –  (43)
Reclassifications 9 — — — 9   (4) – – –  (4)
          
Cost at 31st December 2008 1,003 4,794 331 1,823 7,951 
Cost at 31st December 2009 1,030 6,849 359 2,482 10,720 
          
Amortisation at 1st January 2007  (444)  (475)  (4) —  (923)
Exchange adjustments  (8)  (13)  (1) —  (22)
Provision for the year  (80)  (141)  (5) —  (226)
Disposals and asset write-offs 1 7 — — 8 
Transfer to assets held for sale 1 — — — 1 
Amortisation at 31st December 2007  (530)  (622)  (10) —  (1,162)
Amortisation at 1st January 2008  (530)  (622)  (10) –  (1,162)
Exchange adjustments  (75)  (168)  (3) —  (246)  (75)  (168)  (3) –  (246)
Provision for the year  (96)  (204)  (11) —  (311)  (96)  (204)  (11) –  (311)
Disposals and asset write-offs 3  (1) — — 2  3  (1) – – 2 
          
Amortisation at 31st December 2008  (698)  (995)  (24) —  (1,717)  (698)  (995)  (24) –  (1,717)
Exchange adjustments 27 58 – – 85 
Provision for the year  (113)  (306)  (13) –  (432)
Disposals and asset write-offs 16 1 – – 17 
          
Impairment at 1st January 2007  (24)  (109) —  (21)  (154)
Amortisation at 31st December 2009  (768)  (1,242)  (37) –  (2,047)
          
Impairment at 1st January 2008  (24)  (150) –  (21)  (195)
Exchange adjustments  (1)  (46) –  (8)  (55)
Impairment losses  (7)  (118) – –  (125)
Reversal of impairments – 10 – – 10 
          
Impairment at 31st December 2008  (32)  (304) –  (29)  (365)
Exchange adjustments —  (6) — —  (6) 1 19 – 3 23 
Impairment losses —  (54) — —  (54)  (4)  (168) – –  (172)
Disposals and asset write-offs — 19 — — 19  2 22 – – 24 
          
Impairment at 31st December 2007  (24)  (150) —  (21)  (195)
Exchange adjustments  (1)  (46) —  (8)  (55)
Impairment losses  (7)  (118) — —  (125)
Impairment reversals — 10 — — 10 
Impairment at 31st December 2009  (33)  (431) –  (26)  (490)
          
Impairment at 31st December 2008  (32)  (304) —  (29)  (365)
 
Total amortisation and impairment at 31st December 2007  (554)  (772)  (10)  (21)  (1,357)
Total amortisation and impairment at 31st December 2008  (730)  (1,299)  (24)  (29)  (2,082)  (730)  (1,299)  (24)  (29)  (2,082)
Total amortisation and impairment at 31st December 2009  (801)  (1,673)  (37)  (26)  (2,537)
          
Net book value at 1st January 2007 247 1,698 60 1,288 3,293 
Net book value at 1st January 2008 247 2,621 256 1,332 4,456 
          
Net book value at 31st December 2007 247 2,621 256 1,332 4,456 
 
Net book value at 31st December 2008
 273 3,495 307 1,794 5,869  273 3,495 307 1,794 5,869 
          
 
Net book value at 31st December 2009
 229 5,176 322 2,456 8,183 
          
GSK Annual Report 2009

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130 GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

19Other intangible assetscontinued
Amortisation and impairment losses, net of reversals, have been charged in the income statement as follows:
                                
  Amortisation Net impairment losses  Amortisation Net impairment losses 
 2008 2007 2008 2007  2009 2008 2009 2008 
 £m £m £m £m  £m £m £m £m 
        
Cost of sales 34 32 — —  29 34 1 – 
Selling, general and administration 181 123 25 3  270 181 1 25 
Research and development 96 71 90 51  133 96 170 90 
        
 311 226 115 54  432 311 172 115 
        
The net book value of computer software includes £80 million (2008 – £125 million) of internally generated costs.
Licences, patents, etc. includes a large number of acquired licences, patents, know-how agreements and marketing rights, which are either marketed or in use, or still in development. The net book value includes £6 million (2008 – £7 million) of internally generated costs. Impairment losses of £168 million (2008 – £118 million) principally arise on assets in development that are no longer being actively pursued. Note 38, ‘Acquisitions and disposals’ gives details of additions through business combinations in the yearyear. The book values of £171 million comprise £106 million acquired with the acquisition of Sirtris Pharmaceuticals and £65 million acquired with the acquisition of BMS Egypt (see Note 38, ‘Acquisitions and disposals’). At 31st December 2008, the net book value included £795 million arising from the acquisition of Reliant Pharmaceuticals Inc. in 2007 and £654 million arising from the acquisition of ID Biomedical Corporation in 2005. It also included £132 million (2007 — £136 million) of internally generated costs of which £125 million (2007 — £130 million) related to computer software and £7 million (2007 — £6 million) related to compounds in development.largest individual items are as follows:
         
  2009  2008 
  £m  £m 
      
Fluviral
  648   654 
Lovaza
  637   781 
Selzentry
  337   – 
Arzerra
  191   156 
Duac
  165   – 
Fraxiparine
  158   180 
Others  3,040   1,724 
      
   5,176   3,495 
      
Amortised brands include OTC rights relating toalli, with a book value at 31st December 20082009 of £294£260 million (2007 — £249(2008 – £294 million).
Indefinite life brands comprise a portfolio of Consumer Healthcare products primarily acquired with the acquisitions of Sterling Winthrop, Inc. in 1994, Block Drug Company, Inc. in 2001 and CNS, Inc. in 2006.2006, together with a number of pharmaceutical brands from the acquisition of Stiefel Laboratories, Inc. in 2009. The book values of the major brands are as follows:
                
 2008 2007  2009 2008 
 £m £m  £m £m 
    
Panadol
 411 330  399 411 
Sensodyne
 289 231  271 289 
Stiefel trade name 209 – 
Breathe Right
 216 165  193 216 
Physiogel
 176 – 
Polident
 123 98  115 123 
Corega
 109 87  102 109 
Biotene
 99 —  108 99 
Poligrip
 75 60  71 75 
Solpadeine
 60 57  59 60 
Others 412 304  753 412 
    
 1,794 1,332  2,456 1,794 
    
Each of these brands is considered to have an indefinite life, given the strength and durability of the brand and the level of marketing support. The brands are in relatively similar stable and profitable market sectors, with similar risk profiles, and their size, diversification and market shares mean that the risk of market-related factors causing a reduction in the lives of the brands is considered to be relatively low. The Group is not aware of any material legal, regulatory, contractual, competitive, economic or other factor which could limit their useful lives. Accordingly, they are not amortised.
Each brand is tested annually for impairment applying a fair value less costs to sell methodology, generally using four year post-tax cash flow forecasts with a terminal value calculation and a discount rate equal to the Group post-tax weighted average cost of capitalWACC of 8%, adjusted where appropriate for country-specific risks. The main assumptions include future sales price and volume growth, product contribution and the future expenditure required to maintain the product’s marketability and registration in the relevant jurisdictions. These assumptions are based on past experience and are reviewed as part of management’s budgeting and strategic planning cycle for changes in market conditions and sales erosion through competition. The terminal growth rates applied of between 2% and 3% are management’s estimates of future long-term average growth rates of the relevant markets. In each case the valuations indicate sufficient headroom such that a reasonably possible change to key assumptions is unlikely to result in an impairment of these brands.
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GSK Annual Report 2008131
Financial statements
Notes to the financial statementscontinued

20Investments in associates and joint ventures
                                                
 Joint Associated 2008 Joint Associated 2007  Joint Associated 2009 Joint Associated 2008 
 ventures undertakings Total ventures undertakings Total  ventures undertakings Total ventures undertakings Total 
 £m £m £m £m £m £m  £m £m £m £m £m £m 
            
At 1st January 15 314 329 16 279 295  28 524 552 15 314 329 
Exchange adjustments 6 131 137 —  (4)  (4)  (3)  (44)  (47) 6 131 137 
Additions 6 3 9 — 1 1  36 312 348 6 3 9 
Disposals –  (69)  (69) – – – 
Transfer from other investments — 39 39 — — —  – 56 56 – 39 39 
Fair value adjustment — 3 3 — 1 1  – 8 8 – 3 3 
Retained profit/(loss) for the year 1 34 35  (1) 37 36 
Retained (loss)/profit for the year  (15) 62 47 1 34 35 
            
At 31st December 28 524 552 15 314 329  46 849 895 28 524 552 
            
The principalGroup held two significant associated undertaking is undertakings at 31st December 2009.
Quest Diagnostics Inc., a US clinical laboratory business listed on the New York Stock Exchange. The investment had a book value at 31st December 20082009 of £463£410 million (2007 — £299(2008 – £463 million) and a market value of £1,316£1,153 million (2007 — £970(2008 – £1,316 million). At 31st December 2008,2009, the Group owned 18.7%16.8% of Quest (2007 — 18.9%(2008 – 18.7%). During the year, the Group sold 5.7 million shares in Quest, realising a profit of £115 million. Although the Group holds less than 20% of the ownership interest and voting control in Quest, the Group has the ability to exercise significant influence through both its significant shareholding and its nominated director’s active participation on the Quest Board of Directors and Board sub-committees.
In November 2009, GSK increased its shareholding in Aspen Pharmacare Holdings Limited by acquiring 68.5 million shares in consideration for the transfer of certain assets. GSK’s shareholding in Aspen on 31st December 2009 was 81.7 million shares or 19%. Aspen, listed on the Johannesburg Stock Exchange, is Africa’s largest pharmaceutical manufacturer and a major supplier of branded and generic pharmaceutical, healthcare and nutritional products to the southern African and selected international markets. After elimination of unrealised gains, the investment had a book value at 31st December 2009 of £372 million, including estimated goodwill of £259 million. The transfersmarket value of the shares held by GSK at 31st December 2009 was £505 million. Although the Group holds less than 20% of the ownership interest and voting control of Aspen, the Group has the ability to exercise significant influence through both its shareholding and its nominated director’s active participation on the Aspen Board of Directors.
The transfer from other investments in 2009 relates to the Group’s holding in Chemocentryx,Aspen, previously classified within Other investments, which increased duringinvestments.
In August 2009, GSK invested £20 million to establish a 40% interest in Shenzhen GlaxoSmithKline – Neptunus Biologicals Co., Ltd, a new joint venture primarily operating in the yearfields of research, development and manufacture of flu vaccines.
During 2009, GSK made additional capital contributions totalling £16 million to 23.5%.Shionogi-GlaxoSmithKline Holdings, L.P.
Summarised balance sheet information in respect of the Group’s associates is set out below:
        
 2008 2007         
 £m £m  2009 2008 
 £m £m 
    
Total assets:  
Quest Diagnostics Inc. 5,836 4,305  5,319 5,836 
Aspen Pharmacare Holdings Limited 1,318 – 
Others 115 37  121 115 
    
 5,951 4,342  6,758 5,951 
    
  
Total liabilities:  
Quest Diagnostics Inc.  (3,333)  (2,634)  (2,828)  (3,333)
Aspen Pharmacare Holdings Limited  (689) – 
Others  (20) —   (19)  (20)
    
  (3,536)  (3,353)
  (3,353)  (2,634)    
 
Net assets 2,598 1,708  3,222 2,598 
    
Group’s share of associates’ net assets 524 314 
In 2002, GSK hedged partThe summarised balance sheet information in respect of the equity value of its holding in Quest Diagnostics Inc. through a series of variable sale forward contracts. The contracts (‘the equity collar’) were renewed in 2006 and were structured in five series, each over two million Quest shares, and were due to mature between 2010 and 2012. A second series of hedging contracts over an additional 10 million shares was entered intoAspen Pharmacare Holdings Limited is based on 15th February 2007. These contracts were also structured in five series, each over two million Quest shares, and were due to mature between 2013 and 2015. During the year, these contracts held with Lehman Brothers Finance S.A., with respect to a total of 20 million Quest shares terminated with no material financial impact to GSK.analysts forecasts available at 31st December 2009.
Investments in joint ventures comprise £36£57 million share of gross assets (2007 — £21(2008 – £36 million) and £8£11 million share of gross liabilities (2007 — £6(2008 – £8 million). These principally arise from 50% interests in two joint ventures, Shionogi-GlaxoSmithKline Holdings, L.P., which is developing specified chemical compounds, and GlaxoSmithKline Shire Canada, which primarily co-marketsCombivir,TrizivirandEpivirin certain territories, together withboth of which are now part of the ViiV Healthcare business. Investments in joint ventures also include a 29%28% interest in another joint venture, Pharmaceutical Insurance Limited, which is a mutual insurance company covering pharmaceutical property risk.business risk, and a 40% interest in GlaxoSmithKline – NeptunusBio, which is a flu vaccine research, development and manufacturing venture.
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132 GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

21Other investments
                
 2008 2007  2009 2008 
 £m £m  £m £m 
    
At 1st January 517 441  478 517 
Exchange adjustments 129 12   (48) 129 
Additions 87 206  175 87 
Net fair value movements  (94)  (67) 57  (94)
Impairments  (65)  (31)
Transfer to associates  (39) — 
Impairment losses  (95)  (65)
Transfer to investments in associates and joint ventures  (56)  (39)
Disposals  (57)  (44)  (57)  (57)
    
At 31st December 478 517  454 478 
    
Other investments comprise non-current equity investments which are available-for-sale investments recorded at fair value at each balance sheet date. For investments traded in an active market, the fair value is determined by reference to the relevant stock exchange quoted bid price. For other investments, the fair value is estimated by reference to the current market value of similar instruments or by reference to the discounted cash flows of the underlying net assets. Equity investments are recorded as non-current assets unless they are expected to be sold within one year, in which case they are recorded as current assets. The Group holds a number of equity investments in entities where the Group has entered into research collaborations. Other investments include listed investments of £245 million (2008 – £319 million (2007 — £413 million) that offer the Group the opportunity for return through dividend income and fair value gains..
On disposal of investments, fair value movements are reclassified from reserves to the income statement based on average cost for shares acquired at different times.
The impairment losses recorded in the tables above have been recognised in the income statement for the year within other operating income, together with amounts recycledreclassified from the fair value reserve on recognition of the impairments. These impairments initially result from prolonged or significant declines in the fair value of the equity investments below acquisition cost, subsequent to which any further declines in fair value are immediately taken to the income statement. At 31st December 20082009 impaired assets with a fair value of £118£105 million (2007 — £90(2008 – £118 million) are included in other investments.
The transfer to associates relates to the Group’s holding in ChemocentryxAspen Pharmacare Holdings Limited, which increased during the year to 23.5%19%.
22Other non-current assets
                
 2008 2007  2009 2008 
 £m £m  £m £m 
    
Amounts recoverable under insurance contracts 293 271  299 293 
Pension schemes in surplus 39 255  23 39 
Other receivables 247 161  261 247 
    
 579 687  583 579 
    
23Inventories
                
 2008 2007  2009 2008 
 £m £m  £m £m 
    
Raw materials and consumables 1,127 1,105  1,153 1,127 
Work in progress 1,295 771  1,437 1,295 
Finished goods 1,634 1,186  1,474 1,634 
    
 4,056 3,062  4,064 4,056 
    
GSK Annual Report 2009

127

GSK Annual Report 2008133
Financial statements
Notes to the financial statementscontinued

24Trade and other receivables
                
 2008 2007  2009 2008 
 £m £m  £m £m 
    
Trade receivables 5,333 4,649  5,486 5,333 
Prepaid pension contributions 1 1  1 1 
Other prepayments and accrued income 294 238  301 294 
Interest receivable 39 37  20 39 
Employee loans and advances 63 55  48 63 
Other receivables 535 515  636 535 
    
 6,265 5,495  6,492 6,265 
    
Trade receivables include £14£32 million (2007 — £8(2008 – £4 million) due from associates and joint ventures.
                
Bad and doubtful debt provision 2009 2008 
 2008
£m		 2007
£m		  £m £m 
    
At 1st January 98 104  129 98 
Exchange adjustments 29 6   (10) 29 
Charge for the year 21 18  21 21 
Subsequent recoveries of amounts provided for  (15)  (28)  (18)  (15)
Utilised  (4)  (2)  (6)  (4)
    
At 31st December 129 98  116 129 
    
25Cash and cash equivalents
                
 2008 2007  2009 2008 
 £m £m  £m £m 
    
Cash at bank and in hand 652 627  856 652 
Short-term deposits 4,971 2,383  5,689 4,971 
Commercial paper — 369 
    
 5,623 3,379  6,545 5,623 
    
26Assets held for sale
                
 2008 2007  2009 2008 
 £m £m  £m £m 
    
Land and buildings 2 3  13 2 
Plant, equipment and vehicles — 1  1 – 
    
 2 4  14 2 
    
GSK Annual Report 2009

128

134 GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

27Trade and other payables
                
 2008 2007  2009 2008 
 £m £m  £m £m 
    
Trade payables 1,153 931  1,855 1,153 
Wages and salaries 946 812  1,089 946 
Social security 148 116  125 148 
Other payables 233 214  280 233 
Deferred income 103 48  156 103 
Customer return and rebate accruals 1,337 973  1,379 1,337 
Other accruals 2,155 1,767  1,888 2,155 
    
 6,075 4,861  6,772 6,075 
    
Customer return and rebate accruals are provided for by the Group at the point of sale in respect of the estimated rebates, discounts or allowances payable to customers, principally in the USA. Provisions are made at the time of sale but the actual amounts paid are based on claims made some time after the initial recognition of the sale. As the amounts are estimated they may not fully reflect the final outcome and the amounts are subject to change dependent upon, amongst other things, the types of buying group and product sales mix. The level of provision is reviewed and adjusted quarterly in the light of historical experience of actual rebates, discounts or allowances given and returns made and any changes in arrangements. Future events could cause the assumptions on which the provisions are based to change, which could affect the future results of the Group.
28Pensions and other post-employment benefits
                        
Pension and other post-employment costs 2009 2008 2007 
 2008
£m		 2007
£m		 2006
£m		  £m £m £m 
      
UK pension schemes 236 108 159  206 236 108 
US pension schemes 60 24 35  94 60 24 
Other overseas pensions schemes 87 89 91  101 87 89 
Unfunded post-retirement healthcare schemes 118 90 91  90 118 90 
Other post-employment costs 4 2 1  – 4 2 
      
 505 313 377  491 505 313 
    
Analysed as:  
Funded defined benefit/hybrid pension schemes 318 171 237  338 318 171 
Unfunded defined benefit pension schemes 23 17 19  25 23 17 
Unfunded post-retirement healthcare schemes 118 90 91  90 118 90 
      
Defined benefit schemes 459 278 347  453 459 278 
Defined contribution pension schemes 42 33 29  38 42 33 
Other post-employment costs 4 2 1  – 4 2 
      
 505 313 377  491 505 313 
      
The costs of the defined benefit pension and post-retirement healthcare schemes are charged in the income statement as follows:
            
                  
Cost of sales 179 72 74  121 179 72 
Selling, general and administration 160 129 175  195 160 129 
Research and development 120 77 98  137 120 77 
      
 459 278 347  453 459 278 
      
GSK entities operate pension arrangements which cover the Group’s material obligations to provide pensions to retired employees.
These arrangements have been developed in accordance with local practices in the countries concerned. Pension benefits can be provided by state schemes; by defined contribution schemes, whereby retirement benefits are determined by the value of funds arising from contributions paid in respect of each employee; or by defined benefit schemes, whereby retirement benefits are based on employee pensionable remuneration and length of service. Some ‘hybrid’ defined benefit schemes also include defined contribution sections.

GSK Annual Report 2008135129
Financial statements
Notes to the financial statementscontinued

Notes to the financial statements
2828Pensions and other post-employment benefitscontinued
Pension costs of defined benefit schemes for accounting purposes have been calculated using the projected unit method. In certain countries pension benefits are provided on an unfunded basis, some administered by trustee companies. Formal, independent, actuarial valuations of the Group’s main plans are undertaken regularly, normally at least every three years.
Actuarial movements in the year are recognised through the statement of recognised income and expense. The UK and US discountcomprehensive income. Discount rates are derived from AA rated corporate bond yields andexcept in countries where there is no deep market in corporate bonds where government bond yields are intendedused. Discount rates are selected to reflect the term of the expected benefit payments. The expected rate of return on bonds reflects the portfolio mix of index-linked, government and corporate bonds. An equity risk premium of between 3% and 4% is added to longer term government bond yields to give the expected rate of return on equities. Projected inflation rate and pension increases are long-term predictions based on the yield gap between long-term index-linked and fixed interest Gilts. In the UK, mortality rates are determined by adjusting the PA92PCA00 standard mortality tables to reflect recent scheme experience. These rates are then projected to reflect improvements in life expectancy in line with the medium cohort (i.e. improvements at recently observed higher levels which are assumed to continue to 2020) with minimum improvements thereafter of 1% per year for males and 0.5% for females. In the USA, mortality rates are calculated using the RP2000 fully generational table, projected using scale AA, with the white collar adjustment.
The mortality assumptions for the UK and US schemes were reviewed in 2007 and updated in 2008. GSK expects to review these again in 2009.
The average life expectancy assumed now for an individual at the age of 60 and projected to apply in 20282029 for an individual then at the age of 60 is as follows:
                         
 UK USA  UK USA 
 Male Female Male Female  Male Female Male Female 
 Years Years Years Years  Years Years Years Years 
  
Current 26.8 28.1 24.5 26.2  27.3 28.2 24.5 26.2 
Projected for 2028 29.3 30.0 25.9 27.0 
Projected for 2029 29.6 29.5 26.4 27.3 
  
The assets of funded schemes are generally held in separately administered trusts, either as specific assets or as a proportion of a general fund, or are insurance contracts. Assets are invested in different classes in order to maintain a balance between risk and return. Investments are diversified to limit the financial effect of the failure of any individual investment. Following an asset liability study in 2007, the Group decided to adopt a strategy to reduce gradually the allocation of investment in equities. In the UKDuring 2009, it is proposedwas agreed that the strategy willpace of reallocation would be linked to the funding levels in the schemes and this will be considered further with the trusteesincreased primarily through investment of the UK schemesdeficit reduction contributions in 2009.bonds. The target allocation of equities and property in the US scheme washas been reduced from 80%to 50% of the total to 60% in 2008.total.
In the UK the defined benefit pension schemes operated for the benefit of former Glaxo Wellcome employees and former SmithKline Beecham employees remain separate. These schemes were closed to new entrants in 2001 and subsequent UK employees are entitled to join a defined contribution scheme. In the USA the former Glaxo Wellcome and SmithKline Beecham defined benefit schemes were merged during 2001. In addition, the Group operates a number of post-retirement healthcare schemes, the principal one of which is in the USA.
The Group has applied the following financial assumptions in assessing the defined benefit liabilities:
                                                                        
 UK USA Rest of World  UK USA Rest of World 
 2008 2007 2006 2008 2007 2006 2008 2007 2006  2009 2008 2007 2009 2008 2007 2009 2008 2007 
 % pa % pa % pa % pa % pa % pa % pa % pa % pa  % pa % pa % pa % pa % pa % pa % pa % pa % pa 
    
Rate of increase of future earnings 3.90 4.25 4.25 4.50 5.00 5.00 3.10 3.25 3.25  4.60 3.90 4.25 4.50 4.50 5.00 3.00 3.10 3.25 
Discount rate 6.20 5.75 5.00 6.00 6.00 5.75 5.00 4.75 4.25  5.70 6.20 5.75 5.75 6.00 6.00 4.70 5.00 4.75 
Expected pension increases 2.90 3.25 3.00 n/a n/a n/a 2.10 2.00 2.00  3.60 2.90 3.25 n/a n/a n/a 2.20 2.10 2.00 
Cash balance credit/conversion rate n/a n/a n/a 4.50 4.75 4.75 1.20 1.60 1.75  n/a n/a n/a 4.75 4.50 4.75 1.60 1.20 1.60 
Inflation rate 2.70 3.25 3.00 2.50 2.50 2.50 1.70 1.75 1.75  3.60 2.70 3.25 2.50 2.50 2.50 1.70 1.70 1.75 
    
GSK Annual Report 2009

136130 GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

Notes to the financial statements
2828Pensions and other post-employment benefitscontinued
The amounts recorded in the income statement and statement of recognisedcomprehensive income and expense for the three years ended 31st December 20082009 in relation to the defined benefit pension and post-retirement healthcare schemes were as follows:
                                
 Post-retirement  Post-retirement 
 Pensions benefits  Pensions benefits 
 UK USA Rest of World Group Group 
2008 £m £m £m £m £m 
2009 UK USA Rest of World Group Group 
£m £m £m £m £m 
Amounts charged to operating profit
  
Current service cost 126 61 59 246 30  121 66 64 251 35 
Past service cost — 10 2 12 4  –  (6) –  (6)  (27)
Expected return on pension scheme assets  (442)  (144)  (47)  (633) —   (347)  (121)  (46)  (514) – 
Interest on scheme liabilities 377 121 53 551 62  378 148 62 588 74 
Settlements and curtailments 175 12  (22) 165 22  54 7  (17) 44 8 
            
 236 60 45 341 118  206 94 63 363 90 
            
Actuarial (losses)/gains recorded in the statement of recognised income and expense  (776)  (576)  (82)  (1,434) 64 
    
Actuarial (losses)/gains recorded in the statement of comprehensive income  (578)  (5)  (77)  (660) 1 
        
                     
                  Post-retirement 
  Pensions  benefits 
2008 UK  USA  Rest of World  Group  Group 
 £m  £m  £m  £m  £m 
             
Amounts charged to operating profit                    
Current service cost  126   61   59   246   30 
Past service cost  –   10   2   12   4 
Expected return on pension scheme assets  (442)  (144)  (47)  (633)  – 
Interest on scheme liabilities  377   121   53   551   62 
Settlements and curtailments  175   12   (22)  165   22 
             
   236   60   45   341   118 
             
                     
Actuarial (losses)/gains recorded in the statement of comprehensive income  (776)  (576)  (82)  (1,434)  64 
             
                     
                  Post-retirement 
  Pensions  benefits 
2007 UK  USA  Rest of World  Group  Group 
 £m  £m  £m  £m  £m 
Amounts charged to operating profit                    
Current service cost  138   60   57   255   30 
Past service cost  –   (7)  1   (6)  – 
Expected return on pension scheme assets  (389)  (141)  (37)  (567)  – 
Interest on scheme liabilities  335   107   41   483   54 
Settlements and curtailments  24   5   (6)  23   6 
             
   108   24   56   188   90 
             
                     
Actuarial (losses)/gains recorded in the statement of comprehensive income  523   66   43   632   39 
             
The total actuarial losses recorded in the statement of comprehensive income since 1st January 2003 amount to £2,047 million.
The amounts included withwithin settlements and curtailments include £72 million (2008 – £208 millionmillion; 2007 – £35 million) of augmentation costs arising from major restructuring programmes (see Note 29 ‘Other provisions’).
                     
                  Post-retirement 
  Pensions  benefits 
  UK  USA  Rest of World  Group  Group 
2007 £m  £m  £m  £m  £m 
 
Amounts charged to operating profit
                    
Current service cost  138   60   57   255   30 
Past service cost  —   (7)  1   (6)  — 
Expected return on pension scheme assets  (389)  (141)  (37)  (567)  — 
Interest on scheme liabilities  335   107   41   483   54 
Settlements and curtailments  24   5   (6)  23   6 
    
   108   24   56   188   90 
    
Actuarial gains recorded in the statement of recognised income and expense  523   66   43   632   39 
    
                     
                  Post-retirement 
  Pensions  benefits 
  UK  USA  Rest of World  Group  Group 
2006 £m  £m  £m  £m  £m 
 
Amounts charged to operating profit
                    
Current service cost  135   66   56   257   48 
Past service cost  33   —   (2)  31   — 
Expected return on pension scheme assets  (333)  (142)  (30)  (505)  — 
Interest on scheme liabilities  307   113   42   462   57 
Settlements and curtailments  17   (2)  (4)  11   (14)
    
   159   35   62   256   91 
    
Actuarial gains recorded in the statement of recognised income and expense  111   169   10   290   139 
    
The total actuarial losses recorded in the statement of recognised income and expense since 1st January 2003 amount to £1,388 million.
GSK Annual Report 2009

GSK Annual Report 2008137131
Financial statements
Notes to the financial statementscontinued

Notes to the financial statements
2828Pensions and other post-employment benefitscontinued
The fair values of the assets and liabilities of the UK and US defined benefit pension schemes, together with aggregated data for other defined benefit pension schemes in the Group are as follows:
                                                  
          UK USA Rest of World Group 
 UK USA Rest of World Group  Average     
At 31st December 2009 Expected rate Fair Expected rate Fair expected rate Fair Fair 
of return value of return value of return value value 
 % £m % £m % £m £m 
 Average     
At 31st December 2008 Expected rate Fair Expected rate Fair expected rate Fair Fair 
of return value of return value of return value value 
% £m % £m % £m £m 
              
Equities 7.75 3,334 8.25 838 7.00 211 4,383  8.00 4,209 8.25 914 7.50 232 5,355 
Property 6.75 331 7.25 259 6.75 22 612  7.00 291 7.25 159 7.00 20 470 
Bonds 4.75 2,430 5.25 893 3.25 598 3,921  4.90 2,632 5.00 907 3.50 562 4,101 
Other assets 2.75 40 1.50 26 4.25 306 372  0.50 367 0.25 92 3.80 309 768 
              
Fair value of assets 6,135 2,016 1,137 9,288  7,499 2,072 1,123 10,694 
Present value of scheme obligations  (6,885)  (2,738)  (1,357)  (10,980)  (8,446)  (2,628)  (1,364)  (12,438)
      
  (947)  (556)  (241)  (1,744)
      
Unrecognised past service cost  (2) 1  (1)
      
Recognised on the balance sheet  (947)  (558)  (240)  (1,745)
      
 
Included in other non-current assets – – 23 23 
Included in pensions and other post-employment
benefits
  (947)  (558)  (263)  (1,768)
      
  (947)  (558)  (240)  (1,745)
      
 
Actual return on plan assets 1,076 243 65 1,384 
      
 UK USA Rest of World Group 
 Average     
At 31st December 2008 Expected rate Fair Expected rate Fair expected rate Fair Fair 
of return value of return value of return value value 
 % £m % £m % £m £m 
      
Equities 7.75 3,334 8.25 838 7.00 211 4,383 
Property 6.75 331 7.25 259 6.75 22 612 
Bonds 4.75 2,430 5.25 893 3.25 598 3,921 
Other assets 2.75 40 1.50 26 4.25 306 372 
      
Fair value of assets 6,135 2,016 1,137 9,288 
Present value of scheme obligations  (6,885)  (2,738)  (1,357)  (10,980)
      
         (750)  (722)  (220)  (1,692)
  (750)  (722)  (220)  (1,692)       
Unrecognised past service cost — — 1 1  – – 1 1 
Restriction on surplus — —  (6)  (6) – –  (6)  (6)
              
Recognised on the balance sheet  (750)  (722)  (225)  (1,697)  (750)  (722)  (225)  (1,697)
              
 
Included in other non-current assets — — 39 39  – – 39 39 
Included in pensions and other post-employment benefits  (750)  (722)  (264)  (1,736)  (750)  (722)  (264)  (1,736)
              
  (750)  (722)  (225)  (1,697)  (750)  (722)  (225)  (1,697)
              
  
Actual return on plan assets  (1,249)  (470)  (87)  (1,806)  (1,249)  (470)  (87)  (1,806)
           
                             
                     
      UK      USA      Rest of World  Group 
 
              Average       
At 31st December 2007 Expected rate  Fair  Expected rate  Fair  expected rate  Fair  Fair 
  of return  value  of return  value  of return  value  value 
  %  £m  %  £m  %  £m  £m 
        
Equities  8.00   4,578   8.50   1,446   7.50   223   6,247 
Property  7.00   338   7.50   213   7.00   20   571 
Bonds  5.00   2,322   5.00   335   4.00   430   3,087 
Other assets  6.00   55   4.75   10   4.25   212   277 
        
Fair value of assets      7,293       2,004       885   10,182 
Present value of scheme obligations      (7,371)      (1,945)      (1,022)  (10,338)
        
       (78)      59       (137)  (156)
        
                             
Included in other non-current assets      10       215       30   255 
Included in pensions and other post-employment benefits      (88)      (156)      (167)  (411)
        
       (78)      59       (137)  (156)
        
                             
Actual return on plan assets      557       187       19   763 
    
GSK Annual Report 2009

138132 GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

28Pensions and other post-employment benefitscontinuedNotes to the financial statements
                             
                     
      UK      USA  Rest of World  Group 
 
                  Average       
At 31st December 2006 Expected rate  Fair  Expected rate  Fair  expected rate  Fair  Fair 
  of return  value  of return  value  of return  value  value 
  %  £m  %  £m  %  £m  £m 
        
Equities  8.00   4,218   8.50   1,412   7.25   205   5,835 
Property  7.00   210   7.50   169   6.75   11   390 
Bonds  4.50   2,026   5.50   324   3.50   351   2,701 
Other assets  5.00   100   5.00   48   3.75   174   322 
        
Fair value of assets      6,554       1,953       741   9,248 
Present value of scheme obligations      (7,444)      (1,949)      (952)  (10,345)
        
       (890)      4       (211)  (1,097)
        
                             
Included in other non-current assets      —       160       19   179 
Included in pensions and other post-employment benefits      (890)      (156)      (230)  (1,276)
        
       (890)      4       (211)  (1,097)
        
                             
Actual return on plan assets      560       310       56   926 
    

GSK Annual Report 2008139
Financial statements
Notes to the financial statementscontinued

28Pensions and other post-employment benefitscontinued
                     
                  Post-retirement 
  Pensions  benefits 
  
  UK  USA  Rest of World  Group  Group 
Movements in defined benefit obligations £m  £m  £m  £m  £m 
 
Obligations at 1st January 2006  (7,054)  (2,150)  (922)  (10,126)  (1,308)
Exchange adjustments  —   267   30   297   151 
Service cost  (168)  (66)  (54)  (288)  (48)
Interest cost  (307)  (113)  (42)  (462)  (57)
Settlements and curtailments  (17)  2   12   (3)  14 
Actuarial (losses)/gains  (116)  1   (16)  (131)  139 
Scheme participants’ contributions  (11)  —   (3)  (14)  (8)
Benefits paid  229   110   43   382   54 
    
Obligations at 31st December 2006  (7,444)  (1,949)  (952)  (10,345)  (1,063)
    
Exchange adjustments  —   34   (80)  (46)  9 
Service cost  (138)  (53)  (58)  (249)  (30)
Interest cost  (335)  (107)  (41)  (483)  (54)
Settlements and curtailments  (24)  (5)  4   (25)  (6)
Actuarial gains  355   20   61   436   39 
Scheme participants’ contributions  (38)  —   (5)  (43)  -- 
Benefits paid  253   115   49   417   44 
Transfers to other provisions  —   —   —   —   89 
    
Recognised on the balance sheet at 31st December 2007  (7,371)  (1,945)  (1,022)  (10,338)  (972)
Unrecognised past service cost  —   —   —   —   (47)
    
Obligations at 31st December 2007  (7,371)  (1,945)  (1,022)  (10,338)  (1,019)
    
Exchange adjustments  —   (753)  (353)  (1,106)  (351)
Service cost  (126)  (71)  (61)  (258)  (28)
Interest cost  (377)  (121)  (53)  (551)  (62)
Settlements and curtailments  (175)  (12)  19   (168)  (16)
Actuarial gains  915   38   58   1,011   64 
Scheme participants’ contributions  (33)  —   (5)  (38)  (9)
Benefits paid  282   126   60   468   53 
Transfers  —   —   —   —   14 
    
Obligations at 31st December 2008  (6,885)  (2,738)  (1,357)  (10,980)  (1,354)
Unrecognised past service cost  —   —   1   1   51 
    
Recognised on the balance sheet at 31st December 2008  (6,885)  (2,738)  (1,356)  (10,979)  (1,303)
    
                             
  UK  USA  Rest of World  Group 
                  Average       
At 31st December 2007 Expected rate  Fair  Expected rate  Fair  expected rate  Fair  Fair 
 of return  value  of return  value  of return  value  value 
  %  £m  %  £m  %  £m  £m 
          
Equities  8.00   4,578   8.50   1,446   7.50   223   6,247 
Property  7.00   338   7.50   213   7.00   20   571 
Bonds  5.00   2,322   5.00   335   4.00   430   3,087 
Other assets  6.00   55   4.75   10   4.25   212   277 
          
Fair value of assets      7,293       2,004       885   10,182 
Present value of scheme obligations      (7,371)      (1,945)      (1,022)  (10,338)
          
       (78)      59       (137)  (156)
          
 
Included in other non-current assets      10       215       30   255 
Included in pensions and other post-employment
benefits		      (88)      (156)      (167)  (411)
          
       (78)      59       (137)  (156)
          
 
Actual return on plan assets      557       187       19   763 
          
GSK Annual Report 2009

133
Notes to the financial statements
28Pensions and other post-employment benefitscontinued
                     
                  Post-retirement 
  Pensions  benefits 
  UK  USA  Rest of World  Group  Group 
Movements in defined benefit obligations £m  £m  £m  £m  £m 
               
Obligations at 1st January 2007  (7,444)  (1,949)  (952)  (10,345)  (1,063)
Exchange adjustments  –   34   (80)  (46)  9 
Service cost  (138)  (53)  (58)  (249)  (30)
Interest cost  (335)  (107)  (41)  (483)  (54)
Settlements and curtailments  (24)  (5)  4   (25)  (6)
Actuarial gains  355   20   61   436   39 
Scheme participants’ contributions  (38)  –   (5)  (43)  – 
Benefits paid  253   115   49   417   44 
Transfers to other provisions  –   –   –   –   89 
               
Recognised on the balance sheet at 31st December 2007  (7,371)  (1,945)  (1,022)  (10,338)  (972)
               
Unrecognised past service cost  –   –   –   –   (47)
               
Obligations at 31st December 2007  (7,371)  (1,945)  (1,022)  (10,338)  (1,019)
Exchange adjustments  –   (753)  (353)  (1,106)  (351)
Service cost  (126)  (71)  (61)  (258)  (28)
Interest cost  (377)  (121)  (53)  (551)  (62)
Settlements and curtailments  (175)  (12)  19   (168)  (16)
Actuarial gains  915   38   58   1,011   64 
Scheme participants’ contributions  (33)  –   (5)  (38)  (9)
Benefits paid  282   126   60   468   53 
Transfers to other provisions  –   –   –   –   14 
               
Obligations at 31st December 2008  (6,885)  (2,738)  (1,357)  (10,980)  (1,354)
Exchange adjustments  –   294   109   403   133 
Service cost  (121)  (58)  (64)  (243)  (5)
Interest cost  (378)  (148)  (62)  (588)  (74)
Settlements and curtailments  (54)  (7)  68   7   (8)
Actuarial (losses)/gains  (1,307)  (127)  (102)  (1,536)  1 
Scheme participants’ contributions  (17)  –   (8)  (25)  (11)
Benefits paid  345   156   71   572   69 
Acquisitions  (29)  –   (19)  (48)  (4)
               
Obligations at 31st December 2009  (8,446)  (2,628)  (1,364)  (12,438)  (1,253)
Unrecognised past service cost  –   (2)  1   (1)  40 
               
Recognised on the balance sheet at 31st December 2009  (8,446)  (2,630)  (1,363)  (12,439)  (1,213)
               
The UK defined benefit schemes include defined contribution sections with obligations totalling £553£765 million at 31st December 2008 (2007 —2009 (2008 – £553 million; 2007 – £693 million, 2006 — £609 million).
The liability for the US post-retirement healthcare scheme has been assessed using the same assumptions as for the US pension scheme, together with the assumption for future medical inflation of 8.5% (2008 – 9.0% (2007 — 8.5%), reducing by 0.5% per year to 5% in 2017 and thereafter. During 2007, the US post-retirement healthcare scheme was amended. The main change was an increase in the cap on companyGroup costs. During 2009, both the US pension and post-retirement healthcare plan were amended. The changes resulted in a one-off gain of £37 million in the income statement. At 31st December 20082009 the US plan obligation was £1,102 million (2008 – £1,223 million (2007 —million; 2007 – £879 million; 2006 — £927 million). However, in accordance with IAS 19 the unvested part of a benefit improvement is not recognised immediately on the balance sheet but is recognised gradually through the income statement. At 31st December 2008,2009, the unrecognised amount of £40 million (2008 – £51 millionmillion; 2007 – £47 million) primarily relates to the effect of this change in the US post-retirement scheme. At 31st December 2007,2008, the past service cost not recognised from this scheme amounted to £47£53 million.
GSK Annual Report 2009

140 GSK Annual Report 2008134
Financial statements

Notes to the financial statementscontinued

Notes to the financial statements
28Pensions and other post-employment benefits continued
The defined benefit pension obligation is analysed as follows:
                   
 2008 2007 2006  2009 2008 2007 
 £m £m £m  £m £m £m 
      
Funded  (10,662)  (10,079)  (10,099)  (12,126)  (10,662)  (10,079)
Unfunded  (318)  (259)  (246)  (312)  (318)  (259)
      
  (10,980)  (10,338)  (10,345)  (12,438)  (10,980)  (10,338)
      
Post-retirement benefits are unfunded.
                    
 Post-retirement 
 Pensions benefits            
  Post-retirement 
 UK USA Rest of World Group Group  Pensions benefits 
Movements in fair values of assets £m £m £m £m £m  UK USA Rest of World Group Group 
—
Assets at 1st January 2006
 5,744 1,976 657 8,377 — 
Movements in fair values of assets £m £m £m £m £m 
          
Assets at 1st January 2007 6,554 1,953 741 9,248 – 
Exchange adjustments —  (255)  (30)  (285) —  –  (29) 68 39 – 
Expected return on assets 333 142 30 505 —  389 141 37 567 – 
Settlements and curtailments — —  (8)  (8) —  – – 2 2 – 
Actuarial gains 227 168 26 421 — 
Employer contributions 468 32 106 606 46 
Scheme participants’ contributions
 11 — 3 14 8 
Benefits paid  (229)  (110)  (43)  (382)  (54)
   
Assets at 31st December 2006 6,554 1,953 741 9,248 — 
   
Exchange adjustments —  (29) 68 39 — 
Expected return on assets 389 141 37 567 — 
Settlements and curtailments — — 2 2 — 
Actuarial gains 168 46  (18) 196 — 
Actuarial gains/(losses) 168 46  (18) 196 – 
Employer contributions 397 8 99 504 41  397 8 99 504 41 
Scheme participants’ contributions 38 — 5 43 3  38 – 5 43 3 
Benefits paid  (253)  (115)  (49)  (417)  (44)  (253)  (115)  (49)  (417)  (44)
             
Assets at 31st December 2007 7,293 2,004 885 10,182 —  7,293 2,004 885 10,182 – 
   
Exchange adjustments — 598 298 896 —  – 598 298 896 – 
Expected return on assets 442 144 47 633 —  442 144 47 633 – 
Settlements and curtailments — — 3 3 —  – – 3 3 – 
Actuarial losses  (1,691)  (614)  (134)  (2,439) —   (1,691)  (614)  (134)  (2,439) – 
Employer contributions 340 10 93 443 44  340 10 93 443 44 
Scheme participants’ contributions 33 — 5 38 9  33 – 5 38 9 
Benefits paid  (282)  (126)  (60)  (468)  (53)  (282)  (126)  (60)  (468)  (53)
             
Assets at 31st December 2008 6,135 2,016 1,137 9,288 —  6,135 2,016 1,137 9,288 – 
Exchange adjustments –  (221)  (93)  (314) – 
Expected return on assets 347 121 46 514 – 
Settlements and curtailments – –  (51)  (51) – 
Actuarial gains 729 122 19 870 – 
Employer contributions 594 190 110 894 58 
Scheme participants’ contributions 17 – 8 25 11 
Benefits paid  (345)  (156)  (71)  (572)  (69)
Acquisitions 22 – 18 40 – 
             
Assets at 31st December 2009 7,499 2,072 1,123 10,694 – 
          
The UK defined benefit schemes include defined contribution sections with account balances totalling £553£765 million at 31st December 2008 (2007 —2009 (2008 – £553 million; 2007 – £693 million, 2006 — £609 million).
During 2008,2009, the Group made special funding contributions to the UK pension schemes totalling £200£332 million (2007 — £285and £95 million to the US scheme (2008 – £200 million to the UK pension schemes) of which £166 million related to a prepayment of any contributions that would be due in 2009.. In 2006,2009, GSK formalisedreached an agreement with the trustees of the UK defined benefit pension schemes to make additional contributions each year in addition to the normal contributions, over a four-year period ending 31st December 2009 in order to eliminate the pension deficit identified at the 31st December 2008 actuarial funding valuation. The additional contributions are expected to be £365 million per year for 2010 to 2013. The contributions are based on a discount rate of 5.25% and an inflation assumption of 2.8%. The next review of contribution levels is expected to be at the 31st December 2011 actuarial valuation although the Group has agreed to review mortality assumptions before then pension deficitswhich could result in the funded schemes on an IAS 19 basis. GSK has also committedearlier revision to eliminate any future deficits that arise over a rolling five-year period. This agreement will be reviewed during 2009.contributions.
Employer contributions for 2009,2010, including special funding contributions, are estimated to be approximately £900£800 million in respect of defined benefit pension schemes and £55£60 million in respect of post-retirement benefits.
GSK Annual Report 2009

GSK Annual Report 2008141135
Financial statements
Notes to the financial statementscontinued

Notes to the financial statements
28Pensions and other post-employment benefitscontinued
        ��           
 Post-retirement                     
 Pensions benefits  Post-retirement 
  Pensions benefits 
 UK USA Rest of World Group Group  UK USA Rest of World Group Group 
History of experience gains and losses £m £m £m £m £m  £m £m £m £m £m 
          
2009
 
Experience gains of scheme assets 729 122 19 870 
Percentage of scheme assets at 31st December 2009  10%  6%  2%  8% 
        
 
Experience gains/(losses) of scheme liabilities 162  (27)  (15) 120 6 
Percentage of scheme obligations at 31st December 2009  2%  1%  1%  1% – 
        
 
Fair value of assets 7,499 2,072 1,123 10,694 – 
Present value of scheme obligations  (8,446)  (2,628)  (1,364)  (12,438)  (1,253)
          
Deficits in the schemes  (947)  (556)  (241)  (1,744)  (1,253)
        
 
2008
  
Experience losses of scheme assets (£m)  (1,691)  (614)  (134)  (2,439) 
Experience losses of scheme assets  (1,691)  (614)  (134)  (2,439) 
Percentage of scheme assets at 31st December 2008  28%  30%  12%  26%   28%  30%  12%  26% 
            
 
Experience (losses)/gains of scheme liabilities (£m)  (148) 2 1  (145)  (14)
Experience (losses)/gains of scheme liabilities  (148) 2 1  (145)  (14)
Percentage of scheme obligations at 31st December 2008  2% — —  1%  1%  2% – –  1%  1%
            
 
Fair value of assets 6,135 2,016 1,137 9,288 —  6,135 2,016 1,137 9,288 – 
Present value of scheme obligations  (6,885)  (2,738)  (1,357)  (10,980)  (1,354)  (6,885)  (2,738)  (1,357)  (10,980)  (1,354)
             
Deficits in the schemes  (750)  (722)  (220)  (1,692)  (1,354)  (750)  (722)  (220)  (1,692)  (1,354)
            
 
2007
  
Experience gains/(losses) of scheme assets (£m) 168 46  (18) 196 
Experience gains/(losses) of scheme assets 168 46  (18) 196 
Percentage of scheme assets at 31st December 2007  2%  2%  2%  2%   2%  2%  2%  2% 
            
 
Experience gains/(losses) of scheme liabilities (£m) 33  (30) 6 9 — 
Experience gains/(losses) of scheme liabilities 33  (30) 6 9 – 
Percentage of scheme obligations at 31st December 2007 —  2%  1% — —  –  2%  1% – – 
            
 
Fair value of assets 7,293 2,004 885 10,182 —  7,293 2,004 885 10,182 – 
Present value of scheme obligations  (7,371)  (1,945)  (1,022)  (10,338)  (1,019)  (7,371)  (1,945)  (1,022)  (10,338)  (1,019)
             
(Deficits)/surpluses in the schemes  (78) 59  (137)  (156)  (1,019)  (78) 59  (137)  (156)  (1,019)
            
 
2006
  
Experience gains of scheme assets (£m) 227 168 26 421 
Experience gains of scheme assets 227 168 26 421 
Percentage of scheme assets at 31st December 2006  3%  9%  4%  5%   3%  9%  4%  5% 
            
 
Experience (losses)/gains of scheme liabilities (£m)  (37)  (16)  (42)  (95) 17 
Experience (losses)/gains of scheme liabilities  (37)  (16)  (42)  (95) 17 
Percentage of scheme obligations at 31st December 2006 —  1%  4%  1%  2% –  1%  4%  1%  2%
            
 
Fair value of assets 6,554 1,953 741 9,248 —  6,554 1,953 741 9,248 – 
Present value of scheme obligations  (7,444)  (1,949)  (952)  (10,345)  (1,063)  (7,444)  (1,949)  (952)  (10,345)  (1,063)
             
(Deficits)/surpluses in the schemes  (890) 4  (211)  (1,097)  (1,063)  (890) 4  (211)  (1,097)  (1,063)
            
 
2005
  
Experience gains of scheme assets (£m) 647 3 35 685 
Experience gains of scheme assets 647 3 35 685 
Percentage of scheme assets at 31st December 2005  11% —  5%  8%   11% –  5%  8% 
            
Experience losses of scheme liabilities (£m)  (94)  (10)  (35)  (139)  (4)
 
Experience losses of scheme liabilities  (94)  (10)  (35)  (139)  (4)
Percentage of scheme obligations at 31st December 2005  1% —  4%  1% —   1% –  4%  1% – 
            
 
Fair value of assets 5,744 1,976 657 8,377 —  5,744 1,976 657 8,377 – 
Present value of scheme obligations  (7,054)  (2,150)  (922)  (10,126)  (1,308)  (7,054)  (2,150)  (922)  (10,126)  (1,308)
             
Deficits in the schemes  (1,310)  (174)  (265)  (1,749)  (1,308)  (1,310)  (174)  (265)  (1,749)  (1,308)
             
2004
 
Experience gains of scheme assets (£m) 196 86 23 305 
Percentage of scheme assets at 31st December 2004  4%  5%  4%  5% 
   
Experience (losses)/gains of scheme liabilities (£m)  (25)  (5)  (18)  (48) 47 
Percentage of scheme obligations at 31st December 2004 — —  2%  1%  5%
   
Fair value of assets 4,561 1,638 547 6,746 — 
Present value of scheme obligations  (5,735)  (1,750)  (761)  (8,246)  (1,005)
   
Deficits in the schemes  (1,174)  (112)  (214)  (1,500)  (1,005)
   
GSK Annual Report 2009

142136GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

Notes to the financial statements
28Pensions and other post-employment benefitscontinued
Sensitivity analysis
Effect of changes in assumptions used on the annual defined benefit pension and post-retirement costs or the benefit obligations:
     
  
£m 
 
 
A 0.25% decrease in discount rate would have the following approximate effect:    
Increase in annual pension cost  47 
Increase in annual post-retirement benefits cost  1– 
Increase in pension obligation  349440 
Increase in post-retirement benefits obligation  4436 
 
A one year increase in life expectancy would have the following approximate effect:    
Increase in annual pension cost  1824 
Increase in annual post-retirement benefits cost  47 
Increase in pension obligation  232249 
Increase in post-retirement benefits obligation  5149 
 
A 0.25% decrease in expected rates of returns on assets would have the following approximate effect:    
Increase in annual pension cost  2224 
 
A 1% increase in the rate of future healthcare inflation would have the following approximate effect:    
Increase in annual post-retirement benefits cost  52 
Increase in post-retirement benefits obligation  4345 
 
A 0.25% increase in inflation would have the following approximate effect:    
Increase in annual pension cost  2224 
Increase in pension obligation  265316 
 
29Other provisions
                                                
 Integration      Integration     
 Legal Major Employee and      Legal Major Employee and     
 and other restructuring related manufacturing Other    and other restructuring related manufacturing Other   
 disputes programmes provisions re-organisation provisions Total  disputes programmes provisions re-organisation provisions Total 
 £m £m £m £m £m £m  £m £m £m £m £m £m 
            
At 1st January 2008 1,152 246 234 116 179 1,927 
At 1st January 2009 1,903 652 268 90 186 3,099 
Exchange adjustments 424 91 48 13 42 618   (211)  (33)  (20)  (5)  (17)  (286)
Charge for the year 719 740 55 9 2 1,525  667 487 57 1 32 1,244 
Reversed unused  (149)  (7)  (16)  (14)  (30)  (216)  (86)  (15)  (4)  (7)  (13)  (125)
Unwinding of discount 8 5 — — 3 16  1 3 – – 7 11 
Utilised  (251)  (215)  (67)  (34)  (14)  (581)  (254)  (450)  (69)  (21)  (26)  (820)
Acquisition of subsidiary – – – – 17 17 
Transfer to pensions obligations —  (208) — — —  (208) –  (72) – – –  (72)
Reclassifications and other movements — — 14 — 4 18  – 2 9  (3) 165 173 
            
At 31st December 2008 1,903 652 268 90 186 3,099 
At 31st December 2009 2,020 574 241 55 351 3,241 
          
 
To be settled within one year 695 606 68 54 31 1,454  1,717 399 31 7 102 2,256 
To be settled after one year 1,208 46 200 36 155 1,645  303 175 210 48 249 985 
            
At 31st December 2008 1,903 652 268 90 186 3,099 
At 31st December 2009 2,020 574 241 55 351 3,241 
            
GSK Annual Report 2009

GSK Annual Report 2008143137
Financial statements
Notes to the financial statementscontinued

Notes to the financial statements

29Other provisionscontinued
Legal and other disputes
GSK is involved in a number of legal and other disputes, including notification of possible claims, as set out in Note 44 ‘Legal proceedings’. Provisions for legal and other disputes include amounts relating to US anti-trust, product liability, contract terminations, self-insurance, environmental clean-up and property rental. The company’s Directors, having taken legal and other specialist advice, have established provisions after taking into account insurance and other agreements and having regard to the relevant facts and circumstances of each matter and in accordance with accounting requirements.
The charge for the year included a charge of £278 million announced in January 2009 related to the US investigation into GSK’s marketing and promotional practices which originated in Colorado. The discount on these provisions decreasedincreased by £5 million in 2009 (2008 – £61 million in 2008 (2007 — £10 million decreased)decrease) and was calculated using risk-adjusted projected cash flows and risk-free rates of return. The movement in 20082009 includes a decreasean increase of £64£6 million arising from a change in the discount rate in the year. A number ofCertain products have a history of claims made and settlements which makes it possible to use an IBNR (incurred but not reported) actuarial technique to determine a reasonable estimate of the Group’s exposure for unasserted claims in relation to those products. Apart from the IBNR provision, no provisions have been made for unasserted claims. The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of litigation proceedings, investigations and possible settlement negotiations.
It is in the nature of the Group’s business that a number of these matters, including those provided using the IBNR actuarial technique, may be the subject of negotiation and litigation over several years. The largest individual amounts provided are expected to be settled within three years.
At 31st December 2008,2009, it is expected that £97 million
(2008 – £112 million (2007 — £89 million) of the provision made for legal and other disputes will be reimbursed by third party insurers. This amount is included within current’other receivables’ in Note 22, ‘Other non-current assets’ and non-current assets.Note 24, ‘Trade and other receivables’. For a discussion of legal issues, refer tosee Note 44 ‘Legal proceedings’.
Major restructuring programmes
In October 2007 GSK announced a significant new Operational Excellence programme to improve the effectiveness and productivity of its operations (see Note 7 ‘Major restructuring programmes’programme’). A significant expansion of the Operational Excellence programme was approved by the Board and announced in February 2009. Total costs forA further expansion was approved by the implementation of the expanded programme are now expected to be approximately £3.6 billion, to be incurred over the period from 2007 to 2011.Board and announced in February 2010.

Provisions for staff severance payments are made when management has made a formal decision to eliminate certain positions and this has been communicated to the groups of employees affected. No provision is made for staff severance payments that are made immediately.
Approximately 40% of the costs were incurred by 31st December 2008, and approximately 35% are expected to be incurred in 2009, 20% in 2010 and the balance mostly in 2011. In total, approximately 75% of these costs are expected to be cash expenditures and 25% are expected to be accounting write-downs. Uncertainties exist over the exact amount and timing of cash outflows, as a result of potential future exchange rate fluctuations and as many elements of the restructuring programme are subject to employee consultation procedures, making it difficult to predict with precision when these procedures will be completed. However, the majority of the remaining cash payments are expected to be made in 2009 and 2010.
In addition, costs of £34 million were incurred during the year under the restructuring programme related to the integration of the Reliant Pharmaceuticals, Inc. business in the USA, following its acquisition in December 2007.
Pension augmentations arising from staff redundancies of £208£72 million have been charged during the year and then transferred to the pension obligations provision as shown in Note 28 ‘Pensions and other post-employment benefits’. Asset write-downs have been recognised as impairments of property, plant and equipment in Note 17 ‘Property, plant and equipment’.
Employee related provisions
Employee related provisions includes the exchange offer incentive programme which operated at the time of the merger to encourage staff to convert Glaxo Wellcome or SmithKline Beecham share options into GlaxoSmithKline share options. The incentive is paid either when employees exercise the relevant options, or when the options lapse, up to 2010. There is no impact of discounting on this provision in 2008 (2007 increased by £7 million)2009 (2008 – £nil), which was calculated using risk-free rates of return. The Group also provides certain medical benefits to disabled employees and their spouses in the USA. At 31st December 2008,2009, the provision for these benefits amounted to £115£118 million. Other employee benefits reflect a variety of provisions for severance costs, jubilee awards and other long-service benefits.
Integration and manufacturing re-organisation
Provisions for integration and manufacturing re-organisations reflect costs related to ongoing restructuring programmes not included within the costs disclosed in Note 7, ‘Major restructuring programmes’.
Other provisions
The Group has recognised costs in previous yearscontingent consideration in respect of plans for the integrationacquisitions of the Glaxo WellcomeBristol Myers Squibb Pakistan (Private) Limited and SmithKline Beecham businesses. Implementation of the integration following the mergerStiefel Laboratories, Inc. as described in Note 38 ‘Acquisitions and disposals’. The contingent consideration is substantially complete. Costs recognisedpayable upon certain criteria being met by certain specified dates in the remaining merger integration provision in respectfuture. The initial recognition of identified severancesthese provisions are expected to be settled in 2009. Other smaller cost-saving initiatives since the merger are now included within this category.‘reclassifications and other movements’. The aggregate provision for these items amounts to £161 million at 31st December 2009.


GSK Annual Report 2009

144138GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

Notes to the financial statements
30Other non-current liabilities
                
 2008 2007  2009 2008 
 £m £m  £m £m 
    
Accruals and deferred income 96 68  124 96 
Other payables 331 300  481 331 
    
 427 368  605 427 
    
31Contingent liabilities
At 31st December 2008,2009, contingent liabilities, comprising guarantees, discounted bills and other items arising in the normal course of business, amounted to £134£150 million (2007 — £92(2008 – £134 million). At 31st December 2008,2009, £9 million (2008 – £12 million (2007 — £7 million) of financial assets were pledged as collateral for contingent liabilities. For discussions of tax and legal issues, refer to Note 14, ‘Taxation’ and Note 44, ‘Legal proceedings’.
32Net debt
                      
 2008 2007  2009 2008 
 Listing exchange £m £m  Listing exchange £m £m 
    
Current assets:           
Liquid investments    391   1,153  268 391 
Cash and cash equivalents    5,623   3,379  6,545 5,623 
  
    6,014   4,532  6,813 6,014 
  
Short-term borrowings:           
3.25%€ European Medium Term Note 2009
 London Stock Exchange  (481)  —  London Stock Exchange –  (481)
3.375%€ European Medium Term Note 2008
 London Stock Exchange  —   (736)
4.875% £ European Medium Term Note 2008 London Stock Exchange  —   (497)
US$ Floating Rate Note 2010 New York Stock Exchange  (621) – 
Commercial paper    —   (2,064)  (621) – 
Bank loans and overdrafts    (426)  (161)  (182)  (426)
Loan stock  (7) – 
Other loans    (1)  (6) –  (1)
Obligations under finance leases    (48)  (40)  (40)  (48)
  
    (956)  (3,504)  (1,471)  (956)
  
Long-term borrowings:           
3.25%€ European Medium Term Note 2009
 London Stock Exchange  —   (368)
US$ Floating rate Note 2010 New York Stock Exchange  (694)  —  New York Stock Exchange –  (694)
3.00%€ European Medium Term Note 2012
 London Stock Exchange  (718)  (548) London Stock Exchange  (662)  (718)
5.125%€ European Medium Term Note 2012
 London Stock Exchange  (2,154)  (1,645) London Stock Exchange  (1,985)  (2,154)
4.85% US$ US Medium Term Note 2013 New York Stock Exchange  (1,728)  —  New York Stock Exchange  (1,548)  (1,728)
4.375% US $ US Medium Term Note 2014 London Stock Exchange  (1,146)  (746)
4.375% US$ US Medium Term Note 2014 London Stock Exchange  (990)  (1,146)
3.875% € European Medium Term Note 2015
 London Stock Exchange  (1,404) – 
5.625%€ European Medium Term Note 2017
 London Stock Exchange  (1,193)  (912) London Stock Exchange  (1,100)  (1,193)
5.65% US$ US Medium Term Note 2018 New York Stock Exchange  (1,901)  —  New York Stock Exchange  (1,701)  (1,901)
4.00%€ European Medium Term Note 2025 London Stock Exchange  (709)  (542)
4.00% € European Medium Term Note 2025
 London Stock Exchange  (653)  (709)
5.25% £ European Medium Term Note 2033 London Stock Exchange  (979)  (978) London Stock Exchange  (979)  (979)
5.375% US $ US Medium Term Note 2034 London Stock Exchange  (344)  (249)
6.375% US $ US Medium Term Note 2038 New York Stock Exchange  (1,888)  — 
5.375% US$ US Medium Term Note 2034 London Stock Exchange  (308)  (344)
6.375% US$ US Medium Term Note 2038 New York Stock Exchange  (1,689)  (1,888)
6.375% £ European Medium Term Note 2039 London Stock Exchange  (693)  —  London Stock Exchange  (693)  (693)
5.25% £ European Medium Term Note 2042 London Stock Exchange  (984)  (984) London Stock Exchange  (984)  (984)
Loan stock    (8)  (9) –  (8)
Bank loans    (1)  (1) –  (1)
Other loans and private financing    (3)  (2) –  (3)
Obligations under finance leases    (88)  (83)  (90)  (88)
  
    (15,231)  (7,067)  (14,786)  (15,231)
  
Net debt    (10,173)  (6,039)  (9,444)  (10,173)
  
GSK Annual Report 2009

GSK Annual Report 2008145139
Financial statements
Notes to the financial statementscontinued

Notes to the financial statements
32Net debtcontinued
Current assets
Liquid investments are classified as available-for-sale investments. At 31st31st December 2008,2009, they included government bonds and US Treasury notes.notes and other government bonds. The effective interest rate on liquid investments at 31st31st December 20082009 was approximately 5.5% (2007 —4.6% (2008 – approximately 4.9%5.5%). Liquid investment balances at 31st31st December 20082009 earning interest at floating and fixed rates amount to £1 million and £390£267 million, respectively (2007 — £868(2008 – £1 million and £285£390 million).
The effective interest rate on cash and cash equivalents at 31st31st December 20082009 was approximately 1.8% (2007 —0.7% (2008 – approximately 5.0%1.8%). Cash and cash equivalents balances at 31st31st December 20082009 earning interest at floating and fixed rates amount to £6,372 million and £17 million, respectively (2008 – £5,520 million and £4 million, respectively (2007 — £3,257 million and £36 million).
GSK has tightened its criteria for holding cash equivalents and liquid investments in response to the credit crisis. GSK’s policy regarding the credit quality of cash and cash equivalents is referred to in Note 41, ‘Financial instruments and related disclosures’.
Short-term borrowings
Commercial paper comprises a US $10 billion programme, of which $nil$1 billion (£nil)621 million) was in issue at 31st31st December 2008
(2007 — $4.1 billion2009 (2008 – $nil (£2.1 billion)nil)), backed up by committed facilities of 364 days duration of $3.9 billion (£2.72.4 billion)
(2007 — $5 (2008 – $3.9 billion (£2.52.7 billion)) renewable annually, and liquid investments, cash and cash equivalents as shown in the table above.
The weighted average interest rate on current bank loans and overdrafts at 31st31st December 20082009 was 4.8% (2008 – 1.59% (2007 — 4.85%).
Long-term borrowings
At the year-end, GSK had long-term borrowings of £15.2£14.8 billion (2007 — £7.1(2008 – £15.2 billion) of which £9.8£9.5 billion (2007 — £4.4(2008 – £9.8 billion) falls due in more than five years.
Long-term borrowings repayable after five years carry interest at effective rates between 3.51%3.88% and 6.38%. The repayment dates range from 20142015 to 2042. The average effective interest rate of all notes at 31st31st December 20082009 was approximately 5.0% (2007 —4.9% (2008 – approximately 4.7%5.0%).
Secured liabilities
GSK had no loans secured by charges on non-current and current assets in the year (2007 —(2008 – £nil). The Group has pledged investments in US Treasury Notes with a par value of $198$103 million (2007 — $220(2008 – $198 million) as security against irrevocable letters of credit issued on the Group’s behalf in respect of the Group’s self-insurance activity. Provisions in respect of self-insurance are included within the provisions for legal and other disputes discussed in Note 29, ‘Other provisions’.
     
         2009 2008 
Finance lease obligations 2008
£m		 2007
£m		  £m £m 
    
Rental payments due within one year 53 45  44 53 
Rental payments due between one and two years 39 40  38 39 
Rental payments due between two and three years 30 26  26 30 
Rental payments due between three and four years 17 11  16 17 
Rental payments due between four and five years 6 5  6 6 
Rental payments due after five years 9 10  16 9 
    
Total future rental payments 154 137  146 154 
Future finance charges  (18)  (14)  (16)  (18)
    
Total finance lease obligations 136 123  130 136 
    
Finance lease obligations at 31st31st December 20082009 bearing interest at floating and fixed rates amount to £89 million and £41 million, respectively (2008 – £98 million and £38 million, respectively (2007 — £94 million and £29 million).
GSK Annual Report 2009

146140GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

Notes to the financial statements
33Share capital and share premium account
       
             Share 
 Share  Ordinary Shares of 25p each premium 
 Ordinary Shares of 25p each premium  Number £m £m 
 Number £m £m       
Share capital authorised
  
At 31st December 2006 10,000,000,000 2,500 
At 31st December 2007 10,000,000,000 2,500 
At 31st December 2008 10,000,000,000 2,500 
At 31st December 2007
 10,000,000,000 2,500 
At 31st December 2008
 10,000,000,000 2,500 
At 31st December 2009
 10,000,000,000 2,500 
    
Share capital issued and fully paid
  
At 1st December 2006 5,962,851,256 1,491 549 
Issued under share option schemes 28,750,592 7 309 
At 31st December 2006 5,991,601,848 1,498 858 
At 1st January 2007
 5,991,601,848 1,498 858 
Issued under share option schemes 37,307,678 9 408  37,307,678 9 408 
Share capital purchased and cancelled  (16,322,500)  (4) —   (16,322,500)  (4) – 
      
At 31st December 2007 6,012,587,026 1,503 1,266 
At 31st December 2007
 6,012,587,026 1,503 1,266 
Issued under share option schemes 5,640,119 2 60  5,640,119 2 60 
Share capital purchased and cancelled  (356,910,908)  (90) —   (356,910,908)  (90) – 
      
At 31st December 2008 5,661,316,237 1,415 1,326 
At 31st December 2008
 5,661,316,237 1,415 1,326 
Issued under share option schemes 3,812,482 1 42 
      
At 31st December 2009
 5,665,128,719 1,416 1,368 
      
              
 31st December 31st December  31st December 31st December 
 2008 2007  2009 2008 
    
Number (‘000) of shares issuable under outstanding options (Note 42) 220,459 218,182  213,110 220,459 
    
Number (‘000) of unissued shares not under option 4,118,225 3,769,231  4,121,761 4,118,225 
    
At 31st December 2008,2009, of the issued share capital, 128,969,260117,735,257 shares were held in the ESOP Trust, 474,194,158 shares were held as Treasury shares and 5,058,152,8195,073,199,304 shares were in free issue. All issued shares are fully paid. The nominal, carrying and market values of the shares held in the ESOP Trust are disclosed in Note 42, ‘Employee share schemes’. Share capital purchased and cancelled in 2008 includes the cancellation
The company did not make any purchases of 30 million of previously acquired Treasury shares.
A total of £15.3 billion has been spent by the company between 1st January 2001 and 31st December 2008 on buying its own shares for cancellation or to be held as Treasury shares.
£3.7 billion was spent on repurchases in 2008 and a total of £6.2 billion has been repurchased under the current £12 billion share buy-back programme.2009. There have been no purchases since 31st December 2008 under this programme and2009. GSK does not expect to make significant share repurchases in 2009.2010.
The table below sets out the monthly purchases under the share buy-back programme:GSK Annual Report 2009
         
      Average share price excluding 
  Number of shares  commission and stamp duty 
Month 000  £ 
 
January 2008  —   — 
February 2008  41,199   11.16 
March 2008  49,745   10.49 
April 2008  42,180   11.02 
May 2008  40,685   11.30 
June 2008  50,356   11.02 
July 2008  48,024   11.86 
August 2008  7,337   12.55 
September 2008  16,150   12.31 
October 2008  2,195   11.60 
November 2008  17,418   11.61 
December 2008  11,622   11.84 
 
Total  326,911   11.28 
 
All of the shares purchased in 2008 have been cancelled. For details of substantial shareholdings refer to ‘Substantial shareholdings’ on page 187.

GSK Annual Report 2008147141
Financial statements
Notes to the financial statementscontinued



Notes to the financial statements
34Movements in equity
                             
  Shareholders’ equity       
  Share  Share  Retained  Other      Minority  Total 
  capital  premium  earnings  reserves  Total  interests  equity 
  £m  £m  £m  £m  £m  £m  £m 
 
At 1st January 2006  1,491   549   5,579   (308)  7,311   259   7,570 
Recognised income and expense for the year  —   —   5,248   59   5,307   88   5,395 
Changes in minority shareholdings  —   —   —   —   —   2   2 
Distributions to minority shareholders  —   —   —   —   —   (87)  (87)
Dividends to shareholders  —   —   (2,598)  —   (2,598)  —   (2,598)
Ordinary Shares issued  7   309   —   —   316   —   316 
Ordinary Shares purchased and held as Treasury shares—   —   (1,348)  —   (1,348)  —   (1,348)
Ordinary Shares transferred by ESOP Trusts  —   —   —   151   151   —   151 
Write-down of shares held by ESOP Trusts  —   —   (163)  163   —   —   — 
Share-based incentive plans  —   —   226   —   226   —   226 
Tax on share based incentive plans  —   —   21   —   21   —   21 
 
At 31st December 2006  1,498   858   6,965   65   9,386   262   9,648 
Recognised income and expense for the year  —   —   6,104   (92)  6,012   122   6,134 
Distributions to minority shareholders  —   —   —   —   —   (77)  (77)
Dividends to shareholders  —   —   (2,793)  —   (2,793)  —   (2,793)
Ordinary Shares issued  9   408   —   —   417   —   417 
Ordinary Shares purchased and cancelled  (4)  —   (213)  4   (213)  —   (213)
Ordinary Shares purchased and held as Treasury shares—   —   (3,537)  —   (3,537)  —   (3,537)
Ordinary Shares acquired by ESOP Trusts  —   —   —   (26)  (26)  —   (26)
Ordinary Shares transferred by ESOP Trusts  —   —   —   116   116   —   116 
Write-down of shares held by ESOP Trusts  —   —   (292)  292   —   —   — 
Share-based incentive plans  —   —   237   —   237   —   237 
Tax on share-based incentive plans  —   —   4   —   4   —   4 
 
At 31st December 2007  1,503   1,266   6,475   359   9,603   307   9,910 
Recognised income and expense for the year  —   —   4,723   (53)  4,670   159   4,829 
Distributions to minority shareholders  —   —   —   —   —   (79)  (79)
Dividends to shareholders  —   —   (2,929)  —   (2,929)  —   (2,929)
Ordinary Shares issued  2   60   —   —   62   —   62 
Ordinary Shares purchased and cancelled  (90)  —   (3,706)  90   (3,706)  —   (3,706)
Ordinary Shares acquired by ESOP Trusts  —   —   —   (19)  (19)  —   (19)
Ordinary Shares transferred by ESOP Trusts  —   —   —   10   10   —   10 
Write-down of shares held by ESOP Trusts  —   —   (181)  181   —   —   — 
Share-based incentive plans  —   —   241   —   241   —   241 
Tax on share-based incentive plans  —   —   (1)  —   (1)  —   (1)
 
At 31st December 2008  1,415   1,326   4,622   568   7,931   387   8,318 
 

148GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

34Movements in equitycontinued
Retained earnings and other reserves amounted to £5,190£7,221 million at 31st December 2008 (2007 —2009 (2008 – £5,190 million; 2007 – £6,834 million, 2006 — £7,030 million) of which £390 million (2008 – £391 million (2007 —million; 2007 – £218 million, 2006 — £185 million) relates to joint ventures and associated undertakings. The cumulative translation exchange in equity is shown below in the following table:
                                        
 Net translation exchange included in:    Net translation exchange included in:   
 Total  Total 
 Fair value Retained Minority translation  Fair value Retained Minority translation 
 reserve earnings interest exchange  reserve earnings interest exchange 
 £m £m £m £m  £m £m £m £m 
        
At 1st January 2006 14 272  (69) 217 
Exchange movements on overseas net assets  (5)  (331)  (23)  (359)
At 31st December 2006 9  (59)  (92)  (142)
At 1st January 2007 9  (59)  (92)  (142)
Exchange movements on overseas net assets — 394 17 411  – 394 17 411 
        
At 31st December 2007 9 335  (75) 269  9 335  (75) 269 
Exchange movements on overseas net assets 1 952 64 1,017  1 952 64 1,017 
Recycling of exchange on liquidation of overseas subsidiary — 84 — 84 
Reclassification of exchange on liquidation of overseas subsidiaryReclassification of exchange on liquidation of overseas subsidiary – 84 – 84 
        
At 31st December 2008 10 1,371  (11) 1,370  10 1,371  (11) 1,370 
Exchange movements on overseas net assets 1  (161)  (34)  (194)
Reclassification of exchange on liquidation of overseas subsidiaryReclassification of exchange on liquidation of overseas subsidiary –  (44) –  (44)
        
At 31st December 2009 11 1,166  (45) 1,132 
        
The analysis of other reserves is as follows:
                                        
 ESOP Trust Fair value Cash flow Other    ESOP Trust Fair value Cash flow Other   
 shares reserve hedge reserve reserves Total  shares reserve hedge reserve reserves Total 
 £m £m £m £m £m  £m £m £m £m £m 
          
At 1st January 2006  (2,313) 76  (1) 1,930  (308)
Transferred to income and expense in the year on disposals —  (19) — —  (19)
Transferred to income and expense in the year on impairment —  (2) — —  (2)
Net fair value movement in the year — 82  (2) — 80 
Ordinary Shares transferred by ESOP Trusts 151 — — — 151 
Write-down of shares held by ESOP Trusts 163 — — — 163 
At 31st December 2006  (1,999) 137  (3) 1,930 65 
At 1st January 2007  (1,999) 137  (3) 1,930 65 
Transferred to income and expense in the year on disposals —  (34) — —  (34) –  (34) – –  (34)
Transferred to income and expense in the year on impairment —  (12) — —  (12) –  (12) – –  (12)
Net fair value movement in the year —  (42)  (4) —  (46) –  (42)  (4) –  (46)
Ordinary Shares purchased and cancelled — — — 4 4  – – – 4 4 
Ordinary Shares acquired by ESOP Trusts  (26) — — —  (26)  (26) – – –  (26)
Ordinary Shares transferred by ESOP Trusts 116 — — — 116  116 – – – 116 
Write-down of shares held by ESOP Trusts 292 — — — 292  292 – – – 292 
          
At 31st December 2007  (1,617) 49  (7) 1,934 359   (1,617) 49  (7) 1,934 359 
Transferred to income and expense in the year on disposals —  (32) — —  (32) –  (32) – –  (32)
Transferred to income and expense in the year on impairment —  (2) — —  (2) –  (2) – –  (2)
Net fair value movement in the year —  (23) 4 —  (19) –  (23) 4 –  (19)
Ordinary Shares purchased and cancelled — — — 90 90  – – – 90 90 
Ordinary Shares acquired by ESOP Trusts  (19) — — —  (19)  (19) – – –  (19)
Ordinary Shares transferred by ESOP Trusts 10 — — — 10  10 – – – 10 
Write-down of shares held by ESOP Trusts 181 — — — 181  181 – – – 181 
          
At 31st December 2008  (1,445)  (8)  (3) 2,024 568   (1,445)  (8)  (3) 2,024 568 
Transferred to income and expense in the year on disposals –  (40) 1 –  (39)
Transferred to income and expense in the year on impairment – 40 – – 40 
Net fair value movement in the year – 30  (4) – 26 
Ordinary Shares acquired by ESOP Trusts  (57) – – –  (57)
Ordinary Shares transferred by ESOP Trusts 13 – – – 13 
Write-down of shares held by ESOP Trusts 351 – – – 351 
Put option over minority interest – – –  (2)  (2)
          
At 31st December 2009  (1,138) 22  (6) 2,022 900 
          
Other reserves consist ofinclude various non-distributable merger and pre-merger reserves amounting to £1,849 million at 31st December 2008 (2007 —2009 (2008 – £1,849 million; 2006 —2007 – £1,849 million). Other reserves also include the capital redemption reserve created as a result of the share buy-back programme amounting to £175 million at 31st December 2008 (2007 —2009 (2008 – £175 million; 2007 – £85 million, 2006 — £81 million).
GSK Annual Report 2009

GSK Annual Report 2008 149142
Financial statements

Notes to the financial statementscontinued

Notes to the financial statements
35Related party transactions
GSK held an 18.7%a 16.8% interest in Quest Diagnostics Inc. at 31st December 2008 (2007 — 18.9%2009 (2008 – 18.7%). The Group and Quest Diagnostics are parties to a long-term contractual relationship under which Quest Diagnostics is the primary provider of clinical laboratory testing to support the Group’s clinical trials testing requirements worldwide. During 2008,2009, Quest Diagnostics provided services of £42£47 million (2007 — £38(2008 – £42 million) to the Group. At 31st December 2008,2009, the balance payable by GSK to Quest Diagnostics was £nil (2007 — £5 million)£10 million (2008 – £nil).
In 2008,March 2009, 5,749,157 shares in the Group’s associate Quest Diagnostics Inc. were sold for a cash consideration of £178 million, the majority of the shares being sold direct to Quest Diagnostics Inc. with the remainder being sold in the market.
On 30th November 2009, GSK completed the extension of its strategic relationship with Aspen Pharmacare Holdings Limited by the acquisition of a minority shareholding in the South African based pharmaceutical company. The transaction resulted in GSK acquiring 68.5 million shares in Aspen in consideration for the transfer of certain assets and in Aspen becoming an associate. A gain of £183 million on the transaction is included within other operating income. At 31st December 2009, GSK held 81.7 million shares, a 19% interest in Aspen.
During December 2009, GSK distributed £18 million of its products through Aspen’s extensive distribution network. At 31st December 2009, the balance due to GSK from Aspen was £18 million (2008 – £nil) and the balance payable by GSK to Aspen was £13 million (2008 – £nil).
In 2009, both the Group and Shionogi & Co. Ltd. entered into transactions with their 50/50 US joint venture company in support of the research and development activities conducted by that joint venture company. During 2008,2009, GSK provided services to the joint venture of £7£15 million (2007 — £2(2008 – £7 million). At 31st December 2008,2009, the balance due to GSK from the joint venture was £14 million (2008 – £5 million (2007 — £2 million).
Dr Shapiro, a former Non-Executive Director of GlaxoSmithKline plc, received fees of $85,000 (2007 — $85,000) of which $30,000 (2007 — $30,000) was in the form of ADS, from a subsidiary of the company, for her membership of the Group’s Scientific Advisory Board. These fees are included within ‘Annual remuneration’ in the Remuneration Report on page 90.
The aggregate compensation of the Directors CET and Company SecretaryCET is given in Note 10, ‘Employee Costs’.
36Adjustments reconciling profit after tax to operating cash flows
                        
 2008 2007 2006  2009 2008 2007 
 £m £m £m  £m £m £m 
      
Profit after tax 4,712 5,310 5,498  5,669 4,712 5,310 
Tax on profits 1,947 2,142 2,301  2,222 1,947 2,142 
Share of after tax profits of associates and joint ventures  (48)  (50)  (56)  (64)  (48)  (50)
Finance income/costs 530 191 65 
Finance income net of finance costs 713 530 191 
Depreciation 920 796 732  1,130 920 796 
Amortisation of intangible assets 311 226 226  432 311 226 
Impairment and assets written off 436 206 208  445 436 206 
Profit on sale of intangible assets  (170)  (5)  (158)  (835)  (170)  (5)
Profit on sale of investments in associates  (115) – – 
Profit on sale of equity investments  (33)  (32)  (18)  (40)  (33)  (32)
Changes in working capital:  
Increase in inventories  (411)  (457)  (298)  (132)  (411)  (457)
Decrease/(increase) in trade receivables 519  (77)  (255)
Decrease/(increase) in other receivables 22  (2)  (274)
(Decrease)/increase in trade payables  (39) 9 82 
(Decrease)/increase in other payables  (162)  (196) 272 
Increase/(decrease) in pension and other provisions 548  (123)  (270)
(Increase)/decrease in trade receivables  (473) 519  (77)
(Increase)/decrease in other receivables  (134) 22  (2)
Increase/(decrease) in trade payables 499  (39) 9 
Increase/(decrease) in other payables 409  (162)  (196)
(Decrease)/increase in pension and other provisions  (320) 548  (123)
Share-based incentive plans 241 237 226  179 241 237 
Other  (268)  (95)  (78)  (40)  (268)  (95)
      
 3,876 4,343 2,770 
      
 
Cash generated from operations 9,055 8,080 8,203  9,545 9,055 8,080 
      
As a result of two reclassifications, the cash generated from operations of £9,055 million is £106 million lower than that given in GSK’s unaudited Preliminary Results Announcement issued on 5th February 2009. In addition the decrease in liquid investments for the year has been reclassified from financing activities to investing activities. Comparative amounts have also been reclassified.GSK Annual Report 2009

150143GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

Notes to the financial statements
37Reconciliation of net cash flow to movement in net debt
             
  2008  2007  2006 
  £m  £m  £m 
 
Net debt at beginning of year  (6,039)  (2,450)  (1,237)
Increase/(decrease) in cash and bank overdrafts  1,148   1,411   (1,956)
Cash (inflow)/outflow from liquid investments  (905)  39   55 
Net increase in long-term loans  (5,523)  (3,276)  — 
Net repayment of/(increase in) short-term loans  3,059   (1,632)  739 
Net repayment of obligations under finance leases  48   39   34 
Exchange adjustments  (1,918)  (88)  (9)
Other non-cash movements  (43)  (82)  (76)
 
Movement in net debt  (4,134)  (3,589)  (1,213)
 
Net debt at end of year  (10,173)  (6,039)  (2,450)
 
                            
 2009 2008 2007 
 £m £m £m 
      
Net debt at beginning of year  (10,173)  (6,039)  (2,450)
Increase in cash and bank overdraftsIncrease in cash and bank overdrafts 1,054 1,148 1,411 
Cash (inflow)/outflow from liquid investments  (87)  (905) 39 
Net increase in long-term loans  (1,358)  (5,523)  (3,276)
Net repayment of/(increase in) short-term loansNet repayment of/(increase in) short-term loans 102 3,059  (1,632)
Net repayment of obligations under finance leasesNet repayment of obligations under finance leases 48 48 39 
Debt of subsidiary undertakings acquiredDebt of subsidiary undertakings acquired  (9) – – 
Exchange adjustments 1,041  (1,918)  (88)
Other non-cash movements  (62)  (43)  (82)
      
Movement in net debt 729  (4,134)  (3,589)
      
Net debt at end of year  (9,444)  (10,173)  (6,039)
      
                        
Analysis of changes in net debt At 31.12.07 Exchange Other Acquisitions Cash flow At 31.12.08  At 31.12.08 Exchange Other Reclassifications Acquisitions Cash flow At 31.12.09 
£m £m £m £m £m £m  £m £m £m £m £m £m £m 
              
Liquid investments 1,153 143 — —  (905) 391  391  (36) – – –  (87) 268 
              
 
Cash and cash equivalents 3,379 1,227 — 52 965 5,623  5,623  (171) – – 94 999 6,545 
Overdrafts  (158)  (124) — — 131  (151)  (151) 13 – – –  (39)  (177)
              
 3,221 1,103 — 52 1,096 5,472  5,472  (158) – – 94 960 6,368 
              
 
Debt due within one year:  
Commercial paper  (2,064) — — — 2,064 —  – – – – –  (621)  (621)
Eurobonds and Medium-Term Notes  (1,233)  (175)  (337) — 1,264  (481)  (481) 69  (38)  (641) – 470  (621)
Other  (49)  (10) 4 —  (269)  (324)  (324) 33  (20)  (25)  (9) 293  (52)
              
  (3,346)  (185)  (333) — 3,059  (805)  (805) 102  (58)  (666)  (9) 142  (1,294)
              
 
Debt due after one year:  
Eurobonds, Medium-Term Notes and private financing  (6,972)  (2,963) 327 —  (5,523)  (15,131)  (15,131) 1,128 24 641 –  (1,358)  (14,696)
Other  (95)  (16)  (37) — 48  (100)  (100) 5  (28) 25 – 8  (90)
              
  (7,067)  (2,979) 290 —  (5,475)  (15,231)  (15,231) 1,133  (4) 666 –  (1,350)  (14,786)
              
Net debt  (6,039)  (1,918)  (43) 52  (2,225)  (10,173)  (10,173) 1,041  (62) – 85  (335)  (9,444)
              
For further information on significant changes in net debt see Note 32 ‘Net debt’.
38Acquisitions and disposals
Details of the acquisition and disposal of subsidiary and associated undertakings, joint ventures and other businesses are given below:
2009
Acquisitions
Genelabs Technologies Inc.
On 7th January 2009, the Group acquired all of the share capital of Genelabs Technologies Inc, a California biotechnology company with a strong and focused portfolio in hepatitis C vaccines. The purchase price of £42 million included £12 million of cash and cash equivalents, with the remainder represented by preliminary net asset valuations of £30 million. This transaction has been accounted for by the purchase method of accounting. Genelabs Technologies Inc. had turnover of £nil and a loss after tax of £8 million for the year, of which turnover of £nil and £8 million of loss after tax related to the period since acquisition and are included in the Group accounts.
GSK Annual Report 2009

144
Notes to the financial statements
382008Acquisitions and disposalscontinued
2009
Acquisitions continued
Genelabs Technologies Inc. continued
             
  Book  Fair value  Fair 
  value  adjustment  value 
  £m  £m  £m 
       
Net assets acquired            
Intangible assets  –   1   1 
Property, plant and equipment  2   –   2 
Other assets including cash and cash equivalents  14   –   14 
Deferred tax asset  –   26   26 
Other liabilities  (2)  –   (2)
       
   14   27   41 
Goodwill  –   1   1 
       
Total consideration  14   28   42 
       
Bristol Myers Squibb Pakistan (Private) Limited
On 30th January 2009, the Group acquired all of the share capital of Bristol Myers Squibb Pakistan (Private) Limited and certain associated trademarks for a consideration of £25 million. As a result, the Group has acquired a portfolio of over 30 well-established pharmaceutical brands, many of which occupy leading market positions in key therapeutic disease areas in Pakistan. The purchase price of £25 million was represented by provisional valuations of intangible assets of £8 million, goodwill of £10 million and other net assets of £7 million. The goodwill arising on the acquisition reflects the potential for product growth throughout the region and the expected synergies for the Group. This transaction has been accounted for by the purchase method of accounting. Bristol Myers Squibb Pakistan (Private) Limited had a turnover of £15 million and a profit after tax of £0.3 million for the year, of which £14 million of turnover and £0.4 million of profit after tax related to the period since acquisition and are included in the Group accounts.
             
  Book  Fair value  Fair 
  value  adjustment  value 
  £m  £m  £m 
       
Net assets acquired            
Intangible assets  7   1   8 
Property, plant and equipment  5   3   8 
Other assets including cash and cash equivalents  6   –   6 
Deferred tax provision  (1)  –   (1)
Other liabilities  (5)  (1)  (6)
       
   12   3   15 
Goodwill  –   10   10 
       
Total consideration  12   13   25 
       
Certain businesses from UCB S.A.
On 31st March 2009, the Group acquired from UCB S.A. its marketed product portfolio across certain territories in Africa, the Middle East, Asia Pacific and Latin America which includes several leading pharmaceutical brands in a number of disease areas. Subsequent to this date the Group completed further country acquisitions which formed part of the original transaction. The purchase price of £477 million included £5 million of net cash, £445 million of intangible assets, £87 million of goodwill and £60 million of other net liabilities. These are provisional valuations and may change in the future. The goodwill arising on the acquisition of this business reflects the potential for product growth throughout the regions and the expected synergies for the Group. This transaction has been accounted for by the purchase method of accounting.
The transaction included acquisition of both a number of legal entities and product rights that had been previously marketed outside of those entities. The product portfolio acquired has been integrated into the GSK business in the period since acquisition and it is not therefore practicable to identify the result after tax arising as a result of this transaction for the period after acquisition.
Prior to acquisition it is estimated that the product portfolio recorded turnover of £26 million. Since acquisition GSK has recorded turnover of £77 million from the products acquired.
GSK Annual Report 2009

145
Notes to the financial statements
38Acquisitions and disposalscontinued
2009
Certain businesses from UCB S.A. continued
             
  Book  Fair value  Fair 
  value  adjustment  value 
  £m  £m  £m 
       
Net assets acquired            
Intangible assets  417   28   445 
Property, plant and equipment  1   –   1 
Cash and cash equivalents  5   –   5 
Deferred tax provision  –   (56)  (56)
Other liabilities  (5)  –   (5)
       
   418   (28)  390 
Goodwill  –   87   87 
       
Total consideration  418   59   477 
       
AZ Tika
On 21st April 2009, the Group acquired all of the share capital of AZ Tika, a wholly owned subsidiary of Astra Zeneca plc for a cash consideration of £146 million. As a result, the Group has acquired a number of leading over-the-counter products, predominantly sold in Sweden, includingAlvedon, the country’s leading analgesic treatment. The purchase price of £146 million was represented by intangible assets of £109 million, goodwill of £50 million and other net liabilities of £13 million. The goodwill arising on the acquisition reflects the potential for product growth and the expected synergies for the Group. This transaction has been accounted for by the purchase method of accounting. Prior to acquisition the products acquired were marketed outside the entity acquired. The products acquired have been integrated into the GSK business in the period since acquisition and it is not therefore practicable to identify the result after tax arising as a result of the transaction for the period after acquisition.
Prior to acquisition it is estimated that the product portfolio recorded turnover of £7 million. Since acquisition GSK has recorded turnover of £24 million from the products acquired.
             
  Book  Fair value  Fair 
  value  adjustment  value 
  £m  £m  £m 
       
Net assets acquired            
Intangible assets  72   37   109 
Other assets including cash and cash equivalents  –   1   1 
Deferred tax provision  –   (14)  (14)
       
   72   24   96 
Goodwill  –   50   50 
       
Total consideration  72   74   146 
       
Stiefel Laboratories, Inc.
On 22nd July 2009, the Group acquired all of the share capital of Stiefel Laboratories, Inc., the world’s largest private dermatological company for a cash consideration of £1,993 million net of cash acquired and including £326 million of debt repaid on acquisition. The purchase price of £2,219 million (including contingent cash consideration of £152 million payable upon certain criteria being met by specified dates in the future) included £74 million of cash and cash equivalents, £1,513 million of intangible assets, £885 million of goodwill, representing the potential for additional growth from the combination of the Stiefel business and GSK’s existing dermatology portfolio, and £253 million of other net liabilities. The purchase price includes potential obligations to make additional payments of up to $300 million (£183 million) depending on the future performance of certain products. These are provisional valuations and may change in the future. Stiefel Laboratories Inc. had a turnover of £547 million and a loss after tax (including restructuring costs) of £103 million for the year ended 31st December 2009, of which £248 million of turnover and £78 million of loss after tax (including restructuring costs) related to the period since acquisition and are included in the Group accounts. Since acquisition, Stiefel made an operating profit of £35 million before restructuring costs and intangible assets amortisation.
The new business will provide significant opportunities for both sales and cost synergies. Stiefel’s products will benefit from GSK’s global distribution and commercial organisations, particularly in markets such as Brazil, Russia, India, China and Japan. GSK’s products will benefit from Stiefel’s speciality sales force relationships and experienced management in dermatology.
Cost synergies for the new business are expected primarily from combining manufacturing and administrative functions. As previously reported, GSK expects to deliver annual pre-tax cost savings of up to £155 million by 2012 with restructuring costs of approximately £205 million, of which £71 million was charged in 2009 and the remainder will be incurred over the next two years. Excluding restructuring costs, the Stiefel acquisition resulted in a dilution of GSK’s earnings per share of less than 1% in 2009 and is expected to result in an improvement of 1-2% in 2010.
GSK Annual Report 2009

146
Notes to the financial statements
38Acquisitions and disposalscontinued
2009
Stiefel Laboratories, Inc. continued
             
  Book  Fair value  Fair 
  value  adjustment  value 
  £m  £m  £m 
       
Net assets acquired            
Intangible assets  274   1,239   1,513 
Property, plant and equipment  111   –   111 
Other assets including cash and cash equivalents  210   47   257 
Deferred tax provision  35   (331)  (296)
Other liabilities  (251)  –   (251)
       
   379   955   1,334 
Goodwill  –   885   885 
       
Total consideration  379   1,840   2,219 
       
ViiV Healthcare Limited
On 30th October 2009, GSK acquired Pfizer Inc.’s HIV business and combined it with its own HIV business to form ViiV Healthcare Limited, a sub-group owned 85% by GSK and 15% by Pfizer. The consideration given by GSK, representing 15% of the net value of GSK’s HIV business, contingent consideration and transaction costs, was valued at £383 million. This was represented by £595 million of intangible assets, £172 million of deferred tax liability, £21 million of other net assets, £316 million increase in minority interests and £255 million of goodwill representing the economies of scale gained from the combination of the two businesses and the potential for growth of both partners’ HIV products within ViiV Healthcare. These are provisional valuations and may change in the future. The minority interest represents Pfizer’s interest in ViiV Healthcare including the right to preferential dividends based on the sales performance of certain products.
GSK has recognised an accounting gain of £296 million on this transaction arising on the disposal of a 15% interest in GSK’s HIV business to Pfizer recorded at book value, in return for 85% of Pfizer’s HIV business recorded at fair value.
The acquired Pfizer HIV business had a turnover of £89 million and a loss after tax of £39 million for the year, of which, after taking account of the transition status in various territories, £1 million of turnover and £23 million of loss after tax has been recognised in the Group accounts, including restructuring costs.
             
  Book  Fair value  Fair 
  value  adjustment  value 
  £m  £m  £m 
       
Net assets acquired            
Intangible assets  13   582   595 
Other assets including cash and cash equivalents  10   11   21 
Deferred tax provision  –   (172)  (172)
       
   23   421   444 
Minority interests  –   (316)  (316)
Goodwill  –   255   255 
       
Total consideration  23   360   383 
       
             
Consideration            
Fair value of assets contributed by GSK          328 
Fair value of contingent equity contributed by GSK          37 
Direct costs          18 
       
Total consideration          383 
       
GSK Annual Report 2009

147
Notes to the financial statements
38Acquisitions and disposalscontinued
2009
Acquisitions continued
Laboratoire Pharmaceutique Algérien
On 10th November 2009, GSK acquired 100% of the share capital of the Algerian pharmaceutical, manufacturing and distribution group, Laboratoire Pharmaceutique Algérien, for a cash consideration of £26 million net of cash acquired. The purchase price of £29 million included £3 million of cash and cash equivalents, £35 million of goodwill, £15 million of other net liabilities, and a £6 million reduction in the value of an existing investment. These are provisional valuations and may change in the future. The goodwill reflects the potential for business synergies and further sales growth through the increase in GSK’s market presence following the acquisition of an established market participant. This transaction has been accounted for by the purchase method of accounting. Laboratoire Pharmaceutique Algérien had a turnover of £61 million for the year ended 31st December 2009. The result for the year has not yet been determined but is estimated to be a loss of £25 million. Turnover of £6 million and £1 million of loss related to the period after acquisition are recorded in the Group accounts.
             
  Book  Fair value  Fair 
  value  adjustment  value 
  £m  £m  £m 
       
Net assets acquired            
Property, plant and equipment  29   –   29 
Cash and cash equivalents  3   –   3 
Other liabilities  (44)  –   (44)
       
   (12)  –   (12)
Goodwill  –   35   35 
Fair value loss arising on increased investment in LPA Distribution  –   6   6 
       
Total consideration  (12)  41   29 
       
NovaMin Technology Inc.
On 18th December 2009, GSK acquired 100% of the share capital of NovaMin Technology Inc., a privately held US company for a cash consideration of £87 million. The purchase price included £51 million of intangible assets, £53 million of goodwill and £17 million of net liabilities. These are provisional valuations and may change in the future. The company has a specialty oral care ingredient for the treatment of dentine hypersensitivity and the goodwill arising from the acquisition represents the potential for additional growth from the combination of the company’s technology with specific GSK oral care products. This transaction has been accounted for by the purchase method of accounting. NovaMin Technology Inc. had a turnover of £0.1 million and a loss after tax of £0.5 million for the year, of which £nil of turnover and £nil of loss after tax related to the period since acquisition and are included in the Group accounts.
             
  Book  Fair value  Fair 
  value  adjustment  value 
  £m  £m  £m 
       
Net assets acquired            
Intangible assets  1   50   51 
Deferred tax provision  –   (17)  (17)
       
   1   33   34 
Goodwill  –   53   53 
       
Total consideration  1   86   87 
       
If the above acquisitions had been made at the beginning of the year, it is estimated that Group turnover would have increased by £477 million for the year. As some of the acquisitions have been fully integrated into the GSK business it is not practicable to separately identify the impact of the acquisitions on the Group profit for the year.
Other acquisitions in the year include £16 million invested in Shionogi-GlaxoSmithKline Holdings, L.P., a joint venture in which the Group has a 50% share and £20 million invested in Shenzhen GlaxoSmithKline – Neptunus Biologicals Co., Ltd, an associate in which the Group has an initial 40% share.
                                     
          Certain      Stiefel  Laboratoire  NovaMin       
Cash flows     BMS  businesses      Laboratories,  Pharmaceutique  Technology       
 Genelabs  (Pakistan)  of UCB S.A.  AZ Tika  Inc.  Algérien  Inc  Other  Total 
  £m  £m  £m  £m  £m  £m  £m  £m  £m 
                           
Cash consideration  42   23   477   146   2,067   29   87   44   2,915 
Cash and cash equivalents acquired  (12)  –   (5)  –   (74)  (3)  –   –   (94)
                           
Net cash consideration  30   23   472   146   1,993   26   87   44   2,821 
Contingent consideration  –   2   –   –   152   –   –   –   154 
                           
Net purchase consideration  30   25   472   146   2,145   26   87   44   2,975 
                           
GSK Annual Report 2009

148
Notes to the financial statements
38Acquisitions and disposalscontinued
2008
Acquisitions continued
Sirtris Pharmaceuticals Inc.
On 5th June 2008, the Group acquired 100% of the issued share capital of Sirtris Pharmaceuticals Inc., a biopharmaceutical company based in Massachusetts, USA for a cash consideration of £376 million. The company is focused on discovering and developing proprietary, orally available, small molecule drugs with the potential to treat diseases associated with ageing, including metabolic diseases such as Type 2 diabetes. Sirtris’ drug candidates are designed to mimic certain beneficial health effects of calorie restriction by activation of sirtuins, a recently discovered class of enzymes that Sirtris believes control the ageing process. This transaction has been accounted for by the purchase method of accounting. The goodwill arising on the acquisition reflects the potential for enabling GSK to enhance its metabolic, neurology, and immuno-inflammation research efforts by establishing a world-leading presence in the sirtuin field, aided by the existence in the company of a highly experienced development team that encompasses all aspects of sirtuin biology. Sirtris Pharmaceuticals Inc. had a turnover of £nil and a loss after tax of £25 million for the year, of which £nil of turnover and £14 million of loss after tax related to the period since acquisition and are included in the Group accounts.

GSK Annual Report 2008 151
Financial statements
Notes to the financial statementscontinued

38Acquisitions and disposals continued
                   
 Book Fair value Fair  Book Fair value Fair 
 value adjustment value  value adjustment value 
 £m £m £m  £m £m £m 
    
Net assets acquired  
Intangible assets — 106 106  – 106 106 
Property, plant and equipment 2 — 2  2 – 2 
Other assets including cash and cash equivalents 86 — 86  86 – 86 
Deferred tax provision —  (21)  (21) –  (21)  (21)
Other liabilities  (39) —  (39)  (39) –  (39)
    
 49 85 134  49 85 134 
Goodwill — 242 242  – 242 242 
    
Total consideration 49 327 376  49 327 376 
    
Bristol Myers Squibb (Egypt)
On 14th October 2008, the Group acquired the Egyptian mature products business of Bristol Myers Squibb (BMS) for a cash consideration of £140 million of this amount £10 million is deferred with payment being made when alternative supply arrangements are established. The Group acquired 20 branded products that occupy leading market positions in four therapeutic disease areas in Egypt, includingDuricef(antibiotic);CapozideandCapoten(ACE inhibitors);Theragran-H(iron supplement) andKenacomb(topical steroid). Total sales of this combined mature products pharmaceuticals business in 2007 were $48.5 million. The Group will also take ownership of BMS’s high quality manufacturing facility in Giza (Greater Cairo) that will continue to supply the acquired products. The Group will have the ability to export generic versions of the acquired products to markets outside of Egypt, thereby creating a further opportunity to drive sales growth in the Middle East and North Africa region and this fact is reflected in the goodwill arising on the acquisition. The business had a turnover of £25 million and a profit after tax of £4 million for the year, of which £4 million of turnover and £0.2 million of profit after tax are related to the period since acquisition and are included in the Group accounts. The fair values set out below are based on provisional valuations
             
  Book  Fair value  Fair 
  value  adjustment  value 
  £m  £m  £m 
       
Net assets acquired            
Intangible assets  –   65   65 
Property, plant and equipment  9   9   18 
Inventory  5   –   5 
       
   14   74   88 
Goodwill  –   52   52 
       
Total consideration  14   126   140 
       
GSK Annual Report 2009

149
Notes to the financial statements
38Acquisitions and may be subject to change in the future.
             
  Book  Fair value  Fair 
  value  adjustment  value 
  £m  £m  £m 
 
Net assets acquired            
Intangible assets  —   65   65 
Property, plant and equipment  9   9   18 
Inventory  5   —   5 
 
   14   74   88 
Goodwill  —   52   52 
 
Total consideration  14   126   140 
 
disposalscontinued
If Sirtris and BMS (Egypt) had been acquired at the beginning of the year,2008, combined Group turnover for the year would have been £24,373 million and combined Group profit for the year would have been £4,705 million.
                                     
 Shionogi-      Shionogi-     
 Euclid SR GlaxoSmithKline     
Cash flows Euclid SR GlaxoSmithKline     
 Sirtris BMS (Egypt) Partners LP Holdings Ltd Other Total  Sirtris BMS (Egypt) Partners LP Holdings, L.P. Other Total 
 £m £m £m £m £m £m  £m £m £m £m £m £m 
            
Cash consideration 376 130 2 6 1 515  376 130 2 6 1 515 
Cash and cash equivalents acquired  (52) — — — —  (52)  (52) – – – –  (52)
            
Net cash payment on acquisitions 324 130 2 6 1 463  324 130 2 6 1 463 
            
Euclid SR Partners, LP
During 2008, an additional £2 million was invested in Euclid SR Partners, LP, an associate in which the Group has a 38.6% share.
Shionogi-GlaxoSmithKline Holdings, LtdL.P.
During 2008, an additional £6 million was invested in Shionogi-GlaxoSmithKline Holdings, Ltd,L.P., a joint venture in which the Group has a 50% share.

1522007GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

38Acquisitions and disposalscontinued
2007
Acquisitions
Reliant Pharmaceuticals Inc.
On 18th December 2007, the Group acquired 100% of the issued share capital of Reliant Pharmaceuticals Inc., a pharmaceutical company based in the USA for a cash consideration of £814 million. The company specialises in the development and marketing of speciality medicines to combat heart disease which includes the US rights toLovaza, a treatment for adult patients with very high levels of triglycerides. This transaction has been accounted for by the purchase method of accounting. The goodwill arising on the acquisition reflects the potential for product growth throughout the USA and Puerto Rico and the expected synergies for the Group. Reliant Pharmaceuticals Inc. had a turnover of £276 million and a profit after tax of £8 million for the year, of which £8 million of turnover and £1 million of profit after tax related to the period since acquisition and are included in the Group accounts.
                   
 Book Fair value Fair  Book Fair value Fair 
 value adjustment value  value adjustment value 
 £m £m £m  £m £m £m 
    
Net assets acquired  
Intangible assets 13 600 613  13 600 613 
Property, plant and equipment 2 4 6  2 4 6 
Other assets including cash and cash equivalents 80 16 96  80 16 96 
Deferred tax provision —  (175)  (175) –  (175)  (175)
Other liabilities  (75)  (1)  (76)  (75)  (1)  (76)
    
 20 444 464  20 444 464 
Goodwill — 350 350  – 350 350 
    
Total consideration 20 794 814  20 794 814 
    
GSK Annual Report 2009

150
Notes to the financial statements
38Acquisitions and disposalscontinued
Domantis Limited
On 5th January 2007, the Group acquired 100% of the issued share capital of Domantis Limited, a drug discovery company based in the UK for a cash consideration of £234 million. The company is developing the next generation of antibody therapies. This transaction has been accounted for by the purchase method of accounting. The goodwill arising on the acquisition reflects the potential for combining the world-leading technology of Domantis with the development programme already in place within GSK to put the Group at the forefront of biotechnology. Domantis Limited had a turnover of £nil and a loss after tax of £10 million for the year, of which £nil of turnover and £9 million of loss after tax related to the period since acquisition and are included in the Group accounts.
             
  Book  Fair value  Fair 
  value  adjustment  value 
  £m  £m  £m 
 
Net assets acquired            
Intangible assets  —   51   51 
Property, plant and equipment  1   —   1 
Other assets including cash and cash equivalents  19   —   19 
Deferred tax provision  —   (14)  (14)
Other liabilities  (4)  —   (4)
 
   16   37   53 
Goodwill  —   181   181 
 
Total consideration  16   218   234 
 

GSK Annual Report 2008 153
Financial statements
Notes to the financial statementscontinued

38 Acquisitions and disposals continued
             
  Book  Fair value  Fair 
  value  adjustment  value 
  £m  £m  £m 
       
Net assets acquired            
Intangible assets  –   51   51 
Property, plant and equipment  1   –   1 
Other assets including cash and cash equivalents  19   –   19 
Deferred tax provision  –   (14)  (14)
Other liabilities  (4)  –   (4)
       
   16   37   53 
Goodwill  –   181   181 
       
Total consideration  16   218   234 
       
Praecis Pharmaceuticals Inc.
On 16th February 2007, the Group acquired 100% of the issued share capital of Praecis Pharmaceuticals, Inc., a biopharmaceutical company based in the USA, for a cash consideration of £39 million. The company has developed a more efficient method of identifying drug leads targeting human disease using proprietary technology. This transaction has been accounted for by the purchase method of accounting. Praecis Pharmaceuticals Inc. had a turnover of £nil and a loss after tax of £11 million for the year, of which £nil of turnover and £9 million of loss after tax related to the period since acquisition and are included in the Group accounts.
                   
 Book Fair value Fair  Book Fair value Fair 
 value adjustment value  value adjustment value 
 £m £m £m  £m £m £m 
    
Net assets acquired  
Intangible assets — 7 7  – 7 7 
Property, plant and equipment 1 — 1  1 – 1 
Other assets including cash and cash equivalents 25 — 25  25 – 25 
Deferred tax asset — 10 10  – 10 10 
Other liabilities  (6) —  (6)  (6) –  (6)
    
 20 17 37  20 17 37 
Goodwill — 2 2  – 2 2 
    
Total consideration 20 19 39  20 19 39 
    
                               
 Reliant Domantis Praecis Other Total 
Cash flows Reliant Domantis Praecis Other Total 
 £m £m £m £m £m  £m £m £m £m £m 
          
Cash consideration 814 234 39 1 1,088  814 234 39 1 1,088 
Cash and cash equivalents acquired  (20)  (16)  (24) —  (60)  (20)  (16)  (24) –  (60)
          
Net cash payment on acquisitions 794 218 15 1 1,028  794 218 15 1 1,028 
          
If Reliant, Domantis and Praecis had been acquired at the beginning of the year, combined Group turnover for the year would have been £22,984 million and combined Group profit for the year would have been £5,314 million.
2006GSK Annual Report 2009
Acquisitions
CNS, Inc.
On 19th December 2006, the Group acquired 100% of the issued share capital of CNS, Inc., a consumer healthcare company based in the USA for a cash consideration of £280 million. The company marketsBreathe Rightnasal dilator strips andFiberChoicedietary fibre supplements. These are the key intangible assets acquired and have been valued using a discounted cash flow calculation. This transaction has been accounted for by the purchase method of accounting. The goodwill arising on the acquisition reflects the potential for expansion of the brands into other overseas markets and the expected synergies for the Group. CNS, Inc. had a turnover of £71 million (2005 — £60 million) and a profit of £11 million (2005 — profit £9 million) for 2006 of which £2 million of turnover and £nil of profit related to the period since acquisition and are included in the Group accounts.
             
  Book  Fair value  Fair 
  value  adjustment  value 
  £m  £m  £m 
 
Net assets acquired            
Intangible assets  4   203   207 
Property, plant and equipment  1   —   1 
Other assets including cash and cash equivalents  44   —   44 
Deferred tax provision  —   (77)  (77)
Other liabilities  (7)  —   (7)
 
   42   126   168 
Goodwill  —   112   112 
 
Total consideration  42   238   280 
 

154151GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

38Acquisitions and disposals continued
Euclid SR Partners, LP
During 2006, an additional £5 million was invested in Euclid SR Partners, LP, an associate in which the Group has a 38.7% share.
Shionogi-GlaxoSmithKline Holdings Ltd
During 2006, an additional £8 million was invested in Shionogi GlaxoSmithKline Holdings Ltd, a joint venture in which the Group has a 50% share.
Pliva Research Institute Ltd.
In May 2006, the Group purchased the entire share capital of the Pliva Research Institute Ltd. for a cash consideration of £26 million, of this amount £8 million is deferred, with payment being made when phase I clinical trials are initiated.
GlaxoSmithKline K.K.
In August 2006, a Japanese subsidiary of the Group made a cash payment of £150 million to complete the purchase of the remaining 15% of the share capital held by the minority shareholder. This payment was preceded in the year by a dividendNotes to the minority shareholders of £7 million representing additional consideration.financial statements
                             
          Shionogi  Pliva          
      Euclid SR  GlaxoSmithKline  Research  GlaxoSmith-       
  CNS  Partners, LP  Holdings, Ltd  Institute  Kline K.K.  Other  Total 
Cash flows £m  £m  £m  £m  £m  £m  £m 
 
Cash consideration  280   5   8   18   157   —   468 
Cash and cash equivalents acquired(24)  —   —   (1)  —   —   (25)
 
Net cash payment on acquisitions256   5   8   17   157   —   443 
 
Net cash proceeds from disposals—   —   —   —   —   (5)  (5)
 
39Commitments
               
 2008 2007 
Contractual obligations and commitments 2009 2008 
 £m £m  £m £m 
    
Contracted for but not provided in the financial statements:  
Intangible assets 13,048 5,730  12,280 13,048 
Property, planty and equipment 489 597 
Property, plant and equipment 416 489 
Investments 56 65  86 56 
Purchase commitments 145 159  82 145 
Business combinations 227 —  – 227 
Pensions 597 650  1,460 597 
Other commitments 46 32  52 46 
Interest on loans 11,868 5,170  10,733 11,868 
Finance lease charges 18 14  16 18 
    
 26,494 12,417  25,125 26,494 
    
The commitments related to intangible assets include milestone payments, which are dependent on successful clinical development or on meeting specified sales targets, and which represent the maximum that would be paid if all milestones, however unlikely, are achieved. The amounts are not risk-adjusted or discounted. As the majority of the intangible commitments are denominated in US dollars, the significant strengtheningweakening of foreign currencies during the year has led to an increasedecrease in the commitments reported above. A number of commitments were made in 20082009 under licensing and other agreements, including arrangements with ActelionChroma Therapeutics Limited, Concert Pharmaceuticals, Limited, Archemix Corporation, Dynavax Technologies Corporation,Inc., Idenix Pharmaceuticals, Inc., Prosensa B.V. and Mpex Pharmaceuticals,Seattle Genetics, Inc.
The commitments relating to business combinations reflect agreements to acquire the issued share capital of Genelabs Technologies, Inc., Bristol Myers Squibb Pakistan (Private) Limited and AZ Tika SNC, the latter being subject to clearance by the Swedish Competition Authority.
In 2006,2009, GSK formalisedreached an agreement with the trustees of the UK pension schemes to make additional contributions in addition to the normal contributions, over a four-year period ending 31st December 2009 in order to eliminate the then funded pension deficits on an IAS 19 basis by that point.deficit identified at the 31st December 2008 actuarial funding valuation. The table above shows this commitment, net of £166 million of additional contributions made in 2008, but excludes the normal ongoing annual funding requirement of approximately £150 million. GSK has also committed to eliminate any future deficits that may arise over a rolling five-year period.

GSK Annual Report 2008155
Financial statements

Notes to the financial statementscontinued

39Commitmentscontinued
The Group also has other commitments which principally relate to revenue payments to be made under licences and other alliances.
Commitments in respect of future interest payable on loans are disclosed afterbefore taking into account the effect of interest rate swaps.
               
 2008 2007 
Commitments under non-cancellable operating leases 2009 2008 
 £m £m  £m £m 
    
Rental payments due within one year 140 101  111 140 
Rental payments due between one and two years 109 76  72 109 
Rental payments due between two and three years 76 58  50 76 
Rental payments due between three and four years 54 41  21 54 
Rental payments due between four and five years 22 33  14 22 
Rental payments due after five years 47 51  69 47 
    
Total commitments under non-cancellable operating leases 448 360  337 448 
    
40Post balance sheet events
On 23rd January 2009,17th February 2010, GSK acquired UCB’s marketed product portfolio across certain territories in Africa,received a Complete Response letter from the Middle East, Asia PacificFDA regarding the new drug application forHorizantExtended Release tablets for restless legs syndrome. The letter indicated that questions remained that precluded the approval ofHorizantfor restless legs syndrome at that time. GSK is evaluating the letter and Latin America, for £483 million.
On 26th February 2009, Synta Pharmaceuticals Corp. announced that, followingconsidering the identification of safety concerns, it had stopped a Phase III study on elesclomol, a compound it was developing jointly with GSK. GSK’sappropriate next steps. The Group’s intangible assets include £83£85 million relating to milestones paid to Synta Pharmaceuticals in relation to this compound, which are now likely to be impaired.compound. It is not yet possible to determine the final amount, if any, of any impairment that may be recorded in future periods, pending the completion of a full analysesanalysis of the data.situation.
Subsequent to the year-end, GSK has also completed business and product acquisitions with Genelabs and BMS Pakistan and collaboration agreements with Archemix and Idenix.Annual Report 2009

156152GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

Notes to the financial statements

41Financial instruments and related disclosures
GlaxoSmithKline plc reports in Sterling and pays dividends out of Sterling profits. The role of Corporate Treasury is to manage and monitor our external and internal funding requirements and financial risks in support of our corporatestrategic objectives. Treasury activities are governed by policies and procedures approved by the Board of Directors, most recently on 25th September 2008.1st October 2009.
A Treasury Management Group (TMG) chaired by our Chief Financial Officer, meets on a monthly basis to review treasury activities. Its members receive management information relating to treasury activities. Our internal auditors review the Treasury internal control environment regularly.
GSK uses a variety of financial instruments including derivatives, to finance its operations and derivative financial instruments to manage market risks from thosethese operations. Derivatives,These derivatives, principally comprising forward foreign currency contracts, interest rate and currency swaps, are used to swap borrowings and liquid assets into currencies required for Group purposes and to manage exposure to funding risks from changes in foreign exchange rates and interest rates.
GSK does not hold or issue derivative financial instrumentsderivatives for speculative purposes and our Treasury policies specifically prohibit such activity. All transactions in financial instruments are undertaken to manage the risks arising from underlying business activities, not for speculation.
Capital management
We manage our capital to ensure that entities in the Group are able to operate as going concerns and to optimise return to shareholders through an appropriate balance of debt and equity. The Board reviews the Group’s dividend policy and funding requirements annually.
The capital structure of the Group consists of net debt (see Note 32, ‘Net debt’) and shareholders’ equity (see Note 34, ‘Movements in equity’).
With recent’Consolidated statement of changes in financial markets we nowequity‘ on page 97).
We continue to expect more investment opportunities to arise that will allow the Group to invest in support of its strategic priorities. To ensure we have sufficient flexibility to take advantage of these opportunities we do not currently expect to make significant share repurchases in 2009.2010. Investment opportunities will continue to be assessed against strict financial criteria.
Our operations areGSK operates on a global basis, primarily through subsidiary companies established in the markets in which we trade. With significant levels of patent or trademark protection, our pharmaceutical products compete largely on product efficacy or differentiation rather than on price.
Selling margins are sufficient to cover normal operating costs and our operations are cash generative.
Operating cash flow is used to fund investment in research and development of new products. It is also used to make the routine outflows of capital expenditure, tax, dividends, and repayment of maturing debt and, to the extent determined by the Board, share repurchases.
Our policy is to borrow centrally, using a variety of capital market issues and borrowing facilities, to meet anticipated funding requirements.
These borrowings, together with cash generated from operations, are on-lent, andcontributed as equity to certain subsidiaries or used to fund our ongoing operationspay dividends and our acquisition strategy.make acquisitions. GSK did not make any share repurchases in 2009.
The totalTotal capital for(equity and net debt) of the Group has increased from £15,949 million in 2007 to £18,491 million in 2008. This has resulted primarily from an2008 to £20,186 million in 2009. The increase in net debt partially off setof £1,695 million principally represents the retained profit for the year offset by a decrease in total equity. The decrease in total equity principally arises from actuarial losses on defined benefit pension plans and a reduction in the year and furthernet debt. Net debt reduced compared with 2008 primarily as a consequence of GSK’s decision to suspend share repurchases partially offset by retained earnings. Net debt has primarily increasedin 2009. The Group’s positive cash generation along with the issuance of $9a€1.6 billion bond under our EMTN programme and $1 billion of debt under the US shelf registration statement and £700 million under the EMTN programme of primarily long term debt. Part of the proceeds were usedcommercial paper was sufficient to repay maturing short-term debt resultingand finance the Group’s acquisitions in anthe year whilst also increasing the Group’s overall increase in the cash position at the 31st December 2008.2009.
Liquidity risk
We manage our net borrowing requirements through a portfolio of long-term borrowings, including bonds, together with short-term finance under the US$10 billion commercial paper programme.
During the year, our committed undrawn bank facilities reduced from $5 billion to The commercial paper programme is backed by $3.9 billion as a consequence of the acquisition of ABN AMRO and the collapse of Lehman Brothers.committed facilities. The facilities were last renewed in October 2008.2009. We consider this level of committed facilities to be adequate given our current cash holdings. For further information on these facilities, please refer to Note 32 to the financial statements, ‘Net debt’. We also benefit from strong positive cash flow from operating units.
We have a European Medium Term Note programme of £10£15 billion. At 31st December 20082009, we had £7.9£8.5 billion of notes in issue under this programme. We also have a US shelf registration statement. At 31st December 20082009, we had $11.1$11 billion (£7.76.9 billion) of notes in issue under this programme. The TMG monitors the cash flow forecast on a monthly basis.
The long-term borrowings mature at dates between 20102012 and 2042. Our long-term debt ratings have remained stable since February 2008. Currently we are rated A+ stable outlook by Standard and Poor’s and A1 negativestable outlook by Moody’s.


GSK Annual Report 2008157
Financial statements
Notes to the financial statementscontinued


41Financial instruments and related disclosures continued
Our short-term debt ratings are A-1 and P-1 with Standard and Poor’s and Moody’s respectively.
As well as our committed facilities we also had substantial cash and liquid investments, which amounted to £6£6.8 billion at 31st December 2008.2009. We also benefit from strong positive cash flow from operating units.


GSK Annual Report 2009

153
Notes to the financial statements
41Financial instruments and related disclosurescontinued
Market risk
Interest rate risk management
The policy on interest rate risk management requireslimits the minimum amount of net borrowings at fixed ratesfloating interest payments to increase with the ratioa prescribed percentage of forecast interest payable to trading profit. The fixed to floating ratio is reviewed monthly by the TMG.
We use an interest rate swap to redenominate one of our external borrowings into the interest rate coupon required by GSK. The duration of this swap matches the duration of the principal instrument. Interest rate derivative instruments are accounted for as fair value or cash flow hedges of the relevant assets or liabilities.
Foreign exchange risk management
Foreign currency transaction exposureexposures arising on internal and external trade flows isare not hedged. The exposure of overseas operating subsidiaries to transaction risk is minimised by matching local currency income with local currency costs. For this purpose, our internal trading transactions are matched centrally and we manage intercompany payment terms to reduce foreign currency risk. Exceptional foreign currency cash flows are hedged selectively under the management of Corporate Treasury.
We manage the short-term cash surpluses or borrowing requirements of subsidiary companies centrally using forward contracts to hedge future repayments back into the originating currency.
We seek to denominate borrowings in the currencies of our principal assets and cash flows. These are primarily denominated in US dollars, Euros and Sterling. Certain borrowings are swapped into other currencies as required.
Borrowings denominated in, or swapped into, foreign currencies that match investments in overseas Group assets aremay be treated as a hedge against the relevant assets. Forward contracts are also used in major currencies to reduce our exposure to our investment in overseas Group assets (see ‘Net Investment Hedges’investment hedges’ section of this note for further details). The TMG reviewreviews the ratio of borrowings to assets for major currencies monthly.
Credit risk
The Group considers its maximum credit risk to be £13,265£13,434 million (2007 — £10,594(2008 – £13,265 million) which is the total of the Group’s financial assets with the exception of ‘Other’Other investments’ which do not bear credit risk. See page 155 for details on the Group’s total financial assets.
GSK’s greatest concentration of credit risk is £1.9£1.3 billion (2007 — £1.7(2008 – £1.9 billion) invested in US TreasuriesTreasury and Treasury-RepoTreasury repo only money market funds which bear credit exposure to the US government. See page 159 for details on the Group’s total financial assets.Government.
Treasury-related credit risk
In 2008,2009, credit risk increasedremained high during the global credit crisis. GSK has continued to maintain its conservative approach to counterparty risk throughout this period. A report on relationship banks and their credit ratings is presented annually to the TMG for approval.
The aggregate credit risk in respect of financial instruments the Group may have with one counterparty is limited by reference to the long-term credit ratings assigned for that counterparty by Moody’s and Standard and Poor’s. The table below sets out the credit ratings of counterparties for liquid investments, cash and cash equivalents and derivatives. The gross asset position on each derivative contract is considered for the purpose of this table, though, under the ISDA contracts, the amount at risk is the net asset position with each counterparty.
                                                     
 Credit Rating of Counterparty   Credit rating of counterparty   
2008 Aaa/AAA Aa1/AA+ Aa2/AA Aa3/AA- A1/A+ A2/A Total 
2009 Aaa/AAA Aa2/AA Aa3/AA- A1/A+ A2/A Baa2/BBB Baa3/BBB- Total 
 £m £m £m £m £m £m £m  £m £m £m £m £m £m £m £m 
  
Bank balances & deposits 64 — 1,019 642 2,035 18 3,778 
US Treasury & Treasury repo only money market funds 1,852 — — — — — 1,852 
Bank balances and deposits 793 1,385 1,359 1,467 102 27 73 5,206 
US Treasury and Treasury repo only money market funds 1,305 – – – – – – 1,305 
Corporate debt instruments 75 — — — — — 75  – – 10 – – – – 10 
Government securities 260 — 49 — — — 309  237 – – 43 – – 12 292 
3rd party financial derivatives — — 160 210 540 — 910  – 48 32 106 – – – 186 
  
Total 2,251 — 1,228 852 2,575 18 6,924  2,335 1,433 1,401 1,616 102 27 85 6,999 
  
                                                     
 Credit Rating of Counterparty   Credit rating of counterparty   
2007 Aaa/AAA Aa1/AA+ Aa2/AA Aa3/AA- A1/A+ A2/A Total 
2008 Aaa/AAA Aa2/AA Aa3/AA- A1/A+ A2/A Baa2/BBB Baa3/BBB- Total 
 £m £m £m £m £m £m £m  £m £m £m £m £m £m £m £m 
  
Bank balances & deposits 123 477 217 552 62 — 1,431 
US Treasury & Treasury repo only money market funds 1,713 — — — — — 1,713 
Bank balances and deposits 64 1,025 646 1,981 32 – 27 3,775 
US Treasury and Treasury repo only money market funds 1,852 – – – – – – 1,852 
Corporate debt instruments 64 — 245 861 — — 1,170  – – 75 – – – – 75 
Government securities 180 — 38 — — — 218  231 – – 49 – – 32 312 
3rd party financial derivatives — 43 355 17 51 — 466  – 160 210 540 – – – 910 
  
Total 2,080 520 855 1,430 113 — 4,998  2,147 1,185 931 2,570 32 – 59 6,924 
  
The credit ratings in the above tables are as assigned by Moody’s Investor Services and Standard and Poor’s respectively (and their global associates).respectively. Where the opinion of the two rating agencies differ, GSK assigns the lower rating of the two to the counterparty. Where local rating agency data is the only source available, the ratings are converted to global ratings equivalent to those of Moody’s Investor Services or Standard and Poor’s using published conversion tables. 2008 figures have been restated to reflect equivalent global or sovereign ratings where appropriate rather than those of local ratings providers.
GSK Annual Report 2009


158154GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

Notes to the financial statements
41Financial instruments and related disclosurescontinued
Our centrally managed cash reserves amounted to £4.3£4.9 billion at 31st December 2008,2009, all available within 3 months. The Group invests centrally managed liquid assets in bank deposits, Treasury-onlyAAA/Aaa rated US Treasuries and US Treasury repo only money market funds, with a credit rating of AAA/ Aaa (Standard and Poor’s/Moody’s Investors’ Services), short term corporate debt instruments with a minimum short-term credit rating of A-1/P1 and bank deposits.
Global counterparty limits are assigned to each of GSK’s banking and investment counterparties based on long-term credit ratings from Moody’s and Standard and Poor’s. Corporate Treasury’s usage of these limits is monitored daily by a Corporate Compliance Officer (CCO) independentwho operates independently of Corporate Treasury. Any breach of these limits would be reported to the CFO immediately. The CCO also monitors the credit rating of these counterparties and, when changes in ratings occur, notifies Corporate Treasury so that the appropriate amendmentchanges can be made to limits.investment levels or authority limits as appropriate.
Wholesale and retail credit risk
In the USA, in line with other pharmaceutical companies, the Group sells its products through a small number of wholesalers in addition to hospitals, pharmacies, physicians and other groups. Sales to the three largest wholesalers amount to approximately 84%85% of the Group’s US pharmaceutical sales. At 31st December 2008,2009, the Group had trade receivables due from these three wholesalers totalling £1,067£867 million (2007 — £915(2008 – £1,067 million). The Group is exposed to a concentration of credit risk in respect of these wholesalers such that, if one or more of them encounters financial difficulty, it could materially and adversely affect the Group’s financial results.
The Group’s credit risk monitoring activities relating to these wholesalers includes review of their quarterly financial information and Standard & Poor’s credit ratings, development of GSK internal risk ratings, and establishment and periodic review of credit limits. However, the Group believes there is no further credit risk provision required in excess of the normal provision for bad and doubtful debts (see Note 24, Trade‘Trade and other receivables’). Outside the USA no customers accountcustomer accounts for more than 5% of the trade receivables balance.
Fair value of financial assets and liabilities
The table on page 159155 presents the carrying amounts and the fair values of the Group’s financial assets and liabilities at 31st December 20082009 and 31st December 2007.2008.
The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair values:
• Cash and cash equivalents —– approximates to the carrying amount
 
• Liquid investments —– based on quoted market prices in the case of marketable securities; based on principal amounts in the case of non-marketable securities because of their short repricing periods
 
• Other investments —– investments traded in an active market determined by reference to the relevant stock exchange quoted bid price; other investments determined by reference to the current market value of similar instruments or by reference to the discounted cash flows of the underlying net assets
 
• Short-term loans and overdrafts —– approximates to the carrying amount because of the short maturity of these instruments
 
• Long-term loans —– based on quoted market prices in the case of the Eurobonds and other fixed rate borrowings; approximates to the carrying amount in the case of floating rate bank loans and other loans
 
• Forward exchange contracts —– based on market data and exchange rates at the balance sheet date
 
• Currency swaps —– based on market data at the balance sheet date
 
• Interest rate swaps —– based on the net present value of discounted cash flows
 
• Receivables and payables —– approximates to the carrying amount
 
• Lease obligations —– approximates to the carrying amount.
Fair value of investments in GSK shares
At 31st December 2008,2009, the ESOPEmployee Share Ownership Plan (ESOP) Trusts held GSK shares with a carrying value of £1,445£1,138 million (2007 — £1,617(2008 – £1,445 million) with a fair value of £1,657£1,554 million (2007 — £1,721(2008 – £1,657 million) based on quoted market price. The shares represent purchases by the ESOP Trusts to satisfy future exercises of options and awards under employee incentive schemes. The carrying value, which is the lower of cost or expected proceeds, of these shares has been recognised as a deduction from other reserves. At 31st December 2008,2009, GSK held Treasury shares at a cost of £6,286 million (2007 — £6,683(2008 – £6,286 million) which has been deducted from retained earnings.
Committed facilities
The Group has committed facilities to back up the commercial paper programme of $3.9 billion (£2.72.4 billion) (2007 — $5(2008 – $3.9 billion (£2.52.7 billion)) of 364 days duration, renewable annually. At 31st December 2008,2009, undrawn committed facilities totalled $3.9 billion (£2.72.4 billion) (2007 — $5(2008 – $3.9 billion (£2.52.7 billion)).


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155

Notes to the financial statements
41Financial instruments and related disclosurescontinued
                 
  2009  2008 
  Carrying  Fair  Carrying  Fair 
  value  value  value  value 
  £m  £m  £m  £m 
            
Cash and cash equivalents  6,545   6,545   5,623   5,623 
                 
Available-for-sale investments:                
Liquid investments:                
– Government bonds  254   254   299   299 
– other  14   14   92   92 
                 
            
Total liquid investments  268   268   391   391 
Other investments  454   454   478   478 
                 
Loans and receivables:                
Trade and other receivables and Other non-current
assets in scope of IAS 39		  6,424   6,424   6,288   6,288 
                 
Held-for-trading financial assets:                
Derivatives designated as accounting hedges  104   104   111   111 
Other derivatives  93   93   852   852 
                 
            
Total financial assets  13,888   13,888   13,743   13,743 
            
                 
Financial liabilities measured at amortised cost:                
Borrowings:                
– bonds in a designated hedging relationship  (6,139)  (6,499)  (5,693)  (5,813)
– other bonds  (9,178)  (9,864)  (9,919)  (10,214)
– commercial paper  (621)  (621)  –   – 
– bank loans and overdrafts  (182)  (182)  (427)  (427)
– other loans and private financing  (7)  (7)  (12)  (12)
– obligations under finance leases  (130)  (130)  (136)  (136)
                 
            
Total borrowings  (16,257)  (17,303)  (16,187)  (16,602)
Trade and other payables and Other non-current liabilities in scope of IAS 39  (6,051)  (6,051)  (5,452)  (5,452)
                 
Held-for-trading financial liabilities:                
Derivatives designated as accounting hedges  (55)  (55)  (638)  (638)
Other derivatives  (113)  (113)  (116)  (116)
                 
            
Total financial liabilities  (22,476)  (23,522)  (22,393)  (22,808)
            
Net financial assets and financial liabilities  (8,588)  (9,634)  (8,650)  (9,065)
            
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Notes to the financial statements
41Financial instruments and related disclosurescontinued
The following tables categorise the Group’s financial assets and liabilities held at fair value by the valuation methodology applied in determining their fair value. Where possible, quoted prices in active markets are used (Level 1). Where such prices are not available, the asset or liability is classified as Level 2, provided all significant inputs to the valuation model used are based on observable market data. If one or more of the significant inputs to the valuation model is not based on observable market data, the instrument is classified as Level 3.
Financial assets at fair value
                 
At 31st December 2009 Level 1  Level 2  Level 3  Total 
 £m  £m  £m  £m 
          
Held–for–trading financial assets                
Derivatives designated as accounting hedges  –   104   –   104 
Other derivatives  –   93   –   93 
                 
Available–for–sale financial assets                
Liquid investments  249   19   –   268 
Other investments  245   –   209   454 
          
   494   216   209   919 
          
Financial liabilities at fair value
                 
At 31st December 2009 Level 1  Level 2  Level 3  Total 
 £m  £m  £m  £m 
          
Held–for–trading financial liabilities                
Derivatives designated as accounting hedges  –   (55)  –   (55)
Other derivatives  –   (113)  –   (113)
          
   –   (168)  –   (168)
          
Movements in the year for financial instruments measured using Level 3 valuation methods are presented below:
     
  Other 
  GSK Annual Report 2008159investments 
  Financial statements
Notes to the financial statementscontinued

£m 
   
At 1st January 2009159
Losses recognised in profit or loss(11)
Gains recognised in other comprehensive income1
Additions81
Disposals(4)
Transfers to/from Level 3–
Exchange(17)
At 31st December 2009209
  
41Financial instruments and related disclosurescontinued
                 
  2008  2007 
  Carrying  Fair  Carrying  Fair 
  value  value  value  value 
  £m  £m  £m  £m 
 
Cash and cash equivalents  5,623   5,623   3,379   3,379 
Available-for-sale investments:                
Liquid investments:                
— redeemable shares  —   —   736   736 
— government bonds  299   299   205   205 
— other  92   92   212   212 
 
Total liquid investments  391   391   1,153   1,153 
Other investments  478   478   517   517 
                 
Loans and receivables:                
Trade and other receivables and Other non-current assets in scope of IAS 39  6,288   6,288   5,586   5,586 
                 
Held-for-trading financial assets:                
Derivatives designated as accounting hedges  111   111   175   175 
Other derivatives  852   852   301   301 
 
Total financial assets  13,743   13,743   11,111   11,111 
 
Financial liabilities measured at amortised cost:                
Borrowings:                
— bonds in a designated hedging relationship  (5,693)  (5,813)  (5,452)  (5,433)
— other bonds  (9,919)  (10,214)  (2,753)  (2,599)
— commercial paper  —   —   (2,064)  (2,064)
— bank loans and overdrafts  (427)  (427)  (171)  (171)
— other loans and private financing  (12)  (12)  (8)  (8)
— obligations under finance leases  (136)  (136)  (123)  (123)
 
Total borrowings  (16,187)  (16,602)  (10,571)  (10,398)
Trade and other payables and Other non-current liabilities in scope of IAS 39  (5,452)  (5,452)  (4,450)  (4,450)
 
Held-for-trading financial liabilities:                
Derivatives designated as accounting hedges  (638)  (638)  (226)  (226)
Other derivatives  (116)  (116)  (44)  (44)
 
Total financial liabilities  (22,393)  (22,808)  (15,291)  (15,118)
 
Net financial assets and financial liabilities  (8,650)  (9,065)  (4,180)  (4,007)
 

     
  2009 
  160GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

£m 
   
Losses relating to Level 3 financial assets included in Other operating
income which are attributable to assets held at the end of the year		(11)
  
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Notes to the financial statements
41Financial instruments and related disclosurescontinued
Trade and other receivables and other non-current assets in scope of IAS 39
The following table reconciles tradefinancial assets within Trade and other receivables and otherOther non-current assets which fall within the scope of IAS 39 to the relevant balance sheet amounts. The financial assets are predominantly non-interest earning. Other assets include tax receivables, pension surplus balances and prepayments, which are outside the scope of IAS 39. The financial assets are predominantly non-interest earning.
             
 2008 2007  2009 2008 
 £m £m  £m £m 
    
Trade and other receivables (Note 24) 6,265 5,495  6,492 6,265 
Other non-current assets (Note 22) 579 687  583 579 
    
 6,844 6,182  7,075 6,844 
  
  
Analysed as:  
Financial assets in scope of IAS 39 6,288 5,586  6,424 6,288 
Other assets 556 596  651 556 
    
 6,844 6,182  7,075 6,844 
    
The following table shows the age of such financial assets which are past due and for which no provision for bad or doubtful debts has been raised:made:
         
  2008  2007 
  £m  £m 
 
Past due by 1—30 days  310   288 
Past due by 31—90 days  154   101 
Past due by 91—180 days  115   97 
Past due by 181—365 days  89   108 
Past due by more than 365 days  117   214 
 
   785   808 
 
         
  2009  2008 
  £m  £m 
      
Past due by 1–30 days  262   310 
Past due by 31–90 days  105   154 
Past due by 91–180 days  60   115 
Past due by 181–365 days  54   89 
Past due by more than 365 days  78   117 
      
   559   785 
      
Amounts past due by greater than 90 days total £321£192 million (2007 — £419(2008 – £321 million). Of this balance £227£132 million (2007 — £315(2008 – £227 million) relates to receivables due from state hospital authorities in certain European countries. Given the profile of our customers, including large wholesalers and government backed agencies, no further credit risk has been identified with the trade receivables not past due other than those balances for which an allowance has been made.
Trade and other payables and other non-current liabilities in scope of IAS 39
The following table reconciles tradefinancial liabilities within Trade and other payables and otherOther non-current liabilities which fall within the scope of IAS 39 to the relevant balance sheet amounts. The financial liabilities are predominantly non-interest bearing. Accrued wages and salaries are included within financial liabilities. Other liabilities include payments on account and tax and social security payables, which are outside the scope of IAS 39. The financial liabilities are predominantly non-interest bearing.
             
 2008 2007  2009 2008 
 £m £m  £m £m 
    
Trade and other payables (Note 27)  (6,075)  (4,861)  (6,772)  (6,075)
Other non-current liabilities (Note 30)  (427)  (368)  (605)  (427)
    
  (6,502)  (5,229)  (7,377)  (6,502)
  
  
Analysed as:  
Financial liabilities in scope of IAS 39  (5,452)  (4,450)  (6,051)  (5,452)
Other liabilities  (1,050)  (779)  (1,326)  (1,050)
    
  (6,502)  (5,229)  (7,377)  (6,502)
    
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GSK Annual Report 2008161
Financial statements
Notes to the financial statementscontinued


41Financial instruments and related disclosurescontinued
Debt interest rate repricing table
The following table sets out the exposure of the Group to interest rates on debt before and after the effect of interest rate swaps. The maturity analysis of fixed rate debt is stated by contractual maturity and of floating rate debt by interest rate repricing dates. For the purpose of this table, debt is defined as all classes of borrowings other than obligations under finance leases.
                                       
 2008 2007  2009 2008 
 Effect of Effect of    Effect of Effect of   
 interest interest    interest interest   
 Debt rate swaps Total Debt rate swaps Total  Debt rate swaps Total Debt rate swaps Total 
 £m £m £m £m £m £m  £m £m £m £m £m £m 
            
Floating and fixed rate debt less than one yearFloating and fixed rate debt less than one year (901)  (1,146)  (2,047)  (3,455)  (746)  (4,201)  (1,431)  (990)  (2,421)  (901)  (1,146)  (2,047)
Between one and two years  (703) —  (703)  (369) —  (369) – – –  (703) –  (703)
Between two and three years — — —  (1) —  (1)  (2,647) –  (2,647) – – – 
Between three and four years  (2,872) —  (2,872)  (1) —  (1)  (1,548) –  (1,548)  (2,872) –  (2,872)
Between four and five years  (1,728) —  (1,728)  (2,194) —  (2,194)  (990) 990 –  (1,728) –  (1,728)
Between five and ten years  (4,240) 1,146  (3,094)  (4,409) 746  (3,663)  (4,205) –  (4,205)  (4,240) 1,146  (3,094)
Greater than ten years  (5,597) —  (5,597) — — —   (5,306) –  (5,306)  (5,597) –  (5,597)
            
Total  (16,041) —  (16,041)  (10,429) —  (10,429)  (16,127) –  (16,127)  (16,041) –  (16,041)
          
Original issuance profile:  
Fixed rate interest  (14,922) 1,146  (13,776)  (8,204) 1,979  (6,225)  (14,696) 990  (13,706)  (14,922) 1,146  (13,776)
Floating rate interest  (1,119)  (1,146)  (2,265)  (2,225)  (1,979)  (4,204)  (1,430)  (990)  (2,420)  (1,119)  (1,146)  (2,265)
            
Total interest bearing  (16,041) —  (16,041)  (10,429) —  (10,429)  (16,126) –  (16,126)  (16,041) –  (16,041)
Non-interest bearing  (10) —  (10)  (19) —  (19)  (1) –  (1)  (10) –  (10)
            
  (16,051) —  (16,051)  (10,448) —  (10,448)  (16,127) –  (16,127)  (16,051) –  (16,051)
            
Sensitivity analysis
The sensitivity analysis has been prepared on the assumption that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives portfolio and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge designations in place at 31st December.
Financial instruments affected by market risk include borrowings, deposits and derivative financial instruments. The following analyses are intended to illustrate the sensitivity of such financial instruments to changes in relevant foreign exchange and interest rates.
Foreign exchange sensitivity
The table below shows the Group’s sensitivity to foreign exchange rates on its US dollar, Euro and Yen financial instruments excluding obligations under finance leases and certain non-derivative financial instruments not in net debt and which do not present a material exposure. These three currencies are the major foreign currencies in which GSK’s financial instruments are denominated. GSK has considered movements in these currencies over the last three years and has concluded that a 20% movement in rates is a reasonable benchmark. In this table, financial instruments are only considered sensitive to foreign exchange rates where they are not in the functional currency of the entity that holds them. Intercompany loans which are fully hedged to maturity with a currency swap have been excluded from this analysis.
                 
  2008  2007 
  Increase/(decrease)  Reduction  Increase/(decrease)  Reduction 
  in income  in equity  in income  in equity 
  £m  £m  £m  £m 
 
20% appreciation (2007 — 10% appreciation) of the US dollar  210   991   38   580 
20% appreciation (2007 — 10% appreciation) of the Euro  (20)  1,760   (10)  709 
20% appreciation (2007 — 10% appreciation) of the Yen  1   52   —   15 
 
                 
  2009  2008 
  Increase/(decrease)  Reduction  Increase/(decrease)  Reduction 
  in income  in equity  in income  in equity 
  £m  £m  £m  £m 
            
20% appreciation of the US dollar  251   755   210   991 
20% appreciation of the Euro  8   1,779   (20)  1,760 
20% appreciation of the Yen  –   45   1   52 
            
A 20% (2007 — 10%) depreciation of the stated currencies would have an equal and opposite effect. The movements in the income statement relate primarily to hedging instruments for US dollar legal provisions, and to trade payables and trade receivables. Whilst these arethe hedging instruments provide economic hedges, the related provisions are not financial instruments and therefore are not included in the table above. The combined sensitivity of these hedging instruments and the provisions would be insignificant if the provisions were included. The movements in equity relate to foreign exchange positions used to hedge Group assets denominated in US dollar, Euro and Yen. Therefore, a depreciation on the currency swap would give rise to a corresponding appreciation on the Group asset. Foreign exchange sensitivity on Group assets other than financial instruments is not included above.
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159

162GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued

41Financial instruments and related disclosurescontinuedcontinued
Interest rate sensitivity
The table below shows the Group’s sensitivity to interest rates on its floating rate Sterling, US dollar and Euro financial instruments, being the currencies in which GSK has historically issued debt and held investments. GSK has considered movements in these interest rates over the last three years and has concluded that a 2% increase is a reasonable benchmark. Debt with a maturity of less than one year is floating rate for this calculation. A 2% movement in interest rates is not deemed to have a material effect on equity.
         
  2008  2007 
  Increase/(decrease)  Increase/(decrease) 
  in income  in income 
  £m  £m 
 
2% increase (2007 — 1% increase) in Sterling interest rates  16   1 
2% increase (2007 — 1% increase) in US dollar interest rates  13   (16)
2% increase (2007 — 1% increase) in Euro interest rates  4   3 
 
         
  2009  2008 
  Increase/(decrease)  Increase/(decrease) 
  in income  in income 
  £m  £m 
    
2% increase in Sterling interest rates  (2)  16 
2% increase in US dollar interest rates  38   13 
2% increase in Euro interest rates  18   4 
      
A 2% (2007 — 1%) decrease in these interest rates would have an equal and opposite effect, with the exception of US dollar, whereThese interest rates could not be decreased by 2% as they are currently less than 0.5%1.0%. The maximum decreaseincrease/(decrease) in income would therefore be limited to £1 million.million, (£4 million) and (£2 million) for Sterling, US Dollar and Euro interest rates respectively (2008 – (£16 million), (£1 million) and (£4 million)). Interest rate movements on obligations under finance leases, foreign currency and interest rate derivatives, trade payables, trade receivables and other financial instruments not in net debt do not present a material exposure to the Group’s balance sheet based on a 2% increase or decrease in these interest rates.
Contractual cash flows for non-derivative financial liabilities and derivative instruments
The following is an analysis of the anticipated contractual cash flows including interest payable for the Group’s non-derivative financial liabilities on an undiscounted basis. For the purpose of this table, debt is defined as all classes of borrowings except for obligations under finance leases. Interest is calculated based on debt held at 31st December without taking account of future issuance. Floating rate interest is estimated using the prevailing interest rate at the balance sheet date. Cash flows in foreign currencies are translated using spot rates at 31st December.
                                     
 Finance charge Trade and    Finance charge Trade and   
 Obligations on obligations other    Obligations on obligations other   
 Interest on under finance under finance payables not    Interest on under finance under finance payables not   
At 31st December 2009 Debt debt leases leases in net debt Total 
£m £m £m £m £m £m 
 Debt debt leases leases in net debt Total            
At 31st December 2008 £m £m £m £m £m £m 
Due less than one year  (907)  (790)  (48)  (5)  (5,246)  (6,996)
Due in less than one year  (1,431)  (757)  (40)  (4)  (5,828)  (8,060)
Between one and two years  (704)  (767)  (35)  (4)  (68)  (1,578) –  (753)  (32)  (6)  (161)  (952)
Between two and three years —  (757)  (27)  (3)  (25)  (812)  (2,655)  (754)  (24)  (2)  (28)  (3,463)
Between three and four years  (2,885)  (757)  (14)  (2)  (32)  (3,690)  (1,553)  (594)  (14)  (2)  (14)  (2,177)
Between four and five years  (1,736)  (582)  (4)  (2)  (5)  (2,329)  (932)  (536)  (5)  (1)  (5)  (1,479)
Between five and ten years  (4,156)  (2,373)  (8)  (2)  (76)  (6,615)  (4,230)  (2,088)  (15)  (1)  (15)  (6,349)
Greater than ten years  (5,678)  (5,850) — — —  (11,528)  (5,382)  (5,251) – – –  (10,633)
          
Gross contractual cash flows  (16,066)  (11,876)  (136)  (18)  (5,452)  (33,548)  (16,183)  (10,733)  (130)  (16)  (6,051)  (33,113)
            
                                     
 Finance charge Trade and    Finance charge Trade and   
 Obligations on obligations other    Obligations on obligations other   
 Interest on under finance under finance payables not    Interest on under finance under finance payables not   
At 31st December 2008 Debt debt leases leases in net debt Total 
£m £m £m £m £m £m 
 Debt debt leases leases in net debt Total            
At 31st December 2007 £m £m £m £m £m £m 
Due less than one year  (3,466)  (412)  (40)  (5)  (4,330)  (8,253)
Due in less than one year  (907)  (790)  (48)  (5)  (5,246)  (6,996)
Between one and two years  (368)  (339)  (37)  (3)  (75)  (822)  (704)  (767)  (35)  (4)  (68)  (1,578)
Between two and three years  (10)  (327)  (24)  (2)  (15)  (378) –  (757)  (27)  (3)  (25)  (812)
Between three and four years —  (327)  (9)  (2)  (3)  (341)  (2,885)  (757)  (14)  (2)  (32)  (3,690)
Between four and five years  (2,206)  (327)  (4)  (1)  (1)  (2,539)  (1,736)  (582)  (4)  (2)  (5)  (2,329)
Between five and ten years  (1,657)  (856)  (9)  (1)  (26)  (2,549)  (4,156)  (2,373)  (8)  (2)  (76)  (6,615)
Greater than ten years  (2,821)  (2,707) — — —  (5,528)  (5,678)  (5,850) – – –  (11,528)
          
Gross contractual cash flows  (10,528)  (5,295)  (123)  (14)  (4,450)  (20,410)  (16,066)  (11,876)  (136)  (18)  (5,452)  (33,548)
            
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GSK Annual Report 2008163
Financial statements
Notes to the financial statementscontinued

4141Financial instruments and related disclosurescontinuedcontinued
The following table provides an analysis of the anticipated contractual cash flows for the Group’s derivative instruments, excluding embedded derivatives and equity options which are not material, using undiscounted cash flows. Cash flows in foreign currencies are translated using spot rates at 31st December.
                          
 2008 2007  2009 2008 
 Receivables Payables Receivables Payables  Receivables Payables Receivables Payables 
 £m £m £m £m  £m £m £m £m 
      
Less than one year 36,105  (37,738) 23,784  (23,630) 33,779  (33,606) 36,105  (37,738)
Between one and two years 184  (204) 389  (323) 124  (136) 184  (204)
Between two and three years 110  (120) 10  (14) 581  (593) 110  (120)
Between three and four years 521  (532) 34  (39) 42  (54) 521  (532)
Between four and five years 35  (46) 216  (246) –  (6) 35  (46)
Greater than five years —  (6) —  (5) – – –  (6)
      
Gross contractual cash flows 36,955  (38,646) 24,433  (24,257) 34,526  (34,395) 36,955  (38,646)
        
Derivative financial instruments and hedging programmes
The following table sets out the principal amounts and fair values of derivatives held by GSK.
                         
  2008  2007 
  Fair value  Fair value 
  Principal          Principal       
  amount  Assets  Liabilities  amount  Assets  Liabilities 
  £m  £m  £m  £m  £m  £m 
 
Cash flow hedges:                        
Cross currency swaps  481   —   (37)  368   57   — 
 
Fair value hedges:                        
Interest rate swaps  1,042   107   —   1,989   7   (6)
 
Net investment hedges:                        
Foreign exchange contracts  (12,848)  4   (601)  (9,553)  —   (220)
Cross currency swaps  —   —   —   388   111   — 
 
 
Derivatives designated as accounting hedges  (11,325)  111   (638)  (6,808)  175   (226)
 
                         
Foreign exchange contracts  12,093   837   (108)  10,156   287   (40)
 
Equity related instruments:                        
Options and warrants  —   —   —   4   4   — 
Equity collar  —   —   —   532   7   (2)
 
Embedded derivatives  73   15   (8)  92   3   (2)
                         
 
Other derivatives  12,166   852   (116)  10,784   301   (44)
 
Total derivative instruments  841   963   (754)  3,976   476   (270)
 
 
Analysed as:                        
Current      856   (752)      475   (262)
Non-current      107   (2)      1   (8)
 
Total      963   (754)      476   (270)
 
                 
  2009  2008 
  Fair value  Fair value 
  Assets  Liabilities  Assets  Liabilities 
  £m  £m  £m  £m 
          
Cash flow hedges – Cross currency swaps
(principal amount – £nil (2008 - £481 million))		  –   –   –   (37)
                 
Fair value hedges – Interest rate swaps
(principal amount – £932 million (2008 - £1,042 million))		  68   –   107   – 
                 
Net investment hedges – Foreign exchange contracts
(principal amount – £(7,756) million (2008 - £(12,848) million))		  36   (55)  4   (601)
                 
          
Derivatives designated as accounting hedges  104   (55)  111   (638)
          
                 
Foreign exchange contracts
(principal amount – £8,568 million (2008 - £12,093 million))		  89   (108)  837   (108)
                 
Embedded and other derivatives  4   (5)  15   (8)
                 
          
Derivatives not designated as accounting hedges  93   (113)  852   (116)
          
Total derivative instruments  197   (168)  963   (754)
            
                 
Analysed as:                
Current  129   (168)  856   (752)
Non-current  68   –   107   (2)
          
Total  197   (168)  963   (754)
            
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161

164GSK Annual Report 2008
Financial statements
Notes to the financial statementscontinued

41 Financial instruments and related
disclosurescontinuedcontinued
Derivative financial instruments
The principal amount on foreign exchange contracts is calculated based on outstanding positions at the balance sheet date, calculated net by currency and buy/sell side position. The majority of contracts are for periods of 12 months or less.
At 31st December 2008,2009, the Group held outstanding foreign exchange contracts consisting primarily of currency swaps with a total credit fair value of £19 million (2008 – £729 million (2007 — £247 million)debit) which represent hedges of inter-company loans and deposits, but are not designated as accounting hedges. Changes in fair value are taken to profit and loss in the period to offset the exchange gains and losses on the related inter-company lending and borrowing.
Cash flow hedges
The Group hashad entered into atwo cross currency swapswaps and designated itthem as a cash flow hedge converting fixed Euro interest on Euro debt within the Group’s Japanese subsidiary, payable annually, to fixed Yen payments. The bond matures inand swaps matured on 3rd June 2009. The risk being hedged iswas the variability of cash flows arising from currency fluctuations. No ineffectiveness is assumedwas recorded on the hedge. All cash flows relating to the hedge are expected to occur within the next year. The amounts recognised in equity are recycledcomprehensive income were reclassified to the income statement to offset the exchange gains or losses in the same period on the underlying bond as a result of revaluation at the balance sheetrelevant reporting date.
The amount recognised in equity in 2008 for cross currency interest rate swaps was £88 million debit (2007 — £10 million credit). The amount recycled from equity to the income statement in 2008 for cross currency interest rate swaps to offset the exchange gain on the underlying bond recognised in the income statement was £101 million (2007 — £14 million). The net fair value movements on cash flow hedges are disclosed in the Consolidated statement of recognised income and expense.
Fair value hedges
The Group has designated an interest rate swap as a fair value hedge. The risk being hedged is the variability of the fair value of the bond arising from interest rate fluctuations. Gains and losses on fair value hedges are disclosed in Note 12, ‘Finance costs’.
Net investment hedges
Foreign exchange contracts have been designated as net investment hedges in respect of the foreign currency translation risk principally arising on consolidation of the Group’s net investment in its US dollar, Euro and Yen foreign operations. In addition, Euro loan capital issued during 20072009 of €3.5€1.6 billion, and €750 million€4.25 billion from previous years, has been designated as a non-monetarymonetary net investment hedge in respect of the foreign currency translation risk principally arising on consolidation of the Group’s net investment in its Euro operations. Net investment hedge ineffectiveness is disclosed in Note 11, ‘Finance income’.
42Employee share schemes
The Group operates share option schemes, whereby options are granted to employees to acquire shares or ADS in GlaxoSmithKline plc at the grant price, savings-related share option schemes and share award schemes,schemes. In addition, GSK operates the Performance Share Plan, whereby awards are granted to employees to acquire shares or ADS in GlaxoSmithKline plc at no cost, subject to the achievement by the Group of specified performance targets.
The Group also operates a share award scheme,targets and the Share Value Plan, whereby awards are granted to employees to acquire shares or ADS in GlaxoSmithKline plc at no cost after a three year vesting period. The granting of restricted share awards has replaced the granting of options to certain employees as the cost of the scheme more readily equates to the potential gain to be made by the employee.
Grants under share option schemes are normally exercisable between three and ten years from the date of grant. Grants of restricted shares and share awards are normally exercisable at the end of the three year vesting/performance period. Grants under savings-related share option schemes are normally exercisable after three years’ saving. Options under the share option schemes are granted at the market price ruling at the date of grant. In accordance with UK practice, the majority of options under the savings-related share option schemes are granted at a price 20% below the market price ruling at the date of grant. Share options awarded to the Directors and, with effect from the 2004 grant, the CET are subject to performance criteria.


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162

GSK Annual Report 2008165
Financial statements
Notes to the financial statementscontinued

42 Employee share schemescontinuedcontinued
Option pricing
For the purposes of valuing options and awards to arrive at the stock-based compensationshare based payment charge, the Black-Scholes option pricing model has been used. The assumptions used in the model for 2006, 2007, 2008 and 20082009 are as follows:
            
         
 2008 2007 2006  2009 2008 2007 
    
Risk-free interest rate   1.3% – 4.8%   4.7% – 5.3%   4.2% – 5.0%   1.4% – 2.9%   1.3% – 4.8%   4.7% – 5.3% 
Dividend yield   4.8%   4.0%   3.3%   5.2%   4.8%   4.0% 
Volatility   19% – 24%   17% – 25%   18% – 29%   23% – 29%   19% – 24%   17% – 25% 
Expected lives of options granted under:  
Share option schemes  5 years  5 years  5 years  5 years 5 years 5 years 
Savings-related share option and share award schemes  3 years  3 years  3 years  3-4 years 3 years 3 years 
Weighted average share price for grants in the year:  
Ordinary Shares  £11.59  £14.41  £14.64   £11.72  £11.59  £14.41 
ADS  $45.02  $57.59  $51.40   $33.73  $45.02  $57.59 
      
Volatility is determined based on the three and five year share price history where appropriate. The fair value of performance share plan grants take into account market conditions. Expected lives of options were determined based on weighted average historic exercises of options.
                                                        
Options outstanding Share option Share option Savings-related  Share option Share option Savings-related
schemes - shares schemes - ADS share option schemes  schemes – shares schemes – ADS share option schemes
 Weighted Weighted Weighted Weighted Weighted Weighted  Weighted Weighted Weighted Weighted Weighted Weighted
 Number exercise fair Number exercise fair Number exercise fair  Number exercise fair Number exercise fair Number exercise fair
 000 price value 000 price value 000 price value  000 price value 000 price value 000 price value
                         
At 1st January 2006 166,926  £14.97 95,592  $46.86 8,766  £10.66 
Options granted 9,776  £14.78  £3.53 7,940  $51.36  $11.59 2,069  £11.40  £3.41 
Options exercised  (13,244)  £11.66  (13,310)  $41.78  (2,009)  £9.48 
Options lapsed  (6,755)  £15.35  (1,791)  $46.88  (653)  £10.97 
At 31st December 2006 156,703  £15.22 88,431  $48.02 8,173  £11.11 
At 1st January 2007  156,703  £15.22    88,431   $48.02      8,173  £11.11  
Options granted 10,587  £14.82  £3.07 8,624  $57.58  $10.93 3,212  £10.50  £2.87   10,587  £14.82 £3.07  8,624   $57.58   $10.93   3,212  £10.50 £2.87
Options exercised  (9,863)  £12.10  (18,149)  $44.27  (1,140)  £9.74   (9,863) £12.10    (18,149)  $44.27      (1,140) £9.74  
Options lapsed  (8,386)  £15.64  (1,632)  $50.90  (1,707)  £11.33   (8,386) £15.64    (1,632)  $50.90      (1,707) £11.33  
                         
At 31st December 2007 149,041  £15,38 77,274  $49.91 8,538  £11.02   149,041  £15.38    77,274   $49.91      8,538  £11.02  
Options granted 11,314  £11.50  £1.32 7,690  $44.89  $3.84 5,570  £9.51  £2.56   11,314  £11.50 £1.32  7,690   $44.89   $3.84   5,570  £9.51 £2.56
Options exercised  (2,198)  £11.84  (1,989)  $42.18  (453)  £10.26   (2,198) £11.84    (1,989)  $42.18      (453) £10.26  
Options lapsed  (21,602)  £16.52  (7,497)  $53.13  (2,401)  £10.67   (21,602) £16.52    (7,497)  $53.13      (2,401) £10.67  
                         
At 31st December 2008 136,555  £14.93 75,478  $49.29 11,254  £10.38   136,555  £14.93    75,478   $49.29      11,254  £10.38  
Options granted  11,393  £11.76 £1.16  7,741   $33.68   $3.41   1,648  £9.72 £2.22
Options exercised  (2,660) £11.80    (353)  $37.03      (1,460) £11.34  
Options lapsed  (21,269) £17.18    (9,447)  $55.64      (3,377) £11.09  
                         
At 31st December 2009  124,019  £14.32    73,419   $46.88      8,065  £9.77  
                         
Range of exercise prices  £10.76 –  £19.77  $37.09 –  $61.35    £9.52 –  £11.45   £10.76 –     £19.40    $33.42   –     $58.88      £9.51  –     £11.45  
                         
Weighted average market
price on exercise		    £12.33       $40.48        £12.04  
                         
Weighted average remaining contractual lifeWeighted average remaining contractual life 4.16 years  4.88 years  2.1 years     4.12 years     4.77 years       2.3 years  
                           
GSK Annual Report 2009

 

163

166GSK Annual Report 2008
Financial statements
Notes to the financial statementscontinued

42Employee share schemescontinuedcontinued
In order to encourage employees to convert options, excluding savings-related share options, held over Glaxo Wellcome or SmithKline Beecham shares or ADS, into those over GlaxoSmithKline shares or ADS, a programme was established to give an additional cash benefit of 10% of the exercise price of the original option provided that the employee did not voluntarily leave the Group for two years from the date of the merger and did not exercise the option before the earlier of six months from the expiry date of the original option and two years from the date of the merger. The cash benefit will also be paid if the options expire unexercised if the market price is below the exercise price on the date of expiry.
                                                                        
Options outstanding
at 31st December 2008		 Share option Share option Savings-related 
schemes - shares schemes - ADS share option schemes 
 Weighted Latest Weighted Latest Weighted Latest 
Options outstanding
at 31st December 2009		 Share option Share option Savings-related 
schemes – shares schemes – ADS share option schemes 
 Weighted Latest Weighted Latest Weighted Latest 
 Number exercise exercise Number exercise exercise Number Exercise exercise  Number exercise exercise Number exercise exercise Number Exercise exercise 
Year of grant 000 price date 000 price date 000 price date  000 price date 000 price date 000 price date 
    
1999 13,540  £18.19 30.11.09 6,021  $60.14 23.11.09 — — — 
2000 13,163  £14.89 29.10.10 288  $58.88 15.03.10 — — —  12,367  £14.89 10.09.10 279  $58.88 09.08.10 – – – 
2001 36,566  £18.12 25.11.11 22,215  $51.84 25.11.11 — — —  32,944  £18.13 25.11.11 20,828  $51.85 28.11.11 – – – 
2002 15,324  £11.96 30.11.12 6,040  $37.67 30.11.12 — — —  13,469  £11.97 03.12.12 5,605  $37.66 03.12.12 – – – 
2003 20,496  £12.67 13.12.13 11,028  $43.55 13.12.13 — — —  18,595  £12.67 13.12.13 10,333  $43.54 16.12.13 – – – 
2004 7,260  £11.23 02.12.14 6,612  $43.17 01.12.14 — — —  6,080  £11.23 02.12.14 6,128  $43.16 02.12.14 – – – 
2005 190  £13.05 30.10.15 428  $47.33 31.12.15 3,248  £11.45 26.04.09  171  £13.05 30.10.15 412  $47.32 30.10.15 – – – 
2006 8,879  £14.69 28.11.16 7,202  $51.27 28.07.16 967  £11.40 25.04.10  8,498  £14.69 25.11.16 6,848  $51.28 28.07.16 254  £11.40 25.04.10 
2007 10,012  £14.81 18.08.17 8,184  $57.59 25.07.17 1,651  £10.50 24.04.11  9,850  £14.81 25.07.17 8,069  $57.59 25.07.17 1,289  £10.50 24.04.11 
2008 11,125  £11.50 20.07.18 7,460  $44.91 02.11.18 5,388  £9.51 22.04.12  10,828  £11.50 23.07.18 7,336  $44.91 05.11.18 4,881  £9.51 22.04.12 
2009 11,217  £11.76 19.07.19 7,581  $33.68 22.07.19 1,641  £9.72 21.04.13 
    
Total 136,555  £14.93 75,478  $49.29 11,254  £10.38  124,019  £14.32 73,419  $46.88 8,065  £9.77 
    
Options normally become exercisable from three years from the date of grant but may, under certain circumstances, vest earlier as set out within the various scheme rules.
There has been no change in the effective exercise price of any outstanding options during the year.
                                                            
Options exercisable
at 31st December 2008		 Share option Share option Savings-related 
schemes - shares schemes - ADS share option schemes 
 Weighted Weighted Weighted 
Options exercisable Share option Share option Savings-related 
 schemes – shares schemes – ADS share option schemes 
 Number exercise Number exercise Number exercise  Weighted Weighted Weighted 
 000 price 000 price 000 price  Number exercise Number exercise Number exercise 
 000 price 000 price 000 price 
At 31st December 2006 137,983  £15.51 71,238  $48.32 179  £10.20 
      
At 31st December 2007 129,209  £15.47 60,927  $48.70 307  £9.52  129,209  £15.47 60,927  $48.70 307  £9.52 
  
At 31st December 2008 109,207  £15.29 55,384  $48.57 3,248  £11.45  109,207  £15.29 55,384  $48.57 3,248  £11.45 
 
At 31st December 2009 94,967  £14.86 53,493  $47.63 254  £11.40 
    
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164

GSK Annual Report 2008167
Financial statements
Notes to the financial statementscontinued

42Employee share schemescontinuedcontinued
GlaxoSmithKline share award schemes

Performance Share Plan
The Group operates a Performance Share Plan whereby awards are granted to Directors and senior executives at no cost. The percentage of each award that vests is based upon the performance of the Group over a three year measurement period. The performance conditions consist of two parts, each of which applies to 50% of the award. The first part of the condition compares GSK’s TSR over the period with the TSR of 13 pharmaceutical companies in the comparator group over the same period. The second part of the performance condition compares GSK’s earnings per share growth to the increase in the UK Retail Prices Index over the three year performance period. Awards granted to Directors and members of the CET prior to 2009 are subject to a single performance condition which compares GSK’s TSR over the period with the TSR of companies in the comparator group over the same period. For awards granted from 2009 onwards to Directors and members of the CET, 40% of the award will be based on the achievement of adjusted free cash flow targets over a three year measurement period. The remaining 60% of the award will be based on relative TSR performance against a comparator group as described on page 78. Half of the TSR element of each award will be measured over three years and half over four years.
                 
Number of shares and ADS issuable Shares  Weighted  ADS  Weighted 
 Number (000)  fair value  Number (000)  fair value 
 
At 1st January 2006  3,627       3,007     
Awards granted  2,068    £10.06   1,452    $35.13 
Awards exercised  (438)      (187)    
Awards cancelled  (501)      (238)    
 
At 31st December 2006  4,756       4,034     
Awards granted  2,071    £10.26   1,501    $34.87 
Awards exercised  (147)      (77)    
Awards cancelled  (949)      (1,131)    
 
At 31st December 2007  5,731       4,327     
Awards granted  2,834    £7.77   1,467    $27.99 
Awards exercised  (1,519)      (1,516)    
Awards cancelled  (511)      (420)    
 
At 31st December 2008  6,535       3,858     
 
For those awards made to all other eligible employees prior to 2009 the performance conditions consist of two parts, each of which applies to 50% of the award. The first part of the performance condition compares GSK’s EPS growth to the increase in the UK Retail Prices Index over the three year measurement period. The second part of the performance condition compares GSK’s TSR over the period with the TSR of companies in the comparator group over the same period. For awards granted from 2009 onwards, the first part of the performance condition continues to be based on EPS. The second part of the performance condition is based on strategic or operational business measures, over a three year measurement period, specific to the employee’s business area.
                 
Number of shares and ADS issuable Shares  Weighted  ADS  Weighted 
 Number (000)  fair value  Number (000)  fair value 
At 1st January 20074,756         4,034    
Awards granted  2,071   £10.26   1,501   $34.87 
Awards exercised  (147)      (77)    
Awards cancelled  (949)      (1,131)    
          
At 31st December 2007  5,731       4,327     
Awards granted  2,834   £7.77   1,467   $27.99 
Awards exercised  (1,519)      (1,516)    
Awards cancelled  (511)      (420)    
          
At 31st December 2008  6,535       3,858     
Awards granted  3,365   £8.80   1,392   $29.45 
Awards exercised  (1,270)      (21)    
Awards cancelled  (1,024)      (1,497)    
          
At 31st December 2009  7,606       3,732     
          
Share Value Plan
The Group operates a Share Value Plan whereby awards are granted, in the form of shares, to certain employees at no cost. The awards vest after three years. There are no performance criteria attached.
                         
Number of shares and ADS issuable Shares Weighted ADS Weighted 
Number (000) fair value Number (000) fair value 
 Shares Weighted ADS Weighted 
At 1st January 2006 4,514 3,849 
Awards granted 4,759  £13.45 4,126  $52.53 
Awards exercised  (131)  (66) 
Awards cancelled  (348)  (280) 
 Number (000) fair value Number (000) fair value 
At 31st December 2006 8,794 7,629 
      
At 1st January 2007 8,794 7,629 
Awards granted 5,155  £13.22 4,231  $52.08  5,155  £13.22 4,231  $52.08 
Awards exercised  (3,643)  (3,038)   (3,643)  (3,038) 
Awards cancelled  (672)  (539)   (672)  (539) 
      
At 31st December 2007 9,634 8,283  9,634 8,283 
Awards granted 5,572  £9.85 4,640  $36.46  5,572  £9.85 4,640  $36.46 
Awards exercised  (926)  (931)   (926)  (931) 
Awards cancelled  (592)  (630)   (592)  (630) 
      
At 31st December 2008 13,688 11,362  13,688 11,362 
Awards granted 5,572  £9.86 4,291  $30.53 
Awards exercised  (4,345)  (3,783) 
Awards cancelled  (680)  (561) 
      
At 31st December 2009 14,235 11,309 
      
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Financial statements
Notes to the financial statementscontinued

42Employee share schemescontinuedcontinued
Deferred Investment Award Plan
The Group operates a Deferred Investment Award Plan whereby awards are granted, in the form of notional shares, to certain senior executives at no cost. Awards typically vest over a three-year period commencing on the fourth anniversary from date of grant with 50% of the award initially vesting and then 25% in each of the subsequent two years. There are no performance criteria attached.
                         
Number of shares and ADS issuable Shares Weighted ADS Weighted  Shares Weighted ADS Weighted 
Number (000) fair value Number (000) fair value  Number (000) fair value Number (000) fair value 
      
At 1st January 2006 40 55 
Awards granted 106  £13.90 15  $53.60 
Awards exercised — — 
Awards cancelled  (13)  (5) 
At 31st December 2006 133 65 
At 1st January 2007 133 65 
Awards granted 95  £13.20 40  $53.40  95  £13.20 40  $53.40 
Awards exercised —  (9)  –  (9) 
Awards cancelled  (4) —   (4) – 
      
At 31st December 2007 224 96  224 96 
Awards granted 334  £11.70 70  $43.80  334  £11.70 70  $43.80 
Awards exercised  (20)  (20)   (20)  (20) 
Awards cancelled —  (27)  –  (27) 
      
At 31st December 2008 538 119  538 119 
Awards granted 46  £12.04 132  $31.94 
Awards exercised  (15)  (32) 
Awards cancelled  (20)  (10) 
      
At 31st December 2009 549 209 
      
Employee Share Ownership Plan Trusts
The Group sponsors Employee Share Ownership Plan (ESOP) Trusts to acquire and hold shares in GlaxoSmithKline plc to satisfy awards made under employee incentive plans and options granted under employee share option schemes. The trustees of the ESOP Trusts purchase shares on the open market with finance provided by the Group by way of loans or contributions. Costs of running the ESOP Trusts are charged to the income statement. Shares held by the ESOP Trusts are deducted from other reserves and held at the value of proceeds receivable from employees on exercise. If there is deemed to be a permanent diminution in value this is reflected by a transfer to retained earnings. The Trusts also acquire and hold shares to meet notional dividends re-invested on deferred awards under the SmithKline Beecham Mid-Term Incentive Plan. The trustees have waived their rights to dividends on the shares held by the ESOP Trusts.
         
 
Shares held for share award schemes 2008  2007 
 
Number of shares (‘000)  53,147   45,247 
         
 
 
    £m    £m 
 
Nominal value  13   11 
Carrying value  234   242 
Market value  683   579 
 
         
Shares held for share award schemes 2009  2008 
    
Number of shares (’000)  57,197   53,147 
    
        
Shares held for share option schemes 2008 2007 
Number of shares (‘000) 75,822 89,283 
 
     
  £m  £m  £m £m 
  
Nominal value 19 22  14 13 
Carrying value 1,211 1,375  217 234 
Market value 974 1,142  755 683 
  
         
Shares held for share option schemes 2009  2008 
    
Number of shares (’000)  60,538   75,822 
    
         
  £m  £m 
    
Nominal value  15   19 
Carrying value  921   1,211 
Market value  799   974 
    
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Financial statements

Notes to the financial statementscontinued
43Principal Group companies
The following represent the principal subsidiary and associated undertakings of the GlaxoSmithKline Group at 31st December 2008.2009. Details are given of the principal country of operation, the location of the headquarters, the business segmentsector and the business activities. The equity share capital of these undertakings is wholly owned by the Group except where its percentage interest is shown otherwise. All companies are incorporated in their principal country of operation except where stated.
             
Europe Location Subsidiary SegmentSector Activity %
 
England Brentford +GlaxoSmithKline Holdings Limited Ph,CH h    
  Brentford +GlaxoSmithKline Holdings (One) Limited Ph,CH h    
  Brentford +GlaxoSmithKline Services Unlimited Ph,CH s    
  Brentford +GlaxoSmithKline Mercury Limited Ph h    
  Brentford GlaxoSmithKline Finance plc Ph,CH f    
  Brentford GlaxoSmithKline Capital plc Ph,CH f    
  Brentford SmithKline Beecham p.l.c.Limited Ph,CH d e h m p r    
  Brentford Wellcome Limited Ph,CH h
GreenfordGlaxo Group LimitedPhh
GreenfordGlaxo Operations UK LimitedPhp    
  Brentford Glaxo Wellcome International B.V. (i)Group Limited PhCH h    
  Brentford Glaxo Wellcome Investments B.V. (i)Operations UK Limited PhCH hp    
  Brentford GlaxoSmithKline Export Limited Ph e    
  Brentford GlaxoSmithKline Research & Development Limited Ph d r    
  Brentford GlaxoSmithKline UK Limited Ph m p
BrentfordSmithKline Beecham (Investments) LimitedPh,CHf    
  Brentford Setfirst Limited Ph,CH h    
  Brentford Setfirst (No.2) LimitedPh,CHh
GreenfordThe Wellcome Foundation Limited Ph p    
  Cambridge Domantis Limited Ph d r    
  Brentford SmithKline Beecham Overseas Limited Ph h    
  Brentford SmithKline Beecham Holdings (UK) Limited Ph h    
  Brentford GlaxoSmithKline (Netherlands) B.V. (i)ViiV Healthcare Limited Ph h  85 
BrentfordViiV Healthcare UK LimitedPhm s85
BrentfordViiV Healthcare Trading Services LimitedPhe f85 
 
Austria Vienna GlaxoSmithKline Pharma GmbH Ph m    
 
Belgium Genval GlaxoSmithKline S.A. Ph m    
  Rixensart GlaxoSmithKline Biologicals S.A. Ph d e m p r    
 
Czech Republic Prague GlaxoSmithKline s.r.o. Ph,CH m    
 
Denmark Orestadt GlaxoSmithKline Consumer Healthcare A/S CH m    
  Brøndby GlaxoSmithKline Pharma A/S Ph m    
 
Finland Espoo GlaxoSmithKline Oy Ph m    
 
France Marly le Roi Groupe GlaxoSmithKline S.A.S. Ph h    
  Marly le Roi Laboratoire GlaxoSmithKline S.A.S. Ph m r d    
  Marly le Roi Glaxo Wellcome Production S.A.S. Ph p    
  Marly le Roi GlaxoSmithKline Sante Grand Public S.A.S. CH m    
  St. Amand Les Eaux GlaxoSmithKline Biologicals S.A.S Ph p    
 
Germany Buehl GlaxoSmithKline Consumer Healthcare GmbH & Co. KG CH d h m p r s    
  Munich GlaxoSmithKline GmbH & Co. KG Ph d h m p r s    
 
Greece Athens GlaxoSmithKline A.E.B.E Ph,CH m    
 
Hungary Budapest GlaxoSmithKline Medicine and Healthcare Products Limited Ph,CH e m    
 
Italy Verona GlaxoSmithKline S.p.A. Ph d h m r    
  Milan GlaxoSmithKline Consumer Healthcare S.p.A. CH h m    
  Verona GlaxoSmithKline Manufacturing S.p.A. Ph p    
 
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Financial statements

Notes to the financial statementscontinued
4343 Principal Group companiescontinuedcontinued
             
Europe Location Subsidiary SegmentSector Activity %
 
Luxembourg Mamer GlaxoSmithKline International (Luxembourg) S.A.S.A.R.L Ph,CH f h    
 
Netherlands Zeist GlaxoSmithKline B.V. Ph m    
 
  Utrecht GlaxoSmithKline Consumer Healthcare B.V. CH m    
 
Norway Oslo GlaxoSmithKline AS Ph m    
 
Poland Poznan GlaxoSmithKline Pharmaceuticals S.A. Ph p  97 
  Poznan GSK Services Sp.z o.o. Ph m    
  Warsaw GlaxoSmithKline Consumer Healthcare Sp.z o.o. CH m e    
 
Portugal Alges GlaxoSmithKline-Produtos Farmaceuticos, Limitada Ph m    
 
Republic of Carrigaline SmithKline Beecham (Cork) Limited (ii)(i) Ph d p r    
Ireland Cork GlaxoSmithKline Trading Services Limited (ii)(i) Ph e    
  Dublin GlaxoSmithKline Consumer Healthcare (Ireland) Limited (ii)(i) CH m    
  Dublin GlaxoSmithKline (Ireland) Limited Ph m
DungarvanStafford Miller (Ireland) Limited (i)CHp
DungarvanGlaxoSmithKline Dungarvan Limited (i)CHp
RomaniaBrasoviEuropharm Holding S.A.Ph,CHs
BucharestGlaxoSmithKline (GSK) S.R.L.Ph m r s    
 
Russian Moscow GlaxoSmithKline Trading ZAO Ph m    
Federation Moscow GlaxoSmithKline Healthcare ZAO CH m    
 
Spain Madrid GlaxoSmithKline S.A. Ph m    
  Madrid GlaxoSmithKline Consumer Healthcare S.A. CH m    
  Aranda de Duero Glaxo Wellcome, S.A. Ph p    
 
Sweden Solna GlaxoSmithKline AB Ph m    
 
Switzerland Muenchenbuchsee GlaxoSmithKline AG Ph m    
 
             
USA
            
 
USA Coral GablesStiefel Laboratories, Inc.Phh m p
Hamilton Corixa Corporation Ph m p    
  Philadelphia SmithKline Beecham CorporationGlaxoSmithKline LLC Ph,CH d e h m p r s
PittsburghCNS, Inc.CHm    
  Pittsburgh GlaxoSmithKline Consumer Healthcare, L.P. CH m p  88 
  Pittsburgh Block Drug Company, Inc. CH h m
Liberty CornerReliant Pharmaceuticals, Inc.Phm r    
  Wilmington GlaxoSmithKline Holdings (Americas) Inc. Ph,CH h    
  Wilmington GlaxoSmithKline Capital Inc. Ph f    
  WilmingtonCambridge Sirtris Pharmaceuticals Inc. Ph r    
Research Triangle ParkViiV Healthcare CompanyPhm85 
 
             
Americas
            
 
Bermuda Hamilton GlaxoSmithKline Insurance Ltd Ph,CH i    
 
Canada Mississauga GlaxoSmithKline Inc. Ph m p r    
  Oakville GlaxoSmithKline Consumer Healthcare Inc. CH m    
  Laval ID Biomedical Corporation Ph h    
  LavalQuebec City ID Biomedical Corporation of Quebec Ph d m p r 
MexicoDelegacion TlalpanGlaxoSmithKline Mexico S.A. de C.V.Ph,CHe m p s
Puerto RicoGuaynaboGlaxoSmithKline Puerto Rico Inc.Phm    
 
             
Asia Pacific
          
 
Australia Boronia GlaxoSmithKline Australia Pty Ltd Ph,CH d e m p r    
 
China Beijing GlaxoSmithKline (China) Investment Co. Ltd Ph,CH d h m    
  Hong Kong GlaxoSmithKline Limited Ph,CH m
ShanghaiGlaxoSmithKline Biologicals (Shanghai) LtdPh m p    
  Tianjin Sino-American Tianjin Smith Kline & French Laboratories Ltd Ph,CH d m p r  55 
 
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Financial statements

Notes to the financial statementscontinued
43Principal Group companiescontinuedcontinued
             
Asia Pacific Location Subsidiary SegmentSector Activity %
 
India Mumbai GlaxoSmithKline Pharmaceuticals Limited Ph m p  51 
  Nabha GlaxoSmithKline Consumer Healthcare Limited (iii)(ii) CH m p  43 
 
Malaysia Petaling Jaya GlaxoSmithKline Pharmaceutical Sdn Bhd Ph m    
  Selangor GlaxoSmithKline Consumer Healthcare Sdn Bhd CH m    
 
New Zealand Auckland GlaxoSmithKline NZ Limited Ph,CH m    
 
Pakistan Karachi GlaxoSmithKline Pakistan Limited Ph,CH m p e  79 
 
Philippines Makati GlaxoSmithKline Philippines Inc Ph,CH m    
 
Singapore Singapore Glaxochem Pte Ltd Ph h    
  Singapore Glaxo Wellcome Manufacturing Pte Ltd Ph d h p r    
  Singapore GlaxoSmithKline Pte Ltd Ph,CH m    
 
South Korea Seoul GlaxoSmithKline Korea Limited Ph ,CH m p    
 
Thailand Bangkok GlaxoSmithKline (Thailand) Limited Ph,CH m    
 
             
Japan
            
 
Japan Tokyo GlaxoSmithKline K.K. Ph,CH d m p    
 
             
Latin America
          
 
Argentina Buenos Aires GlaxoSmithKline Argentina S.A. Ph,CH d e m p r    
 
Brazil Rio de Janeiro GlaxoSmithKline Brasil Limitada Ph,CH e m p    
 
Colombia Bogota GlaxoSmithKline Colombia S.A. Ph,CH m
MexicoDelegacion TlalpanGlaxoSmithKline Mexico S.A. de C.V.Ph,CHe m p s
Puerto RicoGuaynaboGlaxoSmithKline Puerto Rico Inc.Phm    
 
Venezuela Caracas GlaxoSmithKline Venezuela, C.A. Ph,CH m    
 
             
Middle East & Africa
          
 
Egypt Cairo GlaxoSmithKline S.A.E Ph m p  91 
 
South Africa Bryanston GlaxoSmithKline South Africa (Pty) Limited Ph,CH m p    
 
Turkey Istanbul GlaxoSmithKline Ilaclari Sanayi ve Ticaret A.S. Ph,CH m p    
USALocationAssociateSectorActivity%
USAMadisonQuest Diagnostics Incorporated (iii)Clinical testing17 
 
             
USA
Middle East & Africa          
 
USASouth Africa MadisonJohannesburg Quest Diagnostics Incorporated (iv)Aspen Pharmacare Holdings Limited (iii) Clinical testingPh,CH m p r  19 
 
i)Incorporated in the Netherlands.
ii)(i) Exempt from the provisions of Section 7 of the Companies (Amendment) Act 1986 (Ireland).
 
iii)(ii) Consolidated as a subsidiary undertaking in accordance with Section 2581162 (4)(a) of the Companies Act 19852006 on the grounds of dominant influence.
 
iv)(iii) Equity accounted on the grounds of significant influence.
 
+ Directly held wholly owned subsidiary of GlaxoSmithKline plc.
Key
Business segment:sector: Ph Pharmaceuticals, CH Consumer Healthcare
Business activity: d development, e exporting, f finance, h holding company, i insurance, m marketing, p production, r research,
s service
Full details of all Group subsidiary and associated undertakings will be attached to the company’s Annual Return to be filed with the Registrar of Companies. Each of GlaxoSmithKline Capital Inc. and GlaxoSmithKline Capital plc is a wholly-owned finance subsidiary of the company, and the company has fully and unconditionally guaranteed the securities issued by each of GlaxoSmithKline Capital Inc. and GlaxoSmithKline Capital plc.
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Financial statements

Notes to the financial statementscontinued
4444 Legal proceedings
The Group is involved in significant legal and administrative proceedings, principally product liability, intellectual property, tax, antitrustanti-trust and governmental investigations, as well as related private litigation. The Group makes provision for these proceedings on a regular basis as summarised in Note 2, ‘Accounting principles and policies’ and Note 29, ‘Other provisions’. TheIn respect of a number of legal proceedings in which the Group is involved, it is not possible to make a reasonable estimate of the expected financial effect, if any that will result from ultimate resolution of the proceedings. In these cases, the Group may make additional significant provisions for such legal proceedings as required indisclose information with respect to the eventnature and facts of further developments in these matters, consistent with generally accepted accounting principles. Litigation, particularly in the USA,cases but no provision is inherently unpredictable. Excessive awards may occur even if they may not be justified by the evidence. The Group could in the future incur judgements or enter into settlements of claims that could result in payments that exceed its current provisions by an amount that would have a material adverse effect on the Group’s financial condition, results of operations and/or cash flows.typically made. Intellectual property claims include challenges to the validity and enforceability of the Group’s patents on various products or processes as well as assertions of non-infringement of those patents. A loss in any of these cases could result in loss of patent protection for the product at issue. The consequences of any such loss could be a significant decrease in sales of that product and could materially affect future results of operations for the Group.
Legal expenses incurred and provisions related to legal claims are charged to selling, general and administration costs. Provisions are made, after taking appropriate legal and other specialist advice, when a reasonable estimate can be made of the likely outcome of the dispute. The Group has established an actuarially determined provision for product liability claims incurred, but not yet reported as described in Note 29, ‘Other provisions’. At 31st December 2008,2009, the Group’s aggregate provision for legal and other disputes (not including tax matters described in Note 14, ‘Taxation’) was £1.9£2.0 billion. The ultimate liability for legal claims may vary from the amounts provided and dependsis dependent upon the outcome of litigation proceedings, investigations and possible settlement negotiations.
The Group’s position could change over time, and there can, therefore, be no assurance that any losses that result from the outcome of any legal proceedings will not exceed the amount of the provisions reported in the Group’s financial accounts by a material amount. If this were to happen, it could have a material adverse impact on the results of operation of the Group in the reporting period in which the judgements are incurred or the settlements entered into. The most significant of those matters are described below.
Intellectual property
Advair/Seretide
In September 2004, the Group applied to the US Patent and Trademark Office (USPTO) for re-issue of its combination patent forAdvair, an inhaled combination of salmeterol and fluticasone propionate, which expires in September 2010. The USPTO reissued the patent in February 2008. The re-issued patent has the same September 2010 expiration date as the original combination patent and is listed in the register of pharmaceutical patents maintained by the US FDA, the Orange Book.
In October 2007, the Group filed a complaint with the Patent Dispute Chamber of the Regional Court in Düsseldorf, Germany against Neolab (UK) for infringement of its German patent claiming compositions containing the combination of salmeterol and fluticasone propionate used inSeretide (known asVianiin Germany). The complaint was based on Neolab’s stated intention by letter to market a salmeterol/fluticasone combination product in Germany in 2008 (which event did not occur). A trial took place in the Patent Dispute Chamber of the Regional Court in Düsseldorf in January 2009 at which resulted in a permanent injunction against Neolab. Neolab argued that a letter stating a proposed intent to sell inhas appealed and the future does not constitute a basisappeal hearing has been scheduled for an infringement decision. A decision is expected in March 2009. 8th July 2010.
In January 2009, Neolab filed an action to invalidate the combination patent in the Federal Court of Germany. Revocation actions against the combination patent in Germany have also been filed by Mylan Dura GmbH (March 2008) and, Hexal AG (December 2008) and Ivax (October 2009). No trial date has been set for these actions.The four revocation actions were heard together on 23rd February 2010. The court advised the parties that a decision will be issued within a few weeks following the hearing. The basic patent covering the combination product inSeretideexpires in September 2010 but is subject to a Supplementary Protection Certificate, which extends protection until September 2013.
In March 2008, the GroupJuly 2009, Sandoz and Hexal initiated an infringementa revocation action in the FederalDistrict Court of The Hague against a number of internet pharmacy organisations together with Cipla Limited, for infringement of the Group’s Dutch combination patent relating toSeretide. The action was heard on 24th October 2008. In a decision datedhearing, originally scheduled for 19th February 2010, has been rescheduled for 26th November 2008,2010. The basic patent covering the Court did not find infringementcombination product inSeretideexpires in September 2010 but indicated that they saw no evidence that brought patent validity into question. In particular, the Court noted thatis subject to a prior UK revocation decision of 2004 on the corresponding UK patent was out-dated because it was reached using an interpretation of the law relating to inventive step that was no longer followed.Supplementary Protection Certificate, which extends protection until September 2013.
A revocation action against the basic patent covering theSeretidecombination in Ireland was filed in the High Court in Dublin on behalf of Ivax in July 2008. The trial took place from 24th March to 12th May 2009. The High Court handed down a decision on 26th June 2009 finding the patent invalid for obviousness. The decision related solely to the Irish combination patent forSeretideand is schedulednot binding in any other decision. The Group filed an appeal of this decision in October 2009. No trial date has been set for the appeal.
An action for revocation of the FrenchSeretidecombination patent was filed by Sandoz with the Tribunal de Grande Instance of Paris on 5th October 2009. No trial date has yet been set. The basic patent covering the combination product inSeretideexpires in September 2010 but is subject to begin in March 2009.a Supplementary Protection Certificate, which extends protection until September 2013.
Argatroban
In December 2007, Encysive Pharmaceuticals Inc., Mitsubishi Kasei Corporation and the Group filed an action in the US District Court for the Southern District of New York against Barr Laboratories, Inc. for infringement of Mitsubishi’s pharmaceutical composition patent coveringArgatroban. Argatroban. Pursuant to a license from Mitsubishi, Encysive has developedArgatrobanfor the treatment of heparin-induced thrombocytopenia and holds the New Drug Application approved by the US FDA. Encysive has licensed the US marketing rights toArgatrobanto the Group. The Mitsubishi patent expires in June 2014. Barr had filed an Abbreviated New Drug Application (ANDA) with the FDA with a certification of invalidity, unenforceability and non-infringement of the Mitsubishi patent. A two-week trial in the case was held in January 2010, and the parties are awaiting a decision. FDA approval of that ANDA is stayed until the earlier of May 2010 or resolution of the patent infringement action. The case is in the discovery phase.


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Financial statements

Notes to the financial statementscontinued
44 Legal proceedingscontinued
Arzerra
In October 2009, the Group filed an action in the US District Court for the Southern District of Florida for a declaration that U.S. Patent 6,331,415 (the so-called ‘Cabilly II’ patent), which is owned jointly by Genentech, Inc. and City of Hope, is invalid, unenforceable, or not infringed by GSK’s productArzerra(ofatumumab).Arzerrawas approved by the FDA for chronic lymphocytic leukaemia (an orphan indication) in October 2009. In February 2010, the Group voluntarily dismissed the case and filed a new case in the US District Court for the Northern District of California, where the suit is currently pending.
Avodart
In January 2008, the Group received notice that Barr Laboratories filed an ANDA with the FDA with an allegation of invalidity of the three patents listed in the Orange Book withwhich cover the active ingredient inAvodart, and its use to treat benign prostatic hyperplasia (BPH). In February 2008, SmithKline Beechamthe Group filed an action in the US District Court for the District of Delaware against Barr for infringement of these patents. The basic compound patent expires in 2015. The other two patents expire in 2013. FDA approval of Barr’s ANDA is stayed until the earlier of July 2010, or resolution of the patent infringement action. The case isparties have agreed to settle this matter. The terms of the settlement are subject to review by the Federal Trade Commission and must receive final court approval.
Benlysta
In February 2010 the UK Court of Appeal upheld an earlier High Court decision revoking the HGS UK patent EP0939804. The claim for revocation was brought by Eli Lilly in 2006 on the discovery phase.patent which claims the cytokine BLyS and any antibody that binds to BLyS, such asBenlysta(belimumab). GSK has a licence to this patent but was not a party to these litigation proceedings. The equivalent European patent was upheld in October 2009 on a final appeal from the European Patent Office following an opposition proceeding filed by Eli Lilly. This UK decision does not affect the other European patents arising from this same European Patent. HGS and GSK are considering an appeal of this UK decision to the UK Supreme Court. This decision does not affect GSK or HGS’s freedom to market and sellBenlysta.
Boniva
The Group participatesparticipated in the marketing ofBonivapursuant to a co-promotion agreement with Roche.Roche, which expired in January 2010. In September 2007, Roche Laboratories commenced actions in the US District Court for the District of New Jersey against eight generic drug manufacturers. In each case, Roche alleged infringement of Roche patents relating toBonivatablets. Each of the defendants had filed an ANDA with the FDA with a certification of invalidity, unenforceability or non-infringement of at least one of the Roche patents. Two manufacturers have challenged the basic compound patent, which expires in 2012. Final FDA approval of those ANDAs is stayed until the earlier of November 2010 or resolution of the relevant patent infringement action. In August 2008, Roche obtained a new patent on the monthly dosing regimen forBonivaand brought suit against all ANDA filers that were challenging its patents. The new patent expires in 2023. The cases are ongoing.
Combivir
Patents listed in the Orange Book forCombivirinclude composition of matter (3TC/lamivudine), combination (lamivudine and AZT) and lamivudine crystal form patents that expire in 2010, 2012 and 2016, respectively. In September 2007, the Group received notice that Teva filed an ANDA with the FDA alleging that the combination patent is invalid.
In November 2007, the Group filed an action in the District Court for the District of Delaware against Teva Pharmaceuticals USA Inc. for infringement of the combination patent. FDA approval of Teva’s ANDA is stayed until the earlier of March 2010 or resolution of the patent infringement action favourable to Teva. The case is in the discovery phase. In October 2008, Teva filed a certification that the Group’s patent covering the crystal form of lamivudine is invalid or not infringed. The Group did not file suit under this patent.
In July 2008, wethe Group received notice that Lupin PharmaceuticalsLtd. filed a certification with the FDA alleging that the combination patent is invalid or not infringed by its product. Lupin also filed a certification that the Group’s patent covering the crystal form of lamivudine is invalid or not infringed.
In August 2008, the Group filed suit against Lupin in the District Court for the District of Delaware for infringement of its combination patent. The Group did not file suit against Lupin under the crystal form patent. FDA approval of Lupin’s ANDA isIn March, 2009, the action against Lupin was stayed until the earlier of January 2011 orby mutual consent pending resolution of the patent infringement action favourable to Lupin.case against Teva. Neither Teva nor Lupin has challenged the basic compound patent that claimscovers lamivudine, one of the active ingredients inCombivir. That patent expires in May 2010.
Coreg CR
In December 2007, the Group received notice that United Research Laboratories Inc./Mutual Pharmaceuticals Company, Inc. filed an ANDA with the FDA with a certification of invalidity, unenforceability or non-infringement of the patents covering the crystalline salt form and delayed release technology used for manufacturing that product, which expire in 2023 and 2016, respectively. In February 2008, the Group filed suit under the crystal form patent and, in the alternative, requested the court to dismiss Mutual’s certification as ineffective because its ANDA had not been accepted for filing by the FDA when it sent its certification. In April 2008, the court dismissed the case on summary judgement. Mutual appealed to the Court of Appeals for the Federal Circuit. The appeal was dismissed in November 2008.
In March 2008, the FDA accepted Mutual’s ANDA, and Mutual filed a second certification forCoreg CR alleging that the Group’s patents forCoreg CRwere invalid, unenforceable or not infringed. The Group filed suit in April 2008 in the US District Court for the Eastern District of Pennsylvania under the crystal form patent and a patent covering the use ofCoreg CRin treating congestive heart failure. In October 2008, the Group filed a motion to dismiss the action and gave Mutual a covenant not-to-suenot to sue under the patents. Mutual has opposed the dismissal of the case. The parties await a decision on the motioncannot obtain final approval to dismiss.Coreg CRhas been grantedmarket its generic product until 20th April 2010 based upon data exclusivity granted by the FDA for the product. This matter has now concluded.
Hiberix, Infanrix HexaandMenitorix
On 3rd August 2009, Novartis sued the Group in Belgium for patent infringement in relation toHiberix,Infanrix Hexa, andMenitorixvaccine products and in relation to phase 3 development vaccine projects HibMenCY and MenACWY. Parallel infringement proceedings were also filed by Novartis in the UK forInfanrix Hexa,MenitorixandHiberix. The European Patent Office granted the Group’s request for an accelerated review to reconsider the validity of the patent and in December 2009, all Novartis claims relevant to the Group’s products were held invalid. The UK and Belgian infringement trials will be dismissed.
Levitra
The Group participates in the marketing ofLevitrapursuant to a co-promotion agreement with Bayer Healthcare. In July 2009, Bayer brought suit against Teva in the US District Court for the District of Delaware against Teva Pharmacetuicals, Inc. for infringement of its patent relating toLevitra. Teva had filed an ANDA with the FDA with a certification that precludesthe patent covering the active ingredient inLevitra, which expires in 2018, is invalid, unenforceable or not infringed. A stay against FDA approval will be in effect until the earlier of a decision in the case adverse to Bayer or November 2011.

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Lovaza
In March 2009, the Group received notice that Teva Pharmaceuticals USA, Inc., Par Pharmaceutical, Inc., and Apotex Inc., had filed ANDAs with a certification that two patents coveringLovazaare invalid, unenforceable, or not infringed. The patents expire in 2013 and 2017. The Group is the licensee under these patents. Pronova Biopharma Norge AS, the owner of the patents, sued Teva, Par and Apotex in the US District Court for the District of Delaware. FDA approval of the ANDAs will be stayed until the earlier of May 2012 or a genericdecision favourable to one of the generics.
Malarone
In August 2009 the Group filed suit in the US District Court for the District of Delaware against Glenmark Generics Inc. USA for infringement of its patents related toMalarone. The Group had received notification that Glenmark had filed an ANDA forMalarone, with certification alleging that the Group’s patents were invalid, unenforceable, or not infringed. These patents, which expire in 2014, cover the combination of atovaquone and proguanil hydrochloride and its use for preventing malaria. FDA approval of Glenmark’s ANDA is stayed until April 2010.the earlier of January 2012 or a judgment adverse to GSK.
Paxil/Seroxat
In the USA a number of manufacturers or distributors of genericPaxilfiled applications with the FDA to market their generic versions prior to the expiration in 2007 of the Group’s patent on paroxetine hyrdrochloride hemihydrate. Of these actions, only one remains pending, namely an action against Apotex in the US District Court for the Eastern District of Pennsylvania on patents with composition of matter and process of manufacture claims. The case is in the discovery phase. An anti-trust counterclaim has been asserted by Apotex, as discussed below. under ‘Anti-trust’ on page 175. The case has now been set for trial in April 2010.
In Europe, generic products containing paroxetine hydrochloride are now on the market in most European countries. Litigation with Synthon BV was recently settled, litigation with FAL is ongoingThe Group’s Netherlands patent infringement action against Farmaceutisch Analytisch Laboratorium Duiven B.V. (FAL), and FAL’s counterclaims for unfair competition, have been asserted against the Group. was settled in July 2009.
Following the litigation in Canada with Apotex over several patents related to paroxetine, Apotex launched its generic product in Canada in October 2003.


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Apotex has now alleged that as a result of that litigation it had been enjoined from launching that product after receipt of regulatory approval. An action by Apotex to recover damages related to the delay occasioned by those injunctions is ongoing.
Paxil CR
A US patent covering a delayed and controlled release formulation of paroxetine hydrochloride (Paxil CR) was issued to the Group in June 2007 and listed in the FDA Orange Book. Thereafter the Group filed an action in the US District Court for the District of New Jersey against Mylan for infringement of that newly issued patent. Subsequently, the parties reached a settlement. Mylan entered the market in May 2008 under the terms of the settlement agreement.
Requip XL
In January 2009, the Group received letters from Impax Laboratories, Inc. and Actavis South Atlantic LLC indicating that their ANDAs forRequip XLhad been accepted by the FDA. The letters included an allegation that the patent licensed by the Group from SkyePharma covering the extended release formulation iswas not infringed by their products. Additional ANDAs were filed in 2009 by Torrent Pharmaceuticals and Lupin Ltd. with certifications that the formulation patent was not infringed. The Group did not bring suits against these companies.
Treximet
In October 2008, the Group received a letter from Par Pharmaceuticals that the FDA had accepted its ANDA forTreximet, which included a certification that patents owned by Pozen, Inc. relating toTreximetwere invalid, unenforceable and/or not infringed. Pozen’s patents are licensed to the Group. In November 2008, Pozen filed suit against Par under three of its patents in the District Court for the Eastern District of Texas. In November 2008, the Group received a letter from Alphapharm and its designated agent, Mylan Pharmaceuticals, that the FDA had accepted its ANDA forTreximet, which included a certification that Pozen’s patents relating toTreximetwere invalid, unenforceable and/or not infringed. Pozen filed suit against Alphapharm and Mylan in January 2009 for infringement of two of theseits patents in the District Court for the Eastern District of Texas and Delaware. The Delaware case has since been dismissed. In 2009, Pozen also sued Teva Pharmaceuticals USA, Inc. and Dr. Reddy’s under the same patents in the same court.Treximethas data exclusivity that precludes approval of a generic product until April 2011. The Group is not a party to any of the lawsuits brought by Pozen.
Valtrex
In May 2003, the Group commenced an actionJuly 2009, Apotex Inc. filed a complaint for a declaratory judgment in the US District Court for the Middle District of New Jersey against Ranbaxy Laboratories, alleging infringement of the Group’s compound patent forNorth Carolina that Apotex’s valacyclovir the active ingredient inValtrex. That patent expires in December 2009. Ranbaxy had filed an ANDA with the FDA with a certification that the Group’s compound patent is invalid, unenforceable or not infringed. The case has been settled on terms that permit Ranbaxy to enter the market in late 2009 (taking into account expected paediatric exclusivity with respect to the Group’s compound patent).
Wellbutrin XL
In December 2004, Biovail commenced actions in the US District Court for the Central District of California against Anchen Pharmaceuticals and in the US District Court for the Southern District of Florida against Abrika Pharmaceuticals, in each case, alleging infringement of Biovail formulation patents forWellbutrin XL. In April 2005, Biovail filed an action in the US District Court for the Eastern District of Pennsylvania against Impax Laboratories for infringement of the same patents. Those patents expire in 2018. Each of Anchen, Abrika and Impax had filed an ANDA with the FDA with a certification of invalidity or non-infringement of the Biovail patents. The Group is the licensee under those patents. In August 2006, the judge granted Anchen’s motion and ruled that Anchen’s ANDA product did not infringe Biovail’s patent. Biovail has appealed thata formulation patent owned by the Group forValtrex. Apotex filed a para iv certification in 2008 challenging this patent and GSK did not file suit challenging the certificate. GSK filed a response to this declaratory judgment complaint in August 2009 and did not contest the non-infringement allegation. In October 2009, Apotex filed a motion for judgment. The matter is pending a decision toon the CAFC, andmotion. In November 2009, Ranbaxy launched the case remains on appeal. first generic product for valacyclovir.
Vesicare
The Group is not a party to any of those actions.marketsVesicareunder license from Astellas Pharma Inc. In September 2005, Biovail commenced actions2009, Astellas filed suit against Teva Pharmaceuticals USA, Inc. in the USFederal District Court for the Southern District of New York against Watson Laboratories allegingfor infringement of its patent covering the Biovail formulation patents. Watson’s third party counterclaim againstactive ingredient inVesicare. Astellas had received notice that Teva Pharmaceuticals had filed an ANDA with a certification that the Group based on listing activities associated withbasic patent, which expires in 2018, was invalid or unenforceable. FDA approval of Teva’s ANDA is stayed until the FDA Orange Book was dismissed in October 2006. The 300mg generic product was launchedearlier of February 2012 or a decision in the USA in December 2006.
In March 2007, Biovail announced a comprehensive settlement with Anchen, Impax, Watson and Teva following a voluntary review by the US Federal Trade Commission. Certain aspects of the settlement remain confidential; however, the parties did disclose that with defined exceptions the generic companies would not market the 150mg strength ofWellbutrin XLuntil 2008. The generic version of the 150mg tablet was launched in the USA in May 2008.
USPTO Action
In October 2007, the Group filed an action against the US Patent and Trademark Office in the US District Court for the Eastern District of Virginiacase favourable to enjoin permanently Final Regulations published by the US Patent and Trademark Office which would limit the number of continuation patent applications and patent claims that a patent applicant could prosecute before the Office. Those regulations were due to become effective on 1st November 2007.
In October 2007, the court issued an order preliminarily enjoining implementation of the rules until a full hearing and decision on the parties’ cross-motions for summary judgement. Following a hearing in February 2008, the court issued a permanent injunction against implementation of the USPTO’s proposed rules in April 2008. The USPTO appealed the ruling to the US Court of Appeals for the Federal Circuit (CAFC). The appeal was heard by the CAFC in December 2008. The parties await a decision.


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44 Legal proceedings continuedTeva.
Product liability
Pre-clinical and clinical trials are conducted during the development of potential products to determine the safety and efficacy of products for use by humans following approval by regulatory bodies. Notwithstanding these efforts, when drugs and vaccines are introduced into the marketplace, unanticipated safety issues may become evident. The Group is currently a defendant in a number of product liability lawsuits related to the Group’s pharmaceutical and consumer healthcare products. The most significant of those matters are described below.on pages 172 and 173.

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Avandia
In May 2007, the New England Journal of Medicine (NEJM) published an article onAvandiain which the author, based on a meta-analysis of 42 clinical trials, raised concerns that use of the drug rosiglitazone (Avandia) may be associated with an increased risk of heart attack and cardiovascular death in comparison to the use of a placebo or other anti-diabetic therapies. Following publication of the NEJM article, theThe Group has been named in product liability lawsuits on behalf of individuals and purported class action cases asserting consumer fraud and/or personal injury claims on behalf of purchasers and users ofAvandia. The federal cases are part of a multi-district litigation (MDL) proceeding pending in the US District Court for the Eastern District of Pennsylvania. Cases have also been filed in state courts. Cases filed in Philadelphia have been coordinated in the Mass Tort Program. These matters are in the discovery phase.phase, with the first trial scheduled for June 2010. Additionally, a purported nationwide class action suit was filed in February 2009 in the US District Court for the Eastern District of Pennsylvania on behalf of all third party payers seeking economic damages under various state unfair trade practices and consumer protection laws. The Group isPlaintiffs have indicated that they will be filing an amended complaint in the process of evaluating the complaint.future.
Finally, one purported class action has been filed in Israel, and briefing of whether to certify the class action is underway. SevenTen class actions are pending in Canada, and are at an early stage.
Baycol
In August 2001, Bayer AG withdrewBaycol(cerivastatin sodium) worldwide in light of reports of adverse events, including deaths, involving rhabdomyolysis. The Group had participated in the marketing ofBaycolin the USA pursuant to a co-promotion agreement with Bayer which was the licence holder and manufacturer of the product. Following the withdrawal, Bayer and the Group were named as defendants in thousands of lawsuits filed in state and federal courts in the USA on behalf of both individuals and putative classes of formerBaycolusers. A number of the suits allege that the plaintiffs have suffered personal injuries, including rhabdomyolsis, from the use ofBaycol.
Others claim that persons who tookBaycol, although not injured, may be at risk of future injury or may have suffered economic damages from purchasing and usingBaycol. Plaintiffs seek remedies including compensatory, punitive and statutory damages and creation of funds for medical monitoring.
The Group and Bayer Corporation, the principal US subsidiary of Bayer AG, have signed an allocation agreement under which Bayer Corporation has agreed to pay 95% of all settlements and compensatory damages judgements,judgments, with each party retaining responsibility for its own attorneys’ fees and any punitive damages. The federal cases have been consolidated in an MDLa multi-district litigation proceeding in the US District Court for the District of Minnesota. The multi-district litigation is in the process of winding down, with less than 10 plaintiffs remaining. To date two statewide class actions have been certified —– a medical monitoring case in Pennsylvania and a Consumer Fraud and Deceptive Business Practices Act case in Illinois. The medical monitoring action was dismissed by the court on summary judgement. The certificationjudgment, and the Supreme Court of Illinois likewise dismissed the consumer fraud case is currentlyclaim on appealsummary judgment in the Illinois appellate courts.
December 2009. A nationwide class of third-party payers was certified by a Pennsylvania state court. That case settled before trial. Another class action, in which GSKthe Group was not named as a defendant, had been certified in Oklahoma. That case has been decertified, and the deadline for appealing the decertification order has passed. More than 3,100 claims for death or serious injury have been settled. Thousandssettled and thousands of others alleging muscle aches and pains have been voluntarily or involuntarily dismissed.
PaxilandPaxil CR
The Group has received numerous lawsuits and claims alleging that use ofPaxil(paroxetine) has caused a variety of injuries. Many of these lawsuits and claims allege that the use ofPaxilduring pregnancy resulted in the birth of a child with birth defects or health issues. Separately, the Group has receivedOther lawsuits and claims allege that patients who tookPaxilcommitted or attempted to commit suicide and/or acts of violence. The Group also has receivedFinally, a third group of lawsuits and claims filed on behalfallege that the use ofPaxilcaused patients alleging that they sufferedto suffer symptoms on discontinuing treatment withPaxil.
The cases filed in Philadelphia alleging injury during pregnancy have been coordinated in the Philadelphia Mass Tort Program. In September 2005, the US label forPaxilwas updated to reflect new information that suggested an increased risk of congenital malformations (particularly cardiovascular malformations) in infants born to mothers who tookPaxilduringOctober 2009, the first trimestertrial resulted in an adverse jury verdict in the amount of pregnancy. In December 2005, thePaxilUS label was further updated to include new data and to strengthen the pregnancy warning from category C to category D. This category indicates there is evidence of risk to the foetus, but the potential benefits from the use of the drug in pregnant women may outweigh the risk.


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In May 2006, thePaxilUS label was again updated to include a class warning concerning persistent pulmonary hypertension of the newborn arising in mothers who took selective serotonin reuptake inhibitor (SSRI) antidepressants after the 20th week of pregnancy.$2.5 million (Kilker v. GlaxoSmithKline). No punitive damages were awarded. Post-trial motions are pending. The Group has also receivedhas purported class action litigation in Canada.Canada concerning use ofPaxilduring pregnancy.
The Group has received numerous
In the claims and lawsuits alleging that treatment withPaxilhas caused homicidal or suicidal behaviour exhibited by users of the product. Classproduct, class certification was denied in January 2007 in a purported personal injury class action lawsuit. Cases remain pending in federal and state courts. The cases filed in Philadelphia have been coordinated in the Mass Tort Program. In January 2005,
With respect to the FDA approved both a boxed warning that antidepressants increased the risk of suicidal thoughts or behaviour in paediatric patients and other strengthened warnings for SSRI products, includingPaxil, as a class. In May 2006, thePaxilUS label was updated to warn that young adults, especially those with Major Depressive Disorder, may be at increased risk for suicidal behaviour during treatment with paroxetine.
In August 2007, FDA required updated US labels for antidepressants, as a class, to state in the boxed warning that antidepressants increased the risk of suicidal thinking and behaviour in children, adolescents and young adults; that no increase was shown beyond age 24; that there was a reduction in risk in adults aged 65 and older; and that depression and other psychiatric disorders are themselves associated with increased risk.
The Group received lawsuits filed in state and federal courts in the USA and Canada on behalf of thousands of plaintiffs, including purported class actions, alleging that paroxetine (the active ingredient inPaxil) is addictive and causes dependency and withdrawal reactions. The US federal cases were consolidated in an MDL proceeding. In January 2006, a conditional settlement agreement became effective. The Group did not admit liability with respect to the allegations in the lawsuits. Virtuallyreactions, virtually all the US actions have now been resolved. A California court of appeals reversed dismissal of thegranted plaintiffs’ motion to certify a class claims in a purported class action consumer fraud lawsuit seeking only economic damages, focused on discontinuation symptom.symptoms. In Canada, the Quebec court denied plaintiffs motion to certify a class of patients who allegedly experienced discontinuation symptoms. That casedecision is proceeding with no decision yet on class certification. There is purported class action litigation in Canada. The Group is also defending litigation which has commenced inappeal. In the UK, on behalf ofpublic funding has been granted for hundreds of plaintiffs who allegepatients to pursue common issues in litigation alleging that paroxetine has caused them to suffer from withdrawal reactions and dependency. The trial is scheduled to commence in January 2011.
Poligrip
A number of product liability lawsuits and claims have been filed against the Group in both state and federal courts in the USA, including purported class actions, alleging that the zinc inPoligripcauses copper depletion and permanent neurologic injury. The first lawsuit alleging neurologic injuries from zinc inPoligripwas filed in August 2005. The federal cases are part of the Denture Cream Adhesive multi-district litigation in the US District Court for the Southern District of Florida which was established in June 2009. Both the Group and Procter & Gamble are defendants in this litigation. Included in the MDL are purported class actions asserting economic loss claims under state consumer protection laws and claims for medical monitoring. With one exception (a state court case in Arkansas), all of the state court cases have been consolidated in the Mass Tort Program in Philadelphia. A purported class action asserting consumer fraud claims was recently filed in Canada. On 18th February 2010, the Group announced that it was voluntarily withdrawing all zinc-containing formulations ofPoligrip.
Thimerosal
The Group, along with a number of other pharmaceutical companies, has been named as a defendant in numerous individual personal injury lawsuits in state and federal district courts in the USA alleging that thimerosal, a preservative used in the manufacture of vaccines, causes neurodevelopmental disorders and other injuries, including autism.
Two of the cases are purported class actions, although there has been no determination whether any of those cases will be permitted to proceed as a class action. A number of purported class actions in other jurisdictions have been withdrawn or dismissed. Plaintiffs seek remedies including compensatory, punitive and statutory damages as well as the cost of a fund for medical monitoring and research.
As of the date of this report, in the limited number of cases that have approached trial dates, vaccine manufacturers and manufacturers of other thimerosal containing medicinal products have been successful in excluding testimony of plaintiffs’ expert witnesses on causation, specifically on grounds that plaintiffs have failed to establish that the hypothesizedhypothesised link between thimerosal and neurodevelopmental disorders is generally accepted as reliable within the relevant scientific community.


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Additionally, in February 2009, the Office of Special Masters of the United States Court of Federal Claims rejected the first three of approximately 4,900 autism claims filed under the National Vaccine Injury Compensation Program (NVCIP)(NVICP) on the grounds that claimants failed to produce reliable scientific evidence linking their vaccinations to their medical conditions, including autism.
The Group was not a party to these proceedings. The findings from them cannot be used as evidence in the pending lawsuits against the Group. TheAll three decisions were upheld on appeal by the United States Court of Federal Claims. Two of the three NVICP claimants now have appealed the rulings to the US Court of Appeals for the Federal Circuit. The third claimant has elected not to appeal further and has rejected the decision from the NVICP. This claimant now has the option of appealing the decisions or rejecting them and, instead, pursuing personal injury lawsuitsfiling an action either against the manufacturersGroup and/or the physician who administered the vaccine in question. As of the vaccines administered to them. this date, no such action has been commenced.
The remaining approximately 4,900 NVCIPNVICP claimants also will ultimately have the option of pursuing personal injury lawsuits against the vaccine manufacturers, including the Group. It is too early to determine whether the announcement of the NVCIP decisions is likely to lead to an increase in the number of civil cases filed against the Group. As of the date of this report, there are no cases scheduled for trial in 20092010 in which the Group is a defendant.
Sales and marketing and regulation
Marketing and promotion
In February 2004, the Group received a subpoena from the US Attorney’s office in Colorado regarding the Group’s sales and promotional practices relating to nine of its largest selling products, for the period from January 1997 to 2004. In particular, the government has inquired about alleged promotion of these drugs for off-label uses, as well as Group-sponsored continuing medical education programmes, other speaker events, special issue boards, advisory boards, speaker training programmes, clinical studies and related grants, fees, travel and entertainment. Although the original subpoena was issued from the US Attorney’s office in Colorado, the scope of the inquiry is nationwide.


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The government is also inquiring about the Group’s response to an October 2002 letter from the FDA’s Division of Drug Marketing, Advertising and Communication requesting information on the Group’s alleged promotion ofWellbutrin SRfor off-label use. The Group is co-operating with the investigation and providing the requested information.
In February 2003, the Verona Public Prosecutor commenced a criminal investigation into the Group’s sales and marketing practices in Italy. Specific areas of investigation include medical education programmes, clinical studies and congresses as well as the interaction between the Group’s representatives and physicians.
The Public Prosecutor proposed that a number of physicians and representatives of the Group face criminal charges.
However, at a hearing in January 2009, with the Public Prosecutor’s agreement, the Verona Court dismissed the charges against all the remaining defendants which closes the case. The US Securities and Exchange Commission (SEC) staff had initiated an investigation into the allegations. The Group co-operated with this investigation, but has not received any further requests for information from the SEC.
Following a United Nations report alleging that bribes had been paid to Iraqi government officials in connection with the UN Oil for Food Programme, the Group received a subpoena from the SEC in February 2006 in respect of the Group’s participation in that programme. The US Department of Justice also initiated an investigation. In December 2007, the UK Serious Fraud Office issued a formal notice to the Group requiring production of documents related to the Group’s participation in the programme. The Group is co-operating with the investigations and has provided documents responsive to the subpoena and the notice, and is now respondingcontinues to respond to follow up questions and requests.
Average wholesale price
The United States Department of Justice, a number of states and putative classes of private payers have for several years now been investigating and/or bringing civil litigation regarding allegations that numerous pharmaceutical companies, including GSK, have violated federal or state fraud and abuse laws as a result of the way ‘average wholesale price’ (AWP) and ‘wholesale acquisition cost’ (WAC) have been determined and reported for various drugs reimbursed under the Medicare, Medicaid and other insurance programmes. In 2005 the Group reached a $149 million civil settlement with the federal government to resolve allegations relating to the pricing and marketing ofZofranand Kytril. The Group also amended its existing corporate integrity agreement as a requirement of the settlement. In 2007, the Group received final approval of a $70 million nationwide private payer class action settlement relating to the Group’s price reporting in an MDL proceeding in the US District Court for the District of Massachusetts.
A number of states, through their respective attorneys general, and most of the counties in New York stateState have filed civil lawsuits in state and federal courts against GSK and many other drug companies claiming damages and restitution due to AWP and/or WAC price reporting for pharmaceutical products covered by the states’ Medicaid programmes. The states seek recovery on behalf of the states as payers and, in some cases, on behalf of in-state patients as consumers.
The Group has separately resolved AWP claims by state Medicaid programmes in more than two-thirds of the states through the DOJ Settlement or separate negotiations. Litigation concerning AWP issues is continuing with eleveneight states, as well as with New York counties. In July 2008, an Alabama state court jury returned an $81 million verdict against the Group in one such case filed by the State of Alabama. In October 2009 the Alabama Supreme Court reversed the jury verdict and rendered judgment in GSK’s favour. The court expressly found that GSK had not defrauded the Alabama Medicaid programme. In January 2010 the Alabama Supreme Court declined Alabama’s petition for reconsideration of the reversal.
In November 2009 a Kentucky state court jury returned a $661,860 compensatory damages only verdict against the Group in another such case filed by the State of Kentucky. The jury found the Group liable for violating the state’s consumer protection laws, but not liable under the state’s Medicaid fraud and false advertising statutes. In January 2010 the judge in the case awarded the State of Kentucky an additional $5,828,000 in statutory penalties. The Group is seekingconsidering whether to have this decision reversed on appeal by the Alabama Supreme Court.appeal.
Nominal pricing
The Group responded to two letter requests from the US Senate Committee on Finance, dated April 2004 and February 2005, for documents and information relating to the nominal price exception to the best price reporting requirements under the Medicaid Drug Rebate Programme. In January 2007, the committee released its findings that some pharmaceutical manufacturers inappropriately used the nominal price exception contrary to the committee’s interpretation of Congressional intent. In May 2004, the Group was advised by the US Department of Justice that it is investigating certain of the Group’s nominal pricing and bundled sales arrangements to determine whether those arrangements qualify under the exception to the best price reporting requirements or violate civil statutes or laws.

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In March 2008, the Group received a broad letter request from the US Department of Justice seeking a range of documents relating to all of the Group’s nominal pricing arrangements since 1994 and any possible bundled sales. The Group is continuing to co-operate in the investigation and produce documents. The Group has also received subpoenas and requests for documents and information from Delaware and Michigan related to the Group’s nominal price arrangements. The Group is cooperating in those investigations and producing responsive documents. In addition to these governmental investigations, allegations concerning the nominal pricing have been made by certain government payers as part of the AWP litigation. The groupGroup has not entered into any nominal price arrangements since December 2003.


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340B Programme
The Group is defending an action filed in federal court in the US District Court for the Northern District of California by the County of Santa Clara and twoone other counties,county, which seekseeks to represent a putative class of hospitals, clinics and other entities in California that are eligible to receive discounted ‘ceiling prices’ on pharmaceuticals under a federal programme known as the ‘340B Programme’. Plaintiffs allege that the Group and numerous other pharmaceutical manufacturers have been setting ‘ceiling prices’ higher than allowed by law and, under the contract that governs the programme, and have therefore overcharged the entities in California that are eligible to participate in the 340B Programme. The lawsuit was dismissed in 2006. It was reinstated in August 2008 following an appeal. It is now being actively litigated at the trial court level. Part of plaintiffs’ claim is that the defendants miscalculated ‘Average Manufacturer Prices’ (AMPs) and ‘Best Prices’ (BPs) under the Medicaid rebate program which, because they form part of the ‘ceiling price’ formula, resulted in inflated ‘ceiling prices.’ Defendants have asserted, and continue to assert, that these plaintiffs are not entitled to challenge the calculation of AMPs and BPs as part of this lawsuit.
Paxil/Seroxat
Following the Group’s 2004 settlement of a lawsuit filed by the New York State Attorney General’s office alleging failure to disclose data on the use ofPaxilin children and adolescents, similar cases, some of which purported to be class actions, were filed by private plaintiffs seeking to recover amounts paid forPaxilpurchased for use by patients under the age of 18. InFollowing a class settlement with consumers in 2007, the US District Court for the District of Minnesota in 2008 a Minnesota court approved a $40 million class settlement of ensuing lawsuits seeking recovery on behalf of insurance companies and other third-party payers for payments for prescriptions ofPaxilto children and adolescents. The Group denied liability.liability in both settlements. In January 2009, a similar purported class action was filed in US District Court for the District of Minnesota on behalf of all federal, state and local government entities that paid for prescriptions ofPaxilto minors. There also remains a similar purported class action in Canada seeking economic damages on behalf of individuals, third party payers and governmental entities that purchasedPaxilfor use by patients under the age of 18. The Group likewise denied liability.
The UK Medicines and Healthcare Products Regulatory Agency (MHRA) has completed its investigation into the Group’s pharmacovigilance reporting obligations relating to clinical data forSeroxat/Paxilin children with no further action being taken. The matter has thus been concluded.
Cidra, Puerto Rico manufacturing site
Following FDA inspections in October 2003 and November 2004, which resulted in observations of possible deficiencies in manufacturing practices at the Group’s manufacturing facility in Cidra, Puerto Rico, in March 2005 the FDA seized certain lots ofPaxil CRandAvandametdue to manufacturing issues. The FDA observations related to certain aspects of production controls, process validation and laboratory investigations. In April 2005, the Group reached agreement with the FDA on a Consent Decree. The Consent Decree provides for an independent expert to review manufacturing processes at the site for compliance with FDA Good Manufacturing Practice (GMP) requirements. As provided in the Consent Decree, in September 2005, the Group provided a report to the FDA on the deficiencies identified in this review, setting out a corrective plan and timetable for completion.
In October 2007 the Group announced plans to cease operations at its manufacturing facilities located in Cidra, Puerto Rico. On 30th July 2009; the Cidra site. GSK expectssite ceased operations and commenced decommissioning activities. The remaining operational staffs were released on 30th September 2009. On 6th October 2009, the US District Court for the Eastern District of North Carolina entered an order vacating the Consent Decree to continue production ofPaxil CRwhich the Group and the FDA agreed regarding the Group’s manufacturing operations at the site until that production can be transferred to another facility. The Group currently expects that to take place in 2009. Production of all other products at the site was discontinued by the end of 2007.
In April 2008, the FDA completed a general GMP inspection which resulted in one inspectional observation.site. The Group has respondedcompleted decommissioning activities and is currently pursuing opportunities to the observation and has completed the corrective action commitment.
In April 2008, the Group advised FDA thatsell the site had completed the corrective action plan that the Group had submitted to FDA in September 2005. The Group continues to provide FDA with quarterly reports on the activities associated with closure of the facility. In July 2008, the Group successfully completed the final of three annual inspections of the site by its independenta third party expert, as required by the Consent Decree.party.
In October 2003, the US federal government executed a search warrant at the Cidra facility and seized records relating to the manufacturing operations at the site.
In April 2005, the Group received a subpoena from the US Attorney’s Office in Boston requesting production of records regarding manufacturing at the Cidra site, covering information that is similar to that seized by the US government in Puerto Rico in 2003. Subsequently, the Group received additional subpoenas from the government related to the Cidra facility. The Group is co-operating with the US Attorney’s Office and producing the records responsive to the subpoenas. In addition, in July 2007, the Group learned that the US District Court for the District of Massachusetts had unsealed a complaint brought by a former employee under the federal False Claims Act claiming monetary damages as a result of the alleged failure of the Cidra facility to comply with GMPsFDA Good Manufacturing Processes (GMPs) in the manufacture of various products.
The Group is also named in two purported consumer fraud class action lawsuits —– one filed in California state court and the other in the US District Court for the District of Puerto Rico —- alleging thatPaxilproducts were not manufactured according to GMP. Plaintiffs sought economic, statutory and punitive damages, along with a request for injunctive relief. In the summer of 2008, the Group reached a tentative agreement to settle these matters, subject to court approval.matters. The settlement covers nationwide classes ofPaxil CRconsumer purchasers and third party payers. It provides a claims procedure for class members to receive payment only for split/defectivePaxil CRtablets.
In January 2009, The settlement received final trial court approval in September 2009. Objectors to the Group learned of a writ of summonssettlement filed appeals, but the appeals were dismissed in February 2010. Accordingly, the settlement has become final and effective in accordance with its terms. Under the settlement agreement, the consumer fraud class action lawsuits will be dismissed with prejudice. The related third party payer suit filed in the Philadelphia Court of Common Pleas by a groupwas marked as settled, discontinued and ended as of third party payers. On information and belief, the action is related to allegedPaxil CRmanufacturing issues at Cidra. The Group is currently gaining more information on this filing and its relation to the above class litigation.5th October 2009.


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GSK Annual Report 2008179
Financial statements

Notes to the financial statementscontinued
44Legal proceedingscontinued


Anti-trust
Paxil/Seroxat
InThe trial date for the paroxetineremaining patent infringement actionsaction brought by the Group as described under ‘Intellectual property’ above,against Apotex and certain other companies filed anti-trust and unfair competition counterclaims against the GroupApotex’s counterclaim remains set for 15th April 2010 in the US District Court for the Eastern District of Pennsylvania.
These were based In this matter, the Group seeks substantial damages for Apotex’s alleged infringement of one of the Group’s patents on allegationsparoxetine hydrochloride, and Apotex in turn seeks damages from the Group in an amount substantially larger than the damages sought by the Group, for alleged violations of federal anti-trust laws, as well as those involving advertising and state anti-trust and consumer protection laws. Under the federal anti-trust laws, the damages sought by Apotex would be trebled in the event of an adverse jury verdict against the Group. On 2nd December 2009, the Court ordered that the Group monopolised a ‘market’ forPaxilby bringing allegedly sham patent litigation and allegedly abusing the regulatory procedures for the listing of patentsApotex engage in the FDA Orange Book. Whilst the Apotex matter remains in the discovery stage, the matters with the other companies have been resolved.
In November 2000, the FTC staff advised the Group that they were conducting a non-public investigationmediation to determine if the Group was violating Section 5 of the Federal Trade Commission Act by ‘monopolising or attemptingattempt to monopolise’ the ‘market’ for paroxetine hydrochloride by preventing generic competition toPaxiland requested the Group to submit certain information in connection with that investigation. In October 2003, the FTC closed its investigationreach settlement on the basis of its findings that no further action was warranted. Following public reference topatent infringement claim and the FTC investigation regardingPaxil, a number of governmental and private civil actions and claims were initiated in the USA. All US matters with the exception of the above-referenced Apotex matter have been resolved.counterclaim.
In October 2005, the Competition Directorate of the European Commission initiated an inspection concerning allegations that the Group has abused a dominant position in the marketplace concerning enforcement of its intellectual property rights, litigation surrounding regulatory approvals and marketing ofSeroxatin Europe. In October 2006, the Commission made a formal request for further information. The Group responded to this request by the end of 2006.EU sector inquiry
In January 2008, the European Commission announced an inquiry into certain aspects of competition in the pharmaceutical sector and initiated inspections at the premises of a number of innovator and generic pharmaceutical companies, including the Group. The Commission published a preliminary report in November 2008 based on information provided to it by innovator and generic pharmaceutical companies. The report suggests that defensive patenting strategies may lead to obstacles to innovation and that innovator companies employ measures to hinder generics coming onto the market. It is anticipated thatThe final report was issued in July 2009. While not contradicting the preliminary report the final report will be issuedconceded that delays in generic entry was as much the second quarterfault of 2009. The Group continues to co-operate withthe regulatory environment as innovator companies’ defensive strategies. In this report, the Commission in its investigation.stated that it did not attack legitimate patenting practices and identified areas for follow up scrutiny by the Commission and recommended regulatory reform and improvement.
Wellbutrin SR
In December 2004, January 2005 and February 2005, lawsuits, several of which purported to be class actions, were filed in the US District Court for the Eastern District of Pennsylvania against the Group on behalf of direct and indirect purchasers ofWellbutrin SR. The complaints allege violations of US anti-trust laws through sham litigation and fraud on the patent office by the Group in obtaining and enforcing patents coveringWellbutrin SR. The complaints followfollowed the introduction of generic competition toWellbutrin SRin April 2004, after district and appellate court rulings that a generic manufacturer did not infringe the Group’s patents. The parties are involved in discoveryWhile a class of direct purchasers has been certified, no decision has yet been made by the Court with regard to certification of an indirect purchaser class. Discovery has been substantially completed and the Group has filed aGroup’s motion for summary judgement, whichjudgment remains pending.
Secondary wholesaler
In July 2006, RxUSA Wholesale, Inc., a ‘secondary wholesaler’, filed suit against the Group and many other pharmaceutical manufacturers and wholesalers in the US District Court for the Eastern District of New York. The complaint alleges that the defendants engaged in a conspiracy to refuse to supply pharmaceutical products to RxUSA in violation of federal and state anti-trust laws. The Group’s motion to dismiss the complaint remains pending.was granted. The plaintiff has filed an appeal.
Wellbutrin XL
As an outgrowth of those intellectual property matters discussed above with respect toWellbutrin XL, actionsActions have been filed against Biovail and GSK by purported classes of direct and indirect purchasers who allege unlawful monopolization and other antitrustanti-trust violations related to the enforcement of Biovail’sWellbutrin XLpatents and the filing, by Biovail, of citizen petitions. The Group has filed aGroup’s motion to dismiss which remains pending.the amended complaint of the indirect purchasers was granted in respect of some, but not all, of the claims of the class representatives and many of the claims asserted by the indirect purchasers. The case has proceeded to discovery with respect to the remaining claims as well as the ones brought by the purported class of direct purchasers.
Flonase
Purported direct and indirect purchaser class actions have been filed in the US District Court for the Eastern District of Pennsylvania alleging the Group illegally maintained monopoly power in the ‘market’ forFlonaseand charged plaintiffs supra-competitive prices. Additionally, a suit has been filed by Roxane Laboratories, Inc., a generic competitor, seeking lost profits from the Group’s alleged actions unlawfully delaying Roxane’s entry into the market. The predicate for all of these allegations was the filing by the Group of allegedly sham citizen petitions and subsequent litigation. The Group has filed asuccessfully narrowed the claims of the purported class of indirect purchasers through motions to dismiss their complaint and amended complaints. The Group’s motion to dismiss the complaints of the purported classes of direct and indirect purchasers.Roxane’s complaint was recently denied. Discovery with regard to all parties is also underway.


180GSK Annual Report 2008
Financial statements

Notes to the financial statementscontinued
44Legal proceedingscontinuedscheduled to conclude in Q1 2010.
Commercial and corporate
Securities class actions
In September 2005, attorneys representing a purported class of purchasers of GlaxoSmithKline shares and American Depositary Shares (ADS) filed a second amended securities class action complaint against the Group in the US District Court for the Southern District of New York, alleging that the Group violated US securities laws through failure to disclose unfavourable clinical data from studies onPaxil, misrepresentation of the remaining patent protection forPaxilandAugmentinand violation of the Federal False Claims Act on the basis of the Group’s recent AWP settlement with the government. In October 2006, the judge entered an order dismissing the complaint, which was upheld by the US Court of Appeals for the Second Circuit in March 2008. This matter has now concluded.
In November 2007, attorneys purporting to represent a class of purchasers of GlaxoSmithKline shares and ADS filed an amended consolidated complaint against the Group and senior officers in the US District Court for the Southern District of New York. It alleged that the Group and the individual defendants violated US securities laws and artificially inflated the price of GlaxoSmithKline’s stock by misleading investors about the safety ofAvandia. The amended consolidated complaint also alleges that several current and former senior officers and members of the Group engaged in insider trading. A motion to dismiss the complaint has been filed on behalf of the Group and the individual defendants. In May 2008, the District Court entered an order dismissing the case as to all defendants. Plaintiffs filed an appeal with the US Court of Appeals for the Second Circuit. That appeal remains pending.In August 2009, the Court of Appeals affirmed the District Court’s dismissal. This matter has now concluded.


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176

Notes to the financial statements
Relenza
44 Legal proceedingscontinued
In May 2004, Biota Holdings LimitedOn 6th July 2009, a class action suit brought on behalf of current and former employees of Stiefel Laboratories, Inc., was filed ain US District Court for the Southern District of Florida. The complaint alleges that Stiefel and its officers and directors violated US Employee Retirement Income Security Act (ERISA) and federal and state securities laws by inducing Stiefel employees to sell their shares in the Victorian Supremeemployee stock plan back to Stiefel company at a greatly undervalued price and without disclosing to employees that Stiefel was about to be sold. In January, defendants’ motion to dismiss was granted in part and denied in part. Specifically, while the Court in Australia allegingdetermined that the Group had failed to fulfil its development, promotionERISA claims against the individual Stiefel defendants as well as the federal securities claims against the individual defendants and production obligations for zanamivir (Relenza) under the terms of the licence agreement between the Group and Biota. Biota sought substantial damages. At a mediation ordered byStiefel could go forward, the Court in July 2008dismissed the dispute was settled without any admissionFlorida Securities Act and common law breach of liability. GSK continues to sellRelenzapursuant to the licence agreement.fiduciary duty claims holding that ERISA pre-empts state and common law, as well as a malpractice claim against Stiefel’s former accountants.
Wage and hour claims
In December 2006, two purported class actions were filed against the Group on behalf of the entire Group’s US pharmaceutical sales representatives. These actions, which were filed in or transferred to the US District Court for the Central District of California, initially alleged that those representatives are not ‘exempt’ employees under California law and/or the US Fair Labor Standards Act and are consequently entitled to overtime pay, among other things.
Plaintiffs subsequently amended their complaints to assert a class action, limited solely to pharmaceutical sales representatives working in California, and only asserting claims under California’s wage and hour laws.
The suits seek a variety of compensatory, punitive and statutory damages. The Group moved for summary judgement dismissing the claims of the putative class representatives on the ground that they were exempt employees. The Court held that there are appeals pending in the United States Court of Appeals for the Ninth Circuit in cases involving other manufacturers ‘with virtually the same factual and legal arguments’. It therefore deferred ruling on the summary judgement motion and stayed any further activity in the case until the appellate court rules in at least one of the other companies’ pending cases.
A third case, filed in the US District Court for the District of Arizona in November 2008, seekssought to establish a nationwide collective action on behalf of the entire Group’s US pharmaceutical sales representatives on the ground that those representatives were not ‘exempt’exempt employees under the US Fair Labor Standards Act. Plaintiffs seeksought double damages for all overtime allegedly worked by the Group’s pharmaceutical sales representatives over a three year period. In November 2009, the Court granted the Group’s motion for summary judgment and dismissed the lawsuit on the ground that the sales representatives were ‘exempt’ employees under the outside sales exemption to the US Fair Labor Standards Act. Plaintiffs asked the Court to reconsider and amend its judgment based on the rationale advanced by the US Department of Labor in a brief the Department had filed in a case involving another company. On 1st February 2010, the Court reaffirmed its dismissal the action. Plaintiffs subsequently filed a notice that they are appealing the decision to the US Court of Appeals for the Ninth Circuit.
Environmental matters
GSK has been notified of its potential responsibility relating to past operations and its past waste disposal practices at certain sites, primarily in the USA. Some of these matters are the subject of litigation, including proceedings initiated by the US federal or state governments for waste disposal, site remediation costs and tort actions brought by private parties.
GSK has been advised that it may be a responsible party at approximately 29 sites, of which 14 appear on the National Priority List created by the Comprehensive Environmental Response Compensation and Liability Act (Superfund). These proceedings seek to require the operators of hazardous waste facilities, transporters of waste to the sites and generators of hazardous waste disposed of at the sites to clean up the sites or to reimburse the government for cleanup costs. In most instances, GSK is involved as an alleged generator of hazardous waste. Although there are a few sites where GSK is involved as a current or former operator of the facility. Although Superfund provides that the defendants are jointly and severally liable for cleanup costs, these proceedings are frequently resolved on the basis of the nature and quantity of waste disposed of by the generator at the site. GSK’s proportionate liability for cleanup costs has been substantially determined for about 20 of the sites referred to above.
GSK’s potential liability varies greatly from site to site. While the cost of investigation, study and remediation at such sites could, over time, be substantial, GSK routinely accrues amounts related to its share of the liability for such matters.


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GSK Annual Report 2008181
Shareholder information
Shareholder information
The shareholder information section includes the financial record presenting historical information prepared in accordance with IFRS as adopted by the European Union, and also with IFRS as issued by the IASB, and the full product development pipeline. The section also discusses shareholder return in the form of dividends and share price movements and provides other information for shareholders.
The share price movements and dividends are shown by the graphs below. Details of the price movements and dividends are on pages 197193 to 198.
(GRAPH)194.
Financial recordShareholder information
  182177 
Quarterly trend  182178 
Five year record  190186 
Product development pipeline
  193
Shareholder information
197189 
Share price and dividends  197193 
Nature of trading market  198194 
Annual General Meeting  198194 
Investor relations and Registrar  199195 
Taxation information for shareholders  200196 
Glossary of terms
 197


   
Glossary of terms(LINE GRAPH)
 201(BAR GRAPH)
(BAR CHART)


Analysis of shareholdings at 31st December 20082009
                
                   
 Number of % of total % of total Number of  Number of % of total % of total Number of 
 accounts accounts shares shares  accounts accounts shares shares 
      
Holding of shares
  
Up to 1,000 120,998 71 1 43,520,230  118,849 72 1 42,629,294 
1,001 to 5,000 38,292 23 1 81,859,238  36,802 22 1 78,738,160 
5,001 to 100,000 9,005 5 2 131,297,666  8,503 5 2 124,902,813 
100,001 to 1,000,000 931 1 6 333,033,484  875 1 6 312,712,630 
Over 1,000,000 414 — 90 5,071,605,619  423 – 90 5,106,145,822 
      
Totals 169,640 100 100 5,661,316,237 
 165,452 100 100 5,665,128,719 
      
Held by
  
Nominee companies 29,807 18 72 4,056,441,061  27,603 17 74 4,176,525,968 
Investment and trust companies 54 — — 10,572,576  44 – – 2,385,639 
Insurance companies 12 — — 26,265  9 – – 5,144 
Individuals and other corporate bodies 139,765 82 6 329,462,391  137,794 83 5 276,192,537 
BNY (Nominees) Limited 1 — 14 790,619,786  1 – 13 735,825,273 
Held as Treasury shares by GlaxoSmithKline 1 — 8 474,194,158  1 – 8 474,194,158 
      
Totals 169,640 100 100 5,661,316,237 
 165,452 100 100 5,665,128,719 
        
The Bank of New York Mellon’s holding held through BNY (Nominees) Limited represents the company’s ADR programme, whereby each ADS represents two Ordinary Shares of 25p nominal value. At 24th19th February 2009,2010, BNY (Nominees) Limited held 784,505,385735,816,825 Ordinary Shares representing 15.12%14.17% of the issued share capital excluding Treasury shares at that date.
At 24th19th February 2009,2010, the number of holders of shares in the USA was 1,1031,088 with holdings of 1,336,5031,310,916 shares, and the number of registered holders of the ADR was 35,41233,963 with holdings of 392,252,669367,903,742 ADR. Certain of these shares and ADR were held by brokers or other nominees. As a result the number of holders of record or registered holders in the USA is not representative of the number of beneficial holders or of the residence of beneficial holders.


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178

182GSK Annual Report 2008
Shareholder information
Financial record
Quarterly trend
Quarterly trend
An unaudited analysis of the Group results and pharmaceutical sales by therapeutic area is provided by quarter in Sterling for the financial year 2008.2009.
                                        
Income statement — total
 12 months 2008 Q4 2008 
Income statement – total 12 months 2009 Q4 2009 
£m CER% £% £m CER% £% 
 £m CER% £% £m CER% £%            
Turnover — Pharmaceuticals 20,381  (3) 6 5,803  (4) 15 
— Consumer Healthcare 3,971 3 12 1,107 2 17 
Turnover – Pharmaceuticals 23,714 2 16 6,916 15 19 
– Consumer Healthcare 4,654 7 17 1,178 5 6 
          
Total turnover 24,352  (3) 7 6,910  (3) 16  28,368 3 16 8,094 13 17 
Cost of sales  (6,415) 13 21  (1,953) 10 19   (7,380) 6 15  (2,119) 4 8 
Selling, general and administrative  (7,656) 2 10  (2,296) 9 26   (9,592) 6 25  (2,954) 13 29 
Research and development  (3,681) 4 11  (1,212) 4 16   (4,106) 1 12  (1,127)  (9)  (7)
Other operating income 541 133  1,135 553 
          
Operating profit 7,141  (20)  (6) 1,582  (35) —  8,425 4 18 2,447 68 55 
          
Finance income 313 37  70 5 
Finance costs  (843)  (241)   (783)  (213) 
Profit on disposal of interest in associate 115 
Share of after tax profits of associates and joint ventures 48 18  64 11 
          
Profit before taxation 6,659  (24)  (11) 1,396  (44)  (9) 7,891 4 19 2,250 77 61 
Taxation  (1,947)  (379)   (2,222)  (582) 
Tax rate %  29.2%  27.1%   28.2%  25.9% 
          
Profit after taxation for the period 4,712  (25)  (11) 1,017  (42)  (5) 5,669 6 20 1,668 79 64 
          
Profit attributable to minority interests 110 35  138 38 
Profit attributable to shareholders 4,602 982  5,531 1,630 
          
Basic earnings per share (pence) 88.6p  (21)  (6) 19.3p  (40)  (2) 109.1p 8 23 32.1p 82 66 
          
Diluted earnings per share (pence) 88.1p 19.2p  108.2p 31.8p 
          
 
Income statement — results before major restructuring
 
 
Turnover — Pharmaceuticals 20,381  (3) 6 5,803  (4) 15 
— Consumer Healthcare 3,971 3 12 1,107 2 17 
Total turnover 24,352  (3) 7 6,910  (3) 16 
Cost of sales  (5,776) 4 11  (1,642)  (2) 7 
Selling, general and administrative  (7,352) — 8  (2,205)  (14) 31 
Research and development  (3,506) 2 8  (1,090)  (1) 14 
Other operating income 541 133 
Operating profit 8,259  (10) 4 2,106  (21) 9 
Finance income 313 37 
Finance costs  (838)  (238) 
Share of after tax profits of associates and joint ventures 48 18 
Profit before taxation 7,782  (14) — 1,923  (28) 3 
Taxation  (2,231)  (532) 
Tax rate %  28.7%  27.7% 
Profit after taxation for the period 5,551  (14) — 1,391  (27) 4 
Profit attributable to minority interests 110 35 
Profit attributable to shareholders 5,441 1,356 
Adjusted earnings per share (pence) 104.7p  (9) 6 26.7p  (23) 9 
Diluted earnings per share (pence) 104.1p 26.6p 
Income statement – results before major restructuring
                         
                
Total turnover  28,368   3   16   8,094   13   17 
Cost of sales  (7,095)  13   23   (2,098)  22   28 
Selling, general and administrative  (9,200)  6   25   (2,780)  11   26 
Research and development  (3,951)  2   13   (1,092)  (2)  – 
Other operating income  1,135           553         
                
Operating profit  9,257   (1)  12   2,677   37   27 
                
Finance income  70           5         
Finance costs  (780)          (213)        
Profit on disposal of interest in associate  115                     
Share of after tax profits of associates and joint ventures  64           11         
                
Profit before taxation  8,726   (1)  12   2,480   40   29 
Taxation  (2,443)          (646)        
Tax rate %  28.0%          26.0%        
                
Profit after taxation for the period  6,283   –   13   1,834   42   32 
                
Profit attributable to minority interests  138           38         
Profit attributable to shareholders  6,145           1,796         
                
Adjusted earnings per share (pence)  121.2p  2   16   35.4p  43   33 
                
Diluted earnings per share (pence)  120.3p          35.1p        
                
The calculation of results before major restructuring is described in Note 1 to the financial statements, ‘Presentation of the financial statements’.
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179

Shareholder information
 

                                     
Q3 2009  Q2 2009  Q1 2009 
  £m  CER%  £%  £m  CER%  £%  £m  CER%  £% 
                         
   5,593   2   14   5,582   (4)  13   5,623   (6)  18 
   1,165   8   17   1,165   9   23   1,146   4   25 
                         
   6,758   3   15   6,747   (2)  15   6,769   (5)  19 
   (1,782)  5   12   (1,692)  1   12   (1,787)  (17)  31 
   (2,146)  4   18   (2,292)  4   28   (2,200)  1   26 
   (882)  (5)  1   (973)  4   19   (1,124)  20   44 
   123           405           54         
                         
   2,071   7   25   2,195   (5)  13   1,712   (40)  (13)
                         
   19           18           28         
   (199)          (168)          (203)        
                           115         
   22           17           14         
                         
   1,913   5   23   2,062   (6)  12   1,666   (40)  (11)
   (542)          (601)          (497)        
   28.3%          29.1%          29.8%        
                         
   1,371   11   30   1,461   (7)  12   1,169   (41)  (12)
                         
   36           26           38         
   1,335           1,435           1,131         
                         
   26.3p  11   31   28.3p  (4)  15   22.3p  (39)  (9)
                         
   26.1p          28.1p          22.2p        
                         
                                     
                         
   6,758   3   15   6,747   (2)  15   6,769   (5)  19 
   (1,732)  11   19   (1,621)  6   18   (1,644)  13   27 
   (2,064)  9   24   (2,227)  3   26   (2,129)  (1)  24 
   (862)  (4)  3   (923)  –   15   (1,074)  14   38 
   123           405           54         
                         
   2,223   (3)  12   2,381   (6)  12   1,976   (31)  (4)
                         
   19           18           28         
   (199)          (166)          (202)        
                           115         
   22           17           14         
                         
   2,065   (5)  10   2,250   (6)  11   1,931   (31)  (2)
   (585)          (652)          (560)        
   28.3%          29.0%          29.0%        
                         
   1,480   (3)  12   1,598   (7)  11   1,371   (31)  (2)
                         
   36           26           38         
   1,444           1,572           1,333         
                         
   28.5p  (3)  13   31.0p  (4)  14   26.3p  (28)  3 
                         
   28.3p          30.8p          26.2p        
                         
GSK Annual Report 2009

 

180

GSK Annual Report 2008183
Shareholder information
Financial recordcontinued
Shareholder information
Quarterly trend
                                     
  Q3 2008  Q2 2008  Q1 2008 
  £m  CER%  £%  £m  CER%  £%  £m  CER%  £% 
   
   4,888   (4)  6   4,923   (2)  3   4,767   (4)  — 
   994   3   12   951   (1)  4   919   8   14 
   
   5,882   (3)  7   5,874   (2)  4   5,686   (3)  2 
   (1,590)  20   29   (1,513)  19   25   (1,359)  6   10 
   (1,819)  4   12   (1,796)  (7)  (2)  (1,745)  —   4 
   (869)  6   13   (820)  1   4   (780)  5   7 
   53           194           161         
   
   1,657   (26)  (13)  1,939   (7)  1   1,963   (13)  (9)
   
   98           96           82         
   (218)          (214)          (170)        
   16           15           (1)        
   
   1,553   (31)  (17)  1,836   (11)  (3)  1,874   (17)  (13)
   (497)          (529)          (542)        
   32.0%          28.8%          28.9%        
   
   1,056   (35)  (22)  1,307   (11)  (4)  1,332   (17)  (13)
   
   29           21           25         
   1,027           1,286           1,307         
   
   20.1p  (30)  (15)  24.6p  (6)  3   24.4p  (14)  (10)
   
   20.0p          24.4p          24.2p        
   
                                     
                                     
                                     
   
 
   
   4,888   (4)  6   4,923   (2)  3   4,767   (4)  — 
   994   3   12   951   (1)  4   919   8   14 
   
   5,882   (3)  7   5,874   (2)  4   5,686   (3)  2 
   (1,460)  10   19   (1,375)  8   13   (1,299)  1   5 
   (1,662)  (5)  3   (1,765)  (8)  (4)  (1,720)  (2)  3 
   (834)  2   8   (802)  (1)  2   (780)  5   7 
   53           194           161         
   
   1,979   (10)  4   2,126   2   10   2,048   (9)  (5)
   
   98           96           82         
   (218)          (214)          (168)        
   16           15           (1)        
   
   1,875   (14)  0   2,023   (2)  7   1,961   (13)  (8)
   (559)          (577)          (563)        
   29.8%          28.5%          28.7%        
   
   1,316   (16)  (2)  1,446   (2)  7   1,398   (13)  (9)
   
   29           21           25         
   1,287           1,425           1,373         
   
   25.2p  (9)  6   27.2p  5   13   25.6p  (9)  (5)
   
   25.0p          27.0p          25.5p        
   


184GSK Annual Report 2008
Shareholder information
Financial recordcontinued
Quarterly trend
Pharmaceutical turnover —– total Group
                                                
                                                 Q4 2009 Q3 2009 Q2 2009 Q1 2009 
 Q4 2008 Q3 2008 Q2 2008 Q1 2008  £m CER% £% £m CER% £% £m CER% £% £m CER% £% 
 £m CER% £% £m CER% £% £m CER% £% £m CER% £%                         
 
Respiratory
 1,731 7 27 1,348 3 14 1,383 4 10 1,355 6 11  1,914 7 11 1,594 6 18 1,734 6 25 1,735 1 28 
Avamys/Veramyst
 33 36 32 31 59 82 47 >100 >100 31 85 >100 
Flixonase/Flonase
 35  (14)  (17) 28  (21)  (15) 39  (46)  (40) 69 11 50 
Flixotide/Flovent
 222 3 7 169 – 13 189 1 20 195  (6) 20 
Seretide/Advair
 1,237 8 29 982 7 18 964 6 11 954 10 14  1,366 7 10 1,152 5 17 1,245 9 29 1,214 – 27 
Flixotide/Flovent
 208  (1) 19 149  (4) 6 158  (3) 5 162  (1) 5 
Serevent
 70  (18)  (1) 60  (14)  (5) 66  (11)  (6) 67  (5) 3  61  (14)  (13) 54  (18)  (10) 59  (21)  (11) 62  (24)  (7)
Veramyst
 25 >100 >100 17 >100 >100 17 89 89 13 — — 
Flixonase/Flonase
 42 9 31 33  (39)  (33) 65 13 18 46  (33)  (27)
Ventolin
 139 28 34 110 28 41 112 23 40 116 23 51 
Zyrtec
 22 67 83 18 >100 >100 17 63 >100 18 9 64 
                        
 
Anti-virals
 924  (4) 17 792 1 11 751  (5) — 739  (8)  (4) 1,033 9 12 1,049 15 32 952 5 27 1,116 18 51 
HIV
 417  (3) 16 377  (5) 5 361  (6)  (1) 358  (5) —  412  (3)  (1) 392  (7) 4 382  (10) 6 419  (8) 17 
Agenerase, Lexiva
 44  (9)  (6) 43  (3) 8 43  (8) 13 48 6 37 
Combivir
 109  (5)  (4) 102  (15) – 102  (17)  (2) 112  (16) 7 
Epivir
 30  (17)  (17) 34  (14)  (3) 31  (24)  (9) 34  (21) – 
Epzicom/Kivexa
 129 20 43 110 24 38 104 24 32 99 25 32  149 11 16 131 6 19 129 6 24 137 10 38 
Combivir
 114  (13) 6 110  (13)  (4) 104  (15)  (11) 105  (13)  (9)
Trizivir
 59  (14) 5 49  (20)  (11) 50  (23)  (17) 54  (16)  (13) 49  (19)  (17) 48  (12)  (2) 48  (18)  (4) 56  (20) 4 
Agenerase, Lexiva
 47 6 31 40  (3) 8 38 9 15 35  (3) — 
Epivir
 36  (22)  (3) 35  (16)  (8) 34  (20)  (15) 34  (22)  (17)
Ziagen
 28  (18) — 27  (11)  (4) 26  (7)  (4) 25  (8)  (4) 27  (7)  (4) 26  (11)  (4) 25  (19)  (4) 27  (16) 8 
 
Valtrex
 366 16 44 303 21 32 277 19 23 249 9 11  222  (34)  (39) 349  (1) 15 379 9 37 344 2 38 
 
Relenza
 256 >100 >100 182 >100 >100 60 >100 >100 222 >100 >100 
Zeffix
 53 2 26 42  (10) — 47 — 7 46 8 15  55 – 4 54 14 29 55  (4) 17 53  (13) 15 
Relenza
 13  (85)  (83) 12  (57)  (57) 3  (97)  (96) 29  (71)  (68)
                        
 
Central nervous system
 665  (43)  (26) 585  (38)  (29) 818  (4)  (1) 829 3 4  504  (27)  (24) 418  (37)  (29) 449  (53)  (45) 499  (53)  (40)
Imigran/Imitrex
 81  (50)  (50) 53  (74)  (72) 68  (65)  (61) 64  (68)  (61)
Lamictal
 177  (57)  (41) 136  (59)  (51) 323 18 19 290 16 16  132  (27)  (25) 121  (21)  (11) 103  (73)  (68) 144  (61)  (50)
Imigran/Imitrex
 161  (34)  (14) 188 5 14 173 2 4 165  (1)  (1)
Requip
 65 3 12 43  (30)  (23) 51  (22)  (12) 50  (56)  (47)
Requip XL
 40 85 100 31 87 >100 30 >100 >100 22 >100 >100 
Seroxat/Paxil
 154  (21) 2 112  (23)  (13) 127  (18)  (9) 121  (15)  (10) 139  (16)  (10) 120  (12) 7 138  (13) 9 126  (21) 4 
Wellbutrin
 66  (63)  (49) 53  (67)  (61) 97  (27)  (27) 126  (3)  (5)
Requip
 58  (53)  (39) 56  (43)  (36) 58  (37)  (31) 94 15 18 
Treximet
 13 — — 4 — — 8 — — — — —  14 15 8 15 >100 >100 12 25 50 14 – – 
Wellbutrin, Wellbutrin XL
 22  (64)  (67) 16  (70)  (70) 30  (72)  (69) 64  (63)  (49)
                        
 
Cardiovascular and urogenital
 548 51 84 466 12 23 435  (5)  (1) 398  (12)  (9) 615 10 12 552 5 18 580 10 33 551 6 38 
Arixtra
 74 31 35 60 20 36 61 39 69 59 29 69 
Avodart
 120 19 45 102 29 42 92 33 37 85 30 35  143 16 19 131 14 28 134 21 46 122 12 44 
Coreg
 31  (46)  (49) 39  (30)  (22) 51  (9) 16 51  (23) 6 
Fraxiparine
 60 2 3 56  (12)  (5) 58  (9) – 55  (8) 8 
Levitra
 17 6 – 20 6 25 18 8 38 20 7 43 
Lovaza
 98 >100 >100 75 — — 67 — — 50 — —  129 29 32 111 27 48 104 22 55 106 54 >100 
Coreg
 61 >100 >100 50  (69)  (66) 44  (78)  (78) 48  (77)  (78)
Coreg CR
 50 21 52 41 19 32 39 >100 >100 35 >100 >100 
Coreg IR
 11 >100 >100 9  (93)  (92) 5  (97)  (97) 13  (94)  (94)
Fraxiparine
 58  (2) 14 59 22 44 58 13 29 51  (4) 9 
Arixtra
 55 59 90 44 56 76 36 31 38 35 70 75 
Vesicare
 23 36 64 18 31 38 16 25 33 14 36 27  29 26 26 25 17 39 26 31 63 24 21 71 
Levitra
 17 18 55 16 15 23 13 18 18 14 — — 
Volibris
 7 >100 >100 6 >100 >100 4 – – 2 – – 
                        
 
Metabolic
 345  (11) 8 289  (11)  (2) 285  (35)  (32) 272  (45)  (43) 300  (15)  (13) 284  (13)  (2) 303  (12) 6 294  (16) 8 
Avandia products
 229  (17)  (1) 191  (23)  (15) 194  (46)  (44) 191  (56)  (54) 191  (17)  (17) 185  (14)  (3) 198  (14) 2 197  (19) 3 
Avandia
 147  (24)  (8) 118  (29)  (23) 125  (51)  (50) 122  (62)  (61) 112  (24)  (24) 108  (19)  (8) 121  (19)  (3) 121  (23)  (1)
Avandamet
 70  (8) 9 63  (7) 5 61  (33)  (28) 62  (29)  (25) 69  (3)  (1) 66  (6) 5 67  (7) 10 66  (16) 6 
Bonviva/Boniva
 76 23 46 56 24 37 56 47 56 49 50 53  67  (13)  (12) 60  (5) 7 66  (2) 18 62  (4) 27 
                        
 
Anti-bacterials
 397  (7) 8 340 3 13 329  (1) 6 363  (2) 5  409 2 3 376 3 11 381 3 16 426  (1) 17 
Augmentin
 159  (5) 9 143 10 22 129  (1) 8 156  (1) 6  173 7 9 162 8 14 146 2 12 186 – 19 
Altabax
 5 — 25 5 >100 >100 4  (20)  (20) 2 — — 
                        
 
Oncology and emesis
 138 12 38 128 12 23 117  (11)  (7) 113  (27)  (23) 170 17 23 149 4 16 166 19 42 144 1 27 
Hycamtin
 41 10 32 34 3 13 35 18 25 30  (3) —  45 7 10 41 9 21 43 3 23 43 10 43 
Promacta
 5 – – 3 – – 3 – – 2 – – 
Tyverb/Tykerb
 48 29 37 46 54 77 41 64 86 34 42 79 
Zofran
 17  (41)  (23) 33  (9) 3 31  (49)  (44) 29  (69)  (67) 24 35 41 23  (33)  (30) 30  (16)  (3) 32  (7) 10 
Tykerb
 35 58 84 26 44 63 22 75 83 19 >100 >100 
                        
 
Vaccines
 796 8 26 730 12 23 577 34 45 436 10 18  1,523 78 91 802  (2) 10 756 14 31 625 18 43 
Boostrix
 35 100 >100 39 55 77 39 78 >100 26 62 100 
Cervarix
 38  (33)  (31) 28  (40)  (35) 73 >100 >100 48 >100 >100 
Fluarix, FluLaval
 42  (33)  (36) 147  (14) 2 14 >100 >100 6 – – 
Flu pandemic 836 >100 >100 11 – 10 30  (26)  (12) 6 20 20 
Hepatitis 185 5 26 174 11 23 167 23 30 139 16 23  151  (19)  (18) 170  (12)  (2) 195  (2) 17 149  (12) 7 
Infanrix/Pediarix
 194 19 42 168 9 23 167 13 24 153 6 14 
Fluarix, FluLaval
 66 12 35 144 11 20 5 25 25 — — — 
Flu-prepandemic 17  (86)  (86) 10  (52)  (52) 34 — — 5 — — 
Cervarix
 55 >100 >100 43 >100 >100 15 — — 12 — — 
Infanrix, Pediarix
 153  (24)  (21) 167  (10)  (1) 154  (20)  (8) 175  (5) 14 
Rotarix
 66 59 69 39 57 70 35 >100 >100 27 79 93  70 5 6 84 92 >100 71 69 >100 57 74 >100 
Boostrix
 17 — 31 22  (19)  (15) 18 21 29 13  (8) — 
Synflorix
 48 – – 13 – – 12 – – – – – 
                        
 
Other
 259  (11) 2 210  (3) 7 228  (6) 1 262 12 17  311 17 20 258 15 24 261  (1) 13 233  (25)  (11)
 
                        
 5,803  (4) 15 4,888  (4) 6 4,923  (2) 3 4,767  (4) —  6,779 13 17 5,482 – 12 5,582  (4) 13 5,623  (6) 18 
                        
Stiefel products 137 – – 111 – – 
                        
 6,916 15 19 5,593 2 14 
           
Pharmaceutical turnover includes co-promotion income.


GSK Annual Report 2009

181

GSK Annual Report 2008185
Shareholder information
Financial recordcontinued
Shareholder information
Quarterly trend
Pharmaceutical turnover —– USA
                                                
                                                 Q4 2009 Q3 2009 Q2 2009 Q1 2009 
 Q4 2008 Q3 2008 Q2 2008 Q1 2008  £m CER% £% £m CER% £% £m CER% £% £m CER% £% 
 £m CER% £% £m CER% £% £m CER% £% £m CER% £%                         
 
Respiratory
 852 9 35 636 3 12 616 4 4 616 8 6  910 5 7 744 2 17 825 5 34 844  (1) 37 
Avamys/Veramyst
 15  (17)  (17) 15 8 25 18 7 29 20 17 67 
Flixonase/Flonase
 6  (25)  (25) 3  (57)  (57) 8  (82)  (76) 10 100 >100 
Flixotide/Flovent
 115 9 12 85 4 20 97 12 43 99  (4) 32 
Seretide/Advair
 674 6 31 515 5 14 473 2 1 499 10 9  704 3 4 587  (1) 14 648 7 37 653  (5) 31 
Flixotide/Flovent
 103 2 27 71  (1) 6 68 5 5 75 7 6 
Serevent
 22  (5) 16 17  (11)  (6) 16  (11)  (11) 17  (11)  (11) 20  (9)  (9) 16  (18)  (6) 18  (13) 13 19  (18) 12 
Veramyst
 18 75 >100 12 >100 >100 14 56 56 12 — — 
Flixonase/Flonase
 8 >100 >100 7  (67)  (67) 33 32 32 4  (84)  (84)
Ventolin
 48 100 >100 35 >100 >100 32 >100 >100 �� 38 >100 >100 
Zyrtec
 – – – – – – – – – – – – 
                        
 
Anti-virals
 500 3 28 398 5 13 355  (2)  (3) 347  (9)  (10) 413  (14)  (17) 500 8 26 496 10 40 488 2 41 
HIV
 193  (1) 25 153  (11)  (4) 142  (10)  (11) 152  (6)  (7) 189  (3)  (2) 168  (5) 10 164  (8) 15 195  (8) 28 
Agenerase, Lexiva
 25  (4)  (4) 24 – 14 23 6 28 27 6 50 
Combivir
 47  (9)  (11) 43  (10) 5 44  (15) 7 53  (16) 18 
Epivir
 12  (7)  (14) 12  (9) 9 11  (18) – 13  (18) 18 
Epzicom/Kivexa
 55 19 49 44 21 29 39 6 8 40 17 14  63 13 15 52 2 18 50 – 28 58 5 45 
Combivir
 53  (4) 18 41  (26)  (18) 41  (18)  (18) 45  (8)  (10)
Trizivir
 32  (11) 14 24  (21)  (14) 23  (25)  (28) 27  (16)  (16) 26  (19)  (19) 23  (13)  (4) 25  (13) 9 30  (22) 11 
Agenerase, Lexiva
 26 11 37 21  (5) 5 18 —  (5) 18  (10)  (10)
Epivir
 14  (15) 8 11  (29)  (21) 11  (8)  (8) 11  (21)  (21)
Ziagen
 14  (9) 27 10  (17)  (17) 11 — — 10  (9)  (9) 13  (7)  (7) 13 10 30 11  (18) – 14 – 40 
Valtrex
 279 24 54 223 28 38 195 22 21 173 7 5  129  (45)  (54) 265 3 19 291 16 49 257 8 49 
Relenza
 62 >100 >100 45 >100 >100 19 >100 >100 11 – 38 
Zeffix
 4 33 33 4  (25) — 4 33 33 3 — —  4 – – 4 – – 5  (25) 25 4 – 33 
Relenza
 5  (93)  (88) 5  (58)  (58) 2  (94)  (94) 8  (82)  (82)
                        
 
Central nervous system
 353  (61)  (45) 321  (52)  (46) 547  (6)  (7) 594 7 5  178  (50)  (50) 115  (67)  (64) 142  (79)  (74) 216  (73)  (64)
Imigran/Imitrex
 43  (64)  (65) 19  (89)  (88) 33  (79)  (76) 28  (83)  (79)
Lamictal
 119  (68)  (52) 84  (71)  (63) 268 22 21 240 22 20  72  (40)  (39) 64  (35)  (24) 45  (86)  (83) 86  (74)  (64)
Imigran/Imitrex
 123  (40)  (20) 154 8 16 139 2 2 134 —  (1)
Requip
 16 27 45  (4)  >(100)  >(100) 6  (78)  (67) 8  (90)  (87)
Requip XL
 12 >100 >100 7 75 75 8 – – 5 – – 
Seroxat/Paxil
 19  (67)  (51) 13  (67)  (61) 16  (47)  (53) 31  (16)  (16) 10  (47)  (47) 5  (54)  (62) 13  (31)  (19) 14  (61)  (55)
Wellbutrin
 56  (69)  (55) 44  (72)  (66) 89  (30)  (30) 121  (4)  (5)
Requip
 11  (92)  (83) 13  (81)  (78) 18  (69)  (69) 60 9 7 
Treximet
 13 — — 4 — — 8 — —  14 8 8 15 >100 >100 12 25  50) 14 – – 
Wellbutrin, Wellbutrin XL
 10  (79)  (82) 4  (86)  (91) 20  (81)  (78) 54  (68)  (55)
                        
 
Cardiovascular and urogenital
 344 >100 >100 280 9 17 251  (14)  (14) 232  (22)  (23) 375 8 9 336 4 20 360 12 43 344 7 48 
Arixtra
 43 35 39 32 23 45 33 63 >100 33 26 74 
Avodart
 75 22 53 63 29 40 55 38 38 49 22 20  83 11 11 80 10 27 83 16 51 73 8 49 
Coreg
 31  (45)  (48) 39  (31)  (20) 50  (7) 16 51  (23) 6 
Fraxiparine
 – – – – – – – – – – – – 
Levitra
 16 – – 18 7 20 17 – 31 19 8 46 
Lovaza
 98 >100 >100 75 — — 66 — — 50 — —  128 29 31 111 25 48 104 24 58 105 52 >100 
Coreg
 60 >100 >100 49  (69)  (66) 43  (78)  (78) 48  (78)  (78)
Coreg CR
 49 18 44 41 19 32 38 >100 >100 35 >100 >100 
Coreg IR
 11 >100 >100 8  (93)  (93) 5  (97)  (97) 13  (94)  (94)
Fraxiparine
 — — — — — — — — — — — — 
Arixtra
 31 63 94 22 43 57 16 21 14 19 73 73 
Vesicare
 23 36 64 18 31 38 16 25 33 14 36 27  29 26 26 25 17 39 26 31 63 24 21 71 
Levitra
 16 9 45 15 17 25 13 18 18 13 — — 
Volibris
 – – – – – – – – – – – – 
                        
 
Metabolic
 182  (13) 10 136  (22)  (15) 139  (44)  (45) 133  (57)  (58) 150  (18)  (18) 132  (15)  (3) 149  (17) 7 150  (18) 13 
Avandia products
 132  (21) 2 99  (28)  (24) 104  (54)  (54) 99  (66)  (66) 109  (17)  (17) 97  (14)  (2) 107  (19) 3 112  (18) 13 
Avandia
 89  (29)  (10) 67  (33)  (27) 72  (57)  (57) 71  (69)  (69) 69  (22)  (22) 62  (18)  (7) 71  (22)  (1) 74  (25) 4 
Avandamet
 34 — 31 26  (14)  (10) 25  (44)  (44) 24  (49)  (49) 33  (3)  (3) 29  (8) 12 29  (8) 16 31  (4) 29 
Bonviva/Boniva
 51 8 34 36 18 29 36 38 38 33 48 43  41  (20)  (20) 35  (17)  (3) 41  (11) 14 38  (15) 15 
                        
 
Anti-bacterials
 50  (23)  (4) 40  (10)  (2) 39  (20)  (20) 45  (13)  (15) 41  (16)  (18) 39  (15)  (3) 46  (8) 18 47  (24) 4 
Augmentin
 15  (13) — 9  (36)  (18) 8  (47)  (53) 17  (29)  (29) 9  (33)  (40) 9  (22) – 11 13 38 16  (29)  (6)
Altabax
 5 — 25 4 100 100 4  (20)  (20) 2 — — 
                        
 
Oncology and emesis
 64 11 42 64 13 23 57  (24)  (24) 58  (41)  (42) 86 30 34 64  (11) – 88 19 54 70  (12) 21 
Hycamtin
 25 18 47 20 — 11 19 19 19 17  (5)  (11) 26 4 4 24 – 20 24 5 26 26 6 53 
Promacta
 5 – – 3 – – 3 – – 2 – – 
Tyverb/Tykerb
 14  (7) – 12  (8) – 17 18 55 11  (20) 10 
Zofran
  (10)  (57)  (43) 6 50 50 4  (84)  (84) 3  (95)  (95)  (1) 100 90  (1)  (100)  >(100) 4  (25) – 7 67 >100 
Tykerb
 14  (8) 17 12 — 9 11 20 10 10 >100 >100 
                        
 
Vaccines
 178  (31)  (13) 218  (13)  (8) 124 19 18 109 34 33  294 55 65 206  (20)  (6) 196 22 58 119  (21) 9 
Boostrix
 17 >100 >100 24 54 85 21 78 >100 11 60 >100 
Cervarix
 4 – – – – – – – – – – – 
Fluarix, FluLaval
 5  (64)  (77) 63  (19) – 3 – – – – – 
Flu pandemic 162 >100 >100 – – – 25 – – – – – 
Hepatitis 74 6 37 82 17 24 66 43 40 53 66 66  51  (27)  (31) 67  (29)  (18) 87 2 32 52  (28)  (2)
Infanrix/Pediarix
 56 — 27 56  (10)  (3) 49  (4)  (4) 51 21 19 
Fluarix, FluLaval
 22  (27) — 63  (19)  (18) — — — — — — 
Flu-prepandemic 1  (99)  (99) — — — — — — 
Cervarix
 — — — — — — — — — — — — 
Infanrix, Pediarix
 27  (50)  (52) 30  (52)  (46) 38  (43)  (22) 39  (41)  (24)
Rotarix
 17 — — 4 — — — — — — — —  17 – – 22 >100 >100 22 – – 15 – 
Boostrix
 8 — 33 13  (40)  (35) 9 29 29 5  (29)  (29)
Synflorix
 – – – – – – – – – – – – 
                        
     
Other
 3  (94)  (91) 8 >100 >100 1  (67)  (89) 4  (91)  (88) 3 67 – 7  (75)  (13) 2 >100 >100 5 – 25 
 
                        
 2,526  (13) 10 2,101  (13)  (6) 2,129  (8)  (9) 2,138  (10)  (12) 2,450  (4)  (3) 2,143  (12) 2 2,304  (15) 8 2,283  (22) 7 
                        
Pharmaceutical turnover includes co-promotion income.


GSK Annual Report 2009

182

186 GSK Annual Report 2008
Shareholder information
Financial recordcontinued
Shareholder information
Quarterly trend
Pharmaceutical turnover —– Europe
                                                
                                                 Q4 2009 Q3 2009 Q2 2009 Q1 2009 
 Q4 2008 Q3 2008 Q2 2008 Q1 2008  £m CER% £% £m CER% £% £m CER% £% £m CER% £% 
 £m CER% £% £m CER% £% £m CER% £% £m CER% £%                         
 
Respiratory
 550 3 18 449 — 12 497 — 12 486 4 14  594 4 8 511 7 14 550 2 11 546  (1) 12 
Avamys/Veramyst
 11 83 83 9 >100 >100 16 >100 >100 9 >100 >100 
Flixonase/Flonase
 10  (17)  (17) 9  (18)  (18) 12  (25)  (25) 12  (23)  (8)
Flixotide/Flovent
 49  (4)  (2) 38  (5) – 43  (5) – 48  (2) 9 
Seretide/Advair
 392 5 19 324 1 13 355 4 15 345 9 19  436 7 11 378 9 17 401 3 13 394 – 14 
Flixotide/Flovent
 50 2 16 38  (3) 15 43  (7) 5 44  (7) 7 
Serevent
 33  (17)  (6) 32  (13) — 34  (11)  (3) 37 6 16  29  (15)  (12) 27  (16)  (16) 29  (18)  (15) 31  (22)  (16)
Veramyst
 6 — — 3 — — 1 — — 1 — — 
Flixonase/Flonase
 12  (17) — 11 11 22 16  (13) 7 13 — — 
Ventolin
 42 – 5 35 3 13 36 3 9 37  (3) 12 
Zyrtec
 – – – – – – – – – – – – 
                        
 
Anti-virals
 224  (6) 9 199  (12) 1 218  (12)  (1) 209  (17)  (7) 251 7 12 247 13 24 236  (2) 8 340 45 63 
HIV
 165  (10) 6 150  (6) 7 164  (2) 11 157  (7) 4  155  (10)  (6) 155  (6) 3 156  (14)  (5) 169  (9) 8 
Agenerase, Lexiva
 14  (7)  (7) 15  (7) – 16  (13) – 17  (7) 13 
Combivir
 37  (14)  (12) 36  (13)  (5) 37  (25)  (16) 41  (17)  (2)
Epivir
 11  (27)  (27) 12  (15)  (8) 12  (33)  (20) 14  (20)  (7)
Epzicom/Kivexa
 57 16 33 50 19 35 54 33 50 48 33 45  63 5 11 60 10 20 59 – 9 62 10 29 
Combivir
 42  (18)  (5) 38  (19)  (10) 44  (19)  (6) 42  (21)  (13)
Trizivir
 22  (24)  (12) 22  (17)  (4) 24  (13) 4 24  (19)  (11) 19  (18)  (14) 19  (23)  (14) 20  (25)  (17) 24  (17) – 
Agenerase, Lexiva
 15  (7) 7 15  (8) 15 16 8 23 15 8 15 
Epivir
 15  (20) — 13  (27)  (13) 15  (19)  (6) 15  (22)  (17)
Ziagen
 9  (11) — 8  (22)  (11) 10 — 11 9  (11) —  9  (11) – 8  (13) – 9  (20)  (10) 9  (11) – 
Valtrex
 38 3 23 35 7 25 36 10 24 35 15 30  41 5 8 38  (3) 9 39  (3) 8 42 – 20 
Relenza
 39 >100 >100 38 – – 25 >100 >100 110 – – 
Zeffix
 7  (17) 17 7 — 17 6 20 20 7 — 17  7  (14) – 7 – – 8 17 33 7  (14) – 
Relenza
 5 25 25 — — — 1  (96)  (96) — — — 
                        
 
Central nervous system
 151 — 15 142 4 17 143 1 13 129  (8) 2  146  (7)  (3) 139  (9)  (2) 144  (8) 1 145  (2) 12 
Imigran/Imitrex
 25  (8) – 23  (8)  (4) 23  (13)  (4) 25  (4) 9 
Lamictal
 39  (8) 3 37  (9) 6 38  (3) 9 33  (14)  (6) 39  (5) – 38  (5) 3 38  (8) – 39 3 18 
Imigran/Imitrex
 25  (4) 4 24  (5) 9 24 — 9 23  (5) 10 
Requip
 37  (8)  (3) 34  (9)  (3) 35 3 13 32  (3) 10 
Requip XL
 27 67 80 23 100 >100 22 >100 >100 17 >100 >100 
Seroxat/Paxil
 29  (10) — 27  (8) 4 31  (13) — 28  (24)  (18) 22  (24)  (24) 22  (26)  (19) 27  (19)  (13) 28  (14) – 
Wellbutrin
 6 >100 >100 6 100 >100 3 — — 3 >100 >100 
Requip
 38 28 52 35 35 52 31 27 41 29 24 38 
Treximet
 — — — — — — — — —  – – – – – – – – – – – – 
Wellbutrin, Wellbutrin XL
 9 33 50 8 33 33 7 100 >100 6 67 100 
                        
 
Cardiovascular and urogenital
 137 5 25 130 17 38 129 12 29 116 6 20  155 8 13 142 2 10 145 2 12 141 2 22 
Arixtra
 26 14 24 24 11 26 23 24 35 22 29 57 
Avodart
 33 12 32 29 19 38 28 19 33 28 39 56  39 12 18 36 10 24 37 21 32 36 7 29 
Coreg
 – – – – – – – – – – – – 
Fraxiparine
 45 – 2 42  (15)  (11) 43  (15)  (7) 43  (10) 5 
Levitra
 1 – – 1 – – 1 – – 1 – – 
Lovaza
 — — — — — — — — — — — —  – – – – – – – – – – – – 
Coreg
 — — — — — — — — — — — — 
Coreg CR
 — — — — — — — — — — — — 
Coreg IR
 — — — — — — — — — — — — 
Fraxiparine
 44  (10) 7 47 18 42 46 3 21 41  (8) 5 
Arixtra
 21 64 91 19 78 >100 17 50 70 14 33 56 
Vesicare
 — — — — — — — — — — — —  – – – – – – – – – – – – 
Levitra
 1  (100) — 1 — — — — — 1 — — 
Volibris
 7 >100 >100 5 >100 >100 4 – – 2 – – 
                        
 
Metabolic
 76  (16)  (1) 72  (2) 13 73  (19)  (8) 73  (6) 4  69  (13)  (9) 67  (14)  (7) 71  (11)  (3) 68  (21)  (7)
Avandia products
 47  (27)  (16) 48  (16)  (4) 49  (31)  (21) 54  (14)  (5) 40  (17)  (15) 42  (19)  (13) 46  (18)  (6) 43  (30)  (20)
Avandia
 20  (25)  (17) 20  (31)  (23) 20  (40)  (33) 22  (35)  (29) 15  (25)  (25) 16  (25)  (20) 18  (20)  (10) 18  (27)  (18)
Avandamet
 26  (29)  (16) 26 — 13 28  (23)  (10) 31 8 19  24  (12)  (8) 25  (12)  (4) 26  (18)  (7) 24  (32)  (23)
Bonviva/Boniva
 23 33 53 18 60 80 18 60 80 15 44 67  23  (4) – 22 11 22 23 6 28 21 20 40 
                        
 
Anti-bacterials
 179  (9) 6 141  (1) 15 140  (2) 11 175  (8) 3  181  (3) 1 146  (4) 4 146  (4) 4 189  (7) 8 
Augmentin
 74  (6) 10 62 6 22 57 — 14 79 — 13  82 7 11 68 2 10 61 – 7 84  (9) 6 
Altabax
 — — — 1 — — — — — — — — 
                        
 
Oncology and emesis
 50 16 35 41 6 24 41 6 21 37 6 19  52 – 4 51 15 24 50 12 22 51 16 38 
Hycamtin
 14 — 27 12 10 20 12 — 20 11 11 22  15 7 7 14 8 17 15 17 25 15 9 36 
Promacta
 – – – – – – – – – – – – 
Tyverb/Tykerb
 21 12 24 19 90 90 18 88 >100 17 >100 >100 
Zofran
 16  (18)  (6) 15  (24)  (12) 16  (13) — 16  (30)  (20) 12  (25)  (25) 12  (20)  (20) 14  (25)  (13) 14  (25)  (13)
Tykerb
 17 >100 >100 10 80 100 8 >100 >100 7 >100 >100 
                        
 
Vaccines
 356 23 40 323 40 59 276 41 59 200 5 18  794 >100 >100 344  (3) 7 320 7 16 286 23 43 
Boostrix
 11 57 57 11 43 57 10 14 43 8 40 60 
Cervarix
 19  (58)  (58) 17  (61)  (55) 63 >100 >100 39 >100 >100 
Fluarix, FluLaval
 11  (43)  (48) 60  (10) 3 – – – – – – 
Flu pandemic 511 >100 >100 4  (60)  (60) 5  (86)  (86) 5 25 25 
Hepatitis 74 — 17 61 2 13 72 3 24 56  (4) 2  64  (16)  (14) 65 – 7 72  (8) – 61  (5) 9 
Infanrix/Pediarix
 113 36 55 89 23 46 94 26 45 81  (1) 13 
Fluarix, FluLaval
 21 89 >100 58 55 76  (1) — — — — — 
Flu-prepandemic 15  (68)  (68) 10 >100 >100 35 — — 4 
Cervarix
 45 >100 >100 38 — — 11 — — 10 — — 
Infanrix, Pediarix
 101  (14)  (11) 105 8 18 91  (13)  (3) 109 14 35 
Rotarix
 13 57 86 11 67 83 10 33 67 9 100 >100  14 8 8 14 9 27 12 20 20 13 22 44 
Boostrix
 7 20 40 7 40 40 7 20 40 5 — 25 
Synflorix
 11 – – 11 – – 10 – – – – – 
                        
     
Other
 103 23 37 66  (6) 5 81 19 31 71 20 31  119 12 16 87 25 30 84 – 5 74  (7) 4 
 
                        
 1,826 4 20 1,563 6 20 1,598 4 17 1,496  (2) 9  2,361 23 29 1,734 3 11 1,746 1 9 1,840 7 23 
                        
Pharmaceutical turnover includes co-promotion income.


GSK Annual Report 2009

183

GSK Annual Report 2008187
Shareholder information
Financial recordcontinued
Shareholder information
Quarterly trend
Pharmaceutical turnover —– Rest of World
                                                
                                                 Q4 2009 Q3 2009 Q2 2009 Q1 2009 
 Q4 2008 Q3 2008 Q2 2008 Q1 2008  £m CER% £% £m CER% £% £m CER% £% £m CER% £% 
 £m CER% £% £m CER% £% £m CER% £% £m CER% £%                         
 
Respiratory
 329 7 25 263 11 23 270 12 22 253 6 17  410 17 25 339 14 28 359 16 33 345 9 36 
Avamys/Veramyst
 7 >100 >100 7 >100 >100 13 >100 >100 2 – – 
Flixonase/Flonase
 19  (9)  (14) 16  (7) 7 19 6 19 47 14 62 
Flixotide/Flovent
 58  (2) 5 46  (3) 15 49  (11) 4 48  (12) 12 
Seretide/Advair
 171 30 47 143 35 47 136 31 43 110 19 29  226 23 32 187 15 30 196 27 45 167 26 52 
Flixotide/Flovent
 55  (10) 8 40  (10) — 47  (9) 4 43  (7) — 
Serevent
 15  (35)  (12) 11  (23)  (15) 16  (12)  (6) 13  (21)  (7) 12  (20)  (20) 11  (27) – 12  (38)  (25) 12  (38)  (8)
Veramyst
 1 — — 2 — 100 2 — — — — — 
Flixonase/Flonase
 22  (5) 16 15  (32)  (21) 16 7 7 29 — 16 
Ventolin
 49 15 20 40 – 5 44  (3) 10 41  (5) 11 
Zyrtec
 22 67 83 18 >100 >100 17 63 >100 18 9 64 
                        
 
Anti-virals
 200  (14) 3 195 7 17 178  (2) 6 183 8 15  369 71 85 302 32 54 220 5 24 288 16 57 
HIV
 59 8 23 74 11 21 55  (7)  (4) 49 5 11  68 12 15 69  (11)  (7) 62  (5) 13 55  (6) 12 
Agenerase, Lexiva
 5  (33)  (17) 4 – – 4  (50) – 4 100 100 
Combivir
 25 26 32 23  (23)  (26) 21  (5) 11 18  (17) – 
Epivir
 7  (14) – 10  (18)  (9) 8  (13) – 7  (25)  (13)
Epzicom/Kivexa
 17 40 70 16 56 78 11 71 57 11 29 57  23 24 35 19 6 19 20 55 82 17 27 55 
Combivir
 19  (21) — 31 26 35 19 —  (5) 18  (6) 6 
Trizivir
 5 33 67 3  (25)  (25) 3  (60)  (40) 3 — —  4  (20)  (20) 6 67 100 3 – – 2  (33)  (33)
Agenerase, Lexiva
 6 33 100 4 25 — 4 >100 >100 2 — — 
Epivir
 7  (33)  (22) 11 22 22 8  (33)  (33) 8  (22)  (11)
Ziagen
 5  (38)  (38) 9 14 29 5  (29)  (29) 6 — —  5 – – 5  (33)  (44) 5  (20) – 4  (50)  (33)
Valtrex
 49  (9) 14 45 3 15 46 14 28 41 12 24  52  (4) 6 46  (16) 2 49  (15) 7 45  (17) 10 
Relenza
 155 >100 >100 99 >100 >100 16 – – 101 >100 >100 
Zeffix
 42 3 27 31  (9)  (3) 37  (6) 3 36 10 16  44 2 5 43 19 39 42  (5) 14 42  (14) 17 
Relenza
 3  (90)  (90) 7 >100 >100 — — — 21 19 31 
                        
 
Central nervous system
 161  (2) 23 122  (5) 6 128 1 10 106  (7) 2  180 4 12 164 11 34 163 4 27 138  (3) 30 
Imigran/Imitrex
 13 – – 11  (10) 10 12 – 20 11 – 38 
Lamictal
 19 — 19 15 —  (6) 17 — 13 17 7 13  21 11 11 19 20 27 20  (6) 18 19 – 12 
Imigran/Imitrex
 13  (20) 30 10 — — 10 — 11 8  (11)  (11)
Requip
 12 22 33 13 13 63 10 – 11 10 40 100 
Requip XL
 1 – – 1 – – – – – – – – 
Seroxat/Paxil
 106  (2) 28 72  (9) 4 80  (7) 7 62  (10)  (2) 107  (8) 1 93 1 29 98  (8) 23 84  (3) 35 
Wellbutrin
 4 — — 3 100 50 5 — 25 2  (33)  (33)
Requip
 9 33 50 8 60 60 9 >100 >100 5 67 67 
Treximet
 — — — — — — — — —  – – – – – – – – – – – – 
Wellbutrin, Wellbutrin XL
 3 –  (25) 4  (33) 33 3  (20)  (40) 4 50 100 
                        
 
Cardiovascular and urogenital
 67 15 29 56 13 24 55 15 17 50 18 28  85 25 27 74 14 30 75 19 39 66 10 32 
Arixtra
 5 100 67 4 67 33 5 – 67 4 50 100 
Avodart
 12 22 33 10 67 67 9 50 50 8 75 100  21 58 75 15 50 50 14 44 56 13 50 63 
Coreg
 – – – – – – 1  (100) – – – – 
Fraxiparine
 15 7 7 14 – 17 15 17 25 12 – 20 
Levitra
 – – – 1 – – – – – – – – 
Lovaza
 — — — — — — 1 — — — — —  1 – – – – – – – – 1 – – 
Coreg
 1 — — 1  (100) — 1  (100)  (67) — — — 
Coreg CR
 1 100 >100 — — — 1  (100) — — — — 
Coreg IR
 — — — 1  (100) — — — — — — — 
Fraxiparine
 14 30 40 12 38 50 12 71 71 10 13 25 
Arixtra
 3 — 50 3 50 50 3 — 50 2 — — 
Vesicare
 — — — — — — — — — — — —  – – – – – – – – – – – – 
Levitra
 — — — — — — — — — — — — 
Volibris
 – – – 1 – – – – – – – – 
                        
 
Metabolic
 87  (3) 13 81 4 14 73  (23)  (17) 66  (30)  (24) 81  (9)  (7) 85  (10) 5 83  (4) 14 76  (8) 15 
Avandia products
 50 4 11 44  (16)  (2) 41  (33)  (33) 38  (44)  (40) 42  (18)  (16) 46  (9) 5 45 2 10 42  (8) 11 
Avandia
 38  (8) 3 31  (20)  (11) 33  (36)  (34) 29  (48)  (44) 28  (29)  (26) 30  (16)  (3) 32  (12)  (3) 29  (14) – 
Avandamet
 10 57 43 11 — 38 8  (11)  (11) 7  (30)  (30) 12 20 20 12 9 9 12 38 50 11 14 57 
Bonviva/Boniva
 2 >100 >100 2  (33)  (33) 2 — — 1 — —  3 50 50 3 50 50 2 100 – 3 – >100 
                        
 
Anti-bacterials
 168 1 14 159 10 17 150 7 12 143 11 16  187 11 11 191 14 20 189 12 26 190 13 33 
Augmentin
 70  (2) 9 72 24 31 64 13 21 60 9 13  82 16 17 85 17 20 74 3 14 86 20 43 
Altabax
 — — — — — — — — — — — — 
                        
 
Oncology and emesis
 24 6 33 23 16 21 19 12 12 18 — 13  32 21 33 34 26 48 28 32 47 23 11 28 
Hycamtin
 2 —  (33) 2 — — 4 100 100 2  (50) —  4 50 100 3 100 50 4  (50) – 2 50 – 
Promacta
 – – – – – – – – – – – – 
Tyverb/Tykerb
 13 >100 >100 15 >100 >100 6 >100 100 6 100 >100 
Zofran
 11  (17)  (8) 12  (9) 9 11  (29)  (21) 10  (9)  (9) 13 – 18 12  (17) – 12 – 9 11 – 10 
Tykerb
 4 >100 100 4 — — 3 — — 2 — — 
                        
 
Vaccines
 262 32 49 189 12 24 177 37 48 127 2 9  435 56 66 252 20 33 240 20 36 220 46 73 
Boostrix
 7 >100 >100 4 100 100 8 >100 >100 7 100 >100 
Cervarix
 15 50 50 11 >100 >100 10 100 >100 9 >100 >100 
Fluarix, FluLaval
 26 4 13 24  (9) 4 11 83 83 6 – – 
Flu pandemic 163 >100 >100 7 – – – – – 1 – – 
Hepatitis 37 17 23 31 19 48 29 35 26 30  (4) 15  36  (8)  (3) 38 10 23 36 7 24 36 3 20 
Infanrix/Pediarix
 25 — 25 23 28 28 24 16 26 21 — 11 
Fluarix, FluLaval
 23 22 28 23 100 >100 6 — — — — — 
Flu-prepandemic 1 — — — — —  (1) — — 1 — — 
Cervarix
 10 — — 5 >100 >100 4 — — 2 — — 
Infanrix, Pediarix
 25  (8) – 32 22 39 25  (4) 4 27 14 29 
Rotarix
 36 9 13 24 29 41 25 >100 >100 18 70 80  39 6 8 48 83 100 37 20 48 29 39 61 
Boostrix
 2  (50) — 2 100 100 2 — — 3 50 50 
Synflorix
 37 – – 2 – – 2 – – – – – 
                        
     
Other
 153  (10) 5 136  (12)  (5) 146  (12)  (5) 187 32 36  189 20 24 164 16 23 175  (4) 17 154  (32)  (18)
 
                        
 1,451 3 21 1,244 5 15 1,196 4 12 1,133 6 14  1,968 28 36 1,605 16 31 1,532 10 28 1,500 6 32 
                        
Pharmaceutical turnover includes co-promotion income.


GSK Annual Report 2009

184

188GSK Annual Report 2008
Shareholder information
Financial recordcontinued
Shareholder information
Quarterly trend
Consumer Healthcare turnover —– total Group
                                                
                                                 Q4 2009 Q3 2009 Q2 2009 Q1 2009 
 Q4 2008 Q3 2008 Q2 2008 Q1 2008  £m CER% £% £m CER% £% £m CER% £% £m CER% £% 
 £m CER% £% £m CER% £% £m CER% £% £m CER% £%                         
 
Over-the-counter medicines
 579  (1) 16 476  (1) 10 443  (9)  (4) 437 5 11 
Over-the-counter medicines
 612 4 6 567 9 19 573 13 29 567 5 30 
Panadolfranchise
 84 10 25 82 9 21 78 11 18 80 19 29 
Smoking cessation 93  (10) 8 83 3 11 65  (15)  (13) 58  (27)  (26)
alli
 40 33 33 49 >100 >100 82 >100 >100 32 >100 >100 
Breathe Right
 22  (19)  (19) 23 5 21 20  (6) 11 27 24 59 
Cold sore franchise 25  (11)  (11) 28 14 27 20  (11) 5 23  (5) 15 
Nicotene replacement 90  (5)  (3) 79  (16)  (5) 88 12 35 82 12 41 
Panadol
 104 19 24 96 7 17 94 8 21 99 6 24 
Tums
 27 — 23 21  (17)  (9) 22 5 5 21  (5)  (5) 26  (4)  (4) 25 – 19 25  (5) 14 30 5 43 
Cold sore franchise 28  (8) 8 22 — 10 19 20 27 20 6 11 
Breathe Right
 27 28 50 19  (5) — 18 42 50 17 14 21 
alli
 30  (35)  (25) 18  (50)  (47) 18  (76)  (76) 9 — — 
                        
 
Oral healthcare
 343 7 25 310 7 19 298 3 12 289 8 17  375 6 9 375 10 21 366 7 23 368 5 27 
Aquafreshfranchise
 122 2 16 116 5 18 107  (3) 6 107 6 14  121  (2)  (1) 126  (2) 9 121  (1) 13 128 – 20 
Biotene
 7 >100 >100 7 – – 6 – – 6 – – 
Denture care 87 9 13 85 10 25 84 9 27 80 5 33 
Sensodynefranchise
 100 13 30 90 8 20 87 9 18 86 19 28  114 11 14 118 20 31 113 14 30 112 7 30 
Dental care 77 9 33 68 9 21 66 7 20 60 6 13 
                        
 
Nutritional healthcare
 185 1 8 208 5 7 210 11 12 193 14 18  191 4 3 223 4 7 226 2 8 211 1 9 
Horlicks
 55 19 17 64 13 21 61 17 27 75 20 34 
Lucozade
 89  (1) 3 100 2 5 107 11 14 86 18 19  86  (2)  (3) 104 4 4 106  (4)  (1) 80  (12)  (7)
Horlicks
 47 10 18 53 10 10 48 14 14 56 18 27 
Ribena
 37  (3) 3 44 2 7 43 5 5 37  (5)  (3) 38 – 3 40  (9)  (9) 44  (2) 2 38  (5) 3 
                        
 1,107 2 17 994 3 12 951  (1) 4 919 8 14  1,178 5 6 1,165 8 17 1,165 9 23 1,146 4 25 
                        
Consumer Healthcare turnover —– USA
                                                
                                                 Q4 2009 Q3 2009 Q2 2009 Q1 2009 
 Q4 2008 Q3 2008 Q2 2008 Q1 2008  £m CER% £% £m CER% £% £m CER% £% £m CER% £% 
 £m CER% £% £m CER% £% £m CER% £% £m CER% £%                         
 
Over-the-counter medicines
 207  (16) 5 155  (16)  (9) 143  (30)  (31) 125  (6)  (7) 185  (11)  (11) 174  (3) 12 183 1 28 180 4 44 
Panadolfranchise
 — — — — — — — — — — — — 
Smoking cessation 68  (13) 8 60 2 7 47  (8)  (8) 38  (25)  (25)
alli
 22  (18)  (21) 20 – 11 25 12 47 29 >100 >100 
Breathe Right
 11  (31)  (31) 15 – 15 10  (20) – 14 11 56 
Cold sore franchise 11  (27)  (27) 17 40 70 9  (22) – 9 – 29 
Nicotene replacement 63  (7)  (7) 58  (17)  (3) 68 13 45 58 11 53 
Panadol
 – – – – – – – – – – – – 
Tums
 23  (5) 21 18  (16)  (5) 19 5 — 18  (10)  (10) 23 – – 20 – 11 22  (5) 16 27 6 50 
Cold sore franchise 15  (8) 15 10  (9)  (9) 9 50 50 7  (13)  (13)
Breathe Right
 16 8 23 13  (8) — 10 — — 9  (25)  (25)
alli
 28  (44)  (35) 18  (52)  (45) 17  (76)  (78) 8 — — 
                        
 
Oral healthcare
 68 8 33 54 4 13 50  (7)  (7) 50 4 2  75 10 10 75 20 39 71 10 42 78 14 56 
Aquafreshfranchise
 26 — 30 20 6 18 18  (21)  (25) 20 11 11  22  (12)  (15) 23 – 15 21  (6) 17 27  (5) 35 
Biotene
 5 >100 >100 4 – – 5 – – 5 – – 
Denture care 19 – – 19 13 27 20 – 33 19 – 36 
Sensodynefranchise
 21 13 40 17 14 21 15 7 7 15 15 15  27 29 29 28 41 65 23 20 53 26 27 73 
Dental care 19 7 36 15 — 7 15 — — 14  (7)  (7)
                        
 
Nutritional healthcare
 — — — — — — — — — — — —  – – – – – – – – – – – – 
Horlicks
 – – – – – – – – – – – – 
Lucozade
 — — — — — — — — — — — —  – – – – – – – – – – – – 
Horlicks
 — — — — — — — — — — — — 
Ribena
 — — — — — — — — — — — —  – – – – – – – – – – – – 
                        
 275  (11) 10 209  (11)  (5) 193  (25)  (26) 175  (3)  (4) 260  (5)  (5) 249 3 19 254 3 32 258 7 47 
                        


GSK Annual Report 2009

185

GSK Annual Report 2008189
Shareholder information
Financial recordcontinued
Shareholder information
Quarterly trend
Consumer Healthcare turnover —– Europe
                                                
                                                 Q4 2009 Q3 2009 Q2 2009 Q1 2009 
 Q4 2008 Q3 2008 Q2 2008 Q1 2008  £m CER% £% £m CER% £% £m CER% £% £m CER% £% 
 £m CER% £% £m CER% £% £m CER% £% £m CER% £%                         
 
Over-the-counter medicines
 187 4 17 142 4 19 134 4 17 144 5 15  221 17 18 186 27 31 185 31 38 156  (2) 8 
Panadolfranchise
 23 5 21 20  (6) 18 17 14 21 19 13 27 
Smoking cessation 18  (6) 6 13  (8) — 13  (33)  (28) 16  (35)  (30)
alli
 17 – – 29 – – 56 – – 3 – – 
Breathe Right
 5  (17)  (17) 5 – 25 5 – – 7 20 40 
Cold sore franchise 10  (9)  (9) 9 – 13 8 –  (11) 11  (10) 10 
Nicotene replacement 19 6 6 13 – – 15 8 15 17 6 6 
Panadol
 33 35 43 26 32 37 20 11 11 20  (11) 5 
Tums
 1 — — — — — — — — — — —  – – – 1 – – – – – – – – 
Cold sore franchise 11 — 10 8 — 14 9 14 29 10 13 25 
Breathe Right
 6 33 100 4 100 100 5 100 >100 5 >100 >100 
alli
 — — — — — — — — — — — — 
                        
 
Oral healthcare
 189 4 20 174 7 22 169 5 17 159 7 19  196 1 4 190 3 9 190 4 12 184 1 16 
Aquafreshfranchise
 73 — 12 72 2 18 66 4 16 64 2 14  72  (3)  (1) 75  (3) 4 71  (2) 8 73  (2) 14 
Biotene
 1 – – 1 – – 1 – – – – – 
Denture care 33 – 3 32 15 19 32 7 19 28 – 17 
Sensodynefranchise
 48 8 23 43 9 23 43 8 19 41 23 32  50 – 4 48 7 12 50 7 16 47 2 15 
Dental care 32 17 33 27 15 35 27 9 23 24 11 26 
                        
 
Nutritional healthcare
 110  (5)  (3) 127 1 2 134 6 7 110 8 10  107  (3)  (3) 125  (2)  (2) 130  (5)  (3) 95  (15)  (14)
Horlicks
 6 – – 4  (20)  (20) 4  (20)  (20) 5  (17)  (17)
Lucozade
 76  (4)  (1) 89 — 2 95 9 10 76 16 19  74  (3)  (3) 92 2 3 92  (5)  (3) 65  (16)  (14)
Horlicks
 6  (14)  (14) 5  (17)  (17) 5 — — 6  (14)  (14)
Ribena
 27  (4)  (4) 33  (3) — 34 3 3 27  (7)  (7) 26  (4)  (4) 29  (12)  (12) 33  (6)  (3) 25  (7)  (7)
                        
 486 2 13 443 4 15 437 5 14 413 7 15  524 6 8 501 9 13 505 10 16 435  (4) 5 
                        
Consumer Healthcare turnover —– Rest of World
                                                
                                                 Q4 2009 Q3 2009 Q2 2009 Q1 2009 
 Q4 2008 Q3 2008 Q2 2008 Q1 2008  £m CER% £% £m CER% £% £m CER% £% £m CER% £% 
 £m CER% £% £m CER% £% £m CER% £% £m CER% £%                         
 
Over-the-counter medicines
 185 14 30 179 13 27 166 11 19 168 16 24  206 8 11 207 6 16 205 8 23 231 13 38 
Panadolfranchise
 61 13 27 62 14 22 61 10 17 61 21 30 
Smoking cessation 7 — 17 10 33 67 5  (17)  (17) 4 — — 
alli
 1  (50)  (50) – – – 1 – – – – – 
Breathe Right
 6 20 20 3 50 50 5 33 67 6 67 100 
Cold sore franchise 4 100 100 2  (25)  (50) 3 – >100 3 – – 
Nicotene replacement 8  (14) 14 8  (30)  (20) 5 20 – 7 50 75 
Panadol
 71 13 16 70 – 11 74 7 23 79 11 30 
Tums
 3 — — 3 — — 3 — 50 3 50 50  3 – – 4  (33) 33 3 – – 3 – – 
Cold sore franchise 2  (33)  (33) 4 50 100 1  (50)  (50) 3 50 50 
Breathe Right
 5 >100 >100 2  (50)  (50) 3 — — 3 100 >100 
alli
 2 >100 >100 — — — 1 — — 1 — — 
                        
 
Oral healthcare
 86 10 28 82 9 19 79 7 16 80 14 23  104 15 21 110 18 34 105 13 33 106 8 33 
Aquafreshfranchise
 23 10 15 24 15 20 23 — 15 23 15 15  27 9 17 28 – 17 29  (4) 26 28 9 22 
Biotene
 1 – – 2 – – – – – 1 – – 
Denture care 35 27 35 34 4 31 32 17 33 33 14 50 
Sensodynefranchise
 31 22 35 30 4 15 29 13 21 30 17 30  37 16 19 42 27 40 40 21 38 39 3 30 
Dental care 26 — 30 26 9 18 24 11 33 22 11 16 
                        
 
Nutritional healthcare
 75 14 27 81 13 16 76 21 23 83 24 32  84 15 12 98 15 21 96 14 26 116 22 40 
Horlicks
 49 22 20 60 17 25 57 21 33 70 24 40 
Lucozade
 13 22 44 11 25 38 12 25 50 10 38 25  12 –  (8) 12 18 9 14 8 17 15 20 50 
Horlicks
 41 15 24 48 14 14 43 16 16 50 24 35 
Ribena
 10 — 25 11 25 38 9 13 13 10 — 11  12 10 20 11 – – 11 11 22 13 – 30 
                        
 346 13 29 342 12 22 321 13 19 331 17 25  394 11 14 415 11 21 406 11 26 453 14 37 
                        


GSK Annual Report 2009

186

190GSK Annual Report 2008
Shareholder information
Financial recordcontinued
Five year record
A record of financial performance is provided, analysed in accordance with current reporting practice. The information included in the Five year record is prepared in accordance with IFRS as adopted by the European Union and also with IFRS as issued by the International Accounting Standards Board.
                     
Turnover by business segment 2008  2007  2006  2005  2004 
  £m  £m  £m  £m  £m 
 
Pharmaceuticals  20,381   19,163   20,013   18,583   17,031 
Consumer Healthcare  3,971   3,553   3,212   3,077   2,955 
 
   24,352   22,716   23,225   21,660   19,986 
 
                     
  2009  2008  2007  2006  2005 
Pharmaceutical turnover by therapeutic area £m  £m  £m  £m  £m 
               
Respiratory  6,977   5,817   5,032   4,991   5,050 
Anti-virals  4,150   3,206   3,027   2,826   2,598 
Central nervous system  1,870   2,897   3,348   3,642   3,219 
Cardiovascular and urogenital  2,298   1,847   1,554   1,636   1,331 
Metabolic  1,181   1,191   1,508   1,870   1,488 
Anti-bacterials  1,592   1,429   1,323   1,363   1,513 
Oncology and emesis  629   496   477   1,069   1,016 
Vaccines  3,706   2,539   1,993   1,692   1,389 
Other  1,311   959   901   924   979 
               
   23,714   20,381   19,163   20,013   18,583 
               
                     
Pharmaceutical turnover by therapeutic area 2008  2007  2006  2005  2004 
  £m  £m  £m  £m  £m 
 
Respiratory  5,817   5,032   4,991   5,050   4,392 
Anti-virals  3,206   3,027   2,826   2,598   2,355 
Central nervous system  2,897   3,348   3,642   3,219   3,462 
Cardiovascular and urogenital  1,847   1,554   1,636   1,331   932 
Metabolic  1,191   1,508   1,870   1,488   1,245 
Anti-bacterials  1,429   1,323   1,363   1,513   1,542 
Oncology and emesis  496   477   1,069   1,016   934 
Vaccines  2,539   1,993   1,692   1,389   1,194 
Other  959   901   924   979   975 
 
   20,381   19,163   20,013   18,583   17,031 
 
                    
                     2009 2008 2007 2006 2005 
Pharmaceutical turnover by geographic area 2008 2007 2006 2005 2004  £m £m £m £m £m 
 £m £m £m £m £m 
          
USA 8,894 9,273 10,353 9,106 8,425  9,180 8,894 9,273 10,353 9,106 
Europe 6,483 5,560 5,437 5,458 5,036  7,681 6,483 5,560 5,437 5,458 
Rest of World:  
Emerging markets 2,290 1,895 1,783 1,671 1,487  2,973 2,290 1,895 1,783 1,671 
Japan 1,027 867 860 854 769  1,649 1,027 867 860 854 
Asia Pacific 891 834 806 763 666  1,051 891 834 806 763 
Canada 503 477 483 443 411  635 503 477 483 443 
Other 293 257 291 288 237  545 293 257 291 288 
Rest of World 5,004 4,330 4,223 4,019 3,570  6,853 5,004 4,330 4,223 4,019 
          
 20,381 19,163 20,013 18,583 17,031  23,714 20,381 19,163 20,013 18,583 
          
Pharmaceutical turnover includes co-promotion income.
                    
                     2009 2008 2007 2006 2005 
Consumer Healthcare turnover 2008 2007 2006 2005 2004  £m £m £m £m £m 
 £m £m £m £m £m 
          
OTC medicines 1,935 1,788 1,561 1,515 1,469  2,319 1,935 1,788 1,561 1,515 
Oral healthcare 1,240 1,049 993 943 913  1,484 1,240 1,049 993 943 
Nutritional healthcare 796 716 658 619 573  851 796 716 658 619 
          
 3,971 3,553 3,212 3,077 2,955  4,654 3,971 3,553 3,212 3,077 
          


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187

GSK Annual Report 2008191
Shareholder information
Financial recordcontinued
                                        
Financial results — total 2008 2007 2006 2005 2004 
 £m £m £m £m £m 
 2009 2008 2007 2006 2005 
Financial results – total £m £m £m £m £m 
          
Turnover 24,352 22,716 23,225 21,660 19,986  28,368 24,352 22,716 23,225 21,660 
Operating profit 7,141 7,593 7,808 6,874 5,756  8,425 7,141 7,593 7,808 6,874 
Profit before taxation 6,659 7,452 7,799 6,732 5,779  7,891 6,659 7,452 7,799 6,732 
Profit after taxation 4,712 5,310 5,498 4,816 4,022  5,669 4,712 5,310 5,498 4,816 
          
 
 pence pence pence pence pence
Basic earnings per share 88.6p 94.4p 95.5p 82.6p 68.1p
Diluted earnings per share 88.1p 93.7p 94.5p 82.0p 68.0p
                     
Financial results — before major restructuring2008  2007 
  £m  £m 
             
Turnover  24,352   22,716             
Operating profit  8,259   7,931             
Profit before taxation  7,782   7,790             
Profit after taxation  5,551   5,571             
             
                     
  pence pence            
             
Adjusted earnings per share  104.7p  99.1p            
Adjusted diluted earnings per share  104.1p  98.3p            
             
                     
  pence  pence  pence  pence  pence 
               
Basic earnings per share  109.1   88.6   94.4   95.5   82.6 
Diluted earnings per share  108.2   88.1   93.7   94.5   82.0 
               
                     
  2008  2007  2006  2005  2004 
  millions  millions  millions  millions  millions 
 
Weighted average number of shares in issue:                    
Basic  5,195   5,524   5,643   5,674   5,736 
Diluted  5,226   5,567   5,700   5,720   5,748 
 
                     
   %   %   %   %   % 
 
Return on capital employed  73.1   76.2   90.6   99.7   100.2 
 
                     
  2009  2008  2007       
Financial results – before major restructuring £m  £m  £m         
                
Turnover  28,368   24,352   22,716         
Operating profit  9,257   8,259   7,931         
Profit before taxation  8,726   7,782   7,790         
Profit after taxation  6,283   5,551   5,571         
                
                     
  pence  pence          
                 
Adjusted earnings per share  121.2   104.7             
Adjusted diluted earnings per share  120.3   104.1             
                 
                     
  2009  2008  2007  2006  2005 
  millions  millions  millions  millions  millions 
               
Weighted average number of shares in issue:                    
Basic  5,069   5,195   5,524   5,643   5,674 
Diluted  5,108   5,226   5,567   5,700   5,720 
             
                     
  %  %  %  %  % 
               
Return on capital employed  82.8   73.1   76.2   90.6   99.7 
               
Return on capital employed is calculated as total profit before taxation as a percentage of average capital employednet assets over the year.
                    
                     2009 2008 2007 2006 2005 
Balance sheet 2008 2007 2006 2005 2004  £m £m £m £m £m 
 £m £m £m £m £m 
          
Non-current assets 22,124 17,377 14,561 14,021 12,164  25,292 22,124 17,377 14,561 14,021 
Current assets 17,269 13,626 10,992 13,177 10,780  17,570 17,269 13,626 10,992 13,177 
          
Total assets 39,393 31,003 25,553 27,198 22,944  42,862 39,393 31,003 25,553 27,198 
          
  
Current liabilities  (10,017)  (10,345)  (7,265)  (9,511)  (8,564)  (12,118)  (10,017)  (10,345)  (7,265)  (9,511)
Non-current liabilities  (21,058)  (10,748)  (8,640)  (10,117)  (8,443)  (20,002)  (21,058)  (10,748)  (8,640)  (10,117)
          
Total liabilities  (31,075)  (21,093)  (15,905)  (19,628)  (17,007)  (32,120)  (31,075)  (21,093)  (15,905)  (19,628)
          
  
Net assets 8,318 9,910 9,648 7,570 5,937  10,742 8,318 9,910 9,648 7,570 
        
  
Shareholders’ equity 7,931 9,603 9,386 7,311 5,724  10,005 7,931 9,603 9,386 7,311 
Minority interests 387 307 262 259 213  737 387 307 262 259 
          
Total equity 8,318 9,910 9,648 7,570 5,937  10,742 8,318 9,910 9,648 7,570 
          


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188

192GSK Annual Report 2008
Shareholder information
Financial recordcontinued
Number of employees
                                        
 2008 2007 2006 2005 2004  2009 2008 2007 2006 2005 
          
USA 21,176 24,838 24,726 23,822 23,782  22,594 21,176 24,838 24,726 23,822 
Europe 44,677 46,869 45,758 43,999 44,679  42,048 44,677 46,869 45,758 43,999 
Rest of World:  
Asia Pacific 18,983 17,525 17,570 15,991 16,109 
Asia Pacific, including China 21,011 18,983 17,525 17,570 15,991 
Japan 3,174 3,284 3,195 3,098 2,965  3,264 3,174 3,284 3,195 3,098 
Middle East, Africa 3,403 3,156 3,204 5,682 5,134  3,619 3,403 3,156 3,204 5,682 
Latin America 5,228 5,249 5,856 5,664 5,603  5,169 5,228 5,249 5,856 5,664 
Canada 2,362 2,562 2,386 2,472 1,747  2,208 2,362 2,562 2,386 2,472 
          
Rest of World 33,150 31,776 32,211 32,907 31,558  35,271 33,150 31,776 32,211 32,907 
          
 99,003 103,483 102,695 100,728 100,019  99,913 99,003 103,483 102,695 100,728 
          
Manufacturing 32,622 33,995 33,235 31,615 31,143  31,162 32,622 33,995 33,235 31,615 
Selling 42,430 44,499 44,484 44,393 44,646  44,621 42,430 44,499 44,484 44,393 
Administration 8,787 8,960 9,024 9,225 9,193  9,405 8,787 8,960 9,024 9,225 
Research and development 15,164 16,029 15,952 15,495 15,037  14,725 15,164 16,029 15,952 15,495 
          
 99,003 103,483 102,695 100,728 100,019  99,913 99,003 103,483 102,695 100,728 
          
The geographic distribution of employees in the table above is based on the location of GSK’s subsidiary companies. The number of employees is the number of permanent employed staff at the end of the financial period. It excludes those employees who are employed and managed by GSK on a contract basis.
Exchange rates
As a guide to holders of ADS, the following tables set out, for the periods indicated, information on the exchange rate of US dollars for Sterling as reported by the Federal Reserve Bank of New York (‘noon buying rate’).
                     
  2008  2007  2006  2005  2004 
 
Average  1.85   2.00   1.85   1.81   1.84 
 
                     
  2009  2008  2007  2006  2005 
               
Average  1.56   1.85   2.00   1.85   1.81 
               
The average rate for the year is calculated as the average of the noon buying rates for each day of the year.
                                                
 Feb Jan Dec Nov Oct Sept  Feb Jan Dec Nov Oct Sept 
 2009 2009 2008 2008 2008 2008  2010 2010 2009 2009 2009 2009 
            
High 1.49 1.52 1.55 1.62 1.78 1.86  1.60 1.64 1.67 1.68 1.66 1.67 
Low 1.42 1.37 1.44 1.48 1.55 1.75  1.54 1.59 1.59 1.64 1.58 1.59 
            
As at 31st December 2008, the Federal Reserve Bank of New York ceased publishing noon buying rates. The Bank of England 4pm buying rates have been used for subsequent calculations.
The 4pm buying rate on 24th19th February 20092010 was £1 = US$1.44.1.54.


GSK Annual Report 2009

189

Product development pipeline
Key
GSK Annual Report 2008193
Shareholder information
Product development pipeline
Key
†
 In-license or other alliance relationship with third party
S Month of first submission
A Month of first regulatory approval (for MAA, this is the first EU approval letter)
ALAL/CR Month Approvable or Complete Response Letter received —– indicates that ultimately approval can be given subject to resolution of outstanding queries
PO Month of EU Positive Opinion
TAFDA Tentative Approval
 

BLA		 
Biological License Application
MAA Marketing authorisation applicationAuthorisation Application (Europe)
NDA New drug applicationDrug Application (USA)
Phase I Evaluation of clinical pharmacology, usually conducted in volunteers
Phase II Determination of dose and initial evaluation of efficacy, conducted in a small number of patients
Phase III Large comparative study (compound versus placebo and/or established treatment) in patients to establish clinical benefit and safety.safety


EstimatedMAA and NDA/BLA Regulatory milestones shown in the table below are those that have been achieved. Future submission dates are only disclosed where they are within 12 months of the date of the chart. This date represents the most likely year of submission where it is considered that there is a reasonably high probability of successfully meeting the date assuming the clinical data meets the expected end-points of the clinical trials.not included in this list.
           
        Estimated submission dates  Achieved Regulatory
review milestones
Compound Type Indication Phase MAA NDA/BLA
 

Biopharmaceuticals
          
249320monoclonal antibodystrokeIBiopharmaceuticals
933776 monoclonal antibody Alzheimer’s disease I    
1070806 
monoclonal antibodymetabolic diseaseI
1223249 monoclonal antibodyamyotrophic lateral sclerosisI
2401502†domain antibody targeted
multi-component vaccine		malignant melanomaI
APN01†recombinant human angiotensin
converting enzyme 2		acute respiratory distress syndromeI
iboctadekin† + (+Doxil) IL18 immunomodulator +(+ topoisomerase II
inhibitorinhibitor)		 ovarian cancer I    
iboctadekin† + rituximab
(+ rituximab)		 IL18 immunomodulator +(+ anti-CD20
monoclonal antibody)		 non-Hodgkin’sfollicular lymphoma I    
otelixizumab†anti-CD3 monoclonal antibody (s.c.)type 1 diabetesI
249320  monoclonal antibody stroke II    
315234 monoclonal antibody rheumatoid arthritis II    
679586 monoclonal antibody severe asthma II    
belimumabArzerra (ofatumumab)†
anti-CD20 human monoclonal antibodyfollicular lymphoma (relapsed patients)II
Benlysta (belimumab)† anti-B lymphocyte stimulator monoclonal antibody (s.c.) systemic lupus erythematosus II    
mepolizumab anti-IL5 monoclonal antibody severe asthma & nasal polyposis II    
ofatumumab†
anti-CD20 human monoclonal antibodydiffuse large B cell lymphomaII
ofatumumab†
 anti-CD20 human monoclonal antibody multiple sclerosis II    
belimumabArzerra (ofatumumab)†
anti-CD20 human monoclonal antibodychronic lymphocytic leukaemia, first line therapy &
use in relapsed patients		III
Arzerra (ofatumumab)†anti-CD20 human monoclonal antibodydiffuse large B cell lymphoma (relapsed patients)III
Arzerra (ofatumumab)†anti-CD20 human monoclonal antibodyfollicular lymphoma (refractory patients)III
Benlysta (belimumab)† anti-B lymphocyte stimulator monoclonal antibody (i.v.) systemic lupus erythematosus III    
ofatumumabdenosumab†
 anti-CD20anti-receptor activator for nuclear kappa (RANK)
ligand human monoclonal antibody		 follicular lymphomabone metastatic disease III    
denosumab†
anti-RANK ligand human monoclonal antibodyhormone ablative/chemotherapy bone loss in cancer patientsIII
ofatumumab† anti-CD20 human monoclonal antibody rheumatoid arthritis III    
otelixizumab†
 anti-CD3 monoclonal antibody (i.v.) type 1 diabetes III    
Syncria†
 glucagon-like peptide 1 agonist type 2 diabetes III    
BosatriaProlia (mepolizumab)
(denosumab)†		 anti-IL5anti-RANK ligand human monoclonal antibody hypereosinophilic syndromepost-menopausal osteoporosis Submitted S:Sep08PO:Dec09 N/A
ofatumumabArzerra (ofatumumab)†
 anti-CD20 human monoclonal antibody refractory chronic lymphocytic leukaemia (refractory patients) SubmittedApproved S:Feb09PO:Jan10 S:Jan09A:Oct09
 
           
Cardiovascular & Metabolic
256073high affinity nicotinic acid receptor (HM74A)
agonist		dyslipidaemiaI
1278863 prolyl hydroxylase inhibitor anaemia I    
1292263gastrin-releasing peptide (GRP) receptor agonisttype 2 diabetesI
1521498 mu-opioid receptor inverse agonist obesity I    
1614235†
 sodium dependent glucose transport (SGLT1)
inhibitor		 type 2 diabetes I    
2245840 SIRT1 activator type 2 diabetessarcopaenia (also chronic obstructive pulmonaryCOPD & psoriasis) I    
184072  SIRT1 activator disease, COPD)type 2 diabetes (also haematologic cancers) II    
221149256073 high affinity nicotinic acid receptor (HM74A)
agonist		dyslipidaemiaII
557296 oxytocin antagonistpremature ejaculationII
1292263 gastrin-releasing peptide (GPR119) receptor
agonist		type 2 diabetesII
1362885 glycogen phosphorylase inhibitortype 2 diabetesII
2245840 SIRT1 activatortype 2 diabetes (also COPD & haematologic cancers)II
losmapimodp38 kinase inhibitorcardiovascular disease (also COPD, pain & depression)II
retosiban (221149) oxytocin antagonist threatened pre-term labour II    
756050bile acid receptor agonisttype 2 diabetesII
184072SIRT1 activatortype 2 diabetes (also oncology indications)II
losmapimod (856553)p38 kinase inhibitorcardiovascular disease (also COPD & depression)II
pazopanibmulti-kinase angiogenesis inhibitor (eye drops)age-related macular degeneration (also cancer indications)II
remogliflozin etabonate†
SGLT2 inhibitortype 1 diabetesII
remogliflozin etabonate†
SGLT2 inhibitortype 2 diabetesII
rilapladib†
 Lp-PLA2 inhibitor atherosclerosis II    
ronacaleret†
calcium antagonistosteoporosis & fracture healingII
Avandamet XR
 PPAR gamma agonist + metformin type 2 diabetes —– extended release III N/A  
Avandia +simvastatin
 PPAR gamma agonist + statin type 2 diabetes III N/A  
darapladib†
 Lp-PLA2 inhibitor atherosclerosis III    
Arixtra
 synthetic factor Xa inhibitor treatment of acute coronary syndrome Approved A:Aug07 AL:Feb07

& Sep07
Avandia
 PPAR gamma agonist prevention of disease progression Approved S:Nov08A:Apr09 A:Jul08
Volibris†
endothelin A antagonistpulmonary arterial hypertensionApprovedA:Apr08N/A
 
GSK Annual Report 2009

190

Product development pipeline
194GSK Annual Report 2008
Shareholder information
Product development pipelinecontinued
           
        Estimated submission datesAchieved Regulatory
review milestones
Compound Type Indication Phase MAA NDANDA/BLA
 

Infectious Diseases
          
Infectious Diseases
932121 plasmodium electron transport chain inhibitor malaria I    
945237 topoisomerase II inhibitor treatment of bacterial infections I    
1265744†
HIV integrase inhibitorHIV infectionsI
1322322 novel class antibacterial agent treatment of bacterial infections I    
1349572Relenza†
 HIV integraseneuraminidase inhibitor (i.v.) HIV infectionstreatment of influenza II
IDX899†
non-nucleotide reverse transcriptase inhibitorHIV infectionsII    
sitamaquine 8-aminoquinoline treatment of visceral leishmaniasis II   N/A
tafenoquine†
 8-aminoquinoline Plasmodium vivax malaria II    
 
           
Neurosciences
Neurosciences
1630905HT1 antagonistdepression & anxietyI
424887NK1 antagonist/SSRIdepression & anxietyI
586529†
 CRF1 antagonist depression & anxiety I    
598809618334  dopamine D3 antagonist drug dependency I    
618334dopamine D3 antagonistdrug dependencyI
729327AMPA receptor modulatorschizophreniaI
1014802 sodium channel blocker bipolar disorder I    
1018921type 1 glycine transport inhibitorschizophreniaI
1034702 muscarinic acetylcholine agonist dementia I    
1144814 NK1/NK3 antagonist schizophrenia I    
1482160163090  purinergic ATP receptor antagonistpainI
orvepitantNK15HT1 antagonist depression & anxietyI
239512histamine H3 antagonistdementia II    
468816239512  glycinehistamine H3 antagonist smoking cessationdementia & schizophrenia II    
561679†
 CRF1 antagonist depression & anxiety II    
649868†
 orexin antagonist sleep disorders II    
681323p38 kinase inhibitorneuropathic painII
742457 5HT6 antagonist dementia II    
2402968 (PRO051)†antisense oligonucleotideDuchenne muscular dystrophyII  
firategrast†
 dual alpha4 integrin antagonist (VLA4) multiple sclerosis II    
losmapimod (856553)p38 kinase inhibitordepression (also cardiovascular disease & COPD)II
SolziraHorizant (1838262)†
 voltage-gated calcium channel modulator migraine prophylaxis II    
SolziraHorizant (1838262)†
 voltage-gated calcium channel modulator neuropathic pain II    
losmapimodp38 kinase inhibitorpain (also cardiovascular disease, COPD & depression)II  
losmapimod
p38 kinase inhibitordepression (also cardiovascular disease, COPD & pain)II
orvepitantNK1 antagonistdepression & anxietyII
almorexant† orexin antagonist insomnia III    
Lamictal XR
sodium channel inhibitorepilepsy — partial generalised tonic-clonic seizures,
once-daily		IIIN/A2009
retigabine†
neuronal potassium channel openerepilepsy — partial seizuresIII
rosiglitazone XRPPAR gamma agonistAlzheimer’s diseaseIII
Lunivia†
non-benzodiazepine GABA agonistinsomniaSubmittedPo:Oct08N/A
SolziraHorizant (1838262)†*
 voltage-gated calcium channel modulator restless legs syndrome Submitted   CR:Feb10
retigabine†neuronal potassium channel openerepilepsy – partial seizuresSubmitted S:Sep08 &Oct09S:Oct09
Lamictal XRsodium channel inhibitorepilepsy – partial generalised tonic-clonic seizures, once-dailyApprovedN/AA:Jan10
Lamictal XRsodium channel inhibitorepilepsy – partial seizures, once-dailyApprovedN/AA:May09
           
Jan09Oncology
Lamictal XR
2110183 		 sodium channelAKT protein kinase inhibitor epilepsy — partial seizures, once-dailycancer ApprovableN/AI  AL: Sep07
2118436 BRaf protein kinase inhibitorcancerI
2126458 Pi3 kinase inhibitorcancerI
2141795 AKT protein kinase inhibitorcancerI
184072 SIRT1 activatorhaematologic cancers (also type 2 diabetes)II
1120212†mitogen-activated protein kinase inhibitor
(MEK1/2)		cancerII
2285921†thrombopoietin receptor agonistthrombocytopaeniaII
foretinib (1363089)†mesenchymal-epithelial transition factor
(C-met) kinase inhibitor		papillary renal cell carcinoma and other cancersII
Revolade/Promacta†thrombopoietin receptor agonistoncology-related thrombocytopaeniaII
Tyverb/TykerbHer2 and EGFR dual kinase inhibitorhead & neck squamous cell carcinoma (unresectable disease)II
Votrient(pazopanib)multi-kinase angiogenesis inhibitorbreast cancer, adjuvant therapyII
Votrient (pazopanib)multi-kinase angiogenesis inhibitornon-small cell lung cancer, first line & adjuvant therapyII
Votrient (pazopanib)multi-kinase angiogenesis inhibitorovarian cancer, maintenance therapyIII
Revolade/Promacta†thrombopoietin receptor agonistchronic liver disease induced thrombocytopaeniaIII
Revolade/Promacta†thrombopoietin receptor agonisthepatitis C induced thrombocytopaeniaIII
Tyverb/TykerbHer2 and EGFR dual kinase inhibitorbreast cancer, adjuvant therapyIII
Tyverb/TykerbHer2 and EGFR dual kinase inhibitorgastric cancerIII
Tyverb/TykerbHer2 and EGFR dual kinase inhibitorhead & neck squamous cell carcinoma (resectable disease)III
Votrient (pazopanib)multi-kinase angiogenesis inhibitorsarcomaIII
Votrient (pazopanib) +multi-kinase angiogenesis inhibitor +inflammatory breast cancerIII
Tyverb/TykerbHer2 and EGFR dual kinase inhibitor
Avodart5-alpha reductase inhibitorreduction in the risk of prostate cancerSubmittedS:Sep09
Requip Modutab/XLDuodart (Avodart +†
alpha blocker)
 non-ergot dopamine5-alpha reductase inhibitor + alpha blockerbenign prostatic hyperplasia – fixed dose combinationSubmittedS:Dec08TA:Jan10
Revolade/Promacta†thrombopoietin receptor agonist Parkinson’s disease — once-daily controlled release formulationidiopathic thrombocytopaenic purpura Approved A:Mar07PO:Dec09 A:Jun08Nov08
TreximetTyverb/Tykerb†
 5HT1 agonist + naproxenHer2 and EGFR dual kinase inhibitor migraine — fixed dose combinationbreast cancer, first line therapy Approved N/APO:Feb10A:Jan10
Votrient (pazopanib)multi-kinase angiogenesis inhibitorrenal cell cancerApprovedPO:Feb10A:Oct09
  A:Apr08
Ophthalmology
pazopanibmulti-kinase angiogenesis inhibitor (oral)age-related macular degeneration (also cancer indications)I
pazopanibmulti-kinase angiogenesis inhibitor (eye drops)age-related macular degenerationII
 
* See Note 40 to the financial statements, ‘Post balance sheet events’.
GSK Annual Report 2009

191

Product development pipeline
     
     Achieved Regulatory
  review milestones
CompoundTypeIndicationPhaseMAANDA/BLA
GSK Annual Report 2008Respiratory & Immuno-inflammation195
610677 p38 kinase inhibitor (inhaled)COPDI
681323 p38 kinase inhibitor (i.v.)acute lung injury & acute
respiratory distress syndrome		I
1325756 chemokine receptor (CXCR2) antagonistCOPDI
2245840 SIRT1 activatorCOPD & psoriasis (also type 2 diabetes & sarcopaenia)I
CCX025†CCR9 antagonistCrohn’s diseaseI
256066 PDE4 inhibitor (inhaled)COPDII
573719 muscarinic acetylcholine antagonistCOPDII
573719 + 642444†muscarinic acetylcholine antagonist +
long-acting beta2 agonist		COPDII
656933 chemokine receptor (CXCR2) antagonistcystic fibrosisII
685698 glucocorticoid agonistasthmaII
705498 transient receptor potential vanilloid (TRPV1)
antagonist (intranasal)		non-allergic rhinitisII
870086 novel glucocorticoid agonist (inhaled)asthmaII
961081†muscarinic antagonist, beta2 agonistCOPDII
962040 motilin receptor agonistdelayed gastric emptyingII
1399686 anti-inflammatory macrolide conjugate (oral)inflammatory bowel diseaseII
1605786 (CCX282)†CCR9 antagonistCrohn’s diseaseII
2190915†5-lipoxygenase-activating protein (FLAP) inhibitorasthmaII
losmapimodp38 kinase inhibitor (oral)COPD (also cardiovascular disease,
pain & depression)		II
Relovair
   (642444† + 685698)
long-acting beta2 agonist + glucocorticoid agonistasthmaII
Relovair
(642444† + 685698)
long-acting beta2 agonist + glucocorticoid agonistCOPDIII
642444†long-acting beta2 agonistCOPDIII  
 
 Shareholder information
 
Paediatric Vaccines
Hexavalent combination
vaccine		conjugatedNeisseria meningitis C, Haemophilus influenzae type b, diphtheria, tetanus, pertussis and poliomyelitis disease prophylaxisI
Heptavalent combination
vaccine		conjugatedNeisseria meningitis C, Haemophilus influenzae type b, diphtheria, Hepatitis B, tetanus, pertussis and poliomyelitis disease prophylaxisII
S. pneumoniae paediatric
next generation		recombinant – conjugatedStreptococcus pneumoniae disease
prophylaxis		II
Mosquirixrecombinantmalaria prophylaxis (Plasmodium falciparum)IIIN/A
Nimenrix (MenACWY-TT)conjugatedNeisseria meningitis groups A, C, W
& Y disease prophylaxis		III
MenHibrix (Hib-MenCY-TT)conjugatedNeisseria meningitis groups C & Y & Haemophilus influenzae type b disease prophylaxisSubmittedS:Aug09
Hiberixconjugatedpaediatric booster for Haemophilus influenzae type bApprovedA:Nov07A:Aug09
SynflorixconjugatedStreptococcus pneumoniae disease prophylaxis in infants & childrenApprovedA:Mar09N/A
 
  
Product development pipelineOther Vaccinescontinued
Alzheimer’s diseaseconjugatedtreatment of Alzheimer’s diseaseI
Cytomegalovirusrecombinantcytomegalovirus infection prophylaxisI
HIVrecombinantHIV disease prophylaxis/immunotherapyI
NTHi-PneumorecombinantStreptococcus pneumoniae and Haemophilus influenzaeI  
         disease prophylaxis in adults
Dengue feverattenuated tetravalentdengue fever prophylaxisII
Tuberculosisrecombinanttuberculosis prophylaxisII
ZosterrecombinantHerpes Zoster preventionII
New generation flu vaccineinactivated split – trivalentseasonal influenza prophylaxis for the elderlyIII
Simplirixrecombinantgenital herpes prophylaxisIII
Flu pandemic &
pre-pandemic†
H5N1 inactivated split – monovalent (Quebec)pandemic influenza prophylaxisSubmittedS:Jul09S:Jun09
(Canada)
Arepanrix
(Flu pandemic)†		H1N1 inactivated split adjuvanted – monovalent (Quebec)pandemic influenza prophylaxis (emergency use)ApprovedPO:Jan10A:Oct09
(Canada)
Cervarix†recombinantcervical dysplasia and cancer prophylaxis caused
by HPV 16/18		ApprovedA:Sep07A:Oct09
Influenza A (H1N1) 2009
monovalent vaccine
(Flu pandemic)†
H1N1 inactivated split – monovalent (Quebec)pandemic influenza A (H1N1) 2009 prophylaxis
(emergency use)		ApprovedA:Nov09
Pandemrix
(Flu pandemic)†
H1N1 inactivated split adjuvanted – monovalent (Dresden)pandemic influenza prophylaxisApprovedA: Sep09
               
        Estimated submission dates
Compound Type Indication Phase MAA NDA
 

Oncology		          
461364 polo-like kinase inhibitor cancer I        
923295†
 centromere-associated protein E (CENP-E)
inhibitor		 cancer I        
1120212†
 mitogen-activated protein kinase inhibitor
(MEK1/2)		 cancer I        
totrombopag†
 thrombopoietin recept or agonist thrombocytopaenia I        
184072 SIRT1 activator colon & haematologic cancers (also type 2 diabetes) II        
1363089†
 mesenchymal-epithelial transition factor
(C-met) kinase inhibitor		 papillary renal cell carcinoma, gastric cancer and head & neck squamous cell carcinoma II        
pazopanib multi-kinase angiogenesis inhibitor non-small cell lung cancer II        
pazopanib multi-kinase angiogenesis inhibitor ovarian cancer II        
pazopanib + multi-kinase angiogenesis inhibitor + Her2 and epidermal growth factor receptor metastatic breast cancer II        
Tyverb/Tykerb
 (EGFR) dual kinase inhibitor            
Revolade/Promacta†
 thrombopoietin receptor agonist oncology-related thrombocytopaenia II        
Tyverb/Tykerb
 Her2 and EGFR dual kinase inhibitor head & neck squamous cell carcinoma (unresectable disease) II        
Tyverb/Tykerb
 Her2 and EGFR dual kinase inhibitor refractory inflammatory breast cancer II        
Avodart
 5-alpha reductase inhibitor reduction in the risk of prostate cancer III  2009   2009 
elesclomol†*
 oxidative stress inducer metastatic melanoma III        
pazopanib multi-kinase angiogenesis inhibitor sarcoma III        
pazopanib + multi-kinase angiogenesis inhibitor + Her2 inflammatory breast cancer III        
Tyverb/Tykerb
 and EGFR dual kinase inhibitor            
Revolade/Promacta†
 thrombopoietin receptor agonist chronic liver disease induced thrombocytopaenia III        
Revolade/Promacta†
 thrombopoietin receptor agonist hepatitis C induced thrombocytopaenia III        
Tyverb/Tykerb
 Her2 and EGFR dual kinase inhibitor breast cancer, adjuvant therapy III        
Tyverb/Tykerb
 Her2 and EGFR dual kinase inhibitor breast cancer, first line therapy III  2009   2009 
Tyverb/Tykerb
 Her2 and EGFR dual kinase inhibitor gastric cancer III        
Tyverb/Tykerb
 Her2 and EGFR dual kinase inhibitor head & neck squamous cell carcinoma (resectable disease) III        
Duodart (Avodart +
  alpha blocker)
 5-alpha reductase inhibitor + alpha blocker benign prostatic hyperplasia — fixed dose combination Submitted  S:Dec08  2009 
pazopanib multi-kinase angiogenesis inhibitor renal cell cancer (also age-related macular degeneration) Submitted  S:Feb09   S:Dec08
Zunrisa/Rezonic
 NK1 antagonist chemotherapy-induced & postoperative nausea & vomiting Submitted  S:Jul08  S:May08
Hycamtin
 topoisomerase I inhibitor (oral) small cell lung cancer, second-line therapy Approved  A:Mar08  A:Oct07
Revolade/Promacta†
 thrombopoietin receptor agonist idiopathic thrombocytopaenic purpura Approved  S:Dec08  A:Nov08
Tyverb/Tykerb
 Her2 and EGFR dual kinase inhibitor refractory breast cancer Approved  A:Jun08  A:Mar07
 
               
Respiratory & Immuno-inflammation          
610677 p38 kinase inhibitor (inhaled) COPD I        
656933 Chemokine receptor (CXCR2) antagonist cystic fibrosis & COPD I        
705498 transient receptor potential vanilloid (TRPV1)
antagonist (intranasal)		 non-allergic rhinitis I        
962040 motilin receptor agonist delayed gastric emptying I        
1399686 anti-inflammatory macrolide conjugate (oral) inflammatory bowel disease I        
2245840 SIRT1 activator COPD (also type 2 diabetes) I        
159797†
 long-acting beta2 agonist COPD, also COPD & asthma in combination with a
glucocorticoid agonist		 II        
159802†
 long-acting beta2 agonist COPD, also COPD & asthma in combination with a
glucocorticoid agonist		 II        
256066 PDE IV inhibitor (inhaled) asthma & COPD II        
573719 muscarinic acetylcholine antagonist COPD II        
685698 glucocorticoid agonist asthma, also COPD & asthma in combination with a II        
835726 histamine H1/H3 dual antagonist (oral) long-acting beta2 agonist
allergic rhinitis		 II        
870086 novel glucocorticoid agonist (inhaled) asthma II        
642444†
 long-acting beta2 agonist COPD, also COPD & asthma in combination with a
glucocorticoid agonist		 II        
961081†
 muscarinic antagonist, beta2 agonist COPD II        
1004723 histamine H1/H3 dual antagonist (intranasal) allergic rhinitis II        
2190915†
 5-lipoxygenase-activating protein (FLAP)
inhibitor		 asthma II        
darotropium muscarinic acetylcholine antagonist COPD II        
darotropium + 642444†
 muscarinic acetylcholine antagonist +
long-acting beta2 agonist		 COPD II        
losmapimod (856553) p38 kinase inhibitor (oral) COPD (also cardiovascular disease & depression) II        
Entereg†
 peripheral mu-opioid antagonist post operative ileus Approved  N/A   A:May08
 
*  See Note 40 to the financial statements, Post balance sheet events
GSK Annual Report 2009

192

Product development pipeline
     
     
  196GSK Annual Report 2008Achieved Regulatory
  Shareholder information
  
  Product development pipelinecontinuedreview milestones
Compound TypeIndicationPhaseMAANDA/BLA
 
     
Antigen Specific Cancer Immunotherapeutic (ASCI)
WT1recombinanttreatment of acute myelogenous leukaemiaII
MAGE-A3recombinanttreatment of melanomaIII
MAGE-A3recombinanttreatment of non-small cell lung cancerIII
Dermatology (Stiefel), late stage assets only
Duac low doseclindamycin/benzoyl peroxide gelacne vulgarisIII
tazarotene foamretinoid foamacne vulgarisIII
calcipotrienevitamin D3 analogmild to moderate plaque psoriasisSubmittedS:Dec09
itraconazole tabletsoral anti-fungalonychomycosisSubmittedS:Mar09
Veltinantibiotic/retinoid gelacne vulgarisSubmittedS:Oct09
HIV (ViiV Healthcare)
1265744†HIV integrase inhibitorHIV infectionsII
1349572†HIV integrase inhibitorHIV infectionsII
2248761 (IDX899)†non-nucleotide reverse transcriptase inhibitorHIV infectionsII
PF-232798CCR5 antagonistHIV infectionsII
UK-453061non-nucleotide reverse transcriptase inhibitorHIV infectionsII
Selzentry/CelsentriCCR5 antagonistHIV infection, use in treatment naive patientsApprovedA:Nov09
               
        Estimated submission dates
Compound Type Indication Phase  MAA   BLA 
 

Paediatric Vaccines
              
Mosquirix
 recombinant malaria prophylaxis II        
Hib-MenCY-TT conjugated Neisseria meningitis groups C & Y disease & Haemophilus
influenzae type b disease prophylaxis		 III      2009 
MenACWY-TT conjugated Neisseria meningitis groups A, C, W & Y disease prophylaxis III        
Synflorix
 conjugated Streptococcus pneumoniae diseases prophylaxis in infants
& children		 Submitted  PO:Jan09    
Kinrix
 subunit — inactivated diphtheria, tetanus, pertussis and poliomyelitis prophylaxis (booster — 5th dose) Approved      A:Jun08
Rotarix†
 live attenuated (oral) rotavirus-induced gastroenteritis prophylaxis Approved  A:Feb06  A:Apr08
 
               
Other Vaccines
              
Cytomegalovirus recombinant cytomegalovirus infection prophylaxis I        
HIV recombinant HIV infection prophylaxis I        
NTHi-Pneumo recombinant Streptococcus pneumoniae and Haemophilus influenzae disease prophylaxis in adults I        
S. pneumoniae adult recombinant — conjugated Streptococcus pneumoniae disease prophylaxis I        
Tuberculosis recombinant tuberculosis prophylaxis II        
Zoster recombinant Herpes Zoster prevention II        
Flu pandemic &
  pre-pandemic†
 H5N1 inactivated split — monovalent (Quebec) pandemic influenza prophylaxis III  2009   2009 
New generation flu vaccine inactivated split — trivalent seasonal influenza prophylaxis for the elderly III        
Simplirix
 recombinant genital herpes prophylaxis III        
Boostrix
 subunit adult booster for diphtheria, tetanus & pertussis Approved  A:Jun00  A:Dec08
Pandemrix (Flu pandemic)†
 H5N1 inactivated split — monovalent (Dresden) pandemic influenza prophylaxis Approved  A:May08    
Prepandrix
 H5N1 inactivated split — monovalent (Dresden) pre-pandemic influenza prophylaxis Approved  A:May08    
(Flu pre-pandemic)†
              
Cervarix†
 recombinant human papilloma virus infection prophylaxis Approved  A:Sep07  AL:Dec07
 
               
Antigen Specific Cancer Immunotherapeutic (ASCI)
            
WT1 recombinant treatment of acute myelogenous leukaemia I        
MAGE-A3 ASCI recombinant treatment of melanoma III        
MAGE-A3 ASCI recombinant treatment of non-small cell lung cancer III        
 
Option-based alliances with third parties that include assets in Phase I and Phase II development

CompanyDisease AreaPhase     
     
 GSK Annual Report 2008197
Shareholder information
     
 
Shareholder informationAnacor Pharmaceuticals anti-bacterial
I     
ChemoCentryxinflammatory disease*I & II
Concert PharmaceuticalsHIV (protease inhibitor)I
Galapagosautoimmune diseaseI
NeuroSearchneuroscience (anxiety & pain)I
OncoMed PharmaceuticalsoncologyI
Prosensa TherapeuticsneuroscienceI
Ranbaxy LaboratoriesrespiratoryI
TheravancegastrointestinalI
* Two assets
GSK Annual Report 2009

193

Shareholder information

The Ordinary Shares of the company are listed on the London Stock Exchange and on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADS). For details of listed debt and where it is listed refer to Note 32, ‘Net debt’.
Share price
            
 2008 2007 2006             
 £ £ £  2009 2008 2007 
 £ £ £ 
At 1st January 12.79 13.44 14.69  12.85 12.79 13.44 
High during the year 13.85 14.93 15.77  13.34 13.85 14.93 
Low during the year 9.95 11.60 13.26  9.87 9.95 11.60 
At 31st December 12.85 12.79 13.44  13.20 12.85 12.79 
Increase/(decrease)  0.5%  (5)%  (9)%  2.7%  0.5%  (5)%
    - 
The table above sets out the middle market closing prices. The company’s share price increased by 0.5%2.7% in 2008.2009. This compares with a decreasean increase in the FTSE 100 index of 31%by 22% during the year. The share price on 24th19th February 20092010 was £11.06.£12.35.
Market capitalisation
The market capitalisation, based on shares in issue excluding Treasury shares, of GlaxoSmithKline at 31st December 20082009 was £67£69 billion. At that date GSK was the fifth largest company by market capitalisation on the FTSE index.
SmithKline Beecham plc Floating Rate
Unsecured Loan Stock 1990/2010
The loan stockLoan Stock is not listed on any exchange but holders may require SmithKline Beecham plc to redeem their loan stockwill be redeemed in its entirety at par, i.e. £1 for every £1 of loan stock held, on 1st June 2010.
Loan Stock holders will not be required to surrender their certificate(s) for this compulsory redemption, which will be made automatically at the first business daydue time, and a cheque in respect of March, June, September and December. Holders wishing to redeem all or part of their loan stock should complete the noticeredemption value will be posted on the back of their loan stock certificate and return it to the registrar, to arrive at least 30 days before the relevant redemption date.28th May 2010.
Taxation
General information concerning the UK and US tax effects of share ownership is set out on page 200202 ‘Taxation information for shareholders’.
Dividends
GlaxoSmithKline pays dividends quarterly. It continues to increase cash returns to shareholders through its dividend policy. Dividends remain an essential component of total shareholder return and GSK is committed to increasing its dividend over the long-term. Details of the dividends declared, the amount and the payment dates are given in Note 16 to the financial statements, ‘Dividends’.
Dividends per share
The table below sets out the dividends per share in the last five years.
    
    
Year pence  pence 
2009  61 
2008 57   57 
2007 53   53 
2006 48   48 
2005 44   44 
2004 42 
Dividends per ADS
The table below sets out the dividends per ADS in US dollars in the last five years, translated into US dollars at applicable exchange rates.
    
    
Year US$  US$ 
2009  1.93 
2008 2.01   2.01 
2007 2.14   2.14 
2006 1.80   1.80 
2005 1.57   1.57 
2004 1.53 
Dividend calendar
      
 
Quarter Ex-dividend date Record date Payment date
 
 
Q4 200811th February 2009 13th10th February 20092010 9th12th February 20108th April 20092010
Q1 200920105th May 20107th May 20108th July 2010
Q2 201028th July 201030th July 20107th October 2010
Q3 201027th October 2010 29th April 20091st May 20099th July 2009
Q2 200929th July 200931st July 20098th October 2009
Q3 20094th November 20092010 6th November 2009January 2011
 7th January 2010
 
Financial reporting calendar
   
Publication Date
 
Results announcements  
Quarter 1 April 20092010
Quarter 2 July 20092010
Quarter 3 October 20092010
Preliminary/Quarter 4 January 2010February 2011
 
Annual report/summaryReport/Summary February/March 20102011
 
Results announcements
Results announcements are issued to the London Stock Exchange and are available on its news service. Shortly afterwards, they are issued to the media, are made available on the website and sent to the US Securities and Exchange Commission and the NYSE.
Financial reports
GSK publishes an Annual Report and for the shareholder not needing the full detail of the Report, a Summary document. These are available from the date of publication on the website. The Summary is sent to all shareholders. Shareholders may elect to receive the Annual Report by writing to the registrars. Alternatively shareholders may elect to receive notification by email of the publication of financial reports by registering on www.shareview.co.uk.
Copies of previous financial reports are available on GSK’s website. Printed copies can be obtained from the registrars in the UK and from the GSK Response Center in the USA.
Corporate responsibility report
In late March 2009,2010, GSK will publish on the website its Corporate Responsibility Report covering performance in areas including community investment, ethics and integrity, access to medicines, R&D and environment, health and safety.


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194

198GSK Annual Report 2008
Shareholder information
Shareholder informationcontinued

Nature of trading market
The following tables set out, for the periods indicated, the high and low middle market closing quotations in pence for the shares on the London Stock Exchange, and the high and low last reported sales prices in US dollars for the ADS on the NYSE.
         
  Pence per share 
  High  Low 
 
Quarter ended 31st March 2009*  1305   1106 
February 2009*  1277   1106 
January 2009  1305   1215 
December 2008  1285   1102 
November 2008  1250   1066 
October 2008  1229   995 
September 2008  1327   1185 
Quarter ended 31st December 2008  1285   995 
Quarter ended 30th September 2008  1327   1103 
Quarter ended 30th June 2008  1153   1053 
Quarter ended 31st March 2008  1385   1001 
Quarter ended 31st December 2007  1333   1160 
Quarter ended 30th September 2007  1341   1215 
Quarter ended 30th June 2007  1488   1272 
Quarter ended 31st March 2007  1493   1344 
Year ended 31st December 2006  1577   1326 
Year ended 31st December 2005  1544   1175 
Year ended 31st December 2004  1299   1042 
 
         
  Pence per share 
  High  Low 
 
Quarter ended 31st March 2010*  1340   1196 
February 2010*  1245   1196 
January 2010  1340   1217 
December 2009  1334   1280 
November 2009  1290   1219 
October 2009  1281   1219 
September 2009  1252   1176 
Quarter ended 31st December 2009  1334   1219 
Quarter ended 30th September 2009  1252   1063 
Quarter ended 30th June 2009  1117   987 
Quarter ended 31st March 2009  1305   1003 
Quarter ended 31st December 2008  1285   995 
Quarter ended 30th September 2008  1327   1103 
Quarter ended 30th June 2008  1153   1053 
Quarter ended 31st March 2008  1385   1001 
Year ended 31st December 2007  1493   1160 
Year ended 31st December 2006  1577   1326 
Year ended 31st December 2005  1544   1175 
 
 
  US dollars per ADS 
  High  Low 
 
Quarter ended 31st March 2010*  42.97   37.52 
February 2010*  39.49   37.52 
January 2010  42.97   39.01 
December 2009  42.91   41.59 
November 2009  42.88   40.30 
October 2009  41.91   38.72 
September 2009  39.67   38.60 
Quarter ended 31st December 2009  42.91   38.72 
Quarter ended 30th September 2009  40.03   34.36 
Quarter ended 30th June 2009  36.56   29.11 
Quarter ended 31st March 2009  39.24   27.27 
Quarter ended 31st December 2008  43.39   32.02 
Quarter ended 30th September 2008  49.03   42.08 
Quarter ended 30th June 2008  45.36   41.39 
Quarter ended 31st March 2008  54.36   40.85 
Year ended 31st December 2007  59.35   47.87 
Year ended 31st December 2006  58.38   50.15 
Year ended 31st December 2005  53.53   44.48 
 
         
  US dollars per ADS 
  High  Low 
 
Quarter ended 31st March 2009*  39.24   31.91 
February 2009*  37.36   31.91 
January 2009  39.24   34.09 
December 2008  37.88   32.02 
November 2008  40.19   32.54 
October 2008  43.39   35.41 
September 2008  47.01   42.08 
Quarter ended 31st December 2008  43.39   32.02 
Quarter ended 30th September 2008  49.03   42.08 
Quarter ended 30th June 2008  45.36   41.39 
Quarter ended 31st March 2008  54.36   40.85 
Quarter ended 31st December 2007  54.14   47.87 
Quarter ended 30th September 2007  54.23   49.43 
Quarter ended 30th June 2007  59.35   51.28 
Quarter ended 31st March 2007  58.37   52.66 
Year ended 31st December 2006  58.38   50.15 
Year ended 31st December 2005  53.53   44.48 
Year ended 31st December 2004  47.50   39.04 
 
*to 24th February 2009
Internet
Information about the company including details of the share price is available on GSK’s website at www.gsk.com. Information made available on the website does not constitute part of this Annual Report.* to 19th February 2010
Annual General Meeting 20092010
 
The Queen Elizabeth II Conference Centre, 20th6th May 20092010
Broad Sanctuary, Westminster,
London SW1P 3EE
 
The AGM is the company’s principal forum for communication with private shareholders. In addition to the formal business there will be a presentation by the Chief Executive Officer on the performance of the Group and its future development. There will be opportunity for questions to the Board, and the Chairmen of the Board’s Committees will take questions on matters relating to those committees.
Investors holding shares through a nominee service should arrange with that nominee service to be appointed as a corporate representative or proxy in respect of their shareholding in order to attend and vote at the meeting.
ADR holders wishing to attend the meeting must obtain a proxy from The Bank of New York Mellon which will enable them to attend and vote on the business to be transacted. ADR holders may instruct The Bank of New York Mellon as to the way in which the shares represented by their ADR should be voted by completing and returning the voting card provided by the bank in accordance with the instructions given.
Documents on display
The Memorandum and Articles of Association of the company and other documents referred to in this Annual Report are available for inspection at the Registered Office of the company.
Exchange controls and other limitations
affecting security holders
There are currently no UK laws, decrees or regulations restricting the import or export of capital or affecting the remittance of dividends or other payments to holders of the company’s shares who are non-residents of the UK. There are no limitations relating only to non-residents of the UK under English law or the company’s Memorandum and Articles of Association on the right to be a holder of, and to vote in respect of, the company’s shares.


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195

GSK Annual Report 2008199
Shareholder information
Shareholder information continued

Duplicate publications
Queries relating to receipt of duplicate copies of GSK’s
publications should be addressed to the registrars.
Investor relations
Investor Relations may be contacted as follows:
UK
980 Great West Road, Brentford, Middlesex TW8 9GS

Tel:    +44 (0)20 8047 5000
USA
One Franklin Plaza, PO Box 7929, Philadelphia PA 19101

Tel:    1 888 825 5249 (US toll free)

Tel:    +1 215 751 4000 (outside USA)
Registrar
The company’s registrars are:
Equiniti
Limited
Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA

www.shareview.co.uk

Tel:    0871 384 2991 inside the UK

Tel:    +44 (0)121 415 7067 outside the UK
Equiniti also provides the following services:
•Nominee dealing account and Individual Savings Account (ISA)
•GlaxoSmithKline Corporate Sponsored Nominee
•Shareview service
•Share dealing service
•Dividend Reinvestment Plan
Nominee dealing account and Individual Savings Account (ISA)
GlaxoSmithKline Corporate Sponsored Nominee
Shareview service
Share dealing service
Dividend Reinvestment Plan
Share dealing service
Shareholders may trade shares, either held in certificates or in the Corporate Sponsored Nominee by internet or telephone through Shareview dealing,Dealing, a share dealing service provided by Equiniti.Equiniti Financial Services Limited. For internet deals log on to www.shareview.co.uk/www. shareview.co.uk/dealing. For telephone deals call 08456 037 037 (inside the UK only).
For the nominee and ISA service, either www.shareview.co.uk/ dealing or call 0845 300 0430. Telephone services are available between 8.00 and 18.00, Monday to Friday (market trading hours 8.00 – 16.30)–16.30).
Glaxo Wellcome and SmithKline Beecham
Corporate PEPs
The Share Centre Limited

Oxford House, Oxford Road, Aylesbury, Bucks HP21 8SZ

Tel:    +44 (0)1296 414141
ADR programme administrator
The ADR programme is administered by:
BNY Mellon Shareowner Services

PO Box 358516

Pittsburgh, PA 15252-8516

www.bnymellon.com/shareowner

Tel:    1 877 353 1154 (US toll free)

Tel:    +1 201 680 6825 (outside USA)

email: shrrelations@bnymellon.com
The administrators also provide Global BuyDIRECT, a direct ADS purchase/sale and dividend reinvestment plan for ADR holders.
GSK Response Center
Tel:    1 888 825 5249 (US toll free)
The provision of the details above is not intended to be an invitation or inducement to engage in an investment activity. Advice on share dealing should be obtained from a stockbroker or independent financial adviser.


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Taxation information for shareholdersGSK Annual Report 2008
Shareholder information
Taxation information for shareholders

This statement is based uponA summary of certain UK tax and US federal income tax lawsconsequences for certain holders of shares and practices atADR who are citizens of the dateUK or the USA is set out below. It is not a complete analysis of this report.all the possible tax consequences of the purchase or ownership of these securities. It is intended only as a general guide. Holders are advised to consult their advisers with respect to the tax consequences of the purchase and ownership of their shares or ADR, and the consequences under state and local tax laws in the USA and the implications of the current UK/US Income Tax convention.
US holders of ADR generally will be treated as the owners of the underlying shares for the purposes of the current USA/UK double taxation conventions relating to income and gains (Income Tax Convention), estate and gift taxes (Estate and Gift Tax Convention) and for the purposes of the US Internal Revenue Code of 1986, as amended (the Code).
UK shareholders
This summary only applies to a UK resident shareholder that holds shares as capital assets.
Taxation of dividends
From 6th April 1999, the rate of tax credits was reduced to one ninth. As a result of compensating reductions in the rate of tax on dividend income, there is no increase in the tax borne by UK resident individual shareholders. Tax credits are, however, no longershareholders will generally be subject to UK income tax on the full amount of dividends paid, grossed up for the amount of a one ninth dividend tax credit. The tax credit may be set against the individual’s income tax liability in respect of the gross dividend, but is not repayable to shareholders with a tax liability of less than the associated tax credit. For the tax year 2010-11 and subsequent tax years, an additional rate of income tax on dividends will be imposed for taxpayers whose income is above £150,000. UK resident shareholders that are corporation taxpayers should note that dividends paid after 1st July 2009 are generally entitled to exemption from corporation tax under new rules. If shareholders are in any doubt as to their position, they should consult their own professional advisers.
Taxation of capital gains
UK shareholders may be liable for UK tax on gains on the disposal of shares or ADR. For disposals made prior to 6th April 2008, they may also be entitled to indexation relief and taper relief on such sales. Indexation relief is calculated on the market value of shares at 31st March 1982 and on the cost of any subsequent purchases from the date of such purchase. Indexation relief for individual shareholders ceased on 5th April 1998. A capital gain is taxed at the marginal tax rate of the individual. For disposals after 5th April 2008 no indexation or taper relief will be available andby individuals, a capital gain will be taxed at a flat rate of 18% rather than, subject to the marginal tax rateavailability of any exemption or relief such as the individual.annual exempt amount. Corporation taxpayers may be entitled to an indexation allowance which applies to reduce capital gains to the extent that such gains arise due to inflation. Indexation allowance may reduce a chargeable gain but will not create an allowable loss.
Inheritance tax
Individual shareholders may be liable to inheritance tax on the transfer of shares or ADR. Tax may be charged on the amount by which the value of the shareholder’s estate is reduced as a result of any transfer by way of gift or other disposal at less than full market value.
SuchIf such a gift or other disposal iswere subject to both UK inheritance tax and US estate or gift tax. Thetax, the Estate and Gift Tax Convention would generally provide for tax paid in the USA to be credited against tax payable in the UK.
Stamp duty
UK stamp duty or stamp duty reserve tax (SDRT) will, subject to certain exemptions, be payable on the purchase of shares at a rate of 0.5% of the purchase price.
US shareholders
The following is a summary of certain UK taxation and USA federal income tax considerations that may be relevant to a US holder of shares or ADR. This summary only applies to a shareholder that holds shares or ADR as capital assets, is a(a citizen or resident of the USA or a domestic corporation or a person that is otherwise
subject to United StatesUS federal income taxationtax on a net income basis in respect of the shares or ADR) that holds shares or ADR andas capital assets, is not resident in the UK for UK tax purposes and does not hold shares for the purposes of a trade, profession or vocation that is carried on in the UK through a branch or agency. The summary also does not address the tax treatment of holders that are subject to special tax rules, such as banks, tax-exempt entities, insurance companies, dealers in securities or currencies, persons that hold shares or ADR as part of an integrated investment (including a ‘straddle’) comprised of a share or ADR and one or more other positions, and persons that own (directly or indirectly) 10% or more of the voting stock of GSK.
Taxation of dividends
The gross amount of dividends received (without reduction for any UK withholding tax) is treated as foreign source dividend income for US tax purposes. It is not eligible for the dividend received deduction allowed to US corporations. Dividends on ADR are payable in US dollars; dividends on shares are payable in Sterling. Dividends paid in pounds Sterling will be included in income in the US dollar amount calculated by reference to the exchange rate on the day the dividends are received by the holder. Subject to certain exceptions for short-term or hedged positions, an individual eligible US holder will be subject to US taxation at a maximum rate of 15% in respect of qualified dividends received before 2011. Shareholders are advised to consult their own Tax Advisers to confirm their eligibility.
Taxation of capital gains
Generally, US holders will not be subject to UK capital gains tax, but will be subject to US tax on capital gains realised on the sale or other disposal of shares or ADR. Such gains will be long-term capital gains (subject to reduced rates of taxation for individual holders) if the shares or ADR were held for more than one year.
Information reporting and backup withholding
Dividends and payments of the proceeds on a sale of shares or ADR, paid within the USA or through certain US-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the US holder is a corporation or other exempt recipient or provides a taxpayer identification number and certifies that no loss of exemption has occurred. Non-US holders generally are not subject to information reporting or backup withholding, but may be required to provide a certification of their non-US status in connection with payments received. Any amounts withheld will be allowed as a refund or credit against a holder’s US federal income tax liability provided the required information is furnished to the IRS.
Estate and gift taxes
Under the Estate and Gift Tax Convention, a US shareholder is not generally subject to UK inheritance tax.
Stamp duty
UK stamp duty or SDRT will, subject to certain exemptions, be payable on any issue or transfer of shares to the ADR custodian or depository at a rate of 1.5% of their price (if issued), the amount
of any consideration provided (if transferred on sale), or their value (if transferred for no consideration).
No SDRT would be payable on the transfer of an ADR. No UK stamp duty should be payable on the transfer of an ADR provided that theany instrument of transfer is executed and remains at all times outside the UK. Any stamp duty on the transfer of an ADR would be payable at a rate of 0.5% of the consideration for the transfer. Any sale of the underlying shares would, subject to certain exceptions, result in liability to UK stamp duty or, as the case may be, SDRT at a rate of 0.5%.


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Glossary of terms
   
GSK Annual Report 2008201
Shareholder information
Glossary of terms
Terms used in the Annual Report US equivalent or brief description
  
 
Accelerated capital allowances Tax allowance in excess of depreciation arising from the purchase of fixed assets that delay the charging and payment of tax. The US equivalent of tax depreciation.
   
American Depositary Receipt (ADR) Receipt evidencing title to an ADS. Each GlaxoSmithKline ADR represents two Ordinary Shares.
   
American Depositary Shares (ADS) Listed on the New York Stock Exchange; represents two Ordinary Shares.
   
Basic earnings per share Basic income per share.
   
Called-up share capital Ordinary Shares, issued and fully paid.
   
CER growth Growth at constant exchange rates.
   
Combined Code Guidelines required by the Listing Rules of the Financial Services Authority to address the principal aspects of Corporate Governance.
   
The company GlaxoSmithKline plc.
   
Currency swap An exchange of two currencies, coupled with a subsequent re-exchange of those currencies, at agreed exchange rates and dates.
   
Defined benefit plan Pension plan with specific employee benefits, often called ‘final salary scheme’.
   
Defined contribution plan Pension plan with specific contributions and a level of pension dependent upon the growth of the pension fund.
   
Derivative financial instrument A financial instrument that derives its value from the price or rate of some underlying item.
   
Diluted earnings per share Diluted income per share.
   
Employee Share Ownership Plan Trusts Trusts established by the Group to satisfy share-based employee incentive plans.
   
Finance lease Capital lease.
   
Freehold Ownership with absolute rights in perpetuity.
   
Gearing ratio Net debt as a percentage of total equity.
   
The Group GlaxoSmithKline plc and its subsidiary undertakings.
   
Hedging The reduction of risk, normally in relation to foreign currency or interest rate movements, by making off-setting commitments.
   
Intangible fixed assets Assets without physical substance, such as computer software, brands, licences, patents, know-how and marketing rights purchased from outside parties.
   
Non-equity minority interest Preference shares issued by a subsidiary to outside parties.
   
Preference shares Shares issued at varying dividend rates that are treated as outside interests.
   
Profit Income.
   
Profit attributable to shareholders Net income.
   
Share capital
Shareholders’ funds		 Ordinary Shares, capital stock or common stock issued and fully paid. Shareholders’ equity.
  
Shareholders’ fundsShareholders’ equity.
   
Share option Stock option.
   
Share premium account Additional paid-up capital or paid-in surplus (not distributable).
   
Shares in issue The number of shares outstanding, excluding Treasury shares.
Statement of recognised income and expenseStatement of comprehensive income.outstanding.
   
Subsidiary An entity in which GlaxoSmithKline holds a majority shareholding and/or exercises control.
   
Treasury share Treasury stock.
   
Turnover Revenue.
   
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Memorandum and Articles of Association of GlaxoSmithKlineGSK Annual Report 2008
Memorandum and Articles of Association of GlaxoSmithKline

The following is a summary of the principal provisions of the company’s Memorandum of Association (the “Memorandum”) and Articles of Association.Association (the “Articles”). Shareholders should not rely on this summary, but should instead refer to the current Memorandum and Articles of Association which are filed with the Registrar of Companies in the UK orand can be viewed on the company’s website. The Memorandum contains the fundamental provisions of the company’s constitution. The Articles contain the rules for the internal management and control of the company.
Memorandum of Association
The Memorandum of Association of GlaxoSmithKline provides that itsthe company’s principal objects are, among other things, to be the holding company of Glaxo Wellcome plc and SmithKline Beecham plc, and to carry on business as a general commercial company and to carry on any trade or business or activity of any nature which may seem to the Directors to be capable of being conveniently or advantageously carried on.
Articles of Association
(a) Voting
All resolutions put to the vote at general meetings will be decided by poll. On a poll, every membershareholder who is present in person or by proxy shall have one vote for every Ordinary Share of which he or she is the holder. Unless the Directors otherwise decide, the right to attend a general meeting and voting rights may not be exercised by a membershareholder who has not paid to the company all calls and other sums then payable by him or her in respect of shares in the company.his or her Ordinary Shares. The right to attend a general meeting and voting rights may not be exercised by a membershareholder who is subject to an order under Section 794 of the Companies Act 2006 because he or she has failed to provide GlaxoSmithKlinethe company with information concerning his or her interests in sharesOrdinary Shares within the prescribed period, as required by Section 793 of the Companies Act 2006.
(b) Transfer of Ordinary Shares
Any membershareholder may transfer his or her Ordinary Shares which are in certificated form by an instrument of transfer in any usual form or in any other form which the Directors may approve. Such instrument must be properly signed, stamped or certified and lodged with GlaxoSmithKline accompanied bythe company together with the relevant share certificate(s) and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. Every transfer of Ordinary Shares which are in uncertificated form must be carried out by means of a relevant system such as CREST. The Directors may, in their absolute discretion and without giving any reason, decline to register any transfer of any shareOrdinary Share which is not a fully paid share.paid.
The Articles contain no other restrictions on the transfer of fully paid shares providedOrdinary Shares provided: (i) the transfer is in favour of not more than four transferees; (ii) the transfer is in respect of only one class of shares; and (iii) the holder of the sharesOrdinary Shares is not subject to an order under Section 794 of the Companies Act 2006. Notice of refusal to register a transfer must be sent to the transferee within two months of the instrument of transfer being lodged. The Directors may decline to register a transfer of Ordinary Shares by a person holding 0.25 per centcent. or more of the existing shares of a classOrdinary Shares if such person is subject to an order under Section 794 Companies Act 2006, after failure to provide GlaxoSmithKlinethe company with information concerning interests in those sharesOrdinary Shares required to be provided under Section 793 of the Companies Act 2006, unless the transfer is carried out pursuant to an arm’s length sale.
Provisions in the Articles will not apply to uncertificated sharesOrdinary Shares to the extent that they are inconsistent with:
(i) the holding of shares in uncertificated form;
(ii) the transfer of title to sharesOrdinary Shares by means of a system such as CREST; and
(iii) any provisions of the relevant regulations.
(c) Dividends and distribution of assets on liquidation
The profits of GlaxoSmithKlinethe company which are available for distribution and permitted by law to be distributed and which GlaxoSmithKlinethe company may from time to time determine, upon the recommendation of the Directors, to distribute by way of dividend, in respect of any accounting reference period shall be distributed by way of dividend among holders of Ordinary Shares. If in their opinion GlaxoSmithKline’sthe company’s financial position justifies such payments, the Directors may, as far as any applicable legislation allows, pay interim dividends on shares of any class of such amounts and in respect of such periods as they think fit. Except in so far as the rights attaching to, or the terms of issue of, any share otherwise provide, all dividends will be declared, apportioned and paid pro rata according to the amounts paid up on the shares during any portion of the period in respect of which the dividend is paid. As GlaxoSmithKlinethe company has only one class of Ordinary Shares, the holders of such sharesOrdinary Shares will under general law be entitled to participate in any surplus assets in a winding-up in proportion to their shareholdings.


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Memorandum and Articles of Association of GlaxoSmithKline

(d) Variation of rights and changes in capital
Subject to the provisions of the Companies Act 2006 and to the terms of issue of the shares concerned, the rights attached to any class of shares may be varied with the written consent of the holders of three-quarters in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of shares of that class. At every such separate meeting, the provisions of the Articles relating to general meetings shall apply, except the necessary quorum shall be at least two persons holding or representing as proxy at least one-third in nominal value of the issued shares of the relevant class (but provided that at any adjourned meeting any holder of shares of the relevant class present in person or by proxy shall be a quorum).


GSK Annual Report 2008 203
Memorandum and Articles of Association of GlaxoSmithKlinecontinued
GlaxoSmithKlineThe company may by ordinary resolution increase its share capital, consolidate, or consolidate then sub-divide all, or any of its shares into shares of a larger nominal amount, cancel any shares not taken or agreed to be taken by any person and, subject to the provisions of the Companies Act 2006, sub-divide its shares into shares of a smaller nominal amount. GlaxoSmithKlineThe company may, subject to the provisions of the Companies Act 2006, by special resolution reduce its share capital or any capital redemption reserve, share premium account or other undistributable reserve. GlaxoSmithKlineThe company may also, subject to the provisions of the Companies Act 2006 and the rights of any of the holders of any class of shares, purchase its own shares.
(e) Unclaimed dividends
Unless the Directors decide otherwise, any dividend unclaimed after a period of 12 years from the date when a resolution was passed for payment will be forfeited and revert to GlaxoSmithKline. GlaxoSmithKlinethe company. The company may stop sending dividend cheques or warrants by post, or employ such other means of payment in respect of any shares,Ordinary Shares, if at least two consecutive payments have remained uncashed or are returned undelivered or if one payment has remained uncashed or is returned undelivered and GlaxoSmithKlinethe company cannot establish a new address for the holder after making reasonable enquiriesenquiries; however, in either case, GlaxoSmithKlinethe company must resume sending cheques or warrants or employ such other means of payment if the holder or any person entitled to the sharesOrdinary Shares by transmission requests the resumption.
(f) Untraced shareholders
GlaxoSmithKlineThe company may sell any sharesOrdinary Shares in GlaxoSmithKlinethe company after advertising its intention and waiting for three months if the sharesOrdinary Shares have been in issue for at least ten years and during that period at least three dividends have become payable on them and have not been claimed and, so far as any Director is aware, GlaxoSmithKlinethe company has not received any communication from the holder of the sharesOrdinary Shares or any person entitled to them by transmission. Upon any such sale, GlaxoSmithKlinethe company will become indebted to the former holder of the sharesOrdinary Shares or the person entitled to them by transmission for an amount equal to the net proceeds of sale.
(g) Limitations on rights of non-resident or foreign shareholders
There are no limitations imposed by the Articles of Association on the rights of non-resident or foreign shareholders except that there is no requirement for GlaxoSmithKlinethe company to serve notices on shareholders outside the United Kingdom and the United States.
(h) General meetings of shareholders
GlaxoSmithKlineThe company is required by the Companies Act 2006 to hold an annual general meeting each year. General meetings of shareholders may be called as necessary by the BoardDirectors and must be called promptly upon receipt of a requisition from shareholders. A general meeting other than an annual general meeting may be called on not less than 14 clear days’ notice provided a special resolution reducing the notice period to 14 clear days has been passed at the immediately preceding annual general meeting or a general meeting held since that annual general meeting.
(i) Conflicts of interest
The Directors may authorise any matter which would otherwise involve a Director breaching his or her duty under the Companies Act 2006 to avoid conflicts of interest (“Conflict”(each a “Conflict”). A Director seeking authorisation in respect of a Conflict shall declare to the other Directors the nature and extent of his interest in aor her Conflict as soon as is reasonably practicable. The relevant Director and any other Director with a similar interest shall not count towards the quorum nor vote on any resolution giving such authority, and, if the other members of the BoardDirectors so decide, shall be excluded from any Board meeting of the Directors while the Conflict is under consideration.
(j) Other Conflicts of Interest
Subject to the provisions of the Companies Acts,Act 2006, and provided the nature of a Director’s interest has been declared to the Directors, a Director is not disqualified by that officeOffice from contracting with GlaxoSmithKlinethe company in any manner, nor is any contract in which he or she is interested liable to be avoided, and any Director who is so interested is not liable to account to GlaxoSmithKlinethe company or the membersits shareholders for any benefit realised by the contract by reason of the Director holding that officeOffice or of the fiduciary relationship thereby established. However, no Director may vote on any resolution relating specifically to his or her own appointment (including remuneration) or the terms of his or her termination or relating to any contract in which he or she has an interest (subject to certain exceptions).
A Director may (or any firm of which he or she is a partner, employee or membershareholder may) act in a professional capacity for GlaxoSmithKlinethe company (other than as auditor) and be remunerated for so doing. A Director may also hold any other officeOffice with GlaxoSmithKlinethe company (other than auditor) or be or become director or other officerOfficer of, or be otherwise interested in, any holding company or subsidiary of GlaxoSmithKlinethe company or in which GlaxoSmithKlinethe company may be interested and will not be liable to account to GlaxoSmithKlinethe company or the membersits shareholders for any benefit received by him.him or her.


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Memorandum and Articles of Association of GlaxoSmithKline
(k) Directors’ remuneration
Each of the Directors will be paid a fee at such rate as may from time to time be determined by the Directors. Such fees may be satisfied in cash or in shares or in any other non-cash form. Any Director who is appointed to any executive office,Office, acts as Chairman, serves on any committee of the Directors or performs any other services which the Directors consider to extend beyond the ordinary services of a Director shall be entitled to receive such remuneration (whether by way of salary, commission or otherwise) as the Directors may decide. Each Director may be paid reasonable travelling, hotel and other expenses he or she incurs in attending and returning from meetings of the Directors or committees of the Directors, or general meetings of GlaxoSmithKline,the company, or otherwise incurred in connection with the performance of his or her duties for GlaxoSmithKline.the company.


204GSK Annual Report 2008
Memorandum and Articles of Association of GlaxoSmithKlinecontinued
(l) Pensions and gratuities for Directors
The Directors or any committee authorised by the Directors may provide benefits by the payment of gratuities, pensions or insurance or other allowances or benefits for any Director or former Director or their relations, connected persons or dependants.
(m) Borrowing powers
Subject to the provisions of the Companies Act 2006, the Directors may exercise all GlaxoSmithKline’sthe company’s powers to borrow money; to mortgage or charge all or any of GlaxoSmithKline’sthe company’s undertaking, property (present and future), and uncalled capital; to issue debentures and other securities; and to give security either outright or as collateral security for any debt, liability or obligation or GlaxoSmithKlineof the company or of any third party.
(n) Retirement and removal of Directors
A Director is subject to re-election at every annual general meeting of GlaxoSmithKline, if: (i)the company if he or sheshe: (i) held officeOffice at the time of the two previous annual general meetings and did not retire by rotation at either of them; (ii) if he or shehas held officeOffice for a continuous period of nine years or more; or (iii) if he or she has been appointed by the BoardDirectors since the last annual general meeting.
The company may by Special Resolutionspecial resolution remove any Director before the expiration of his or her period of office.Office. No Director is required to retire by reason of his or her age, nor do any special formalities apply to the appointment or re-election of any Director who is over any age limit. No shareholding qualification for Directors shall be required.


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GSK Annual Report 2008 205
Comparison of New York Stock Exchange Corporate Governance
Standards and GlaxoSmithKline plc’s corporate governance practice
Comparison of New York Stock Exchange Corporate Governance Standards and GlaxoSmithKline plc’s corporate governance practice
On 4th November 2003, the NYSENew York Stock Exchange (the “NYSE”) adopted new corporate governance standards. The application of the NYSE’s standards is restricted for foreign companies, recognising that they have to comply with domestic requirements. As a foreign private issuer, GlaxoSmithKline plc (“GlaxoSmithKline” or the company“Company”) must comply with the following NYSE standards:
1. the companyCompany must satisfy the audit committee requirements of the SEC;Securities and Exchange Commission (the “SEC”);
2. the CEOChief Executive Officer (the “CEO”) must promptly notify the NYSE in writing after any executive officerOfficer of the companyCompany becomes aware of any material non-compliance with any applicable provisions of the NYSE’s corporate governance standards;
3. the companyCompany must submit an annual affirmation to the NYSE affirming GlaxoSmithKline’s compliance with applicable NYSE corporate governance standards, and submit interim affirmations to the NYSE notifying it of specified changes to the Audit Committee;audit committee or a change to the status of the Company as a foreign private issuer; and
4. the companyCompany must provide a brief description of any significant differences between its corporate governance practices and those followed by US companies under the NYSE listing standards.
As a company listed on the London Stock Exchange, GlaxoSmithKline plc (hereinafter ‘GlaxoSmithKline’ in the table below) is required to comply with the UK Listing Authority Listing Rules and to report non-compliance with the UK Combined Code.Code on Corporate Governance (the “Combined Code”).
The table below discloses differences between GlaxoSmithKline’s domestic corporate governance practices and the NYSE corporate governance standards applicable to US companies.

NYSE
Corporate Governance Standards
Description of differences between GlaxoSmithKline’s governance practice and the NYSE Corporate Governance Standards
Description of differences between GlaxoSmithKline’s governance
practice and the NYSE Corporate Governance Standards

Director Independence
1.1. Listed companies must have a majority of independent directors.
GlaxoSmithKline complies with the equivalent domestic requirements contained in the Combined Code. The last update to the Combined Code for reporting years beginning on or after 1st November 2006 took effect29th June 2008 was issued in June 2006.2008. A new versionreport on a review of the Combined Code was issued by the UK Financial Reporting Council (‘FRC’(“FRC”) in June 2008December 2009, but its effects will only take effectcome into force for reporting years commencing on or after 29th June 2008.2010.
The Combined Code requires that the Boardboard of directors of GlaxoSmithKline (the “Board”) should include a balance of Executive and Non-Executive Directors (and, in particular, independent Non-Executive Directors) such that no individual or small group of individuals can dominate the Board’s decision taking. At least half the Board, excluding the Chairman, should comprise Non-Executive Directors determined by the Board to be independent. The roles of Chairman and Chief Executive should not be exercised by the same individual. The division of responsibilities between the Chairman and Chief Executive should be clearly established, set down in writing and agreed by the Board.
The Board considers that Professor Sir Roy Anderson, Dr Burns, Mr Culp, Sir Crispin Davis, Sir Deryck Maughan, Mr James Murdoch, Dr Podolsky, Sir Ian Prosser, Dr Schmitz, Mr de Swaan and Sir Robert Wilson are “independent” under the Combined Code. Sir Ian Prosser and Dr Ronaldo Schmitz, have announced their intentionboth of whom were considered to retirebe independent, retired from the Board with effect from 20th May 2009. Mr James Murdoch will joinjoined the Board with effect from and subject to the approval of the shareholders of the Company at the AGM on 20th May 2009 as an independent Non-Executive Director.
A majority of the Board members are ‘independent’“independent” Non- Executive Directors and the Board has appointed one of the “independent” Non-Executive Directors as senior independent director, in accordance with the recommendations of the Combined Code.


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206GSK Annual Report 2008
Comparison of New York Stock Exchange Corporate Governance Standards and GlaxoSmithKline plc’s corporate governance practice
Comparison of New York Stock Exchange Corporate Governance Standards and GlaxoSmithKline plc’s
corporate governance practice

NYSE
Corporate Governance Standards
NYSEDescription of differences between GlaxoSmithKline’s governance
practice and the NYSE Corporate Governance Standards

Description of differences between GlaxoSmithKline’s governance practice and the NYSE Corporate Governance Standards

2. In order to tighten the definition of ‘independent director’“independent director” for purposes of these standards:
(a) No director qualifies as ‘independent’“independent” unless the board of directors affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officerOfficer of an organization that has a relationship with the company). Companies must identify which directors are independent and disclose the basis for that determination.
(b) In addition, a director is not independent if:
 (i) The director is, or has been within the last three years, an employee of the listed company, or an immediate family member is, or has been within the last three years, an executive officer,Officer, of the listed company.
 (ii) The director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $100,000$120,000 in direct compensation from the listed company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service).
 (iii) (A) The director or an immediate family member is a current partner or employee of a firm that is the listed company’s internal or external auditor; (B) the director has an immediate family member who is a current employeepartner of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and who participates inpersonally works on the firm’s audit, assurance or tax compliance (but not tax planning) practice;listed company’s audit; or (D) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the listed company’s audit within that time.
 (iv) The director or an immediate family member is, or has been within the last three years, employed as an executive officerOfficer of another company where any of the listed company’s present executive officers at the same time serves or served on the otherthat company’s compensation committee.
 (v) The director is a current employee, or an immediate family member is a current executive officer,Officer, of a company that has made payments to, or received payments from, the listed company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues.
(For the purposes of these standards ‘executive officer’“executive Officer” is defined to have the meaning specified for the term ‘officer’“Officer” in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended)amended (the “Exchange Act”)).
GlaxoSmithKline complies with the corresponding domestic requirements contained in the Combined Code, which sets out the principles for the Company to determine whether a Directordirector is “independent”.
The Board is required to determine and state its reasons for the determination of whether Directorsdirectors are independent in character and judgment and whether there are relationships or circumstances which are likely to affect, or could affect, the directors’ judgment. In undertaking this process, the Board is required, amongst other factors, to consider if the Director:director:
•has been an employee of GlaxoSmithKline within the last five years;
•has, or has had within the last three years, a material business relationship with the Company either directly or as a partner, shareholder, director or senior employee of a body that has such a relationship with the Company;
•has received or receives additional remuneration from the Company apart from a director’s fee, participates in the Company’s share option or a performance-related pay scheme, or is a member of the Company’s pension scheme;
•has close family ties with any of the Company’s advisers, Directors or senior employees;
•holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;
•represents a significant shareholder; or
•has served on the Board for more than nine years from the date of his or her first election.
has been an employee of GlaxoSmithKline within the last five years;
has, or has had within the last three years, a material business relationship with the Company either directly or as a partner, shareholder, director or senior employee of a body that has such a relationship with the Company;
has received or receives additional remuneration from the Company apart from a director’s fee, participates in the Company’s share option or a performance-related pay scheme, or is a member of the Company’s pension scheme;
has close family ties with any of the Company’s advisers, directors or senior employees;
holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;
represents a significant shareholder; or
has served on the Board for more than nine years from the date of his or her first election.
The Board considers all its Non-Executive Directors to be independent in character and judgementjudgment and has concluded that all its Non-Executive Directors are independent in accordance with the Combined Code.


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Comparison of New York Stock Exchange Corporate Governance
Standards and GlaxoSmithKline plc’s corporate governance practice
Comparison of New York Stock Exchange Corporate Governance Standards and GlaxoSmithKline plc’s
corporate governance practice

NYSE
Corporate Governance Standards
NYSEDescription of differences between GlaxoSmithKline’s governance
practice and the NYSE Corporate Governance Standards

Description of differences between GlaxoSmithKline’s governance practice and the NYSE Corporate Governance Standards

3. To empower non-management directors to serve as a more effective check on management, the non-management directors of each listed company must meet at regularly scheduled executive sessions without management.
GlaxoSmithKline complies with the equivalent domestic requirements set out in the Combined Code, which requires that the Chairman of GlaxoSmithKline should hold meetings with the Non-Executive Directors without executives present. The Non-Executive Directors, led by the senior independent director, also metmeet without the Chairman present to appraise the Chairman’s performance.


 
Nominating / Nominating/corporate governance committee
4.
4.
(a) Listed companies must have a nominating/corporate governance committee composed entirely of independent directors.
(b)
 The nominating/corporate governance committee must have a written charter that addresses:
 (i) the committee’s purpose and responsibilities —– which, at minimum, must be to: identify individuals qualified to become board members, consistent with criteria approved by the board, and to select, or to recommend that the board select, the director nominees for the next annual meeting of shareholders; develop and recommend to the board a set of corporate governance guidelines applicable to the corporation; and oversee the evaluation of the board and management; and
 (ii) an annual performance evaluation of the committeecommittee.
GlaxoSmithKline complies with the corresponding domestic requirements set out in the Combined Code, which require that GlaxoSmithKline should have a Nominations Committee that is comprised of a majority of independent Non-Executive Directors.
GlaxoSmithKline’s Nominations Committee has written terms of reference in accordance with the Combined Code. The terms of reference are available on the company’sCompany’s website and explain the NominationNominations Committee’s role and the authority delegated to it by the Board. The Nominations Committee reviews the structure, size and composition of the Board and appointment of members to the Board and the Corporate Executive Team (the “CET”), and makes recommendations to the Board as appropriate. The Committee also monitors the planning of succession for the Board and Senior Management.
The Board is responsible for regularly reviewing its corporate governance standards and practices. The Company Secretary is also the Group’s Corporate Compliance Officer and oversees corporate governance matters for the Group. The Company Secretary is responsible for advising the Board through the Chairman on all corporate governance matters. Domestic requirements do not mandate that GlaxoSmithKline establish a corporate governance committee.


 
Management resources and compensation committee
5.
5.
(a) Listed companies must have a compensation committee composed entirely of independent directors.
(b)
 The compensation committee must have a written charter that addresses:
 (i) the committee’s purpose and responsibilities —– which, at minimum, must be to have direct responsibility to:
 (A) review and approve corporate goals and objectives relevant to CEO compensation, evaluate the CEO’s performance in light of those goals and objectives, and, either as a committee or together with the other independent directors (as directed by the board), determine and approve the CEO’s compensation level based on this evaluation;
 (B) make recommendations to the board with respect to non-CEO executive officerOfficer compensation, and incentive-compensation and equity-based plans that are subject to board approval; and
GlaxoSmithKline complies with the equivalent domestic requirements set out in the Combined Code, which requires that GlaxoSmithKline have a Remuneration Committee that is comprised entirely of ‘independent’“independent” Non-Executive Directors (which may include the companyCompany Chairman).
GlaxoSmithKline’s Remuneration Committee has written terms of reference in accordance with the Combined Code. The terms of reference are available on the company’sCompany’s website. The Remuneration Committee determines the terms of service and remuneration of the Executive Directors and members of the CET and, with the assistance of external independent advisers, it evaluates and makes recommendations to the Board on overall executive remuneration policy (the Chairman and the CEO are responsible for evaluating and making recommendations to the Board on the remuneration of Non-Executive Directors).
The Combined Code provides that the Remuneration Committee:
(a) should consult with the Chairman and/or CEO about their proposals relating to the remuneration of Executive Directors and should delegate responsibility for setting remuneration for all Executive Directors and the Chairman, including pension rights and any compensation payments;


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NYSE
Corporate Governance Standards
Description of differences between GlaxoSmithKline’s governance
practice and the NYSE Corporate Governance Standards

 (C)prepare the disclosure required by item 407(c) (5) of Regulation S-K under the Exchange Act;
(ii)an annual performance evaluation of the compensation committee.
(b) should recommend and monitor the level and structure of remuneration for senior management; and
(c) should consider what compensation commitments (including pension contributions and all other elements) the Directors’directors’ terms of appointment would entail in the event of early termination.
(d)shareholders should be invited specifically to approve all new long-term incentive schemes and significant changes to existing schemes.

At the annual general meeting on 20th May 2009 the shareholders of GlaxoSmithKline approved proposed changes to the remuneration arrangements of the senior executives following a review by the Remuneration Committee to align performance measures to strategy, reflecting the long-term nature of the pharmaceutical industry.

 

208GSK Annual Report 2008
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Description of differences between GlaxoSmithKline’s governance practice and the NYSE Corporate Governance Standards

(C)produce a compensation committee report on executive officer compensation as required by the SEC to be included in the listed company’s annual proxy statement or annual report on Form 10-K filed with the SEC;
(ii)an annual performance evaluation of the compensation committee.


Audit & Risk committee
6. Listed companies must have an audit committee that satisfies the requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended.Act.
GlaxoSmithKline complies with equivalent domestic requirements set out in the Combined Code, which require that GlaxoSmithKline have an Audit Committee that is comprised entirely of ‘independent’“independent” Non-Executive Directors. The Board of Directors approved and adopted new terms of reference and accepted proposals to change the name of the Committee to the Audit & Risk Committee with effect from 10th December 2009.
GlaxoSmithKline’s Audit & Risk Committee meets the requirements of the Sarbanes-Oxley Act of 2002 in that:
•each member of the Audit Committee is deemed to be ‘independent’ in accordance with the Securities Exchange Act of 1934, as amended, and applicable NYSE and UK requirements;
•the Audit Committee, amongst other things, is responsible for recommending the appointment, compensation, maintenance of independence and oversight of the work of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the company, and each such accounting firm must report directly to the Audit Committee;
•the Audit Committee has established a procedure for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;
•the Audit Committee has the authority to engage independent counsel and other advisors as it determines necessary to carry out its duties; and
•GlaxoSmithKline must provide appropriate funding for the Audit Committee.
each member of the Audit & Risk Committee is deemed to be “independent” in accordance with the Securities Exchange Act of 1934, as amended, and applicable NYSE and UK requirements;
the Audit & Risk Committee, amongst other things, is responsible for recommending the appointment, compensation, maintenance of independence and oversight of the work of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company, and each such accounting firm must report directly to the Audit & Risk Committee;
the Audit & Risk Committee has established a procedure for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;
the Audit & Risk Committee has the authority to engage independent counsel and other advisors as it determines necessary to carry out its duties; and
GlaxoSmithKline must provide appropriate funding for the Audit & Risk Committee.
The Board has determined that Mr de Swaan has the appropriate qualifications and background to be an Audit Committee Financial Expert as defined in rules promulgated by the SEC under Sarbanes-Oxley.the Sarbanes-Oxley Act of 2002.


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Comparison of New York Stock Exchange Corporate Governance Standards and GlaxoSmithKline plc’s
corporate governance practice

NYSE
Corporate Governance Standards
Description of differences between GlaxoSmithKline’s governance
practice and the NYSE Corporate Governance Standards

7.  
 
NYSE
Corporate Governance Standards
Description of differences between GlaxoSmithKline’s governance practice and the NYSE Corporate Governance Standards

7.
(a) The audit committee must have a minimum of three members.
(b)In addition to any requirement of Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended, all All audit committee members must satisfy the requirements for independence set out in Section 303A.02 and, in the absence of an applicable exemption, Rule 10A-3(b)(1) under the NYSE Listed Company Manual.Exchange Act.
(c)(b) The audit committee must have a written charter that addresses:
 (i) the committee’s purpose—purpose – which, at minimum, must be to:
 (A) assist board oversight of (1) the integrity of the listed company’s financial statements, (2) the listed company’s compliance with legal and regulatory requirements, (3) the independent auditor’s qualifications and independence, and (4) the performance of the listed company’s internal audit function and independent auditors; and
 (B) prepare an audit committee report asthe disclosure required by Item 407(d)(3)(i) of Regulation S-K under the SEC to be included in the listed company’s annual proxy statement;Exchange Act;
 (ii) an annual performance evaluation of the audit committee; and
 (iii) the duties and responsibilities of the audit committee —– which, at a minimum, must include those set out in Rule 10A-3(b)(2), (3), (4) and (5) of the Securities Exchange Act of 1934, as amended as well as to:
 (A) at least annually, obtain and review a report by the independent auditor describing: the firm’s internal quality-control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues; and (to assess the auditor’s independence) all relationships between the independent auditor and the listed company;
 (B) meet to review and discuss the listed company’s annual audited financial statements and quarterly financial statements with management and the independent auditor, including reviewing the listed company’s specific disclosures under ‘Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations’Operations”;
GlaxoSmithKline complies with the equivalent domestic requirements set out in the Combined Code, which require that the Audit Committee should be comprised of a minimum of three ‘independent’“independent” Non-Executive Directors.
GlaxoSmithKline’s Audit & Risk Committee has written terms of reference in accordance with the Combined Code. The terms of reference are available on the company’sCompany’s website. The Committee’s main responsibilities include reviewing the financial reporting process, the system of internal control and overseeing the identification and management of risks, the Company’s external and internal process for monitoring compliance with laws, regulations and ethical codes of practice, including review throughout the year of integrated assurance reports comprising business unit and associated consolidated internal audit reports.
The Combined Code requires that a separate section in the Company’s Annual Report describe the work of the Committee in discharging its duties.
The Combined Code requires that the main role and responsibilities of the Audit Committee should include:
•monitoring the integrity of the financial statements and management discussion and analysis (MD&A) of the company and any formal announcements relating to the company’s financial performance, and reviewing significant financial reporting judgments contained in them;
•developing and implementing policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm, and reporting to the Board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken;
•reviewing and monitoring the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into consideration the relevant UK professional and regulatory requirements;
•making recommendations to the Board for it to put submissions to the company’s shareholders for their approval at the general meeting in relation to the appointment, re-appointment and removal of the external auditor;
•approving the remuneration and terms of engagement of the external auditor;
•monitoring and reviewing the effectiveness of the company’s internal audit function; and
•reviewing the company’s internal financial controls and the system of internal controls.
monitoring the integrity of the financial statements and management discussion and analysis (MD&A) of the Company and any formal announcements relating to the Company’s financial performance, and reviewing significant financial reporting judgments contained in them;
developing and implementing policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm, and reporting to the Board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken;
reviewing and monitoring the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into consideration the relevant UK professional and regulatory requirements;
making recommendations to the Board for it to put submissions to the Company’s shareholders for their approval at the general meeting in relation to the appointment, re-appointment and removal of the external auditor;
approving the remuneration and terms of engagement of the external auditor;
monitoring and reviewing the effectiveness of the Company’s internal audit function; and
reviewing the Company’s internal financial controls and the system of internal controls.


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Comparison of New York Stock Exchange Corporate Governance Standards and GlaxoSmithKline plc’s corporate governance practice
Comparison of New York Stock Exchange Corporate Governance Standards and GlaxoSmithKline plc’s
corporate governance practice

NYSE
Corporate Governance Standards
NYSEDescription of differences between GlaxoSmithKline’s governance
practice and the NYSE Corporate Governance Standards

Description of differences between GlaxoSmithKline’s governance practice and the NYSE Corporate Governance Standards

 (C) discuss the listed company’s earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies;
 (D) discuss policies with respect to risk assessment and risk management;
 (E) meet separately, periodically, with management, with internal auditors (or other personnel responsible for the internal audit function) and with independent auditors;
 (F) review with the independent auditor any audit problems or difficulties and management’s response;
 (G) set clear hiring policies for employees or former employees of the independent auditors; and
 (H) report regularly to the board of directors.
(d) Each listed company must have an internal audit function.


 

8. Shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions thereto, except for employment inducement awards, certain grants, plans and amendments in the context of mergers and acquisitions, and certain specific types of plans.
GlaxoSmithKline complies with corresponding domestic requirements in the Listing Rules of the UK Listing Authority, which mandate that the companyCompany must seek shareholder approval for employee share schemes. Please see section 5(d) above.


 

Corporate governance guidelines
9. Listed companies must adopt and disclose corporate governance guidelines.
GlaxoSmithKline complies with corresponding domestic requirements in the Listing Rules of the UK Listing Authority and the Combined Code, which require that GlaxoSmithKline include an explanation in its Annual Report of how it complies with the principles of the Combined Code and that it confirm that it complies with the Code’s provisions or, where it does not, provide an explanation of why it does not comply. In addition, for accounting periods beginning on or after 29th June 2008, issuers are required to make certain mandatory corporate governance statements in the Directors’ Report in accordance with new UK Disclosure and Transparency Rules, DTR 7, which was issued by the UK Financial Services Authority to implement the eighth Company Law Directive, andDirective. GlaxoSmithKline will complycomplies with these requirements in its 2009 Annual Report.


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Comparison of New York Stock Exchange Corporate Governance Standards and GlaxoSmithKline plc’s
corporate governance practice

NYSE
Corporate Governance Standards
NYSEDescription of differences between GlaxoSmithKline’s governance
practice and the NYSE Corporate Governance Standards

Description of differences between GlaxoSmithKline’s governance practice and the NYSE Corporate Governance Standards
10. Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers.
GlaxoSmithKline’s Code of Conduct for employees is available on the company’sCompany’s website, as is the Code of Ethics for the CEO and CFO and other senior financial officers.


 

Description of significant differences
11. Listed foreign private issuers must disclose any significant ways in which their corporate governance practices differ from those followed by domestic companies under NYSE listing standards.
 
  Listed foreign private issuers are required to provide this disclosure in the English language and accessiblein their annual reports filed on their website, which must be accessible from the United States).Form 20-F.
GlaxoSmithKline fulfilsfulfills this requirement by publishing this comparison of NYSE Corporate Governance Standards and GlaxoSmithKline plc’s corporate governance practice on the company’s website.document.
GlaxoSmithKline fulfilsfulfills this requirement by publishingincluding this comparison of NYSE Corporate Governance Standards and GlaxoSmithKline plc’s corporate governance practicedisclosure in its annual report on the company’s website.Form 20-F.


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American Depositary Shares
Fees and charges payable by ADR holders
The Bank of New York Mellon serves as the depositary (the ‘Depositary’) for GlaxoSmithKline plc’s American Depositary Receipt (‘ADR’) programme. Pursuant to the deposit agreement between GSK, the Depositary and owners and holders of ADR (the ‘Deposit Agreement’), ADR holders may be required to pay various fees to the Depositary, and the Depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid. In particular, the Depositary, under the terms of the Deposit Agreement, shall charge a fee of $0.05 or less per ADR (or portion thereof) for (i) the issuance, execution and delivery of ADRs or (ii) the withdrawal of shares underlying the ADRs. In addition, ADR holders may be required under the Deposit Agreement to pay the Depositary (i) any tax, duty, governmental charge or fee or stock transfer or registration fee arising in connection with the foregoing transactions or otherwise, (ii) any expense resulting from the conversion of a foreign currency into U.S. dollars and (iii) the expense of certain communications made, at the request of the ADR holder, by cable, telex or facsimile. The Depositary may (i) withhold dividends or other distributions or sell any or all of the shares underlying the ADRs in order to satisfy any tax or governmental charge and (ii) deduct from any cash distribution any tax payable thereon or the cost of any currency conversion.
Direct and indirect payments by the Depositary
The Depositary reimburses GSK for certain expenses it incurs in connection with the ADR programme, subject to a ceiling agreed between GSK and the Depositary from time to time. The Depositary has also agreed to waive certain standard fees associated with the administration of the programme.
The table below sets forth the amount of such payments received and claimed but not yet received in respect of the year ended 31st December 2009 as well as such payments received during 2009 in respect of the year ended 31st December 2008. GSK was also reimbursed £35,100 in 2009 for legal fees claimed with respect to 2007.
             
  Received in respect  Received in respect  Claimed in respect of 2009 
Direct and indirect payments by the Depositary of 2008  of 2009  but not yet received 
         
Reimbursement of NYSE listing fees  –  $387,787   – 
Reimbursement of legal fees claimed in US dollars $162,284   –  $333,735 
Reimbursement of legal fees claimed in Sterling £30,661  £34,173  £9,782 
Reimbursement of PCAOB fees  –  $161,700   –  
Reimbursement of Annual Report production costs1
  –   £10,000  £290,347 
Reimbursement of Investor Relations expenses2
 $232,118  $321,108  $108,078 
Distribution of annual general meeting materials  –  $409,114   – 
Tabulation of voting instructions cards  –  $40,202   – 
Reimbursement of other programme-related expenditures
claimed in US dollars		  –   –  $16,050 
Reimbursement of other programme-related expenditures
claimed in Sterling		  –   £22,500  £9,780 
         
1 Annual report production costs include SEC filing fees.
 
2 
212GSK Annual Report 2008
Item 19 Exhibits
Exhibit Index
Investor relations expenses include travel expenses, fees of investor relations consultants, expenses involved in arranging investor relations meetings and telephone expenses.
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209

Item 19 Exhibits
Exhibit Index
   
Exhibit No. 
    Exhibit No.Description
   
 
   
1.1
 Memorandum and Articles of Association of the Registrant as in effect on the date hereof.
   
 
   
2.1
 Deposit Agreement among the Registrant and The Bank of New York, as Depositary, and the holders from time to time of the American Depositary Receipts issued thereunder, including the form of American Depositary Receipt, is incorporated by reference to the Registration Statement on Form F-6 (No. 333-148017) filed with the Commission on December 12, 2007.
   
 
   
4.1
 UK Service Agreement between GlaxoSmithKline Services Unlimited and Julian Heslop is incorporated by reference to Exhibit 4.14.3 to the Registrant’s Annual Report on Form 20-F filed with the Commission on March 3, 2006.
   
 
   
4.2
 Service Agreement between SmithKline Beecham Corporation and MonsifMoncef Slaoui is incorporated by reference to Exhibit 4.24.4 to the Registrant’s Annual Report on Form 20-F filed with the Commission on February 29, 2008.
   
 
   
4.3
 UK Service Agreement between GlaxoSmithKline Services Unlimited and Andrew Witty is incorporated by reference to Exhibit 4.34.5 to the Registrant’s Annual Report on Form 20-F filed with the Commission on February 29, 2008.
   
 
   
4.4
 Amendment to UK Service Agreement between GlaxoSmithKline Services Unlimited and Andrew Witty.Witty dated June 18, 2008 is incorporated by reference to Exhibit 4.4 to the Registrant’s Annual Report on Form 20-F filed with the Commission on March 4, 2009.
4.5
Amendment to UK Service Agreement between GlaxoSmithKline Services Unlimited and Andrew Witty dated February 4, 2010.
   
 
   
8.1
 A list of the Registrant’s principal subsidiaries is incorporated by reference to pages 169166 to 171168 of this Annual Report on Form 20-F.
   
 
   
12.1
 Certification Required by Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 -– Andrew Witty.
   
 
   
12.2
 Certification Required by Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 -– Julian Heslop.
   
 
   
13.1
 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).
   
 
   
15.1
 Consent of PricewaterhouseCoopers LLP.
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  Cross reference to Form 20-F

  
This table has been provided as a cross reference from the information included in this Annual Report to the requirements of Form 20-F.

       
Item   Page 
 
1 
Identity of directors, senior management and advisers
  n/a 
 
2 
Offer statistics and expected timetable
  n/a 
 
3 
Key information
    
A Selected financial data  190-192,197186-188 
D Risk factors  50-5343-47 
 
4 
Information on the company
    
A History and development of the company  16,47,150-15410,40,145-151 
B Business overview    
  Products  17-2011-14 
  Economy and market  33,35-3727-30,48 
  Manufacture and supply  2014 
  Marketing and distribution  2014,35,154 
  Intellectual property  17-2011 
  Competition  17,2011,14 
  Regulation  3226 
  Research and development  21-2515-19 
  Environment, health and safety  30-3124,25 
  Corporate responsibility and community investment  27-2921-23 
C Organisational structure  169-171166-168 
D Property, plant and equipment  4336 
  Note 6 – Segment information  114-117107-110 
  Note 17 – Property, plant and equipment  125-127118-119 
 
4A 
Unresolved staff comments
  n/a 
 
5 
Operating and financial review and prospects
    
A Operating results    
  2009 and 200828-35
2008 and 2007  34-42
2007 and 200654-5948-53 
B Liquidity and capital resources  43-4936-42 
C Research and development, patents and licenses, etc.  17-2511-19 
D Trend information  12,50-5328-35 
E Off-balance sheet arrangements  n/a 
F Tabular disclosure of contractual obligations  4538 
 
6 
Directors, senior management and employees
 
A Directors and senior management  60-6354-57 
B Compensation    
  Remuneration Report  78-9873-90 
C Board practices    
  Corporate governance  64-7758-72 
D Employees  2620 
  Note 10 – Employee costs  120113 
  Note 28 – Pensions and post-employment benefits 134-142128-136 
  Financial recordShareholder information  192188 
E Share ownership    
  Note 42 – Employee share schemes  164-168161-165 
  Share options  81,85,91-9475,78-80 
  Incentive plans  84,94-9686,89 
  Directors’ interests  9285 
 
ItemPage
7
Major shareholders and related party transactions
AMajor shareholders62,63,177
BRelated party transactions
Note 35 – Related party transactions142
8
Financial information
AConsolidated statements and other financial information
Financial statementsSee item 18
Dividend policy3
Note 44 – Legal proceedings169-176
BSignificant changes
Note 40 – Post balance sheet events151
9
The offer and listing
AOffer and listing details
Share price listing193,194
CMarkets194
10
Additional information
BMemorandum and Articles of Association198-200
CMaterial contractsn/a
DExchange controls194
ETaxation196
HDocuments on display194
11
Quantitative and qualitative disclosures about market risk
Treasury policies40-42
Note 41 – Financial instruments and related disclosures152-161
12
Description of securities other than equity securities
DAmerican Depositary Shares208
13
Defaults, dividend arrearages and delinquencies
n/a
14
Material modifications to the rights of security holders and use of proceeds
n/a
15
Controls and procedures
65-67,72
16
[Reserved]
16A
Audit Committee financial expert
68
16B
Code of ethics
69
16C
Principal accountant fees and services
112
Note 9 – Operating profit
16D
Exemptions from the listing standard for audit committees
n/a
16E
Purchases of equity securities by the issuer and affiliated purchasers
Note 33 – Share capital and share premium account140
16F
Change in registrant’s certifying accountant
n/a
16G
Corporate governance
201-207
17
Financial statements
n/a
18
Financial statements
Report of Independent Registered Public Accounting Firm93
Consolidated income statement94-95
Consolidated statement of comprehensive income94-95
Consolidated balance sheet96
Consolidated statement of changes in equity97
Consolidated cash flow statement98
Notes to the financial statements99-176
19
Exhibits
Footnote (i),209
       
Item   Page 
 
7 
Major shareholders and related party transactions
    
A Major shareholders  68-69,181 
B Related party transactions    
  Note 35 – Related party transactions  149 
 
8 
Financial information
    
A Consolidated statements and other financial information    
  Financial statements See item 18
  Note 44 – Legal proceedings  172-180 
B Significant changes    
  Note 40 – Post balance sheet events  155 
 
9 
The offer and listing
    
A Offer and listing details    
  Share price listing  181,197-198 
C Markets  144,198 
 
10 
Additional information
    
B Memorandum and Articles of Association  202-204 
D Exchange controls  198 
E Taxation  200 
H Documents on display  198 
 
11 
Quantitative and qualitative disclosures about market risk
    
  Treasury policies  49 
  Note 41 – Financial instruments and related disclosures  156-164 
 
12 
Description of securities other than equity securities
 n/a 
 
13 
Defaults, dividend arrearages and delinquencies
  n/a 
 
14 
Material modifications to the rights of security holders and use of proceeds
  n/a 
 
15 
Controls and procedures
  71-72,76-77 
 
16 
[Reserved]
    
 
16A 
Audit Committee financial expert
  73 
 
16B 
Code of ethics
  74 
 
16C 
Principal accountant fees and services
  119 
  Note 9 – Operating profit    
 
16D 
Exemptions from the listing standard for audit committees
  n/a 
 
16E 
Purchases of equity securities by the issuer and affiliated purchasers
    
  Note 33 – Share capital and share premium account  146 
 
16G 
Corporate Governance
  205-211 
 
17 
Financial statements
  n/a 
 
18 
Financial statements
    
  Independent auditors’ report  101 
  Consolidated income statement  102 
  Consolidated balance sheet  103 
  Consolidated cash flow statement  104 
  Consolidated statement of recognised income and expense  105 
  Notes to the financial statements  106-180 
 
19 
Exhibits
 212
 
Footnote (i) - see the company’s Form 20-F filing with the Securities and Exchange Commission


GSK Annual Report 2009

(OUR RESPONSIBLITY)(Full Page Graphic)
Our
responsibility
We want to work in a way that reflects our values Head Office and Registered Office and the expectations of our stakeholders. Ethical, GlaxoSmithKline plc social and environmental considerations are integral 980 Great West Road
Brentford, Middlesex TW8 9GS
to our business decision making. They are also central
United Kingdom
to achieving our challenging and inspiring mission
Tel: +44 (0)20 8047 5000
of improving the lives of people worldwide.
Registered number: 3888792
Find out more about our approach to corporate
Printed in the UK. The paper used in responsibility at the production of this document is made from 100% post consumer waste.www.gsk.com/responsibilityThe pulp is bleached using a totally chlorine free process.

Signature
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
     
 GlaxoSmithKline plc

   
GlaxoSmithKline plcMarch 1, 2010 By:  /s/ Julian Heslop   
  
March 4, 2009By:/s/ Julian Heslop
Julian Heslop		  
  Chief Financial Officer  Chief Financial Officer