GSK Annual Report 2002

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120 GlaxoSmithKline Notes to the financial statements 34 Employee share schemes continued SmithKline Beecham share option schemes At the date of the merger, all SmithKline Beecham share options became exercisable. Shares ADSs Weighted Weighted Number of shares and ADSs issuable under outstanding options Number (000) exercise price Number (000) exercise price At 31st December 1999 100,429 £5.47 42,399 $45.59 Options granted 1,448 £8.28 560 $67.00 Options exercised (20,951) £4.30 (8,055) $30.09 Options cancelled (3,769) £5.71 (1,545) $35.16 Converted to GlaxoSmithKline options (77,157) £5.83 (33,359) $50.18 At 31st December 2000 – – – – SmithKline Beecham Mid-Term Incentive Plan SmithKline Beecham adopted the Mid-Term Incentive Plan (MTIP) in 1996. Participations in the MTIP were granted annually to senior staff in SmithKline Beecham, designating a target number of shares for each participant based on job grade. Following a three-year measurement period, the R&N Committee reviewed SmithKline Beecham’s total shareholder return relative to the other companies comprising the FTSE 100 Index, and made a final award of a proportion of the target number of shares, up to 100 per cent, depending on performance. The first two measurement periods ended on 31st December 1998 and 1999 and, 100 per cent and 97 per cent, respectively, of the target number of shares was awarded. Receipt of the award could be deferred, in which case the shares remained in the MTIP. As a result of the merger all outstanding awards became payable at 100 per cent of the target number of shares at the end of each three-year cycle. Shares ADSs Number of shares issuable under the Mid-Term Incentive Plan Number (000) Number (000) At 31st December 1999 4,836 1,482 Awards granted 124 24 Awards exercised (1,224) (259) Awards cancelled (170) (29) Converted to GlaxoSmithKline awards (3,566) (1,218) At 31st December 2000 – – Glaxo Wellcome share option schemes At the date of the merger, all Glaxo Wellcome options, except for share options granted in 2000 and savings-related share options granted in 1998, 1999 and 2000, became exercisable and performance conditions, where applicable, lapsed. Share option schemes Savings-related share option schemes Total Weighted Weighted Weighted Number of shares issuable under outstanding options Number (000) exercise price Number (000) exercise price Number (000) exercise price At 31st December 1999 83,014 £12.74 11,418 £9.18 94,432 £12.31 Options granted 35,989 £14.81 2,112 £16.48 38,101 £14.91 Options exercised (7,956) £7.77 (4,801) £6.72 (12,757) £7.38 Options cancelled (4,299) £12.53 (332) £11.36 (4,631) £12.44 Converted to GlaxoSmithKline options (106,748) £13.87 (8,397) £12.34 (115,145) £13.76 At 31st December 2000 – – – – – – Glaxo Wellcome share award schemes Glaxo Wellcome operated a Long Term Incentive Plan and, between 1996 and 1998, an Annual Incentive Plan. The Long Term Incentive Plan granted awards over shares to Directors and senior staff at a nominal cost. The percentage of each award that vested was based on the performance of Glaxo Wellcome over a three-year period. The Annual Incentive Plan was a performance bonus consisting of a basic award of shares and a matching award with a three-year retention period. As a result of the merger the awards under the Long Term Incentive Plan became payable in full and the retention period of the Annual Incentive Plan lapsed. Number of shares issuable under share award schemes Number (000) At 31st December 1999 2,364 Awards granted 826 Awards exercised (790) Awards cancelled (289) Converted to GlaxoSmithKline awards (2,111) At 31st December 2000 –
34 Employee share schemes continued Notes to the financial statements GlaxoSmithKline 121 Employee Share Ownership Trusts The Group sponsors Employee Share Ownership 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 Employee Share Ownership Trusts purchase shares on the open market with finance provided by the Group by way of loan or contributions. The expected cost of the obligations to deliver shares under the schemes are normally spread over the periods of service in respect of which the awards and options are granted. An accelerated charge was made in 2000 in respect of the outstanding cost of providing shares for awards and options which became exercisable solely as a result of the merger. Shares held for share award schemes 2002 2001 Number of shares (000) 7,055 6,701 £m £m Nominal value 2 2 Cost less provision 75 58 Market value 84 115 Shares held for share option schemes 2002 2001 Number of shares (000) 174,256 180,708 £m £m Nominal value 44 45 Cost less provision 2,751 2,878 Market value 2,077 3,114 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 Employee Share Ownership Trusts. Option pricing For the purposes of valuing options to arrive at the stock-based compensation adjustment in the Reconciliation to US accounting principles in Note 37, the Black-Scholes option pricing model has been used. The assumptions used in the model for 2002 and 2001 are as follows: 2002 2001 Risk-free interest rate 4.2% – 5.4% 4.5% – 5.0% Dividend yield 1.9% 1.8% – 1.9% Volatility 33% 33% Expected lives of options granted under: Share option schemes 5 years 5 years Savings related share option schemes 3 years 3 years 35 Related party transactions GlaxoSmithKline held a 23 per cent interest in Quest Diagnostics Inc. throughout 2002. This holding was reduced to 21 per cent in February 2003 following Quest’s acquisition of Unilab Corporation. In December 2002 GlaxoSmithKline and Quest amended the terms of their Global Trials Agreement, which is a long-term contractual relationship under which Quest is the primary provider of clinical laboratory testing to support the Group’s clinical trials testing requirements worldwide. In February 2002, Mr Ingram, then a member of the CET, purchased a portion of land being part of a residential property owned by the Group that was adjacent to Mr Ingram’s own residence. The total sale price was $16,500 based on an independent valuation of the land. The Group subsequently determined that retention of the residential property no longer served its business needs and listed the property for sale. An independent valuation of the property on 3rd June 2002 valued it at $1,050,000 and the property was offered for sale through an estate agent. Mr Ingram made the highest offer for the property and purchased it from the Group for total consideration of $1,070,000. 36 GlaxoSmithKline plc investment in subsidiary companies During 2002, GlaxoSmithKline plc initiated an internal reorganisation, as a result of which the company acquired direct investments in subsidiary companies which had previously been held as indirect investments.
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Do more, feel better, live longer T
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The Annual Report was approved by t
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Joint statement by the Chairman and
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04 GlaxoSmithKline Joint statement
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Products - Pharmaceuticals Descript
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Additionally, GlaxoSmithKline marke
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Competition - Consumer Healthcare T
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Operating activities Marketing and
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Description of business GlaxoSmithK
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Description of business GlaxoSmithK
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Product approvals Country/Region Pr
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As part of GlaxoSmithKline’s majo
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Operating resources Intellectual pr
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Compensation philosophy and program
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Access to healthcare in the develop
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GlaxoSmithKline gave unrestricted g
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Corporate governance This section d
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Corporate Executive Team (CET) JP G
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The Annual General Meeting takes pl
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Research and development Safety of
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Remuneration report GlaxoSmithKline
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The majority of the competitor pane
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Performance graph 100 90 80 70 60 N
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Non-Executive Directors Non-Executi
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Non-Executive Directors’ share ar
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Incentive plans Remuneration report
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Operating and financial review and
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2002 Year World economy The world
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Pharmaceutical sales by therapeutic
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Consumer Healthcare sales 2002 2001
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Earnings 2001 2002 (restated) CER%
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Contractual obligations and commitm
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Funding, maturity and counterparty
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Stricter regulatory controls also h
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Operating and financial review and
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Page 73 and 74: Selected financial data UK/US GAAP
Page 75 and 76: Financial statements GlaxoSmithKlin
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Page 79 and 80: Consolidated statement of profit an
Page 81 and 82: Consolidated statement of cash flow
Page 83 and 84: Company balance sheet at 31st Decem
Page 85 and 86: 2 Accounting policies Consolidation
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Page 89 and 90: 6 Segment information continued Not
Page 91 and 92: 7 Merger items, restructuring costs
Page 93 and 94: Notes to the financial statements G
Page 95 and 96: 13 Earnings per share Notes to the
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Page 105 and 106: 30 Legal proceedings The Group is i
Page 107 and 108: 30 Legal proceedings continued In F
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Page 111 and 112: 31 Acquisitions and disposals conti
Page 113 and 114: 32 Financial instruments and relate
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Page 117 and 118: 33 Employee costs continued Notes t
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Page 121: 34 Employee share schemes continued
Page 125 and 126: 37 Reconciliation to US accounting
Page 141 and 142: 38 Principal Group companies Notes
Page 143 and 144: 38 Principal Group companies contin
Page 145 and 146: Financial record GlaxoSmithKline 14
Page 153 and 154: Investor information GlaxoSmithKlin
Page 155 and 156: Shareholder information Ordinary sh
Page 157 and 158: Share capital GlaxoSmithKline 155 A
Page 159 and 160: Cross reference to Form 20-F GlaxoS
Page 161 and 162: Index A Access to healthcare 27 Acc
Page 163: Contact details INTERNET Informatio
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GSK Annual Report 2002

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