GSK Annual Report 2002

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.