GSK Annual Report 2002

72 GlaxoSmithKline Operating and financial review and prospects
Results under US accounting principles 2002 and 2001
This review discusses the results of GlaxoSmithKline plc for the
years 2002 and 2001 and shareholders’ equity at 31st December
2002 prepared under US accounting principles. See Note 37 to the
Financial statements, ‘Reconciliation to US accounting principles’.
Results 2002 and 2001
2002 2001
Summary of results £m £m
Sales 21,212 20,489
Trading profit 5,243 4,205
Operating profit 1,026 590
Profit before tax 925 494
Net income/(loss) before changes
in accounting principles 503 (143)
Cumulative effect of changes
in accounting principles (90) –
Net income/(loss) 413 (143)
Basic net income/(loss) per share (pence) 7.0 (2.4)
Operating profit is lower on a US GAAP basis than a UK GAAP
basis, primarily as a result of the amortisation and impairment of
intangible assets not recorded on the balance sheet under UK
GAAP. Operating profit also includes a charge under SFAS 123 for
stock-based compensation and a charge for pension and postretirement
benefits. These are partially offset in net income by the
related deferred tax credits.
The Group adopted SFAS 142 as of 1st January 2002. The
implementation of SFAS 142 resulted in an initial impairment of
£127 million, net of tax, on indefinite lived intangible assets. During
2002, the Group also aligned the measurement date for all its
pension plans to 31st December. The impact was a £37 million
credit, net of tax. Both changes are reflected as cumulative effects
of changes in accounting principles.
The effect of these differences from UK GAAP leads in 2002 to a
US GAAP profit before tax of £925 million and, after tax and
minority interest and the cumulative effect of changes in
accounting principles, net income for the year of £413 million.
In 2001 profit before tax was £494 million and, after tax and
minority interest, the net loss was £143 million.
Shareholders’ equity at 31st December 2002
2002 2001
Changes in shareholders’ equity £m £m
At beginning of year 40,107 44,995
Net income/(loss) 413 (143)
Shares purchased and cancelled (2,220) (1,274)
Share issues (share options) 56 144
Treasury stock 58 (501)
Dividends (2,310) (2,872)
Minimum pension liability (1,446) –
Other 264 (242)
At end of year 34,922 40,107
The book values of GlaxoSmithKline net assets on a UK GAAP basis
are adjusted for the normal UK/US GAAP differences. The principal
adjustments to net assets for differences between UK and US GAAP
include: goodwill and intangible assets from Glaxo’s acquisition of
Wellcome and Glaxo Wellcome’s acquisition of SmithKline Beecham;
dividends on a declared rather than proposed basis; treatment of
shares held by the ESOTs as treasury stock rather than investments;
and inclusion of a minimum pension liability in net assets.
Prospects
GlaxoSmithKline has published expectations of future growth in
earnings per share, on a UK GAAP basis, and excluding merger
and restructuring items. See ‘Outlook’ on page 64.
Recent Financial Accounting Standards Board (FASB)
pronouncements
In June 2001, the FASB approved SFAS 143 ‘Accounting for
Obligations Associated with the Retirement of Long-Lived Assets’
which requires that the fair values of the obligation associated
with the retirement of long-lived assets be capitalised as part of
the cost. This was implemented by the Group with effect from
1st January 2003. The Group does not believe the adoption of
this standard will have a material impact on its results.
On 1st January 2002, SFAS 144 ‘Accounting for the Impairment
or Disposal of Long-Lived Assets’ was adopted by the Group.
SFAS 144 develops one accounting model for long-lived assets,
including discontinued operations to be disposed of by sale. It
requires that all long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell whether reported in
continuing or discontinued operations. The adoption of SFAS 144
has not had a material impact on the Group’s Financial
statements.
In April 2002, SFAS 145 ‘Rescission of FASB Statements no. 4,
44 and 64, Amendment of FASB Statement no. 13 and Technical
Corrections’ was issued. The statement updates, clarifies and
simplifies existing accounting standards. The Group does not
believe the adoption of this standard will have a material impact
on its results.
SFAS 146 ‘Accounting for Costs Associated with Exit or Disposal
Activities’, was issued in June 2002. SFAS 146 requires companies
to recognise costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an
exit or disposal plan and is to be applied prospectively to exit or
disposal activities initiated after 31st December 2002. The Group
is currently assessing the impact of this standard.
In November 2002, the FASB published Interpretation no. 45,
‘Guarantor’s Accounting and Disclosures requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others’ (FIN 45). FIN 45 expands on the accounting guidance of
other SFASs. FIN 45’s provisions for initial recognition and
measurement should be applied to guarantees issued or modified
after 31st December 2002. The disclosure requirements are
effective for financial years ending after 15th December 2002.
The Group does not believe that the adoption of FIN 45 will
have a material impact on its results.
In January 2003, the FASB published Interpretation no. 46,
‘Consideration of Variable Interest Entities’ (FIN 46). Under FIN 46
the primary beneficiary of the entity must consolidate certain
entities known as Variable Interest Entities. The measurement
principles will apply to the Group’s 2003 Financial statements.
The Group does not believe that the adoption of FIN 46 will
have a material impact on its results.