GSK Annual Report 2002

82 GlaxoSmithKline
Notes to the financial statements
1 Presentation of the financial statements
Description of business
GlaxoSmithKline is a major global healthcare group 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. GlaxoSmithKline’s principal pharmaceutical products
include medicines in the following therapeutic areas:
central nervous system, respiratory, anti-virals, anti-bacterials,
metabolic and gastro-intestinal, vaccines, oncology and emesis,
cardiovascular and arthritis.
Financial period
These Financial statements cover the financial year from
1st January to 31st December 2002, with comparative figures for
the financial years from 1st January to 31st December 2001 and
1st January to 31st December 2000.
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 Principal Group
companies, Note 38.
Composition of financial statements
The consolidated financial statements are drawn up in accordance
with UK generally accepted accounting principles (UK GAAP) and
with UK accounting presentation.
The Financial statements comprise:
• Consolidated statement of profit and loss
• Consolidated statement of total recognised gains and losses
• Consolidated statement of cash flow
• Consolidated balance sheet
• Reconciliation of movements in equity shareholders’ funds
• Company balance sheet
• Notes to the financial statements.
As permitted by Section 230 of the Companies Act 1985, the
profit and loss account of the company is not presented.
The consolidated statement of total recognised gains and losses
includes:
• the realised profit attributable to shareholders as reflected in
the consolidated profit and loss account
• the unrealised gain or loss in the value of the Group’s overseas
net assets, less related foreign currency borrowings, attributable
to currency movements over the period.
The reconciliation of movements in equity shareholders’ funds
comprises the items contributing to the increase or decrease over
the period in shareholders’ funds. Such items include:
• the total recognised gains and losses for the period
• dividends paid and proposed
• the proceeds of shares issued during the period
• the cost of shares purchased for cancellation under the
share buy-back programme
• changes to goodwill, arising on acquisitions prior to
1st January 1998, which has been set directly against reserves.
Additional information in accordance with the requirements of
US generally accepted accounting principles (US GAAP) is included
in the Notes to the Financial statements. In Note 37 a statement of
differences, and a reconciliation of net income and shareholders’
equity, between UK and US GAAP are provided, and the principal
Financial statements are presented in accordance with US GAAP
and in a US GAAP format.
Merger of Glaxo Wellcome plc and SmithKline Beecham plc
GlaxoSmithKline plc acquired Glaxo Wellcome plc and SmithKline
Beecham plc by way of a scheme of arrangement for the merger of
the two companies which became effective on 27th December 2000.
Under UK GAAP the Financial statements of GlaxoSmithKline plc
are prepared as a merger of Glaxo Wellcome plc and SmithKline
Beecham plc. The comparative figures for the year to
31st December 2000 therefore include the results of Glaxo
Wellcome plc and SmithKline Beecham plc.
Under US GAAP the Financial statements of GlaxoSmithKline plc
are prepared as an acquisition of SmithKline Beecham plc by
Glaxo Wellcome plc at 27th December 2000. Accordingly the
results of SmithKline Beecham for all periods prior to that date are
not consolidated.
Presentation of statement of profit and loss
A columnar presentation has been adopted in the statement of
profit and loss in order to illustrate underlying business performance
as this is the primary measure used by management. For this
purpose certain items are identified separately and are excluded
from business performance. These comprise: merger and integration
items, including product divestments; costs relating to previously
announced manufacturing and other restructuring, and the effect
of disposals of subsidiaries.
Trading profit reflects sales less: cost of sales, comprising costs
of manufacture and external royalties; selling, general and
administrative expenditure, comprising the costs of selling,
distribution and medical support of currently marketed products
and the costs of administration; and the costs of research and
development to create future products for sale.
Accounting convention
The Financial statements have been prepared using the historical
cost convention.
Accounting standards
The Financial statements comply with all applicable UK accounting
standards.
Accounting principles and policies
The preparation of 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 company’s accounting policies approved by the Board and
described in Note 2. The company has implemented one new
Financial Reporting Standard in 2002 as described in Note 3.