GSK Annual Report 2002

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90 GlaxoSmithKline Notes to the financial statements 9 Operating profit 2002 2001 2000 £m £m £m The following items have been charged in operating profit: Employee costs (Note 33) 4,940 4,686 4,487 Advertising 688 696 652 Distribution costs 281 272 260 Depreciation of tangible fixed assets: Owned assets 760 758 733 Leased assets 4 3 2 Amortisation of goodwill 12 10 11 Amortisation of intangible fixed assets 60 40 27 Exchange losses on foreign currency deposits/loans – – 3 Operating lease rentals: Plant and machinery 50 41 44 Land and buildings 61 70 70 Audit fees 6.1 7.2 6.3 Fees to auditors for other work: Auditors’ UK firm 5.2 13.1 9.4 Auditors’ overseas firms 9.6 22.6 15.3 Analysis of fees to auditors for other work: Non-statutory assurance services 1.8 1.6 Tax advisory services 4.2 5.9 Merger of Glaxo Wellcome and SmithKline Beecham 6.0 14.6 Other services 2.8 13.6 Included within audit fees above is a fee of £10,000 (2001 – £10,000, 2000 – £10,000) relating to the company audit of GlaxoSmithKline plc. Included within fees to auditors for other work are amounts of £6.0 million (2001 – £17.4 million) paid to the auditor’s management consulting practice, which was sold by them in 2002. 10 Joint ventures and associated undertakings 2002 2001 2000 £m £m £m Associated undertakings: Share of profits of Quest Diagnostics Inc. 94 79 64 Share of losses of other associated undertakings – (1) (1) Amortisation of goodwill (6) (7) (7) 88 71 56 Share of (losses)/profits of joint ventures (13) – 1 75 71 57 Share of turnover of joint ventures 8 8 8 Sales to joint ventures and associated undertakings 7 11 15 11 Net interest payable 2002 2001 2000 £m £m £m Interest payable On bank loans and overdrafts (6) (26) (45) On other loans (198) (169) (271) In respect of finance leases (2) (3) (1) (206) (198) (317) Share of interest payable of associate (8) (19) (23) (214) (217) (340) Investment income Interest income 71 129 159 Realised gains 2 – – Provision for market value adjustments – – (1) 73 129 158 (141) (88) (182)
Notes to the financial statements GlaxoSmithKline 91 12 Taxation 2001 2000 Taxation charge based on profits for the period 2002 £m (restated) £m (restated) £m UK corporation tax at the UK statutory rate 479 838 928 Less double taxation relief (117) (351) (384) 362 487 544 Overseas taxation 1,036 876 1,242 Deferred taxation 29 (53) (55) 1,427 1,310 1,731 Share of taxation charge of associates 34 23 16 1,461 1,333 1,747 2001 2000 Reconciliation of the current taxation rate on Group profits 2002 (restated) (restated) % % % UK statutory rate of taxation 30.0 30.0 30.0 Overseas taxes 0.1 (1.1) 2.2 Average Group tax rate 30.1 28.9 32.2 Effect of special tax status in manufacturing locations (3.9) (3.7) (3.2) Share option deductions in the USA (0.2) (1.1) (0.8) Merger and restructuring costs 0.7 5.4 0.2 R&D credits not previously recognised (1.2) (0.9) (1.1) Other permanent differences (0.8) (0.4) 1.4 Capital allowances in excess of depreciation (0.5) – (0.2) Intra-Group profit 1.3 1.3 (1.2) Reversing timing differences on tax losses – (2.5) (0.2) Other timing differences 2.3 3.9 2.5 Prior year items (2.4) (0.7) – Current tax rate on ordinary activities 25.4 30.2 29.6 Capital allowances in excess of depreciation 0.5 – 0.2 Intra-Group profit (1.3) (1.3) 1.2 Reversing timing differences on tax losses – 2.5 0.2 Other timing differences (2.3) (3.9) (2.5) Share of associates’ taxation 0.6 0.5 0.3 Prior year items 3.6 1.5 – Tax rate on ordinary activities 26.5 29.5 29.0 The Group operates in countries where the tax rate differs to the UK rate. The standard rate of tax for the Group has been estimated by aggregating the local standard tax rates and weighting these in proportion to accounting profits. Profits arising from manufacturing operations in Singapore, Puerto Rico and Ireland are taxed at reduced rates. The effect of this reduction in the taxation charge increased earnings per share by 3.6p in 2002, 2.7p in 2001 and by 3.2p in 2000. 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 that fall to be taxed in individual territories. Resolution of such issues is a continuing fact-of-life for GlaxoSmithKline. In the USA, for a number of years, GlaxoSmithKline has had significant open issues relating to transfer pricing. These issues affect all years from 1989 to the present and concern a number of products, although the most significant relates to the success of Zantac, in respect of which the claims of the US Internal Revenue Service (IRS) substantially exceed the Group’s estimation of its taxation liabilities. The IRS claims, which are not completely quantified, continue to be the subject of discussions between the US and UK tax authorities under the competent authority provisions of the double tax convention between the two countries. Within these discussions there is a wide variation between the views of the US and UK tax authorities and, exceptionally, they may be unable to reach agreement to settle the dispute. In the event of the UK and US tax authorities not reaching agreement, the matter may have to be resolved by litigation. GlaxoSmithKline uses the best advice in determining its transfer pricing methodology and in seeking to manage transfer pricing issues to a satisfactory conclusion and, on the basis of external professional advice, continues to believe that it has made adequate provision for the liabilities likely to arise from open assessments.
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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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Page 45 and 46: Performance graph 100 90 80 70 60 N
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Page 51 and 52: Incentive plans Remuneration report
Page 53 and 54: Operating and financial review and
Page 55 and 56: 2002 Year World economy The world
Page 57 and 58: Pharmaceutical sales by therapeutic
Page 59 and 60: Consumer Healthcare sales 2002 2001
Page 61 and 62: Earnings 2001 2002 (restated) CER%
Page 63 and 64: Contractual obligations and commitm
Page 65 and 66: Funding, maturity and counterparty
Page 67 and 68: Stricter regulatory controls also h
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Page 71 and 72: Latin America reported eight per ce
Page 73 and 74: Selected financial data UK/US GAAP
Page 75 and 76: Financial statements GlaxoSmithKlin
Page 77 and 78: Independent Auditors’ report to t
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: 7 Merger items, restructuring costs
Page 95 and 96: 13 Earnings per share Notes to the
Page 97 and 98: Notes to the financial statements G
Page 99 and 100: 19 Equity investments Notes to the
Page 105 and 106: 30 Legal proceedings The Group is i
Page 107 and 108: 30 Legal proceedings continued In F
Page 109 and 110: 30 Legal proceedings continued In 2
Page 111 and 112: 31 Acquisitions and disposals conti
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Page 117 and 118: 33 Employee costs continued Notes t
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Page 121 and 122: 34 Employee share schemes continued
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Page 125 and 126: 37 Reconciliation to US accounting
Page 141 and 142: 38 Principal Group companies Notes
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38 Principal Group companies contin
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Financial record GlaxoSmithKline 14
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Investor information GlaxoSmithKlin
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Shareholder information Ordinary sh
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Share capital GlaxoSmithKline 155 A
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Cross reference to Form 20-F GlaxoS
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Index A Access to healthcare 27 Acc
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Contact details INTERNET Informatio
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GSK Annual Report 2002

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