Glaxosmithkline Annual Report 2010

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GlaxoSmithKline Annual Report 2010 Contents Business review P08–P57 Business review 2010 Performance overview 08 Research and development 10 Pipeline summary 12 Products, competition and intellectual property 14 Regulation 18 Manufacturing and supply 19 Business review World market 20 This discusses our financial and non-financial activities, GSK sales performance 21 resources, development and performance during 2010 Segment reviews 22 and outlines the factors, including the trends and the Responsible business 29 principal risks and uncertainties, which are likely to Financial review 2010 34 affect future development. Financial position and resources 41 Financial review 2009 47 Governance and remuneration Risk factors 53 This discusses our management structures and governance procedures. It also sets out the Governance and remuneration P58–P101 Governance and remuneration remuneration policies operated for our Directors and Our Board 58 Corporate Executive Team members. Our Corporate Executive Team 60 Governance and policy 64 Financial statements Dialogue with shareholders 69 The financial statements provide a summary of the Internal control framework 71 Group’s financial performance throughout 2010 and its Committee reports 74 position as at 31st December 2010. The consolidated Remuneration policy 84 financial statements are prepared in accordance with Director terms and conditions 91 IFRS as adopted by the European Union and also IFRS as Director and Senior Management remuneration 94 issued by the International Accounting Standards Board. Directors’ interests 96 Directors’ interests in contracts 101 Shareholder information This includes the full product development pipeline and discusses shareholder return in the form of dividends and share price movements. Financial statements Financial statements Directors’ statement of responsibilities 102 Independent Auditors’ report 103 Financial statements 104 Notes to the financial statements 109 Financial statements of GlaxoSmithKline plc prepared under UK GAAP 188

P102–P191 Shareholder information Shareholder information Quarterly trend 192 Five year record 200 Product development pipeline 203 Share price and dividends 207 Nature of trading market 208 Annual General Meeting 208 Underlying sales growth excludes pandemic products, Investor relations and Registrar 208 Avandia and Valtrex. See page 21.

Taxation information for shareholders 210 P192–P212 Glossary of terms 211 CER% represents growth at constant exchange rates. Index 212 Sterling % or £% represents growth at actual exchange rates. See page 21. The calculation of results before major restructuring is described in Note 1 to the ﬁnancial statements, ‘Presentation of the ﬁnancial statements’.

GSK Annual Report 2010 01 We exist to improve the quality of human life by enabling people to do more, feel better and live longer.

We work by respecting people, maintaining our focus on the patient and consumer whilst operating with both integrity and transparency. We are looking to deliver shareholder value through growth of a diversiﬁed and global business, by delivering more products of value, simplifying our operating model and by running our business responsibly. What follows is our report to shareholders for 2010. Progress we have made in the year can also be seen by visiting our website: www.gsk.com/corporatereporting

Notice regarding limitations on Director Liability under English Law Under the UK Companies Act 2006, a safe harbour limits the liability of Directors in respect of statements in and omissions from the Report of the Directors contained on pages 8 to 101. Under English law the Directors would be liable to the company, but not to any third party, if the Report of the Directors contains errors as a result of recklessness or knowing misstatement or dishonest concealment of a material fact, but would not otherwise be liable. Report of the Directors Pages 8 to 101 inclusive comprise the Report of the Directors that has been drawn up and presented in accordance with and in reliance upon English company law and the liabilities of the Directors in connection with that report shall be subject to the limitations and restrictions provided by such law. Website GlaxoSmithKline’s website www.gsk.com gives additional information on the Group. Notwithstanding the references we make in this Annual Report to GlaxoSmithKline’s website, none of the information made available on the website constitutes part of this Annual Report or shall be deemed to be incorporated by reference herein. Cautionary statement regarding forward-looking statements The Group’s reports filed with or furnished to the US Securities and Exchange Commission (SEC), including this document and written information released, or oral statements made, to the public in the future by or on behalf of the Group, may contain forward-looking statements. Forward-looking statements give the Group’s current expectations or forecasts of future events. An investor can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as ‘anticipate’, ‘estimate’, ‘expect’, ‘intend’, ‘will’, ‘project’, ‘plan’, ‘believe’ and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. The Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements involve inherent risks and uncertainties. The Group cautions investors that a number of important factors, including those in this document, could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, those discussed under ‘Risk factors’ on pages 53 to 57 of this Annual Report.

GSK Annual Report 2010 02 GSK at a glance

We are one of the world’s leading Our 2010 numbers research-based pharmaceutical and healthcare companies. We are £28.4bn 32.1p committed to improving the quality Turnover Earnings per share of human life by enabling people to do more, feel better and live longer. 53.9p 65p Earnings per share before Dividend per share How we do it major restructuring GSK has focused its business on the delivery of three strategic priorities, which aim to increase growth, reduce risk and Group sales improve GSK’s long-term financial performance: 7 • Grow a diversified global business 1 US Pharmaceuticals: £7.6bn 6 • Deliver more products of value 2 Europe Pharmaceuticals: £6.5bn 5 1 • Simplify GSK’s operating model 3 Consumer Healthcare: £5.0bn Where we do it 4 Emerging Markets GSK is a global organisation with offices in over 100 countries Pharmaceuticals: £3.6bn and major research centres in the UK, USA, Belgium and China. 4 Our shares are listed on the London and New York Stock 5 Asia Pacific/Japan Exchanges and our corporate head office is in Brentford, UK. Pharmaceuticals: £3.1bn

6 ViiV Healthcare: £1.6bn 2 3 7 Other: £1.0bn

Research & development Consumer Healthcare c. 30 £3.96bn 20% No.1 A peer-leading In 2010, we spent £3.96bn Growth of Horlicks Sensodyne has been the pipeline with around in R&D before major in India in 2010. world’s fastest growing 30 late-stage assets. restructuring, or 14% toothpaste brand over of our total sales. the last 5 years. We are one of the world’s biggest investors in R&D and are the biggest private sector funder of R&D in the UK. 10 14% c.1bn 2 10 new compounds and We are committed to Units of Lucozade, New Consumer Healthcare vaccines starting phase III improving returns in R&D, Ribena and Horlicks Research and Innovation clinical trials since the start aiming to increase our manufactured in centres opened in China of 2010. estimated return the UK every year. and India. on investment in this area to 14%. Vaccines Emerging markets 1.4 bn 24% Doses of our vaccines Of total GSK turnover supplied to 179 countries from emerging markets, around the world in 2010. by the broader deﬁnition (Pharmaceutical and Consumer Healthcare turnover in all markets excluding USA, Western Europe, Canada, Japan, Australia and New Zealand).

GSK Annual Report 2010 03 GSK at a glance

A global company Business review P08–P57

411 2 3 6 5 32 3 2 3 2 2 2 7 3 3 2 2 3 7 5 4

6 2 5 4 3 6 2

3 2 Governance and remuneration P58–P101

2 Sites with over 100 employees: Biologicals Corporate Consumer Healthcare GMS Pharmaceuticals Research and Development

% 96,500 5 3 Financial statements Employees. Share of world Leading presence in pharmaceutical market. Consumer Healthcare (Source: IMS Health) global categories: OTC, Oral Care, Nutritionals. GSK’s business model Responsible business

A balanced, synergistic business, with multiple growth drivers Malaria vaccine P102–P191 supporting a core pharmaceutical R&D operation. Potentially the first malaria vaccine with phase III trials ongoing in 7 African countries. 300 million Commitment to supply 300m doses of Synflorix at a reduced price to developing countries over the next decade through the AMC financing mechanism. 5-year commitment Shareholder information To treat school age children in Africa at risk of intestinal worms. Leader GSK ranked first in both Access to Medicine Indexes in 2008 Core and 2010. Pharmaceutical 2050 R&D Target date for value chain, from raw materials to product disposal, to be carbon neutral.

P192–P212

To ﬁnd out more visit us at www.gsk.com/corporatereporting

GSK Annual Report 2010 04 Chairman & CEO summary

Dear Shareholder GSK is also a business built on strong values and a deep commitment to operating with integrity. In 2010 we have taken Over the last two and a half years we have been implementing a further steps to make our company more responsive, more flexible strategy to transform our business model to address the significant and more open to society’s expectations. challenges our industry faces as payers search for ever more cost- effective healthcare, and demand escalates for new and better Increasing returns to shareholders medicines. This is being done with the direct aim of enhancing returns In 2010 we were able to fund returns to shareholders, bolt-on to our shareholders and improving the lives of patients and consumers. acquisitions and the significant increase in legal settlements whilst reducing net debt by £0.6 billion. To achieve this we have substantially re-engineered GSK’s business through major restructuring and a more rigorous approach to Adjusted 2010 net cash inflow before legal matters was £8.8 capital allocation. The effects of these changes in 2010 were billion, up 9%. Cash outflow for legal settlements was £2 billion. masked to some degree by specific events. Reported sales, for GSK remains financially very strong. We increased our dividend by example, were impacted by generic competition to Valtrex, and 7% to 65p in 2010 and our priority is to deliver further growth in reduced sales from Avandia and pandemic related products. the dividend. Since 2005, dividends have increased each year with Meanwhile earnings were impacted by the significant charge we average growth of 8% over the five-year period. We have took to help resolve long-standing legal matters. This belies the also started a new long-term share buy-back programme to good progress we have made to execute our strategy and which enhance returns to shareholders, with buy-backs of £1-2 billion is evident in diversified underlying sales growth and the increasing expected in 2011. potential of our pipeline. We believe GSK is becoming a more balanced, synergistic business with a lower risk profile and the option for significant potential upside from the pipeline.

Sir Christopher Gent Andrew Witty Chairman Chief Executive Officer

GSK Annual Report 2010 05 Chairman & CEO summary

Continuing focus on return on investment Operating a values-based business with integrity Business review P08–P57 Our drive for change, and to improve returns on investment Continuing to run our business in a responsible way is also central through restructuring and effective capital allocation, continued to to the changes we have made at GSK. make progress during the year. In 2010, we continued progress in our significant commitment to Reinvestment of costs saved through our restructuring programme work on neglected tropical diseases. Our candidate malaria vaccine has enabled us to diversify and strengthen GSK’s sales base. To is progressing through phase III trials in Africa. If all goes well, this date, £1.7 billion of cost has been extracted from the business and will be the first ever vaccine against malaria, with the potential we are on track to deliver £2.2 billion of annual savings by 2012. to save the lives of millions of children and infants in Africa. We also announced that we will donate enough of our albendazole We have taken cost out from lower returning activities and medicine to protect all school-aged children in Africa against reinvested it in key growth areas such as Emerging Markets, intestinal worms. Intestinal worms cause more ill health in Vaccines and Consumer Healthcare. 2010 reported sales for these school-aged children than any other infection, so this will have businesses were up 22%, 15% and 5% respectively. a major positive health impact. This is helping to reduce GSK’s dependency on sales of products Improving the environmental sustainability of our business is also † generated in ‘white pills/western markets’ . Sales from these a priority and we have launched a new set of ambitious targets. Governance and remuneration P58–P101 markets and products have decreased from 40% in 2007, to 25% Our goal is to reduce the environmental impact of our whole value in 2010. Over time, this should help to reduce the adverse impact chain, from raw materials to product disposal, and to be carbon of patent expirations on the Group. neutral by 2050. Delivering diversified underlying sales growth We are continuing to work towards resolving a number of long- In 2010, reported sales fell 1%, impacted by the continued standing legal matters. There is no doubt that the scale of legal effect of generic competition to Valtrex, the rapid loss of sales provisioning that has been required is significant. However, we of Avandia following regulatory decisions in the Autumn and a continue to believe that it is in the Group’s best interests to resolve difficult comparison with the prior year which included significant this inherent unpredictability and reduce GSK’s overall litigation sales of pandemic products. exposure. These legal cases underline just how important it is for However, underlying sales growth (sales excluding these 3 us to be led by our values in everything we do. factors) was up 4.5%. This growth was achieved despite the Changes to the Board ongoing impacts of US healthcare reform and EU government In September we announced that Julian Heslop will retire as CFO austerity measures and is testament to the strength of the rest of at the end of March and be replaced by Simon Dingemans, who our portfolio. joined the company as CFO-designate in January 2011. Financial statements In 2011, we expect underlying sales momentum to continue and We would like to thank Julian for his dedicated service to GSK as translate into sustainable reported growth in 2012. CFO and a member of the Board over the last six years – his integrity, Increasing pipeline potential diligence and outstanding technical ability have ensured that GSK has Reforming R&D to improve returns on investment has been a key remained financially strong during a period of significant economic element of the strategy we are implementing. We saw further turmoil. Simon’s appointment as CFO will bring valuable new evidence that this strategy is making progress during 2010. experience and capability to support us in implementing our strategy.

GSK now has a peer-leading portfolio of around 30 opportunities Conclusion P102–P191 in phase III and registration. This portfolio is diverse with 5 There is no doubt that our operating environment remains biopharmaceuticals and 5 vaccines in addition to NCEs. It is also challenging and that the pharmaceutical industry is undergoing highly innovative with more than 20 assets not currently available a period of intense change. However, we believe that GSK is well for any indication. One such asset – Benlysta – is potentially the placed to succeed in this environment. first new treatment for lupus in 50 years and is currently being Our journey to create a more balanced, synergistic business considered for approval by regulators in the USA and Europe. with increasing pipeline potential is progressing well and in Importantly, we are delivering sustained progress, with 10 NCEs and accomplishing this we would like to recognise the significant Shareholder information new vaccines entering phase III since the start of 2010. By the end contribution of our employees and our many partners. We remain of 2012, we expect phase III data on around 15 assets, including confident that we can generate increased value for shareholders potential new treatments for type 1 and 2 diabetes, several rare as well as deliver better outcomes to patients and consumers. diseases and multiple cancer types. We have made fundamental changes to how we allocate our R&D expenditure, directing it to our late stage pipeline; reducing cost and risk through externalising parts of early-stage discovery; dismantling infrastructure; and terminating development in areas with low financial and scientific return. Our target remains to P192–P212 deliver a rate of return for GSK’s R&D of around 14%. We are the only pharmaceutical company to have explicitly set such a Sir Christopher Gent Andrew Witty challenging target. Chairman Chief Executive Officer

† See page 21.

GSK Annual Report 2010 06

Discover the world of GSK

We have chosen ten case studies from 2010 that demonstrate the progress we have made against our strategic priorities. Each of these stories can be viewed online www.gsk.com/corporatereporting 07 Our strategy

Since 2008, we have focused our business around the delivery Business review P08–P57 of three strategic priorities, which aim to increase growth, reduce risk and improve our long-term ﬁnancial performance: Grow a diversiﬁed global business Our plans

We are diversifying our business to create a more balanced product portfolio and move away • Drive growth in the pharmaceutical from a reliance on traditional ‘white pills/western markets’*. Sales generated from these business in our core markets markets and products have decreased from 40% in 2007, to 25% in 2010. Over time this • Fulﬁl the potential of Emerging should help to reduce the adverse impact of patent expirations on the Group. Markets We expect to generate future sales growth by strengthening our core pharmaceuticals business • Expand our business in Japan and supplementing it with increased investment in growth areas such as Emerging Markets, vaccines, Japan, dermatology and Consumer Healthcare. Sales in Emerging Markets were up • Build our leadership in dermatology 22%, vaccines up 15%, Japan up 14%, dermatology up 6% (on a pro-forma basis excluding • Grow the vaccines and Consumer 2010 acquisitions) and Consumer Healthcare up 5% for 2010. Healthcare businesses Governance and remuneration P58–P101 Deliver more products of value Our plans

With the aim of sustaining an industry-leading pipeline of products that deliver value for • Focus on the best science healthcare providers, we have been focusing on improving rates of return and delivering the • Diversify through externalisation best science in our R&D organisation. This has required a multi-faceted approach. For example we have increased the level of externalisation of our research, taken difﬁcult decisions around • Re-personalise R&D pipeline progressions and focused on disease areas where we believe the prospects for • Focus on return on investment successful registration and launch of differentiated medicines are greater. We have one of the largest and most diverse development pipelines in the industry with approximately 30 late-stage assets. The vast majority of these programmes address unmet medical need and importantly nearly two-thirds are new chemical entities or new vaccines. Simplifying the operating model Our plans Financial statements As our business continues to change shape, it is essential that we transform the operating • Evolve our commercial model model to reduce complexities, improve efﬁciencies and reduce cost. Through our global • Re-shape manufacturing restructuring programme, we have removed £1.7 billion of cost since 2008 and are on track to deliver our target of £2.2 billion of annual savings by 2012. These savings have been • Streamline our processes extracted from our developed country sales and marketing, support functions, R&D and • Reduce working capital manufacturing infrastructure and reinvested in higher returning activities such as Emerging Markets, vaccines and Consumer Healthcare.

P102–P191 Outlook Whilst our operating environment remains challenging, we have made signiﬁcant progress through restructuring and a rigorous returns-based approach to capital allocation. We expect underlying sales momentum (sales excluding Valtrex, Avandia and pandemic related products) to continue in 2011 and to translate into reported growth in 2012 at constant exchange rates, despite further anticipated pricing reductions in the USA and Europe.

The US patent for compositions containing the combination of active substances in Seretide/ Shareholder information Advair expired during 2010, but various patents over the Diskus delivery device exist in the USA for a number of years up to 2016. The outlook for the timing and impact of entry of ‘follow-on’ competition is uncertain. GSK has not been notiﬁed of any acceptance by the US FDA of an application for a ‘follow-on’ product that refers to Seretide/Advair and contains the same active ingredients (as would be expected to precede the introduction of such a product), and is not able to predict when this may occur or when any such ‘follow-on’ product may enter the US market. Other products may experience generic competition in advance of the stated patent expiry as a result of settlement of patent proceedings. See Note 44, ‘Legal proceedings’, pages 178 to 185.

GSK has a peer-leading development pipeline, with over 20 assets not currently on the market P192–P212 for any indication. By the end of 2012, we expect Phase III data on around 15 additional assets. With improvements in our net debt position, we are increasing returns to shareholders. We increased GSK’s dividend in 2010 and our priority is to deliver further growth in the dividend. We also have commenced a new long-term share buy-back programme. We remain conﬁdent that we can generate increased value for shareholders as well as deliver better outcomes to patients and consumers.

* See page 21. GSK Annual Report 2010 08 2010 performance overview

Our strategies Our measures Our progress in 2010 We have focused the business We use a number of measures We made good progress during the year, with a number around the delivery of three to track our progress against of notable successes: strategic priorities. the strategic priorities over the medium to long term. These include the following: Grow a diversiﬁed • Performance of core • Excluding pandemic products, Avandia and Valtrex,

Business review P08–P57 pharmaceuticals and underlying pharmaceutical (including vaccines) sales* global business vaccines businesses were £21.1 billion and grew 4% in the year. Broadening and balancing our • Diversiﬁcation of sales • Sales from ‘white pills/western markets’† fell from 40% of portfolio and moving away from turnover in 2007 to 25% in 2010. a reliance on ‘white pills/western markets’†. • Contribution of Emerging • Sales in our Emerging Markets pharmaceutical business Markets to our overall grew by 22% to more than £3.6 billion and now represent sales and growth 15% of pharmaceutical turnover.

• Growth of Consumer • Sales in our Consumer Healthcare business grew by 5% to Healthcare business £5.0 billion and now represent 17.6% of Group turnover.

• Build our leadership position • Dermatology sales grew on a pro-forma basis (excluding in dermatology 2010 acquisitions) by approximately 6% to nearly £1.1 billion, representing nearly 4% of Group turnover.

• Expansion of Japanese business • Sales in GSK Japan grew 14% to nearly £2.0 billion. • We received approvals for four new compounds.

• Build biopharmaceutical portfolio • Arzerra recorded sales of £26 million on its ﬁrst full year on the US market and was launched in Europe. Benlysta ﬁled for approval in both the USA and Europe.

Deliver more • Contribution to sales of • New products launched since 2007 (excluding ﬂu new products pandemic vaccines) grew 36% and contributed 7% of products of value pharmaceutical sales in 2010.

Transforming R&D to ensure • Number of reimbursable product • We received six product approvals in the USA and EU we not only deliver the current approvals and filings since the start of 2010. pipeline but are also able to • Seven assets are currently filed with regulators. sustain the flow of products for years to come. • Sustaining late-stage pipeline • We maintained around 30 assets in phase III and registration, with ten new chemical entities and new vaccines entering phase III since the start of 2010.

• Enhanced R&D productivity and • Our objective is to increase our estimated rate of return for increased externalisation for R&D from around 11% to 14%. Drug Discovery • During 2010 we signed eight new collaborations to increase the external nature of our discovery, giving 54 external discovery engines to complement our 38 Discovery Performance Units.

Simplifying the • Delivery of major restructuring • We have achieved annual cost savings of £1.7 billion and programme remain on track to reach £2.2 billion of annualised savings operating model by 2012. Simplifying our operating model • Reduce working capital • Working capital reduced by £1.3 billion in 2010 (including to ensure that it is ﬁt for purpose £600 million of cash from lower pandemic receivables). and able to support our business in the most cost efﬁcient way.

* The calculation of underlying sales growth is described on page 21. † See page 21. 09 2010 performance overview

Key performance indicators Business review P08–P57

Turnover

‡ £bn CER growth % In 2010, reported sales were down 2010 28.4 (1) 1% but underlying sales growth (sales 2009 28.4 3 excluding pandemic products, Avandia 2008 24.4 (3) and Valtrex) was 4.5%. 2007 22.7 2

2006 23.2 9

Earnings per share before major restructuring* Governance and remuneration P58–P101 pence CER growth %# Earnings per share in 2010 was adversely 2010 53.9 (59) impacted by legal costs of £4,001 million 2009 121.2 2 (2009 – £591 million). Excluding legal 2008 104.7 (9) costs, EPS before major restructuring was 2007 99.1 10 120.7 pence, 11% down on 2009. 2006 95.5 19

Free cash flow + £m The reduced level of free cash flow 2010 4,486 in 2010 reflected the higher legal 2009 5,254 settlements in the year. Free cash Financial statements 2008 4,679 flow before legal settlements was 2007 3,857 £6,533 million (2009 – £5,508 million). 2006 2,623

2005 4,664

Total shareholder return P102–P191

150

125

100 Shareholder information

30/12/05 29/12/06 31/12/07 31/12/08 31/12/09 31/12/10

GlaxoSmithKline Total Return Index GlaxoSmithKline Pharma Peers Return Index ‡ FTSE 100 Total Return Index ‡ This index includes Abbott Labs, Amgen, AstraZeneca, Bristol Myers Squibb,

Eli Lilly, Johnson & Johnson, Merck, Novartis, Pfizer, Roche Holdings and P192–P212 Sanofi-Aventis.

Reﬂects £4bn legal charge.

# The calculation of CER growth is described on page 21.

* The calculation of results before major restructuring is described in Note 1 to the ﬁnancial statements, ‘Presentation of the ﬁnancial statements’.

+ The calculation of free cash ﬂow is described on page 44.

GSK Annual Report 2010 10 Research and development

Research and development – Pharmaceuticals Each DPU develops a business plan with specific deliverables and GSK R&D has built one of the strongest, broadest pipelines of investment covering multiple years. The plans also include areas potential new medicines in the industry. We believe the pipeline of opportunity for collaborations with external organisations that has the potential to deliver value to patients and payers and could enhance a DPU’s deliverables and return. These can include improve rates of financial return on our R&D investment. collaborations with large and small companies and academia. Appropriately progressing our pipeline products safely and Our internal R&D expertise gives us a strong basis in identifying and efficiently to deliver innovative new medicines for patients is the forming these collaborations, which in drug discovery are typically primary goal of our R&D function. in-licensing or option-based collaborations. The Discovery Investment Board (DIB) reviews the business plans of

Business review P08–P57 The development of new products typically is a long, expensive and uncertain process, and it is not possible to predict which each DPU. The DIB is responsible for revising the plans, identifying compounds in development will succeed or fail. The risks inherent areas for improvement and monitoring DPU delivery against agreed in the R&D process are described more fully in the ‘Risk factors’ targets and investment. Membership of the DIB comprises senior section, under ‘Risk that R&D will not deliver commercially R&D and commercial management and external individuals with successful new products’. relevant expertise including life science investment experience and understanding of payer perspectives. It is chaired by the SVP of GSK allocates its R&D investment with reference to the potential Medicines Discovery and Development. returns available from its target therapeutic markets and the technical and commercial risks associated with products in No individual DPU has annual expenditure of more than 10% of the pipeline. Those factors are reviewed at each phase of the the total annual R&D expenditure. development process and are central in the decision to proceed to Delivering these medicines to patients the next stage. Costs incurred at each stage are carefully managed A compound that advances into late-stage development (typically to maximise the likely future return consistent with the Group’s after Phase IIa) will undergo much larger scale studies in humans overall objective of increasing its IRR from its R&D activities from to investigate its efficacy and safety further. At the same time, we its current level, estimated in 2009 to be around 11%, to 14%. work at optimising both the compound’s physical properties and its The returns generated are, however, primarily determined by the formulation so that it can be produced and delivered efficiently and eventual commercial impact of new products as they achieve in sufficient quantities through the manufacturing process. regulatory approval and are launched. We then convert the results of these activities into a regulatory file This projected rate of return includes products launched from for submission to regulatory agencies. 1st January 2007 and compounds in phases IIb and III of the Medicines Development Teams (MDTs) are small units of six to ten development process. The calculation is based on actual sales people who have responsibility for a compound through the later from 2007 to 2009 and forecast sales for the relevant products stages of development to filing with the regulatory agencies. up to 2030, adjusted to reflect expected failure rates, which are There are around 30 assets in late-stage development, comprising broadly in line with standard industry failure rates. The cost base more than 50 individual projects. used in this calculation comprises an estimate of attributable R&D costs and actual and projected milestone payments where GSK also actively seeks out opportunities to add products to its appropriate. Estimated profit margins, capital investment and late-stage portfolio through relationships with other companies. working capital requirements are factored into the calculation, For late-stage assets, these typically take the form of in-licensing based on our historical performance. or co-promotion arrangements and are most likely to be aligned to existing areas of therapy expertise or investment. Details of the full product development pipeline, made up of both pharmaceutical and vaccine assets, are set out on pages 203 to 206 The Product Management Board (PMB), assesses the technical, and on our website and the performance of marketed products is commercial and investment case for each project to progress in discussed in detail under ‘Financial review 2010’ on pages 34 to 40. development. The PMB is co-chaired by the Chairman, R&D and the President, North America Pharmaceuticals, and includes the heads Discovering potential medicines of each pharmaceutical region and global manufacturing. Our early stage R&D (drug discovery) seeks to identify the biological targets involved with the development of diseases, and then to Projects are reviewed by the PMB at certain key decision points: create small molecules or biopharmaceuticals that interact with ’Commit to Medicine Development’, ‘Commit to Phase III’ and ‘Commit these disease targets. The wealth of scientific discoveries in recent to File and Launch’. Funding is generally allocated up to the next key years has made it essential that we are highly selective in where we decision point, typically between two and four years ahead. The PMB invest our drug discovery resources; focusing resources on those also carries out an annual late-stage funding review, where investment areas most likely to deliver significant medical advances and returns in all projects is reviewed, adjusted if necessary and prioritised. on investment. No individual late-stage project has incurred annual expenditure of We conducted a re-evaluation of the advances and discoveries in more than 10% of the total annual R&D expenditure. global biomedical science. This led us to exit areas of research we Governance judged unlikely to provide sufficient scientific and therefore financial R&D decisions are overseen by a number of boards. The oversight returns. We have also tried to create an entrepreneurial environment of strategic issues and overall budget management across R&D is in drug discovery pursuing the best scientific opportunities whether owned by the R&D Executive team (RADEX). DIB and PMB control internal or external. We created Discovery Performance Units (DPUs), investment decisions in early and late stage R&D as described above. which are groups of between 5-70 scientists, with each group focusing on one particular disease or pathway and responsible for The Scientific Advisory Board (SAB) is chaired by the SVP Medicines driving discovery and development of potential new medicines Discovery and Development and includes a number of external through to early stage clinical trials (up to the completion of Phase scientific experts. The SAB reviews and challenges the science lla). There are now nearly 40 DPUs. underlying development programmes and provides advice on related issues to the PMB at the key investment points. GSK Annual Report 2010 11 Research and development

GSK’s Chief Medical Officer, as Chair of the Global Safety Board, is The Biologicals Scientific Committee (BSC) defines the overall R&D Business review P08–P57 ultimately accountable for oversight of all major decisions regarding and new product licensing strategy for our vaccines business. patient safety. The Global Safety Board is responsible internally It is chaired by the Biologicals President and includes heads of for approving pivotal studies and investigating any issues related our vaccines R&D, disease areas, clinical, epidemiology, business to patient safety arising during the development programme and development and other departments as members. The BSC post-launch. Information from GSK clinical trials is widely and easily assesses high potential vaccine in-licensing opportunities, decides available at the Clinical Study Register on GSK’s website and at on exploratory projects and in-licensing opportunities and also www.clinicaltrials.gov. endorses target product profiles before the start of early vaccine projects. In addition the BSC aligns R&D, clinical and commercial Diseases of the developing world plans for early projects and is responsible for prioritising exploratory, Continued investment in research into diseases of the developing research and early vaccine projects. world is essential if there is to be a long-term improvement in the health of people who live in these regions. As part of our The Development Review Committee (DRC) oversees the late response to this challenge, we operate a drug discovery unit development vaccine portfolio including strategy, project prioritisation based at Tres Cantos (Spain), which focuses on malaria and and resource allocation. The DRC is chaired by the head of Global tuberculosis. We are adapting our business model to pursue an Vaccine Development and its membership includes the heads of

open innovation strategy for R&D for diseases of the developing clinical research, global industrial operations, global commercial Governance and remuneration P58–P101 world. Elements of this new approach include: being more open centre of excellence, R&D, industrialisation and medical. with our intellectual property; being more open with our resources; After launch, post marketing studies are set up to assess and being more open with our data and compounds. Additional vaccination programmes and to monitor vaccine safety. R&D sites in the USA and the UK are focused on the development of new medicines to treat HIV/AIDS and drug resistant bacteria, In 2010 two distinct R&D groups were formed for vaccines to while vaccine research is conducted in Rixensart (Belgium). provide specific focus for prophylactics and for our Antigen Specific Cancer Immunotherapeutic (ASCI) portfolio. A new Global Vaccine Through these R&D efforts, we are addressing the prevention and Development organisation was created pulling together our clinical treatment of all three of the World Health Organization’s (WHO) and late development R&D organisations. It has allowed us to give priority infectious diseases. a clear focus to projects through Vaccine Development Leaders who Vaccines R&D have overall responsibility for the development of a particular project. We are active in the fields of vaccine research, development and Animals and research production and have a portfolio of over 30 vaccines approved for For ethical, regulatory and scientific reasons, research using animals marketing. We have over 1,600 scientists devoted to discovering remains a small but vital part of research and development of new innovative vaccines that contribute to the health and well-being medicines and vaccines. We only use animals where there is no Financial statements of people of all generations around the world. The discovery and alternative and constantly strive to reduce the numbers used. development of a new vaccine is a complex process requiring long- We are committed to maintaining high standards for the humane term investment and, with more than 20 vaccines in development, care and treatment of all laboratory animals and undertake internal we have one of the strongest vaccine pipelines in the industry. and external review to assure these standards. Traditionally vaccines have been used to ward off illness; our vaccine division is working now to develop immunotherapeutics The vast majority of the experimental methods do not use animals.

aimed at educating the patient’s immune system to identify and We are actively engaged in research to develop and validate more P102–P191 attack cancer cells in a highly specific manner. tests that either avoid the use of animals or reduce the numbers needed. When animals are used, all due measures are taken to Vaccine discovery involves many collaborations with academia and prevent or minimise pain and distress. the biotech industry to identify new vaccine antigens which are then expressed in yeast, bacteria or mammalian cells and purified We understand that use of animals for research purposes to a very high level. This is followed by formulation of the clinical commands a high level of public interest. Our statement on lots of the vaccine. This may involve mixing antigens with selected ‘The care and ethical use of animals in research’, our views on GSK novel proprietary adjuvant systems, which are combinations of use of non-human primates and details of our voluntary decision selected adjuvants designed to elicit the most appropriate immune not to use great apes (chimpanzees), together with further Shareholder information response to a specific antigen. The right combination of antigen information and reports, are available on our website. and adjuvant system can help the body mobilise the most effective immunological pathway, which is designed to provide maximum Research and development – Consumer Healthcare protection against specific diseases in targeted populations. The continuous creation and development of innovative products keeps our brands relevant, vibrant and valuable. Our portfolio Once formulated, the candidate vaccine is evaluated from a safety spans three major categories: OTC medicines, Oral healthcare and efficacy perspective through the different phases of preclinical and Nutritional healthcare. For our major brands, dedicated R&D testing, then through the clinical trials involving healthy individuals. teams, including regulatory, partner with and work alongside their

These will range from safety analysis in a small group of volunteers commercial brand team colleagues in office-free hub environments P192–P212 in phase I, dose adjustment and proof of concept in phase II, to that foster collaboration and fast decision-making. Hubs have large-scale safety and efficacy analysis in phase III. The results quickly become a preferred way of working at our Innovation obtained during clinical trials and data regarding the development Centres in Weybridge, UK, and Parsippany, USA, and we have of a quality and large-scale production process and facilities are then expanded this model to China and India. combined into a regulatory file which is submitted to the authorities in the countries where the vaccine will be made available. We have a full and diverse product development pipeline. Our key late stage projects include novel technologies, new combinations and superior formulations.

GSK Annual Report 2010 12 Pipeline summary

We have a full and diverse product development Key: pipeline. All our projects comprising new Phase III chemical entities, biological entities or vaccines, Large comparative study new combinations and new indications for (compound versus placebo and/or established existing compounds that are in Phase III, have treatment) in patients to been filed for approval or have been recently establish clinical benefit approved are highlighted here. The most and safety. Business review P08–P57 advanced status is shown and includes 2010 Filed Following successful and 2011 approvals in the USA and EU. Phase III trials, we file the product for approval by the regulatory authorities. Approval Only when approval is granted can we begin to market the medicine or vaccine. Our full pipeline is on pages 203 to 206 and 10 6 5 on our website. assets moved approvals in assets terminated into Phase III USA or EU from Phase III development

IPX066†, for Parkinson’s Tyverb/Tykerb, for Avandamet XR, disease first line therapy for for type 2 diabetes hormone receptor positive 1120212†, a MEK Avandia + statin, breast cancer (USA/EU) inhibitor, for metastatic for type 2 diabetes melanoma Arzerra, for refractory almorexant, for chronic lymphocytic 2118436, a BRaf inhibitor, primary insomnia leukaemia (EU) for metastatic melanoma New generation flu Revolade/Promacta, 573719 + vilanterol†, vaccine, for influenza for idiopathic a combination drug prophylaxis thrombocytopaenic for COPD purpura (EU) Simplirix, for genital 1605786†, for herpes prophylaxis Duodart/Jalyn, a fixed Crohn’s disease dose combination drug Zoster vaccine, for the for benign prostatic prevention of shingles hyperplasia (USA/EU)

2402968†, for Duchenne Votrient, for renal muscular dystrophy cell cancer (EU)

migalastat HCI†, for Prolia, for post- Fabry disease menopausal osteoporosis (EU) 1349572†, an integrase inhibitor, for HIV and as a ﬁxed dose combination with Epzicom/Kivexa

2696273†, for adenosine deaminase severe combined immune deﬁciency

† In-licence or other alliance relationship with a third party

To ﬁnd out more visit us at www.gsk.com

GSK Annual Report 2010 13 Pipeline summary

Therapeutic area Compound Indication Phase III Filed Approved Business review P08–P57 Biopharmaceuticals albiglutide† type 2 diabetes • Arzerra† chronic lymphocytic leukaemia, first line therapy and use in relapsed patients • Arzerra† diffuse large B cell lymphoma (relapsed patients) • Arzerra† follicular lymphoma (refractory & relapsed patients) • otelixizumab† type 1 diabetes • Benlysta† systemic lupus erythematosus • denosumab† bone metastatic disease • Arzerra† chronic lymphocytic leukaemia (refractory patients) • Prolia† hormone ablative/chemotherapy bone loss in prostate cancer patients • Prolia† postmenopausal osteoporosis • Cardiovascular & metabolic darapladib† atherosclerosis • Infectious diseases Relenza† treatment of influenza • Neurosciences IPX066† Parkinson’s disease • Horizant† restless legs syndrome • Governance and remuneration P58–P101 Trobalt/Potiga (retigabine/ezogabine)† epilepsy – partial seizures • Oncology 1120212† metastatic melanoma • 2118436 metastatic melanoma • Votrient ovarian cancer, maintenance therapy • Revolade/Promacta† chronic liver disease induced thrombocytopaenia • Revolade/Promacta† hepatitis C induced thrombocytopaenia • Tyverb/Tykerb breast cancer, adjuvant therapy • Tyverb/Tykerb gastric cancer • Tyverb/Tykerb head & neck squamous cell carcinoma (resectable disease) • Votrient renal cell cancer, adjuvant therapy • Votrient sarcoma • Votrient + Tyverb/Tykerb inflammatory breast cancer • Avodart reduction in the risk of prostate cancer • Duodart/Jalyn benign prostatic hyperplasia - fixed dose combination • † Revolade/Promacta idiopathic thrombocytopaenic purpura • Financial statements Tyverb/Tykerb breast cancer, first line therapy • Votrient renal cell cancer • Respiratory & 573719 COPD • immuno-inflammation 573719 + vilanterol† COPD • vilanterol (642444)† COPD • 1605786 (CCX282)† Crohn’s disease • Relovair

(vilanterol† + 685698) asthma • P102–P191 Relovair (vilanterol† + 685698) COPD • Paediatric vaccines Mosquirix malaria prophylaxis (plasmodium falciparum) • Nimenrix (MenACWY-TT) neisseria meningitis groups A, C, W & Y disease • prophylaxis MenHibrix (Hib-MenCY-TT) neisseria meningitis groups C & Y & haemophilus influenzae type b disease prophylaxis • Other vaccines Flu vaccine seasonal influenza prophylaxis • Shareholder information Zoster herpes zoster prevention • Flu (pre-) pandemic pre-pandemic & pandemic influenza prophylaxis • Pumarix pandemic influenza prophylaxis • Antigen Specific Cancer MAGE-A3 treatment of melanoma • Immunotherapeutic (ASCI) MAGE-A3 treatment of non-small cell lung cancer • Rare diseases 2402968† Duchenne muscular dystrophy • 2696273† adenosine deaminase severe combined immune deficiency • migalastat HCl† Fabry disease

• Dermatology tazarotene foam acne vulgaris • P192–P212 Duac low dose acne vulgaris • calcipotriene mild to moderate plaque psoriasis • itraconazole tablets onychomycosis • Veltin acne vulgaris • HIV 1349572† HIV infections • 1349572† + abacavir sulphate + lamivudine HIV infections • † In-licence or other alliance relationship with a third party GSK Annual Report 2010 14 Products, competition and intellectual property

Pharmaceutical products Intellectual property Our principal pharmaceutical products are currently directed to nine Intellectual property is a key business asset for our company, main therapeutic areas. A description of the products is on pages and the effective legal protection of our intellectual property 15 to 16 and an analysis of sales by therapeutic area, is on page 35. (via patents, trademarks, registered designs, copyrights and domain name registrations) is critical in ensuring a reasonable Competition return on investment in R&D. Our principal pharmaceutical competitors range from small to large pharmaceutical companies often with substantial resources. Some Trademarks of these companies are: All of GSK’s commercial products are protected by registered Business review P08–P57 trademarks in major markets. There may be local variations, • Abbott Laboratories for example, in the USA the trademark Advair covers the same • Amgen product sold in the EU as Seretide. Trademark protection may • AstraZeneca generally be extended as long as the trademark is used by • Bristol-Myers Squibb renewing it when necessary. GSK’s trademarks are important for maintaining the brand identity of its products. GSK enforces its • Eli Lilly trademark rights to prevent infringements. • Johnson & Johnson • Merck Patents • Novartis It is our policy to try to obtain patents on commercially important, protectable inventions discovered or developed through our R&D • Pfizer activities. Patent protection for new active ingredients is available • Roche Holdings in major markets and patents can also be obtained for new drug • Sanofi-Aventis formulations, manufacturing processes, medical uses and devices for administering products. Although we may obtain patents for Pharmaceuticals may be subject to competition from other products our products, this does not prevent them from being challenged during the period of patent protection and, once off patent, from before they expire. Further, the grant of a patent does not mean generic versions. The manufacturers of generic products typically that the issued patent will necessarily be held valid and enforceable do not incur significant research and development or education by a court. If a court determines that a patent we hold is invalid, and marketing development costs and consequently are able to non infringed or unenforceable, it will not protect the market offer their products at considerably lower prices than the branded from third party entry prior to patent expiry. Significant litigation competitors. As a research and development based company we concerning such challenges is summarised in Note 44 to the will normally seek to achieve a sufficiently high profit margin and financial statements, ‘Legal proceedings’. sales volume during the period of patent protection to repay the original investment, which is generally substantial, and to generate The life of a patent in most countries is 20 years from the filing profits and fund research for the future. Competition from generic date. However the long development time for pharmaceutical products generally occurs as patents in major markets expire. products may result in a substantial amount of this patent life being Increasingly patent challenges are made prior to patent expiry, used up before launch. In some markets (including the USA and claiming that the innovator patent is not valid and/or that it is Europe) it is possible to have some of this lost time restored and this not infringed by the generic product. Following the loss of patent leads to variations in the amount of patent life actually available for protection, generic products rapidly capture a large share of the each product we market. Further, certain countries provide a period market, particularly in the USA. of data or market exclusivity that prevents a third party company from relying on our clinical trial data to enter the market with its We believe that remaining competitive is dependent upon the copy for the period of exclusivity. discovery and development of new products that deliver value to healthcare providers and improved outcomes for patients, together The patent expiry dates for our significant products are in the with effective marketing of existing products. following table. Dates provided are for expiry of patents in the USA and major European markets on the active ingredient, Within the pharmaceutical industry, the introduction of new unless otherwise indicated, and include extensions of patent products and processes by our competitors may affect pricing or term, including for paediatric use in the USA, where available. result in changing patterns of product use. There is no assurance The patents on vaccines relate to vaccine compositions. that products will not become outmoded, notwithstanding patent or trademark protection. In addition, increased government and other pressures for physicians and patients to use generic pharmaceuticals, rather than brand-name medicines, may increase competition for products.

GSK Annual Report 2010 15 Products, competition and intellectual property

Pharmaceutical products Business review P08–P57

Products Compounds Indication(s) Major Patent expiry dates competitor brands USA EU Respiratory Veramyst fluticasone furoate rhinitis Nasacort 2021 2023 Flixotide/Flovent fluticasone propionate asthma/COPD Qvar, Singulair expired expired (compound) (compound) 2011-2016 expired (Diskus device) (Diskus device) 2013-2025 2012-2017 (HFA-device/ (HFA-device/ formulation) formulation) Seretide/Advair* salmeterol xinafoat/ asthma/COPD Singulair, Symbicort, expired 20131 fluticasone propionate Spiriva, Asmanex, Pulmicort, (combination) (combination)

Foster 2011-2016 expired Governance and remuneration P58–P101 (Diskus device) (Diskus device) 2013-2025 2012-2017 (HFA-device/ (HFA-device/ formulation) formulation) Serevent salmeterol xinafoate asthma/COPD Foradil, Spiriva expired expired (compound) (compound) 2011-2016 expired (Diskus device) (Diskus device) NA 2012-2019 (HFA-device/ formulation) Anti-virals Relenza zanamivir inﬂuenza Tamiﬂu 2013 2014 Valtrex valaciclovir genital herpes, coldsores, Famvir expired expired

shingles Financial statements Zefﬁx/Epivir-HBV lamivudine chronic hepatitis B Hepsera 2013 2012 (use) (use)

Central nervous system Lamictal lamotrigine epilepsy, bipolar disorder Keppra, Dilantin expired expired Imigran/Imitrex sumatriptan migraine Zomig, Maxalt, Relpax expired expired

Requip ropinirole Parkinson’s disease, Mirapex expired expired P102–P191 restless legs syndrome Requip XL ropinirole Parkinson’s disease Mirapex 2012† 2011 (formulation) (use) Seroxat/Paxil paroxetine depression, various Effexor, Cymbalta, expired expired anxiety disorders Lexapro Treximet sumatriptan and naproxen migraine Zomig, Maxalt, Relpax 20171 NA

(combination Shareholder information and use) Wellbutrin SR bupropion depression Effexor, Cymbalta, expired expired Lexapro

Cardiovascular and urogenital Arixtra fondaparinux deep vein thrombosis, Lovenox, Fragmin expired expired pulmonary embolism Innohep Avodart dutasteride benign prostatic hyperplasia Proscar, Flomax, ﬁnasteride 20151 2017

Coreg CR carvedilol phosphate mild-to-severe heart failure, Toprol XL 2016† NA P192–P212 hypertension, left ventricular (formulation) dysfunction post MI Fraxiparine nadroparin deep vein thrombosis, Lovenox, Fragmin expired expired pulmonary embolism Innohep Lovaza omega-3 acid ethyl esters very high triglycerides Tricor 20171 NA (formulation)

* See Outlook on page 7 for details of uncertainty on the timing of follow-on competition. † Generic competition possible in 2011. GSK Annual Report 2010 16 Products, competition and intellectual property

Pharmaceutical products

Products Compounds Indication(s) Major Patent expiry dates competitor brands USA EU

Anti-bacterials Augmentin amoxicillin/clavulanate common bacterial generic products expired expired potassium infections

Oncology

Business review P08–P57 Arzerra ofatumumab refractory chronic MabThera/Rituxan pending pending lymphocytic leukaemia Hycamtin topotecan ovarian cancer, small cell Doxil, Gemzar expired 2011 lung cancer, cervical cancer Promacta/ eltrombopag idiopathic thrombocytopenic Nplate 2021 2021 Revolade purpura Tykerb/Tyverb lapatanib advanced and metastatic Herceptin 2020 2023 breast cancer in HER2 positive patients Votrient pazopanib metastatic renal cell carcinoma Sutent, Nexavar, Aﬁnitor 2021 2021

Vaccines Boostrix diphtheria, tetanus, acellular booster vaccination Adacel 2017 2017 pertussis Infanrix/Pediarix diphtheria, tetanus, pertussis, diphtheria, tetanus, pertussis, Pentacel, Pediacel, 2017 2014 polio, hepatitis B (HepB), polio, hepatitis B (HepB), Pentaxim, Pentavac inactivated antigens Cervarix HPV 16 & 18 virus like particles human papilloma virus Gardasil (Silgard) 2020 2020 (VLPs), AS04 adjuvant (MPL + type 16 & 18 aluminium hydroxide) Fluarix split inactivated influenza virus seasonal influenza Vaxigrip, Mutagrip, Fluzone, 2022 2022 subtypes A and type B antigens Influvac, Aggripal, Fluad FluLaval split inactivated influenza virus seasonal influenza Vaxigrip, Mutagrip, Fluzone, none none subtypes A and type B antigens Influvac, Aggripal, Fluad Pandemrix derived split inactivated A(H1N1)v2009 influenza Focetria, Celvapan, emerflu 2014 2014 influenza virus antigen, prophylaxis A503 adjuvant Prepandrix derived split inactivated influenza prophylaxis Aflunov 2014 2014 influenza virus antigen, A503 adjuvant Synflorix conjugated pneumococcal invasive pneumococcal Prevenar (Prevnar) NA 2021 polysaccharide disease

HIV Combivir lamivudine and zidovudine HIV/AIDS Truvada, Atripla 20121 2013 (combination) (combination) Epivir lamivudine HIV/AIDS Truvada, Atripla expired expired Epzicom/Kivexa lamivudine and abacavir HIV/AIDS Truvada, Atripla 2016 2016 (combination) (combination) Lexiva fosamprenavir HIV/AIDS Prezista, Kaletra, Reyataz 2017 2019 Selzentry maraviroc HIV/AIDS Isentress, Intelence, Prezista 2021 2021 Trizivir lamivudine, zidovudine HIV/AIDS Truvada, Atripla 2016 2016 and abacavir (combination) (combination)

1 See Note 44 to the ﬁnancial statements, ‘Legal proceedings’

GSK Annual Report 2010 17 Products, competition and intellectual property

Consumer Healthcare products Business review P08–P57

Brand Products Application Markets Competition

Oral healthcare Aquafresh toothpastes, toothbrushes, prevention of caries, gum global Colgate-Palmolive’s Colgate, mouthwashes disease and bad breath Procter & Gamble’s Crest Sensodyne toothpastes, toothbrushes prevention of dental global Colgate-Palmolive sensitivity sensitivity toothpastes Biotene mouthwash, gel treat dry mouth many markets none Polident denture adhesive, to improve comfort of global Fixodent Poligrip denture cleanser ﬁtted dentures and to Corega clean dentures

OTC medicines Panadol tablets, capulets, infant drops paracetamol-based treatment global, except USA Nurofen of headache and joint pain, Governance and remuneration P58–P101 fever, cold symptoms NicoDerm, gum, patch, mini lozenge, treatment of nicotine global Novartis’ Nicotinell, NiQuitin CQ, original lozenge withdrawal as an aid to retailers’ own brands and Nicabate. quitting smoking Also Nicorette (USA only)

Nutritional healthcare Lucozade energy and sports drinks energy and hydration UK, Ireland, some various sports drinks other markets Horlicks malted, milk-based drinks nutrition UK, Ireland, India Ovaltine, Milo and foods Ribena blackcurrant juice-based vitamin C-delivering UK, Ireland, some Robinsons drink health drink other markets Financial statements

Consumer Healthcare competition GSK holds leading positions in all its key consumer product areas. Worldwide it is the second largest in OTC medicines and the third largest in Oral healthcare. In Nutritional healthcare it holds the leading position in the UK, Ireland and India. The environment in which the Consumer Healthcare business operates has become ever more challenging:

• consumers are demanding better quality, better value and improved performance P102–P191 • retailers have consolidated and globalised which has strengthened their negotiation power • cycle times for innovation have reduced. The main competitors include the major international companies Colgate-Palmolive, Johnson & Johnson, Procter & Gamble, Unilever and Pﬁzer. In addition, there are many other smaller companies that compete with GSK in certain markets. The major competitor products in OTC medicines are:

• in the USA: Metamucil (laxative), Pepcid (indigestion) and private label smoking control products Shareholder information • in the UK: Lemsip (cold remedy), Nurofen and Anadin (analgesics), and Nicorette and Nicotinell (smoking control treatments). In Oral healthcare the major competitors are Colgate-Palmolive’s Colgate and Procter & Gamble’s Crest. In Nutritional healthcare the major competitors to Horlicks are Ovaltine and Milo malted food and chocolate drinks. Competitors to Ribena are primarily local fruit juice products, while Lucozade competes with other energy drinks.

P192–P212

GSK Annual Report 2010 18 Regulation

Regulation – Pharmaceuticals Regulation – Consumer Healthcare Region and country-specific laws and regulations are major The consumer healthcare industry is subject to national regulation factors in determining whether a product may be successfully comparable to that for prescription medicines for the testing, developed and approved. They define the information needed to approval, manufacturing, labelling and marketing of products. evaluate the safety and efficacy of pharmaceutical products, as High standards of technical appraisal frequently involve a lengthy well as governing their testing, approval, manufacturing, labelling approval process before a new product may be launched. and marketing. There is an increasing level of co-operation and GSK Consumer Healthcare continues to gain centralised regulatory exchange of information among the major regulatory authorities approvals for over-the-counter products. Since the 2009 history- encompassing development plans, data to support product

Business review P08–P57 making first for the OTC industry when the European Medicines registration, post-marketing safety information and inspections. Agency granted centralised approval of the weight loss medicine Although the evaluation of benefit and risk continue to be alli which has now been granted approval in more than 50 paramount considerations for the approval of a new drug in countries; a line extension chewable product has also been granted the USA, there is enhanced focus by the FDA on the safety of centralised approval. Additionally, GSK Consumer Healthcare has medicines from approval through the post-marketing phase of embraced the principle of centralised applications and has achieved the product. In 2010 the FDA announced four strategic priorities GSK’s first pan-Gulf Cooperation Council approvals for alli and for the next five years: advance regulatory science and innovation, Niquitin in 2010, permitting launch across all seven markets of the strengthen the safety and integrity of the global supply chain, Gulf region. strengthen compliance and enforcement activities to support public health; and address the unmet public health needs of Value for money special populations. We will be engaged in these key areas Payers around the world are concerned about the cost of of interest. healthcare and the pricing of medicines. The requirement to In Europe, new regulations aimed at strengthening the safety satisfy healthcare purchasers on value for money is becoming monitoring of medicines have now been agreed by EU legislators an additional hurdle for product acceptance over and above the and will be implemented from 2011. Discussions continue on draft regulatory tests of safety, efficacy and quality. legislation on improving citizens’ access to reliable information on Price controls medicines, and on strengthening EU laws to protect citizens from the threats posed by fake medicines. The European Medicines In many countries the prices of pharmaceutical products are Agency (EMA) and the Heads of National Medicines Agencies controlled by law. Governments may also influence prices through (HMA) both published five-year strategic plans during 2010; these their control of national healthcare organisations, which may bear were aimed mainly at strengthening the operation of the existing a large part of the cost of supplying medicines to consumers. EU regulatory network. The EU Commission published a report on Recent government healthcare reforms in countries such as France, the operation of the EMA in preparation for a potential legislative Spain and Germany may restrict pricing and reimbursement. proposal for changes to the regulatory framework by 2014, and also continued with its review of the regulation of Clinical Trials in Currently in the USA, there are no government price controls over Europe – this review is expected to conclude in 2012. private sector purchases, but federal law requires pharmaceutical manufacturers to pay prescribed rebates on certain drugs to The regulatory environment in Emerging Markets and Asia-Pacific be eligible for reimbursement under several state and federal continues to evolve, with a number of countries continuing to healthcare programmes. In 2010, the US President and Congress develop their regulatory review systems. We actively participate passed the Affordable Care Act (ACA) to reform the US healthcare in a number of specific regional and national regulatory system to drive down cost, improve quality and increase access initiatives, which provide opportunities for meaningful scientific to millions of Americans without health insurance. These reforms and regulatory dialogue between industry, agencies and other have the potential to create positive changes in the US healthcare stakeholders. We continue to include broader sets of patient system and expand access to our products. However, the ACA populations from a number of these countries in medicine also increased prescribed rebates under government-run development programmes in order to increase global patient access programmes and changed the balance between private and to new innovative medicines, and optimise regulatory approvals. public sector purchases. Despite passage of the ACA, the pressure to control healthcare costs will continue into 2011 and beyond. Issues such as cross- border trade, the acceleration of generics to market, comparative effectiveness research, and pharmaceutical pricing will continue to be part of the ongoing healthare debate in the USA. Fortunately, we are positioned to be a constructive contributor to these debates since there has been increased recognition that chronic disease is the primary driver of healthcare spending and pharmaceutical products deliver important interventions that help hold down healthcare costs.

GSK Annual Report 2010 19 Manufacturing and supply

GSK’s manufacturing covers Pharmaceutical, Consumer Vaccine manufacturing Business review P08–P57 Healthcare and vaccines. Vaccine manufacturing, which is managed separately from GMS, Pharmaceutical Global Manufacturing and Supply (GMS) is an integral part of the Biologicals business, and is particularly complex as it requires the use of innovative technologies and living More than 27,000 people work in GMS across our network of micro-organisms. Comprehensive quality assurance and quality 77 sites in 32 countries. GMS supports the commercial ambition control procedures are in place to ensure the vaccine’s quality and of GSK by delivering quality medicines and consumer products to safety. Due to their biological nature, individual health authorities patients and customers around the world. may subject vaccines to a second control to guarantee the highest The scale of manufacturing in GSK is huge, with the manufacture quality standards. of over 4 billion packs per year in 28,000 different presentations GMS supports GSK’s commercial ambition to deliver quality (including tablets, creams/ointments, inhalers, injections, liquids medicines and consumer healthcare products to patients and and steriles), which are then supplied to over 150 markets. consumers around the world. Over £4.1 billion was spent by GMS on production in 2010. GMS operates a procurement operation on behalf of the Group. We spend over £2 billion annually with external suppliers, purchasing active ingredients, chemical intermediates, packaging Governance and remuneration P58–P101 components and part-finished and finished products. During 2010, as our internal customers sought every opportunity to grow their businesses, we focused on the cost-competitive supply of quality product to meet their ambitions. We worked diligently to leverage our network of sites and contractors to give us built-in flexibility to sustain future growth and adapt to emerging commercial business models. In an increasingly rigorous external regulatory environment, we have continued to leverage technology in support of process understanding, control, and capability. Our Pharmaceutical Launch and Global Supply sites work closely with R&D’s development teams to ensure that the right technical competencies are in place to support rapid and successful new product introduction. These sites serve as the focal point for developing and introducing new secondary manufacturing technologies. The Primary supply sites in our Pharmaceutical Launch Financial statements and Global Supply division supply high quality, competitively priced bulk actives and focus on improvements in primary technologies and processes. The sites in our Antibiotics and Emerging Markets supply division focus on manufacturing products in the late stage of their life cycle, allowing GSK to compete more effectively in all its markets.

P102–P191 Consumer Healthcare manufacturing Most of Consumer Healthcare Manufacturing is also managed by GMS apart from our Coleford site which is managed directly by Nutritional healthcare. Our Consumer Healthcare sites deliver high-quality, competitively priced products and support rapid new product introduction in a highly innovative and competitive business. New technologies have become a fundamental platform for driving innovation, lowering Shareholder information costs and providing ﬂexibility in operations. We are continuously improving and embedding new ways of working that are simplifying the business and achieving greater efﬁciencies. It is our focus on customer service, including support for new product launches, our strong compliance culture, our commitment to health, safety and the environment, and our commitment to developing our people that have delivered strong

results for GSK even as the external environment has become P192–P212 more demanding.

GSK Annual Report 2010 20 World market – pharmaceuticals

The global recession caused by the international ﬁnancial crisis World market – Value % of continued to impact the world’s economies during 2010. Although top six therapeutic classes £bn total many countries and industry sectors saw some improvement over 2009, signiﬁcant growth remained elusive and the recovery was Central nervous system 76 16 fragile at best. Cardiovascular 69 15 Antineoplastic/Immunomodulatory 63 13 Following its 22% rise in 2009, the FTSE 100 Index achieved more Alimentary tract and metabolic 57 12 modest gains in 2010, at 9%. In the USA, the Dow Jones Industrial Anti-infectives (bacterial, Average rose by 11%. Stock exchanges across Europe recorded viral and fungal) excluding vaccines 49 10 mixed performances, with the 16% rise in Germany contrasting

Business review P08–P57 Respiratory 33 7 with losses of 17% and 13% in Spain and Italy respectively. In Asia, the Chinese stock market posted an annual decline of (Note: data based on 12 months to 30th September 2010) almost 15% and the Nikkei in Japan one of 3%. The debt crisis in Greece spread to other economies such as Data for market share and market growth rates are GSK estimates Spain, Portugal, Italy, Ireland and Romania. As we moved towards based on the most recent data from independent external sources the end of the year, many governments introduced austerity including IMS Health, and where appropriate, are valued in Sterling measures to complement the ﬁscal stimulus initiatives of 2009. at relevant exchange rates. These cuts, which in some cases were both severe and rapid, were implemented across education, healthcare and other public services. Each government took a different approach to healthcare with speciﬁc pricing cuts being applied to selected medicines and vaccines. These measures affected the pharmaceutical industry to varying degrees depending on each company’s exposure to the areas impacted. At the same time, 2010 also saw the implementation of healthcare reform in the USA with associated discounts and price cuts for the pharmaceutical industry. Global pharmaceutical sales in 2010 were £476 billion, compared with £468 billion in 2009.

World market by Value % of geographic region £bn total USA 194 41 Europe 129 27 Rest of World 153 32 Emerging markets 67 14 Asia Paciﬁc 20 4 Japan 52 11 Canada 13 3 Total 476 100

Market growth on a CER basis was USA 4.2%, Europe 3% and Rest of World 8.2%.

GSK Annual Report 2010 21 GSK sales performance

GSK delivered underlying sales growth (excluding pandemic related products, Avandia and Valtrex) for 2010 of 4.5% despite the ongoing Business review P08–P57 impacts of EU government austerity measures and US healthcare reform which reduced sales by approximately £380 million.

Commentary on GSK’s segmental sales performance uses the performance measures set out below. Underlying sales growth Underlying sales growth excludes the sales of pandemic products, Avandia and Valtrex. Management believes this measure assists shareholders in gaining a clearer understanding of the Group’s sales performance and prospects because of the size and nature of the loss of sales from these products. A reconciliation to Group and pharmaceutical turnover is as follows:

2010 2009 Growth £m £m CER% Group turnover 28,392 28,368 (1.2) Avandia, Valtrex and pandemic products (2,285) (3,668) Underlying Group turnover 26,107 24,700 4.5

2010 2009 Growth Governance and remuneration P58–P101 £m £m CER% Pharmaceutical turnover 23,382 23,694 (2) Avandia, Valtrex and pandemic products (2,285) (3,668) Underlying pharmaceutical turnover 21,097 20,026 4

Sales of these products by segment were:

Emerging Asia Paciﬁc/ Other trading USA Europe Markets Japan and unallocated Total 2010 £m £m £m £m £m £m Pandemic products 44 494 227 462 86 1,313 Avandia 237 88 42 24 49 440 Valtrex 252 68 28 176 8 532 Financial statements Emerging Asia Paciﬁc/ Other trading USA Europe Markets Japan and unallocated Total 2009 £m £m £m £m £m £m Pandemic products 324 737 89 331 122 1,603 Avandia 425 171 76 41 58 771 Valtrex 942 160 26 152 14 1,294

White pills/western markets P102–P191 White pills/western markets refers to sales of tablets and simple injectables (excluding biopharmaceuticals and vaccines) in North America and Europe. CER growth In order to illustrate underlying performance, it is the Group’s practice to discuss its results in terms of constant exchange rate (CER) growth. This represents growth calculated as if the exchange rates used to determine the results of overseas companies in Sterling had remained unchanged from those used in the previous year. CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates. Shareholder information All commentaries in this Report are presented in terms of CER unless otherwise stated.

P192–P212

GSK Annual Report 2010 22 US pharmaceuticals segment review

2009 We have been making continued efforts to change the company’s 2010 (restated) Growth model to improve levels of openness and transparency. For example £m £m CER% in 2008, we voluntarily stopped all corporate political contributions, Turnover 7,648 8,578 (11) and in 2009, we became the first company to report voluntarily Operating profit 5,043 5,933 (16) payments to healthcare professionals in the USA on a named, individual basis for speaking and consulting services. We are emerging from a period of significant patent expirations, In 2011 the US business is implementing a new system for and are making good progress to transform our US business model evaluating and compensating our professional sales representatives. and operations to meet current and future challenges. Under the new programme, bonuses to sales representatives Business review P08–P57 who work directly with customers will no longer be based on Sales in the USA were down 11% to £7.6 billion, primarily due achievement of individual sales targets. Instead, they will be to the impact of generic competition to Valtrex, a significant assessed on scientific and business knowledge, feedback from reduction in sales of pandemic related products and lower sales of customers in their region, including demonstration of the company’s Avandia. Underlying sales (excluding pandemic related products, values, and overall performance of the business unit they support. Avandia and Valtrex) were up 3% in the USA during the year This programme will be fully implemented in July 2011. despite the discontinuation of GSK’s promotion of Boniva, the sale of Wellbutrin XL and the impact of US healthcare reform Consistent with our values of integrity and transparency, we have across the product range. Underlying growth was driven by strong also sharpened the focus of our support for continuing medical performances from a number of our promoted medicines, including education (CME). For example, we implemented a system where Flovent (up 8%), Ventolin (up 16%), Boostrix (up 51%), Avodart we limit grant applications to approximately 20 academic medical (up 5%), Lovaza (up 17%) and our oncology products (up 13%). centres and national-level professional medical associations. New products launched since 2007 (excluding flu pandemic All CME providers that we support must be directly accredited by vaccines) grew 29% and contributed 8% of 2010 sales. a recognised accrediting body, and we now only fund CME by not-for-profit providers. The reduced turnover was partially offset by lower SG&A costs reflecting savings from the restructuring programme and a receipt Although the US healthcare and business environment is for the exclusive promotion rights to Boniva for 2010. Operating challenging, it also presents opportunities for companies that can profit declined by 16%. deliver truly innovative medicines to the market. Since 2007, we have launched more than 20 new products in the US market. In the USA, the healthcare market is changing radically and rapidly. In 2011, we look forward to a regulatory decision on Benlysta, A significant proportion of healthcare costs continue to be paid by which if approved will be the first new treatment for Lupus in the federal and local governments. Large pharmacy benefit managers last 50 years. Overall we believe the improvements we are making and health plans dominate the private market. Physicians are to our cost structure and how we operate are enabling us to consolidating their practices into medical centers, group practices compete more effectively in the evolving marketplace. and integrated delivery networks. Hospitals are consolidating too, with 500 fewer now than there were just three years ago. Our Research Triangle Park campus in North Carolina, USA, Payers are demanding higher quality care with lower costs and are is a home to a number of business functions. increasingly linking reimbursement with improved health outcomes. Implementation of landmark healthcare reform legislation in the USA also began during the year. As a result, in January 2010, Medicaid drug rebates increased from 15% to 23% and were extended to include Medicaid managed care plans and new formulations of existing products. Also in January, eligibility for certain government drug pricing programs was expanded to include additional hospitals and health centers. In response to these evolving market conditions, we are making fundamental changes to our US operations to ensure that we deliver the value our customers – patients, healthcare providers and payers – demand. These changes are enabling us to more effectively meet customer needs and expectations, better deploy our resources and support an evolving, more specialised product portfolio. For example, the majority of our US pharmaceuticals sales representatives now have either customer-centred or portfolio- focused responsibilities, rather than product specific responsibilities. These changes have enabled us to increase the productivity of our sales force while reducing its size by approximately 25% since 2008. Most importantly, our new customer-centric model aligns with our customers’ desire to work with us as a business-to- business partner.

GSK Annual Report 2010 23 Europe pharmaceuticals segment review

2009 As we enter 2011, the continuing pressure on cost and the Business review P08–P57 2010 (restated) Growth change to a value-based medicine approach (where in addition £m £m CER% to demonstration of safety and efficacy, governments or their Turnover 6,548 7,087 (6) agencies assess medicines for the value they deliver to their Operating profit 3,744 3,993 (4) healthcare system) makes the development of effective dialogue with governments, regulators and payers across Europe absolutely vital. Within our business we continue to place emphasis on being Our European pharmaceutical business delivered solid performance able to demonstrate the cost effectiveness of GSK products and to in 2010, despite significant government led austerity measures deliver new medicines and vaccines that address unmet medical and price cuts. need and also have demonstrable value. Much of our work is Although reported sales were down 6% to £6.5 billion, underlying targeted on building evidence on the cost effectiveness of our performance (excluding pandemic related products, Avandia and medicines when compared to current treatments. For example, Valtrex) was flat. This was a creditable performance as it includes in the UK we have agreed an innovative pricing agreement with approximately £150 million sales impact from government price the National Institute for Clinical Excellence (NICE) for our cuts. It was driven by the introduction of new products and growth advanced kidney cancer medicine, Votrient. If Votrient is not from other products in our portfolio. Despite likely continued as effective as sunitinib, the current standard of care, in the government pricing pressure in 2011, this strong product portfolio comparative trials which are currently underway, we have Governance and remuneration P58–P101 gives us confidence in future performance of this business. offered a future financial rebate. We introduced five new products in 2010. A particular highlight was Duodart, our treatment combination of Avodart and tamsulosin for benign prostatic hyperplasia. Other recently introduced brands such as Avamys, Requip Modutab, Tyverb, Volibris and Wellbutrin all achieved double digit growth. Our major product, Seretide for asthma and COPD, while impacted by the price cuts, achieved sales of £1.6 billion, up 2% whilst maintaining its leadership position in the respiratory market. We continue to bring the benefits of this product to more patients across Europe. Our portfolio of vaccines also contributed to growth with Synflorix, a pneumococcal conjugate vaccine, winning several national tenders and increasing sales by 38% to £43 million.

To manage our operating costs, the business has also delivered Financial statements improvements in efﬁciency. Close control of our operating expenses delivered savings in excess of 10% and our programme to reduce the diversity of cartons, labels and leaﬂets used across our range of medicines delivered further savings. As part of this initiative we will reduce 35 different formats of tablet blister packs to just 3 by 2013.

An 11% reduction in SG&A costs, reﬂecting savings from the P102–P191 restructuring programme, helped to limit the decline in operating proﬁt to 4%. Our commitment to work with communities across Europe to support greater access and to build trust with stakeholders continues. An example is a project in Bulgaria to promote awareness for vaccines among vulnerable ethnic minority groups

through collaboration between the health mediators, general Shareholder information practitioners and the representatives of the regional health inspectorates. The initiative facilitates the access of these groups to the national healthcare system, focusing on prevention and health awareness. A particular beneﬁt from this work in 2010 was an improved rate of immunisation in this group which in turn reduced the impact from an outbreak of measles.

P192–P212

GSK Annual Report 2010 24 Emerging Markets pharmaceuticals segment review

2009 We continue to introduce flexible pricing strategies. The work is at 2010 (restated) Growth an early stage, however the results of some of our initiatives so far £m £m CER% are promising. For example, we significantly reduced prices of some Turnover 3,556 2,895 22 of GSK’s newest and most innovative products, including Avodart, Operating profit 1,271 948 31 Avamys and Cervarix, with the aim of increasing affordability and volumes sold in middle income countries. Our Emerging Markets pharmaceutical business continues to For the least developed countries (LDCs), last year we established a perform very strongly with sales up 22% to £3.6 billion in 2010. new Developing Countries and Market Access business unit. Underlying growth in these markets (excluding pandemic related This new unit has a dedicated focus on expanding access to our Business review P08–P57 products, Avandia and Valtrex) was 20%. This is the second medicines and vaccines to more of the 700 million people who consecutive year following the introduction of GSK’s strategic live in the world’s poorest countries. It has the added benefit of initiatives that the Emerging Markets business has outgrown helping us build sustainable GSK businesses in those parts of the pharmaceutical market growth in this region, estimated at 15%. developing world where we currently have little or no presence. It is responsible for implementing our pricing policy where we are We delivered particularly strong performances in Latin America capping the prices of our patented medicines in LDCs to 25% of which grew 44% and in China and the CIS, which grew 21% the Western price, and reinvesting 20% of our profits from and 20% respectively. In addition, we produced growth across medicines sold in these countries back into the same countries’ all three sectors of the Emerging Markets business – Innovative healthcare infrastructure. brands (new patent protected products), Classic brands (non-patent protected) and Vaccines. During the year, we were also pleased to announce the signing of the Advance Market Commitment (AMC) for pneumococcal Our Innovative brands business showed consistent performance vaccines with the Global Alliance for Vaccines and Immunisation in 2010, with sales growth of 16% to approximately £1.1 billion. (GAVI), providing 300 million doses of Synflorix over Sales of respiratory medicine, Seretide, were over £300 million, 10 years at a reduced price, to protect children in the poorest and grew 16%, with particularly strong performances in key countries across the world against invasive pneumococcal disease. markets including China. Our Classic brands business also continues to go from strength to strength with sales growth of 18% to £1.6 billion, including continued double-digit growth of Augmentin after 30 years on the market. Vaccine sales were up 38% to £927 million, with pandemic flu products and pneumococcal vaccine Synflorix performing particularly well. Excluding pandemic flu vaccines, sales grew 14%. Turnover by main business sector

1 Vaccines (26%) 3 2 Innovative brands (30%) 3 Classic brands (44%)

Emerging Markets pharmaceuticals operating profit increased by 31% on a turnover increase of 22%, reflecting strong Synflorix and pandemic vaccine sales, together with the benefit of acquisitions, partially offset by increased SG&A investment across the region. Operational highlights for the year include a number of new strategic alliances. We strengthened our footprint in key emerging markets through a number of business acquisitions, including Laboratorios Phoenix, a leading Argentinian Classic brands business. A number of vaccine production alliances were also concluded during the year including an alliance with JSC Binnopharm, a Russian pharmaceutical manufacturer, to enable the local secondary manufacture of a number of key GSK vaccines in Russia.

GSK Annual Report 2010 25 Asia Paciﬁc/Japan pharmaceuticals segment review

2009 GSK Japan delivered another very strong year, with sales up 14% Business review P08–P57 2010 (restated) Growth to £1,959 million. Underlying sales growth, excluding pandemic £m £m CER% products, Valtrex and Avandia, was 6%. This growth was driven Turnover 3,102 2,628 9 primarily by Adoair (Seretide/Advair), up 17%, and contributions Operating profit 1,730 1,352 15 from newly launched products such as Cervarix, Avolve/Avodart and Xyzal, partially offset by a Paxil sales decline of 11%, and declines in the mature respiratory products Flixotide/Flovent down In 2010, sales in Asia Pacific grew 1% to £1.1 billion. Excluding 18%, and Serevent, down 26%, which in part reflected biennial the sales of pandemic related products, Avandia and Valtrex, price reductions. underlying growth in Asia Pacific was 8% which benefitted from the acquisitions of Stiefel’s dermatology portfolio and UCB’s Asian Our vaccine franchise has become an important pillar for the business. Strong performances were also delivered from Avamys company in Japan. Arepanrix became one of only two flu vaccines (up 80%), Tykerb (up 20%), Seretide (up 5%) and vaccines ever allowed for import into Japan when it received regulatory (up 8% excluding flu pandemic). approval in January 2010. Cervarix has had a strong launch in Japan Operating profit for Asia Pacific improved 4% to £0.5 billion, with 2010 sales of £57 million. The product was also recognised as reflecting improved sales of Synflorix and Cervarix and the one of the three vaccines that would receive public funding from favourable impact of product mix on cost of goods, partially the Japanese government from 2011 onwards. Governance and remuneration P58–P101 offset by lower sales of Relenza. Operating profit for Japan increased by 20% to £1.2 billion, The middle income countries in the Asia Pacific region have been reflecting higher Cervarix and pandemic vaccine sales and the at the centre of GSK’s flexible pricing initiatives. For example as favourable impact of product mix on cost of goods, partially offset part of our innovative pricing model, monthly sales of our Cervarix by lower sales of Relenza. vaccine have increased by approximately six times in the Philippines During the year, GSK Japan received approvals for six compounds, following a 60% price reduction. Similarly, in Indonesia and including Revolade and Xyzal, and one new indication, Botox Vietnam we have introduced equivalent pricing strategies for this for spasticity. In addition, oral pulmonary arterial hypertension vaccine which has resulted in a more than six-fold increase in the treatment, Volibris, was launched during the year. number of women vaccinated. Cervarix is now the number one human papillomavirus vaccine in South East Asia, with Malaysia GSK Japan established a rare diseases development centre in securing the region’s first ever tender for the product during the April 2010 to accelerate delivery of medicines for rare diseases year. Synflorix is also growing well, delivering sales of £12 million. for which treatment is not yet available. As part of this initiative, GSK increased investment in Japan by investing in Japan Chemical The year also saw important strategic alliances signed with major Research, a company with leading technology to manufacture local pharmaceutical companies including Dong-A in South Korea bio-pharmaceuticals. Financial statements and Savipharm in Vietnam. Japanese pipeline potential

6 P102–P191

1 Shareholder information

0 Approvals Pending Potential in 20101 approval filings 20122

1 Includes 4 New Chemical Entities 2 Includes New Chemical Entities, line extensions, new promotions or re-formulations

P192–P212

GSK Annual Report 2010 26 ViiV Healthcare segment review

2009 Improving paediatric care of HIV 2010 (restated) Growth £m £m CER% Turnover 1,556 1,605 (3) Operating proﬁt 851 1,071 (21)

ViiV Healthcare celebrated its first anniversary in November 2010. The business was established by GSK and Pfizer as an independent company focused on delivering advances in clinical outcomes Business review P08–P57 and enhancing the quality of life for people living with HIV. The company’s unique structure and wide portfolio of 10 available medicines, provides financial stability and the investment capital required to take a sustainable, long-term view of the HIV market. Overall, sales of HIV products by ViiV Healthcare were down 3% to £1.6 billion in 2010. Sales of former Pfizer products Celsentri/ Selzentry and Viracept (combined sales of £118 million) and growth from Epzicom/Kivexa (up 1% to £555 million) partially offset reductions in the sales from other established HIV products including Trizivir (down 28% to £144 million), Combivir (down 16% to £363 million), Lexiva/Telzir (down 12% to £155 million) and Epivir (down 12% to £115 million) which continue to be impacted by uptake of newer alternative products. Strong growth for Celsentri/Selzentry compared with 2009 was supported by the wide acceptance of genotypic testing across Europe, increasing first-line use in the USA and country launches in Poland, Romania, Australia, Japan and Mexico. Upward trends In 2010, as part of its commitment to address major unmet needs in Epzicom/Kivexa sales reflected the role of nucleoside reverse in HIV, ViiV Healthcare formed key partnerships with the Elizabeth transcriptase inhibitors (NRTIs) as a mainstay of treatment in HIV. Glaser Pediatric AIDS Foundation and amFAR to improve care of As part of the strategic focus on International markets (all countries paediatric HIV and prevent mother to child transmission (MTCT) excluding Europe and North America), ViiV Healthcare established of the virus, which is the fourth Millennium Development Goal. new independent local operating companies in several important The Positive Action for Children Fund gave more than £3 million geographies and opened regional hubs in Asia Pacific, CIS and to community projects to support mothers and children affected Latin America in 2010. As a result, revenue in the International by HIV and to prevent MTCT. A further request for proposals at region grew by 22%. the end of the year expanded the Fund’s reach and scope. ViiV Healthcare operating profits decreased 21% primarily as a result of US healthcare reform and higher SG&A and R&D costs partially offset by a one-time royalty settlement. The higher SG&A costs were primarily due to the amortisation of acquired intangible assets. 2010 also saw great progress in building a late-stage pipeline. In October, Shionogi-ViiV Healthcare announced the start of their Phase III development programme for the novel integrase inhibitor S/GSK1349572 (‘572), with a further Phase III trial for fixed dose combination ‘572-Tri (‘572+Epzicom/Kivexa) initiated in February 2011. ViiV Healthcare is committed to supporting the communities most affected by the HIV epidemic. One way the company does this is by developing innovative approaches to improve access to medicines. For example, in July 2010, ViiV Healthcare was the first company to make its entire current and future anti-retroviral portfolio available to generic manufacturers through royalty-free voluntary licences. These cover all of the least developed, low income countries and sub-Saharan Africa, the 69 countries where 80% of people with HIV live. Similarly, the not-for-profit pricing policy has been expanded to these 69 countries. During the year, ViiV Healthcare also launched the Positive Action Southern Initiative in the USA to reduce healthcare disparities among communities with the greatest needs.

GSK Annual Report 2010 27 Consumer Healthcare segment review

2009 During the year, we opened a new bottle manufacturing plant at Business review P08–P57 2010 (restated) Growth our Coleford, UK factory for Nutritional Healthcare, enabling us £m £m CER% to mould Lucozade and Ribena bottles, formulate the drinks and Turnover 5,010 4,674 5 fill the bottles, all at one plant. The bottle-forming facility moulds Operating profit 1,043 931 8 1 billion PET bottles per year from plastic chips. This investment eliminates over 2,400 road-haulage trips of more than 110 miles from our former bottle supplier. Consumer Healthcare sales grew 5% to £5 billion in 2010, significantly ahead of Consumer Healthcare market growth We recently announced our intention to accelerate growth estimated to be approximately 2%. We delivered growth in all of and focus our Consumer Healthcare business around a portfolio the three categories in which we operate – Oral healthcare (up of ‘Priority’ brands and the emerging markets. These two 6%), Over-the-Counter (OTC) Medicines (up 3%) and Nutritional dimensions represent around 90% of our current Consumer healthcare (up 9%). Healthcare sales base. We intend to divest the remaining 10% of sales (£500 million) which mostly consist of European and Europe sales were level with last year with sales of £2.0 billion American non-core OTC brands. Our aim is to divest these products as growth in Oral healthcare and Nutritional healthcare was offset by late 2011, subject to interest and realising appropriate value by a decline in OTC sales. The business in the USA grew 1% to

for shareholders. We expect to use the proceeds to fund increased Governance and remuneration P58–P101 £1.0 billion, led by Oral healthcare. returns to shareholders. Growth was particularly strong in the rest of the world which grew Finally, as part of our objective to deliver a sustainable business 13% to £2.0 billion. In the Indian sub-continent we continued to the largest array of solar panels in North America now powers our deliver new innovations for the Horlicks brand while launching regional distribution centre in York, Pennsylvania. Almost 11,000 three ‘Priority’ brands – Lucozade, Sensodyne and Breathe Right, door-sized solar panels cover a rooftop that is equivalent to eight resulting in combined sales growth of 20%. In China, we delivered football ﬁelds, generating 3,400,000 kWhr per year. This solar array sales growth of 20% through expanded consumer availability for will eliminate nearly 1,800 tonnes of carbon dioxide emissions per Fenbid, Contac and Bactroban, strong uptake from newly launched year, a load on the environment that would take 15,000 mature Lucozade and continued good performance from other products trees to absorb. including Sensodyne, Breathe Right and denture care brands. To accelerate research and innovation in these key emerging 11,000 solar panels cover the rooftop of GSK’s Consumer markets, we opened an Oral Healthcare Research Centre in Healthcare regional distribution centre in York, Pennsylvania Gurgaon, India, and an Innovation Centre in Beijing, China. The Middle East, Africa and Pakistan markets together delivered sales growth of 18%, largely through strong Panadol and Eno sales growth. South America grew sales by 16%, also led by strong Financial statements Panadol and Eno consumption, with lower growth in Japan and Australia/New Zealand of 4% and 6%, respectively. Oral healthcare grew 6% to £1.6 billion, led by a strong performance from Sensodyne, which continued as the fastest- growing toothpaste in the world, a position it has held for the last 5 years. This is a remarkable record for a brand in its 50th year. Following our 2010 launch in India, we now market P102–P191 Sensodyne in 124 countries. However, Aquafresh sales declined slightly. Biotene, the dry mouth treatment acquired in 2008, grew strongly. OTC medicines recorded sales of £2.5 billion, up 3%. A good performance from smoking control products was helped by the new tax on tobacco in Japan and substantial sales in Brazil for a

government-funded smoking cessation initiative. In addition to Shareholder information supplying products for Brazil’s initiative, we have provided training on smoking cessation to 1,400 clinics across the country. Panadol, the leading paracetamol analgesic outside the USA, delivered strong sales growth, helped by the roll-out of Panadol Advance with Optizorb technology that dissolves ﬁve times faster than regular paracetamol tablets. Dermatology products grew 8% to £256 million but respiratory tract products declined 6% to £380 million.

P192–P212 Nutritional healthcare grew 9% to £952 million, led by Horlicks, with more modest growth from Ribena and Lucozade. Operating profit increased 8% on a turnover increase of 5%, reflecting efficiencies of scale in SG&A costs, which grew more slowly than sales.

GSK Annual Report 2010 28 Pharmaceutical research and development review

In 2010, Group R&D expenditure before major restructuring was Focusing on returns in pharmaceutical R&D £3,964 million (2009 – £3,951 million) representing 14.0% of total We have been making fundamental changes to how we allocate turnover (2009 – 13.9%). The company expects R&D costs before our pharmaceutical R&D investment: terminating development major restructuring as a percentage of turnover to remain around in areas with low scientific and financial return; dismantling 14% in 2011. infrastructure; reducing cost and risk through externalising parts We are delivering sustained asset progression with 10 new of early-stage discovery and directing investment to our late stage chemical entities and new vaccines entering Phase III since the start pipeline. Progress in 2010 included: of 2010. Seven assets are filed with regulators. Five projects have • In early 2010, we announced our intention to cease been terminated from Phase III development, as listed on page 12, discovery research into certain areas of neurology, such as Business review P08–P57 because of adverse trial results or feedback from regulators. By pain and depression, and instead concentrate activities in the end of 2012, we expect Phase III data on around 15 additional neurodegenerative and neuroinflammatory diseases where assets, including treatments for type 1 and type 2 diabetes, rare we feel the prospects for successful registration and launch of diseases and multiple cancer types. differentiated medicines are greater. This change led us to exit Our pharmaceuticals R&D segment comprises R&D activities for the five R&D centres. In two of the largest of these – Verona, Italy pharmaceuticals business, excluding vaccines, Consumer Healthcare and Zagreb, Croatia – the operations were transferred to and other local and central costs. The table below analyses the external groups thereby preserving the majority of jobs. Group R&D expenditure by these categories. • We have successfully out-licensed and spun off some of the early stage neurology assets in the UK through deals with 2010 2009 2008 £m £m £m Convergence Pharmaceuticals and Proximagen Group. Pharmaceuticals - direct project costs 1,432 1,489 1,209 • Through these changes and other actions we have achieved a (excl. vaccines) - indirect costs 959 1,056 844 reduction in our footprint of 29% since 2006. - unallocated costs 563 474 490 • We continue to increase the external nature of our discovery Pharmaceuticals R&D 2,954 3,019 2,543 activities. During 2010 we signed eight new collaborations to In-market pharmaceutical access novel discovery, giving us a total of 54 external discovery development 147 81 40 engines to complement our 38 DPUs. Vaccines 533 524 369 • We have streamlined the resourcing of our clinical trials contract Corporate and other costs 172 177 304 research organisations, reducing this from over 100 to just two 3,806 3,801 3,256 suppliers. While this provides savings in terms of economies of Consumer Healthcare 158 150 114 scale, it will also ensure consistency and rigour in clinical trials around the globe. R&D before major restructuring 3,964 3,951 3,370 Major restructuring 493 155 170 • We combined our Molecular Discovery Research (MDR) and Preclinical Development (PCD) in 2010 to create an end-to-end Total R&D 4,457 4,106 3,540 scientific and technical platform supporting the discovery and development efforts. The remit of this group remains to create The proportion of pharmaceuticals R&D investment made in the the materials and knowledge that enable our R&D to take ideas, late-stage portfolio continues to grow from 56% of the direct and generate hypotheses and test them in preclinical and clinical indirect costs in 2006 to 61% in 2010. settings and ultimately launch new medicines. Sales of new pharmaceutical products launched since 2007 Other developments in pharmaceutical R&D (excluding pandemic flu vaccines) grew by 36% to £1,727 million in 2010 and represented 7% of total pharmaceutical sales. GSK Rare Diseases was created in 2010 to enable us to focus on this specialised area of drug discovery and development.

2010 2009 Growth Opportunities in new treatments for rare diseases are growing £m £m CER% as increased scientific (including genetic) understanding allows Veramyst 193 142 33 researchers to identify which rare diseases are most likely to Cervarix 242 187 26 respond to therapeutic intervention. We signed two significant new Coreg CR 157 161 (3) rare disease alliances this year: with Amicus, for the treatment of Lamictal XR 68 18 >100 Fabry disease, and Fondazione Telethon to research and develop novel stem-cell derived treatments to address rare genetic disorders, Requip XL 148 123 22 using gene therapy carried out on a patient’s own stem cells. Rotarix 235 282 (18) These new agreements demonstrate our approach to seeking out Synflorix 221 73 >100 innovative medicines that add value for both patients and payers. Treximet 56 55 2 Tykerb 227 169 34 This year, we also made progress on our commitment to encourage Others 180 52 >100 new research into neglected tropical diseases. Our research centre in Tres Cantos, Spain, released the results of our year-long screening 1,727 1,262 36 of more than two million compounds in GSK’s chemical library to Investment and pipeline progress in 2010 seek out those that could inhibit the malaria parasite, P. falciparum. We have made all of this data publically available online. More than Globally, over 13,000 people work in R&D, with many of these 80% of the 13,500 molecule structures released are proprietary to based in our major R&D centres in the UK, USA, Belgium and China. GSK, and therefore the information released is entirely new to the Over 11,000 people work in pharmaceuticals R&D. In the course of research community. 2010 we managed over 150 projects with trials in humans.

GSK Annual Report 2010 29 Responsible business

Creating a successful and sustainable Research and innovation Business review P08–P57 In undertaking our research and in innovating we may explore and business is about more than financial apply new technologies and will constructively engage stakeholders results. We place great importance not on any concerns that may arise. We will ensure that our products are subject to rigorous scientific evaluation and testing for safety, just on what we achieve but on how effectiveness and quality. We will comply with or exceed all we achieve it. Running a responsible, regulations and legal standards applicable to the research and values-based business is embedded in development of our products. Read more on page 11. Products and customers our strategy We will promote our products in line with high ethical, medical and scientific standards and will comply with all applicable laws and regulations. Read more on page 18. We are working hard to build a culture in which our decisions are guided by our values: Caring for the environment We will operate in an environmentally responsible manner • Commit to transparency through systematic management of our environmental impacts, • Show respect for people measurement of our performance and setting challenging Governance and remuneration P58–P101 • Always demonstrate the highest integrity in our conduct performance targets. We will improve the efficiency of all our • Be patient focused. activities to minimise material and energy use and waste generated. We aim to find opportunities to use renewable materials and to We know that the research and development, manufacture and recycle our waste. Read more on page 32. sale of our products can raise ethical issues, and we aim to be open about how we tackle them. We understand how important Employment practices it is to communicate with our stakeholders, seeking to understand We will treat our employees with respect and dignity, encourage their views and being transparent about any setbacks we have diversity and ensure fair treatment through all phases of experienced as well as the progress we have made. employment. We will provide a safe and healthy working environment, support employees to perform to their full potential For example, our commitment to putting patients first means we and take responsibility for the performance and reputation of the are focusing on improving access to our medicines and vaccines for business. Read more on page 33. all patients irrespective of where they live and their ability to pay. We believe this is the right thing to do and that it will contribute to Human rights sustainable business growth. We are committed to upholding the UN Universal Declaration of

Human Rights, the OECD guidelines for Multi-National Enterprises Financial statements Ultimately we believe that responsible business is good for society and the core labour standards set out by the International Labour and good for GSK. It helps us to operate efficiently, to gain the Organization. We expect the same standards of our suppliers, trust of our stakeholders, to create the products that patients and contractors and business partners working on GSK’s behalf. healthcare payers really need and to foster the right conditions for Read more in our CR Report. expansion of our business. Leadership and advocacy Read about our approach and performance on responsible business We will establish our own challenging standards in corporate issues including access to medicines, research and business ethics responsibility, appropriate to the complexities and specific needs P102–P191 and the environment at www.gsk.com/responsibility. of our business, building on external guidelines and experience. Our 2010 Corporate Responsibility Report (CR Report) will be We will share best practice and seek to influence others, while published on 21st March 2011. remaining competitive in order to sustain our business. Read more in our CR Report. Our Principles Engagement with stakeholders Our principles sum up our approach to responsible business and are We want to understand the concerns of those with an interest underpinned by our values. They provide guidance for employees in corporate responsibility issues. We will engage with a range on the standards to which GSK is committed. Shareholder information of stakeholders and will communicate openly about how we Access to medicines are addressing CR issues, in ways that aim to meet the needs of We will continue to research and develop medicines to treat different groups while allowing us to pursue legitimate business diseases of the developing world. We will find sustainable goals. Read more in our CR Report. ways to improve access to medicines for disadvantaged people, Community investment and will seek partnerships to support this activity. Read more We will make a positive contribution to the communities in which on page 30. we operate, and will invest in health and education programmes Standards of ethical conduct and partnerships that aim to bring sustainable improvements to

We expect employees to meet high ethical standards in all aspects under-served people in the developed and developing world. P192–P212 of our business, by conducting our activities with honesty and Read more on page 30. integrity, adhering to our corporate responsibility principles, and complying with applicable laws and regulations. Read more on page 33.

GSK Annual Report 2010 30 Responsible business

Improving access to medicines Our work with communities Access to healthcare in the developing world We invest in community partnership programmes that seek to There are no easy solutions to the challenge of providing improve access to medicines and healthcare to improve the lives of sustainable access to healthcare in developing countries. Poverty people across the world. We aim to make a real difference to these is the single biggest barrier. In many countries people do not have communities by working with our partners to find innovative solutions enough food, access to a clean water supply, hospitals or clinics to healthcare challenges. We believe that business has an important in which to receive treatment and healthcare professionals to care role to play in society and we strive to leverage our resources in a for them. way that delivers shared value to our communities and business. We partner with and support organisations whose goals and Business review P08–P57 We are committed to playing a full part in addressing the objectives reflect our mission of improving the quality of human life. healthcare challenges of the developing world by taking an innovative, responsible and, above all, sustainable approach. Our global community investment in 2010 was £222 million. GSK is making a vital contribution to developing country healthcare This compares with £163 million in 2009 on a like-for-like basis. through action in a number of areas including: preferential pricing This increase is due to expansion of our US patient assistance of our anti-retrovirals; tiered pricing of our vaccines and medicines; programme, scale up of our donation of albendazole for the investing in R&D that targets diseases particularly affecting the lymphatic filariasis (LF) programme, a donation of H1N1 vaccine developing world (see page 11); being flexible with our IP; pursuing to the World Health Organization, plus increased grants for HIV an open innovation strategy; community investment activities and and AIDS and the 20% reinvestment initiative for LDCs. Our partnerships that foster effective healthcare and capacity building 2010 giving comprised product donations of £147 million, cash (see page 31); and seeking innovative partnerships and solutions. giving of £53 million, in-kind donations of £4 million plus costs We cover our contribution to improving access to medicines of £18 million to manage and deliver community programmes in extensively in our Corporate Responsibility Report. almost 100 countries. The product donations include £100 million for GSK’s patient assistance programmes, £17 million worth of We were a clear leader in both Access to Medicines (ATM) albendazole for the LF programme and £9 million for humanitarian Indexes published by the ATM Foundation in 2008 and 2010. product donations. Since 2008 our product donations have been We will continue to build on our product, pricing and partnership valued at cost (average cost of goods) rather than wholesale price commitments to help improve healthcare in the developing (WAC) as this is a more accurate reflection of the cost to GSK. world. In 2010 we further expanded our commitments to the UN We believe we are the first pharmaceutical company to adopt this defined list of Least Developed Countries (LDCs) by establishing practice. For comparative purposes the total value of donations in a Developing Countries and Market Access operating unit with a 2010 using WAC for products would be £564 million compared focus on the LDCs to broaden patient access to GSK medicines with £467 million in 2009. and to help build our presence in other developing countries. We do not operate a single charitable foundation for our While much has been achieved, a significant increase in resources community investment programmes, but have a number of from the global community is still needed to support R&D and to country-based foundations and their 2010 grants are included provide access to the resultant medicines and vaccines. Sustainable in the investment total. progress will only be made if the significant barriers that stand in the way of better access to healthcare are tackled as a shared Our cash giving was targeted primarily at health and education responsibility by all sectors of global society – governments, initiatives as follows: international agencies, charities, academic institutions, the pharmaceutical industry and others. 5 1 Health (52%) Access to medicines in the developed world 2 Education (16%) Programmes in the USA 3 Arts and Culture (3%) 1 4 We are working to provide access to medicines for people 4 Environment (3%) with limited financial resources and without prescription 3 5 Other (26%) medicine insurance. 2 For uninsured Americans who do not qualify for Medicare or Medicaid, GSK and ten other pharmaceutical companies created Global health programmes Together Rx Access, a programme for qualified individuals offering reductions in the pharmacy cost on more than 300 In developing countries millions of people continue to suffer and medicines. In addition, GSK offers several patient assistance die from preventable or treatable diseases. Our global health programmes to help low-income or uninsured Americans have programmes are designed to improve health and quality of life access to GSK’s oncology and specialty products, vaccines and for people in these communities through provision of medicines, prescription drugs. GSK’s patient assistance programmes provided education and advocacy, and investment in disease prevention products to over 452,000 patients during 2010. and healthcare infrastructure. Our global programmes are long-term commitments and designed to be scaleable, replicable Programmes in other countries and sustainable. We have also introduced Orange Cards providing discounts on certain GSK prescription medicines for eligible patients in a number By working in partnership, with NGOs and leading health of other countries. The nature of the discounts varies between organisations, we believe it is possible to achieve significant and countries and the ways in which the healthcare systems operate. long-lasting improvements in healthcare. This section highlights our major health programmes.

GSK Annual Report 2010 31 Responsible business

Eliminating lymphatic filariasis (LF) Local programmes Business review P08–P57 Our effort to eliminate LF, one of the world’s most disabling diseases, We support communities in the many different markets in continued in close partnership with the governments of countries which we operate. Our programmes are designed to fit local where the disease is endemic, the World Health Organization and circumstances and cultures and aligned with an overall goal of over 40 partner organisations. As a founding partner and leader in supporting access to medicines and healthcare. Local community this effort, we are committed to donating as much of the anti- priorities vary from community to community and population to parasitic drug albendazole as required to reach the one billion population, but there are often common challenges to address, people at risk in over 80 countries. In 2010, 556 million albendazole whether in terms of a particular health need or the human or treatments were donated to 26 countries. We have donated almost institutional capacity required to effectively tackle those needs. two billion albendazole treatments since the global elimination In the UK, we contributed £5.4 million in 2010 to our continuing programme started in 2000. programme of charitable activities supporting over 80 organisations Positive Action on HIV/AIDS in health, medical research, science education, the arts and the When Positive Action was created in 1992 it was the first environment. This included the UK IMPACT awards scheme which pharmaceutical company programme of its kind to support provides small charities with grants and consulting support for their communities affected by HIV and AIDS. Now under the auspices work in addressing the health needs of local communities. of ViiV Healthcare, the new HIV-focused company, the programme Programmes in North America at a national and local level Governance and remuneration P58–P101 targets its funds towards community-focused projects that reach focused on improving public education in the areas of science and those most affected by HIV, particularly in marginalised or vulnerable mathematics, and increasing access to healthcare for children and populations. Positive Action works with these communities to enable the homeless. GSK’s IMPACT Awards recognise organisations that them to tackle stigma and discrimination, to test innovations in have significantly improved the health of their local communities education, care and treatment and to deliver greater involvement of in Philadelphia and in Research Triangle Park, North Carolina. Total those living with HIV. Our Positive Action for Children Fund launched funding for our North American programmes was $18 million. in 2009 to make £50 million available over 10 years to help prevent mother-to-child transmission of HIV and to support orphans and In Argentina the Pro Mujer programme works with low-income vulnerable children. It supported 12 projects in 2010. At the end of women who do not have access to affordable financial services or 2010, the latest call for proposals was made broadening the reach healthcare and provides access to small loans to set up their own and scope of its response for babies and children affected by HIV. businesses as well as training and affordable healthcare services. The GlaxoSmithKline African Malaria Partnership GSK returned the CommunityMark for excellence in The African Malaria Partnership is our programme to alleviate the community investment. mortality and suffering malaria brings to affected communities Further information about GSK grants and programmes are in Africa. In 2010 four new malaria grants were awarded for available on www.gsk.com. Financial statements community programmes to provide health education to affected populations and to train community health workers. Employee involvement The partnerships are: Save the Children (UK) in Kenya; Family Health Our employees are encouraged to contribute to their local International in Ghana; African Medical and Research Foundation communities through employee volunteering schemes. (AMREF) in Tanzania; and Planned Parenthood Federation of Nigeria. Support includes employee time, cash donations to charities where employees volunteer and matching gift programmes. Humanitarian product donations

Working with our non-profit partners, AmeriCares, Direct Relief Through the US GSK Matching Gift Program, we matched P102–P191 International, MAP International, Interchurch Medical Assistance 12,000 employee gifts at a value of $3 million in 2010 plus over and Project HOPE, we supported humanitarian relief efforts and $1 million to the United Way campaign. GSK’s GIVE programme community healthcare in over 90 countries. provided grants of over $367,000 to 365 organisations where US employees volunteered and £205,000 to 150 UK-based non-profit We responded to the healthcare needs of the many communities organisations via the GSK Making a Difference programme. affected by disasters, including the devastating earthquake that struck Haiti in January 2010, GSK donated supplies of medicines In 2009, our Group-wide volunteer initiative was launched to give every GSK employee one paid day off each year to volunteer for a valued at over £1 million. Included in these shipments were Shareholder information significant volumes of antibiotics as well as respiratory and good cause. In 2010 this continued with employees supporting a diabetes treatments. Our consumer division provided a range wide range of charities and projects including work in local schools, of products, including toothpastes, antacids, pain relievers and shelters for the homeless, community gardens, nursing homes and vitamins. During the cholera outbreak we responded to a further aiding communities affected by natural disasters. specific request for antibiotics and donated £250,000 to the The GSK PULSE Volunteer Partnership launched in 2009 enables British Red Cross to support the deployment of a mass sanitation GSK employees to make a difference to communities and patients unit serving more than 50,000 people living in temporary relief in need around the world. Volunteers work full-time with one of camps. Following the earthquake in Chile, in response to an our partner non-profit or non-governmental organisations (NGOs). urgent request we supplied 95,000 doses of Hepatitis A vaccine, Through this experience, volunteers address a clear NGO need, P192–P212 antibiotics and more than 6,000 dental hygiene kits. while developing their own leadership capabilities. During 2009 In Pakistan we provided medicines from local stocks for the and 2010, PULSE deployed 116 volunteers in 33 countries to work thousands of people affected by the flooding. We also made cash with 42 NGOs. Volunteers continue to receive their full GSK salary donations amounting to £170,000, including a contribution to during their three to six month assignment. In 2010, this figure, the World Food Programme to support emergency food supply. along with the operating costs for managing the programme, represented a total in-kind donation of £2.4 million. The total value of our international humanitarian product donations was £9 million at average cost.

GSK Annual Report 2010 32 Responsible business

Environmental sustainability A central fund to ﬁnance energy saving projects has accelerated We are committed to integrating environmental sustainability progress since 2007. In 2010 we completed 188 projects, which into our business, especially conserving resources and will avoid around 52,000 tonnes of greenhouse gas emissions addressing climate change. We see this as an opportunity as a year. well as a responsibility. We are also increasing investment in on-site generation of Strategy and plans renewable energy, supported by a renewable energy fund created in 2010. GSK Consumer Healthcare installed North America’s We revised our environmental sustainability strategy in 2010, largest roof mounted solar photo voltaic system at its regional building on the strategy originally introduced in 2001. The new distribution centre in York, Pennsylvania. It will save nearly 1,800

Business review P08–P57 strategy recognises our impacts across the entire value chain, from tonnes of carbon dioxide emissions per year. raw materials to the disposal of our products. Our objective is to benefit the environment, engage employees in tackling key issues GSK’s global operations were certified to Carbon Trust Standard in and benefit GSK financially – potentially saving £100 million a year 2010, the first company to achieve this recognition of excellence in by 2020 through reduced energy, materials and distribution costs. carbon management for all global operations.

Analysis of GSK’s impacts shows that we need to concentrate in Water three main areas: Water is a particularly important natural resource, and we recognise • carbon dioxide and other emissions that contribute to that GSK can play a positive role in managing it more sustainably. climate change We endorsed the United Nations CEO Water Mandate in 2009. • water use In 2010 we reduced water consumption by almost 500 million litres despite significant business growth in our vaccines manufacturing • environmental stewardship, which covers the use of materials, business. Net water consumption fell by 1.6% per £1 of sales, a generation of waste and pollution. cumulative reduction of 15.7% since 2006, exceeding our target We have set ambitious goals for key impacts, including a 25% of 10%. reduction in our carbon footprint, a 20% reduction in water use We also exceeded our targets for improving the quality of across the value chain and zero waste to landfill, all by 2020. waste water. The targets are detailed in our Corporate Responsibility report. Environmental stewardship Climate change and energy We aim to use materials efficiently and safely, minimising waste Our long-term vision is for our entire value chain to be carbon and pollution and avoiding harm to people and the environment. neutral by 2050. This very ambitious target means that there will be no net greenhouse gas emissions from manufacturing, Increasing the efficiency with which we use materials is a priority. distributing, using and disposing of our products, including Our long-term aspiration is to achieve 5% mass efficiency by sourcing raw materials. 2020 for new pharmaceutical products transferred from R&D to manufacturing. This is about five times the typical level in the We need to act beyond our own operations because 40% of our pharmaceutical industry and will reduce input materials and carbon footprint stems from our supply chain and a further 40% waste by 80%. The average mass efficiency for new products derives from propellants when customers use our inhalers. This was during the 2006-2010 period has reached 3.3%. confirmed by a global carbon footprint review of our entire value chain, carried out for the first time in 2010. Improvements in the efficiency of solvent use also reduced the amount of volatile organics released to air by 12.8% per £1 of

GSK’s carbon footprint (million tonne CO2e per annum) sales in 2010, cumulatively 35.8% since 2006. 4 5 Packaging provides further opportunities to conserve resources 3 and in 2010 we began to implement the sustainable packaging 1 Materials/supply chain (5.66) strategy developed in 2009. We also began to update our green 1 2 Product use (5.50) packaging guide for designers and managers. In 2010, the US American Institute of Chemical Engineers presented its Industrial 3 Production and operations (2.65) Practice Award in Sustainable Engineering to our operational 4 Distribution (0.18) sustainability team for its work embedding sustainability into 5 5 Product end of life (0.03) R&D and manufacturing. 2 Environmental management

We met our goal of eliminating the use of chlorofluorocarbons We manage environmental issues (as well as occupational health (CFCs) in our products by the end of 2010. This has reduced and safety) using a management system aligned with recognised greenhouse emissions associated with our inhaler products international standards. Each business is accountable for its own from 24 million tonnes of carbon dioxide equivalents in 1998 sustainability plans and performance. Our central audit group to approximately 4.7 million tonnes in 2010. We have research includes environmental issues in its routine audits of our sites programmes under way to find ways to further reduce the impacts and business processes. We are working increasingly closely with from these products. suppliers and contract manufacturers to reduce environmental impacts from the supply chain. In 2010 we reduced energy consumption for operations and transport by 5.5% and greenhouse gas emissions by 5.8% relative You can read more about our environmental performance and to sales. The cumulative reduction for 2006-2010 is 9.1% for energy other aspects of sustainability in our Corporate Responsibility and 10.7% for emissions. This is below our target of 20%, mainly Report at: www.gsk.com. because progress was slow in the early years of the five-year period.

GSK Annual Report 2010 33 Responsible business

Ethical conduct Performance and reward Business review P08–P57 We are committed to creating a strong ethical culture at GSK. The performance and development planning process means We do this by emphasising our values, developing robust policies, employees have business-aligned objectives and behavioural recruiting and engaging the right people and equipping them goals. Our reward systems are geared to promote high with the information they need to make ethical decisions. performance and help to attract and retain the best people. Putting patients ﬁrst is the core principle of being an ethical Performance-based pay, bonuses and share-based equity plans pharmaceutical company. align employee interests with business targets. Our Code of Conduct sets out fundamental standards for all Communication and employee involvement employees. It is supported by the Employee Guide to Business Our communication channels are designed to keep employees Conduct which helps employees make ethical decisions and informed, engaged and involved in activities across all areas of emphasises GSK’s key values: our organisation. We encourage two-way, open and honest communication with employees, and in 2010 we launched a • Commit to transparency new updated global intranet portal, ConnectGSK. • Show respect for people Feedback and monitoring mechanisms are part of every major • Always demonstrate the highest integrity in your conduct communication event, and Q&A and feedback facilities are a Governance and remuneration P58–P101 • Be patient focused. core feature of our web communications channels. In 2010 we also introduced ‘Idea Engine’, an online tool which allows We stress our commitment to performance with integrity. employees to submit ideas and recommendations. This means that all employees must understand our values and what we stand for as well as the policies and procedures that As our business evolves, there will be changes that affect underpin our approach. employees and we remain committed to consulting on these changes via a number of internal consultation forums and Our internal compliance systems are designed to identify and discussions with the European Employee Consultation Forum address breaches of our codes and reinforce GSK’s values. There and similar bodies in countries where this is national practice. is continual external pressure to enhance these systems and our compliance oversight and audits are helping to drive this change. Employee numbers by region We fully investigate suspected breaches and take appropriate 1 disciplinary action, including dismissal where appropriate. 3 1 In 2010 we reviewed and strengthened our approach to 1 USA (17,555) preventing, detecting and addressing bribery and corruption. 2 Europe (39,910) 3 Rest of World (38,996)

We launched a dedicated anti-bribery and corruption unit which Financial statements will ensure we take a consistent approach across GSK and strengthens our monitoring capability. 2 Also, we introduced a Third Party Code of Conduct which applies Inclusion and diversity to all GSK suppliers. This sets out the standards we expect We are committed to employment policies free from discrimination suppliers to meet and covers ethical conduct; labour practices, against existing or potential employees on the grounds of race, environmental, health and safety standards; and management. colour, religion or belief, gender, sexual orientation, gender identity

To help suppliers understand how to interact appropriately with P102–P191 or expression, age, national origin, genetic make-up, disability or GSK staff, the Code includes key principles from our Employee chronic health conditions. GSK is committed to offering people Guide to Business Conduct such as our policy on receiving gifts. with disabilities access to the full range of recruitment and career Our due diligence process for potential acquisitions takes account of opportunities. Every effort is made to retain and support employees ethical risks and we integrate our ethics and compliance requirements who become disabled while working at GSK. For more details on as standard practice in newly acquired businesses. We seek to enter diversity measures, see our Corporate Responsibility Report. into joint ventures with organisations that share our values. Healthy and safe high performance

Our employees To meet our mission and strategy, Employee Health and Shareholder information Performance initiatives focus on the health factors that enable Recruitment, talent management and leadership develoment employees to perform at the highest level by sustaining energy In 2010, like every year, recruiting, retaining and developing and engagement. The programmes developed to deliver this our employees were critical to enhancing and sustaining our health strategy range from the traditional – such as immunisations, performance and reputation. Proactive talent acquisition initiatives smoking control and weight management – to cutting-edge underpin our ability to attract specialist and leadership talent programmes in the areas of team and personal resilience, externally. Our assessment process is aligned to a core set of ergonomics and Energy for Performance. These programmes, competencies, of which ethics and integrity are central. available in many languages, are designed to address the root

We need good succession plans, not just for senior roles but for causes of excessive work pressure and low energy and engagement P192–P212 all our critical positions across the organisation. We maintain a at work and at home. They are complemented by our commitment robust leadership strategy to identify and develop our highly skilled to ﬂexible thinking about the way we deliver our work that enables leadership cadre and use a systematic, disciplined approach to employees to do their best work in an environment that helps leadership development, providing tools and programmes to help them integrate their work and personal lives. For more details on leaders master skills needed to meet customer, employee and the scope and impact of these programmes, see our Corporate investor expectations. In 2010, we provided training to nearly 8,000 Responsibility Report. GSK leaders worldwide and also developed new programmes for future senior leaders and senior executives.

GSK Annual Report 2010 Business review P08–P57 7% inAsiaPacific/Japan. and 9% to£3.1billion.Excludingpandemicrelated products, (2009 –£89million).AsiaPacific/Japanpharmaceuticalsalesgrew helped bypandemicrelated product salesof£227million with strong growth across mostproduct categories andalso Emerging Marketspharmaceuticalsalesgrew 22%to£3.6billion, reflecting austeritymeasures. theimpactofgovernment of Ventolin increased by4%. related products, genericcompetitionto due totheimpactofasignificantreduction insalesofpandemic Europe pharmaceuticalssales declined6%to£6.5billion,primarily launched since2007grew 29% andcontributed8%of2010sales. the product range.Newproducts (excludingpandemicvaccines) XL discontinuation ofGSK’s promotion of these products,grew underlying turnover 3%,despitethe pandemic products, declined2%to£23.4billion.Excluding Pharmaceutical turnover therapeutic areas onpage35andbygeographicsegmentbelow. by rates maybefoundinthetablesofpharmaceuticalturnover isdescribedonpage21.Sterlinggrowth of underlyingturnover exchange rates(CER)unlessotherwisestated.Thecalculation All growth ratesincludedintherevieware ofturnover atconstant Pharmaceutical turnover Financial review 2010 Seretide product saleswaspartlyoffset bygrowth ofkeyproducts suchas of genericcompetitionto declinedby 2%in2010astheimpact Pharmaceutical turnover bytherapeuticareaPharmaceutical turnover pandemic related products andlowersalesof generic competitionto Sales intheUSAdeclined11%to£7.6billion,primarilydue * co-promotion incomewithineachmarket. by GSK’s localentitytoitscustomersinthemarketplus reportedThe turnover inthetablebelowrepresents sales invoiced Segmental analysis GSK Annual Report 2010 GSK Annual Report USA 34 Europe Emerging Markets Asia Pacific/Japan ViiV HealthcareViiV Other at actualexchangerates.Turnover byquarterisgivenonpages194to198. CER% represents growth atconstantexchangerates.£%represents growth inMay2009,andtheimpactofUShealthcare reform across Avandia Avandia / andthevaccinesfranchise. Advair . Excludingtheseproducts, underlyingsaleswere flat, , underlyingsalesgrew 20%inEmergingMarketsand , Avamys Avandia Valtrex / Veramyst Valtrex and , asignificantreduction insales of 23,382 7,648 6,548 3,556 3,102 1,566 , lower 2010 Valtrex 962 , £m Avodart Boniva (restated) 364()(1) (2) 23,694 Avandia , underlying turnover , underlyingturnover Valtrex ,7 1)(11) (11) 8,578 ,8 6 (8) (6) 7,087 ,9 223 22 2,895 ,2 18 9 2,628 ,0 3 (2) (3) 1,605 , 2009 0 1 7 (1) 901 Lovaza £m , thesaleof Avandia and lower sales andlowersales and pandemic andpandemic , Tyverb E%£% CER% . Excluding . Excluding Wellbutrin Valtrex / Tykerb Growth*

, reflecting genericcompetitionintheUSAandEurope. second quarterof2009. reflected thesaleof to £522millionand competition intheUSA.The The majorityofGSK’s CNSfranchiseisimpactedbygeneric CNS salesdecreased 8%to£1.8billion. Central nervoussystem(CNS) orders were received. against theprevious yearwherepandemic significantgovernment Relenza Anti-virals decreased 56%to£1.1billion. Anti-virals Avamys Several otherrespiratory products delivered growth including and grew 2%inEurope to£1.6billion. 16% to£328million.SalesintheUSAwere levelat£2.6billion in Japan,up17%to£246millionandEmergingMarkets, Seretide/Advair Respiratory salesincreased 3%to£7.2billion. Respiratory to £221million, contributed tothisgrowth including pandemic vaccinesales,growth was10%.Severalnewvaccines of pandemicvaccinesales(2009–£883million).Excludingflu Total vaccinesalesgrew 15%to£4.3billion,including£1.2billion Vaccines £31 million,respectively. and segments. Newlylaunchedoncologyproducts Tyverb/Tykerb Oncology andemesissalesincreased 9%to£0.7billion. Oncology andemesis to beminimalinthefuture. global salesofrosiglitazone containingproducts, including Mitigation Strategy(REMS)programme. Asaresult, GSKexpects continue tooutweighitsrisks,includingaRiskEvaluationand announced additionalmeasures toensure thebenefitsof including marketing authorisationforallrosiglitazone containingproducts, 23rd September2010the European MedicinesAgencysuspended Avandia Metabolic salesdecreased 44% to£0.7billion. Metabolic reflecting Cardiovascular andurogenital salesincreased 11%to£2.6billion, Cardiovascular andurogenital markets earlierin theyear. market share lostfollowingitstemporarysuspensionfrom several down 18%to£235million,as the product continuestorecover seasonal flusalesgrew 14%to£241million. to £720million, up 26%to£242million.Sales of Hepatitisvaccinesgrew 7% Lovaza up 19%to£301million, Promacta , up17%to£530million. / saleswere £121million(2009–£720million),down84%, product salesdeclinedby 44% to£440million.On Veramyst Avandia, continued strong growth ofkeyproducts suchas , up34%to£227million,grew strongly inall delivered salesof£38million,£31millionand salesgrew 2%to£5.1billion,withstrong growth Boostrix Infanrix , up33%to£193million, and the US Food and Drug Administration andtheUSFoodDrugAdministration Flovent Wellbutrin XL Valtrex / , up29%to£181millionand Pediarix Avodart , up2%to£804million. sales declined 60% to £532 million salesdeclined60%to£532million Wellbutrin grew 8%to£700millionand , up18%to£629million,and in the USA to Biovail in the intheUSAtoBiovail Synflorix decline of 39% primarily declineof39%primarily Ventolin , more thandoubling Rotarix Votrient , up 8% , up8% saleswere , Cervarix Arzerra Avandia Avandia, Arixtra ,

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 35 Growth Rest of World CER% £% £m 2010 GSK Annual Report 2010 Growth – – 47 2 12 – – 12 22 33 – – 5 >100 >100 – –1–– – –2–– ––1–– – – 68 5 11 – –1–– – –1–– – –1–– ––3–– – –1–– – – ––– – –25–– 8 8 184 2 11 8 10831526 4 9 88 >100 >100 7 4 13 – 18 7 9 75 17 25 9 13 46 (14) (8) (5) (5) 28 – 12 (3) (4) 300 (9) (2) (3) (1) 384 (44) (39) 10 10 176 1 7 23 19 47 42 52 17 17 485 (2) 7 17 18 58 (5) 4 15 14 83 10 17 10 14 69 2 10 29 31 13 (7) (7) 19 20 89 (2) 10 30 3025 5 24 (25) 255 25 23 33 3816 41 19 166 606 (10) 10 (1) 21 43 43 15 18 36 50 50 84 90 >100 11 11 48 (30) (27) 13 11 75 3 17 29 29 19 (16) – 52 56 197 26 37 19 21 1,079 4 14 36 36 33 72 83 38 39 955 85 100 50 50 49 2 14 86 86 11 – 10 17 17 6 (14) (14) 3138 38 38 20 71 – 14 22 5 22 29 40 (3) 5 35 39 175 7 16 3722 38 23 275 4,064 – 6 6 15 (97) (97) 71 (80) (79) (43) (45) 73 (32) (26) (33) (33) 37 (23) (16) (22) (21) 21 (17) (13) (43) (43) 7 (13) (13) (24) (24) 183 (17) (11) >100 >100 477 >100 >100 >100 >100 37 94 >100 >100 >100 29 >100 >100 >100 >100 15 >100 >100 CER% £% Emerging Markets – – – – – – – – 5 1 2 1 2 9 4 3 2 7 57 28 42 58 91 55 40 14 25 13 31 48 10 33 28 88 39 50 73 30 13 62 63 18 29 11 30 26 £m 609 223 136 291 223 226 112 134 328 616 286 102 149 927 146 385 2010 3,556 Growth in the ﬁnancial record on pages 194 to 198. in the ﬁnancial record CER% £% £m 2010 Growth CER% £% £m 2010 Total USA Europe Growth –– –––19–– 1 1 257 (4) (4) 143 (6) (7) 4 7 13 (24) (24) 26 (10) (10) 91011389––– 612–––1–– 49 ––– ––– 8 9 179 16 17 142 (3) (5) 22 4 3 431 2,604 8 – 9 – 1,601 159 2 (9) (11) – 7 8 307 19 19 242 (6) (8) 8 8 146 8 9 429 8 6 2 2 55 2 – – – – 3 4 3,394 1 2 2,149 – (2) 1 2 210 (7) (6) 245 3 – 9 9 350 13 14 201 1 (1) (6) (6) 11 (76) (76) 240 (17) (19) (1) (1) 170 (1) (1) – – – (2) (3) – – – 154 (9) (11) (5) (4) 37 37 37 40 (7) (7) (3) (3) 51 (14) (14) 27 8 4 (4) (4) 75 (28) (27) 536 (14) (16) (8) (6) 505 (23) (22) 540 (4) (6) (2) (1) (2) (1) 7,648 (11) (11) 6,548 (6) (8) (3) (2) 660 (8) (8) 585 (5) (8) 11 11 44 69 69 137 2 (1) 17 18 528 17 18 – – – 31 35 1 (99) (99) 488 (6) (7) 1119 12 1,571 19 10 177 11 25 610 26 7 99 5 8 4 18 19 337 5 6 175 22 18 14 14 110 51 51 63 (8) (11) 51 54 358 70 70 246 48 45 29 30 110 51 51 43 10 8 26 29 13 >100 >100 116 (14) (16) 33 36 69 – 1 56 27 24 15 17 763 (7) (6) 1,681 (2) (4) 34 34 70 28 30 94 28 25 16 17 24 53 41 310 9 6 15 18 53 >100 >100 27 (10) (10) (21) (20) 75 (39) (39) 85 (10) (11) (60) (59) 252 (73) (73) 68 (56) (58) (84) (83) 43 (69) (69) 6 (97) (97) (69) (69) – (100) (100) 64 (26) (28) (44) (43) 237 (45) (44) 88 (48) (49) (39) (39) 24 (73) (73) 39 33 30 (16) (15) 64 (12) (12) 98 (16) (16) (18) (17) 74 (4) (3) 38 (28) (28) (12) (8) 27 (36) (36) 82 (15) (17) (28) (28) 73 (30) (30) 60 (26) (27) (16) (16) 83 (17) (17) 48 (17) (19) (12) (13) 80 (19) (19) 51 (15) (18) (12) (11) 40 (17) (17) 37 (22) (24) (16) (15) 143 (24) (24) 117 (21) (23) (44) (43) 238 (59) (59) 166 (38) (40) (56) (55) 370 (68) (68) 109 (73) (73) >100 >100 – – – 40 >100 >100 >100 >100 – – – 43 38 34 >100 >100 33 >100 >100 4 – – >100 >100 25 92 92 5 – – >100 >100 34 – – 41 >100 >100 >100 >100 26 >100 >100 4 – – >100 >100 71 >100 >100 – – – >100 >100 67 >100 >100 23 >100 >100 CER% £% – 1 3 1 19 75 55 73 13 28 46 £m 209 500 266 217 629 720 104 255 667 771 450 114 883 229 665 211 132 172 775 649 187 477 254 171 236 530 142 123 707 139 282 523 169 201 172 129 546 425 178 848 129 2009 1,457 1,870 1,294 1,181 2,416 2,298 4,977 6,977 3,706 1,605 23,694 22,089 (restated)

78 46 82 74 81 56 38 31 80 31 71 £m 233 504 212 233 688 532 625 121 114 530 222 128 171 241 242 522 301 804 201 629 119 700 164 221 235 181 193 482 227 144 144 115 555 155 363 116 152 2010 1,753 1,086 2,570 5,139 7,238 1,087 4,326 1,566 23,382 21,816 products products 440 CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates. Turnover by quarter is given at actual exchange rates. Turnover growth constant exchange rates. £% represents at growth CER% represents Requip Imigran/Imitrex Lamictal Pharmaceutical turnover by therapeutic area 2010 turnoverPharmaceutical area therapeutic by Financial review 2010 review Financial Central nervous system Zefﬁx Valtrex Bonviva/Boniva Anti-bacterials 1,396 Oncology and emesis Relenza Volibris MetabolicAvandia 678 Augmentin Vesicare Lovaza Hepsera Flu Pandemic 1,192 Fraxiparine Anti-virals Hepatitis 720 Fluarix, FluLaval Wellbutrin Ventolin Zyrtec Cardiovascular and urogenital Arixtra Coreg Flixotide/Flovent Seretide/Advair Serevent Avodart Dermovate Infanrix, Pediarix Cervarix Flixonase/Flonase Bactroban Rotarix Therapeutic area/ Therapeutic major products Treximet Respiratory Avamys/Veramyst Synﬂorix Dermatologicals Vaccines Boostrix Votrient Seroxat/Paxil Tyverb/Tykerb Promacta Selzentry Trizivir Hycamtin Epivir Epzicom/Kivexa Lexiva Arzerra Combivir Soriatane OtherViiV Healthcare (HIV) 994 Duac Zovirax

Business review P08–P57 contributed salesof£256million,up8%. dermatology portfolio,reported withinConsumerHealthcare, was approximately 6%.Inaddition,GSK’s heritageconsumer for thebusinessonapro-forma basis,excluding2010acquisitions, principally StiefelinJuly2009.Theestimatedsalesgrowth in2010 products andthoseacquired through businessacquisitions, Dermatology saleswere £1.1billion,includingheritageGSK Dermatologicals Financial review 2010 performance of Nutritional healthcare salesgrew 9%to£1.0billion,drivenbythestrong Nutritional healthcare declined slightly. performed strongly anddenture care salesalsogrew. Salesof Sales ofOralhealthcare products rose 6%to£1.6billion. Oral healthcare sales of OTC product salesgrew 3%to£2.4billionin2010,drivenby OTC medicines USA grew 1%to£1.0billion. with lastyearsalesof£2.0billionandthebusinessin grew by19%and18%,respectively. Europe saleswere level £2.0 billion,drivenbystrong growth inIndiaandChina,which approximately 2%.Salesin theRestofWorld grew 13%to signiﬁcantly exceedingmarketgrowth estimatedbyGSKtobe Total ConsumerHealthcare saleswere up5%to£5.0billion, * Oral healthcare medicines Over-the-counter Consumer Healthcare turnover down 12%to£115million. to £144million, Epzicom Viracept £1.6 billion.SalesoftheformerPﬁzerproducts Sales ofHIVproducts Healthcare byViiV were down3%to HealthcareViiV (HIV) GSK Annual Report 2010 GSK Annual Report 36 Nutritional healthcare products andlowersalesof dermatology products, partly offset bylowerrespiratory tract in thesalesfrom otherHIVproducts including at actualexchangerates.Turnover byquarterisgivenonpage199. CER% represents growth atconstantexchangerates.£%represents growth Panadol , withcombinedsalesof£118millionandgrowth from / Kivexa Horlicks , up1%to£555million,were offset byreductions , nicotinereplacement therapy products and Combivir andgrowth in , down16%to£363millionand alli 100 % of total . 49 32 19

Lucozade 2,456 1,602 5,010 952 2010 £m

(restated) 2,339 ,8 8 6 1,484 ,7 7 5 4,674 sales. Trizivir 5 12 9 851 2009 Selzentry £m

, down 28% , down28% Sensodyne E%£% CER% and and 3 Aquafresh

Epivir Growth*

, 5

charged andpaidin2008. October 2007thatmeetsthecriteriasetoutabove,were all of ReliantPharmaceuticalsInc.,theonlyotheracquisitionsince The restructuring costsincurred asadirect result oftheacquisition in July2009,were £103million(2009–£71million). a direct result oftheacquisitionStiefelLaboratories,Inc. in thesamemanner. Therestructuring costsincurred in2010as it appropriate topresent thecostsoftheserestructuring activities following adetailedformalplan.Managementtherefore considers the OperationalExcellenceprogramme andare alsocarriedout acquisitions are ofthesamenature asthoseundertakenunder The restructuring activitiesthatfollow, andrelate to,such overlap extensivelywithGSK’s existingoperations. material acquisitionswhere theoperationsofacquired business result ofanyrestructuring programmes thatfollow, andrelate to, statement includesrestructuring costsincurred solelyasadirect programme, themajorrestructuring columnintheincome In additiontotherestructuring costsoftheOperationalExcellence ‘Major restructuring’. inaseparatecolumntheincomestatementtitled amounted to£1,242millionbefore tax(2009–£764million), Operational Excellencerestructuring programme, whichin2010 the restructuring costsincurred solelyasadirect result ofthe the mannerinwhichGSK’s businessisconducted.GSKpresents believes ithasamaterialimpactonGSK’s operatingresults andon the OperationalExcellencerestructuring programme, management are expectedtobemadein2011. Giventheextentandcostof completed. However, themajorityofremaining cashpayments difficult topredict withprecision whentheseprocedures willbe are subjecttoemployeeconsultation procedures, makingit fluctuations andasmanyelementsoftherestructuring programme outflows, asaresult ofpotential future exchangerate Uncertainties existovertheexactamountandtimingofcash accounting write-downs. expected tobecashexpenditures and25%are expected tobe balance in2012.Intotal,approximately 75%ofthesecostsare approximately 20%are expectedtobeincurred in2011withthe 75% ofthesecostswere incurred by31stDecember 2010, and by thetimeitissubstantiallycompletein2012.Approximately to deliverannualpre-tax savingsofapproximately £2.2 billion approximately £4.5billion,theexpandedprogramme isexpected anestimatedtotalcostof selling, R&Dandinfrastructure. With plans, coversallareas ofGSK’s business,includingmanufacturing, The restructuring programme, comprisingthesedetailed formal and announcedinFebruary2010. in February2009.A Excellence programme, wasapproved bytheBoard andannounced plan, representing asignificantexpansionoftheOperational Operational Excellencerestructuring programme. Asecond formal detailed formalplanfor, andGSKannounced,asignificantnew In October2007theBoard approved theimplementation ofa total results Results before majorrestructuring and further expansionwasapproved bytheBoard Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 37 (55) , various sales, US 2009 Growth GSK Annual Report 2010 Avandia £m % CER% £% Wellbutrin XL Wellbutrin 1,135 3.9 8,425 29.7 (59) (7,380) (26.0) 3(4,106) 3 (14.4) 8 9 (9,592) (33.8) 36 36 28,368 100 (1) – ), lower in the USA, and asset disposals 2010 Valtrex Boniva £m % 493 1.7 3,783 13.3 (7,592) (26.7) (4,457) (15.7) 28,392 100 (13,053) (46.0) healthcare reforms and European austerity price cuts, and inventory and European reforms healthcare the by savings from and other asset write-downs, partially offset of costs and lower restructuring Operational Excellence programme £187 million (2009 – £285 million). asset disposals to Aspen Pharmacare, a royalty dispute settlement a royalty asset disposals to Aspen Pharmacare, gain of £78 million and the accounting gain of £296 million on of ViiV Healthcare. the creation Selling, general and administration of turnover by 12.2 SG&A costs as a percentage increased points to 46.0%. Excluding legal costs of £4,001 percentage 31.9% of were million (2009 – £591 million), SG&A costs points 0.2 percentage turnover of (2009 – 31.7%). The increase in SG&A on a flat a 1% Sterling (1% CER) increase reflected costs of restructuring sterling turnover SG&A included growth. markets in growth £665 million (2009 – £392 million), investment by of Stiefel partly offset and the full year impact of the acquisition and lower and Europe operational excellence savings in the USA Advertising and transactions. exchange losses on inter-company 1% declined 1%, selling and distribution increased promotion 2%. legal increased and general and administration excluding and development Research was 15.7% of total turnover (2009 – 14.4%)R&D expenditure of 9% sterling (8% CER) in expenditure an increase reflecting on a flat sterling turnover This included restructuring growth. R&D costs of £493 million (2009 – £155 million), ViiV Healthcare investments and lower intangible asset impairments of £126 million the Operational Excellence (2009 – £167 million) and savings from In addition, the comparison to prior year was programme. of a recoverable recognition unfavourably impacted by the one-off balance in 2009. Other operating income Other operating income was £493 million (2009 – £1,135 million) income of £296 million (2009 – royalty primarily reflecting the transfer to Genentech of the £296 million), income from rights to exclusive promotion Operating profit – total results – total profit Operating the Operational to costs related include restructuring results Total of Reliant and Stiefel. and the acquisitions programme Excellence Turnover Cost of sales to 26.7% of turnover (2009 – 26.0%)Cost of sales increased the impact of generic competition to higher marginreflecting in the USA (principally products of £134 million (2009 – £875 million), partially offset by equity of £134 million (2009 – £875 million), partially offset investment impairments of £65 million (2009 – £135 million). The 2009 income included the disposal of Cost of sales Selling, general and administration Research and development Other operating income Operating profit The Group’s results before the costs of the Operational Excellence of the Operational the costs before results The Group’s programmes restructuring and acquisition-related programme in a also presented are criteria described above meeting the described as statement and are in the income separate column which This presentation, restructuring’. major ‘Results before major restructuring to future to apply consistently GSK intends operating on GSK’s a material impact that have programmes business is conducted, GSK’s and on the manner in which results both results show clearly the Group’s has been adopted to programmes. restructuring and after the costs of these before assists shareholders that this presentation Management believes financial of the Group’s understanding in gaining a clearer financial of future projections performance and in making such costs, by virtue of their that include performance, as results value. This presentation have limited comparative size and nature, the way management assesses the Group’s is also consistent with financial performance. of result as a direct solely costs incurred Only the restructuring and the restructuring the Operational Excellence programme following the Reliant and Stiefel acquisitions have programmes column in the income in the major restructuring been reported costs principally have arisen from statement. These restructuring termination plant and equipment and the impairments to property, of as part made redundant of the employment contracts of staff activities. As set out in Note 7 to the financial the restructuring asset impairments programme’, statements, ‘Major restructuring of the together accounted for £753 million redundancies and staff in in 2010 and reported costs incurred £1,348 million restructuring column. the major restructuring result costs that do not arise solely as a direct Any restructuring and restructuring of the Operational Excellence programme to, acquisitions meeting following, and relating programmes in operating reported the criteria described above continue to be These costs major restructuring. before expenses within results to minor acquisitions and costs related included restructuring cost) that related £5 million of income in 2010 (2009 – £4 million of the commencement activity initiated before to restructuring None of this restructuring the Operational Excellence programme. or on operating results activity had a material impact on GSK’s the manner in which its business is conducted. from costs of £595 million in 2010 arose The remaining result solely as a direct incurred miscellaneous expenditures including the termination of programmes, of the restructuring costs and consultancy site closure leases, accelerated depreciation, GSK’s management fees. No costs arising from and project in the major ongoing operating activities have been reported column. restructuring During the anticipated duration of the Operational Excellence expect to incur any material GSK does not currently programme, and to that programme costs except those related restructuring acquisitions meeting the criteria described above. If any further, to arise during costs were unanticipated material restructuring this period, GSK would expect to include them also in the major column. restructuring taxation, taxation and profit before profit operating profit, GSK’s discussed below in terms of both total results, for the year are before costs, and results which include major restructuring major restructuring. Financial review 2010 review Financial Business review P08–P57 of sales,higherR&Dexpenditure andlowerotheroperatingincome. terms) principallyreflecting a1%declineinturnover, highercost £7,784 millionan18%declineinCERterms(14%sterling £4,001 million(2009–£591million),operatingprofit was in sterlingterms)compared with2009.Excludinglegalcostsof was £3,783million,adecrease of59%CER(adecrease of55% (2009 –£832million)fortheyearended31stDecember2010 Operating profit afterrestructuring chargesof£1,345 million Operating profit –totalresults Financial review 2010 Operating profit income Other operating development Research and andadministration Selling, general Cost ofsales Turnover The results before majorrestructuring are set outbelow: restructuring Operating profit –results before major sterling decline. £7,891 millionin2009,a64%CERdeclineand60% profit before taxationwas£3,157millioncompared with interest inassociatesandthe share ofprofits ofassociates,total Taking accountofnetfinancecosts,theprofit ondisposalof Profit before taxation–totalresults in Quest. (2009 –£64million)arose principally from theGroup’s holding The share ofaftertaxprofits ofassociates£81million Share ofaftertaxprofits ofassociatesandjointventures £600 million(£250aftertax). a pre-tax profit ondisposalofassociatesin2011approximately Group solditsentire shareholding inQuest,whichwillgiveriseto 5.7 millionQuestshares. Subsequent tothe2010year-end the (2009 –£115million).The2009profit arose from thesaleof Profit ondisposalofinterest inassociateswas£8million Profit ondisposalofinterest inassociates Net financecosts Profit before taxation–totalresults GSK Annual Report 2010 GSK Annual Report Other financeexpense Fair valueadjustmentsandhedges Unwinding ofdiscountsonliabilities Interest costs Finance costs Fair valueadjustmentsandhedges Unwinding ofdiscountsonassets Interest andotherfinanceincome Finance income 38 1,8)(43.6) (12,388) 832100 28,392 394 (14.0) (3,964) (26.1) (7,405) ,2 18.1 5,128 9 1.8 493 m% £m 2010 83810()– (1) 100 28,368 391 1.)–– – 35 (13.9) 4 (3,951) 35 (32.4) 4 (9,200) (25.0) (7,095) ,5 26(8 (45) (48) 32.6 9,257 3.9 1,135 m%CR £% CER% % £m 09Growth 2009 (831) (767) 116 102 2010 (25) (21) (18) 13 £m 1 (783) (770) 2009 (11) 70 67 £m (2) 1 2 – million). The2009incomeincludedthedisposalof by equityinvestmentimpairmentsof£65million(2009–£135 disposals of£134million(2009–£875million),partiallyoffset charges tobearoundin2011. 30.5% ofturnover in totalSG&A.ThecompanyexpectsSG&Acostsexcludinglegal declined 1%.Collectivelytheseitemsaccountedfora2%decline declined 4%andgeneraladministrationexcludinglegal Advertising andpromotion declined1%,sellinganddistribution the acquisitionofStiefel. offset byinvestmentingrowth marketsandthefullyearimpactof and lowerexchangelossesoninter-company transactions,partially reflected operationalexcellencesavingsintheUSAandEurope growth.year onaflatsterlingturnover Thedeclineinexpenditure 3% Sterling(2%CER)declineinexpenditure compared withprior (2009 –30.3%). Excluding legalcostsSG&Awere 29.5%ofturnover ‘Other provisions’ forfurtherdetails. million (2009–£591million).SeeNote29tothefinancialstatements, points to43.6%,primarilyreflecting higherlegalchargesof£4,001 SG&A costsasapercentageincreased ofturnover by11.2percentage Selling, generalandadministration products intheUSA(principally reflecting theimpactofgenericcompetitiontohighermargin Cost ofsalesincreased(2009–25.0%) to26.1%ofturnover Cost ofsales of theexclusivepromotion rightsto (2009 –£296million),incomefrom thetransfertoGenentech primarily reflecting royalty incomeof£296million Other operatingincomewas£493million(2009–£1,135million) Other operatingincome remain around 14%in2011. company expectsR&Dcostsasapercentageto ofturnover the one-off recognition ofarecoverable balancein2009.The The comparisontoprioryearwasunfavourablyimpactedby Healthcare(2009 –£167million)andhigherViiV R&Dinvestment. lower intangibleassetimpairmentsof£126million This includedsavingsfrom theOperationalExcellenceprogramme, reflecting flatexpenditure growth. onaflatsterlingturnover R&D expenditure(2009–13.9%) was14.0% oftotalturnover Research anddevelopment divestments ofnon-core OTCbrands. excluding theprofit arisingontheproposed ConsumerHealthcare expects otheroperatingincometobearound £600million, million onthecreation Healthcare. ofViiV In2011,thecompany settlement gainof£78millionandtheaccounting£296 various assetdisposalstoAspenPharmacare, aroyalty dispute remain around 26%. expects costofsalesasapercentagein2011to ofturnover from theOperationalExcellenceprogramme. Thecompany inventory andotherassetwrite-downs,partiallyoffset bysavings US healthcare reforms andEuropean austeritypricecuts,and The decrease of0.8percentage pointsreflected a Valtrex Boniva ), lower in the USA, and asset intheUSA,andasset Avandia Wellbutrin XL sales, sales, , Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 39 Growth GSK Annual Report 2010 £m CER% £% 2009 5,669 (71) (67) 5,531109.1p (75) (75)$3.40 (70) (71) 6,283 (56)6,145 (53) (59) (55) 5,069 108.2p $3.38 5,108 121.2p (59)$3.78 (56) £m 2010 32.1p 53.9p 31.9p 1,853 1,634 $1.00 2,961 2,742 $1.67 5,085 $0.99 5,129 Profit for the year for Profit The lower tax charge for 2010 reflects higher legal charges oflegal charges higher reflects for 2010 tax charge The lower – £0.6 billion). £4 billion (2009 to £1,304 million amounted profits for taxation on total The charge of 41.3% (2009 – 28.2%). tax rate an effective and represented major restructuring before for taxation on profit The charge an effective and represented to £1,544 million charges amounted expects – 28.0%). GSK currently tax rate of 34.3% (2009 on the disposal of the profit excluding a tax rate on 2011 profits the tax due on However, 27%. of around the Quest shareholding in Quest is shareholding on the disposal of the realised the profit 29.5%. tax rate for 2011 to around the overall expected to increase tax that may arise on the proposed of any This excludes the effect brands. of non-core divestments Consumer Healthcare for that it has made adequate provision GSK continues to believe open assessments. The ultimate arise from the liabilities likely to and the amounts provided may vary from liability for such matters and outcome of litigation proceedings is dependent upon the tax authorities. negotiations with the relevant Total profit attributable to Total shareholders Basic earnings per share (pence) Basic earnings per ADS (US$) major restructuring Results before Total profit after taxation Total for the year Results before major restructuring major restructuring Results before attributable to shareholders profit Adjusted earnings per share (pence) Adjusted earnings per ADS (US$) Weighted average number of shares (millions) Diluted total earnings per share (pence) Diluted total earnings per ADS (US$) profit after taxation for the year profit Diluted weighted average number of shares (millions) Dividend a fourth interim dividend of 19 pence per has declared The Board a dividend for the year of 65 pence, a 4 pence in resulting share for 2009. The equivalent on the 61 pence per share increase by ADR holders is 61.5296 cents per interim dividend receivable ADS based on an exchange rate of £1/$1.6192. The ex-dividend date of 11th February date was 9th February 2011, with a record 2011 and a payment date of 7th April 2011. Total results including restructuring costs produced a basic EPS of costs produced including restructuring results Total with 109.1p in 2009. This was a 75% decline in 32.1p compared CER terms and a 71% decline in sterling terms. Excluding major with 121.2p. costs, EPS was 53.9p compared restructuring in sterling This was a 59% decline at CER and a 56% decrease the from benefit arose point currency terms. The 3 percentage weakness of Sterling against most major international currencies of by the strengthening partly offset with last year, compared Sterling against the Euro.

– 2 1 (8) (2) £m £m 67 70 2009 2009 600 417 (780) (770) (183) (192) 1,997 2,414 2,222 1 £m 82 £m 13 (74) (15) (25) (21) 2010 2010 102 116 (156) (118) (828) (767) 1,496 1,422 1,304 Finance income Interest and other income Other finance expense payable for the year was £712 million (2009 – Net interest similar charge in 2011. £710 million) and the company expects a Profit before taxation – results before major before taxation – results before Profit restructuring Net finance costs Fair value adjustments and hedges Fair value adjustments and hedges Operating profit – results before major restructuring major before – results profit Operating for the year ended restructuring major before profit Operating in CER terms million, a 48% decline 2010 was £5,128 31st December (a decrease of 45% in sterling terms). Excluding legal costs of £4,001 legal costs of in sterling terms). Excluding of 45% (a decrease was £9,129 million, profit – £591 million), operating million (2009 of 7% in sterling terms) decrease in CER terms (a an 11% decline of sales, higher cost a 1% decline in turnover, principally reflecting other operating income partly and lower higher R&D expenditure excluding legal margin profit SG&A costs. Operating by reduced offset income was 30.4% in 2010. The companycosts and other operating excluding legal costs and other margin profit expects the operating point lower in 2011. 1 percentage around operating income to be Unwinding of discounts on assets Finance costs Interest costs Unwinding of discounts on liabilities Less double taxation relief Overseas taxation Current taxation Deferred taxation on total profits Taxation UK corporation tax at the UK statutory rate Taxation charge Taxation Taking account of net finance costs, the profit on disposal of account of net finance costs, the profit Taking of associates, profit of profits in associates and the share interests was £4,505 million compared restructuring major tax before before with £8,726 million in 2009, a 52% CER decline and a 48% decline in sterling terms. Profit before taxation – results before major restructuring before – results taxation before Profit Share of after tax profits of associates and joint ventures of after tax profits Share of associates of £81 million of after tax profits The share holding the Group’s principally from (2009 – £64 million) arose in Quest Diagnostics Inc. Profit on disposal of interest in associate disposal of interest on Profit in associates was £8 million disposal of interest on Profit the sale of from arose (2009 – £115 million). The 2009 profit GSK Subsequent to the 2010 year-end, 5.7 million Quest shares. a in Quest, which will give rise to shareholding sold its entire on disposal of associates of approximately profit pre-tax £600 million (£250 million after tax). Financial review 2010 review Financial Business review P08–P57 • • • • • existence intheGroup’s USpharmaceuticalsbusiness: The followingbrieflydescribesthenature ofthearrangementsin complex arrangementsforrebates, discountsandallowances. business isUSpharmaceuticals,andthemarkethasmost In respect oftheTurnover accountingpolicy, theGroup’s largest judgements andestimates’. is giveninNote3tothefinancialstatements,‘Keyaccounting Information onthejudgementsandestimatesmadeintheseareas • • • Goodwill • • • • The criticalaccountingpoliciesadoptedrelate tothefollowingareas: Actual amountsandresults coulddiffer from thoseestimates. liabilities, revenue andexpensesreported inthefinancial statements. make estimatesandassumptionsthataffect theamountsofassets, ‘Accounting principlesandpolicies’.Managementisrequired to by theBoard anddescribedinNote2tothefinancialstatements, IFRS asissuedbytheIASB,followingaccountingpoliciesapproved with IFRS,asadoptedforuseintheEuropean Union,andalsowith The consolidatedfinancialstatementsare prepared inaccordance Critical accountingpolicies Financial review 2010 GSK Annual Report 2010 GSK Annual Report 40

Pensions andotherpost-employmentbenefits. Other intangibleassets Property, plant&equipment Legal andotherdisputes Taxation Turnover anticipated price increases andcompetitor activity. with marketrelated informationsuchasstock levelsatwholesalers, experience ofcustomerreturns to theamountsinvoiced,together records anaccrualfor estimated salesreturnsbyapplyinghistorical adjusted subsequentlytoreflect actualexperience payment. Theseare accruedforatthetimeofinvoicingand increases andtheimpactofcontractingstrategies experience, product andpopulationgrowth, anticipatedprice individual stateagreements usingacombinationofhistorical Medicaid rebates are calculatedbasedonthespecifictermsof GSK participatesbyproviding rebates tostates.Accrualsfor 2010, thePatientandAffordable Care Actbecamelaw. reduce stateandfederalexpenditure onprescription drugs.In 1990, theMedicaidDrugRebateProgram wasestablishedto providing assistancetocertainpoorandvulnerablepatients.In product growth rates on thespecifictermsineachagreement, historicalexperienceand to competitors.Theaccrualforcustomerrebates isestimatedbased purchased, formularystatusor pre-determined marketshares relative certain performancetargetsrelating tothevalueofproduct customers. Thesearrangementsrequire thecustomertoachieve purchasing organisations(GPO) andotherdirect andindirect experience andproduct growth rates are calculatedbasedonthe termsofeachagreement, historical contractual discountedprice.Accrualsforestimatingchargebacks the invoicepricetowholesalerandindirect customer’s reduced prices.Achargeback represents thedifference between the customerisabletobuyproducts from wholesalersat Where there ishistorical experienceofcustomerreturns,GSK Cash discountsare offered tocustomersencourage prompt The USMedicaidprogramme isastate-administered programme Customer rebates are offered tokeymanagedcare andgroup GSK hasarrangementswithcertainindirect customerswhereby pharmaceuticals businessisasfollows: A reconciliationfortheUS ofgrosstonetturnover turnover in theUSpharmaceuticalsbusinesswere asfollows: The totalaccrualsforrebates, discounts,allowancesandreturns Consumer PriceIndexpenaltyonlineextensions. new definitionofAverage Manufacturers Priceandincremental Fee-for-Service rates,anincrease totheBasicMedicaid Rebate,a legislation includeManagedMedicaidSalesbeingdiscountedat amendments. Theadditionalexpensearisingfrom thenew have increased intheyear as aresult oftheUShealthcare reform andstateprogrammes Rebates givenunderUSgovernment financial statements,‘Segmentinformation’. changes tothesegmentalreporting, assetoutinNote6tothe Information relating to2009 and2008hasbeenrestated following Net turnover Total deductions Other items Prior yearadjustments Customer returns Cash discounts stateprogrammes US governmentand rebates PartDandGPO Managed care,Medicare Chargebacks Gross turnover for thispurpose. cannot betotally verified,butisbelievedtobesufficiently reliable This calculationusesthird partyinformation,theaccuracy ofwhich estimated toamountapproximately onemonthofturnover. and inotherdistributionchannels at31stDecember2010were On thisbasis,USpharmaceutical inventorylevelsatwholesalers ofconsumption. based onthepattern this istomaintaininventoriesat aconsistentlevelfrom year toyear sources andinformationreceived from keywholesalers.Theaimof sales volumes,prescription volumesbasedonthird partydata wholesalers foranyabnormalmovements.Thisprocess usesgross A monthlyprocess isoperatedtomonitorinventorylevelsat during 2010. has increased asaresult oftheUShealthcare reform implemented The accrualforrebatesandstateprogrammes toUSgovernment Total Other Customer returns Cash discounts andstateprogrammesUS government andGPOrebates Managed care, Medicare PartD Chargebacks 082100 10,802 314 29 (3,154) ,4 71 7,648 11 2 (191) 1 2 (179) 7 (193) (742) 8 (894) 9 (993) m% £m 8– 38 2010

164101,8 100 10,782 100 11,674 306 7(,2)23 (2,528) 27 (3,096) 8 (836) 10 (1,124) ,7 382477 8,254 73 8,578 15 12 2 (192) 1 1 1 (118) 4 (191) (175) 1 (470) 7 2 (172) 5 (756) (200) (542) 8 (907) m%£ % £m % £m 4–3 – 35 – 24 (restated) December 2009 2009 1,220 At 31st 254 445 422 2010 28 21 50 £m

December (restated) (restated) 1,027 At 31st 192 322 426 2009 2008 2008 26 20 41 £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 41 GSK Annual Report 2010 Property, plant and equipment plant and Property, Derivative financial instruments: assets derivative financial and current GSK had both non-current instruments held at fair value of £190 million (2009 – £197 million). in net investment a decrease primarily reflects The small decrease hedging volumes. Goodwill at £3,361 million during the year from Goodwill has increased primarily increase 31st December 2009 to £3,606 million. The goodwill arising on the acquisition of Laboratorios the reflects Phoenix S.A.I.C.yF. of £72 million and the impact of a of overseas currencies. strengthening Other intangible assets intangibles acquired Other intangible assets include the cost of The net book value parties and computer software. third from 2010 wasof other intangible assets as at 31st December in 2010 increase £8,532 million (2009 – £8,183 million). The business combinations, of £252 million through additions reflects and by the amortisation movements, partly offset and currency impairment of existing intangibles. Investments GSK held investments, including associates and joint ventures, with a carrying value at 31st December 2010 of £1,792 million (2009 – £1,349 million). The market value at 31st December 2010 was £2,688 million (2009 – £2,225 million). The largest of these in two associates: Quest Diagnostics Inc., investments are which had a book value at 31st December 2010 of £494 million Holdings Limited (2009 – £410 million) and Aspen Pharmacare which had a book value at 31st December 2010 of £397 million (2009 – £372 million). The investments include equity stakes in collaborations, which has research the Group companies where access to biotechnology developments of potential interest provide business divestments. in companies that arise from and interests GSK’s business is science-based, technology-intensive and highly technology-intensive business is science-based, GSK’s allocates by governmental The Group authorities. regulated of and maintenance to the renewal financial resources significant risks of interruption to minimise plant and equipment its property, standards. with regulatory achieve compliance and to of production materials. and hazardous use chemicals of its processes A number plant and equipment property, Group’s The total cost of the was £18,895 million, with a net bookat 31st December 2010 Of this, land and buildings represented value of £9,045 million. in and equipment £3,144 million and assets £3,729 million, plant million. In 2010, GSK invested £1,038 millionconstruction £2,172 This is mainly plant and equipment. property, in new and renewal improvement the renewal, for to a large number of projects related is at various worldwide sites. Property and expansion of facilities liquid Group is financed from New investment mainly held freehold. had capital contractual At 31st December 2010, GSK resources. £377 million and operating of expenditure commitments for future believes that its facilitieslease commitments of £415 million. GSK needs. for its current adequate are and uses specialist observes stringent procedures The Group these activities. risks from skills to manage environmental operations now issues, sometimes dating from Environmental under ‘Environmental reported modified or discontinued, are to the financialsustainability’ on page 32 and in Note 44 statements, ‘Legal proceedings’. ) – £m 14 68 58 900 737 129 268 895 454 583 2009 (645) (985) (605) (168) 1,368 6,321 1,416 6,492 6,545 8,183 2,374 4,064 9,374 3,361 (1,471) (6,772) (1,451) (2,256) (2,981 10,005 10,742 10,742 17,570 42,862 25,292 (14,786) (20,002) (32,120) (12,118) ) ) (5 £m 93 16 97 56 858 184 711 556 2010 (707) (904) (594) (291) (188) 1,428 4,779 1,262 8,887 9,745 1,418 5,793 6,057 8,532 1,081 2,566 3,837 9,045 3,606 (1,047) (4,380) (6,888) (2,672 16,036 42,230 26,194 (12,794) (14,809) (19,691) (32,485)

Total equity Non-controlling interests Non-controlling Shareholders’ equity Other reserves Retained earnings Share premium account Equity Share capital Total liabilities Derivative financial instruments Other non-current liabilities Total non-current liabilities Deferred tax liabilities Pensions and other post-employment benefits Other provisions Total current liabilities Non-current liabilities Long-term borrowings Trade and other payables Derivative financial instruments Current tax payable Short-term provisions Liabilities Current liabilities Short-term borrowings Total current assets Total assets Assets held for sale Derivative financial instruments Liquid investments Cash and cash equivalents Net assets 9,745 Current tax recoverable Trade and other receivables Other non-current assets Total non-current assets Current assets Inventories Derivative financial instruments Other investments Deferred tax assets Investments in associates and joint ventures Investments in associates Goodwill Other intangible assets Assets assets Non-current and equipment Property, plant Financial position Financial Financial position and resources and position Financial Business review P08–P57 Trade andotherreceivables use ofinventorythroughout thesupplychain. cycle timesandreduce stockholdingdaysthrough more efficient the year. Thedecrease reflects initiativestoreduce manufacturing Inventory of£3,837millionhasdecreased by£227millionduring Inventories Financial positionandresources Net debt Borrowings –repayableafterone year Borrowings –repayablewithin oneyear liquidinvestments Cash, cashequivalentsand Net debt This contractwasvaluedat£0.7billion31stDecember2010. that willguaranteepaymentofspecifiedpensionerliabilities. In December2010,theUKschemepurchased aninsurancecontract pension liabilitiesfrom 5.75%to5.2%. liabilities from 5.7%to5.5%andtherateuseddiscountUS partly offset byreductions intherateusedtodiscountUKpension by thecompanyandadecrease inthelong-terminflationrate, asset valuesintheUKandUSA,deficitreduction contributions liabilities. Thepensionliabilitiesdecreased followinganincrease in million (2009–£1,213million)onunfundedpost-employment (2009 –£1,745million)onpensionarrangementsand£1,425 surpluses before allowingfor deferred taxationwere £1,224million arrangements inaccordance withIAS19.Thedeficits,netof The Group accountsforpension andotherpost-employment Pensions andotherpost-employmentbenefits reliably estimated. sheet datealegalorconstructiveobligationexistedandcouldbe of restructuring programmes totheextentthatatbalance and otherdisputes,indemnifieddisposalliabilitiesthecosts to legalandotherdisputes.Provision hasbeenmadeforlegal liabilities, ofwhich£4,000million(2009-£2,020million)related 2010 (2009–£3,886million)inrespect ofestimatedfuture and non-current provisions of£5,991millionat31stDecember The Group carrieddeferred taxprovisions andothershort-term Provisions and astrengthening ofyear-end foreign exchangerates. extend suppliertermstowards theGroup’s 60-daytermobjective increased from 2009,reflecting workingcapitalinitiativesto Trade andother payablesamountingto£6,888millionhave Trade andotherpayables higher currency volatilityontheEuro, USdollarandYen. assets onconsolidation.Thesmallincrease reflects marginally relating primarilytohedgingexchangeontranslationofcurrency held atfairvalueof£193million(2009–£168current ) GSK heldcurrent andnon-current derivativefinancial instruments Derivative financialinstruments:liabilities year-end foreign exchangerates. capital. Thesereductions were partlyoffset byastrengthening of other receivables aspartofaGroup initiativetoreduce working during theyearandspecificactionstakentoreduce overdue and 2009 reflecting therecovery ofsignificantlevelsH1N1 debt Trade andotherreceivables of£5,793millionhavedecreased from GSK Annual Report 2010 GSK Annual Report 42 (14,809) (8,859) 6,241 (291) 2010 £m (14,786) (9,444) (1,471) 6,813 2009 £m Total equityatbeginningofyear A summaryofthemovementsinequityissetoutbelow. Total equity Net debtatendofyear Other movements Exchange movements Debt ofsubsidiaryundertakingsacquired Net repayment ofshort-termloans Net increase inlong-termloans Cash inflowfrom liquidinvestments (Decrease)/increase incashandbankoverdrafts Net debtatbeginningofyear Movements innetdebt (2009 –£1,554million). The marketvalueoftheseshares was£1,308million (2009 –£1,138million)hasbeendeductedfrom otherreserves. share optionsandshare awards. Thecarryingvalueof£845million (2009 –118million)GSKshares againstthefuture exercise of At 31stDecember2010,theESOPTrusts held105million the Trusts are matchedtooptionsandawards granted. purchases ratherthantheissueofnewshares. Theshares heldby rules oftheschemerequire GSKtosatisfyexercises through market of theshares heldbytheTrusts are inrespect ofawards where the under theGroup share optionandaward schemes.Aproportion held bytheTrusts tosatisfyfuture exercises ofoptionsandawards £16 millionofshares inGSKplc(2009–£57million).Shares are In 2010,theEmployeeShare OwnershipPlan(ESOP)Trusts acquired Share purchases legal chargesintheyear. The decrease arose principallyfrom theincreased provision for £10,742 millionat31stDecember2009to£9,745million. At 31stDecember2010,totalequityhaddecreased from Total equityatendofyear Distributions tonon-controlling interests Tax onshare-based incentiveplans Share-based incentiveplans Ordinary Sharesacquired byESOPTrusts byESOPTrusts Consideration received forshares transferred Put optionovernon-controlling interest Changes innon-controlling interests Ordinary Sharesissued Dividends toshareholders Total comprehensive incomefortheyear dividends toshareholders andinvestedinnewbusinesses. generated bythecompanyexceedingamountspaidin Net debtdecreased by£585millionduetothefree cash flow 10,742 (8,859 (9,444 (3,205 1,290 9,745 2,086 (642) (118 2010 2010 175 (13 (20 (91 (16 61 £m 17 62 £m – 2 – – ) ) ) ) ) ) ) ) (10,173 10,742 (3,003 (1,358 (9,444 8,318 4,996 1,041 1,054 2009 2009 171 338 102 (89 (57 (14 (87 14 13 43 £m £m (2 (9 ) ) ) ) ) ) ) ) ) ) Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 43 44 1 GSK Annual Report 2010 £m £m £m £m £m Total Under 1 yr 1-3 yrs 3-5 yrs 5 yrs+ Contingent liabilities comprisingThe following table sets out contingent liabilities, and other of credit discounted bills, performance guarantees, letters and when they areitems arising in the normal course of business, expected to expire. Guarantees various In the normal course of business, GSK has provided of business disposals in which indemnification guarantees in respect is legal and other disputes have subsequently arisen. A provision and probable is considered an outflow of resources made where 110 estimate can be made of the likely outcome of the a reasonable dispute and this is included in Note 29 to the financial statements, 64‘Other provisions’. 1 costs of for the settlement policy to provide It is the Group’s disputes when an outflow asserted claims and environmental estimate may and a reliable probable is considered of resources Legal and be made. Prior to this point no liability is recorded. discussed in ‘Risk factors’ on pages 53 costs are environmental to 57 and Note 44 to the financial statements, ‘Legal proceedings’. GSK continues to believe that it has made adequate provision open taxation assessments. for the liabilities likely to arise from The ultimate liability for such matters may vary significantly from and is dependent upon the outcome of amounts provided tax and negotiations with the relevant litigation proceedings authorities. This is discussed further in Note 14 to the financial statements, ‘Taxation’. Commitments in respect of loans and future interest payable interest future of loans and respect in Commitments the effect taking into account before disclosed on loans are of into a number has entered The Group of derivatives. with other new compounds collaborations to develop research can terms of these arrangements companies. The pharmaceutical loans and commitments equity investments, fees, include upfront will Group In addition, the levels of research. to fund specified ‘milestones’ are if future to make further payments often agree to compounds in relate these agreements achieved. As some of milestone payments will continuethe early stages of development, if the compounds move successfully through for a number of years is to the closer the product Generally the development process. of success. the possibility the greater marketing approval above within intangible assets represent The amounts shown achieved, be paid if all milestones were the maximum that would to externalised of which relates projects and include £8.6 billion A number of new commitments were in the discovery portfolio. including licensing and other agreements, made in 2010 under Therapeutics Inc., Amplimmune Inc.,arrangements with Amicus Isis Pharmaceuticals AG, Fondazione Telethon, Biologics Apeiron Inc. and Shionogi & Co. Limited. UK with the trustees of the an agreement In 2009, GSK reached over a fivepension schemes to make additional contributions identified at theyear period, to eliminate the pension deficit The table above31st December 2008 actuarial funding valuation. normal ongoing annualshows this commitment but excludes the £130 million. For further of approximately funding requirement 28 to the financialinformation on pension obligations, see Note benefits’. statements, ‘Pensions and other post-employment Other contingent liabilitiesTotal 55 22 10 1 22 165 86 11 2 66 22,915 £m £m £m £m £m Total Under 1 yr 1-3 yrs 3-5 yrs 5 yrs+ Loans on loansInterest Finance lease obligationsFinance lease chargesOperating lease 103 commitments 10,312Intangible assets 32 755 plant & equipmentProperty, 16 14,997 1,394Business combinations 1,097 45 380 7,066 Investments 259 5 4,158 commitmentsPurchase 18 278 11,762 2,407 415Pensions 8,173 285 8 95 720Other commitments 8 123 1,127 1,626 253 2,150Total 119 3 7,266 7 239 12 57 314 – 37 242 – 20 116 293 110 281 1,095 16 – 78 365 – 730 49 40,771 21 3,155 8,579 – 5 6,122 – – Contractual obligations and commitments obligations and contractual The following table sets out the Group’s fall due for payment. commitments at 31st December 2010 as they Financial commitments are summarised in Note 39 to the financial summarised are Financial commitments Other contingent liabilities andstatements, ‘Commitments’. in set out of short and long-term debt are obligations in respect liabilities’ andNote 31 to the financial statements, ‘Contingent debt’. Note 32 to the financial statements, ‘Net benefits are for pensions and post-retirement Amounts provided ‘Pensions and otherset out in Note 28 to the financial statements, for restructuring post-employment benefits’. Amounts provided set and other disputes are and legal, environmental programmes ‘Other provisions’. out in Note 29 to the financial statements, Commitments and contingent liabilities Commitments and GSK did not purchase any of its own shares in 2010 (2009 – £nil).in 2010 (2009 shares of its own any not purchase GSK did the company intends GSK announced that February 2011, On 3rd market 2011, depending on in shares £1-2 billion of to repurchase timing of exact amount and and other factors. The conditions be held as will and whether the shares after 2011, purchases future the companywill be determined by or be cancelled, shares Treasury At 31st and other factors. on market conditions and is dependent shares as Treasury held 474.2 million shares December 2010, GSK at a cost of £6,286 million (2009 – shares), (2009 – 474.2 million earnings. retained has been deducted from £6,286 million), which 2011 to in the period 1st January purchased were No shares 4th February 2011 to February 2011. In the period 3rd at a purchased were million shares 24th February 2011 10.4 cost of £123.4 million. Financial position and resources and position Financial Business review P08–P57 Exchange adjustments Net cashinflowfrom operatingactivities A summaryoftheconsolidatedcashflowissetoutbelow. Cash flow Financial positionandresources capital andlowerexpenditure onproperty, plant&equipment. million in2009,theimprovement reflecting thereduction inworking settlements was£6,533millionin2010,compared with£5,508 £2,047 million(2009–£254million).Free cashflowexcludinglegal Free cashflowwasadverselyimpactedbylegalsettlementsof current tangibleandintangible assets. non-controlling interests, andaftercapitalexpenditure onnon- after meetingitsobligationsforinterest, taxanddividendspaidto Free cashflowistheamount ofcashgeneratedbythebusiness Free cashflow by £404millionin2010. In additionpurchases ofproperty, plantandequipmentwere lower purchases were £2,792million,primarilyStiefelLaboratories,Inc. business purchases during 2010 of£354million.In2009business a decrease of£2,145million whichprimarilyreflected lower The netcashoutflowfrom investing activitieswas£1,868million, net workingcapitalreduction. reflecting higherlegalsettlements intheyearpartlyoffset bya was £6,797million,adecrease of£1,044millionover2009 The netcashinflowfrom operating activitiesaftertaxationpaid Overdrafts Cash andcashequivalents comprise: Cash andbankoverdrafts atendofyear Cash andbankoverdrafts atendofyear Cash andbankoverdrafts atbeginningofyear (Decrease)/increase incashandbankoverdrafts Net cashoutflowfrom financingactivities Net cashoutflowfrom investingactivities GSK Annual Report 2010 GSK Annual Report 44 6,000 1,000 3,000 4,000 5,000 2,000 £m 0 4,486 2010 2009 5,254 (5,571 (1,868 5,807 6,797 6,057 5,807 6,368 (250 (642) 2010 81 £m ) ) ) (2,774 (4,013 1,054 6,368 7,841 6,545 6,368 5,472 (158 (177 2009 £m ) ) ) ) Investment appraisal Free cashflow Interest received Disposal ofproperty, plantandequipment Purchase ofnon-current intangibleassets Purchase ofproperty, plantandequipment Net cashinflowfrom operatingactivities Reconciliation offree cashflow cash flowisshownbelow. activities, whichistheclosestequivalentIFRSmeasure, tofree companies. Areconciliation ofnetcashinflowfrom operating comparable withsimilarlydescribedmeasures usedbyother measure isnotdefinedinIFRS.Thismeasure maynot bedirectly investment analystsandratingagencies.GSK’s free cashflow reporting purposesandindiscussionswithpresentations to Free cashflowisusedbyGSK’s managementforplanningand flow from operations,forsuchneeds. and banksotherfinancialinstitutions,inadditiontothecash other sources ofliquidityfrom shortandlong-termcapitalmarkets such asforacquisitionsandshare repurchases. Ithasaccessto GSK mayfrom timetohaveadditionaldemandsforfinance, dividends, subjecttothe‘Riskfactors’discussedonpages53 57. programmes’ andtomeetotherroutine outflowsincludingtaxand outlined inNote7tothefinancialstatements,‘Majorrestructuring restructuring programmes (theprecise timingofwhichisuncertain) agreements, tomeettheexpenditure arisingfrom themajor of capitalexpenditure, tomeetobligationsunderexistinglicensing to funditsoperatinganddebtservicecosts,satisfynormallevels The Group expectsthatfuture operatingcashflowwillbesufficient Future cashflow £27 million(2009–£59million). made intheyearandsalesofequityinvestmentsrealised equity investmentsof£279million(2009–£154million)were £218 million(2009–£404million).Cashpaymentstoacquire to £1,635million(2009–£1,873million).Disposalsrealised Cash paymentsfortangibleandintangiblefixedassetsamounted Capital expenditure and financialinvestment adjusted totakeintoaccountcountryorotherriskweightings. cost ofcapital.Forspecificinvestmentsthediscountratemaybe determination oftheextenttowhichinvestmentscoverGroup’s used toperformfinancialanalysisisdecidedinternally, toallow of thereturnbasedondiscountedcashflows.Thediscountrate project itsreturnoninvestedcapitalandanassessment onearnings, overall strategy. Thisprocess includesananalysisoftheimpact proposals inorder toensure decisionsare alignedwiththeGroup’s GSK hasaformalprocess for assessingpotentialinvestment Distributions tonon-controlling interests associatedundertakings Dividends received from jointventures and Interest paid (1,014 6,797 4,486 (621 (118 (775 2010 107 92 18 £m ) ) ) ) (1,418 7,841 5,254 (780 (455 2009 (89 90 48 17 £m ) ) ) ) Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 ) ) ) )

45 (1 £m £m 10 2009 2009 292 6,813 6,813 1,305 5,206 (2,550 (9,444 (13,706 ) ) ) )

(2 £m £m 10 2010 2010 211 360 GSK Annual Report 2010 6,241 6,241 5,660 (1,358 (8,859 (13,740 Our centrally managed cash reserves amounted to £3.0 billion at cash reserves Our centrally managed all available within 3 months. This excludes31st December 2010, an managed cash held by ViiV£0.9 billion centrally Healthcare, $3.9 billion of undrawn also had We 85% owned subsidiary. As at that date we had short term overdrafts committed facilities. had within one year of £259 million. We and loans repayable 2010. The table belownet debt of £8.9 billion at 31st December of hedging. debt after the effects summarises cash and gross Corporate debt instruments Government securities US Treasury and Treasury repo repo and Treasury US Treasury funds only money market – fixed debt Gross – floating bearing – non-interest Net debt a portfolio through requirements our net borrowing manage We including bonds, together with short- of long-term borrowings, paper programme billion commercial term finance under a $10 last facilities were and $3.9 billion of committed facilities. The consider this level of committed in October 2010. We renewed For liquidity requirements. facilities to be adequate given current Note 32 to the financialfurther information on these facilities, see positive cash strong also benefit from statements, ‘Net debt’. We operating units. flow from of Note programme Medium Term a European have We £15 billion. At 31st December 2010, we had £8.3 billion of also have a US shelf We notes in issue under this programme. statement. At 31st December 2010, we had registration $10.1 billion (£6.5 billion) of notes in issue under this programme. on a monthly basis. The TMG monitors the cash flow forecast at dates between 2012 and mature The long-term borrowings stable since 2042. Our long-term debt ratings have remained rated A+ stable outlook by we are February 2008. Currently Investors and A1 stable outlook by Moody’s and Poor’s Standard A-1 and P-1 Our short-term debt ratings are Service ‘Moody’s’. respectively. and Moody’s and Poor’s with Standard Liquidity were cash and liquid investments December 2010, our As at 31st held as follows: and deposits Bank balances Cash and liquid investments In 2011, as part of a new long-term share In 2011, as part of a new long-term share chases. to ensure that suppliers are made aware of the agreed terms agreed of the made aware that suppliers are to ensure to settle terms of payment with suppliers when agreeing the with suppliers when agreeing to settle terms of payment of payment. to abide by the terms of payment terms of the transaction

Capital management subsidiary through GSK operates on a global basis, primarily we trade. Withcompanies established in the markets in which our products significant levels of patent or trademark protection, rather than efficacy or differentiation compete largely on product sufficient to cover normal operating on price. Selling margins are cash generative. costs and our operations are and Operating cash flow is used to fund investment in research It is also used to make the routine development of new products. of tax, dividends, repayment outflows of capital expenditure, maturing debt and, to the extent determined by the Board, repur share buy-back programme and depending on market conditions and buy-back programme £1-2 billion of shares. other factors, we expect to re-purchase centrally using a variety of capital market Our policy is to borrow facilities to meet anticipated funding issues and borrowing requirements. operations, together with cash generated from These borrowings, on-lent, contributed as equity to certain subsidiaries or used to are pay dividends and make acquisitions. GSK did not make any share in 2010. repurchases For further details see Note 41 to the financial statements ‘Financial disclosures’. instruments and related Treasury policies Treasury in Sterling and pays dividends out of Sterling profits. GSK reports is to manage and monitor our Corporate Treasury of The role and financial risks inexternal and internal requirements funding governed activities are support of our strategic objectives. Treasury of Directors, by the Board approved by policies and procedures on 7th October 2010. most recently by our Chief (TMG) chaired Management Group A Treasury treasury meets on a monthly basis to review Financial Officer, management information relating activities. Its members receive activities. to treasury Payment performance of days’ payableAt 31st December 2010, the average number company by trade payables of the parent outstanding represented of the company and its UK was nil (2009 – nil) and in respect was 50 days (2009 – 44 days). subsidiaries in aggregate • • for accelerated payment toThe policy permits arrangements small suppliers. Payment policies Payment monitoring and managing for responsible companies are Group supplier of sales collections and capital. The terms their working practice. commercial local reflect payments have of its UK subsidiaries the company and each In the UK, In particular, paid on time. suppliers are that ensure policies to the UK companies seek: • Financial position and resources and position Financial Business review P08–P57

• Financial positionandresources borrowings toassetsformajorcurrencies. Note 41forfurther details).TheTMGreviews theratioof overseas Group assets(see‘NetInvestment Hedges’sectionof in majorcurrencies toreduce ourexposure toour investmentin hedge againsttherelevant assets.Forward contractsare alsoused that matchinvestmentsinouroverseas assetsmaybetreated asa Borrowings denominatedin,orswappedinto,foreign currencies swapped intoothercurrencies asrequired. in USdollars,Euros andSterling.Certainborrowings canbe principal assetsandcashflows.Theseare primarilydenominated We seektodenominateborrowings inthecurrencies ofour future repayments backintotheoriginatingcurrency. subsidiary companiescentrallyusingforward contractstohedge We managethecashsurplusesorborrowing requirements of hedged selectivelyunderthemanagementofCorporateTreasury. foreign currency risk.Exceptionalforeign currency cashflowsare centrally andwemanageinter-company paymenttermstoreduce trading transactionsare For thispurpose,ourinternal matched local currency incomewith localcurrency costs. operating subsidiariestotransactionriskisminimisedbymatching tradeflowsareexternal nothedged.Theexposure ofoverseas Foreign currency transactionexposuresand arisingoninternal Foreign exchangemanagement from underlyingbusinessactivities, notforspeculation. in financialinstrumentsare undertakentomanagetherisksarising treasury policiesspecifically prohibit suchactivity. Alltransactions We donotholdorissuederivatives forspeculativepurposes.Our in foreign exchangeandinterest rates. currencies andtomanage exposure tofundingrisksfrom changes are usedtoswapborrowings andliquidassetsintoourrequired foreign currency contracts,interest rateandcurrency swaps, these operations.Thesederivatives,principallycomprisingforward derivative financialinstrumentstomanagemarketrisksfrom a varietyoffinancialinstrumentstofinanceouroperationsand Corporate Treasury doesnotoperateasaprofit centre. We use cost orincomeoffinancialoperationstothebenefitearnings. The objectiveoftreasury activity istomanagethepost-taxnet Treasury operations GSK Annual Report 2010 GSK Annual Report 46 2,500 500 1,500 2,000 3,000 meuvln £m equivalent 1,000 Maturity profileofgrossdebt GBP bonds GBP 2011 2012201320142015201620172018202520332034 • EUR bonds EUR • USD bonds bonds USD • Other bank borrowings bank Other

as fairvalueorcashflowhedgesoftherelevant assetsorliabilities. instrument. Interest ratederivative instrumentsare accountedfor The durationofthisswapmatchestheprincipal borrowingsexternal intotheinterest ratecouponrequired byGSK. We useaseriesofinterest rateswapstore-denominate oneofour trading profit. of floatingrateinterest payments toaprescribed percentage of The policyoninterest raterisk managementlimitstheamount Interest rateriskmanagement any share repurchases. In 2010,GSKdid notraiseanydebtintheCapital Marketsormake by theBoard ofDirectors, mostrecently on7thOctober 2010. representative ofourtreasury policiesandstrategies approved The financialassetsandliabilities at31stDecember2010are capital initiatives. restructuring programme andthesuccessofourworking 31st December2010,reflecting thebenefitsofourongoing operating activities.Ournetdebthasdecreased intheyearto We continuetobenefitfrom strong positivecashflowfrom statements, ‘Financialinstrumentsandrelated disclosures’. at carryingvalueandfairisgiveninNote41tothefinancial statements, ‘Netdebt’.Ananalysisoffinancialassetsandliabilities An analysisofnetdebtisgiveninNote32tothefinancial Financial assetsandliabilities presented totheTMGannuallyforapproval. levels orauthoritylimitsasappropriate. Afullcounterpartyanalysisis Corporate Treasury sothatchangescanbemadetoinvestment these counterpartiesand,whenchangesinratingsoccur, notifies the CFOimmediately. TheCCOalsomonitorsthecredit ratingof of CorporateTreasury. Anybreach oftheselimitsisreported to Corporate ComplianceOfficer(CCO)whooperatesindependently Corporate Treasury’s usageoftheselimitsismonitored dailybya long-term credit ratingsfrom Moody’s andStandard andPoor’s. to eachofGSK’s bankingandinvestmentcounterpartiesbasedon group ofrelationship banks.Globalcounterpartylimitsare assigned Our policyoncounterpartyriskmanagementistoworkwithaselect Counterparty riskmanagement • Leases 203820392042 Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 47 , , up , up 29% Lovaza fell 15% Cervarix Arixtra GSK Annual Report 2010 decline of 67% primarily decline of Infanrix/Pediarix in the USA to Biovail in the in the USA sales declined in the USA by 16% sales declined in the , up 50% to £282 million. Partially Wellbutrin vaccine totalled £73 million, reflecting vaccine totalled £73 million, reflecting Rotarix , up 73% to £139 million, , up 16% to £530 million, and , up 16% to £530 million, Wellbutrin XL Wellbutrin Synflorix Bonviva/Boniva Boostrix Avodart , down 16% to £771 million, continued to decline, down 16% to £771 declined 11% as a result of generic competition. declined 11% as a result , up 45% to £169 million, grew strongly in Europe in Europe strongly , up 45% to £169 million, grew . Avandia Zofran Coreg across all regions. all regions. across and the Rest of the World. in Europe but grew Vaccines 30% to £3.7 billion. sales increased Vaccine during the recorded Pandemic vaccine sales of £883 million were as GSK in the fourth quarter, delivered most of which were year, with governments to the H1N1 pandemic. partnered to respond new Sales of GSK’s of shipments to thelaunches in several markets and the beginning $1.5 billion agreement Brazilian Government as part of the 10-year, for contributors to growth signed in August 2009. Other strong the year included CNS 44% to £1.9 billion. CNS sales decreased by generic franchise is impacted CNS of GSK’s The majority in the USA. The competition of 2009. second quarter and urogenital Cardiovascular to £2.3 billion. 8% sales increased and urogenital Cardiovascular as such of key products growth Continued strong Metabolic to £1.2 billion. 14% Metabolic sales decreased Sales of Oncology and emesis 10% to £0.6 billion. Oncology and emesis sales increased Tyverb/Tykerb gained during approvals following product and the Rest of World 2008. 38% to £187 million and these performances, sales of offsetting reflected the sale of the sale of reflected to £254 million, of the continued impact of to £649 million, primarily as a result competition in the DTPa sector in the USA. Hepatitis increased vaccines sales also fell 11% to £665 million in part due to a returning to the US market. competitor product up 31% to £450 million, were partly offset by generic competition offset partly were up 31% to £450 million, to and sales and Relenza , Avandia Lovaza sales rose 72% sales rose , sales grew 26% to sales grew Avodart Veramyst , Ventolin declined 8% to £1.3 billion as a result declined 8% to £1.3 billion as a result Valtrex Seretide/Advair grew 5% to £5.0 billion, with especially strong to £5.0 billion, with especially strong 5% grew sales grew 8% to £546 million but this was more than 8% to £546 million but this was more sales grew sales were £720 million in 2009 (2008 – £57 million) sales were offset by declines across the rest of the portfolio. ViiV Healthcare, of the portfolio. ViiV Healthcare, the rest by declines across offset the specialist HIV company established by GSK and Pfizer, November 2009. was officially launched on 3rd the vaccines franchise including the H1N1 pandemic vaccine. the vaccines franchise including the H1N1 sales the USA where £477 million, driven by its performance in than doubled to £153 million. more Anti-virals 12% to £4.2 billion. Anti-virals increased Relenza the successful capacity expansion to meet governmentreflecting performance in Japan of retail and a strong the world across orders £191 million. Sales of in the USA which began in of generic competition to the product November 2009. Sales of HIV medicines totalled £1.6 billion, down 7% for the year. Epzicom growth in Emerging Markets, up 21% to £276 million and in growth Japan, up 79% to £195 million. Respiratory 5% to £7.0 billion. Respiratory sales increased Seretide/Advair GSK turnover grew by 2% in 2009 as the impact of US genericGSK turnover by 2% in 2009 as the grew lower products, competition to a range of GSK’s of growth by strong than offset a declining HIV business was more such as key products Pharmaceutical turnover by therapeutic area All growth rates included in the review of turnover at constant of review are rates included in the All growth unless otherwise stated. Sterling growthexchange rates (CER) turnoverrates may be found in the tables of pharmaceutical by 49. on page on page 48 and by geographic region therapeutic areas billion. PharmaceuticalsPharmaceutical turnover 2% to £23.7 grew On a regional helped by sales of pandemic products. was growth several of continued erosion basis, the USA declined 13% reflecting were performances due to generic competition. Strong products Asia up 9%), Emerging Markets, up 20% and in Europe, delivered of Stiefel, which wasPacific/Japan, up 16%. The sales contribution on 22nd July 2009, totalled £248 million. acquired Pharmaceutical turnoverPharmaceutical Exchange the remain results the Group’s that most influence The currencies Yen. and the Japanese the Euro US dollar, weaker Sterling exchange rates were During 2009, average with 2008. compared the Yen and Euro the against the US Dollar, against all stronger rates were Sterling exchange 2009 year-end 2008. with those at 31st December compared currencies three In accordance with US SEC disclosure requirements, the following requirements, disclosure with US SEC In accordance 2009 the year to 31st December for results compares discussion 2008.the year to 31st December for with the results is presented that follows and the discussion Financial information in 2009. and managed that GSK was organised on the basis Financial review 2009 review Financial to £142 million. Business review P08–P57 tee rdcs28–– – 248 Stiefel products Therapeuticarea/ bytherapeuticareaPharmaceutical turnover 2009 Financial review 2009 GSK Annual Report 2010 GSK Annual Report 48 CER% represents growth atconstantexchangerates.£%represents growth atactualexchangerates. 1,592 Oncology andemesis Augmentin Anti-bacterials Bonviva/Boniva Avandamet Avandia Avandia Metabolic Volibris Vesicare Lovaza Levitra Fraxiparine Coreg Avodart Arixtra urogenital Cardiovascular and Wellbutrin, Wellbutrin XL Treximet Seroxat/Paxil RequipXL Requip Lamictal Imigran/Imitrex system Central nervous Zeffix Relenza Valtrex Ziagen Trizivir Epzicom/Kivexa Epivir Combivir Agenerase, Lexiva HIV Anti-virals Zyrtec Ventolin Serevent Seretide/Advair Flixotide/Flovent Flixonase/Flonase Avamys/Veramyst Respiratory l admc83 6>0 1017 10>0 2 >0 1011 10>100 >100 171 >100 >100 525 >100 >100 187 >100 >100 66 883 Other Synflorix Rotarix Infanrix, Pediarix Fendrix, Havrix,Twinrix Hepatitis ( Flu pandemic Fluarix, FluLaval Cervarix Boostrix Vaccines Zofran Tyverb/Tykerb Promacta Hycamtin majorproducts pout 71 0 1)()45 1)()11 2)(4 7 ()1 (9) 175 (14) (21) 171 (2) (17) 425 (4) (16) 805 771 products Engerix/ ) 374216 2 23,714 23,466 1,181 6 (13) 192 11 – 7 160 2,298 (3) 8 254 – (9) 942 39 (10) 635 23 8 776 1,870 12 14 (8) (6) 5 1,294 1,195 716 1,609 6 20 (7) 1 2,592 1,605 1,513 20 4,150 5 4,977 4,137 6,977 1,063 3,706 2009 6 8 44 2)()25 2 423 327 14 57 8 31 11 57 47 – 19 20 295 – (9) (11) 7 100 (8) 89 119 99 – (18) 17 2 (19) – 100 (18) 45 (22) (1) 6 56 67 – – 12 (24) (67) 14 155 (16) (3) 62 (6) 1 64 122 (67) (8) – – – – 4 8 63 173 51 (10) 18 55 5 629 276 – (22) 25 (7) 667 587 – 46 34 – (10) 55 (8) – – 104 – 13 148 (21) 255 237 24 19 18 95 (7) 14 – 31 448 268 256 – 46 (5) 462 512 32 – 382 45 67 55 (15) 60 16 2 (14) 24 1 15 45 11 171 319 16 (28) 50 30 31 35 141 6 99(21) 79 (2) 47 >100 104 71 17 (15) 4 33 (7) 450 290 89 >100 49 (72) 5 (29) (47) – – 171 16 (5) 229 226 88 138 (76) 29 42(51) 172 203 7 >100 (4) 154 44 (8) 530 399 (24) 96 (75) (61) 32>100 7 254 170 19 2 (28) 29(4) 79 25 (62) 26 (6) (78) 6 (67) (78) (3) – >100 267 – 15 (68) 32 17 (15) (18) 17 132 342 123 (21) >100 (13) (79) 13 35 (46) (14) (11) 43 371 (7) (16) 514 87 (30) 6 523 (61) 2 >100 17(7) 244 82 (53) 123 (21) 212 >100 >100 49(24) (9) (65) 209 266 13 (8) >100 62 500 926 25 15 12 137 9 (2) >100 151 266 687 (4) (17) 51 (15) 2 >100 (1) 6 2 174 104 223 >100 19 (17) 47 (6) (31) 201 4 23 (1) 48(13) >100 217 9 188 (5) 2 (15) 24 1 720 57 187 99 2 (12) (13) 101 (7) 116(18) (17) 1 8 (4) 29 178 (2) 150 (17) 105 106 >100 11 (19) 201 212 >100 1 45 43(21) >100 (13) 546 442 25 >100 (4) 153 139 129 >100 >100 73(14) 425 433 5 (48) 21 41 178 160 396 27(56) (10) 2 68 26 14 (19) (8) 477 339 – 97 263 236 (20) 72 775 677 186 171 142 72 8 6 06 6>0 105 42 5 349 17 15 153 33 5 109 2 29 23 146 >100 45 8 100 – 17 67 14 53 33 26 >100 (3) 406 (9) >100 (8) 262 23 138 >100 54 30 9 76 (37) 40 >100 71(18) >100 (7) >100 13 134 20 – 4038 (47) (5) 48 79 69 257 (14) (21) (5) 20 (17) – 62 50 75 >100 73(27) 4 – 52 (15) (24) 7377 10 59 282 167 (2) 15 (11) 649 682 50 >100 99 9 23 (13) (4) 665 >100 54 38 73 4 215 211 100 (1) 66 187 125 70 139 23 (11) 45 109 110 7 169 102 172 140 £m 56 57 343 31–– – 1 – 1 – 33 18 4 >100 33 >100 – – 23 – – – – 4 70 >100 – 25 >100 19 2 7 – – 75 60 >100 55 84 >100 88 97 55 25 75 58 – – – – 97 58 75 38 3 2––4 – 41 – – 32– – – – – – – – – – – 73 – 13– – – – 13 20,381 1,191 1,847 2,897 3,206 5,817 2,539 1,429 2008 959 496 mCR £% CER% £m 1)()51(7 2 7 1)()35 8 6 (8) 325 (6) 275(15) (2) 581(17) (1) (14) 25 4 645 2 (7) 574 (64) 651(69) (35) (44) 22 ,9 91041 61193 56 1,179 32 26 1,074 16 19 1,897– 29 12 04 1 01743 11173 52 1,147 37 51 39 1,744 37 117 23 30 21 8159 204 10 46 27 30 3087 27 10 5910(3 ,8 18 9 7,681 3 (13) 9,180 15 1 113(6 1 6 ()477 322 13 757 4 (4) 662 (1) (16) 173 11 2 32 300 18 14 5833 28 1,4158 24 8 30 1,453 14 11 2,2013 22 3,3233 20 5 11 6 13 364 7 6 17– 11 1 Growth oa S uoeRestofWorld Europe USA Total 2009 £m E%£% CER% Growth 2009 £m E%£% CER% Growth 6,605 2009 682 £m E%£% CER% 632 16 2 10 (2) Growth Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 ) 49 21

Growth*

8 718 7 20 37 Sensodyne

GSK Annual Report 2010 £m CER% £% declined 1%, as a 2008 796 1,935 3,971 1,240 , which more than , which more alli

£m 26 1 >100 >100 92 81 (1) 14 2009 255160 204 161 17 (4) 25 (1) 376 382 (3) (2 106 91 (1) 16 203 75 >100 >100 Aquafresh 2,319 1,484

50 total % of 100 4,654 (up 17% to £255 million) partly offset sales (down 3% to £376 million) which was Horlicks Lucozade product. (up 10% to £393 million) and franchise 457 363 13 26 toothpaste brands, which were helped by the launch of the toothpaste brands, which were franchise 496 452 (1) 10 replacement therapyreplacement 339 299 (1) 13

franchise 393 324 10 21 Iso-active Panadol CER% represents growth at constant exchange rates. £% represents growth growth at constant exchange rates. £% represents growth CER% represents at actual exchange rates. reduction in the US ‘white trays’ market offset growth of 5% in the US growth in the US ‘white trays’ market offset reduction Aquafresh new performed strongly with sales up 13% to £457 million. Denture care with sales up 13% to £457 million. Denture performed strongly 8% to £336 million. Sales of sales grew * 7% to rose sales for the year Consumer Healthcare Total and categories. in all regions £4.7 billion, with growth OTC medicines by sales 8% to £2.3 billion in 2009, driven sales grew OTC product of Europe of launches throughout doubled to £203 million, as a result therapy replacement which began in April 2009. Sales of nicotine declined by 1%. products Oral healthcare 7% to £1.5 billion. rose products Sales of Oral healthcare Nutritional healthcare 3% to £0.9 billion, driven by the very sales grew Nutritional healthcare performance of strong by a decline in impacted by lower sales in the ‘impulse’ market of the UK market. Consumer Healthcare turnover Healthcare Consumer Over-the-counter medicines Horlicks Ribena Aquafresh Biotene careDenture Sensodyne Nutritional healthcareLucozade 18 851 336 271 8 24 Panadol Tums Oral healthcare 32 alli Breathe Right franchiseCold sore Nicotine 96 89 (3) 8 Growth* (down sales, (down Coreg CER% £% Imigran Ventolin Ventolin sales, particularly . £m 796 29 46 2008 Relenza 1,918 16 41 2,290 20 30 6,483 9 18 8,894 (13) 3 Rotarix 20,381 2 16 (down 68%), and £m (down 78%) and (down 82%), was sold to Biovail 2009 2,700 2,973 7,681 9,180 1,180 23,714 (down 22%), competition to Lamictal Boostrix Requip growth, strong strong growth, and particularly strong vaccines growth, vaccines growth, and particularly strong (up 31%) and contributions from recently recently (up 31%) and contributions from Avandia Wellbutrin XL Wellbutrin Lovaza (down 47%), a return to market of a competitor to market of a competitor (down 47%), a return Relenza ‡ (down 9%), and Seretide/Advair and pandemic vaccines, a doubling of Pediarix / Valtrex trading Relenza Seretide Including Stiefel CER% represents growth at constant exchange rates. £% represents growth constant exchange rates. £% represents at growth CER% represents at actual exchange rates.

‡ Other Asia Pacific/Japan Emerging Markets Europe in Q2 2009. These declines were partly offset by significant sales by significant sales partly offset in Q2 2009. These declines were of of good growth such as launched products Asia Pacific/Japan 16% to £2.7 billion reflecting Sales in Asia Pacific/Japan grew continued 28%). In addition, 20% to £3.0 billion with Sales in Emerging Markets increased helped and all therapeutic areas, the region across growth strong in different by the acquisitions of the UCB and BMS businesses countries of the region. vaccines growth. market in Japan, and strong to the retail Emerging Markets Europe growth 9% to £7.7 billion with continued increased Sales in Europe of the impact of generic driven by pandemic vaccine, offsetting and continued price cuts competition to a number of products the region. governmentsfrom across Infanrix 79%), USA principally reflecting Sales in the USA declined 13% to £9.2 billion, continued decline of * generic competition to to the Hepatitis franchise (down 21%) and such as significant products USA Regional analysis Regional sales invoiced below represents in the table The turnover reported market plusits customers in the local local entity to by GSK’s within each market. income co-promotion Financial review 2009 review Financial Business review P08–P57 major restructuring. which includemajorrestructuring costs,andresults before for theyearare discussedbelow intermsofbothtotalresults, GSK’s operatingprofit, profit before taxation,taxationandprofit in the2010Financialreview onpage36. total results seeResultsbefore majorrestructuring andtotalresults For thelatestpositiononResultsbefore majorrestructuring and been reported inthemajor restructuring column. No costsarisingfrom GSK’s ongoingoperatingactivitieshave incurred solelyasadirect result oftherestructuring programmes. of £261millionin2009arose from miscellaneousexpenditures million restructuring costsincurred in redundancies togetheraccounted for£574millionofthe£835 ‘Major restructuring programme’, assetimpairmentsandstaff statement. AssetoutinNote7tothefinancialstatements, been reported inthemajor restructuring columnintheincome programmes followingthe ReliantandStiefelacquisitionshave the OperationalExcellenceprogramme andtherestructuring Only therestructuring costs incurred solelyasadirect result of above, were allchargedand paidin2008. acquisition sinceOctober2007thatmeetsthecriteriasetout the acquisitionofReliantPharmaceuticalsInc.,onlyother in 2009.Therestructuring costs incurred asadirect result of be approximately £205million,of which£71millionwascharged be incurred asadirect result ofthisacquisitionare estimatedto major restructuring column.Therestructuring costsexpectedto of arelated restructuring programme hasbeenincludedinthe only acquisitionin2009where thecostsincurred asadirect result only acquisitionthatmeetsthecriteriasetoutabove.Thisis The acquisitionofStiefelLaboratories,Inc.inJuly2009wasthe extensively withGSK’s existingoperations. acquisitions where theoperationsofacquired business overlap restructuring programmes thatfollow, andrelate to,material restructuring costsincurred solelyasadirect result ofany the majorrestructuring columnintheincomestatementincludes In additiontothecostsofOperationalExcellenceprogramme, February 2009. programme, wasapproved bytheBoard andannouncedin representing asignificantexpansionoftheOperational Excellence Excellence restructuring programme. Asecondformal plan, In October2007,GSKannouncedasignificantnewOperational total results Results before majorrestructuring and Financial review 2009 GSK Annual Report 2010 GSK Annual Report 50 2009. Ther emaining costs emaining costs Operating profit income Other operating development Research and andadministration Selling, general (2008 –£639million). programme andlowerrestructuring costsof£285million changes totheproduct mix, offset bybenefitsfrom therestructuring of genericcompetitiontohighermarginproducts intheUSAand (2008–26.3%),principallyreflecting26.0% ofturnover theimpact Cost ofsalesasapercentagereduced ofturnover marginallyto Cost ofsales Cost ofsales Turnover Excellence programme andtheacquisitionsofReliantStiefel. Total results includerestructuring costsrelated totheOperational Operating profit –totalresults partially offset byincreases incostofsalesandSG&A. higher otheroperatingincomeand broadly flatR&Dexpenditure, operating profit marginincreased 0.4percentage pointsreflecting of 4%CERand18%inSterling terms,compared with2008. The Total operating profit fortheyearwas £8,425million,anincrease Operating profit –totalresults partially offset byequityinvestmentimpairmentsof£135million. accounting gainof£296milliononthecreation Healthcare, ofViiV a royalty disputesettlementgainof£78million,andaone-time Pharmacare, royalty incomeof£296million(2008–£307million), reflecting thedisposalof asset disposalsof£579million(2008–£293million)primarily Other operatingincomewas£1,135millionincludinggainsfrom Other operatingincome the restructuring programme. late stagepharmaceuticalR&Dwere broadly offset bysavingsfrom of areceivable balance.Increased investmentinvaccinesR&Dand (2008 –£175million)andaprovision release duetoreassessment to themajorrestructuring programme of£155million (2008 –£85million)partiallyoffset bylowerchargesrelating which included£167millionofintangibleassetwrite-offs R&D expenditure was14.4% (2008–15.2%)oftotalturnover, Research anddevelopment the benefitsofcurrent restructuring programme. (compared withexchange gains lastyear),partiallyoffset by to WHOandexchangelossesoninter-company transactions Stiefel, increased pensioncosts, thedonationofH1N1product This reflected investmentin growth markets,theacquisitionof costs, SG&Acostswere(2008–27.7%). 30.3% ofturnover (2008 –£304million).Excludinglegalandrestructuring to themajorrestructuring programme of£392million of £591million(2008–£611million)andchargesrelated percentage pointsto33.8%. Thisincludedfullyearlegalcharges SG&A costsasapercentageincreased ofturnover by2.4 Selling, generalandadministration 838100 28,368 416 (14.4) (4,106) 952 (33.8) (9,592) 730 (26.0) (7,380) ,2 29.7 3.9 8,425 1,135 Wellbutrin XL m% £m 2009 and various assets to Aspen andvariousassetstoAspen 43210316 3 100 24,352 361 1.)112 1 (15.2) (3,681) 766 3.)625 6 (31.4) (7,656) 645 2.)615 6 (26.3) (6,415) ,4 93418 4 29.3 7,141 4 2.2 541 m%CR £% CER% % £m 08Growth 2008 Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 51 GSK Annual Report 2010 and various Wellbutrin XL Wellbutrin assets to Aspen Pharmacare, royalty income of £296 million royalty assets to Aspen Pharmacare, dispute settlement gain of (2008 – £307 million), a royalty of £296 million£78 million, and a one-time accounting gain by equity partially offset of ViiV Healthcare, on the creation 2009 other operatinginvestment impairments of £135 million. In on disposal of associates amounted to income and profit £1,250 million. major restructuring before – results Operating profit for the year was major restructuring before Operating profit 12% in Sterling terms,£9,257 million, a 1% CER decline, but up margin was 32.6% with 2008. The operating profit compared with a 2008 margin of 33.9%. The decline in margin compared in the USA whichwas primarily due to generic competition investment to support the impacted cost of goods and increased SG&A, partly offset diversification strategy which impacted Group’s by a higher level of other operating income. major restructuring before Further information on operating profit in Note 6, ‘Segment information’. is provided Selling, general and administration general Selling, by 2.2 of turnover increased as a percentage SG&A costs of year legal charges 32.4%, including full points to percentage markets, growth investment in reflected The increase £591 million. costs, the donation pension of Stiefel, increased the acquisition losses on inter-company WHO and exchange to of H1N1 product last year), partially with exchange gains (compared transactions programme. restructuring by the benefits of the current offset and development Research (2008 – 14.4%) of total turnover, was 13.9% R&D expenditure million of intangible asset write-offs which included £167 due release by a provision partially offset (2008 – £85 million) investment in Increased balance. of a receivable to reassessment broadly pharmaceutical R&D were vaccines R&D and late-stage programme. the restructuring by savings from offset Other operating income was £1,135 million including gainsOther operating income disposals of £579 million (2008 – £293 million) asset from the disposal of primarily reflecting 1 2 (9) £m (16) 2008 321 313 (829) (843) 2 1 (2) £m 67 70 (11) 2009 (770) (783) 2008 Growth £m % CER% £% 541 2.2 8,259 33.9 (1) 12 (5,776) (23.7) 13 23 (7,352) (30.2) 6 25 (3,506) (14.4) 2 13 24,352 100 3 16 2009 £m % 1,1359,257 3.9 32.6 (7,095) (25.0) (9,200) (32.4) (3,951) (13.9) 28,368 100 Cost of sales increased to 25.0% of turnoverCost of sales increased (2008 – 23.7%), the impact of generic competition to higher principally reflecting mix, partly in the USA and changes to the product margin products programme. the restructuring by benefits from offset Cost of sales Turnover Operating profit – results before major before – results Operating profit restructuring set out below: are major restructuring before The results Profit before taxation – total results before Profit on disposal of account of net finance costs, the profit Taking of associates, of profits associates and the share in interest taxation was £7,891 million compared before total profit and a 19% with £6,659 million in 2008, a 4% CER increase sterling increase. The share of after tax profits of associates of £64 million of after tax profits The share holding the Group’s (2008 – £48 million) arises principally from in Quest. Share of after tax profits of associates and joint ventures after tax profits of Share Profit on disposal of interest in associate on disposal of interest Profit in associate was £115 million as disposal of interest on Profit holding in Quest Diagnostics the Group’s from 5.7 million shares sold in the first quarter of 2009. Inc. were Finance income other finance income Interest and Profit before taxation – total results – total taxation before Profit costs Net finance Financial review 2009 review Financial Cost of sales Unwinding of discounts on assets Unwinding Selling, general and administration Fair value adjustments and hedges Fair value adjustments Research and development Finance costs Interest costs Other operating income Operating profit Unwinding of discounts on liabilities Unwinding of discounts Fair value adjustments and hedges Fair value adjustments Business review P08–P57 review onpage39. For thelatestpositiononTaxation see‘Taxation’ in theFinancial resulting innoadditionaltaxcosttoGSK. inter-company financingarrangementfrom debttoequity deficiencies andpenaltiesarisingfrom itsreclassification ofan On 19thNovember2009theIRSconcededallassertedtax £1,451 millionandataxrecoverable assetof£58million. at 31stDecember2009includedataxpayableliabilityof rate of28.0%(2008–28.7%).TheGroup’s balancesheet charges amountingto£2,443millionrepresents aneffective tax The chargefortaxationonprofit before majorrestructuring and represented aneffective taxrateof28.2%(2008–29.2%). The chargefortaxationontotalprofits amountedto£2,222million Taxation ontotalprofits Deferred taxation Current taxation Overseas taxation UK corporationtax Finance income Net financecosts restructuring Profit before taxation–results before major Financial review 2009 Taxation in sterlingterms. with £7,782millionin2008,a1%CERdeclinebut12%increase before taxbefore majorrestructuring was£8,726millioncompared interests inassociatesand the share ofprofits ofassociates,profit Taking accountofnetfinancecosts,theprofit ondisposalof Profit before taxation–results before majorrestructuring in QuestDiagnosticsInc. (2008 –£48million)arisesprincipallyfrom theGroup’s holding The share ofaftertaxprofits ofassociates£64million Share ofaftertaxprofits ofassociatesandjointventures 5.7 millionQuestshares were soldinthefirstquarterof2009. Profit ondisposalofinterests inassociateswas£115 millionas Profit ondisposalofinterest inassociate Fair valueadjustmentsandhedges Unwinding ofdiscountsonliabilities Interest costs Finance costs Fair valueadjustmentsandhedges Unwinding ofdiscountsonassets Interest andotherincome GSK Annual Report 2010 GSK Annual Report 52 2,222 2,414 1,997 (192) (780) (770) 417 2009 2009 £m 70 67 £m (2) (8) 1 2 1,947 1,878 1,589 (838) (829) 289 313 321 2008 2008 (11) 69 £m £m (9) 2 1 restructuring costs,EPSwas 121.2pcompared with104.7p. CER termsanda23%growth insterlingterms.Excludingmajor 109.1p compared with88.6p in2008.Thiswasan8%growth in Total results includingrestructuring costsproduced abasicEPSof ofshares(millions) Diluted weightedaveragenumber Diluted totalearningsperADS(US$) Diluted totalearningspershare(pence) ofshares(millions) Weighted averagenumber Adjusted earningsperADS(US$) Adjusted earningspershare(pence) profit attributabletoshareholders Results before majorrestructuring profit aftertaxationfortheyear Results before majorrestructuring Basic earningsperADS(US$) Basic earningspershare(pence) shareholders Total profitattributableto fortheyear Total profitaftertaxation Profit fortheyear increase overthe57pence pershare for2008. share resulting inadividendfortheyearof61pence;fourpence The Board declared afourthinterimdividendof18penceper Dividend 5,108 $3.38 108.2p 5,069 $3.78 121.2p 6,145 6,283 $3.40 109.1p 5,531 5,669 2009 £m 5,226 $3.26 16 13 5,195 2 13 $3.87 – 104.7p 5,441 – 5,551 20 20 $3.28 6 4,602 6 4,712 88.1p 88.6p 2008 mCR £% CER% £m Growth Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 53 for which there for which there GSK Annual Report 2010 Valtrex that contains the same , and Advair / Ventolin , Seretide

Lamictal IR , Augmentin is generic competition in the USA and certain markets in Europe. markets in Europe. is generic competition in the USA and certain and impact of entryIn addition, as detailed on page 7, the timing to for a follow-on product is uncertain. active ingredients to have also exhibited a readiness Generic drug manufacturers most important market generic versions of many of the Group’s may patents. Efforts prior to the expiration of the Group’s products of a patent or involve challenges to the validity or enforceability does not infringe the Group’s assertions that their generic product is not successful in defending an attack on its patents. If the Group of market one or more patents and maintaining exclusive rights to the Group’s particularly in the USA and Europe, its major products, dates The expiration would be adversely affected. financial results and a description of major products for patents for the Group’s the dates on which generic litigation settlements which may affect set out on are may be introduced products versions of the Group’s out set involving patent challenges are page 15. Legal proceedings proceedings’. in Note 44 to the financial statements, ‘Legal laws Potential changes in intellectual property and regulations to change existing patent and data exclusivity laws and Proposals sells its products in major markets in which the Group regulations in those countries. of the political process a continuing feature are of making that could have the effect These include proposals difficult and time more of patents for new products prosecution the exclusivity period for consuming or that could adversely affect Should such including biological products. products, the Group’s be enacted, they may materially and adversely affect proposals as part of the For example, in 2010, financial results. the Group’s in the USA, new regulations reform healthcare comprehensive that allow a sufficiently introduced for follow-on biologics were approval on an innovator’s similar biologic to be able to rely following a 12-year data exclusivity period. In addition, the current 12 years to from reducing administration in the USA has proposed seven the period of time pharmaceutical companies may keep their exclusive of generic competition. products Intellectual property protection Intellectual property generic manufacturers Competition from of manufacturers from faces intense competition The Group in all of its major markets. Generic products generic pharmaceutical upon expiration of patents or data often enter the market products of generic Introduction products. the Group’s exclusivity periods for has its highest the Group where particularly in the USA products, turnover of sales margins, typically leads to a dramatic loss and and margins for its proprietary revenues the Group’s and reduces with over had eleven pharmaceutical products The Group products. Among these products £500 million in annual global sales in 2010. are There is also increasing pressure on healthcare budgets as the budgets on healthcare pressure is also increasing There and increases developed markets of the population in average age have Payers markets grows. population in developing the absolute from benefit incremental demanded greater increasingly therefore at prices suppliers suppliers to reimburse agreeing drugs before successful to develop commercially A failure consider appropriate. for any products additional uses for existing or develop products the Group’s and adversely affect could materially of these reasons financial results. Risk that R&D will not deliver commercially successful Risk that R&D will not deliver commercially new products operates in highly competitive markets. In the The Group it faces competition from pharmaceuticals and vaccines businesses, and of large international products manufacturers both proprietary of generic pharmaceuticals. Significant product producers from of priceinnovations, technical advances or the intensification and adversely affect competition by competitors may materially cannot always predict The Group financial results. the Group’s or their potential the timing or impact of competitive products In light of the competitive products. impact on sales of the Group’s operates, continued development in which the Group environment of as well as the development viable new products of commercially ability is critical to the Group’s additional uses for existing products of that decline upon expiration sales of older products to replace overall sales. exclusive rights, and to increase lengthy and uncertain process. is a costly, Developing new products candidate can fail at any stage of the development A new product candidates could fail late stage product and one or more process, approval. regulatory to receive in development candidates may appear promising New product economic and human but, after significant investment of Group the market or have only limited to reach may fail resources, of success. This, for example, could be as a result commercial efficacy or safety concerns, to obtain necessary an inability difficulty manufacturing or excessive approvals, regulatory of a of patent terms as a result manufacturing costs, erosion lengthy development period, infringement of patents or other rights of others or an inability to differentiate intellectual property those with which it competes. adequately from the product health authorities such as the US FDA, the European Furthermore, Medicines Agency and the Japan Pharmaceuticals and Medicines their focus on safety and product Device Agency have increased assessing the benefit/risk balance of drugs, when differentiation to difficult for pharmaceutical products which has made it more approval. gain regulatory There are risks and uncertainties relevant to the Group’s the Group’s to relevant and uncertainties risks are There of operations that may results condition and business, financial to achieve its objectives. and ability performance the Group’s affect believes could the Group among those that below are The factors expected and materially from to differ results cause its actual and uncertainties that other risks are There historical results. ability to achieve its performance and the Group’s may affect or which to the Group, known not currently objectives that are deemed immaterial. are basis risks on a regular and assesses significant reviews The Group that to help ensure an oversight programme and has implemented in place. This system includes is a system of internal control there and training programmes, communication policies and procedures, for escalating issues to and processes supervision and monitoring management. Such a system helps level of senior the appropriate to risks and appropriately to respond ability facilitate the Group’s compliance with helps ensure objectives and to achieve Group internal and policies. The Group’s applicable laws, regulations on pages 71 to 73management of risks is further discussed ‘Corporate Governance’. controls to implement for the Group It is not possible, however, no can be to all the risks that it may face, and there to respond risks certain has taken to address assurance that the steps the Group or at all. The six principal risks that will manage these risks effectively areas: down in the following broken business are GSK’s might affect Risk factors Risk Business review P08–P57 Risk factors such marketsforfuture salesgrowth fortheGroup’s products. adequate patentprotection couldlimittheopportunitytorely on affect theGroup’s financialresults inthosemarkets.Absenceof intellectual property toacompetitor),couldmateriallyandadversely forces(in whichagovernment manufacturer tolicenseits reducing thescopeofpatentrightsorcompulsorylicensing generic manufacturers. Anylossofpatentprotection, including areas, tofacilitateearlycompetitionwithintheirmarketsfrom pharmaceutical products generally, orinparticulartherapeutic or threatened toreduce, effective patentprotection for European Union.Somedevelopingcountrieshavereduced, protection maybesignificantlyweakerthanintheUSAor In someofthecountriesinwhichGroup operates,patent certain countries Weakness ofintellectualproperty protection in and vaccinesare introduced intothemarketplace. unanticipated sideeffects maybecomeevidentonlywhendrugs determine thesafetyofitsproducts through regulated clinicaltrials, authorities. Notwithstandingtheefforts theGroup makesto products forusebyhumansfollowingapproval byregulatory of potentialproducts todeterminethesafetyandefficacyof Pre-clinical andclinicaltrialsare conductedduringthedevelopment Product liabilitylitigation reserve therighttodenycoverageonvariousgrounds. where claimsare madeunderinsurancepolicies,insurers regularly in order tooptimisethevalueofinsurancemarkets.Inaddition, of un-insured exposure insomeareas, andalesserdegree inothers, continued toadjustitscoverageprofile, acceptingagreater degree In order tocontaininsurance costsinrecent years,theGroup has companies generally, includingtheGroup. the capacityofinsurers toprovide coverageforpharmaceutical product liabilityexposures, hasincreased thecostof,andreduced Recent insurancelossexperience,includingpharmaceutical the financialstatements,‘Legalproceedings’. proceedings andinvestigations ofthetypedescribedinNote44to amount ofdamagesclaimed,itspotentialexposure toclaims, be potentiallymisleadingfortheGroup toquantify, basedonthe caused bytheGroup’s products or itsactions.Accordingly, itmay bear noreasonable relationship totheunderlyingharmallegedly is thepracticeofplaintiff bartoclaimdamagesinamountsthat would reduceInmanycases,theGroup itsearnings. believesthatit provisions related tolegalproceedings andinvestigationswhich In thefuture, theGroup mayalsomakeadditionalsignificant which reduced itsearnings. prior yearsrelated tosuch legal proceedings andinvestigations, operations. TheGroup has madematerialprovisions in2010and adverse effect ontheGroup’s financial conditionandresults of similar future proceedings orinvestigationsmayhaveamaterial civil and/orcriminalliabilities.Unfavourableresolution oftheseand currently involvingtheGroup which,ifproven, couldgiveriseto for adiscussionofproceedingsinvestigations andgovernmental See Note44tothefinancialstatements,’Legalproceedings’, investigations government Risk ofsubstantialadverseoutcomelitigationand GSK Annual Report 2010 GSK Annual Report 54 the Group’s financialresults. Any oftheseconsequencescouldmateriallyandadverselyaffect law. Criminalproceedings mayalsobeinitiatedagainsttheGroup. trebling ofdamagesawarded orfinesinrespect ofeachviolation consumers andprivatepayers.Suchproceedings mayresult in proceedings initiatedagainst theGroup byoronbehalfof aswellrelated on behalfofthefederalorstategovernments, investigations couldresult in related restitution orcivillitigation and reimbursement ofitsprescription drugproducts. These investigationsintopricing,marketing and stategovernmental In theUSA,forexample,Group isresponding tofederal may becalledintoquestion. interpretation ofthoserules andregulations evolve,priorconduct As thoserulesandregulations changeorasgovernmental jurisdictions mayresult incivil andcriminallegalproceedings. to complywithapplicablelaws,rulesandregulations inthese environments thatoftenvary amongjurisdictions.Thefailure The Group operatesglobally incomplexlegalandregulatory Sales andmarketingregulation adversely affect theGroup’s financial results. A successfulanti-trustclaimagainsttheGroup couldmateriallyand settlements are anti-competitive andinviolationofanti-trustlaws. brought followingsettlement ofpatentlitigation,allegingthatsuch to automatictrebling inthe USA.Similarly, anti-trustclaimsmaybe restitution claims.Damages inadverseanti-trustverdicts are subject as classactions.Therelief sought mayincludetreble damagesand direct andindirect purchasers andotherpayersare typicallyfiled litigation involvingthedefenceofthatpatent.Suchclaimsby been violatedduringtheinitialprosecution ofthepatentorduring infringement actionstoprompt claimsthatanti-trustlawshave In theUSA,ithasbecomeincreasingly commonforpatent Anti-trust litigation Group’s financialresults. ended exposure andthuscouldmateriallyadverselyaffect the liability actionsand,ifallowed,canrepresent potentially open suffering andpunitivedamagesare frequently assertedinproduct the potentialliabilitybyforce ofnumbers.Claimsforpainand all personswhowere prescribed theGroup’s products caninflate USA, isinherently unpredictable. Classactionsthatsweep together Group’s pharmaceuticalproducts. Litigation,particularlyinthe actions, thatinvolvesubstantialclaimsfordamagesrelated tothe defendant inanumberofproduct liabilitylawsuits,includingclass and mayresult inproduct liabilityclaims.TheGroup iscurrently a pharmaceutical products whichmaybepublicisedbythemedia or meaningful,mayraisequestionsregarding thesafety of clinical trialresults which,althoughnotnecessarilyaccurate In otherinstances,third partiesmayperformanalysesofpublished Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 55 GSK Annual Report 2010 beginning in 2007 following publicity around questions around in 2007 following publicity beginning Taxation and Treasury and Treasury Taxation in tax rate is driven by rates of tax effective The Group’s both higher and lower than that applied in the jurisdictions that are UK. In addition, many jurisdictions such as the UK, Belgium and the that encourage innovation and new regimes offer USA currently tax incentives, for example R&D scientific endeavours by providing given the scale and international Furthermore, nature tax credits. is an inherent transfer pricing business, intra-group of the Group’s tax risk as it is for other international businesses. Changes in tax to matters such as transfer laws or in their application with respect companies, R&D tax credits dividends, controlled pricing, foreign on intra-group allowed on the interest in tax relief or a restriction tax rate and materially effective the Group’s debt, could increase its financial results. and adversely affect Risk of interruption of product supply of product Risk of interruption and their constituent products of pharmaceutical The manufacture manufacturing practice compliance with good materials requires subject to sites are manufacturing The Group’s regulations. agencies. regulatory by the FDA and other and approval review of key services and materials or the by suppliers Compliance failure recalls facilities could lead to product own manufacturing Group’s and delays in the approvals interruption of production and seizures, manufacturing issues. of pending resolution of new products in fines and disgorgement of Non-compliance can also result interruption of supply or the incurring of fines or Any profits. the Group’s affect disgorgement could materially and adversely financial results. undertakes business continuity planning, Although the Group for certain components, bulk active materials single sourcing of supply in the a risk of failure creates and finished products non-compliance or physical disruption at the event of regulatory manufacturing sites. a number of goods suppliers provide Unaffiliated third-party of these services, operations. Many and services to the Group’s organisations by clinical research for example, services provided to very important are to support development of key products, by provided businesses. Materials the operations of the Group’s production necessary for the commercial suppliers are third-party including speciality chemicals, commodities and of our products, and packaging of components necessary for the manufacture Healthcare Pharmaceutical and Consumer many of the Group’s does not believe that any of these While the Group products. individually significant in the context of are relationships third-party supplier to fulfil its of any third-party the failure the overall Group, in delays or may result contractual obligations in a timely manner the service interruptions, which may materially and adversely affect financial results. Group’s regarding risks associated with the product), whether or not whether or the product), risks associated with regarding action. absence of regulatory justified, even in the scientifically for a event profile adverse of the post-approval The development the and adversely affect class may materially or the product product financial results. Group’s In addition, in some cases, the Group may voluntarily cease may voluntarily the Group cases, in some In addition, based on concerns or face declining sales a product marketing sales of the decline in or safety (for example, about efficacy Avandia Governmental, payer and regulatory controls controls Governmental, regulatory payer and Pricing or pressures subject to price controls are products Pharmaceutical Japan, Germany, in many markets, including restrictions and other in Some governments directly intervene and Italy. Spain, France setting prices. of pharmaceutical major purchasers In addition, in some markets (whether governmental agencies or private health care products to exert substantial pressure have the economic power providers) cannot of access to formularies. The Group on prices or the terms restrictions or pressures controls, whether existing accurately predict will or restrictions pressures or whether new controls, will increase and adversely affect may materially Such measures be introduced. and its profitably new products ability to introduce the Group’s financial results. has its highest margins the Group where For example, in the USA, no government are price there any country, and the most sales for but federal law requires private sector purchases, over controls on certain rebates to pay prescribed pharmaceutical manufacturers under several state and drugs to be eligible for reimbursement and Medicaid. primarily Medicare programmes, federal healthcare share as the US government’s increase likely to are Pricing pressures Additionally, of national health spending continues to increase. in 2010, the reform health care due to passage of comprehensive health insurance or subsidising in providing role US government’s which indicates theis expected to significantly expand in 2014, and leverage the government will bring to bear on role growing to US federal programs. liability with respect rebate the Group’s or years, a number of states have also proposed In recent prices for their low- implemented various schemes to control the including increasing income and senior citizens’ programmes, of pharmaceutical companies, importation from liability rebate of drugs. Given the new state other countries and bulk purchases which will law, reform mandates contained in the US health care number of Medicaid eligible participants, and the the increase on state government budgets, pricing pressures economic pressures Any of these trends likely to increase. are products on the Group’s financial results. the Group’s may materially and adversely affect Regulatory controls controls range of regulatory must comply with a broad The Group manufacturing and marketing of many on the testing, approval, products, of its pharmaceutical, vaccine and consumer healthcare Union, that particularly in the USA and countries of the European development but also the time not only the cost of product affect the market and the uncertainty of successfully to reach required doing so. As detailed on page 18 health authorities have increased their focus on safety when assessing the risk/benefit balance of but also approval drugs in the context of not only initial product of additional indications and review in the context of approval Stricter regulatory marketed products. of information regarding or profile also heighten the risk of changes in product controls concerns on the basis of post-approval withdrawal by regulators in and result revenues which could reduce safety, over product is also greater liability lawsuits. There product and recalls product especially in the USA, on advertising and scrutiny, regulatory advertising. and in particular on direct-to-consumer promotion Risk factors Risk Business review P08–P57 financial results. difficulty, itcouldmateriallyandadverselyaffect theGroup’s these wholesalerssuchthat,ifoneormore are affected byfinancial Group isexposedtoaconcentrationofcredit riskinrespect of totalling £890million(31stDecember2009–£867million).The the Group hadtradereceivables duefrom thesethree wholesalers Group’s USpharmaceuticalsalesin2010.At31stDecember2010, three largestwholesalersamounted toapproximately 85%ofthe to hospitals,pharmacies,physiciansandothergroups. Salestothe sells itsproducts through asmallnumberofwholesalersinaddition In theUSA,similartootherpharmaceuticalcompanies,Group Risk from concentration ofsalestowholesalers violations underapplicableanti-briberyandcorruptionlegislation. Group hasinplacemaynot adequatelyprevent ordetectpossible The compliancemechanismsandmonitoringprogrammes thatthe could materiallyandadverselyaffect theGroup’s financialresults. from publicprocurement andreputational damage,allofwhich sanction, includingfines,prosecution, potentialdebarment could exposetheGroup and seniorofficerstocivilandcriminal Corrupt PracticesActandtherecently enactedUKBriberyAct to complywithapplicablelegislationsuchastheUSForeign may giverisetopossibleclaimsofbriberyandcorruption.Failure The Group’s extensiveandincreasingoperations international Anti-bribery andcorruption financial conditionorresults oftheGroup, asfollows: There are anumberoffurtherrisks,whichcouldaffect the affect theGroup’s financialresults. hedge transactions,anyofwhichcouldmateriallyandadversely mismanagement ofcashorenteringintohighriskpositionson which mayresult inanincreased riskoffinancialloss due tothe The Group dealsinhighvaluetransactionsonafrequent basis the financialstatements,‘Taxation’. decision inrespect oftransferpricingasdiscussedinNote14to Tax Authoritiesare currently seekingleavetoappealacourt formal appealsorotherproceedings. Forexample,theCanadian with taxauthorities,GSKmayhavetoresolve disputesthrough exceptional caseswhere matterscannotbesettledbyagreement legislation andregulation are resolved asquicklypossible.In as possible,andthatanydifferences intheinterpretation oftax tax authoritiestoensure thattheGroup’s taxaffairs are ascurrent to submittaxreturnswithinthestatutorytimelimitsandengage regarding thefinaltaxliabilityforperiod.TheGroup’s policyis tax authoritiesare concluded,there isadegree ofuncertainty best estimateofitstaxliabilitybut,untilsuchtimeasauditsby The taxchargeincludedinthefinancialstatementsisGroup’s Risk factors GSK Annual Report 2010 GSK Annual Report 56 entity thatowns theinventory. inventory maygiverisetovolatility dependingupontheGroup given period.Accountingfordeferred taxationoninter-company This couldhaveasignificantimpact ontheincomestatementinany reported results before thosegainsorlossesare actuallyrealised. and lossesundersuchinstruments tobereflected intheGroup’s market valuationofcertainfinancial instrumentsrequire gains FinancialReportingStandards International changesinthe financial results. expense thatmaymateriallyandadverselyaffect theGroup’s Board couldresult inchangestotherecognition ofincomeand issued fromAccountingStandards timetobytheInternational New orrevised accountingstandards, rulesandinterpretations Accounting standards related proceedings inwhichtheGroup isinvolved. statements, ‘Legalproceedings’, foradiscussionofenvironmental affect theGroup’s financialresults. SeeNote44tothefinancial result inadditionalremedial coststhatmaymateriallyandadversely sites. Failure tomanageproperly theenvironmental riskscould remediation costsrelating totheGroup’s useorownershipofsuch Response CompensationandLiabilityActatanumberofsitesfor responsible partyunderthe USComprehensive Environmental sites. TheGroup hasalsobeen identifiedasapotentially potential obligationsontheGroup toremediate contaminated The environmental lawsof variousjurisdictionsimposeactualand Environmental liabilities liquidity problems thatcould adverselyimpacttheGroup’s results. political unrest. Theseevents mayleadtobusinessdisruptionand African marketsthatsubsequenttotheyear-end are experiencing The GroupandNorth operatesinanumber ofMiddleEastern jurisdictions inwhichtheGroup operates. political unrest, legalandregulatory changesornationalisationin economic factorsaffecting its businessesorthepossibilityof rates, foreign currency exchangeratesandcontrols orother The Group hasnocontrol overchangesininflationandinterest financial results. Japanese Yen, couldmateriallyandadverselyaffect theGroup’s and othercurrencies, especially theUSdollar, theEuro andthe (see page46).FluctuationsinexchangeratesbetweenSterling discussed inBusinessreview, ‘Foreign exchangemanagement’ the UK.TheGroup’s managementofforeign exchangeratesis The Group conductsasubstantialportionofitsoperationsoutside Group toincrease itsfundingofthosepensionplans. Group’s investmentsinitspensionplanstodecrease, requiring the the Group’s financialinvestmentsandmaycausethevalueof renewed declinesinassetpricesmayresult inalower returnon sensitive todeclinesinconsumerspending.Inaddition,furtheror Pharmaceuticals andConsumerHealthcare, maybeparticularly ability toraisecapital.SomeoftheGroup’s businesses,including on theGroup’s sales,results ofoperations,financialconditionand Continued economicweaknessmayhaveamaterialadverseeffect proved uneven. have recovered in2010,theeconomicrecovery anditspace limited availabilityofcredit. Althoughmanyoftheseeconomies difficulty, includingadeclineinassetprices,liquidityproblems and financial institutionshaveintherecent pastfacedextreme financial including themajormarketsinwhichGroup operates,and As describedonpage20,manyoftheworld’s largesteconomies, Global politicalandeconomicconditions Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 57 GSK Annual Report 2010 Attraction and retention and Attraction talented and retaining heavily on recruiting relies The Group The Group to meet its objectives. with a range of skills employees the supply of individuals, as competition for qualified faces intense be may geographic regions specific skills or in specific people with its operations plans to expand given the Group’s limited, particularly and Consumer Healthcare. Markets, Biologicals in Emerging specific technical and leadership with staff The inability to attract planning succession effective ensure key employees or skills, retain the Group’s materially and adversely affect for critical positions may financial results. strategic priorities Implementing the Group’s a priorities: to grow strategic has established three The Group of value, and simplify products more diversified business, deliver may not be able to implement its The Group its operating model. is able to implement and, even if the Group strategic priorities fully the strategic priorities may not deliver theits strategic priorities, expected benefits. a diversified business For example, the strategic priority to grow Emerging Markets. business into involves expanding the Group’s 22% Markets grew pharmaceutical sales in Emerging The Group’s Group’s 15% of the in 2010 to nearly £3.6 billion, and represented is no guarantee that the There 2010 pharmaceutical turnover. or that to grow sales in Emerging Markets will continue Group’s high growth relatively these markets will continue to experience vulnerable torates. Some emerging markets may be especially global financial crisis, or may have of the recent the after-effects Competition in to spend on healthcare. very limited resources with the skills and training suitable for these markets for staff may be intense. Group’s employment at an enterprise such as the on to rely may be required In some emerging markets, the Group and at risk of liability, agents, which may put the Group party third against crimes some emerging markets lack sufficient protection to continue to expand its business such as counterfeiting. A failure markets could materially and adversely affect in emerging growth financial results. the Group’s programme is undertaking a restructuring In addition, the Group £4.5 billion and is that has an estimated cost of approximately savings of approximately expected to deliver annual pre-tax £2.2 billion by the time it is substantially complete in 2012. may not be able to execute fully this transformation The Group structure, changes in the Group’s of its business. Furthermore, these from costs or efficiency resulting operations, revenues, in activities or other strategic initiatives could result restructuring the to realise higher than expected costs or other difficulties. Failure programme expected cost savings by the end of the restructuring or to achieve and maintain a competitive cost base could materially financial results. the Group’s and adversely affect Regulators regularly review the financial statements of listed of statements the financial review regularly Regulators accounting and regulatory for compliance with companies it complies with the believes that The Group requirements. concerning its financial requirements regulatory appropriate have other companies However, and disclosures. statements withpotential non-compliance investigations into experienced that have resulted requirements and disclosure accounting and sometimes results reported of previously in restatements Any such investigation and required significant penalties. the Group’s adversely affect could materially and restatement financial results. and assets information of electronic Protection data, such as personally on critical and sensitive relies The Group and intellectual property trade secrets, identifiable information, Security of this type of data is exposedcorporate strategic plans. is also subject to various The Group external threats. to increasing identifiable information. of personally for the protection standards adequately protect to safeguards to implement appropriate Failure access, acquisition, use,against any unauthorised or unintentional of this critical or sensitive data may modification, loss or disclosure operations. the Group’s adversely affect Alliances and acquisitions into new product strategy to diversify As part of the Group’s and expects to has grown, markets, the Group and areas acquisitions and business in part through continue to grow, is intense competition for alliance and acquisition alliances. There and, as such, the Group candidates in the pharmaceutical industry, terms or atmay be unable to make these deals on acceptable the Group all. In acquiring or forming alliances with companies, to unknown ormay assume significant debt, become subject the benefits expected from contingent liabilities or fail to realise companies,these transactions. For example, most pharmaceutical may consider acquiring, are including those that the Group liability litigation, governmentinvolved in patent disputes, product whose outcome is investigations and other legal proceedings The assumption of debt or subject to considerable uncertainty. the to realise unknown or contingent liabilities or the failure the Group’s affect expected benefits may materially and adversely financial results. may acquire of integrating companies the Group The process of in disruption to the ongoing business as the effort may result locations and with, among integrating organisations in different may divert systems and corporate cultures other things, differing in the loss of key employees or have result attention and resources, other adverse consequences, any of which may materially and financial results. the Group’s adversely affect Risk factors Risk Governance and remuneration P58–P101 Our Board GSK Annual Report 2010 GSK Annual Report of Guangzhou, China. to theGovernor and anAdviser Council Advisory International Economic Development Board’s oftheSingapore is aMember Group. He Advisory Business Minister’s ofthePrime member 2011in January andisa School Business of theINSEAD Member Skills andasaBoard and Innovation of Business, for theDepartment Member Board Non-Executive as Lead wasappointed He Associations. and Industries of Pharmaceutical President of European Federation and ofPhRMA Member Board isa 2003. He from January Europe, heheld aposition was President, Pharmaceuticals CEO, appointed being Andrew to prior Immediately the USA. and Africa inAsia, positions in 1985 andhasheldsenior theGroup joined He 2008. on21st (CEO) May Officer Chief Executive was appointed 2007 and for GSK inOctober Designate Officer Executive Chief wasnamed Andrew Chief Officer. Executive on31st 2008. Appointed January 46) (Aged Witty Andrew ofReform. Board oftheAdvisory and amember atBain&Co. Adviser a Senior Chairman’s Group, Advisory ofKPMG’s amember Inc, Holdings Brothers of Lehman Director isaNon-Executive He 2003. inJuly hisretirement until ofVodafone Groupplc, Officer and wastheChief Executive SpA ofFerrari Director Executive Sir Christopher isaNon- Chairman. on1st 2004. June Appointed (Aged 62) Sir Christopher Gent 58 Non-Executive Director. Non-Executive 2007. on12thAppointed February (Aged 56) Dr Stephanie Burns Defence in theUK. of attheMinistry Adviser andChiefCollege Scientific ofImperial Rector include positions former His Sciences. of and theFrenchAcademy ofNational Academy Sciences attheUS ofMedicine Institute ofthe Member Associate andaForeign Royal Society isafellow ofthe He London. Museum, History the Natural Co. Ltd. andheisaTrustee of & ofHakluyt Board Advisory of theInternationalmember isa He College, London. Imperial ofMedicine, Faculty in the Epidemiology Disease ofInfectious Sir RoyisProfessor Director. Non-Executive 2007. on1st October Appointed (Aged 63) Roy Anderson Sir Professor Iowa State University. State University. Iowa from chemistry organic in aPhD holds Dr Burns Women’s Health Research. for for theSociety the Board andon Section, America ofChemical Industry, Society Council, ofthe isanofficer Chemistry of theAmerican Council. thechair Sheisalso on theUS President’s Export Corning Corporation andsits of Dow Chief Officer Executive Stephanie isChairman and Andersen Consulting. Andersen in Accenture, previously Danaher, heheldpositions Corporation. Prior to joining of Danaher Officer Executive andChief isPresident Larry Director. Non-Executive on1st 2003. July Appointed 47) (Aged Culp Larry American Food Division. Division. Food American President of theNorth & Gamble, hewas where career, heworked for Procter United Distillers. In his earlier of Director Managing andGroup the mainBoard of hewasamember where he joined from Guinness plc, Groupplc,which of Aegis appointment, Chief Executive PLC,Elsevier to that andprior of Reed Chief Officer Executive waspreviously He University. ontheCouncil ofOxford serves and Board Advisory Global BV, ofCitigroup’s amember Netherlands ofStarBev Director Sir Crispin isChairman and Director. Non-Executive on1st 2003. July Appointed 61) (Aged Davis Crispin Sir Investment Banking. before thatasheadofUK European M&Abusinessand as leaderofGoldmanSachs’ banking, includingmostrecently of experienceininvestment Partner. Hehasover25years was aManagingDirector and Goldman Sachswhere he Simon joinedGSKfrom Financial OfficerDesignate. Executive Director andChief Appointed on4thJanuary2011. Simon Dingemans(Aged47) March 2011. on31st Director Executive as Chief and Financial Officer retire will Julian Metropolitan. atGrand financeroles senior to theGroupheheld joining Controller. Prior Operations President,appointed Vice Senior 2001 hewas January 1998. In as Financial Controller in April Wellcome Glaxo joined Julian Chief FinancialOfficer. on1st 2005. April Appointed Julian (Aged 57) Heslop Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 59 GSK Annual Report 2010 Sir Robert Sir Wilson 67) (Aged NovemberAppointed on 1st 2003. Non-Executive Director & Senior Independent Director. Sir Robert is Non-Executive of BG Group plc. Chairman He was previously Executive of Rio plc until Tinto Chairman his retirement in October 2003 The of Economist and Chairman Group between 2003 and 2009. Tom de Swaan (AgedTom 64) Appointed January 2006. on 1st Non-Executive Director. of the is Chairman Tom Supervisory Board of VanLanschot Bankiers,member a of the Board of Directors of Services Financial Zurich and a Non-Executive Director Interest Public KPMG’s of HeCommittee. is also Vice of the SupervisoryChairman of the AuditBoard and Chairman Committee of Royal Ahold and a member of the Supervisory Board of Royal DSM. He was previously a member of the Managing FinancialBoard and Chief Officer of ABN AMRO.

Moncef joined Biologicals GSK where he engineered 1988 in the development of a robust vaccines pipeline and Worldwide led subsequently Business Development for his before pharmaceuticals lead R&D. to appointment Moncef was In June 2010 given responsibility overall for Oncology BusinessGSK’s and over the next twelve months responsibility Biologicals GSK for will also him. He transition to is a member of the Board of the Agency Technology Science, for and has a & Research (A*STAR) PhD in Molecular Biology and Université from Immunology Libre de Bruxelles. Dr Moncef Slaoui (Aged 51) May 2006.Appointed on 17th Research & Chairman, Development. Dr Daniel Podolsky Daniel Dr 57) (Aged Appointed July 2006. on 1st Non-Executive Director. the of is President Daniel SouthwesternUniversity Texas of and holds theMedical Center Phillip O’Bryan Montgomery, Jr., DistinguishedM.D. Presidential in Academic Administration,Chair and the Doris and Bryan Wildenthal in Distinguished Chair Medical He Science. is a member of the InstituteMedicine of of the Sciences. Academy National of US

James is Chairman and Chief and Chief James is Chairman Executive, Europe and Asia of News Corporation. He is also Non-Executive of Chairman BSkyB, a member of the Board of News and Corporation Non-Executive Director of served He previously Sotheby’s. Executive Officeras Chief of BSkyB and 2007 from 2003 to and Chief was also Chairman Executive Officer TV Star of 2003. to 2000 from James Murdoch (Aged 38) Appointed on 20th May 2009. Non-Executive Director. Sir Deryck is a Partner of Kohlberg Kravis Roberts & Co, a Non-Executive Director of Thomson Reuters and BlackRock as well as servingInc., on the Board of Directors of Lincoln He formerly was Center. Executive and Chief Chairman International Officer Citigroup of and of Salomon Brothers Inc. Sir Deryck Maughan Sir 63) (Aged Appointed June 2004. on 1st Non-Executive Director. Our Board Our Governance and remuneration P58–P101 Our CorporateExecutiveTeam (CET) GSK Annual Report 2010 GSK Annual Report current appointment. from April2006untilhis Corporate ComplianceOfficer this positionwithhisrole as May 2000andcombined of GlaxoSmithKlineplcin appointed CompanySecretary Secretariat in1984.Hewas Simon joinedtheCorporate Corporate ComplianceOfficer. Company Secretary & He wasformerlySVP, auditing. and internal management, compliance He isresponsible forrisk the role inJanuary2011. Simon wasappointedto and Assurance Ethics Governance, President,Senior Vice Simon Bicknell GlaxoSmithKline inJanuary2003. Pharmaceuticals Europe for was appointedPresident, President, AsiaPacific.He in theUSAandSeniorVice General ManagerMarketing PresidentAfrica, Vice and of ManagingDirector South company hehasheldtheroles During hiscareer withthe He joinedGlaxoUKin1985. Executive OfficerinMay2008. Andrew wasappointedChief Chief ExecutiveOfficer Andrew Witty 60 President ofUSOperations. Resources andmostrecently Executive Director ofHuman General ManagerofPuertoRico, including salesprofessional, She heldavarietyofpositions and Companyfor24years. 2009 afterworkingatEliLilly Deirdre joinedGSKinFebruary Pharmaceuticals President, NorthAmerica Deirdre Connelly in January2006. before hiscurrent appointment President oftheFuture Group Beecham in1976andwasthe healthcare products. Hejoined over-the-counter andnutritional which produces oralhealthcare, Consumer Healthcare business John isresponsible forthe President, ConsumerHealthcare John Clarke Investment Banking. before thatasheadofUK European M&Abusinessand as leaderofGoldmanSachs’ banking, includingmostrecently of experienceininvestment Partner. Hehasover25years he wasaManagingDirector and GSK from GoldmanSachswhere 4th January2011.Hejoined Financial OfficerDesignateon Simon wasappointedChief Chief FinancialOfficerDesignate Simon Dingemans July 2010. Japan from May2008until Pharmaceuticals AsiaPacific/ 2008. HewasPresident, January 2000untilMay Pharmaceuticals Japanfrom and waspreviously President, He joinedtheGroup in1999 from R&Dtocommercialisation. GSK’s rare diseasesbusiness and inFebruary2010tolead GSK JapaninJanuary2010 Marc wasappointedChairman and ChairmanofGSKJapan Head ofRare DiseasesUnit Marc Dunoyer Pharmaceuticals UK. President andGeneralManager, appointment, wasSeniorVice and, priortohiscurrent He joinedBeechamin1988 in Europe inJanuary2008. for theGroup’s operations Eddie becameresponsible Pharmaceuticals Europe President, Eddie Gray the endofMarch 2011. CET whenheretires from GSKat in April1998.Hewillleavethe Wellcome asFinancialController and insurance.HejoinedGlaxo tax andtreasury, financesystems financial reporting andcontrol, responsible foractivitiessuchas of thefinancefunctionheis Officer inApril2005.Ashead Julian becameChiefFinancial Chief FinancialOfficer Julian Heslop Technology. President,Vice R&DInformation his current roles, BillwasSenior Medical DataSciences.Priorto President,in 1994asVice across GSK.BilljoinedGlaxo for informationtechnology April 2010.Heisresponsible lead Core BusinessServicesin was appointedtocreate and 2007. Inadditiontothisrole he Information OfficerinJanuary Bill wasappointedChief & ChiefInformationOfficer Core BusinessServices President,Senior Vice Bill Louv and Australasia. Europe, Africa/MiddleEast overseeing marketsthroughout where hespent20years from EliLillyandCompany, Abbas joinedGSKinJune2008 & AsiaPacific President, EmergingMarkets Abbas Hussain Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 61 GSK Annual Report 2010 Changes to the CET Duncan Learmouth, Senior Global Vice President, Communications left the CET in August 2010 for a new Vice as Senior President, role Developing Countries and Market Access. Phil Thomson was appointed Senior Global Vice President, Communications in August 2010 and, although he is not is invited to attend a member, CET meetings as required. Dan Phelan, Chief of Staff the CET stepped down from in December 2010 to act as an advisor to the CEO in advance of his eventual retirement GSK. from Patrick Vallance Medicines Senior Vice-President, Discovery and Development SeniorPatrick was appointed Medicines Vice President, Discovery and Development in July 2010. He is responsible newfor ensuring a flow of the R&D medicines through early discovery pipeline from of the to approval through medicine. Patrick joined GSK in 2006. Prior to that he was a clinical academic and led the Division of Medicine at University College London. Dan Troy Senior Vice President and General Counsel Dan joined GSK as Senior Vice and General Counsel President in September 2008. Before that he was a Partner at the law firm Sidley Washington Austin LLP and Chief Counsel 2006–2007 for the FDA. From the American he chaired Section of Bar Association’s and was Administrative Law, adjunct scholar at previously the American Enterprise DC. Institute in Washington, Claire leads the global Human leads Claire (HR) function. Resources she oversaw HR in Previously, Pharmaceuticals International and in Pharmaceuticals Europe. the company joined Claire in 1996 and was appointed Human Resources of Director for UK Pharmaceuticals in 1997. as an honoured was Claire Woman Outstanding European of Achievement in 2007. Claire Thomas Claire Senior Vice President, Human Resources Jean Stéphenne Chairman and President, Biologicals global Jean has led GSK’s vaccines business since 1989. he was Vice President Previously Research of Human Vaccines and Development and He joined the Production. company in 1974 as Head of Bacterial and Viral Vaccines Jean was named production. by King Albert II of the Baron Belgians in 2000 in recognition of his leading contribution to R&D and industry in Belgium. Moncef Slaoui Chairman, Research & Development drug Moncef leads the Group’s discovery and development Oncologyactivities as well as its business. Over the next 12 months he will assume for operational responsibility GSK biologicals. He joined in 1988 and was the Group a key player in building GSK’s vaccines pipeline. In 2003 he was appointed Senior Vice Business Worldwide President, Development until his current appointment in June 2006. David is responsible for David is responsible exploration of new proactive business opportunities, strategic planning and dermatology. role In addition to his current he was appointed Chairman of ViiV Healthcare of the Board 1st April from Ltd. with effect 2011. He began his career with GSK in 1994 in Corporate being Development before of appointed Finance Director Pharmaceuticals in 1999. Europe Director He was appointed Area in 2003 and for Central Europe Northern in 2005. Europe David Redfern Chief Strategy Officer David is responsible for the David is responsible Global Manufacturing and Supply organisation and He joined Global Procurement. Glaxo in 1978. He has broad experience of manufacturing led operations having previously European the Primary Supply, manufacturing, North American manufacturing, Global Logistics and Manufacturing Strategy organisations. David Pulman Global President, Manufacturing and Supply Our Corporate Executive Team (CET) Team Executive Corporate Our Governance and remuneration P58–P101 Corporate governance The Board alsoheldareception withlocallybasedexecutivesandkeytalent. several DiscoveryPerformanceUnits, atourofpharmaceuticaldevelopmentpilotplant,together withworkshopsseniorex In July, theBoard visitedGMSandR&DsitesinResearch Triangle ParkandZebulonintheUnitedStates.Thesevisitsincluded the siteforextraordinary efforts theyhadmadetoenabletheGroup torespond totheH1N1pandemicin2009. development programmes; namelyMAGE-A3,SynflorixandMalaria.TheBoard wasalsoverypleasedtomeetand thankGSKstaff at which continuestogrow intermsofitscontributiontotheGroup. Thisincludedspecificbriefingsonthree importantvaccine In March, theBoard visitedourVaccines siteinWavre inBelgiumtoreceive anupdateontheprogress ofourmain vaccinesbus senior executives. talent andmanagementsuccession.In2010theBoard madeseveralvisitstosomeofthe Group’s sitesandmetwithkeytalentan Each yeartheBoard seekstofurtherdevelopitsknowledgeandunderstandingofthebusiness andtogaingreater visibilityof Business awareness andsuccessionplanning shareholder engagement,keyareas where wehavemadegoodprogress during2010. Other areas ofboard practicethatIwouldalsoliketoparticularlyfocusonhere are businessawareness, successionplanning agreed upontodrivestandards ofBoardandperformancecanbefoundonpage68theReport. governance an approach thatGSKhas previously adopted.DetailsofthelatestBoard evaluation andtheactionsthathavebeenidentifiedan endorsed initsupdatedCodetheapproachfacilitatedboard ofexternally evaluationsbeingundertakenatleasteverythree yea As usual,wehaveconductedarigorous evaluationtotesttheBoard anditsCommittees’effectiveness. Iampleasedtonotethe required for2010hasbeensignificant,butcontinuestobelieveitisinthebestlongterminterests ofshareholders toresolv updates ontheprogress beingmadetoresolve outstandinglegalmatters.TheBoard acknowledgesthatthescaleoflegalpro focus forthisCommitteeandtheBoard. TheAudit&RiskCommitteeholdsregular dialoguewithexecutivemanagement,whoprovid delegated toitbytheBoard. Thedecisiontoresolve theinherent unpredictability andreduce overalllitigationexposure has following Report.Anotableexampleofthisinpracticehasbeentheexercise bytheAudit&RiskCommitteeofoversightpo There are anumberofingredients thatmakeupaneffectively functioningboard. GSK’s approach issetoutingreater detailin and itsdecision-makingprocesses. for shareholders inthelong term,whileensuringthatsoundeffectivepracticesare corporategovernance embeddedintheorgan As Chairman,myrole primarily istoprovide leadershiptotheBoard, necessary to promote thesuccessofcompanyandcreat Board role andeffectiveness compliance withtheupdatedCodenextyear. Code). Ourreview indicated thatweare inastrong positiontocomplyfullywith itsprovisions andIwillreport formallyon (Combined Code(updatedCode)publishedinJune2010,formerlytheCombinedonCorporateGovernance Corporate Governance our boardprocedures practicesandgovernance againstthestandards contained intheFinancialReportingCouncil’s (FRC)update consultations where theyhave beenrelevant tothelongterminterests ofourshareholders. We havealsotakentheopportunity predominantly inthelight of therecent globalfinancialcrisis.GSKhasbeenanactiveparticipantindebatingtheissuesrais 2010 hasseenacontinuationofreviews andconsultationsaimedatexaminingimprovingarrangements, corporategovernance developments Corporate governance better outcomestopatientsandconsumers. pipeline generatingincreasing potential,theBoard believes thatwecangenerateincreased valueforshareholders anddeliver and improved cashgenerationbefore legalsettlements. Bybecomingamore balanced,synergisticbusinesswithabroad anddiver also becameincreasingly evidentin2010through the deliveryofdiversifiedunderlyingsalesgrowth, increasing pipelinepotent re-engineering GSK’s businessthrough restructuring andamore rigorous approach tocapitalallocation.Theeffect ofthesecha Although ouroperatingenvironment remains challenging, Ibelievethatwemadesignificantprogress during2010insubstantially Review of2010 On behalfoftheBoard, IampleasedtopresentReportfor2010. theCorporate Governance Dear Shareholder GSK Annual Report 2010 GSK Annual Report 62 GSK’s ed by these ed bythese e such matters. e suchmatters. been acore and and briefings with briefings with even even the the executive executive ial ial rs; rs; nges nges iness, iness, wers wers FRC FRC to review d e value e value ecutives. ecutives. d UK d UK isation isation visioning visioning

d se se e Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 63

ore, ore, East jor ders’ de itional

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ased to e e The the the ing the ard ard ur senior meeting GSK Annual Report 2010 Annual re-election of directors Annual re-election the view during the consultation period on updating parties, expressed and interested GSK, like a number of other organisations Sir Christopher Gent Chairman which will contribute to the Group’s efforts to reduce costs and minimise our impact on the environment. The Board was also ple The Board environment. our impact on the costs and minimise to reduce efforts contribute to the Group’s which will Combined Code compliance statement and applied the Main Principles of Section 1 of the Combined Code, 2010, the company complied with the provisions Throughout Dr Stephanie Burns 2010 AGM. to attend the company’s unable de Swaan were except that Dr Stephanie Burns, Larry Culp and Tom the volcano in Iceland and attending due to travel disruption caused by the ash clouds from from prevented and Larry Culp were in a partial This resulted of another public company on the same day. meeting to chair a shareholder de Swaan was required Tom D.2.3. non-compliance with code provision that it could ero feared could be damaging. We of directors mandate annual re-election to proposal Combined Code that the FRC’s that each has agreed in the updated Code and the Board members. Nevertheless, this change has been included as a new provision over time. of this provision monitor the effect will at the 2011 AGM. We member should stand for re-election Board and applied the principles of theThe Corporate Governance that follows sets out how GSK complied with the provisions Report Combined Code during the year. At GSK we value an open, constructive and effective interaction with our shareholders. interaction with our constructive and effective At GSK we value an open, of meet programme a regular institutional investors through and I maintain an ongoing dialogue with the CEO, CFO In particular, Shareholder engagement Shareholder in Singapore. During the summer, Abbas Hussain, President, Emerging Markets & Asia Pacific and a Corporate Executive Team (CET) Team and a Corporate Executive & Asia Pacific Emerging Markets President, Abbas Hussain, the summer, During in Singapore. joint strategy review held a the Board In October, in this region. centrally located to be more to Singapore relocated member, and a pilot plant. facilities of GMS’ production site and tour one pleased to visit a GMS and was in Singapore with CET members in Singap technology manufacture chemistry and continuous in green investment of GSK’s on the results also had a workshop Board and key talent. local senior executives to meet with have the opportunity executiv attend CET meetings and R&D related encouraged to are visits, our Non-Executive Directors In addition to these planned members. feedback to Board to give direct talent, whilst enabling our employees and key executive management cadre of issues.which cover a range WittyDuring 2010, Andrew separate funds. Julian Heslop with investors, covering over 50 attended over 60 one-on-one meetings add with investors, covering over 35 separate funds. In addition, both met with multiple attended nearly 40 one-on-one meetings dur section of our shareholders cross I personally met a representative conferences. meetings and at broker investors via group Also, along with th colleagues. along with other Board on request with shareholders course of the year and am available to meet meetings with institutional I attended and the Company Secretary, Head of Human Resources Remuneration Committee Chairman, the we conduct annually. policy and governance matters, a process related investors to specifically discuss remuneration and senior management understand our sharehol this level and quality of engagement is key to ensuring that the Board believe We Code for Institutional Investo by the FRC of the Stewardship welcome the introduction views and perspectives. On this theme, we between ma the quality of the engagement process which aims to further strengthen code of good practice for major shareholders, new Bo to recruit difficult and could make it even more short-termism was likely to increase the principle of the unitary Board, GSK continues to target growth in Emerging Markets and has established an important new corporate hub for the Group in the Far in the the Group hub for new corporate important an has established and Emerging Markets in target growth to GSK continues Corporate governanceCorporate meetings. This provides them with a good perspective of how management operates and gives a greater insight into key business operates and gives a greater with a good perspective of how management them meetings. This provides of o knowledge, integrity and behaviour members to observe the skills, opportunity for Board a further issues. It also provides and the companies that they invest in. shareholders to attend will be available, as usual, to meet with investors after able who are directors 2011 AGM all Board At the company’s basis.meeting to discuss issues on a face-to-face Governance and remuneration P58–P101 and regulations. Combined CodemaintainedbytheFRCandwithUSlaws applies andcomplieswiththeprinciplesprovisions ofthe Report onpages81to101,includesdetailsofhowthecompany proceduresgovernance andtogetherwiththeRemuneration This sectiondiscussesGSK’s managementstructures and andpolicy Governance Corporate governance for shareholders. He isalsoavailableasanadditionalpointofcontactontheBoard Chairmen inthoseyearswhentheprocessfacilitated. isinternally Committees andDirectors incollaborationwiththeCommittee evaluation oftheperformanceChairman,Board, its from theBoard onthatdate.Hisresponsibilities includetheannual (SID) on20thMay2009,followingSirIanProsser’s retirement wasappointed SeniorIndependentDirector Sir RobertWilson necessary fortheproper performanceoftheirduties. Non-Executive Director are expectedtodevotesuchtimeasis Under thetermsoftheirengagement,Chairmanandeach and otherwiseasnecessary. and isassistedbytheCET. TheCETmeetsatleast11timesperyear The CEOisresponsible for executive managementoftheGroup company’s website. the Boardsectionof andappearsinfull intheGovernance Chairman andtheCEOhasbeensetoutinwriting,agreed by members. Thedivisionofresponsibilities betweentherole of Committees communicateregularly withtheCEOandotherCET adopted bytheBoard. The Chairman andtheChairmenofBoard manages theGroup andimplements thestrategyandpolicies The ChairmanleadsandmanagestheBoard whiletheCEO biographical detailscanbefoundonpages58and60. istheCEOandhis details canbefoundonpage58.Andrew Witty 2005 andwasChairmanthroughout 2010.Hisbiographical Sir ChristopherGenthaschaired thecompanysince1stJanuary Chairman, CEOandSeniorIndependentDirector Non-Executive Directors. Board members,excluding theChairman,were independent At thedateofpublicationandthroughout 2010,amajorityofthe independence criteriaonhisappointmenttotheBoard. with theexercise oftheirjudgement.TheChairmansatisfiedthe business orotherrelationship whichcouldmateriallyinterfere independent incharacterandjudgementfree from any The Board considersallitsNon-ExecutiveDirectors to be Independence strategy, riskmanagementandfinancialperformance. andisultimatelyaccountablefortheGroup’sgovernance activities, The Board isresponsible fortheGroup’s systemofcorporate pages 60to61. the membersofCETunder‘OurCorporateExecutiveTeam’ on The Directors are listedunder‘OurBoard’ onpages58to59and The Board andCorporateExecutiveTeam GSK Annual Report 2010 GSK Annual Report 64 as follows: The Board metsixtimesin 2010,witheachmemberattending Group’s strategy. basis todiscussanddevelopproposals collectivelyinrelation tothe The Board Directors meetwithalltheCETmembersonanannual regular presentations totheBoard ontheirareas ofresponsibility. Board on,theperformance ofthebusiness.CETmembersmake of theGroup, andtheCEO isaccountablefor, andreports tothe Board hasgiventheCEObroad authoritytooperatethebusiness CEO andtheotherExecutiveNon-ExecutiveDirectors. The The Board hasoverallresponsibility forsuccessionplanningthe • • • whole. Thisincludes: Board evaluatesandmonitorstheperformanceofGroup asa licensing decisionsinexcessofdefinedthresholds. Inaddition,the The Board appraisesandapproves majorfinancing,investment and code ofconduct. management policiesandapprovesstructure itsgovernance and strategy. TheBoard reviews theGroup’s controls internal andrisk includes theapproval ofoverallbudgetaryplanningandbusiness responsibilities through anannualprogramme ofmeetingswhich the strategicobjectivesitsets.TheBoard dischargesthose ensuring thattheGroup isappropriately managedand achieves and hastheauthority, andisaccountabletoshareholders, for The Board isresponsible forthelong-termsuccessof thecompany Board process i oetWlo 6 5 6 6 5 6 4 6 6 6 6 6 6 6 quorate basisonthree occasions. 6 6 In additiontothesixscheduled meetings,theBoard alsomet ona 6 6 6 6 * 6 6 Sir RobertWilson 6 6 Tom deSwaan Dr DanielPodolsky 6 James Murdoch Sir DeryckMaughan* 6 Sir CrispinDavis Larry Culp Dr StephanieBurns Professor SirRoyAnderson Dr MoncefSlaoui Julian Heslop Andrew Witty Sir ChristopherGent advance ofbothmeetings. gave hiscommentstotheChairman onthematterstobediscussedin Sir Deryckwasunabletoattendtwo meetingsforpersonalreasons. He

committees, thesignificantrisksfacingGroup. in meetingtheseobjectivesandplans, Executive Directors scrutinising theperformanceofmanagement financial andbusinessobjectivesannualplanstheNon- issuesmaterialtotheGroup’sand external prospects appropriate, onthefinancialandoperatingperformanceofGSK the otherExecutiveDirectors andmembersoftheCETas monitoring, through reports received directly orfrom various evaluating progress towards theachievementofGroup’s engaging atBoard meetingswithandchallengingtheCEO, Number of meetings Number ofmeetings held whilstaBoard member member meetings attended Number of Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 65 GSK Annual Report 2010 Company Secretary and is available to the Board is responsible The Company Secretary Simon procedures. of Board in respect to individual Directors until 31st December 2010 Bicknell was Company Secretary Committees, except the to all of the Board and was Secretary Remuneration Committee. Victoria Whyte, formerly Deputy with effect was appointed Company Secretary Company Secretary, to the Remuneration January 2011. She was Secretary 1st from to all of the Board Committee during 2010 and acts as Secretary She Secretary. Committees since her appointment as Company Secretaries Chartered is a solicitor and a Fellow of the Institute of and Administrators. Committees Board has established a number of committees and The Board to enable them to undertake their sufficient resources provides not members of the Audit & are duties. Executive Directors Risk, Remuneration, Nominations or Corporate Responsibility Committees, although they may be invited to attend meetings. is a member of the Corporate Administration & Each Director and Finance Committees. Transactions The Board has an established procedure for handling situational handling for procedure an established has The Board the best practice guidance which is in line with interest, conflicts of and in accordance Group General Counsel 100 issued by the the Nominations It has authorised Articles. with the company’s but in any event periodically, to grant and review Committee Directors authorisations. or actual conflict any potential annually, of their own quorum for the authorisation not counted in the are minutes the The Company Secretary actual or potential conflicts. recorded conflict. Authorisations granted are consideration of any of conflict authorisations register in a by the Company Secretary meeting. at its next noted by the Board which are for informing responsible are the Directors On an ongoing basis, actual or potential conflicts new, of any the Company Secretary that may in circumstances any changes are that may arise or if there with Even when provided given. an authorisation previously affect his or her statutory absolved from is not authorisation, a Director If an actual conflict the company. the success of duty to promote will choose to exclude the the Board arises post authorisation, information and participation relevant of the receipt from Director as a last or, the Board, from in the debate, or suspend the Director to resign. the Director require resort, of conflict the register The Nominations Committee reviewed that theauthorisations in October 2010 and concluded for authorised and the process conflicts had been appropriately authorisation continues to operate effectively. Directors’ conflicts of interest Directors’ have a statutory duty to avoid a situation in which they Directors or possible conflict of interest or indirect have, or can have, a direct The duty applies in particular with the company. conflict of interest information or opportunity, to the exploitation of any property, whether or not GSK could take advantage of it. The company’s to Articles of Association include a general power for the Board of duty if the relevant is no breach authorise such conflicts. There matter has been so authorised in advance. Indemnification of Directors (as defined in section party indemnity provisions Qualifying third of the for the benefit in force 234 of the Companies Act 2006) are who held office during 2010. and former Directors Directors Independent advice may be occasions when one or that there recognises The Board legal feel it is necessary to take independent Directors of the more is an expense. There and/or financial advice at the company’s them to do so. This is explained in the to enable procedure agreed website. Governance section of the company’s Business environment and personal development and Business environment up-to-date on important matters, is kept that the Board ensure To developments,including legal, governance and regulatory external basis by both and made on a regular are presentations internal advisers. insight and understanding greater also gain Non-Executive Directors visits to to GSK employees through of the business and access attendance at various internal operational facilities and Group & Development Research including CET, management meetings, meetings, on an ad Board Marketing Executive and Product hoc basis. is conducted by the Company A customised induction process focusing for each of the new Non-Executive Directors Secretary of their different on their particular experience and taking account includes meeting A primary element of this process backgrounds. and individual basismembers of the CET informally on a collective together with other senior executives, and visiting as appropriate, particular operational facilities of the Group. annually on Director In addition, the Chairman meets with each their individual ongoing a one-to-one basis to discuss and agree training and development requirements. Where Directors are unable to attend a Board or Committee a Board to attend unable are Directors Where on comments and observations communicate their meeting, they or the of the Board via the Chairman to be considered the matters at appropriate for raising as Committee Chairman Board relevant as is considered Attendance at meetings meeting. the relevant conducted by the Chairman one-to-one meetings part of the Director. with each Corporate governanceCorporate Governance and remuneration P58–P101 Corporate governance * ui ik eueain oiain Responsibility Nominations Remuneration Audit&Risk i oetWlo – – M M – – – M – M – – C M – M M – M – M – C M – C – M C – – M M – – – M 2010 GSK Annual Report – – M Key: C=ChairmanMMember Sir RobertWilson Tom deSwaan Dr DanielPodolsky James Murdoch Sir DeryckMaughan Sir CrispinDavis Larry Culp Dr StephanieBurns Professor SirRoyAnderson Sir ChristopherGent Current membershipofthese Committeesisshowninthetablebelow. framework Corporate governance 66 (there willbe3ExecutiveDirectors followingtheretirement oftheChiefFinancialOfficeron31stMarch 2011). There havebeen4Executive Directors sincetheappointmentofChiefFinancialOfficerDesignateon4thJanuary2011 Audit &RiskCommittee Non-Executive Directors 3 Independent Non-Executive 3 IndependentNon-Executive Directors andtheChairman Corporate Responsibility ManagementCommittee Board Committees Key 5 Independent 5 Independent 4 Independent Non-Executive 4 IndependentNon-Executive Remuneration Committee Directors andtheChairman Executive andNon-Executive Finance Committee (Chairman, 4ExecutiveDirectors and9 Independent Non-ExecutiveDirectors) Directors Directors * BOARD 4 Independent Non-Executive 4 IndependentNon-Executive Directors andtheChairman Nominations Committee & Transactions Committee Corporate Administration Corporate Administration Secretary andCETMembers Directors, the Company Directors, theCompany Chief Executive Chief Executive Officer CET Corporate Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

67 – – 77 e 74-76 78-80 81-101 m on page mmary Committee ReportCommittee GSK Annual Report 2010

4 4 2 3 * * * * per year As necessary As necessary No of meetings Membership comprises Independent Non- Executive Directors Independent Non- Executive Directors and the Chairman Independent Non- Executive Directors and the Chairman Independent Non- Executive Directors and the Chairman Executive and Non- Executive Directors Executive and Non- Executive Directors, CET members and the Company Secretary Reviews the financial and internal reporting process, and internal process, Reviews the financial reporting the external and internal the system audit processes, the identification andof internal and controls, The Committee also proposes management of risks. re-appointment the appointment, to shareholders of the external auditors and is directly and removal oversight of and for their remuneration responsible their work. of of service and remuneration Determines the terms of the and members the Executive Directors CET and, with the assistance of external independent advisers, it evaluates and makes on overall executive to the Board recommendations policy that assists the long-term remuneration success of the Group. for responsible (The Chairman and the CEO are to the Board evaluating and making recommendations of Non-Executive Directors.) on the remuneration size and composition Reviews the structure, (including the skills, knowledge, of the Board independence, experience and diversity) and and the appointment of members to the Board as to the Board and makes recommendations CET, The Committee monitors the planning appropriate. and Senior Management. of succession to the Board The Committee also considers and if appropriate conflicts of interest. authorises directors’ review forum for the regular Board-level a Provides of external issues that have the potential for serious business and reputation. impact upon the Group’s for oversight of The Committee is also responsible worldwide donations and community support. GSK’s the on behalf of the Board, Reviews and approves, and convening of the Annual Report and Form 20-F, and quarterly AGM, together with the preliminary It also approves statements of trading results. certain major licensing and capital transactions and Investment Instrument and changes to the Group’s Counterparty Limits. matters in connection with Reviews and approves business and the administration of the Group’s certain corporate transactions. Role and Terms of Reference of Reference Role and Terms Corporate Administration & Transactions Finance Corporate Responsibility Nominations Committee Audit & Risk Remuneration of the role and terms of reference of each Committee. The current full terms of reference of each Committee may be obtained fro may be obtained of each Committee full terms of reference current Committee. The of each of reference and terms of the role Each Committee has written terms of reference which have been approved by the Board and are reviewed at least annually to ensur least annually at reviewed are and by the Board approved have been which reference terms of has written Committee Each Corporate governanceCorporate that they comply with the latest legal and regulatory requirements and reflect best practice developments. The following is a su developments. The best practice and reflect requirements legal and regulatory with the latest that they comply website. or the Governance the company’s section of Secretary the Company Governance and remuneration P58–P101 below. 2009 hadtaken,togetherwiththeactionpointsagreed issetout A reminder oftheformBoard evaluationreviews for2008and be undertakenattheendof2011. facilitatedevaluationwill SID ortheChairman.Thenextexternally Code). Intheinterveningperiodreview willbefacilitatedbythe requirement Code(updated withintheUKCorporateGovernance evaluation process everythree years,whichhassince become a The Boardfacilitated decidedin2009toundertakeanexternally Evaluation oftheBoard, Board Committeesand Directors Corporate governance fulfil itsrole. a readily understandable formatandona timelybasisinorder to continued tofeel thatitwasreceiving high qualityinformation,in Committees were operatingeffectively atahighlevel.TheBoard The Board evaluationreview concludedthattheBoard andits its findings. the formofawrittenreport totheBoard, whichthendebated Feedback from theoverallevaluationprocess wasprovided in and discussedwiththerespective CommitteeandtheBoard. separate evaluationsandtheoutcomeofeachwasreported to The ChairmanofeachtheBoard Committeesundertook operates. exploration ofwaystofurtherimprove thewayinwhichBoard flows, handlingofstrategicissues,collectiveeffectiveness and Board effectiveness, includingBoard andCommitteeinformation Directors inadvance,includedavarietyofaspectsassociatedwith each Director. Thetopicsdiscussed,whichhadbeencirculated to The Board evaluationprocess includedaone-to-oneinterviewwith collaboration withtheCommitteeChairmen. the Chairman,Board and itsCommitteesandDirectors in conductedthe2010evaluationofperformance Wilson, In accordance withestablished practice,theSID,SirRobert 2010 Board evaluationprocess Dr 2008 2009 GSK Annual Report 2010 GSK Annual Report 68 Director Senior Independent Sir RobertWilson, review Review, facilitatedthis ehdo vlainActionsandareas offocus Method ofevaluation Long, Boardroom • • • • • • planning process management succession into thenewlyenhanced regular updatesandinsights Provide theBoard withmore ongoing basis company’s keyrisksonan focused considerationofthe Devote more timeto R&D pipeline the deliveryof the indicatorsofsuccessin to strategicdiscussionand Increase Board timedevoted planning process management succession to executivetalentand Provide greater visibility Executive Directors education process forNon- Enhance continuous by Non-ExecutiveDirectors facilitate furthercontribution time more effectively and Utilise Board andCommittee retirement afterhaving servednineyearsontheBoard. period whenseveralNon-Executive Directors wouldbeapproaching This wouldensure continuityofleadershiptheBoard duringa from 1stJanuary2011,subjecttore-election byshareholders. his appointmentasChairmanforaperiodoffiveyearswitheffect Chairmanship oftheBoard, itwasunanimouslyagreed toextend level ofconfidenceshared byallDirectors inSirChristopher’s contribution were ofahighstandard. Asaresult ofthishigh They considered thathisleadership,performanceandoverall Chairman beingpresent, todiscusstheChairman’s performance. The Directors, ledbytheSID,alsometseparately, withoutthe • • • • which itoperates: evaluation report toensure thatitcontinuestoimprove thewayin The Board agreed thefollowingactionsafterdiscussionof • • • year, theBoard: In termsoftheimplementationactionpointsfrom theprevious the Board’s practicesandprocedures were deemednecessary. honest andconstructivediscussionofissues.Nomajorchangesto CEO andastrong beliefthattheBoard dynamicsfacilitated open, There wasahighlevelofconfidenceintheperformance policies implementedinrecent yearshaveaddedvalue the Board willbeseekingto assesstheextenttowhichnew R&D will continue to be a major expense to the company and R&D willcontinuetobeamajorexpensethecompanyand leadership withintheGroup. to continuesupportExecutiveManagementonethical company andtheindustry perspectivesonthe members withawidervarietyofexternal to furtherenhanceinformationflowsbyproviding Board aim offurtherenhancingreturnstoshareholders and thesignificantchallengesfacingindustry, withthedirect allocate more timeonaregular basistofocusonstrategicissues pharmaceutical industry, theBoard willseektocontinue given thefundamentalstrategicchallengesfacing refresh theBoard. was beingmadeontherecruitment ofnewBoard membersto in theappointmentofCFODesignateandpositiveprogress of theenhancedsuccessionplanningprocess. Thishadresulted was pleasedwiththeoperationbyNominationsCommittee management nextyear Board’s annualreview oftheeffectiveness ofthecompany’s risk the Audit&RiskCommitteeduring2011,inadvanceof and theBoard willcontinuetoconsiderregular reports from fully understandtheGroup’s keyrisks.Thisworkisongoing had soughtassistancefrom theAudit&RiskCommitteetomore Remuneration Reportonpages81to101 new product performance.Formore details,pleaserefer tothe additional performancecriteria,oneofwhichfocusesonR&D grant ofLTI optionsmadeinFebruary2011waswithtwo As aresult ofasuccessfulconclusiontothesediscussions,the performance criteriaforthecompany’s longtermincentiveplans. shareholders overtheintroduction ofmore strategicallyaligned Committee initiateddiscussionswithmanagementand the year. Separately, onbehalf oftheBoard, theRemuneration of thepipelineandwaspleasedwithprogress from R&Dduring had increased itsfocusonR&Dactivitiesandsuccessfuldelivery Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 * 69 capital (%) Percentage of issued Percentage GSK Annual Report 2010 shares No. of 291,516,314194,024,944 5.62 3.74 Percentage of Ordinary Shares in issue, excluding Treasury shares. in issue, excluding Treasury Shares of Ordinary Percentage BlackRock, Inc. Plc Legal & General Group * Change of control and essential contracts Change of control other arrangements whichThe company does not have contracts or essential to the businesses, nor is it party to any individually are alter or terminate that would take effect, significant agreements following a takeover bid. upon a change of control or with any Director The company does not have agreements compensation for loss of office or Officer that would provide of except that provisions a takeover, from employment resulting granted and awards plans may cause options share the company’s Details of the termination under such plans to vest on a takeover. for Executive framework contracts in the company’s provisions given on page 91. are Directors in voting rights Interests there as far as the company is aware, Other than as stated below, holdings in the or indirect no persons with significant direct are to the company pursuant to the Information provided company. and Transparency (FSA) Disclosure Financial Services Authority’s Rules (DTRs) is published on a Regulatory Information Service and website. on the Investors section of the company’s notifications in At 24th February 2011, the company had received DTRs of the following notifiable interests with the FSA’s accordance capital: issued share in the voting rights in the company’s Share capital and control capital Share number of capital and the issued share company’s Details of the be found December 2010 can as at 31st held in Treasury shares capital and share ‘Share to the financial statements, in Note 33 Stock listed on the London are shares account’. GSK’s premium Stock Exchange York quoted on the New also are Exchange and ADS (ADS). Each American Depositary shares (NYSE) in the form of Shares. two Ordinary represents dividends, entitled to receive are Shares The holders of Ordinary Annual Report, attend and and the company’s when declared and appoint proxies of the company, speak at general meetings voting rights. exercise the holding or limitations on on transfer, no restrictions are There to obtain prior approval and no requirements Shares of Ordinary any special rights with carry Shares Ordinary for any transfers. No on no restrictions are of the company and there to control regard have the same voting rights per voting rights. Major shareholders no known arrangements are There other shareholders. as all share held by a person other than the under which financial rights are on on restrictions and no known agreements holder of the shares or on voting rights. transfers share plans rank equally with the share GSK through acquired Shares in issue and have no special rights. The trustees of other shares Plan (ESOP) trusts have Ownership Employee Share the company’s held by the ESOP trusts. waived their rights to dividends on shares Dialogue with shareholders with Dialogue and the on a quarterly basis announced are Financial results Annual Report. in the company’s included are full-year results which is sent to all an annual Summary produces The company of the Annual Report them of the availability to advise shareholders of Meeting on www.gsk.com. and Notice on the half-year and full- presentations The CEO and CFO give with institutional investors, in face-to-face meetings year results also accessible via webcast and which are analysts and the media quarterly first and third of the After the release teleconference. for institutional teleconferences the company holds webcast results, also are the media. The quarterly results investors, analysts and website. Investors section of the company’s made available on the in London, and formal notification is sentThe AGM takes place in advance. At the Meeting, a at least one month to shareholders able and all Directors to shareholders is made business presentation during the AGM, and informally available, formally to attend are attend for questions. Committee Chairmen ordinarily afterwards, Board questions. The entire to shareholders’ the AGM to respond AGM in May 2010, save for was in attendance at the company’s from prevented Dr Stephanie Burns and Larry Culp, who were by the ash clouds from attending due to travel disruption caused to de Swaan who was required the volcano in Iceland, and Tom meeting of another public company on the chair a shareholder decided on a poll as at the AGM are All resolutions same day. of Articles of Association. The results by the company’s required announced to the London Stock Exchange and posted the poll are website. Details of the on the Investors section of the company’s set out in the section ‘Annual General Meeting’ 2011 AGM are on the Investors(see page 71) and the Notice of AGM is published website. section of the company’s of and aware are that the Non-Executive Directors ensure To about the company, understand the views of major shareholders by which is managed has in place a briefing process, the Board as well as general issues, the Chairman, focusing on sector-specific preferences. shareholder with offices in London Investor Relations department, The Group’s contact with investorsand Philadelphia, acts as a focal point for the year. throughout The CEO, CFO and Chairman maintain a dialogue with institutional a on performance, plans and objectives through shareholders meetings. Since his appointment as CEO in of regular programme WittyMay 2008, Andrew has undertaken an extensive ongoing institutional shareholders. series of meetings with GSK’s with institutional investors to The Chairman meets regularly hear their views and discuss issues of mutual importance and as a whole. communicates the views of investors to the Board The SID is also available to shareholders. The Chairman of the Remuneration Committee, the Chairman, and the Company Human Resources the Senior Vice President, to discuss meet annually with major shareholders Secretary policy and governanceexecutive remuneration matters. available including new appointees, are All Non-Executive Directors, if requested. to meet with major shareholders and financial access to current website provides The company’s business information about the Group. Corporate governanceCorporate Governance and remuneration P58–P101 ‘Share capitalandshare premium account’. Treasury shares are disclosedinNote33tothefinancialstatements purchased inprioryears,thosecancelled,andheldas its ownshares duringtheperiodunderreview. Detailsofshares The companyhasnotacquired ordisposedofanyinterests in by theDepositarycanbefoundonpage209. (Nominees) Limited.DetailsofthenumberOrdinary Shares held managed bytheDepositary, are registered inthenameofBNY the company’s AmericanDepositaryReceiptprogram, whichare ADS, whichare listedontheNYSE.Ordinary Shares representing The BankofNewYork MellonistheDepositaryforcompany’s Corporate governance the companymay becancelledorheldasTreasury shares. sought onanannual basisattheAGM.Anyshares purchased by of itsownshares are subjecttoshareholder authoritieswhichare Article 9andtheauthorityfor companytomakepurchases allot Ordinary Shares under current Article9.The powerunder by themembers.TheDirectors havebeenauthorisedtoissue and legislation donotstipulatethat anysuchpowersmustbeexercised the company’s powersprovided thatthe Articlesorapplicable special resolution ofthemembers.TheDirectors mayexercise all section ofGSK’s website.TheArticlesmay beamendedbya the company’s ArticlesofAssociation,available ontheGovernance The powersoftheDirectors are determinedbyUKlegislationand Articles ofAssociation • • • • • • • • be aDirector if: passing aspecialresolution. ADirector mayautomaticallyceaseto ordinary resolution ofwhichspecialnoticehasbeengiven,orby The company’s membersmayremove aDirector bypassingan election orre-election in2011 inaccordance withtheupdatedCode. However, the Board hasagreed thatallDirectors willseekeither they haveheldofficeforacontinuousperiodofnineyearsormore. to re-election attheAGM at intervalsofthree yearsorannuallyif The Articlesalsoprovide that Directors shouldnormallybesubject way retires atthefirstAGMfollowinghisappointment. provided that,inthelatter instance,aDirector appointedinthis resolution ofthemembers orbyaresolution oftheDirectors, The Articlesprovide thatDirectors maybeappointedbyanordinary legislation inforce from timetotime. Articles mustbeapproved byshareholders inaccordance withthe contained inthecompany’s ArticlesofAssociation.Thecompany’s The rulesabouttheappointmentandreplacement ofDirectors are Remuneration Report(pages81to101). persons intheissuedshare capitalofthecompanyare giveninthe The interests ofDirectors andOfficerstheirconnected Directors andOfficers GSK Annual Report 2010 GSK Annual Report 70 he/she offers toresign andtheBoard acceptthatoffer resigns he/she Companies Acts, or Companies Acts,or creditors generally he/she shallceasetobeaDirector of sixmonthswithoutpermissionandtheBoard resolves that her toresign he/she isprohibited from beingaDirector bylaw. he/she ceasestobeaDirector byvirtueoftheArticlesor he/she becomesbankruptorcompoundswithhis/her he/she hasmissed Directors’ meetingsforacontinuousperiod he/she issuffering from physicalormentalillhealth all otherDirectors (beingat leastthree innumber)require him/ policy tostopvoluntarilyallpoliticalcontributions. to politicalcontributionsacross theGroup, GSKintroduced aglobal effect fromWith 1stJanuary2009,toensure aconsistentapproach Donations topoliticalorganisationsandexpenditure and otherfactors. determined bythecompanyandisdependentonmarketconditions the shares willbeheldasTreasury shares orcancelled,willbe The exactamountandtimingoffuture purchases, and whether ‘Share capitalandshare premium account’. Treasury shares are disclosedinNote33tothefinancialstatements Details ofshares purchased, thosecancelled,and heldas authorised topurchase amaximumofjustover519millionshares. by shareholders attheAGMinMay2010,whencompanywas held asTreasury shares, inaccordance withtheauthorityrenewed covers purchases bythecompanyofshares forcancellation ortobe shares were purchased atacostof£123.4million.Theprogramme period 4thFebruary2011to24th2011,10.4million and expectstobuy-back£1-2billionofshares in2011.Inthe intends tocommenceanewlong-termshare buy-backprogramme The companyannouncedpubliclyon3rd February2011thatit programme. Norepurchases were madeduring2009or2010. 2007. Shares costing£6.2billionwere repurchased underthis A £12billionprogramme ofshare repurchases commencedinJuly Share buy-backprogramme company anditssubsidiaries mightwish tosupport. groups withtheenvironment, such asthoseconcerned whichthe the representation ofthebusinesscommunity andspecialinterest withpolicyreview,to bodiessuchas thoseconcerned lawreform, In particular, thedefinitionofEUpoliticalorganisations mayextend political organisationsusedinthe legislationare verywide. The definitionsofpoliticaldonations, politicalexpenditure and organisations orincurEUpolitical expenditure. candidates, nordoesitmakeany donationstoEUpolitical to makedonationspoliticalpartiesorindependentelection However, thecompanydoesnotmakeandintend EU politicalorganisationsorincurexpenditure. obtain shareholder approval before theycanmakedonationsto The CompaniesAct2006requires companiestocontinue each year. Thisauthorityhassincebeenrenewed annually. Parties, ElectionsandReferendums Act2000,ofupto£100,000 incur EUpoliticalexpenditure, undertheprovisions ofthePolitical company tomakedonationsEUpoliticalorganisationsand to At theAGMinMay2001,shareholders firstauthorisedthe organisations bytheGSKPAC. a totalof£531,613(£540,551in2009)wasdonatedtopolitical political contributionswhichare subjecttostrictlimitations.In2010 their legalrighttocontributepoolresources andmake of contributionsare madeby participatingemployeesexercising is notcontrolled byGSK.Decisions ontheamountandrecipients voluntary politicaldonationsbyeligibleGSKemployees.ThePAC to supportaPoliticalActionCommittee(PAC) thatfacilitates with theFederalElectionCampaignAct,companycontinues Notwithstanding theintroduction ofthispolicy, inaccordance Canada USA comprising: Non-EU politicalorganisations EU politicalorganisations Political donationsto: 2010 – – – – £

2009 347,000 28,000 – 319,000 – – –– £ 2008 £ Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 71 GSK Annual Report 2010 nal control framework also relies on the following framework also relies nal control Internal control framework Internal control a balanced and to present its responsibility recognises The Board prospects. position and Group’s assessment of the understandable the and approving for reviewing has accountability The Board operated by the of internal controls effectiveness adequacy and compliance controls operational and including financial, Group, for has delegated responsibility The Board and risk management. Committee (the Committee), which to the Audit & Risk such review Assurance Programme. aligned with GSK’s reporting regular receives to the CET, through of management, It is the responsibility The CET is responsible and control. policies on risk implement Board key policies and enforcing monitoring for identifying, approving, conducts business. how the Group that go to the heart of resource includes central direction, The internal framework control and of the key activities of research allocation and risk management marketing and sales, legal, humandevelopment, manufacturing, practice. As part of information systems and financial resources, planning system with is a comprehensive this framework, there of operating The results by the Board. an annual budget approved with the budget. monthly and compared reported units are during the year. regularly prepared are Forecasts to identify and also has in place established procedures The Group activities include control entities. The Group’s consolidate reporting authorisation and policies and practices covering appropriate standards of transactions, application of financial reporting approval of significant judgements and financial performance. and reviews procedures and operational controls, Extensive financial, regulatory internal auditors. by the Group’s reviewed and risk activities are units, is clearly delegated to local business responsibility However, are These principles management structure. supported by a regional of central leadership coupled an environment designed to provide of for the exercise with local operating autonomy as the framework within the Group. accountability and control also attaches importance to clear principles and The Group accountability and designed to achieve appropriate procedures ‘Risk Management and Legal Compliance’, policy, Group A control. for managing and mandates that business units establish processes and the Group. monitoring risks significant to their businesses The inter risk and compliance issues. mechanisms for overseeing and reporting make donations to EU political organisations and incur and incurmake donations to EU political organisations rights authority to disapply pre-emption give the Directors having to state the name of exempt the auditors from to call a general meeting to not the notice required reduce EU political expenditure, capped at £100,000 EU political expenditure, in connection with rights issues when allotting new shares issued or otherwise up to a maximum of 5% of the current up to a Shares its own Ordinary capital and to purchase share capital issued share maximum of just under 10% of the current their senior statutory auditor for the company in GSK’s Annual Report less than 14 clear days. in the company Shares allot Ordinary Special business The company will seek authority to: Retirement and re-election of Directors and re-election Retirement the AGM will Simon Dingemans, who was appointed before Articles and, being eligible, will with the in accordance retire for election at the AGM. All the continuing Directors himself offer themselves 2011 AGM and offer at the by rotation will retire for re-election. Approving the 2010 Remuneration Report the 2010 Remuneration Approving on pages 81 to 101 sets out theThe Remuneration Report on policies operated by GSK and disclosures remuneration by the including those required remuneration, Directors’ Companies Act 2006 and The Large and Medium-sized (Accounts and Reports) Regulations Companies and Groups the to approve will be proposed 2008. A resolution Remuneration Report. Receiving and adopting GlaxoSmithKline’s 2010 GlaxoSmithKline’s Receiving and adopting Annual Report

Re-appointment and remuneration of auditors Re-appointment and remuneration to authorise the Audit & Risk Resolutions will be proposed PricewaterhouseCoopers LLP as Committee to re-appoint auditors and to determine their remuneration.

• • • • • The AGM will be held at 2.30pm on Thursday, 5th May 2011 at 2.30pm on Thursday, The AGM will be held Sanctuary, Broad Centre, II Conference at The Queen Elizabeth business to be transacted London SW1P 3EE. The Westminster, at the meeting will include: Annual General Meeting Annual General As a result, the definitions may cover legitimate business activities business legitimate may cover definitions the As a result, donations or to be political considered sense ordinary not in the to support not designed Such activities are political expenditure. The authority election candidate. party or independent any political to measure precautionary sought annually is a has Board which the do not inadvertently and its subsidiaries that the company ensure the legislation. breach • • • • • • to attend proxies to appoint one or more entitled are Shareholders that, the AGM and to speak and vote on their behalf provided appoints multiple proxies, in the event that a single shareholder the rights attached to a is appointed to exercise each proxy held by that member. or shares share different Details on how to appoint or be appointed a corporate representative can be found on page 208. The Notice of AGM will beor proxy website. published on the Investors section of the company’s Corporate governanceCorporate Governance and remuneration P58–P101 Risk OversightandComplianceCouncil(ROCC) Corporate governance external environment. external risks are identifiedwithchangesinmanagementdirection andthe aligned with,theannualplanning process toensure thatsignificant must occuratleastannuallyandshouldbeembeddedwithin, and to theachievementofstrategicgoalsandobjectives.Thereview include identifyingoperationalrisks,legalcompliancerisksand risks the significantrisksfacingtheirbusinesses.Thisreview should Each businessunitandcorporatefunctionmustperiodicallyreview managed across theGroup. as awhole,thusincreasing thenumberofrisksthatare actively including thoserisksthatare designatedassignificanttoGSK that are considered importantfortheirrespective businessunits, where appropriate. TheRMCBsoverseemanagementofallrisks team oftherespective businessunit,augmentedbyspecialists Membership oftencomprisesmembersoftheseniorexecutive RMCBs havebeenestablishedineachofthemajorbusinessunits. Risk ManagementandComplianceBoards (RMCBs) responsibility formanagement ofanygivenriskisarequirement. Mitigation planningandidentificationofamanagerwithoverall for riskmanagementandupward reporting ofsignificantrisks. referred toabove,hasprovided thebusinessunitswithaframework GSKpolicies.TheROCC,responding internal totheGroup policy controls toensure compliancewithapplicablelaws,regulations and risks andtheirmitigationplansprovide oversightofinternal The ROCCmeetsonaregular basistoreview andassesssignificant risk management,assurance,auditandcomplianceresponsibilities. control, members andsomeoftheheadsdepartmentswithinternal control activitiesoftheGroup. MembershipcomprisesseveralCET to assisttheCommitteeoverseeriskmanagementandinternal The ROCCisacouncilofseniorexecutivesauthorisedbytheBoard GSK Annual Report 2010 GSK Annual Report 72 management Emerging risk infrastructure Business control Business unitreporting Management Internal monitoring Risk Oversight Business Compliance Council and GSK RiskUniverse External audit/ regulatory outcome agency management shouldtheneedeverarise. Committee provides amechanismforbypassingtheexecutive the Committeeonaregular basis.Hisdirect reporting linetothe ROCC’s activitiesandtheGroup’s significant riskstotheCETand CEO. HechairstheROCCandprovides summaryreports onthe EthicsandAssurance, whoreportsGovernance, directly tothe President,The CECdepartmentismanagedbytheSeniorVice with theissuespresented. investigated anddisciplinaryaction,ifapplicable,iscommensurate andallegationsare CEC. Allconcerns fairlyandindependently via GSK’s integrityandconfidentialreporting linesmanagedby retaliation. Employeescan do thisthrough linemanagementor orsuspectedcasesofmisconductwithoutthefear concerns GSK employeesare encouraged toseekhelpandreport and effective compliancesystems. with alllawsandregulations, corporateresponsibility atalllevels or regulation andthepromotion ofethicalbehaviour, compliance preventing anddetectingmisconduct ornon-compliancewithlaw The thrustoftheGroup’s complianceeffort isduediligencein applicable lawsandregulations andcorporateresponsibility. to helpemployeesmeethighethicalstandards andcomplywith with lawsandGroup policy. Thedepartmentprovides assistance implementation ofpracticesthatfacilitateemployees’compliance which isresponsible forsupporting thedevelopmentand The ROCCandtheRMCBsare assistedbytheCECdepartment, Corporate Ethics&Compliance(CEC) Incidents/ events reporting Internal Internal activity audit audit audit Committee audit activity business unit Independent and internal & Risk Audit Assurance Assurance reporting review of Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 73 GSK Annual Report 2010 Effectiveness of controls Effectiveness in operation for theThe internal framework has been control and continues to operate up to the whole of the year under review is The system of internal of this report. controls date of approval the risk of not achievingdesigned to manage rather than eliminate and not reasonable business objectives, and can only provide or loss. absolute assurance against material misstatement of significant risk to the on areas reports The Committee receives internal Following consideration on related controls. and Group via the Assurance framework, and those received of these reports on the effectiveness annually to the Board the Committee reports of controls. it is necessary to business where of the Group’s areas are There such shareholders, take risks to achieve a satisfactory return for or businesses. as investment in R&D and in acquiring new products objective to apply its expertise in In these cases, it is the Group’s the prudent management rather than elimination of risk. to the company and its subsidiaries relates review The Directors’ and does not extend to material associated undertakings, or other investments. joint ventures the assessment the Committee, has reviewed through The Board, of risks and the internal framework that operates in GSK control of the system of internal the effectiveness and has considered by this for the year covered in operation in the Group control The by the Board. and up to the date of its approval report the system of internal in reviewing followed by the Board process the guidance on internal issued by with accords control controls Committee. the Turnbull Assurance reporting Assurance a structured to the Committee follows reporting Assurance business units, Assurance from reporting integrating programme and Internal Audit. to present required are and corporate functions Business units that detail their ROCC and the Committee annually to the reports a balanced providing compliance approach, risk management and of internal over key risks, andassessment of the status controls compliance issues. Managers musthighlighting any significant for their respective important considered oversee risks that are designated as significant those risks that are business units, including to manage in place the controls Information regarding to the Group. that these risks are the Committee to assure these risks is provided within the internal framework.adequately managed control are compliance issues and internalIn addition, significant results audit and the Committee at the earliest opportunity. escalated to the ROCC Risk management extends beyond legal risk management programme The Group’s overall strategy and issues and considers the Group’s and regulatory risk managementchanges in the external Furthermore, environment. part embedded within management practices and are principles are process.of the business strategy and objectives setting 53 see ‘Risk factors’ on pages the Group, For details of risks affecting ‘Legal proceedings’. to 57 and Note 44 to the financial statements, Manufacturing (including Environmental Health, Safety Health, Safety Environmental Manufacturing (including and Sustainability) Assurance • and Development Research All internal audit activity is conducted by a single organisation & Assurance. The Headunder the leadership of the Head of Audit line into the Senior Vice of Audit & Assurance has a dual reporting Governance, and the CommitteePresident, Ethics and Assurance holistic for more Chairman. The global audit function allows and independence in reporting. assurance, consistency in approach, the potential for over/ This has helped eliminate overlaps, gaps and under auditing. of risk assessmentInternal Audit undertakes a continuous process audit strategies and that contributes to the evolution of GSK’s This approach compilation and delivery of the audit schedule. expeditiously to changes in allows Audit & Assurance to respond that audit strategies and ensure the business and risk environment fit-for-purpose. are identified during deficiencies are When issues or control for processes audit engagements, Internal Audit recommends to action plans GSK managers develop corrective improvement. causes of non-compliance and gaps in internal the controls. address results Internal Audit tracks these plans to completion and reports Internalto executive management and the Committee. audit results as to the ROCC and the Committee and reported also compiled are section below. detailed in the Assurance reporting Strategic Risk Evaluations supplement the audit programme, To performed on significant issues facing GSK and are (SREs) are conducted by our assurance teams in partnership with the business. and enable the is designed to evaluate risk areas The approach mitigation plans. development and implementation of appropriate performed covering the areas During 2010 two new SREs were of change management and evaluation of risks associated with incentive schemes. In addition, sales force existing and proposed implementation support for the Audit & Assurance provided 2009 SREs which included acquisitions - due diligence and use of pseudoephedrine in GSK products. Internal Audit for independently has responsibility Internal Audit group GSK’s of the management of and effectiveness assessing the adequacy to the Committee outcomes and reporting significant risk areas Plan. The internal is Assurance audit group in line with an agreed teams focused in the following areas: comprised of four principal • and Financial Commercial Technology • Information • In 2009, an Assurance Programme was implemented to further to further was implemented Assurance Programme In 2009, an independent assessment an enhance governance provide and for the processes of governance, and control risk management Withinorganisation. four main elements: GSK this comprises Corporate governanceCorporate Governance and remuneration P58–P101 Audit &RiskCommitteeReport of theactivitiestheyhavebeenassigned. Board Committeesreport regularly totheBoard ontheperformance Committee reports Corporate governance Audit &RiskCommitteeChairman Tom deSwaan reported nextyear. ongoing initiativeandfurtherprogress inthisarea willbe improve ourapproach toAudit&Assurance,asthisisan The Committeealsocontinuestoexaminehowfurther and drivecompliancewithinGSK. of ComplianceOfficers, onwhomtheGroup relies, tooversee Committee bymanagement;andmeetmore ofthenetwork senior management;todiscusstheissuesbrought tothe help maketheCommitteemore accessibletoemployeesand I havecontinuedtovisitmore oftheGroup’s operationsto as thisworkprogresses. review oftheTurnbull Guidancecontinues.Iwillreport further strategic objectives.ThisworkwillbeongoingastheFRC’s and extentoftherisksGSKistakinginorder toachieveits further inreviewing, andthe CETinunderstanding,thenature At theendof2010,workcommencedtoassistBoard publications sectionofthecompany’s website. GSK’s ABACprogramme canbefoundontheReportsand which ispartofAudit&Assurance.Furtherdetails Bribery andCompliance(ABAC)teamhasbeenestablished, In response tothenewUK BriberyActadedicatedAnti- Pacific region. been establishedasafocusforauditactivityintheAsia hemisphereEmerging Markets,anEastern audithubhas To reflect theGroup’s strategytoexpandfurtherintothe be fullyaligned. ensure auditactivitycan thatbusinessunitrisks andinternal reporting totheCommittee tobestreamlined andhelpedto into anewAudit&Assurancefunctionwhichhasenabled of 2009involvedtheconsolidationeachauditgroups The implementationofthenewAssurancemodelatend control responsibilities. activities associatedwithandbeyonditscore financialinternal During 2010,theCommitteehasfocusedonanumberof Dear Shareholder GSK Annual Report 2010 GSK Annual Report 74 and tiersofaccountabilitybetween them. auditors andunderstandmonitorthereporting relationships relationships andexternal betweenmanagementandtheinternal The Committee’s oversightrole requires ittoaddress regularly the • • • • The Committee’s mainresponsibilities include: • Auditors. External • EthicsandAssurance Head ofGovernance, • Chief MedicalOfficer • Chairman, Research &Development • Company Secretary • Head ofAudit&Assurance • General Counsel • Chairman • CFO • CEO Other attendeesatCommitteemeetingsinclude: on aquoratebasisfiveoccasions. In additiontothesixscheduledmeetings,Committeealsomet topical issues. reports ontheoutcomeof StrategicReviewEvaluationsandother updates, newbusinessunitandcorporatefunctionreports and riskenvironment,developments intheexternal receives legal invited toattendparttwoofthemeetingswhichusuallyconsiders auditorsandAudit&Assurance.Theentireexternal Board is and considersstandingitems,suchasreceiving reports from the with themorefinancialcontrol fundamentalaspectsofinternal 2009. Meetingshavebeensplitintotwoparts.Partonedeals The structure oftheCommittee’s meetingswaschangedduring Sir RobertWilson Dr DanielPodolsky Committeemembersince Sir DeryckMaughan Anderson Professor SirRoy 1st September2006) (Chairman from Mr Tom deSwaan Members Monitoring theintegrityoffinancialstatements ethical codesofpractice. functions andoverseeingcompliancewithlaws,regulations and process andthepreparation ofconsolidatedaccounts managing risks,includinginrelation tothefinancialreporting reporting process Overseeing activitiesofeachtheGroup’s complianceandaudit control Evaluating thesystemofinternal andidentifying Reviewing thecorporateaccountingandfinancial 2hDcme 036/6 12th December2003 1tJnay20 5/6 21st January2005 s aur 076/6 1st January2007 6/6 1st January2006 0hMy20 6/6 20th May2009 Attendance at full meetings during 2010 Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 75 GSK Annual Report 2010 A world renowned researcher with researcher A world renowned advanced knowledge of underlying mechanisms of disease and new therapies disorders for gastrointestinal A world renowned medical scientist with medical A world renowned disease of infectious advanced knowledge epidemiology Disease Epidemiology of Infectious Professor Imperial College,in the Faculty of Medicine, London Fellow of the Royal Society Institute Associate Member of the Foreign National Academyof Medicine at the US of Sciences French Associate Member of the Foreign Academy of Sciences College, London Former Rector of Imperial Adviser at the MinistryFormer Chief Scientific of Defence in the UK. Institute of Medicine of the US Member, National Academy of Sciences of Medicine, Professor Former Mallinckrodt School Medical Harvard Former Chief Academic Officer, Partners Healthcare. Scientific expertise • • • • • • • • of the University of Texas • President Southwestern Medical Center and Professor of Internal Medicine • • • Professor Sir RoyProfessor Anderson Dr Daniel Podolsky Retired from Rio Tinto he held from in 2003 where Retired Senior Management positions culminating in his appointment as Executive Chairman. A Partner of Kohlberg Kravis Roberts & Co. (KKR) and Chairman of KKR Japan Former Chairman and CEO of Citigroup International and Vice of Chairman Inc. Citigroup Economist, and former Non-Executive Chairman of The Economist Group Determined by the Board to be the AuditDetermined by the Board theCommittee Financial Expert, as defined by Sarbanes Oxley Act of 2002 (Sarbanes-Oxley) Public of KPMG’s Non-Executive Director Committee. Interest • Chairman of BG Group plc • Chairman of BG Group • • • • Former Chairman and Co-Chief Executive Officer of Salomon Smith Barney • Former Chairman and Chief Executive Inc. Officer of Salomon Brothers • Financial and accounting experience • Chief Financial Officer of ABN AMRO until 31st December 2005 • • Sir Deryck Maughan Mr Tom de Swaan Mr Tom Qualifications of Audit & Risk Committee members Qualifications of Audit Sir Roy with the exception of Professor Committee members, bring considerable financial Podolsky, Anderson and Dr Daniel work. Members to the Committee’s and accounting experience experience in either finance or accountinghave past employment experience in corporate activities. Professor or comparable roles as world backgrounds Sir Roy Anderson and Dr Daniel Podolsky’s enable them to bring medical scientists and researchers renowned deliberations. scientific expertise to the Committee’s The Committee receives regular reports from members of the members from reports regular receives The Committee and the key risk management managers covering CET and senior those covering R&D, including activities of the Group, compliance and corporate functions. sales and marketing manufacturing, are to the Committee framework of the reporting Further details framework’. pages 71 to 73 ‘Internalset out on control were terms of reference Committee’s In December 2009 the the identification and in overseeing its role amended to reflect under the new assurance-based auditmanagement of risk the same time to on page 73. At framework referred Committee was changed to the Auditthe name of the Audit & Risk Committee. Corporate governanceCorporate Sir Robert Wilson Governance and remuneration P58–P101 being present. Corporate ComplianceOfficerwithoutmembersofmanagement auditorsandtheHeadofAudit &Assurance,andthe external the Committeemetbothcollectivelyandseparatelywith communicate freely andregularly withtheCommittee.In2010, auditorsto andinternal management andencouragestheexternal auditors.Thisfacilitatesthe necessaryindependencefrom internal serves astheprimarylinkbetweenBoard and andtheexternal corporate accountingandfinancialreporting. TheCommittee Board worktogethertoensure thequalityofcompany’s auditorsandthefull The Committee,management,internal Committee the Disclosure as Chairmanof Company Secretary, the and auditgroups Group’s compliance assurance andthe Heads ofauditand Compliance Officer & Corporate Company Secretary year General Counsel CFO auditors External coincide withkeyeventsoftheannualfinancialreporting cycle: consider ateachmeeting,togetherwithothermattersfocusedto activities, withstandingitemsthattheCommitteeisrequired to In 2010,theCommitteeworkedtoastructured programme of Corporate governance of the external auditorsandtheeffectivenessof theexternal oftheauditprocess. assessing thequalifications,expertise, resources andindependence appointment andremoval auditorsbyannually oftheexternal recommendation toshareholders ontheappointment,re- The Committeehasprimaryresponsibility formakinga auditors’appointment andfees External GSK Annual Report 2010 GSK Annual Report 76

reported onmateriallitigation

reportedand oncorporategovernance the Board. performance priortoapproval by announcements relating to financial results announcementsand otherformal interim reports, quarterlyand preliminary published annualfinancialstatements, completeness ofthedisclosures inthe Risk Committeetoreview the clarityand shareholders. Thisenabled theAudit& Board, tothepublicmarkets andto and othermaterialinformationtothe quality andtimelydisclosure offinancial reported onmattersthataffected the results ofauditsconducted throughout coverage, auditresources andonthe reported ontheirauditscope, annual the majorityofHeadsthesegroups on theactivitiesundertakenbyROCC and accountingmatters the companyandontechnicalfinancial any restrictions onaccesstoinformation communications withmanagementand resultant conclusion,materialwritten discussed withmanagementandtheir accounting treatments whichhadbeen practices usedbytheGroup, alternative policies, significantjudgementsand reported onallcriticalaccounting reported onthefinancialperformanceof in Note9tothefinancialstatements, ‘Operatingprofit’. by-case basis.Expenditure onauditandnon-auditservices issetout The Committeemayalsopre-approve additionalservicesonacase- with thispre-approval and thefeesforservicesperformed. Committee regarding theextentofservicesprovided inaccordance auditorsandmanagement reportThe external regularly tothe the Committee. levels relative totheannualauditfeeare withinthelimitssetby the Group auditare notthreatened orcompromised; andthefee safeguards are inplacesothattheobjectivityandindependenceof make themasuitablesupplierofthenon-auditservices;adequate auditors ascertaining that:theskillsandexperienceofexternal auditorstoprovide the external non-auditservices,whichinclude There are guidelineswhichsetouttheGroup’s policyonengaging specific budget. the particularserviceorcategoriesofservices,andissubjecttoa audit-related, taxandother services.Pre-approval isdetailedasto the Committeeforsuchservices.Theseservicesmayincludeaudit, independence are safeguarded byapolicyrequiring pre-approval by audit services,theCommitteeensures thatauditorobjectivityand design. Whereauditorsare theexternal permittedtoprovide non- auditoutsourcing, actuarial, internal financialinformationsystems auditorsfortheprovision external ofcertainservicessuchaslegal, The Sarbanes-OxleyActof2002prohibits theengagementof statements for2012hasbeenconcluded. and isnotsubjecttorotation untilaftertheauditofGSK’s financial audit partnercommencedhisengagementon1stJanuary2008 rotate theauditengagement partnereveryfiveyears.Thecurrent auditorsareevaluation andplanning.Theexternal required to auditorsfrom the withdrawalofexternal marketinitsrisk is alsogivenbytheCommitteetoneedincluderiskof qualitycontrolon theirowninternal procedures. Consideration requirements, onthesafeguards thathavebeenestablishedand reports fromauditors ontheircompliancewiththe theexternal requirements relatingauditorsandevaluates toexternal detail therelevant UKlegislative, regulatory andprofessional In makingitsassessment,theCommitteeconsiderspaperswhich the Committeesincethattime. December 2000.Theirperformancehasbeenreviewed annuallyby have remained inplaceasauditorssincetheGroup’s inceptionin auditorstotheGroup. as external PricewaterhouseCoopersLLP restrict theCommittee’s capacitytorecommend aparticularfirm and appropriate forGSK.There are nocontractualobligationsthat the Committeeconsiderscostcomparisonstoensure thatitisfair Before agreeing theauditfeeproposed auditors bytheexternal team atcorporateandbusinessunitlevel. were involvedintheauditprocess andthefinancialmanagement number ofsources, includingcertainmembersoftheBoard who undertook theauditwork.Thesurveyseeksfeedbackfrom a review team,whichisindependentoftheengagementteamthat gathered through asurveyfacilitatedbytheauditors’ clientservice Committee considersfeedbackontheprioryear’s audit external at thebeginningofeachyear’s audit.Aspartofthisprocess, the against criteriawhichitagrees, inconjunctionwithmanagement, the Committeereviews theeffectiveness oftheirperformance a recommendation onthere-appointmentauditors, oftheexternal In evaluatingtheeffectiveness oftheauditprocess prior tomaking Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 77 GSK Annual Report 2010 The succession process for the CFO focused on the need both for the need focused on the CFO for process The succession financial discipline and continued with creativity GSK to operate to bring who would be able identify a candidate and also to and grow our strategy to and capability to support experience organic means and bolt-on through business diversify GSK’s for responsible would also be The successful candidate acquisitions. part of our global restructuring cost savings as delivering further to simplify our additional measures and implementing programme considering potential externaloperational model. After and internal Simon was pleased to recommend candidates, the Committee CFO Designate. company’s as the Dingemans to the Board, and Partner at a Managing Director Simon Dingemans was head business and previously M&A Goldman Sachs’ European During his 25 years in investmentof UK Investment Banking. advice across strategic and offered banking he built up relationships including pharmaceuticals and consumermultiple industry sectors, with GSK for many years and He had worked closely healthcare. a new world-leading, specialist ViiVhad helped establish Healthcare HIV company. and announced the appointment of Simon approved The Board joined GSK inDingemans in September 2010 and he then January 2011. the appointment of Dr Patrick The Committee also recommended Drug Discovery and Medicines to the CET and as SVP, Vallance in May 1st July 2010. He joined GSK from Development with effect He has since transformed GSK’s 2006 as Head of Drug Discovery. underpinned that are discovery engine to focus on therapy areas fresh science, and which offer and mature by the most promising for he assumed responsibility insights into diseases. In his new role, for ensuring that Medicines Development and will be responsible the R&D through GSK maintains a flow of potential new medicines to late stage development. early discovery through pipeline from the Committee considers Non-Executive Directors, When recruiting diversity andthe particular skills, knowledge, independence, most significantly for experience that would benefit the Board on used which focus selection criteria are each appointment. Broad UK, of European, achieving a balance between the representation with CEO levelUS and Emerging Markets, and having individuals sectors and specialities.experience and skills developed in various During 2010, particular focus continued to be placed upon from for Dr Ronaldo Schmitz who retired a replacement recruiting at the AGM in May 2009. The Committee has placed the Board retired or recently current an emphasis on candidates who are CEOs, CFOs, Audit partners or who have other significant financial diversity an individual who brings increased expertise and preferably search composition and deliberations. Professional to the Board’s of agencies have been engaged who specialise in the recruitment Dossiers of potential Non-Executive Directors. high calibre by the Committee Non-Executive appointees have been considered and shortlisted for interview on merit and against objective criteria, has qualifications. Positive progress after considering their relevant to of new Non-Executive Directors been made on the recruitment the Board. refresh during 2010 full meetings Attendance at 9th July 20099th July 2009 3/3 2/3 28th March 200828th March 200828th March 2/3 3/3 9th December 2004 3/3 Code of Conduct Code Sir Christopher Gent (Chairman from 1st January 2005) Other attendees at Committee meetings: CEO • Head of Human Resources • Company Secretary • external advisers. appropriate relevant, where • (the Committee) main responsibilities The Nominations Committee’s and Committee the appointment of Board include proposing members. main focus was on the succession During 2010, the Committee’s for new Non-Executive Directors for the CFO and the search process the Board. to refresh or CET members, When appointing new Executive Directors the Committee considers the skills, knowledge and experience executive position. The Committee for the particular required will consider potential external internal and candidates before the new appointment. to approve to the Board recommending themselves for election at the company’s offer All new Directors announced publicly. next AGM. Their appointments are MembersLarry Culp Sir Crispin Davis member since Committee Sir Deryck Maughan Sir Robert Wilson scheduled meetings, the Committee also In addition to the three met on a quorate basis on two occasions. Sir Christopher Gent Chairman Nominations Committee Nominations Committee Report Nominations The company also has a number of well-established policies, of well-established also has a number The company website, and is available on its Code of Conduct, which including a of unlawful and investigation facility for the reporting a help-line in 2010. made were waivers to the Code conduct. No Corporate governanceCorporate Governance and remuneration P58–P101 Corporate ResponsibilityCommitteeReport The RemunerationReportcanbefoundonpages81to101. Remuneration Report Corporate governance Corporate ResponsibilityCommitteeChairman Sir ChristopherGent GSK Annual Report 2010 GSK Annual Report • CorporateResponsibilityAdviser.Independent External • Company Secretary • Head ofCorporateResponsibility • Head ofGlobalCommunications • EthicsandAssurance Head ofGovernance, • General Counsel • CEO Other attendeesatCommitteemeetings: Dr DanielPodolsky Committeemembersince James Murdoch Dr StephanieBurns 1st January2005) (Chairman from Sir ChristopherGent Members 78 • community investment. • employment practices;and • research andinnovation • standards ofethicalconduct • access tomedicines Corporate Responsibility(CR)Principles: The Committeeannuallyreviews progress onthefollowingfive on meetingGSK’s CorporateResponsibility Principlesisreviewed. members oftheCETandseniormanagerstoensure thatprogress 67. TheCommitteehasarolling agendaandreceives reports from The mainresponsibilities oftheCommitteeare setoutonpage Main responsibilities oftheCommittee responsibility matterstoboththeChairmanandCEO. independent adviceandguidanceoncorporatesocial attendsmeetings oftheCommitteeandprovides Sophia Tickell Innovation LeadershipNetwork. Foundation andisamemberoftheEuropean Healthcare on theExpertReviewCommitteeofAccesstoMedicines aims toalignbettersocietalandshareholder value.Shealsosits Meteos, from whichshedirects thePharmaFutures Series,which istheco-founderandDirector of Committee). SophiaTickell advisertotheCorporateResponsibilityCommittee(the external wasappointedasanindependent March 2009,MsSophiaTickell To augmentGSK’s engagementwithstakeholderopinion,in CorporateResponsibilityAdviser Independent External t eebr20 3/4 4/4 6th December2007 9th December2004 0hMy20 4/4 20th May2009 s uy20 4/4 1st July2006 Attendance at full meetings during 2010 Responsibility Report. years. TheCommitteealsoreviews andapproves the Corporate GSK’s otherCRPrinciplesare discussedatleastonceeverytwo company’s website. Corporate ResponsibilityReportwhichisavailableonthe For thoseinterested inmore detailwepublishacomprehensive as possiblewhilstensuringthatwealwaysactresponsibly. advances toensure thatGSKworksasefficientlyandeffectively GSK’s business.Throughout thisAnnualReportyouwillread of Corporate responsibility is integrated intothemanagementof Products andcustomers Caring fortheenvironment Community investment Employment practices Committee’s area offocusduring2010 Research andinnovation Standards ofethicalconduct Access tomedicines CR Principles Work oftheCommitteeduring2010 healthcare professionals. Disclosure ofpaymentsto risks inmanufacturing. Management ofenvironment strategy. Environmental sustainability Humanitarian donations. and investment. Community partnerships safety risksinmanufacturing. Management ofhealthand performance strategy. Realignment ofthepayfor consultation arrangements. Employee relations including employees. Leading anddeveloping Diversity andinclusion. for regenerative medicines. The potentialofstemcellscience developing world. conditions andfordiseasesofthe R&D ontreatments forrare and collaborators. suppliers conducted byexternal ofresearch Governance transparency. Research integrityand research anddevelopment. Policy onuseofanimalsin the organisation. Embedding ethicalvaluesin least developedcountries. medicines inmiddleincomeand Access toandpricingof Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 79 GSK Annual Report 2010 they have each reviewed the Annual Report and Form 20-F the Annual Report reviewed they have each no material misstatements knowledge, it contains based on their the financial statements and otherbased on their knowledge, maintaining disclosure for establishing and responsible they are for establishing and maintaining internal responsible they are and Form 20-F anythey have disclosed in the Annual Report evaluation of they have disclosed, based on their most recent or omissions the in all material respects, fairly present, financial information and cash flows as of the of operations financial condition, results in the Annual Report and presented dates, and for the periods, Form 20-F is that material information that ensure and procedures controls of and have evaluated the effectiveness made known to them, of results the as at the year-end, and procedures these controls contained in the Annual Report andsuch evaluation being Form 20-F reasonable that provides financial reporting over control and of financial reporting the reliability assurance regarding of financial statements for external purposes inthe preparation with generally accepted accounting principles accordance during the reporting changes in internal over financial controls by the Annual Report and Form 20-F that have period covered materially, likely to affect reasonably or are materially affected, internal over financial reporting control the company’s to the external auditorsinternal over financial reporting, control deficienciesand the Audit & Risk Committee, all significant operation of internaland material weaknesses in the design or likely reasonably which are financial reporting over controls process, record, ability to adversely the company’s to affect financial information, and any fraud summarise and report of materiality) involving persons that have a significant (regardless financial reporting. internal over control company’s in the role Section 302: Corporate responsibility for financial reports for financial responsibility 302: Corporate Section and the for the CEO a requirement also introduced Sarbanes-Oxley confirming that: formal certifications, CFO to complete • • • • • • • has carried out an evaluation under the supervision The Group including management, and with the participation of the Group’s of the design and the CEO and CFO, of the effectiveness as and procedures controls disclosure operation of the Group’s at 31st December 2010. of any system limitations to the effectiveness inherent are There including the possibility of and procedures, controls of disclosure or overriding of the controls and the circumvention human error and controls disclosure effective even Accordingly, and procedures. assurance of achieving reasonable provide can only procedures objectives. their control The CEO and CFO expect to complete these certifications of disclosure their conclusions on the effectiveness and report 2011, following which on 4th March and procedures controls the certificates will be filed with the SEC as part of the Group’s Form 20-F. US law and regulation US law Sarbanes-Oxley Act of 2002 Sarbanes-Oxley Act corporate and accounting scandals in theFollowing a number of passed the Sarbanes-Oxley Act of 2002. Sarbanes- USA, Congress concernedOxley is a wide ranging piece of legislation largely with and corporate governance. financial reporting by the SEC, GSK has established a Disclosure As recommended to the CEO, the CFO and to Committee. The Committee reports by the Company Secretary the Audit & Risk Committee. It is chaired finance, legal, from and the members consist of senior managers investor relations. compliance, corporate communications and External legal counsel, the external auditors and internal experts It has responsibility to attend its meetings periodically. invited are and, on a timelyfor considering the materiality of information of that information. It has basis, determining the disclosure with the SEC and for the timely filing of reports responsibility In 2010, of the Annual Report and Form 20-F. the formal review the Committee met 6 times. that the Annual Report contains a Sarbanes-Oxley requires Audit & Risk company’s statement as to whether a member of the Expert as defined byCommittee is an Audit Committee Financial judgement the Board’s For a summary regarding Sarbanes-Oxley. requirements to page 75. Additional disclosure refer on this matter, Sarbanes-Oxley inarise under section 302 and section 404 of and internal control and procedures controls disclosure of respect over financial reporting. In general, the NYSE rules permit the company to follow UK the company to follow the NYSE rules permit In general, corporate governance in the USA, practices instead of those applied any significant variations. This that the company explains provided which Form 20-F filing, in the company’s explanation is contained and Exchange Commission’s the Securities can be accessed from rules website. NYSE or via the company’s (SEC) EDGAR database to file annual the company require in 2005 that came into effect concerningand interim written affirmations & Risk the Audit differences statement on significant Committee and the company’s in corporate governance. NYSE rules A number of provisions of US law and regulation apply to GSK of US law and regulation of provisions A number form on the NYSE in the quoted are shares company’s because the of ADS. Corporate governanceCorporate Governance and remuneration P58–P101 control overfinancialreporting Section 404:Management’s annualreport oninternal Corporate governance GSK Annual Report 2010 GSK Annual Report • • • • • Securities ExchangeActof1934): (as definedinRules13a-15(f)and15d-15(f)undertheUS of theCompany’s control internal overfinancialreporting Oxley, thefollowingreport isprovided bymanagementinrespect In accordance withtherequirements ofsection404Sarbanes- 80 with theGroup’s Form20-F. Oversight Board (UnitedStates). Theirauditreport willbefiled Auditing Standard No.5of thePublicCompanyAccounting of theGroup’s control internal overfinancialreporting under ended 31stDecember2010,hasalsoassessedtheeffectiveness consolidated financialstatementsoftheGroup fortheyear conclusion willbefiledaspartoftheGroup’s Form20-F over financialreporting, as at31stDecember2010andits control overfinancialreporting or are reasonably likelytoaffect materially, theGroup’s internal financial reporting during2010 thathavemateriallyaffected, Treadway Commission by theCommitteeofSponsoringOrganisations Control framework inInternal –IntegratedFrameworkissued controlof internal overfinancialreporting basedonthe purposesinaccordance external withIFRS reporting andthepreparation offinancialstatements for reasonable assuranceregarding thereliability offinancial controlInternal overfinancialreporting isdesignedtoprovide controladequate internal overfinancialreporting fortheGroup. PricewaterhouseCoopers LLP, whichhasauditedthe Management hasassessedtheeffectivenesscontrol ofinternal There havebeennochangesintheGroup’s control internal over Management conductedanevaluationoftheeffectiveness Management isresponsible forestablishingandmaintaining Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 81 h ure that ure d rds will be rds ve consulted ies. sitive. r value rt. grant. We grant. We fication and e light of new free cash flow free est interests est interests for Simon uing Executive vailing economic duced in 2009 , R&D, has our AGM in May. individual tax costs. and long-term GSK Annual Report 2010 appropriate market appropriate and to enhance our he will receive an he will receive • Business diversification performance • R&D new product performance • R&D new product • Adjusted free cash flow • Adjusted free • Relative total shareholder return (TSR) • Relative total shareholder ĺ ĺ ĺ ĺ we have a balanced framework of targets which focus on each of our strategic objectives. we have a balanced framework of targets which focus on each of our strategic objectives. Annual Bonus Plan, which was intro eligible to participate in our Deferred This year was the first year that all Executives were that take-up has been very po returns. I am very pleased to report and to drive shareholder to encourage long-term shareholding will, though, update you regularly on the progress achieved during the performance period. The targets and outcomes for the awa on the progress will, though, update you regularly period. disclosed in full at the end of the performance Annual Bonus Plan will ens Plan and Deferred applied to our Performance Share believe the combination of these four measures We R&D new product performance to our strategy, these targets are commercially very sensitive and will not be published at date of very sensitive and will not be commercially these targets are performance to our strategy, R&D new product Dr Moncef Slaoui, Chairman Witty, Similarly to Andrew base salary only. contracts have severance terms of one year’s Directors’ his severance terms. The severance terms in the contract the contractual entitlement to bonus from to remove voluntarily agreed base salary. also based on one year’s Dingemans, our new CFO, are in 2009 for annual bonuses manage risk, we will continue to operate the ‘clawback’ mechanism introduced to effectively In order have adapted UK pension arrangements in th has been made. We arise in the years after an award should problems incentive awards any additional the company will not offset pension tax legislation to continue to meet our long-standing commitments. However, base salaries and packages, taking into account the pre the market competitiveness of Executive Directors’ we review Each year, to ensure of that review, As a result GSK workforce. the broader of pay across conditions and the positioning and relativities for Biologicals, the transition of responsibility including enhanced role, competitiveness in the context of Dr Moncef Slaoui’s in base salary. Witty any increase Andrew and Simon Dingemans will not receive to his base salary. increase in the b years support the long-term success of the business and as such are believe that the changes we have made in recent We of shareholders. Sir Crispin Davis Remuneration Committee Chairman 2011 1st March Governance that all our contin now pleased to report Remuneration Report, we are in last year’s we reported the progress Following on from The targets set out by the Committee are challenging and will require significant stretch performance. The targets for adjusted significant stretch challenging and will require The targets set out by the Committee are • Grow a diversified global business • Grow for business diversi of the performance measures given the very close linkage set out on page 88. However, TSR are and relative Key Strategic Priorities Incentive Performance Measure Long-Term The Board has carried out a thorough review of GSK’s key strategic priorities, which are described on page 7 of the Annual Repo described on page 7 of the Annual key strategic priorities, which are GSK’s of review has carried out a thorough The Board Strategic alignment of long-term incentives Dear Shareholder at which we will be seeking your approval our Remuneration Report for 2010, for I am pleased to present On behalf of the Board, Sir Crispin Davis Chairman Remuneration Committee Over the last few years, the Remuneration Committee (the Committee) has implemented a number of changes, including more tailore including more has implemented a number of changes, the Remuneration Committee (the Committee) Over the last few years, we ha Throughout the Corporate Executive Team. across market, and simplifying and aligning remuneration benchmarking versus the of support. and have been encouraged by the level with shareholders strategic priorities, with GSK’s closely Executive remuneration 2010 our priority was to align more in last year, As previewed these objectives. against progressing describes how we are governance practices. This report and shareholde long-term financial performance strong firmly believes achievement against these priorities will deliver The Board on a sustainable basis. creation key strategic priorit closely with the Group’s more in 2010 we have moved to align long-term performance incentives Accordingly Remuneration Report Remuneration This will help ensure senior management are fully focused on the right priorities, with incentives to deliver against them. fully focused on the right priorities, with incentives to deliver senior management are This will help ensure whic on four equally weighted performance measures based therefore we made in February 2011 were The long-term incentive awards directly link to the Group’s key strategic priorities and the overarching goal to deliver value to shareholders: to shareholders: goal to deliver value key strategic priorities and the overarching link to the Group’s directly • Deliver more products of value products • Deliver more • Simplify the operating model • Deliver value to shareholders Governance and remuneration P58–P101 and broader marketnorms. as wellensuringthatremuneration isconsistentwithindustry policy andlevelsforthewideremployeepopulationofGroup, executives, theCommitteegivesconsiderationtoremuneration In settingremuneration policyandlevelsforthemostsenior and helpsdrivethecreation ofshareholder value. of operations,supportsthebusinessstrategyandgrowth plans to ensure thatitisconsistentwiththecompany’s scaleandscope retain andmotivateitsExecutives.Thepolicyisregularly reviewed members (togethertheExecutives),sothatGSKisabletorecruit, policy forExecutiveDirectors andCorporateExecutiveTeam (CET) The role oftheCommitteeistosetcompany’s remuneration Role oftheCommittee The RemunerationCommittee Remuneration Report their ownremuneration. are involvedinanydecisionorare present atanydiscussionasto the Committeeasrequired. NoExecutivesorCommitteeattendees Human Resources) were invitedtoattendpartofsomemeetings (CEO)andClaireAndrew President, Thomas(SeniorVice Witty accordance withGSK’s remuneration policy. the formalgrantandvestingoflong-termincentive(LTI) awards in met onaquoratebasisthree occasions,principallytoapprove In additiontothesixscheduledmeetings,Committeealso ** * Tom deSwaan** James Murdoch Sir ChristopherGent Larry Culp* (to 25thMarch 2010) Sir RobertWilson (Chairman from 20thMay 2009) Sir CrispinDavis Members attending asfollows: The Committeemetsixtimesduring2010,witheachmember Chairman ofthecompany, whowasindependentonappointment. Combined Code,withtheexceptionofSirChristopherGent, independent Non-ExecutiveDirectors, inaccordance withthe The Board considersallof the membersofCommitteetobe Governance developments. and corporategovernance annually, were revised inJanuary2011thelightofbestpractice company’s website.Thetermsofreference, whichare reviewed The Committee’s fulltermsofreference are availableonthe Terms ofreference GSK Annual Report 2010 GSK Annual Report 82 in advanceofthesemeetings. reviewed thepapersandprovided hisviewstotheCommittee Chairman Tom deSwaanisalsotheChairmanofAudit&RiskCommittee. Larry Culpwasunabletoattendtwomeetingsforpersonalreasons. He 1st October2009 s aur 043/3 1st January2007 1st January2004 1st January2004 20th May2009 Committee member s uy20 6/6 1st July2003 since

Attendance meetings during at full 2010 6/6 6/6 6/6 4/6 data totheCommittee. Towers Watson provided andPayGovernance additionalmarket executive remuneration mattersotherthanfortheCommittee. services toGSKduringtheyear, butdidnotprovide adviceon Deloitte LLPalsoprovided otherconsulting,taxandassurance practice, legislativerequirements andmarketpractice. consideration bytheCommittee,andprovided updatesonbest Deloitte LLPprovided independentcommentaryonmattersunder independent adviceonexecutiveremuneration. Duringtheyear, LLP hasbeenappointedbytheCommitteetoprovide itwith adviceasrequired.The Committeehasaccesstoexternal Deloitte involved intheconductofCommitteemeetings. Secretary totheCommittee),noemployeesofcompanyare Whyte(CompanySecretary theexceptionofVictoria and With were alsoinvitedtosomemeetingsasrequired. Compensation) andJudyLynch President, (SeniorVice Benefits) President,In addition,AllenPowley(SeniorVice Corporate attendees on Corporate Governance developments. attendees onCorporateGovernance as outlinedonpage84.SirChristopherGent,Chairman,updated remuneration mattersinthe last12monthsandproposals for2011 Sir CrispinDavis,CommitteeChairman,shared progress on The annualmeetingswere held inNovember2010,atwhich used toassessperformance. discusses anysignificantchangestothepolicyormeasures any keydevelopmentsduringtheyear. Inparticular, theCommittee take feedbackonitsremuneration policy, mattersand governance holds annualmeetingswithGSK’s largestinvestorstodiscussand The Committeeengagesinregular dialoguewithshareholders and Commitment toshareholders Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 83 GSK Annual Report 2010 Approve remuneration remuneration Approve report Review voting policy guidelines on remuneration Review of general market developments (including pensions) Annual Committee assessment Review tax change implications for pension arrangements Annual Committee Annual Committee results evaluation report Review remuneration Review 2010 remuneration budget Review voting policy guidelines on remuneration Set 2010 PSP cash flow target Set 2010 PSP cash flow 2007 PSP and Share Approve Option Plan vesting to awards Grant 2010 LTI CET and Executive Directors, below annual bonus deferred Approve elections award performance alignment of LTI measures Review of strategic alignment performance measures of LTI awards Grant interim 2010 LTI Review of strategic alignment performance measures of LTI Annual meetings with investors Consider new LTI performance Consider new LTI targets framework Set CEO 2010 bonus Set CEO 2010 objectives Review bonus plan arrangements for Chairman, R&D Executive Directors’ Executive Directors’ and CET 2009 bonuses Review progress against 2010 bonus objectives Review CET 2010 bonus process remuneration, including including remuneration, CEO, CFO and salaries of Chairman, R&D appointment packages process review investors annual meetings with investors on remuneration policy Review remuneration benchmarking and competitiveness below CET level MonthJanuary Remuneration Executives’ CET 2010 Approve Annual bonus Long-term incentive plans Governance and other matters MarchJuly and CFO retirement Agree October CET 2011 salary Agree November Annual meetings with December Consider feedback from of strategic Scope review February Review and approve A diary of the Committee’s key activities and matters addressed during 2010 is set out below: 2010 is during addressed and matters activities key of the Committee’s A diary Remuneration Report Remuneration Governance and remuneration P58–P101 long-term incentiveperformancemeasures isoutlinedonpages87to89. to ensure thatthere isabalancedframeworkofmeasures focusingonallofGSK’s strategicobjectives.Furtherinformationon specific performancemeasures were introduced forthelong-termincentiveawards madetoExecutivesinFebruary2011.Thisis management todeliverlong-termfinancialperformanceandshareholder valuecreation onasustainablebasis,twonewbusiness- To furtherimprove thealignmentofourExecutiveremuneration arrangementswithGSK’s keystrategicprioritiesandtoincentiv Deferred AnnualBonusPlan. CET members.Instead,membersreceive additionalperformanceshare awards andare alsoeligibletoparticipateinGSK’s harmonised withthatofAndrew Witty. Asaresult ofthis,since2010,share optionsare normallynolongergrantedtoanyoft The remuneration structure ofallCETmembers(including DrMoncefSlaouiandSimonDingemans,CFODesignate)hasnowbeen The tablebelowoutlinesthekeyelementsofremuneration for2011GSK’s Executives. Remuneration policyfor2011 Remuneration Report Variable pay Fixed pay GSK Annual Report 2010 GSK Annual Report 84 Plan (PSP) Share Performance Bonus Plan Annual Deferred • Annual bonus • • Pension Salary • CFODesignate350 • • are asfollows: For 2011,performanceshare awards • • Chairman, R&D500 CEO 500 performance up toone-for-one subjectto Deferred bonusesmaybematched 50% ofanybonusearned Individuals mayelecttodeferup 200% ofsalary Maximum bonusopportunityof • • Plan benefitfrom contributions ofupto38%salary For USExecutives,GSKoperatesaCashBalancePlan(USPlan).Executivesparticipatingin continue tomeetlong-standingcommitmentswithinthisnewregime –seepage89 Following changestoUKpensiontaxregime, changesmadetoarrangementsforUKExecutives 20% ofbasesalary, plusmatchedcontributionof5%basesalary 2001). UKExecutivesparticipatingindefinedcontributionplanbenefitfrom companycontributionsof For UKExecutives,definedcontributionplanandlegacyfinalsalaryplans(closedtonewentrantssince relevant comparatorgroup(s) Salary levelsreviewed annuallyandinfluencedbyExecutive’s role andexperience.Benchmarkedagainst salary % of • • • • • • • performance exceedingsetthreshold byaspecifiedmargin free cashflow, 25%vestsatthreshold, risingto100%forstretching For businessdiversification,R&Dnewproduct measures andadjusted at median,with100%vestingforupperquartileperformance comparator group comprising10pharmaceuticalcompanies.30%vests Relative TSRiscalculatedontwelvemonthaveragingperiod, using equally weightedperformancemeasures: Awards vestatendofthree-year performanceperiodbasedonfour adjustments toindividualbonusawards toreflect circumstances year activitiesandExecutive’s role inthemandmaymakeappropriate ‘Clawback’ –Committeereviews ongoingfinancialimpactofanyprior R&D-specific keyperformanceindicatorsforR&Demployees Individual performanceagainstpre-determined personalobjectives profit before interest andtaxbusinessunitoperatingprofit) Majority ofbonusbasedonachievementfinancialtargets(Group - - - - Relative TSR Adjusted free cashflow R&D newproduct performance Business diversificationperformance the he ise Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 2 2 2 85 % 1 3 change 1 1 3 3 2011 salary GSK Annual Report 2010 Effective date for Effective salary 4 1,000,000 1st April 2011 0 1,125,000 1st April 2011 15 4 4 2011 base 2010 salary Effective date for Effective

– – £660,000 4th January 2011 – salary

£525,000 1st April 2010$975,000 – April 2010 1st $ – – 2010 base £1,000,000 1st April 2010 £

Simon Dingemans joined the Board on 4th January 2011 the Board Simon Dingemans joined Julian Heslop will retire from the Board on 31st March 2011 on 31st March the Board from Julian Heslop will retire Salary bonus Cash bonus including match Deferred Performance shares shares Performance Salary Cash bonus bonus including match Deferred Performance shares Salary bonus Cash bonus including match Deferred Performance shares shares Performance 11 22 33 44 1 2 3 4 11 22 33 44 1 2 3 4 11 22 33 44 1 2 3 4 Chairman, R&D CEO * ** pay Variable package total remuneration of GSK’s A significant proportion is a particular 75% – 85%) is variable. There (approximately to closely incentives, in order emphasis on long-term share-based with those of shareholders. align Executives’ interests and variable (annualThe balance between the fixed (base salary) on varies depending elements of remuneration bonus and LTI) anticipated mix betweenperformance. The charts below show the basis under thefixed and variable pay on an expected value excluding pensions. The actual mix policy, remuneration current depending on the performance of GSK may be higher or lower, and the individual. Andrew Witty, CEO Witty, Andrew Julian Heslop, CFO* Simon Dingemans, CFO Designate** Dr Moncef Slaoui, Chairman, R&D It decided that the only Executive Director to receive a base salary a to receive Director only Executive that the It decided the In particular, be Dr Moncef Slaoui. this year should increase context of his enhanced his package in the considered Committee for Biologicals. of responsibility including the transition role, and base salaries sets out current following The table immediately from take effect typically 2011. Salary increases for those proposed 1st April each year. CFO Designate

Global pharmaceutical

* UK cross-industry Simon Dingemans joined the Board on 4th January 2011 Simon Dingemans joined the Board Julian Heslop will retire from the Board on 31st March 2011 on 31st March the Board from Julian Heslop will retire Amgen is included for benchmarking but since 2009 has not been in theAmgen is included for benchmarking but since 2009 TSR comparator group. current Primary Comparator Group CEO Witty, Andrew Julian Heslop, CFO* Simon Dingemans, CFO Designate** Dr Moncef Slaoui, Chairman, R&D British American TobaccoDiageoHSBCReckitt BenckiserRoyal Dutch ShellRio Tinto Chartered Standard Bristol-Myers Squibb Tesco Unilever Vodafone Merck Pfizer Eli Lilly Johnson & Johnson AngloAmericanAstraZenecaBarclaysBG GroupBHP Billiton FranceBP Switzerland Sanofi-Aventis Novartis UK USA AstraZeneca Abbott Laboratories Roche Holdings Amgen UK cross-industry comparator groupUK cross-industry group Global pharmaceutical comparator Total remuneration benchmarking remuneration Total against remuneration total GSK’s reviews The Committee that to ensure basis, companies on a regular comparable to deliver appropriately structured are arrangements remuneration longer term and are over the for shareholders value for money now determined are comparator group(s) The relevant competitive. Executive. for each individual incorporates base total remuneration For benchmarking purposes, the Committee also setting pay, When bonus and LTIs. salary, considers pension arrangements. Remuneration Report Remuneration For 2011, the Committee considered the prevailing economic the prevailing For 2011, the Committee considered conditions, the market competitiveness of each Executive Director’s the of pay across package and the positioning and relativities Witty with Andrew that his salary It agreed GSK workforce. broader would be held at 2010 levels. * ** Base salaries are set by reference to the relevant comparator to the relevant set by reference Base salaries are and retain to secure appropriate a level considered at group strategic priorities. Salary the talent needed to deliver GSK’s influenced by the annually and are reviewed levels are experience and the pay environment. role, Executive’s basis whetherThe Committee decides on an individual Executive global pharmaceuticalthe primary pay comparator should be the and/or multinationals the UK-based large cross-industry sector, some other comparator group(s). Base salary * Governance and remuneration P58–P101 shareholders’ interests followingcessationofemployment. in theyearofdeparture. This ensures continuedalignmentwith end oftheoriginalvestingperiodsetatgrant,ratherthan incentive awards forgood leavers shouldnormallyvestatthe In addition,from 2009,the Committeedecidedthatlong-term plans whichare outlinedin detailonpage89. specific performancemeasures underthelong-termincentive There are alsofurthersafeguards relating toeachofthebusiness- employee intheparticipant’s position. is contrarytothelegitimateexpectationsofcompanyforan if itdeterminesthataparticipanthasengagedinconductwhich in 2009,theCommitteemayreduce thegrantorvestinglevels Under thelong-termincentiveplansapproved byshareholders interests ofshareholders. supported inseekingtoresolve thesemattersinthelongterm was notresponsible forthese legalactionsandthatitshouldbe This reflects theviewof Committeethatcurrent management excluded from theassessment of2010financialperformance. is identified.Accordingly, chargesforlegacylegalmatterswere into accountinassessingannualbonusestheyearproblem its emergenceasaproblem, theadverseeventshouldbetaken Executive responsibility, betweeninitiationofanadverseeventand The Committeeensures thatwhere there hasbeencontinuityof reflect thosecircumstances (the‘clawback’mechanism). make appropriate adjustmentstoindividualbonusawards to of individualExecutivesinsuchactivities,andtheCommitteemay ongoing financialimpactofanyprioryearactivitiesandtherole Under theannualbonus,eachyearCommitteereviews the remuneration mattersconsidered bytheCommittee. Group’s performanceandoversightonanyriskfactorsrelevant to and provides inputontheAudit&RiskCommittee’s review ofthe of theAudit&RiskCommitteeisamember arrangements underpinseffective riskmanagement.TheChairman taken anumberofstepstoensure thatthedesignofincentive increased focusonriskwithintheGroup, theCommittee has In addition,giventhenature ofGSK’s businessandthe the originaltargets. when performanceoutcomereflects genuineachievementagainst important thatincentivepayoutsare onlymadeincircumstances The Committeewouldnotwanttoreward failure andviewsitas Safeguards andriskmanagement Remuneration Report rMne loi himn & 85% 80% not pensionable. salary. Thiscapremains unchangedfor2011.Annualbonusis bonus levels.There isacaponbonuspaymentsof200% of Maximum bonusesare setbyreference toindividual on-target Dr MoncefSlaoui,Chairman,R&D Simon Dingemans,CFODesignate Andrew Witty, CEO the tablebelow. For 2011theon-targetbonusforExecutiveDirectors isgivenin of personalobjectives. annual financialandstrategicbusinesstargetsdelivery Annual bonusisdesignedtodrivetheachievementofGSK’s Annual bonus GSK Annual Report 2010 GSK Annual Report 86

On-target bonusasa%ofbasesalary 125% continue tokeepitsoperationunder review. continue astheannualbonusfor R&D.TheCommitteewill the plan’s operation duringtheyearanddecidedthatitshould Sir RoyAndersonandDrDaniel Podolsky. The Committeereviewed Directors whoare designatedasScientificExperts,Professor andthecompany’sincludes Andrew Witty twoNon-Executive by theR&DBonusCompensationReviewCommittee,which targets. Thisprocess requires thereview ofprogress againsttargets productivity andperformanceaswellagainstprofit established toensure thatthebonuspayablefairlyreflects R&D are linkedtothepipeline.Arobuststructure governance hasbeen Bonus measures forR&Demployees,includingDrMoncefSlaoui, the Committeewhendetermininglevelofbonusespayable. end oftheyear. Theserecommendations are thenconsidered by Committee regarding performanceagainstthoseobjectivesatthe line withcompanystrategy, andmakesrecommendations tothe setstheirobjectivesin For theotherExecutives,Andrew Witty and theCommitteethendeterminesbonuspayable. reviews hisperformancegenerally andagainstthesetobjectives, kept confidential.Followingtheendoffinancialyear, theBoard For reasons ofcommercial sensitivity, thespecificobjectivesare company, which are setoutonpage7oftheAnnualReport. focuses onthestrategiesthathavebeendevelopedfor each year. In setting theobjectivesforAndrew Witty, theBoard areBonus targetsforAndrew setbytheBoard Witty inJanuary bonus targets. The bonusthreshold of90% reflects thestretching nature ofthe the maximumbeingpayableforachievementof110%target. business model.Thebonusthreshold willbe90%oftargetwith which havebeenestablishedtodrivesignificantchangesGSK’s Annual bonusesare calibrated toreflect thestretching targets short-term incentives. the annualbonusplantoensure thestrategicalignmentofGSK’s Indicators. However, during2011,theCommitteeintendstoreview the keyfinancialmetricasoneofcompany’s KeyPerformance measures. TheCommittee has decidedthatprofit shouldremain is asignificantweightingtowards thefinancialperformance on achievementsagainstspecificindividualobjectives.There unit operatingprofit targets,withtheremainder being based targets basedonGroup profit before interest andtaxbusiness on aformalreview ofperformanceagainststretching financial For 2011,themajorityofannualbonusopportunityisbased Annual Bonus Stretching financial targets Individual objectives operating profit before interest Business unit Group profit & tax Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 87 % of 25% 25% 25% 25% award % of base salary 2011 award level 2011 award GSK Annual Report 2010 2011 award 147,521 ADS 500% 424,448 shares196,095 shares 500% 350% LTI performance measures performance measures LTI (over 3-year performance period) Business diversification R&D new product cash flow Adjusted free Relative TSR Remuneration Strategy Key strategic priorities: a diversified Grow global business Deliver more of value products Simplify the operating model Deliver value to shareholders Details of the performance measures, targets and the thresholds targets and the thresholds Details of the performance measures, given in the are for the 2011 long-term incentive awards following table. Andrew Witty, CEO Witty, Andrew Simon Dingemans, CFO Designate Dr Moncef Slaoui, Chairman, R&D Performance measures Witty of Andrew Following the appointment Board in 2008, the key strategic priorities, of GSK’s review carried out a thorough 7 of the Annual Report. The Board described on page which are delivery of these objectives will transform firmly believes that the that can deliver long-term financial GSK into an organisation on a sustainable value creation performance and shareholder years, the focus of the Committee basis. Over the last few the alignment of Executive remuneration has been to improve management arrangements with these priorities to incentivise to deliver these goals. made to Executives in February 2011, we have For awards business-specific performance two new introduced therefore on business diversification and R&D new product measures cash flow and free performance. This is in addition to our adjusted that we have to ensure and is in order measures, TSR relative focusing on all of GSK’s a balanced framework of measures below. strategic objectives, as outlined in the diagram which will vest subject to performance at the end of The awards, performance period beginning 1st January 2011 the three-year based on four equally and ending on 31st December 2013, are business diversification, R&D new product, weighted measures: TSR. cash flow and relative adjusted free The table below shows award levels in February 2011 for each 2011 for in February levels shows award below The table line with that policy: in Executive Director

b) Performance shares of focus on the delivery Plan ensures The Performance Share returns shareholder strategic priorities and long-term GSK’s to other pharmaceutical companies. relative Under the Performance Share Plan, awards are made which vest are Plan, awards Under the Performance Share performance period subject to the at the end of a three-year performance against the measures achievement of the company’s outlined below. limit on the maximum initial value of is an individual award There that may be granted to an individual in any performance shares the maximum Other than in exceptional circumstances, one year. that may be granted to an face value of performance shares individual in any one year will be six times base salary. The Deferred Annual Bonus Plan encourages long-term The Deferred discourages excessive risk taking and helps shareholding, key strategic priorities. focus on GSK’s been all CET members have the 2010 bonus year, Starting from eligible to participate in the plan. for three Up to 50% of any annual bonus earned may be deferred depending up to one-for-one years. The company will match shares outlined performance against the measures on the company’s performance period. below during the three-year Structure and performance measures Structure Annual Bonus Plan a) Deferred Long-term incentive plans incentive Long-term under the following made to Executives now are Awards by shareholders approved were incentive plans, which long-term AGM: at the 2009 Bonus Plan Annual (a) Deferred Plan Share (b) Performance no longer are option plan under the share 2010, awards From additional Instead, CET members receive granted to Executives. to participate in also eligible and are awards performance share Annual Bonus Plan. the Deferred in the form executives to US resident delivered are awards Typically, to Shares in the form of Ordinary delivered are of ADS. Awards are other countries. All awards in the UK and executives resident with incorporate dilution limits consistent made under plans which Current of British Insurers. by the Association guidelines provided under all GSK employee awards existing estimated dilution from 6.14% approximately made over the last 10 years are plans share December 2010. capital at 31st issued share of the company’s returns and payments a closer link between shareholder provide To out in and paid reinvested to the Executives, notional dividends are The value and vesting of awards. deferred to the shares proportion dividends is incorporated into the benchmarking of of reinvested levels. award Remuneration Report Remuneration Governance and remuneration P58–P101 Remuneration Report GSK Annual Report 2010 GSK Annual Report 88 Adjusted free cashflow previous periodsandabovemarketgrowth. three-year performanceperiodreflects strong growth against Aggregate revenue targetforfourbusinessdivisions over (excluding Vaccines) andDermatologybusinesses. Consumer Healthcare, EmergingMarketsandJapan Designed tofocusonourmajorgrowth areas: Vaccines, Incentivises growthofaglobal,diversifiedbusiness Business diversificationperformance Long-term incentivemeasures for2011awards Recognises importanceofR&Dtofuturebusinessgrowth R&D newproduct performance New Product Salesreflects growth onhistoricperformance. Aggregate three-year revenue targetfor2011awards for be includedinmeasurement. performance period,products launchedinyears2009-13will period andtwopreceding years. Therefore, for2011-13 New Products definedasproducts launchedinperformance better R&Dperformance. Revenue targetbasedonNewProduct Salestoincentivise and cashmanagement Recognises importanceofeffective workingcapital averaging periodisusedforrelative TSR. long-term nature ofpharmaceuticalindustry, twelve-month To measure performanceonastablebasisandbetterreflect period forallotherperformancemeasures. now measured overthree yearsinlinewithperformance movetofourcomplementary measures, relativeWith TSR pharmaceutical companies. Relative TSRusingacomparatorgroup comprising10global Focuses ondeliveryofvaluetoshareholders Relative TSR

award % of 25% 5 25% 25% 5 25% 0% 25% 50% 75% 100% TSR rankposition Proportion vesting Report. disclosed alongwithoutcomesinthe2013Remuneration diversiﬁcation andR&Dnewproduct measures willbe Due tocommercial sensitivity, targetsforbusiness Vesting schedulefor2011awards shown below: percentage ofthethreshold) forthesetwomeasures is The targetformaximumperformance(expressed asa Below threshold 11 1 2 3 4 5 6 7 8 9 10 11 Maximum Threshold Proportion ofthreshold R&D newproduct

Below threshold cash ﬂowtargets £19.15 billion £18.32 billion £16.65 billion £16.15 billion diversiﬁcation einpromneUpperquartile Median performance adjusted free Maximum Three year Threshold Business achieved Measure 30%

55% Maximum expressed Proportion ofaward 80% as %ofthreshold

100% performance % vesting available 122% 114% 100% 100% 75% 50% 25% 25% 0% 0%

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 89 GSK Annual Report 2010

b) US pension arrangements In the USA, GSK operates a US Cash Balance Plan which provides on the sum accumulated in for an annual contribution and interest to provide the cash balance plan but with no contractual promise income. The plan incorporates an specific levels of retirement for senior US executives. Contribution Executive Pension Credit 15% to 38% of base salary rates under the plan range from eligible senior US executives are depending on grade. All current for the Executive Pension Credit. For capped employees in the USA, benefits above the cap are an unfunded non-qualified plan. through provided Pensions a long-term creating an important tool for provide Pensions and loyalty. culture a) UK pension arrangements a defined contribution plan, operates The company currently closed to new entrants. plans which are and legacy final salary will participate in the defined Executives in the UK Newly hired contribution plan. During 2010 the UK Government announced a series of changes to of approximately pensions, which will initially impact the pensions will have significant80 people in GSK. The pension legislation of pensions will negative consequences and the effectiveness Pensions have been and continue to be an be much reduced. and promoting a long-term culture important tool for creating the Committee has decided that Therefore employee retention. the and pensions above be honoured existing pension promises scheme. existing unfunded via GSK’s new limits be delivered a plan receive Executives participating in the defined contribution salary depending oncompany contribution of 15%–20% of base up to a further to receive grade. They will also have the opportunity the policy for all other5% in matched contributions in line with members of the pension plan. final of for up to two-thirds The legacy final salary plans provide the cap, benefitssalary at age 60. For employees subject to unfunded through provided currently in excess of the cap are plans, actuarialarrangements. Under the legacy final salary of a participant leaves employment factors apply where reduction the age of 60. before his/her own accord other than for causeIf employment is terminated by the company then, in the same way as for all other members of the legacy final factors will not apply. salary plans, the reduction The Executives participate in GSK senior executive pension plans. senior executive pension participate in GSK The Executives the with in accordance structured arrangements are The pension they are the country in which for Executives in plans operated for the Executive Details of individual arrangements likely to retire. set out on page 100. are Directors will be eligible for either a definedNew Executives to GSK or a cash balance pension plan.contribution scheme defined benefit schemes in the UKExisting obligations under will continue to be honoured. The Board believes that the current strategic priorities are are priorities strategic current that the believes The Board the it recognises However, long-term objectives. fundamental the evolve over time. Therefore these goals may possibility that incentive performance the long-term intends to review Committee appropriate. that they remain to ensure periodically measures very sensitive. to strategy are linked directly Inevitably measures does not consider it appropriate the Committee In particular, for business diversification and R&D newto disclose the targets in competitive harm. as it may result performance at grant, product disclosing the targets at the committed to fully we are However, period, together with details of the extentend of the performance the targets have been met. In addition, to which the performance an update on achievement to providing Committee also commits during the performance period. to date against the targets the Committee has also targets, robust In addition to setting that targets are to ensure of safeguards implemented a number and that any performance outcomemet in a sustainable way the original targets and genuine achievement against reflects value for shareholders. therefore measures, new product Under the business diversification and R&D acquisitions andin the light of any significant event (including the target and payment divestments), the Committee will review to appropriate scale and make any adjustments it considers In addition, themaintain the integrity of the original targets. vesting levels if targets the right to reduce Committee reserves in a manner which undermines the overall health of achieved are the business. from The Committee will normally include the revenue assessingopportunistic events such as pandemics when and R&D newperformance under the business diversification to that a successful response It is recognised measures. product significant value foran event such as a pandemic can generate supply capacity and/or usually require Such responses shareholders. before However, other products. to be diverted from other resource the Committee must be satisfied that the including that revenue, was clearly in the decision to pursue the opportunistic revenue and that otherwise the value creation of shareholder best interests was sufficiently positive. measure performance under the relevant the Committee will expect management to have acted Ultimately, value. in a way which enhanced shareholder above market where Under the business diversification measure, has not been achieved at the end of a performance period, growth the vesting levels. the Committee will normally reduce on its R&D the return strategy to increase It is part of the Group’s target is achieved, revenue investment. If the R&D new product has been but the Committee determines that insufficient progress the return on period in increasing made during the measurement the level of vesting R&D investment, the Committee may reduce measure. under the R&D new product the target may be cash flow measure, Under the adjusted free cash flow adjusted for material factors which could distort free These will typically include exchange as a performance measure. rate movements and may also include legal and major taxation settlements and special pension contributions, which could materially distort this calculation. The impact of any acquisition or divestment will be quantified and adjusted for after the event. Major adjustments in the calculation will be disclosed to shareholders. Remuneration Report Remuneration Governance and remuneration P58–P101 table below: Current share ownershiprequirements (SOR)are setoutinthe maintain significantholdingsofshares inGSKovertime. shareholders, Executivesare required tobuildupand To aligntheinterests ofExecutiveswiththose Share ownershiprequirements Remuneration Report this business. to GSKBiologicals asheassumesoperationalresponsibility for period from 1stNovember2010toenablehimbecloser in theUSA.Hehasbeenseconded totheUKforatwoyear in 2010isshownonpage94.Dr MoncefSlaouinormallyresides The cashvalueofthebenefitsreceived bytheExecutiveDirectors (medical anddental),personalfinancial adviceandlifeassurance. The Executivesalsoreceive otherbenefitsincludinghealthcare the ShareReward Plan. Dingemans eachcontribute£125amonthtobuyshares under insurance contributions.Andrew Witty, JulianHeslopandSimon for fiveyears,theycanberemoved free ofUKtaxandnational arrangement. Theshares are heldintrustandiftheyare leftthere matches thenumberofGSKshares boughteachmonthunderthis from theirgross salarytopurchase GSKshares andthecompany ShareReward participantscancontributeupto£125amonth year savingsperiod. them bothwiththeoptiontobuyshares attheendofthree- and eachcontribute£250amonthintothePlan.Thisprovides andJulianHeslopareplan. Andrew ShareSave Witty members, discount of20%themarketpricesetatlauncheach savings periodtheyhavetheoptiontobuyGSKshares ata net salaryforafixedtermofthree yearsandattheendof ShareSave participantsmay saveupto£250amonthfrom their based ExecutiveDirectors on thesameterms. & Customsapproved plans opentoallUKemployeesandUK- The ShareSave Planandthe ShareReward Planare UKHMRevenue either theUKorUSA. The Executivesparticipateinvariousall-employeeshare plansin Other remuneration elements – ** * 4xbasesalary Dr MoncefSlaoui 2 x Simon Dingemans** Julian Heslop Andrew Witty 3 x were: Shareholdings forthepurposeofSORasat25thFebruary2011 from thecompanytosupportlong-termnature of thebusiness. requirements foraminimumoftwelvemonthsfollowing retirement Executives are required tocontinuesatisfytheseshareholding CET members Other ExecutiveDirectors CEO GSK Annual Report 2010 GSK Annual Report 90 been excluded. Shares tobesoldfortaxfollowingthevestingof2008PSPawards have 4th January2011. Thedisclosure forSimonDingemansisfrom thedate he joinedtheBoard on for SORpurposes Ordinary shares as at31/12/09 Holding of 6981996154 87 147 169,906 92,182 66,938 226,199 49,350 91,472

for SORpurposes Ordinary shares as at25/02/11 Holding of Share OwnershipRequirement 000– 40,000 * base salary base salary % increase in shareholding

(2009 –115%to200%). 147% ofbasesalariesasat31stDecember2010 Directors are shownonpage94andrangedfrom 79%to determined accordingly. ActualbonuspaymentsforExecutive profit before interest targetsthatwere set,bonuseswere However, because managementdidnotfullyachievethegroup performance, whendeterminingthebonusawards for2010. achieving theaboveobjectives,aswelleachindividual’s Overall, theCommitteetookintoaccountGSK’s successin • • • • strategic objectives,including: legacy litigationcosts,managementachievedkeyfinancialand decisions intheAutumn,UShealthcare reform andsignificant in theUSA,rapidlossofsales pharmaceutical industryduetotheeffect ofgenericcompetition Despite 2010beingachallengingyearforGSKandthe restructuring programmes tosimplifytheoperatingmodel. pipeline assets,deliveryofcommercial targetsandexecutionof on thecontinueddevelopmentandlaunchoflatestage The objectivessetforthecompany2010focusedinparticular 2010 annualbonuslevels. efficiency goalswasalsotakenintoaccountindeterminingthe individual performance.Theachievementofadditionaloperational interest andtaxonbusinessunitoperatingprofit) and achievement offinancialtargets(basedonGroup profit before For 2010,themajorityofannualbonuswasbasedon Annual bonus 31st December2010. incentive plansforperformanceperiodsthatendedon achieved underthecompany’s annualbonusandlong-term This sectionprovides furtherdetailsonperformance 31st December2010 Variable pay–performanceperiodsended nrwWty32% 50% Dr MoncefSlaoui Andrew Witty Executive outlined onpage87ofthereport. and achievementofthelong-term incentiveperformancemeasures may vestinFebruary2014,subject totheircontinuedemployment Deferred AnnualBonusPlaninrespect of2010.MatchingAwards The followingExecutiveDirectors electedtoparticipateinthe Dr MoncefSlaoui Julian Heslop Andrew Witty operational efficiencies. generation before legalsettlements andachievementof simplification ofGSK’s businessmodel,improved cash to thelatestageR&Dpipelineproducts in thetransformationofR&Dproductivity, particularlyinrelation increasing R&Dpipelinepotential andachievingkeymilestones particularly EmergingMarketsandConsumerHealthcare strong salesperformancein investmentareas ofthebusiness, products, delivering underlyingsalesgrowth (excludingpandemic Avandia and fttlbnsDfre wr MatchingAward Deferred Award % oftotalbonus Valtrex Annual bonus ) 144$,3 – (41) $1,439 $1,434 £2,000 £1,177 Avandia 47£0 (31) £602 £417 2010 000 191sae 31,921shares 31,921 shares 876AS18,756ADS 18,756 ADS Annual bonus followingregulatory 2009 000 % change

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 91 GSK Annual Report 2010 * annual salary months from termination months from 12 calendar months 12 calendar payable on termination as incentive plan, Rules of relevant by shareholders approved and Based on existing arrangements pension plan terms of relevant notice date The ability to impose a 12-month non-compete period (and a non-solicitation The ability to impose a 12-month non-compete period important by the company in order on an Executive is considered restriction) In light and staff. intellectual property the Group’s to have the ability to protect for to provide appropriate of this, the Committee believes that it would not be mitigation in the contracts. In 2010, Andrew Witty an In 2010, Andrew and Dr Moncef Slaoui agreed an entitlement remove amendment to their contractual terms to The contracts forto bonus as part of their termination package. bonus element in anynew Executives will not normally include a termination payment. commercial The terms of the new contracts seek to balance the company considers it imperatives and best practice. Where during his elsewhere important that an individual does not work of payment in respect notice period, it may make a compensatory bonus for the period of restraint. the company on 31st March early from Julian Heslop is retiring into in 2005, he 2011. Under the terms of his contract entered and his notice on termination one year’s is entitled to receive annual salary and 12 months’ payment will include one year’s on-target bonus. on 4th January 2011 as CFO Simon Dingemans joined the Board Designate, and will become the CFO on 1st April 2011 following policy going In line with the company’s retirement. Julian Heslop’s for a termination Simon Dingemans’ contract provides forward, base salary only. payment based on one year’s Executive Director terms and conditions and terms Director Executive contracts Director Executive for for contracts the framework set out below provides The policy Executive Directors. on Notice period termination by or employing company executive paymentTermination x 1 of LTIs Vesting Pension Non-compete clause* 12 Plan Vesting Vesting under EPS measure % measure Share Option Share

Plan Vesting Vesting 21.69 50.14 under TSR measure % measure Performance Share Performance Share

2004 - 20062005 - 20072006 - 20082007 - 20092008 - 2010 38.47 0 0 35 100 100 35 50.7 0 0 Performance period 2003 2004 2006 2007 2008 annual vesting Average No award was made during 2005 due to a change in the No award cycle. award Historical vesting for GSK’s LTIs Historical vesting for GSK’s to be challenging as performance conditions continue LTI GSK’s has been an Relative TSR is demonstrated by the table below. measure for many years. This measures important part of the LTI policy. remuneration under the current has been retained of GSK’s The following table shows the vesting levels to Executives since option awards and share performance share relative of 0% indicates that GSK’s 2003. A TSR vesting percentage the comparator group TSR performance was below the median of for that performance period. The share option awards granted to Executives in 2008 were based in 2008 were granted to Executives option awards The share The performance conditions for the 2008on EPS performance. lapsed. awards all these not met and, as a result, were awards conditionsDetails of subsisting options, and the performance of this in the audited section provided attached to each grant, are report. Share options – Vesting of 2008 Awards options – Vesting Share The Committee reviewed the performance criteria of the the performance reviewed The Committee Directors granted to the Executive plan awards share performance period starting on performance the three-year in 2008, with 31st December 2010. 2008 and ending on 1st January group position in the comparator ranked at median The company vested. the awards 35% of therefore of 10 companies and executives in 2008 were made to other senior The awards performance and in part on EPS TSR relative dependent in part on did not vest. portion of those awards performance. The EPS are for the 2008, 2009 and 2010 awards The vesting schedules shown on page 99. Long-term incentive plans incentive Long-term Awards of 2008 plan – Vesting share Performance Remuneration Report Remuneration Governance and remuneration P58–P101 urn ietr aeo otatEfciedt Expirydate Effective date Dateofcontract Current Directors service contracts: The followingtablesetsoutthedetailsofExecutiveDirectors’ Remuneration Report Governance Report). Report). Governance 2011.(Further detailsare provided onpage68oftheCorporate of fiveyearssubjecttore-election witheffect from 1stJanuary on 21stMay2008.Thishasbeen furtherextendedforaperiod with effect from hisre-election asaDirector attheAGMheld extended forafurthertermofthree yearsbymutualagreement, AGM followingthethird anniversaryofhisappointment. This was from 1stJanuary2005asChairmanuntiltheconclusionof the companyasDeputyChairmanuntil31stDecember2004and 26th May2004,underwhichitwasagreed thathewouldserve Sir ChristopherGent’s letterofappointment wasdated Terms andconditions Chairman andNon-ExecutiveDirectors appointments maybekeptbytheindividualExecutiveDirector. It isthecompany’s policythatremuneration from earned such and are thenapproved bytheChairmanonbehalfofBoard. Committee toensure theywouldnotcauseaconflictofinterest Any outsideappointmentsare considered bytheNominations Outside appointmentsforExecutiveDirectors further paymentsdueunderthisarrangement. merger. Following thepaymentsmadeduring2010,there are no until atleastthesecondanniversaryofeffective dateofthe this additionalcashbenefit,participantshadtoretain theiroptions triggered whentheoption wasexercised orlapsed.To qualifyfor of thegrantpriceoriginaloption.Thisadditionalbenefitwas over GSKshares received anadditionalcashbenefitequalto10% schemes whoelectedtoexchangetheirlegacyoptionsfor Following themerger, thoseparticipantsinthelegacyshare option • • by theiremployingcompany, thefollowingwillapply: event thatExecutiveDirectors’ serviceagreements are terminated In additiontothecontractualprovisions outlinedabove,inthe Other entitlements notice periodextendingbeyondthecontractexpirydate. No terminationpaymentswillbemadeinrespect ofanyparta ** * GSK Annual Report 2010 GSK Annual Report Dr MoncefSlaoui** Simon Dingemans Julian Heslop Andrew Witty* 92 receive continuingmedical anddentalinsuranceafterretirement. Dr MoncefSlaouimaybecomeeligible,atafuture date,to in linewiththepolicyapplicabletoUSseniorexecutives, and gains; termination toreceive any deferred amounts,andanyincome must exercise anyBonusInvestment Rightswithinsixmonthsof agreement isterminatedother thanforcause,theexecutive with effect from thefirstquarterof2006)provided thattheir Annual InvestmentPlan(whichwasclosedtonewdeferrals in thecaseofoutstandingawards undertheGlaxoSmithKline severance termsoutlinedabove. as CEO,andwasamendedon4thFebruary2010toreflect thechangestohis Andrew Witty’s contractwasrenewed inJune2008followinghisappointment above. 21st December2010toreflect thechangestohisseverancetermsoutlined Dr MoncefSlaoui’s previous contractdated16thMay2008wasreplaced on 1tDcme 002s eebr21 1stAugust2019 21stDecember2010 21st December2010 t etme 004hJnay21 30thApril2028 4thJanuary2011 8th September2010 6hMrh20 s pi 0531stJanuary2014 1stApril2005 16th March 2006 8hJn 082n a 0831stAugust2024 22ndMay2008 18th June2008 appointment ofeachNon-ExecutiveDirector: The followingtableshowsthedateofinitialletter appointments are terminated. contain provision fornoticeperiodsorcompensationiftheir The lettersofappointmentforNon-ExecutiveDirectors donot periodic re-election byshareholders. subsequent re-appointment are subjecttoelection,and thereafter, For allNon-ExecutiveDirectors, theirinitialappointmentandany Sir ChristopherGent,are alsosetoutinlettersofappointment. The termsofengagementNon-ExecutiveDirectors otherthan rDne oosy3rd Sir RobertWilson Dateofletterappointment Tom deSwaan Dr DanielPodolsky James Murdoch Sir DeryckMaughan Sir CrispinDavis Larry Culp Dr StephanieBurns Professor SirRoyAnderson Sir ChristopherGent Non-Executive Director * intercontinental traveltomeetings Non-Executive Director undertaking Responsibility Committees* Chairmen oftheRemunerationandCorporate and Scientific/MedicalExperts Senior IndependentDirector Chairman ofAudit&RiskCommittee Supplemental fees Standard annualcashretainer fee as follows: Non-Executive Directors’ fees applyingat allocation ofshares tothevalue of£135,000perannum. The Chairman’s feesare currently £540,000 perannumplusan contained inGSK’s ArticlesofAssociation. companies ofequivalentsizeandcomplexitysubjecttothelimits Directors withfeesthatare competitivewiththosepaidbyother The companyaimstoprovide theChairmanandNon-Executive Chairman andNon-ExecutiveDirectors’ fees Committee, butdoesnotreceive theadditionalfeelistedabove. Sir ChristopherGentisthecurrent ChairmanoftheCorporateResponsibility 31st December2010are 28th September2007 21st December2005 26th February2009 12th February2007 26th May2004 26th May2004 9th June2003 9th June2003 9th June2003 per meeting July 2008 £20,000 £30,000 £80,000 £75,000 Per annum £7,500 £7,500 Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 93 31/12/10

GSK Annual Report 2010 29/12/06 31/12/07 31/12/08 31/12/09 GlaxoSmithKline Total Return Index GlaxoSmithKline Total GlaxoSmithKline Pharma Peers Return Index Return Index FTSE 100 Total 30/12/05 TSR performance graph performance TSR company performance of the graph sets out the The following company is a100 Index of which the to the FTSE relative comparator performance and to the pharmaceutical constituent 2010. The graph to 31st December 1st January 2006 from group deﬁned the Regulations as with in accordance has been prepared an indication of the likely vesting of awards on page 101 and is not incentive plans. the company’s granted under any of TSR performance 100 75 150 125

£1/US$ Exchange rate 01.01.10 – 31.12.1001.01.11 – 31.12.11 US$1.6326 US$1.5798 Given fluctuations in the Sterling: US dollar exchange rate, it was agreed that rate, it was agreed Given fluctuations in the Sterling: US dollar exchange October 2009 the exchange rate would be set annually 1st from with effect of the year prior tobased on the average daily rate for the last quarter if exchange rates moved significantly payment. The rate would be reviewed during the year. Date of approval Period rate applied Exchange rate converted at the following paid in US dollars were Fees that are exchange rates: To reflect the increased focus within the company on compliance the company within focus the increased reflect To and responsibilities the remit significantly enlarged and risk, GSK required and the commitment & Risk Committee, of the Audit the that The company agreed Swaan, its Chairman. de Tom from from Chairman moving as Committee for his role time requirement per annum should 80 days to approximately 30 days approximately fees payable. in the an increase through be reflected supplemental fee for the the review, Following an independent from & Risk Committee was increased Chairman of the Audit from to £80,000 per annum with effect £30,000 per annum 1st October 2009. and terms of reference Committee’s Full details of the current given on pages 71 to 76. Assurance model are Audit & GSK’s time commitment, in the has been an increase years there In recent of a non-executive on the role placed demands and responsibility in their fees. to an increase and this has generally led director, in the market, Non-Executive of these developments As a result during independently reviewed at GSK were fees Director was scope to increase highlighted that there 2010. The review in light of the current fees. However, Non-Executive Director their fees at this decided not to increase the Board environment, review. time. They will continue to be kept under Remuneration Report Remuneration 29th July 2004 200828th March 2009* December 3rd 01.10.09 – 31.12.09 01.10.04 – 31.03.08 01.04.08 – 30.09.09 US$1.6395 US$1.8162 US$1.9918 Non-Executive Directors’ share allocation plan share Non-Executive Directors’ GSK and shareholders, enhance the link between Directors To a significant part of to receive Directors Non-Executive requires At least 25% of the Non-Executive their fees in the form of shares. paid in the form total fees, excluding the Chairman, are Directors’ account. The Non- or ADS and allocated to a share of shares may also take the opportunity to invest part or Executive Directors account. all of the balance of their fees into the same share to the Non- notionally awarded or ADS which are The shares accounts are and allocated to their interest Executive Directors tables on page 96. interests included within the Directors’ or ADS, together with wThe accumulated balance of these shares not paid out to are notional dividends subsequently reinvested, Upon the Board. from until retirement the Non-Executive Directors either the shares will receive Directors the Non-Executive retirement, or ADS or ADS or a cash amount equal to the value of the shares or date of payment if later. at the date of retirement * Governance and remuneration P58–P101 Annual remuneration Remuneration Report GSK Annual Report 2010 GSK Annual Report 94 None oftheaboveDirectors received reimbursement forexpensesduringtheyear requiring separatedisclosure asrequired byth – h) g) f) £76 andDrMoncefSlaouihavebeenrestatede) Otherbenefitsin2009forAndrew toreflect Witty certainelementsofremuneration n £2,518 d) – £574 – c) £3,873 – – – £2,518 – – £574 – b) $118 – – a) £3,873 – – rates foreachyear. – – Remuneration forDirectors ontheUSpayroll isreported inDollars.Dollaramountsare includedinthetotalsbasedonconvers – h – – Total remuneration – b – h – Former Directors – – $135 Non-Executive Directors g $208 – Executive Directors – – Analysed as: £1 $147 – – Total remuneration $146 Dr Jean-Pierre Garnier £128 £177 – £98 Dr RonaldoSchmitz £2 – Sir IanProsser f Dr MichèleBarzach £118 £675 Former Directors £417 – Dr DanielPodolsky $1,434 £108 Sir DeryckMaughan $405 Larry Culp £128 £525 £1,177 Dr StephanieBurns $953 a,b £126 Sir RobertWilson c,d,e Tom deSwaan £1,000 James Murdoch a,b,c,e Sir ChristopherGent Sir CrispinDavis Professor SirRoyAnderson Non-Executive Directors Dr MoncefSlaoui Julian Heslop Andrew Witty Executive Directors James Murdoch wasappointed totheBoard witheffect from 20thMay2009. (2009 – $3,951) during 2010 which is not included above. (2009 –$3,951)during2010whichisnotincludedabove. in 2009(DrMoncefSlaouiwasnoteligibletoparticipatethatyear). to himin1999lapsing.Nofurtherpaymentswillbemade. £93,002 (2009–£49,499)andJulianHeslopreceived £89,936(2009–£32,000).DrJean-Pierre received Garnier $5,512,369in200 participants hadtoretain theseoptionsuntilatleastthesecondanniversaryofeffective dateofthemerger. Duringthe known astheExchangeOffer Incentive,wasonlypayablewhenthenewoptionexercised orlapsedunderwater. To qualifyfor GlaxoSmithKline shares orADS,employeeswere granted anadditionalcashbenefitequalto10%ofthegrantpriceoriginal Dr MichèleBarzachreceived feesof Dr MoncefSlaouiisaNon-ExecutiveDirector oftheAgencyforScience,Technology andResearch (A*STAR) inrespect ofwhichhe andDrMoncefSlaouihaveelectedtoparticipateinGSK’sAndrew Witty Deferred AnnualBonusPlaninrespect oftheir2010bonu Following themerger, andinorder toencourageemployeesconverttheirnon-savings related optionsheldoverlegacyshares andJulianHeslopbothparticipateinSalarySacrifice schemes. Andrew Witty page 96.Theseare notincluded withinfeesandsalariesabove. price atthepaymentdate.Afinalinrespect ofthebalanceforSirIanProsser wasmadeduring2010.Furtherdetailsa Dr RonaldoSchmitzreceived theaccumulatedbalanceofshares previously awarded undertheNon-ExecutiveDirectors’ share arran Sir IanProsser andDrRonaldo Schmitzretired asNon-ExecutiveDirectors ofthecompanyon20thMay2009.OnleavingBoard Á nil (2009– otoe0000000 000 000 Footnote Á 89,700) from GSKFrancefor healthcare consultancyprovided. Theseare includedwithinfeesandsalaryabove. 173£ – £3 £2,518 £495 £1,733 £2,140 esadOhrAnnual Other Fees and aaybnfisbonus benefits salary remuneration £1,736 £5,153 £6,965 £6,965 $2,792 £1,050 £2,303 annual $118 $208 $147 $135 $146 £128 £178 £677 £118 £128 Total £76 £98 2010 000 – – – 179£ £1,724 – £5,907 £5 £3,525 £373 £1,719 £2,009 383£,6 355£11,578 £3,525 £4,160 £3,893 £11,578 £3,525 £4,160 £3,893 esadOhrAna annual Annual Other Fees and 15£,8 £3,947 – £3,782 £165 $245 $188 $188 – $188 – £116 – £133 – – – – £680 – £102 – £120 – $245 $188 – – – $188 – – $188 £116 £5 – £133 $2,659 – £1,165 £675 £3,037 £102 $1,439 £602 £120 $355 £2,000 £56 $865 £89 £507 £948 aaybnfisbnsremuneration bonus benefits salary 3 5–£42 £53 £80 – – – £5 £5 – £37 £54 £48 £80 – – £54 0 0 0 000 000 000 000 585–$5,885 – $5,885 – ion to Sterling at the average exchange ion toSterlingattheaverageexchange year, received Andrew Witty e Regulations. re as set out in the table on re assetoutinthetableon or ADS for options over or ADSforoptionsover o longerbeingdeemedabenefit. received $1,005 received $1,005 option. This additional benefit, option.Thisadditionalbenefit, this additional cash benefit, this additionalcashbenefit, ses. Andrew Witty also participated alsoparticipated ses. Andrew Witty gements based on the share gements basedontheshare both Sir Ian Prosser and bothSirIanProsser and 9 as a result of options granted 9 asaresult ofoptionsgranted 2009 Total Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

95 – 2009 9,105 7,352 8,620 54,642 66,740 13,028 15,341 23,417 21,462 12,635 ees and received received he date of 31st December 2010 ount which is GSK Annual Report 2010

Number of shares and ADS Number of shares 1,240 Paid out Dividends reinvested 2010 Allocated & elected –– £118 £102 £98–– £54 – $135 $147– £40 $188– £102 $188 $141 £14 $141 – – £48 $47 £37 $47 £31 £26 £17 £11 000 000 000 000 000 Cash Shares/ADS Total Cash Shares/ADS £96 £32£96 £120$73 £32 £90$52 $73 £116 $188 £30 $156 £87 $245 $141 £29 $184 $47 $61 £540£133 £135 £675 £44 £133 £540 £99 £135 £34 £945 £788 £1,804 £1,302 £502 1,240 – – – – 000 £98 Total 31st December 2009 £128 £118 £675 £177 £128 $146 $135 $147 $208 £1,733

Sir Christopher Gent James Murdoch de SwaanTom Sir Robert WilsonADS Dr Stephanie BurnsLarry CulpSir Deryck MaughanDr Daniel PodolskyFormer Non-Executive Directors Shares Sir Ian Prosser 53,025 11,006 1,077 2,709 12,133 8,952 7,896 5,096 2,585 3,605 16,678 – 132 1,984 623 8,017 471 3,917 18,832 272 4,182 – 3,609 867 – – 436 976 – – – – Fees Sir Crispin Davis 42,909 9,527 2,206 – Current Non-Executive Directors Current Shares Sir Roy AndersonProfessor 5,730 2,585 305 – Sir Crispin Davis James Murdoch Sir Robert Wilson Dr Stephanie Burns Larry Culp Directors Former Non-Executive Sir Ian Prosser Non-Executive Directors’ share arrangements Current Non-Executive Directors Current Non-Executive Sir Roy Anderson Professor Sir Christopher Gent de Swaan Tom Sir Deryck Maughan Dr Daniel Podolsky Dr Ronaldo Schmitz Total Remuneration of the company. Directors as Non-Executive received The table above sets out the remuneration acc allocated to a share in the form of shares to take at least a part of their total fees required are Non-Executive Directors and ADS as at t The total value of these shares (see page 93 for further details). the Board from not paid out until retirement table under ‘F included within the Annual remuneration with the cash payment, forms their total fees, which are together award, and ADS. in the form of cash and shares of their fees received salary’. The table above sets out the value to their fees in relation Directors and ADS held by the Non-Executive number of shares The table below sets out the accumulated Non-Executive Directors’ fees Directors’ Non-Executive Remuneration Report Remuneration as Board members as at 31st December 2010, together with the movements in their accounts over the year. members as at 31st December 2010, together with the movements in their accounts as Board Governance and remuneration P58–P101 i oetWlo 21,470 13,028 – e e 10,105 – – e e 61,402 66,741 e e 44 e e e 76,900 8,620 59,622 a,d Sir RobertWilson c,d e Tom deSwaan Dr DanielPodolsky James Murdoch Sir DeryckMaughan Sir ChristopherGent Sir CrispinDavis Larry Culp Dr StephanieBurns Professor SirRoyAnderson Non-Executive Directors Dr MoncefSlaoui Julian Heslop i a rse , 00.9£8,4 3664£4,2 £15,767 £343,525 £356,644 £382,142 20.05.09 a,b b) a) Sir IanProsser The tablebelowsetsoutthesettlementofformerNon-ExecutiveDirectors’ share arrangementsontheirleavingtheBoard: Remuneration Report a) year-end andthatdate. One GlaxoSmithKlineADSrepresents twoGlaxoSmithKline shares. Theinterests oftheabove-mentionedDirectors at24thFebruary 40,000 184,281 b a,d Simon Dingemans Andrew Witty Executive Directors The followinginterests oftheDirectors ofthecompany andtheirconnectedpersonsare showninaccordance withtheFSAListin Directors’ interests GSK Annual Report 2010 GSK Annual Report 96 d) c) b) e) these shares andADSwere convertedtoshares andADSasat31stDecember2010. Includesshares andADSreceived aspartoralloftheir fees,asdescribedunderNon-ExecutiveDirectors’ share allocationpla for eachaward. The changesinvalueofawards betweenallocation,leavingandsubsequentpaymentare attributabletodividendsreinvested and at 24thFebruary2011. 2,216) and2,628shares at24thFebruary2011andJulianHesloptotalling2,57731stDecember 2010(31stDecember2009–2,2 25th February2011andare notincludedinthetotalsabove. Includes shares purchased through theGlaxoSmithKlineShareReward totalling2,577at31stDecember 2010( PlanforAndrew Witty The 2008PerformanceShare Planvestingconditionswere approved on24thFebruary2011,asdetailedpage91.However, thesh Includes ADSpurchased intheGlaxoSmithKlineStockFundwithinUSRetirement SavingsPlanandUSExecutiveSupplementalSa settled in2010. Awards toSirIanProsser undertheNon-ExecutiveDirectors’ share arrangementswere partiallysettledinshares during2009wi Simon DingemansjoinedtheBoard on4thJanuary2011. Footnote

24th February 2011 Footnote 31st December

151,213 21,470 13,028 10,105 66,741 61,402 59,133 76,254 8,620 2010 44 Date of leaving – – – –

1st January 822– 18,262 – – 53,025 49,669 – 37,883 60,948 49,350 142– 91,472 ,5 – – 8,952 2,077 ,3 – 5,730 awards on allocation hrsADS Shares Value of 2010 47,418 44 12,635 – 21,462 – 23,417 – –– 24th February awards on n onpage93.Dividendsreceived on Value of 2011 2011 reﬂect the change between the 2011 reﬂect thechangebetween leaving th thebalanceof1,240shares the changeinshare price 31st December vings Plan. 31st December 2009 – 31st December2009– 16) and2,628shares ares didnotvestuntil 18,459 12,635 21,462 23,417 Payments 7,418 in 2009 2010 – – – – – – – – –

g Rules. 1st January 16,678 18,832 Payments 5,161 8,017 in 2010 592 2010 – – – – – – – – –

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 97 2010 2010 w the 31st December 31st December 31st December GSK Annual Report 2010 Granted Granted Vesting dateVesting Lapse date dateVesting Lapse date Vesting dateVesting Lapse date grant price Number earliest latest earliestgrant price latest Number earliest latest earliest latest grant price Number earliest latest earliest latest Weighted average Weighted average Weighted Weighted average Weighted Date of grant period Exercise Grant price Number Lapsed Date of grant period Exercise Grant price Number Lapsed unvested 44.75 159,850 18.02.11 18.02.11 16.02.18 16.02.18 unvested 11.46 243,683 18.02.11 30.11.12 31.05.13 16.02.18 unvested 11.63 671,009 18.02.11 01.12.11 31.05.12 20.07.18 2009 2009 31st December 31st December 31st December Footnote Total ADS options as at 31st December 2010 of GSK. This includes those share options held by Dr Moncef Slaoui’s connected person, who is also an employee 39.13 321,735 Options below market price at year-end: unvested 33.45 160,950 17.02.12 21.02.13 15.02.19 20.02.20 Total share options as at 31st December 2010Total share Options above market price at year-end: vested 13.09 56.92 140,320 935 27.07.09 19.02.10 25.07.16 17.02.17 Options above market price at year-end:Options below market price at year-end: vested vested 14.68 11.58 68,520 20.02.09 71,800 20.02.09 23.02.16 02.12.05 03.12.07 20.02.16 03.12.12 01.12.14 Dr Moncef Slaoui Options below market price at year-end: vested options as at 31st December 2010Total share 11.23 62,250 03.12.07 13.41 03.12.07 01.12.14 585,050 01.12.14 Options above market price at year-end: vested 15.59 279,117 29.03.04 20.02.09 28.03.11 22.02.16 Julian Heslop Options below market price at year-end: vested 11.39 249,500 02.12.05 30.11.07 30.11.12 01.12.14 Andrew Witty Options above market price at year-end: vested options as at 31st December 2010Total share 15.26 369,993 29.03.04 20.02.09 28.03.11 22.02.16 12.62 1,290,502 For those options outstanding at 31st December 2010, the earliest and latest vesting and lapse dates for options above and belo and latest vesting and lapse dates for at 31st December 2010, the earliest For those options outstanding Dr Moncef Slaoui who is also an employee of GSK. connected person, a) These details include a change to Dr Slaoui’s a 489,330 22.02.10 22.02.13 – 22.02.20 37.32 1,100 168,695 321,735 market price for a GlaxoSmithKline share at the year-end are given in the table below. are at the year-end share market price for a GlaxoSmithKline Options – ADS Andrew WittyAndrew Julian HeslopDr Moncef Slaoui 1,549,702 155,190 889,400 – – – – – – – – – – 259,200 – – 1,290,502 14,870 304,350 140,320 585,050 Options – Shares Options – Long-term Incentive plans Incentive Long-term awards option plan Share Remuneration Report Remuneration Governance and remuneration P58–P101 Performance period options havevestedat31stDecember2010. The tablebelowsetsout,forshare optionsgrantedin2008,theperformanceperiods,targetsandwhetherorno interest inanyoptionoverthecompany’s shares. option plansreferred toinNote42theﬁnancialstatements, ‘Employeeshare schemes’.NoneoftheNon-ExecutiveDirectors h GSK grantedshare optionstoExecutiveDirectors onan annualbasisuntil2009.TheDirectors holdtheseoptionsunderthevari Remuneration Report eray20 0 faad20 02Uvse P %85% 100% RPI+5% >RPI+6% Unvested Unvested plans referred toinNote42theﬁnancialstatements. Performance share awards are madetoExecutiveDirectors onanannualbasis.TheDirectors holdtheseoptionsunderthevarious Performance Share Plan (PSP) awards share and$38.13perGlaxoSmithKline ADS. GlaxoSmithKline ADSwas$39.22(31stDecember2009–$42.25).Thepriceson24thFebruary2011were £11.78perGlaxoSmithKline 2009–2012 respectively. ThemarketpriceforaGlaxoSmithKlineshare on31st December2010was£12.40(31st2009–£13.20)andf 2009–2011 respectively. ThehighestandlowestpricesforGlaxoSmithKlineADSduringtheyearended31stDecember2010were $32.34and$4 The highestandlowestclosingpricesduringtheyearended31stDecember2010forGlaxoSmithKlineshares were £10.95and£13.4 February 2009–50%ofaward February 2009–50%ofaward The tablebelowsetsout,forshare optionsgrantedinrespect of2009and2010theperformanceperiodtargets. a) Grant 01–21 424,448 – – – – – – – 425,781 – 69,311 500,617 10,327 24,471 3,388 – 254,449 – – 12,439 – 2010 GSK Annual Report – – – – – – – – – – – – – – 1,106 – – – 62,735 £12.04 – 408,238 £10.51 £12.09 £12.21 415,454 – – – 33,781 £11.47 – £14.88 – – 476,146 65,923 242,010 2011 –2013 95,410 2010 –2012 2009 –2011 2008 –2010 2008 –2010 2007 –2009 Andrew Witty–Shares 100% >RPI+6% Unvested 2008–2010 a February 2008 98 Performance period 00–21 7,9 1.4––––437178,828 4,337 210,260 118,743 10,278 5,805 – – – – – – – – – – 1,367 – – 77,497 – £12.04 504,294 £12.09 £10.51 174,491 £11.47 41,729 – – £14.88 – – 199,982 112,938 117,859 2010 –2012 2009 –2011 2008 –2010 2007 –2009 Julian Heslop–Shares Grant The performancetargetsfortheseshare optionswere notmet,andasaresult theylapsedonthethird anniversary ofthedate December December Unvested Unvested at 31st at 31st 2009 2009 Footnote granted in granted in

Number Number 2010 2010

Market price price on price on date of Market date of Performance period Performance period grant grant

Number Number

Market Market price price

at 31stDecember2010 at 31stDecember2010 Vested Vested Vested Vested Gain Gain

Vesting status Vesting status Lapsed Lapsed

Annualised growth Annualised growth Additional Additional P %0% < RPI+3% P %0% < RPI+3% reinvested reinvested of grant. dividends dividends shares by shares by P %30% 65% RPI +3% RPI +4% P %50% 67% RPI +3% RPI +4% P %83% RPI +5% in EPS in EPS December December Unvested Unvested at 31st at 31st 2010 2010 Performance target Performance target award vesting award vesting Percentage of Percentage of ous share ad an ad an granted in PSP PSP t the t the Number 2011 2.97, 2.97, 0, 0, or a or a

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

99 2011 2011 of Number Number

. riod granted in granted in pants d connected TSR vesting schedule TSR vesting schedule 2010 2010 at 31st at 31st GSK Annual Report 2010 Unvested Unvested December December Percentage of award vesting Adjusted free cash ﬂow vesting schedule cash ﬂow vesting schedule Adjusted free shares by by shares shares by shares dividends dividends reinvested reinvested Additional Additional 25% – 100% 23456 100% 87% 74% 61% 48% 5 55% £bn

Median 35% Median 30% Lapsed Lapsed Cash ﬂow Targets Cash ﬂow Targets

Below median 0% Below median 0% Gain Gain Vested Vested Vested Vested Vested Vested

price price Market Market

Performance Period Number Number

grant grant Market Market date of date of price on price on

2010 2010 30302012 2009 – 2013 2010 – 2 4 100% 80% Number Number granted in granted in % of Award 2009 2009 at 31st at 31st Unvested Unvested December December Award % of Award Performance Period TSR rank with 12 other companies of award vesting Percentage 20092010 40 40 2009 – 2011 2010 – 2012 13.5 – 16.0 17.3 – 20.5 25% – 100% 20092010 30 30 2009 – 2011 2010 – 2012 1 3 100% 100% The following vesting schedules apply to PSP awards made in 2009 and 2010. The following vesting schedules apply to PSP awards 2008 100 2008 – 2010 1 100% Award Award % of Award Performance Period TSR rank with 10 other companies Percentage of award vesting Performance period the ﬁnal award. The dividend reinvestment is calculated as of the dividend payment date. Under the terms of the PSP, US partici of the dividend payment date. Under the terms of the PSP, is calculated as The dividend reinvestment the ﬁnal award. For outstanding and future awards, TSR performance will be measured against the revised comparator group including GSK, as set including GSK, as comparator group against the revised measured TSR performance will be awards, For outstanding and future out below. date the performance period and up to the to Executives, throughout awarded on the performance shares reinvested Dividends are an Directors made by Executive gain on vesting of PSP awards The total of all or part of their vested awards. may defer receipt persons is £1,575,333 (2009 – £193,518). made in 2008. awards The following vesting schedules apply to PSP Under the terms of the PSP the number of shares actually vesting is determined following the end of the relevant measurement pe measurement end of the relevant actually vesting is determined following the shares Under the terms of the PSP the number of 2011 – 2013 – – – – – – – – – 196,095 and is dependent on GSK’s performance during that period as described on pages 87 to 89. The Committee adjusted the comparator performance during that period as described on and is dependent on GSK’s schedule accordingly the vesting their de-listing during 2009 and revised Schering-Plough and Wyeth following removing by group Simon Dingemans - Shares Simon Dingemans - This includes those performance shares held by Dr Moncef Slaoui’s connected person, who is also an employee of GSK. Lapses for person, who is also an employee of held by Dr Moncef Slaoui’s connected shares This includes those performance to a change in connected person. 2008 to 2011 relate performance periods 2007 – 20092008 – 20102009 – 20112009 – 2011 79,2862010 – 2012 75,9912011 – 2013 2,686 69,804 – – $58.00 27,454 – – $44.75 – – 133,247 $37.42 $33.42 $1,027,342 $33.50 – 52,748 – – – – 916 – – – – – – – – – – 1,778 – – 2,825 3,939 – – 78,152 – 139 2,684 3,618 – 3,256 73,422 – – 133,819 – – – – – – 147,521 Dr Moncef Slaoui – ADS Slaoui Dr Moncef Performance period Remuneration Report Remuneration Governance and remuneration P58–P101 election. ThetermsoftheDeferred AnnualBonusPlanare outlinedonpage87. Deferred AnnualBonusPlanawards are madetoExecutiveDirectors’ annuallybasedontheindividual’s voluntarybonusdeferral Deferred AnnualBonusPlanAwards Remuneration Report GSK Annual Report 2010 GSK Annual Report 100 Andrew Witty–Shares 01–21 31,921 – – – – 24,907 616 – – – – – – – – – 12.35 24,291 – – 2011 –2013 2010 –2012 Performance period

Dr MoncefSlaoui-ADS 01–21 18,756 – – – – – – – – – 2011 –2013 Performance period Plan year rMne loi$8 20$3–$,0 158$1 4 – £563 £987 $41 £21 £51 $417 £1,505 2,450 £3,349 $1,518 – £5,308 – – £9,651 $1,101 £3,787 £6,272 – 640 £16 – 640 £30 – £21 $43 – £51 – beforepension earnings 31stMarch 2000. £222 – $230 of theplansby5%toreflect andJulian adistributionofsurplus.This augmentationwillapplytothatelementofAndrew Witty £497 – salary perannum.In2000allbenefits accruedundertheGlaxoWellcome UKpensionarrangementswere augmentedbytheTrustees – £201 andJulianHeslopparticipateintheGlaxo Wellcome Andrew DefinedBenefit Planwithanaccrualrateof1/30thfinalpens Witty $187 £446 – * Theseare shownnetofcontributionsmadebytheindividual. $38.13 – Dr MoncefSlaoui – Dr MoncefSlaoui $37.32 Julian Heslop $33.42 640 Andrew Witty 640 Executive Directors – Directors havebeendisclosed inthecurrency inwhichthepensionispayable. 640 additional disclosure ofthe changeintheaccruedbenefit,netofinflationandtransfervaluethischange.Pensionsfor transfer valueatboththebeginningandendofyearchangeinoveryear. TheFSA’s Listing – The CompaniesAct2006requires disclosure oftheaccruedbenefitatend theyear, thechangeinaccruedbenefitover – out below. The accruedannualpensionbenefitsandtransfervaluesforExecutiveDirectors inofficeon31stDecember2010retirement are – Pension benefits – and vestingiscontingentoncontinuedemploymentwithGSK. reflect theholdingsofDrMoncef Slaoui’s connectedperson,anemployeeofGSK.Theawards are subjecttothree-year vestingpe 19,033 As anExecutiveDirector, DrMoncefSlaouiisnoteligibletoreceive awards undertheShare Value Plan.Theawards shownabove – $37.32 2011 510 2010 $44.75 2009 $58.00 2008 640 2007 510 Dr MoncefSlaoui–SharesandADS Share Value Planawards December December December Unvested Unvested benefit at Accrued at 31st at 31st 2009 2009 Á 2009 31st 000 59 31st December granted in granted in Number Number benefit at Accrued 2010 2010 Á 2010 000 65

price on price on Change in date of date of Market Market over year grant grant accrued beneﬁt 000 Á

December Unvested Number Number at 31st contributions made during 2009

Personal the year 000 –

price on Market Market date of Market 31st December price price grant

Transfer value at Á 647 2009 Number 000 Vested Vested Vested Vested Gain Gain 31st December

Transfer value at Á 689 2010 Market 000 Lapsed Lapsed price Vested &deferred

in transfer Additional Additional Change reinvested reinvested dividends dividends shares by shares by Á value 000 42 Gain

benefit over of inflation Change in December December December year net Unvested Unvested Unvested accrued at 31st at 31st at 31st 2010 2010 2010 000 Á 5 Rules require the Executive the Executive Transfer value Heslop’s in accrued granted in of change granted in granted in year, the set set Number Number Number ionable ionable benefit

2011 riods 2011 2011 000 –

* Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 101 GSK Annual Report 2010 Basis of preparation in accordance The Remuneration Report has been prepared and Medium-sizedwith the Companies Act 2006 and The Large (Accounts and Reports) Regulations 2008 Companies and Groups of the FSA requirements (the Regulations) and meets the relevant with the Regulations, the following Listing Rules. In accordance sections of the Remuneration Report Non-Executive Directors’ subject to audit: Annual remuneration; are Options; Performance Share Incentive plans – Share remuneration; Plan awards Value and their vesting criteria; Share Plan awards is expressed and Pension benefits for which the opinion thereon not subject to audit nor sections are on page 187. The remaining within the audited sections. to from the pages referred are of by the Board The Remuneration Report has been approved and signed on its behalf by Directors Sir Crispin Davis Remuneration Committee Chairman 2011 1st March Directors and Senior Management Senior and Directors and interests on compensation is also provided Further information group’). (‘the a group Management as and Senior of Directors the Executive and is defined as the group For this purpose, the financial For the CET. and members of Directors Non-Executive of the group paid to members the total compensation year 2010, which they served in that capacity wasfor the periods during accrued pension benefits, in increase £20,377,021, the aggregate payment to £1,252,061 and the aggregate net of inflation, was schemes was £613,889.defined contribution granted 94,320 were of the group During 2010, the members Option Plan, options under the Share options and 1,100 ADS share Bonus Annual under the Deferred 24,291 shares awarded were ADS under the Performance and 421,417 Plan, 1,273,718 shares Value under the Share and 640 ADS Plan, and nil shares Share under the Deferred granted were or ADS Plan. No notional shares were of the group Plan in 2010. Members Investment Award with 131,316 of dividends the reinvestment through awarded shares Plan, 616 40,260 ADS in the Performance Share and shares in Annual Bonus Plan and 5,521 notional shares in the Deferred Plan. Investment Award the Deferred (comprising 29 persons) owned At 24th February 2011, the group and 90,057 ADS, constituting less than 1% of 922,342 shares also held, at The group capital of the company. the issued share and 1,153,094 6,452,022 shares that date: options to purchase the under and 1,250,945 ADS awarded ADS; 4,747,585 shares are and ADS that Plan, including those shares Performance Share the ADS under 1,350 vested and deferred vested and deferred; Incentive Plan; 13,510 shares legacy SmithKline Beecham Mid-Term Plan; 88,315 shares Value under the Share and 3,730 ADS awarded Annual Bonus Plan and 1,561 and 31,913 ADS under the Deferred Investment Award under the Deferred awarded notional shares issued under the various executive share Plan. These holdings were statements,option plans described in Note 42 to the financial schemes’. ‘Employee share 41,598 over the year as a result of further 41,598 over the year as a result Á Except as described in Note 35 to the financial statements, ‘RelatedExcept as described in Note 35 to the financial party transactions’, during or at the end of the financial year no in any or connected person had any material interest Director with a business to the Group’s contract of significance in relation company. Group Directors’ interests in contracts interests Directors’ The transfer values for Andrew Witty for Andrew values The transfer are Heslop and Julian and represent regulation with pensions’ in accordance calculated the pension plan. potential payments under value of the present since calculation have changed assumptions for the The actuarial the changes have increased 2009 and these 31st December Witty for Andrew of increase) by £2,117,956 (63% transfer values of Heslop. The balance for Julian (52% of increase) and £778,368 valuation of the increased the result in transfer value is the increase period accrued in the year and the reduced of the pension benefit age. retirement of service to the assumed member of the US Executive Cash BalanceDr Moncef Slaoui is a for an Executive Pension Credit, provides Pension Plan. The plan annual contributions calculated as aunder which GSK makes GSK makes contributions base salary. of the executive’s percentage rate set at an interest fund increases The at 38% of base pay. bond rate to on the 30 year US Treasury annually in advance based no entitlement to a The plan has a cash sum at retirement. provide or to pension increases. pension spouse’s by $416,924 for The transfer value, or cash sum, has increased of further accumulation Dr Moncef Slaoui over the year as a result and contributions paid by the company. of interest in the Belgium Fortis Dr Moncef Slaoui was an active participant benefit plan with Plan until 31st May 2006. This plan is a defined for which is age 60 a lump sum payable at normal retirement of Dr Moncef Slaoui’s the plan. The transfer value, or cash sum, by plan has increased Remuneration Report Remuneration accumulation of interest. Savings Plan, Dr Moncef Slaoui is a member of the US Retirement and the Executivea 401k savings scheme open to all US employees open to executivesSupplemental Savings Plan, a savings scheme to accrue benefits above US government limits imposed on the invested Savings Plan. Contributions to both plans are Retirement funds is paidin a range of funds and the value of the accumulated at retirement. paid into were During 2010, contributions of $138,290 (£88,648) of Dr Moncef Slaoui. these two schemes by GSK in respect Financial statements P102–P191 • confirms that,tothebestofhis orherknowledge: sectionoftheAnnualReport2010 in theCorporateGovernance Each ofthecurrent Directors, whosenamesandfunctionsare listed where comparablelegislationmaybedifferent. statements. Accesstothewebsiteisavailablefrom outsidetheUK, thepreparation legislation governing anddisseminationoffinancial of theAnnualReportonwebsiteinaccordance withUK The Directors are responsible forthemaintenanceandintegrity copy printedformandmadeavailableonthecompany’s website. 2010 are includedintheAnnualReport,whichispublishedhard- The Group financialstatementsfortheyearended31stDecember page 103. statements are setoutinthe IndependentAuditors’report on The responsibilities oftheauditors inrelation totheGroup financial this report. are setoutin‘Financialstatements’ onpages104to185of 2010, comprisingprincipalstatementsandsupportingnotes, The Group financialstatements fortheyearended31stDecember and detectionoffraudotherirregularities. the Group andhencefortaking reasonable stepsfortheprevention Regulation. Theyare alsoresponsible forsafeguarding theassetsof comply withtheCompaniesAct2006andArticle4ofIAS that theGroup financialstatements andtheRemunerationReport the financialpositionofGroup andtoenablethemensure transactions anddisclosewithreasonable accuracyatanytime records thatare sufficienttoshowandexplainthecompany’s The Directors are responsible forkeepingadequateaccounting • • • In preparing thosefinancialstatements,theDirectors are required to: for thatperiod. state ofaffairs oftheGroup andoftheprofit orlossoftheGroup unless theyare satisfiedthattheygiveatrueandfairviewofthe law theDirectors mustnotapprove theGroup financialstatements AccountingStandardsInternational Board (IASB).Undercompany Directors havealsoelectedtocomplywithIFRS,asissuedbythe European Union.Inpreparing theGroup financialstatements,the FinancialReportingStandards International (IFRS)asadoptedbythe to prepare theGroup financialstatementsinaccordance with for eachfinancialyear. UnderthatlawtheDirectors are required Company lawrequires theDirectors toprepare financialstatements accordance withapplicablelawandregulations. the RemunerationReportandGroup financialstatementsin The Directors are responsible forpreparing theAnnualReport, to theGroup financialstatements Directors’ statementofresponsibilities inrelation Directors’ statementofresponsibilities GSK Annual Report 2010 GSK Annual Report 102 position andprofit oftheGroup; and IASB, giveatrueandfairviewof theassets,liabilities,financial accordance withIFRSasadoptedbytheEUandissued by the Group financialstatements,whichhavebeenprepared in the Group financialstatements. subject toanymaterialdepartures disclosedandexplainedin adopted bytheEuropean Union andIFRSasissuedbytheIASB, statethattheGroup financial statementscomplywithIFRSas and prudent; make judgementsandaccountingestimatesthatare reasonable them consistently; select suitableaccountingpoliciesandthenapply • financial statements. basisinpreparing they continuetoadoptthegoingconcern operational existencefortheforeseeable future. Forthisreason, expectation thattheGroup hasadequateresources tocontinuein After makingenquiries,theDirectors haveareasonable financial statements,‘Financialinstrumentsandrelated disclosures’. and credit riskandhedging activities,isgiveninNote41tothe including Treasury riskmanagementpolicies,exposures tomarket net debtpositionandborrowing facilities.Furtherinformation, the performanceofGroup, itsfinancialposition,cashflows, The Businessreview onpages7to57containsinformation basis Going concern with theprovisions ofSection418theCompaniesAct2006. This confirmationisgivenandshouldbeinterpreted inaccordance • • confirmed that: The Directors inofficeatthedateofthisReporthaveeach Disclosure ofinformationtoauditors 1st March 2011 Chairman Sir ChristopherGent behalf by has beenapproved bytheBoard ofDirectors and signedonits the Financialstatementsandadditionalinformationforinvestors, comprising theReportofDirectors, theRemunerationReport, The AnnualReportfortheyearended31stDecember2010, Annual Report of theCombinedCodewhichare specifiedfortheirreview. the Directors’ statementofcomplianceinrelation tothosepoints As required bytheFSA’s ListingRulestheauditorshaveconsidered on page63. 58 to80,andhascompliedwithitsprovisions exceptasdisclosed sectiononpages FRC, asdescribedintheCorporateGovernance Principles ofSection1theCombinedCodemaintainedby The Board considersthatGlaxoSmithKline plcappliestheMain The CombinedCode and uptothedateofitsapproval bytheBoard ofDirectors. control inoperationthe Group fortheyearcovered bythisreport in GSKandhasconsidered the effectiveness ofthesysteminternal controlassessment ofrisksandtheinternal frameworkthatoperates The Board, through theAudit&RiskCommittee,hasreviewed the controlInternal

auditors are aware ofthatinformation. relevant auditinformationandtoestablishthatthecompany’s taken asaDirector tomakehimselforherselfaware of any of whichthecompany’s auditorsare unaware; and

he or she has taken all the steps that he or she ought to have he orshehastakenallthestepsthatoughttohave so farasheorsheisaware, there isnorelevant auditinformation description of the principal risks and uncertainties that it faces. description oftheprincipalrisksanduncertaintiesthatitfaces. the businessandpositionofGroup, togetherwitha includes afairreview ofthedevelopmentandperformance the Businessreview sectioncontainedintheAnnualReport Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 103 GSK Annual Report 2010 certain disclosures of directors’ remuneration specified by law are by law are specified remuneration of directors’ certain disclosures and explanations we all the information we have not received to statement, set out on page 102, in relation the Directors’ to thethe part of the Corporate Governance Statement relating on by the Board to shareholders certain elements of the report not made; or for our audit. require going concern; of the June 2008 compliance with the nine provisions company’s and Combined Code specified for our review; remuneration. directors’ Other matters company financial separately on the parent reported have We year ended 31ststatements of GlaxoSmithKline plc for the the Directors’ December 2010 and on the information in having been audited.Remuneration Report that is described as with section in accordance The Company has passed a resolution senior statutory auditor’s 506 of the Companies Act 2006 that the name should not be stated. PricewaterhouseCoopers LLP Accountants and Statutory Auditors Chartered London 2011 1st March Opinion on other matter prescribed by the prescribed other matter on Opinion Act 2006Companies for Report given in the Directors’ the information In our opinion statements are financial Group year for which the the financial financial statements. Group is consistent with the prepared to report required we are Matters on which by exception of the following: in respect have nothing to report We to you if, to report required Act 2006 we are Under the Companies in our opinion: • • to review: required we are Under the Listing Rules • • • to the members of GlaxoSmithKline plc GlaxoSmithKline of the members to give a true and fair view of the state of the Group’s affairs as at affairs give a true and fair view of the state of the Group’s with IFRS as adopted in accordance prepared have been properly of the with the requirements in accordance have been prepared 31st December 2010 and of its profit and cash flows for the year 31st December 2010 and of its profit then ended; Union; and by the European Companies Act 2006 and Article 4 of the lAS Regulation. Separate opinion in relation to IFRS as issued to IFRS as issued Separate opinion in relation by the IASB financial statements, the As explained in note 1 to the Group in addition to complying with its legal obligation to apply Group Union, has also applied IFRS as IFRS as adopted by the European (IASB). issued by the International Board Standards Accounting financial statements comply with IFRS as In our opinion the Group issued by the IASB. • • In our opinion the Group financial statements: In our opinion the Group • Opinion on financial statements An audit involves obtaining evidence about the amounts andAn audit involves obtaining evidence about in the financial statements sufficient to give reasonable disclosures material from free assurance that the financial statements are an This includes error. misstatement, whether caused by fraud or to appropriate are assessment of: whether the accounting policies and have been consistently applied and circumstances the Group’s of significant accounting adequately disclosed; the reasonableness of the and the overall presentation estimates made by the directors; financial statements. Scope of the audit of the financial statementsScope of the audit of the financial Respective responsibilities of directors and of directors Respective responsibilities auditors statement of Directors’ fully in the As explained more responsible are 102, the directors set out on page responsibilities statements and for being financial of the Group for the preparation is to Our responsibility a true and fair view. satisfied that they give financial statements the Group an opinion on audit and express law and International on with applicable Standards in accordance us to comply require Those standards Auditing (UK and Ireland). for Auditors. Ethical Standards with the Auditing Practices Board’s for and only including the opinions, has been prepared This report, with Chapter members as a body in accordance for the company’s for no other purpose.3 of Part 16 of the Companies Act 2006 and in giving these opinions, accept or assume responsibility do not, We to whom this report for any other purpose or to any other person expressly save where is shown or into whose hands it may come our prior consent in writing. by agreed We have audited the Group financial statements of statements financial the Group have audited We 2010 which ended 31st December plc for the year GlaxoSmithKline statement, the Consolidated Consolidated income comprise the Consolidated balance income, the of comprehensive statement the of changes in equity, Consolidated statement sheet, the Notes 1-44. and the related cash flow statement, Consolidated been applied in their framework that has reporting The financial International is applicable law and Financial Reportingpreparation Union. the European (IFRS) as adopted by Standards Independent Auditors’ report report Auditors’ Independent Financial statements P102–P191 Total comprehensive incomeforthe year Non-controlling interests Shareholders Total comprehensive incomeforthe year attributableto: Total comprehensive incomeforthe year Other comprehensive income/(expense)fortheyear Deferred taxonactuarialmovementsindefinedbenefitplans Actuarial lossesondefinedbenefitplans Cash flowhedgereclassified togoodwill Fair valuemovementonsubsidiaryacquisition Reclassification ofcashflowhedgestoincomestatement Deferred taxonfairvaluemovementscashflowhedges Fair valuemovementsoncashflowhedges Deferred taxreversed onreclassification ofavailable-for-sale investments Reclassification offairvaluemovementsonavailable-for-sale investments Deferred taxonfairvaluemovements onavailable-for-sale investments Fair valuemovementsonavailable-for-sale investments Tax onexchangemovements Reclassification ofexchangeonliquidationordisposaloverseassubsidiaries Exchange movementsonoverseasnetassetsandinvestmenthedges Profit fortheyear rftatiual osaeodr ,4 (1,108) 2,742 – 219 Consolidated statementofcomprehensive income The calculationof‘Resultsbefore majorrestructuring’ isdescribedinNote1,‘Presentation ofthefinancialstatements’. pershareDiluted earnings (pence) pershareBasic earnings (pence) Profit attributabletoshareholders Profit attributabletonon-controlling interests iac ot 2(2)(3) – (828) 116 – – 12 8 (493) 493 11 – (3,964) (665) 81 8 (12,388) 13 Profit aftertaxationfortheyear Taxation Profit beforetaxation Share ofaftertaxprofits ofassociatesandjointventures Profit ondisposalofinterest inassociates Finance costs Finance income Operating profit Other operatingincome Research anddevelopment Selling, generalandadministration Gross profit Cost ofsales Turnover Consolidated incomestatement GSK Annual Report 2010 GSK Annual Report 104 for theyearended31stDecember2010 Notes 15 15 4(,4)240 (1,544) 14 ,2 (1,345) 5,128 9 832– 28,392 6

for theyearended31stDecember2010 before major restructuring 097(187) 20,987 745 (187) (7,405) ,6 (1,108) 2,961 ,6 (1,108) 2,961 (1,348) 4,505 Results £m restructuring Major £m

(13,053) 20,800 28,392 (1,304) (4,457) (7,592) 1,853 1,634 1,853 3,157 3,783 2,086 1,847 2,086 1,853 (831) 31.9p 32.1p 219 116 493 Total 239 233 166 2010 2010 (25) 81 94 £m £m (1) (8) (3) (2) 8 1 6 3 1 1 – –

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 105

£m £m Total Total 2008 2008 GSK Annual Report 2010

£m Major restructuring restructuring £m Results restructuring restructuring before major before

–– – (34) 21– (3) (6)(6) 6 – £m £m 194213 15 (47) 3 (44)(24) 84 5 Total Total 2009 2009 183101 441 159 (659)(673) (1,370) 117 (194) 1,017 4,996 4,829 4,9964,895 4,829 4,670 5,669 4,712 109.1p108.2p 88.6p 88.1p

£m Major restructuring restructuring £m 7064 – – 70 64 313 48 – 313 – 48 115 – 115 – – – 138 – 138 110 – 110 (780) (3) (783) (838) (5) (843) Results 1,1359,257 – (832) 1,135 8,4258,726 (835)6,283 7,891 (614) 5,669 8,259 541 (1,118) 7,141 – 7,782 541 (1,123) 5,551 6,659 (839) 4,712 6,1456,283 (614) (614) 5,531 5,669 5,441 5,551 (839) (839) 4,602 4,712 (7,095) (285)(9,200)(3,951) (7,380) (392) (155) (9,592) (4,106)(2,443) (5,776) 221 (639) (7,352) (2,222) (3,506) (6,415) (304) (175) (7,656) (3,681) (2,231) 284 (1,947) 28,36821,273 – (285) 28,368 20,988 24,352 18,576 (639) – 17,937 24,352 restructuring restructuring before major before Financial statements P102–P191 Deferred taxliabilities Long-term borrowings Non-current liabilities Total currentliabilities Short-term provisions Current taxpayable Derivative financialinstruments Trade andotherpayables Short-term borrowings Current liabilities Total assets Total currentassets Assets heldforsale Cash andcashequivalents Liquid investments Derivative financialinstruments Trade andotherreceivables Current taxrecoverable Chairman Sir ChristopherGent Approved bytheBoardon1stMarch 2011 Total equity Non-controlling interests Shareholders’ equity Inventories Current assets Total non-currentassets Other reserves Other non-currentassets Retained earnings Derivative financialinstruments Share premiumaccount Deferred taxassets Share capital Equity Net assets Total liabilities Total non-currentliabilities Other investments netet nascae n on etrs20 Investments inassociatesandjointventures Other non-currentliabilities Other intangibleassets Derivative financialinstruments Goodwill esosadohrps-mlyetbnft 28 Other provisions Pensions andotherpost-employmentbenefits Property, plantandequipment Non-current assets Consolidated balancesheet GSK Annual Report 2010 GSK Annual Report 106 as at31stDecember2010 Notes 14 32 29 14 41 27 32 26 25 32 41 24 14 23 34 22 34 41 33 14 33 21 30 19 41 18 29 17

(14,809) (12,794) (32,485) (19,691) 42,230 16,036 26,194 (4,380) (1,047) (6,888) (2,672) 6,057 5,793 3,837 9,745 8,887 1,262 4,779 1,428 2,566 1,418 9,745 1,081 8,532 3,606 9,045 (188) (291) (594) (904) (707) 184 858 556 711 2010 16 93 56 97 £m (5) (14,786) (12,118) (32,120) (20,002) 42,862 17,570 10,742 10,005 25,292 10,742 (2,256) (1,451) (6,772) (1,471) (2,981) 6,545 6,492 4,064 6,321 1,368 2,374 1,416 8,183 3,361 9,374 (168) (605) (985) (645) 268 129 737 900 583 454 895 2009 14 58 68 £m – Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

– – – 2 107 (1) (2) £m 62 10 14 43 13 62 17 (89) (79) (19) (57) (16) Total Total 241 117 233 171 338 175 (673) (118) equity 8,318 5,669 9,910 4,712 1,853 9,745 (2,929) (3,706) (3,003) (3,205) 10,742 £m Non- (118) interests GSK Annual Report 2010 controlling

£m Total Total

£m Shareholders’ equity Shareholders’ Other reserves

£m earnings Retained for the year ended 31st December 2010 December 31st ended year the for

£m Share premium

–––––338 –––––(89) –––––(79) ––––– £m Share capital Changes in non-controlling interests Changes in non-controlling Share-based incentive plansShare-based incentive plansTax on share-based incentive interests Distributions to non-controlling – – – – (1) 241 – – (1) 241 – – Dividends to shareholders shares issuedOrdinary and cancelled purchased shares Ordinary by ESOP Trusts acquired shares Ordinary ESOP Trusts shares transferred by Ordinary held by ESOP TrustsWrite-down of shares At 31st December 2008the year for Profit (90) (expense)/income for the yearOther comprehensive – – – – – (3,706) – – – 2 – – 90 – (2,929) 60 – (181) – (3,706) 181 1,415 (663) (19) 10 – – – 1,326 (2,929) (19) 27 – 10 4,622 – – (636) – – 568 – – 62 (37) 7,931 – 5,531 387 – – 5,531 138 At 1st January 2008At 1st January interests Distributions to non-controlling 1,503 1,266 6,475 359 9,603 307 Consolidated statement of changes in equity equity in changes of statement Consolidated Profit for the yearProfit for the year income/(expense) Other comprehensive – – 121 (53) – 68 – 49 4,602 – 4,602 110 Profit for the year for Profit interests Distributions to non-controlling – – 1,634 – 1,634 219 At 31st December 2009 income for the yearOther comprehensive – 1,416 – 1,368 144 6,321 900 69 10,005 213 737 20 Share-based incentive plansTax on share-based incentive plans – – – – 14 171 – – 14 171 – – Dividends to shareholdersshares issued Ordinary ESOP Trusts by acquired shares Ordinary shares transferred by ESOP Trusts Ordinary Write-down of shares held by ESOP Trusts – – – – – – – 1 – – – (351) (3,003) 42 351 (57) 13 – – (57) (3,003) – 13 – – – – – 43 – Put option over non-controlling interestPut option over non-controlling – – – (2) (2) – At 31st December 2010 1,418 1,428 4,779 1,262 8,887 858 Share-based incentive plansTax on share-based incentive plans – – – – 2 175 – – 175 2 – – Ordinary shares issued Ordinary ESOP Trusts by acquired shares Ordinary shares transferred by ESOP Trusts Ordinary Write-down of shares held by ESOP Trusts – – – – – – 2 – – (292) 60 292 (16) 17 – (16) – 17 – – – – 62 – Dividends to shareholders – – (3,205) – (3,205) – Financial statements P102–P191 Exchange adjustments Dces)ices ncs n akoedat 37 (Decrease)/increase incashandbankoverdrafts Net cashoutflowfrom financing activities Other financingcashflows Distributions tonon-controlling interests Dividends paidtoshareholders Interest paid Net repaymentofobligationsunderfinanceleases Repayment ofshort-termloans Increase inshort-termloans Increase inlong-termloans Purchase ofownshares forcancellation su fsaecptl33 Issue ofsharecapital Shares acquired byESOPTrusts Proceeds fromownsharesforemployeeshareoptions Cash flowfromfinancingactivities Net cashoutflowfrominvestingactivities Proceeds from disposalofassociates Dividends fromassociatesandjointventures Interest received Decrease inliquidinvestments netet nascae n on etrs38 Investments inassociatesandjointventures ucaeo uiess e fcs curd38 Purchase ofbusinesses,netcashacquired Proceeds fromsaleofequityinvestments Purchase ofequityinvestments Proceeds fromsaleofintangibleassets Purchase ofintangibleassets Proceeds fromsaleofproperty,plantandequipment Purchase ofproperty,plantandequipment Cash flowfrominvestingactivities Net cashinflowfromoperatingactivities Overdrafts Taxation paid Cash andcashequivalents Cash andbankoverdrafts atendofyearcomprise: Cash generatedfromoperations Cash andbankoverdrafts atendofyear dutet eocln rftatrtxt prtn ahfos36 Adjustments reconciling profit aftertaxtooperating cash flows Cash andbankoverdrafts at beginningofyear Profit aftertaxationfortheyear Cash flowfromoperatingactivities Consolidated cashflowstatement 108 GSK Annual Report 2010 GSK Annual Report for theyearended31stDecember2010 Notes

(5,571) (3,205) (1,296) (1,868) (1,014) (1,834) 6,797 5,807 6,057 8,631 5,807 6,778 6,368 1,853 (642) (201) (118) (775) (354) (279) (621) (250) 107 126 2010 (45) (16) (61) 81 62 17 18 91 27 92 £m 6 – – – 274 (4,908) (2,774) 303 (2,929) (3,003) 403 (1,149) (4,013) 272 (454) (2,792) 148 (1,437) (1,418) 174 (1,850) (1,704) ,5 1,148 1,054 ,5 5,523 1,358 ,4 7,205 7,841 ,6 5,472 6,368 ,4 5,623 6,545 ,4 9,055 9,545 ,6 5,472 6,368 ,7 4,343 3,876 ,7 3,221 5,472 ,6 4,712 5,669 19 68 (109) 70 (730) (780) 78 (3,334) (748) 14 (87) (154) 45 (632) (455) 17 (151) (177) 18 1,103 (158) 4 275 646 7 – 178 5 171 356 2009 8)(79) (89) 4)(48) (48) 5)(19) (57) 2)(9) (29) 362 43 39 13 712 17 0320 90 7905 87 942 59 820 48 £m (3,706) – 2008 £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191• Shareholder information P192–P212 109 GSK Annual Report 2010 With the £4.5 billion, of approximately total cost an estimated savings annual pre-tax is expected to deliver programme expanded it is substantially complete billion by the time £2.2 of approximately Excellence of the Operational the extent and cost in 2012. Given a material impact on believes it has management programme, GSK’s manner in which and on the operating results GSK’s costs restructuring the conducted. GSK presents business is Excellence of the Operational result solely as a direct incurred in the income statement titled in a separate column programme ‘Major restructuring’. costs of the Operational Excellence In addition to the restructuring in the income column the major restructuring programme, solely as a direct costs incurred statement includes restructuring to, relate and that follow, programmes of any restructuring result business operations of the acquired the where material acquisitions existing operations. GSK’s overlap extensively with to, such and relate follow, activities that The restructuring undertaken under as those of the same nature acquisitions are out also carried and are the Operational Excellence programme considers therefore following a detailed formal plan. Management activities the costs of these restructuring to present it appropriate The $1.65 billion (£814 million) acquisition of in the same manner. and the $3.6 billionReliant Pharmaceuticals in December 2007 in July 2009 are (£2.2 billion) acquisition of Stiefel Laboratories meet the criteria setthe only acquisitions since October 2007 that the costs incurred the only acquisitions where out above and are have been programme restructuring of a related result as a direct column. included within the major restructuring the costs of the Operational Excellence before results The Group’s programmes restructuring and acquisition-related programme in a also presented meeting the criteria described above are described as and are separate column in the income statement which This presentation, major restructuring’. ’Results before major restructuring GSK intends to apply consistently to future operating results that have a material impact on GSK’s programmes business is conducted, has and on the manner in which GSK’s and both before results been adopted to show clearly the Group’s Management programmes. after the costs of these restructuring assists investors in gaining a clearer believes that this presentation and in financial performance understanding of the Group’s that financial performance, as results of future making projections have limited include such costs, by virtue of their size and nature, is also consistent with the way comparative value. This presentation financial performance. management assesses the Group’s result costs that do not arise solely as a direct Any restructuring and restructuring of the Operational Excellence programme to, acquisitions meeting the following, and relating programmes in operating criteria described above continue to be reported major restructuring. before expenses within results Presentation of the financial statements financial of the Presentation Presentation of restructuring costs of restructuring Presentation the implementation of a approved In October 2007, the Board a significant new and GSK announced, detailed formal plan for, A second formal programme. Operational Excellence restructuring a significant expansion of the Operational plan, representing and announced by the Board was approved Excellence programme, by the Board in February 2009. A further expansion was approved programme, and announced in February 2010. This restructuring of GSK’s comprising these detailed formal plans, covers all areas business, including manufacturing, selling, R&D and infrastructure. Composition of the Group A list of the subsidiary and associated undertakings which, in the the amount of profit principally affected opinion of the Directors, is given in Note 43, ‘Principal or the net assets of the Group companies’. Group Financial period 1st January year from These financial statements cover the financial for the financialfigures to 31st December 2010, with comparative 1st January to 31st December 2009 and, where years from 1st January to 31st December 2008. from appropriate, Accounting convention using the historical The financial statements have been prepared of certain items, cost convention, as modified by the revaluation as stated in the accounting policies. Composition of financial statements drawn up in Sterling, the The consolidated financial statements are with of GlaxoSmithKline plc, and in accordance functional currency The financial statements comprise: IFRS accounting presentation. • Consolidated income statement • income Consolidated statement of comprehensive • Consolidated balance sheet • Consolidated statement of changes in equity • Consolidated cash flow statement • Notes to the financial statements. The financial statements have been prepared in accordance with in accordance have been prepared The financial statements Article 4 of the IAS Regulation andthe Companies Act 2006, (IAS) and InternationalInternational Financial Accounting Standards as adopted interpretations, related (IFRS) and Reporting Standards Union. by the European also in compliance with IFRS as issued The financial statements are Board. by the International Accounting Standards Compliance with applicable law and IFRS Compliance with applicable GlaxoSmithKline is a major global healthcare group which is group healthcare is a major global GlaxoSmithKline manufacture development, and discovery, the creation engaged in including vaccines, products of pharmaceutical and marketing consumer health-related (OTC) medicines and over-the-counter include pharmaceutical products principal GSK’s products. respiratory, therapeutic areas: medicines in the following central nervous system, cardiovascular anti-virals including HIV, oncology and emesis, metabolic, anti-bacterials, and urogenital, vaccines and dermatologicals. 1 of business Description Notes to the financial statements financial the to Notes Financial statements P102–P191 presentation withcurrent yearinformation. comparative figures are reclassified toensure aconsistent ‘Key accountingjudgementsandestimates’.Where appropriate, including areas ofestimationandjudgementisgiveninNote3, Information ontheapplicationoftheseaccountingpolicies, and describedinNote2,‘Accountingprinciplespolicies’. with theGroup’s accountingpoliciesapproved bytheBoard The financialstatementshavebeenprepared inaccordance Actual results coulddiffer from thoseestimates. amounts ofrevenues andexpensesduringthereporting period. liabilities atthedateoffinancialstatementsandreported of assetsandliabilitiesdisclosure ofcontingentassetsand make estimatesandassumptionsthataffect thereported amounts generally acceptedaccountingprinciplesrequires management to The preparation ofthefinancialstatementsinconformitywith Accounting principlesandpolicies continued 1 Notes tothefinancialstatements on page188andtheaccountingpoliciesare givenonpage189. accounting presentation. The companybalancesheetispresented plc, havebeenprepared inaccordance withUKGAAPand The financialstatementsoftheparent company, GlaxoSmithKline Parent companyfinancial statements current period. disposals’. Therevisions to IAS 27hadnoimpactonthe during theyearare discussed inNote38,‘Acquisitionsand in Note2,‘Accountingprinciplesandpolicies’,acquisitions The revised accountingpolicy onbusinesscombinationsissetout prospectively, withnorestatement ofcomparativeinformation. IFRS 3(Revised)andIAS27havebeenimplemented amendments toanumberofotheraccountingstandards. ‘Consolidated andseparatefinancialstatements’minor IFRS 3(Revised)‘Businesscombinations’andIAS27 effect fromWith 1stJanuary2010,GSKhasimplemented Implementation ofnewaccountingstandards GSK Annual Report 2010 GSK Annual Report 110

Presentation ofthefinancialstatements income statement. assets acquired, thedifference isrecognised directly inthe Where thecostofacquisitionisbelow thefairvalueofnet operation acquired. and associates. and aspartofthecostinvestmentincasejointventures Goodwill iscapitalisedasaseparateiteminthecaseofsubsidiaries is accountedforonlytotheextentthatitconsidered recoverable. to third parties.Deferred taxrelief onunrealised intra-Group profit ventures andassociatesisalso deferred untiltheproducts are sold The relevant proportion ofprofits ontransactionswithjoint until theproducts are soldtocustomersoutsidetheGroup. and noprofit before taxistakenonsalesbetweensubsidiaries Transactions and balancesbetweensubsidiariesare eliminated from thedatecontrol ceases. Group acquires control andinterests soldare de-consolidated Interests acquired inentitiesare consolidatedfrom thedate statements usingtheequitymethodofaccounting. and jointventures are incorporatedintotheconsolidated financial for asassociates.Theresults andassetsliabilitiesofassociates has theabilitytoexercise significantinfluence,theyare accounted entities are accountedforasjointventures, andwhere theGroup Where theGroup hastheabilitytoexercise jointcontrol, the financial andoperatingpoliciesare accountedforassubsidiaries. Entities overwhichtheGroup hasthepowertogovern 31st Decembereachyear. The financialstatementsofentitiesconsolidatedare madeupto • • Theconsolidatedfinancialstatementsinclude: Consolidation 2 of subsidiariesare accountedforwithinequity. case-by-case basis.ChangesintheGroup’s ownershippercentage controlling interest’s share ofthenetassetssubsidiary, ona controlling interest isrecognised eitheratfairvalueorthenon- Where notalloftheequityasubsidiaryisacquired thenon- in whichtheyare incurred. acquisition are chargedtotheincomestatementinperiod the fairvalueofanycontingentconsideration.Thecosts The considerationtransferred ismeasured atfairvalueandincludes liabilities acquired are measured atfairvalueacquisitiondate. accounting method.Identifiableassets,liabilitiesandcontingent Business combinationsare accounted forusingtheacquisition Business combinations Accountingprinciplesandpolicies joint ventures. company anditssubsidiaries,includingESOPTrusts the Group’s share oftheresults andnetassetsofassociates the assetsandliabilities,results andcashflows,ofthe Goodwill isdenominatedinthecurrency ofthe Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 111 GSK Annual Report 2010 Environmental expenditure Environmental to existing conditions resulting related expenditure Environmental or which no current operations and from or current past from is discernible benefit income statement.future is charged to the it can its liability on a site-by-site basis when recognises The Group portion of estimated. This liability includes the Group’s be reliably potentially responsible the total costs and also a portion of other that they will not be able to satisfy parties’ costs when it is probable of of the clean-up obligation. Recoveries shares their respective as assets when virtually certain. recorded are reimbursements Legal and other disputes is made for the anticipated settlement costs of legal or Provision an outflow of resources where other disputes against the Group estimate can be made of and a reliable probable is considered is made for legal or the likely outcome. In addition, provision or other disputes. claims received other expenses arising from to certain products, liability claims related of product In respect is sufficient history of claims made and settlements to there estimate of the provision enable management to make a reliable claims. In certain cases, an incurred to cover unasserted required (IBNR) actuarial technique is used to determine but not reported this estimate. of in respect may become involved in legal proceedings, The Group estimate of the expected which it is not possible to make a reliable of ultimate resolution from that could result if any, financial effect, about such disclosure In these cases, appropriate the proceedings. would be made. Costs cases would be included but no provision parties are against third associated with claims made by the Group incurred. charged to the income statement as they are Expenditure received goods and services of respect in is recognised Expenditure is terms. Provision with contractual in accordance when supplied of a liability in respect for a future an obligation exists made when obligation can be reliably the amount of the and where past event and costs between validation Manufacturing start-up estimated. as incurred. expensed are of normal production the achievement is charged to the income expenditure Advertising and promotion transfers costs on inter-company Shipment statement as incurred. costs on sales to customers charged to cost of sales; distribution are and administrative expenditure. included in selling, general are where for, provided and recognised Restructuring costs are of a business expenditure of the direct in respect appropriate, and well sufficiently detailed the plans are where reorganisation to those affected communication appropriate advanced, and where has been undertaken. and development Research is charged to the income and development expenditure Research Development statement in the period in which it is incurred. asset an is capitalised when the criteria for recognising expenditure a major filing has been made in when a regulatory met, usually are plant Property, highly probable. is considered market and approval and development is capitalised and equipment used for research policy. with the Group’s in accordance and depreciated continued

Accounting principles and policies policies and principles Accounting Foreign currency translation currency Foreign Revenue in the income statement when goods or Revenue is recognised supplied or made available to external customersservices are title and risk of loss is passed to the received, against orders deductions estimates can be made of relevant reliable customer, obligations have been fulfilled, such that the and all relevant as being complete. earnings is regarded process of net invoice value after the deduction represents Turnover for estimateddiscounts and allowances given and accruals and returns. The methodology and assumptions rebates future and adjusted monitored and returns are used to estimate rebates in the light of contractual and legal obligations, regularly market conditions. past experience and projected historical trends, evaluated using wholesaler and other Market conditions are data and internally generated analyses, market research third-party excluded added tax and other sales taxes are information. Value revenue. from party and the third a product co-promotes the Group Where as of revenue its share records Group the sale, the records of co-promotion The nature income within turnover. co-promotion no costs of sales. records activities is such that the Group of Pharmaceutical turnover revenue co-promotion includes £294 million (2009 – £439 million; 2008 – £378 million). in other operating income on Royalty income is recognised with the terms of the relevant an accruals basis in accordance licensing agreements. Foreign currency transactions are booked in the functional currency currency in the functional booked are transactions currency Foreign of ruling on the date at the exchange rate company of the Group liabilities are monetary assets and currency Foreign transaction. exchange ruling at rates of functional currency into the retranslated included in the are date. Exchange differences at the balance sheet income statement. goodwill, and liabilities, including related On consolidation, assets translated are associates and joint ventures, of overseas subsidiaries, of exchange ruling at the balance sheet date.into Sterling at rates subsidiaries, associates and and cash flows of overseas The results using average rates translated into Sterling are joint ventures of exchange. the arising when the opening net assets and Exchange adjustments subsidiaries, associates and by overseas for the year retained profits less exchange differences translated into Sterling, are joint ventures which hedge the borrowings currency foreign arising on related taken to a separate are net investment in these operations, Group’s component of equity. and results When translating into Sterling the assets, liabilities, and joint ventures cash flows of overseas subsidiaries, associates economies, of hyper-inflationary in currencies reported which are price levels. current material to reflect made where adjustments are to the consolidatedAny loss on net monetary assets is charged income statement. 2 Notes to the financial statements financial the to Notes Financial statements P102–P191 services, inaccordance with theadviceofqualifiedactuaries. during whichbenefitisexpectedtobederivedfrom theemployees’ defined benefitpensionschemesandspread overtheperiod post-employment liabilitiesare calculatedinasimilarwayto charged totheincomestatementasincurred. Thecostsofother The Group’s contributionstodefinedcontributionplansare comprehensive incomeintheyearwhichtheyarise. in actuarialassumptions,are recognised inthestatement of expected andactualreturnsofassetstheeffect ofchanges sheet date.Actuarialgainsandlosses,differences between the Pension schemeassetsare measured atfairvaluethe balance of highqualitycorporatebonds. estimated future cashflowsdiscountedatratesreflecting theyields actuaries. Pensionobligationsare measured asthepresent valueof the employees’services,consistentwithadviceofqualified the periodduringwhichbenefitisexpectedtobederivedfrom calculated usingtheprojected unitcredit methodand spread over The costsofproviding pensionsunderdefinedbenefitschemesare Pensions andotherpost-employmentbenefits 2 Notes tothefinancialstatements the incomestatement. Leasetermor20to 50years statements andthenetamount, lessanyproceeds, istaken to depreciation andimpairmentsare removed from thefinancial On disposalofPP&E,thecostandrelated accumulated 10to20years 3to 10years Fixtures andequipment 20to50years Plant andmachinery buildings Leasehold landand Freehold buildings lives ofthemajorcategoriesPP&Eare: where appropriate adjusted,annually. Thenormalexpecteduseful the expectedusefullife.Residualvaluesandlivesare reviewed, and of PP&E,excludingfreehold land,usingthestraight-linebasisover Depreciation iscalculatedtowriteoff thecostlessresidual value qualifying assetsinconstruction. impairment. Financingcostsare capitalisedwithinthecostof purchase orconstructionless provisions fordepreciation and Property, plantandequipment(PP&E)isstatedatthecostof Property, plantandequipment ultimate proceeds receivable from employeesonexercise. vesting periodsoftherelated share optionsorawards toreflect the is madebetweenotherreserves andretainedoverthe earnings by theESOPTrusts are deductedfrom otherreserves. Atransfer the ESOPTrusts are chargedtotheincomestatement.Shares held when employeesexercise their optionsorawards. Costsofrunning shares ontheopenmarket tomeettheobligationprovide shares The Group provides financetoESOPTrusts topurchase company to theincomestatementoverrelevant vestingperiods. grant datesusingaBlack-Scholesoptionpricingmodelandcharged The fairvaluesoftheseoptionsandawards are calculatedattheir share optionandshare award schemes. Incentives intheformofshares are provided toemployeesunder Employee share plans GSK Annual Report 2010 GSK Annual Report 112 Accountingprinciplesandpolicies continued

seven yearsandothercomputersoftware overthree tofiveyears. creation ofadurableasset.ERPsystemssoftware isamortisedover a significantbusinesssystemandtheexpenditure leadstothe as intangiblefixedassetswhere thesoftware orsitesupports useare sitesforexternal capitalised useandinternet internal The costsofacquiringanddevelopingcomputersoftware for considered thattheusefuleconomiclifeisindefinite. their estimatedusefullivesofupto20years,exceptwhere itis from therest ofthebusinessesacquired. Brandsare amortisedover either are contractualorlegalinnature orcanbesoldseparately value whichissubstantialandlong-termwhere thebrands of businessesacquired from third partieswhere thebrandhasa Acquired brandsare valuedindependentlyaspartofthefairvalue market andapproval isconsidered highlyprobable. are met,usuallywhenaregulatory filinghasbeenmadeinamajor criteria forrecognition generatedintangibleasset ofaninternally are writtenoff totheincomestatementwhenincurred, unlessthe with acquired licences,patents,know-how ormarketingrights Any developmentcostsincurred by theGroup andassociated at thepointthatcontingenteventbecomescertain. adjusted, annually. Contingent milestonepaymentsare recognised exclusivity. Assetlives are reviewed, andwhere appropriate applicable, aswellthevalueobtainedfrom periodsofnon- the amortisationchargetakeintoaccountpatentlives,where available foruse.Theestimatedusefullivesdetermining 20 years,usingthestraight-linebasis,from thetimetheyare amortised overtheirestimatedusefullives,generallynotexceeding acquired oracquired aspartofabusinesscombinationare Licences, patents,know-howandmarketingrightsseparately and impairments. Intangible assetsare stated atcostlessprovisions foramortisation Other intangibleassets statement. this excessisrecognised immediatelyasagainintheincome liabilities andcontingentexceedstheconsiderationpaid, Where thefairvalueofinterest acquired inanentity’s assets, have anindefiniteusefullifeandistestedforimpairmentannually. Goodwill isstatedatcostlessimpairments.deemedto Goodwill a straight-linebasisovertheleaseterm. leases andtherental costsare chargedtotheincome statementon included intheincomestatement.Allotherleasesare operating the leasetermifshorter. Theinterest elementoftheleaserental is are depreciated onabasisconsistentwithsimilarowned assetsor obligations underfinanceleases.Assetsheldleases capital elementsoftheleasingcommitmentsare shownas The assetsare includedinPP&Eorcomputersoftware andthe finance leases,asiftheassethadbeenpurchased outright. all thebenefitsandrisksofownershipanassetare treated as Leasing agreements whichtransfertotheGroup substantially Leases Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 113 GSK Annual Report 2010 Taxation at the amounts expected to be paid is provided tax Current or substantively enactedapplying tax rates that have been enacted by the balance sheet date. in full, using the liability method, on tax is provided Deferred and arising between the tax bases of assets temporary differences financial statements.liabilities and their carrying amounts in the to the extent that it is probable recognised tax assets are Deferred will be available against which the taxable profits that future tax is provided can be utilised. Deferred temporary differences arising on investments in subsidiaries, on temporary differences the timing of the except where associates and joint ventures, and it is can be controlled of the temporary difference reversal in the will not reverse that the temporary difference probable using rates of tax that tax is provided Deferred future. foreseeable have been enacted or substantively enacted by the balance sheet not discounted. tax liabilities and assets are date. Deferred Trade receivables Trade less any invoice amount carried at original are receivables Trade is there made where are debts. Provisions for doubtful provisions ageing, taking into account a risk of non-payment, evidence of trade conditions. When a and general economic experience previous firstly it is written off, to be uncollectable is determined receivable the income statement. available and then to provision against any for are provided previously of amounts Subsequent recoveries are Long-term receivables to the income statement. credited is material. the effect discounted where payables Trade cost which equates to held at amortised payables are Trade the discounted where payables are nominal value. Long-term is material. effect Cash and cash equivalents balances comprise cash in hand, current Cash and cash equivalents institutions and highly liquid investmentswith banks and similar readily months or less. They are generally with maturities of three have an insignificantconvertible into known amounts of cash and risk of changes in value. Borrowings at the amount of proceeds initially recorded are All borrowings subsequently are net of transaction costs. Borrowings received, between the carried at amortised cost, with the difference net of transaction costs, and the amount due on proceeds, as a charge to the income statement being recognised redemption borrowing. over the period of the relevant continued

Accounting principles and policies policies and principles Accounting Impairment of non-current assets of non-current Impairment Inventories included in the financial statements at the lower Inventories are costs other direct labour, of cost (including raw materials, direct value. overheads) and net realisable production and related Cost is generally determined on a first in, first out basis. Pre-launch of is a high probability inventory is held as an asset when there that point a provision Before for the product. approval regulatory amount; the is made against the carrying value to its recoverable of at the point when a high probability is then reversed provision is determined. approval regulatory Available-for-sale investments Available-for-sale classified as available- are Liquid investments and other investments at fair value plus initially recorded investments and are for-sale at subsequent reporting transaction costs and then remeasured gains and losses on available-for-sale dates to fair value. Unrealised income. in other comprehensive directly recognised investments are in fair decline the significant or prolonged Impairments arising from the carrying amount of the value of an equity investment reduce charged to the income statement. and are asset directly any gains andOn disposal or impairment of the investments, income in other comprehensive losses that have been deferred to the income statement. Dividends on equity reclassified are the in the income statement when recognised investments are payment is established. Equity investments right to receive Group’s expected to be assets unless they are in non-current recorded are sold within one year. on accounted for and sales of equity investments are Purchases and sales of other available-for-sale the trade date and purchases accounted for on settlement date. investments are Investments in associates and joint ventures are carried in the are and joint ventures Investments in associates of their net assets share sheet at the Group’s consolidated balance profits retained at date of acquisition and of their post-acquisition on the acquisition.or losses together with any goodwill arising Investments in associates and joint ventures Investments in associates The carrying values of all non-current assets are reviewed for reviewed are assets values of all non-current The carrying be the assets might is an indication that when there impairment with indefinite intangible assets goodwill, Additionally, impaired. use not yet available for which are and intangible assets useful lives for impairment is Any provision tested for impairment annually. are statement in the year concerned.charged to the income Impairment losses reversed. not are Impairments of goodwill been has there if only reversed assets are on other non-current amounts used to determine recoverable a change in estimates amounts do recoverable that the revised and only to the extent values that would have existed, net ofnot exceed the carrying no impairments been recognised. or amortisation, had depreciation 2 Notes to the financial statements financial the to Notes Financial statements P102–P191 income statement. qualify forhedgeaccountingare recognised immediatelyinthe Changes inthefairvalueofanyderivativeinstrumentsthatdonot changes inthefairvalueofhedgedassetorliability. hedges are recorded intheincomestatement,togetherwith Changes inthefairvalueofderivativesdesignatedas flow hedges. Net investmenthedgesare accountedforinasimilarwaytocash when thehedgeditemaffects profit orloss. comprehensive incomeare reclassified totheincomestatement recognised inprofit orlossimmediately. Amountsdeferred inother extent thatthehedgesare effective. Ineffective portionsare hedges are recognised inothercomprehensive incometothe Changes inthefairvalueofderivativesdesignatedascashflow hedges, netinvestmenthedgesorfairvaluehedges. as hedginginstrumentsare classifiedoninceptionascashflow are carriedinthebalancesheetatfairvalue.Derivativesdesignated Derivative financialinstrumentsare classifiedasheld-for-trading and financial instrumentsfortradingorspeculativepurposes. exchange contracts.TheGroup doesnotholdorissuederivative foreign currency swaps,interest rateswapsandforward foreign market risks.TheprincipalderivativeinstrumentsusedbyGSKare Derivative financialinstrumentsare usedtomanageexposure to 2 Notes tothefinancialstatements of thediscountsisrecorded infinanceincomeandcosts. to current valuesusingappropriate ratesofinterest. Theunwinding Where thetimeeffect ofmoneyismaterial,balancesare discounted Discounting Derivative financialinstrumentsandhedging GSK Annual Report 2010 GSK Annual Report 114 Accountingprinciplesandpolicies continued which couldaffect thefuture results oftheGroup. cause theassumptionsonwhichaccrualsare basedtochange, generatedinformation.Future data andinternally eventscould using wholesalerandotherthird-party analyses,marketresearch and projected marketconditions. Marketconditionsare evaluated contractual andlegalobligations,historicaltrends, pastexperience The levelofaccrualisreviewed andadjustedregularly inthelightof product salesmix. upon, amongstotherthings,thetypesofbuyinggroup and final outcome,andtheamountsare subjecttochangedependent Because theamountsare estimated theymaynotfullyreflect the available marketinformationandhistoricalexperience. discounts orallowancespayablereturnstobemade,basedon Accruals are madeatthetimeofsaleforestimatedrebates, of claimssometimeaftertheinitialrecognition ofthesale. with purchasing organisationsare dependentuponthe submission product arrangementsandbuyinggroups. Thesearrangements product returnsgivenorexpectedtobegiven,whichvaryby Gross isreduced turnover byrebates, discounts,allowances and processearnings isregarded asbeingcomplete. and allrelevant obligationshavebeenfulfilled,suchthatthe customer, reliable estimatescanbemadeofrelevant deductions Revenue isrecognised whentitleandriskoflossispassedtothe Turnover judgements andestimatesmade. estimates. Thefollowingare considered tobethekey accounting statements. Actualamountsandresults coulddiffer from those assets, liabilities,revenue andexpensesreported inthe financial to makeestimatesandassumptionsthataffect theamountsof In preparing thefinancialstatements,managementisrequired 3 necessary, litigationproceedings. outcome ofnegotiationswiththerelevant taxauthoritiesor, if may varyfrom theamountsprovided andisdependentuponthe Where openissuesexisttheultimateliabilityforsuchmatters provision fortheliabilities likely toarisefrom openassessments. authorities. GSKcontinuestobelievethatithasmadeadequate The Group hasopentaxissues withanumberofrevenue balance sheetdate. the ratesthathavebeenenactedorsubstantivelyby tax basesofassetsandliabilitiestheircarryingamounts,at deferred taxisprovided ontemporarydifferences betweenthe Current taxisprovided attheamountsexpectedtobepaid,and Taxation Keyaccountingjudgementsandestimates Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 115 GSK Annual Report 2010 Other intangible assets intangible Other parties third by GSK from acquired are intangible assets Where to compounds capitalised. Licences acquisition are the costs of they are the point at which amortised from are in development may useful lives, which use, over their estimated available for are useful lives Estimated of non-exclusivity. include periods if events undertaken impairment tests are annually and reviewed question the carrying values of the assets.occur which call into independently capitalised are with businesses Brands acquired than expected life of more separable and have an they are where a straight-line basis over their amortised on Brands are one year. the not exceeding 20 years, except where estimated useful lives, brands Where life cannot be foreseen. end of the useful economic impairment tests. subject to annual not amortised, they are are and valuations for subsequent impairmentBoth initial valuations market multiples or risk-adjusted based on established tests are rates. interest appropriate cash flows discounted using future and are forecasts based on business cash flows are These future events could cause the Future judgemental. inherently therefore to change with a assumptions used in these impairment reviews of the Group. results on the future consequent adverse effect benefits Pensions and other post-employment pensions and other post-employment The costs of providing charged to the income statement in accordance benefits are benefit is derivedwith IAS 19 over the period during which assessed on the basis services. The costs are employee’s the from These assumptionsof assumptions selected by management. earnings discount rates, include future and pension increases, and mortalityexpected long term rates of return on assets disclosed in Note 28, ‘Pensions and other rates, and are post-employment benefits’. determined bonds are The expected long term rates of return on governmentbased on the portfolio mix of index-linked, and is added to this corporate bonds. An equity risk premium for equities. AA rated corporate bond yields derived from Discount rates are is no deep market in corporate there except in countries where government used. Sensitivity analysis bonds where bond yields are in Note 28, ‘Pensions and other post-employment is provided in the discount rate would lead benefits’, but a 0.25% reduction in the net pension deficit of approximately to an increase in the annual pension cost of £472 million and an increase assumptions £4 million. The selection of different approximately of the Group. results the future could affect

Key accounting judgements and estimates judgements accounting Key Goodwill Goodwill arising on business combinations is capitalised and cash generating unit. It is deemed allocated to an appropriate to have an indefinite life and so is not amortised. Annual cash generating units are impairment tests of the relevant based on established market performed. Impairment tests are cash flows discounted using multiples or risk-adjusted future based cash flows are rates. These future interest appropriate judgemental. inherently therefore and are on business forecasts events could cause the assumptions used in these Future impairment tests, as set out in Note 18, ‘Goodwill’, to change of results on the future with a consequent adverse effect the Group. As set out in Note 17, ‘Property, plant and equipment’ the carrying plant and equipment’ As set out in Note 17, ‘Property, tested for impairment plant and equipment are values of property, is an indication that the values of the assets might be when there to the higher of Impairment is determined by reference impaired. by assessing measured fair value less costs to sell and value in use, cash flows discounted using appropriate risk-adjusted future based on business cash flows are These future rates. interest events Future judgemental. inherently therefore and are forecasts could cause the assumptions used in these impairment tests to results on the future change, with a consequent adverse effect of the Group. Property, plant and equipment Property, GSK provides for anticipated settlement costs where an outflow where settlement costs for anticipated GSK provides may estimate and a reliable probable is considered of resources and otherof the dispute and legal the likely outcome be made of the Group. claims against expenses arising from having taken legal advice, have Directors, The company’s into account the relevant after taking established provisions with matter and in accordance of each facts and circumstances liability claims of product In respect accounting requirements. of claims made is sufficient history there to certain products related estimate management to make a reliable and settlements to enable In certain to cover unasserted claims. required of the provision actuarial technique is (IBNR) but not reported cases, an incurred may become involved estimate. The Group used to determine this it is not possible to make a of which in respect in legal proceedings, that could if any, of the expected financial effect, estimate reliable In these cases, of the proceedings. ultimate resolution from result but about such cases would be included, disclosure appropriate would be made. At 31st December 2010 provisions no provision £4.0 billionfor legal and other disputes amounted to (2009 – £2.0 billion). the amounts from The ultimate liability for legal claims may vary and is dependent upon the outcome of litigation provided investigations and possible settlement negotiations. proceedings, can be there therefore, The position could change over time and, any the outcome of from no assurance that any losses that result will not exceed the amount of the provisions legal proceedings financial statements by a material amount. in the Group’s reported 3 continued other disputes Legal and Notes to the financial statements financial the to Notes Financial statements P102–P191 revaluation modelshouldbecalculatedonasalebasis. the deferred taxonnon-depreciable assetsmeasured usingthe by GSKfrom 1stJanuary2012.Theamendmentrequires that assets’ wasissuedinDecember2010andwillbeimplemented An amendmenttoIAS12‘Deferred tax:recovery ofunderlying regarding theriskexposures relating totransfers offinancialassets. 1st January2012.Theamendmentrequires additionaldisclosures was issuedinOctober2010andwillbeimplementedbyGSKfrom An amendmenttoIFRS7‘Disclosures –Transfers offinancialassets’ the endof2011. accounting andtobecomeacompletereplacement ofIAS39by expand IFRS9toaddnewrequirements forimpairmentandhedge of financialassetsandliabilities.TheIASBintendsto 39 andcoverstheclassification,measurement andderecognition from 1stJanuary2013.The Standard willeventuallyreplace IAS and amendedinOctober2010willbeimplementedbyGSK IFRS 9‘Financialinstruments’wasfirstissuedinNovember2009 endorsed bytheEU: The followingnewstandards andinterpretations havenotyetbeen to berecognised asanasset. permits avoluntaryprepayment ofaminimumfundingrequirement implemented byGSKfrom 1st January2011.Theamendment funding requirement’ wasissuedinNovember2009andwillbe An amendmenttoIFRIC14‘Pre-payments ofaminimum settle afinancialliabilityinpartorfull. accounting byanentitythatissuesequityinstrumentsinorder to GSK from 1stJanuary2011. TheInterpretation addresses the was issuedinNovember2009andwillbeimplementedby IFRIC 19‘Extinguishingfinancialliabilitieswithequityinstruments’ provides related someexemptions forgovernment entities. The revised Standard clarifiesthedefinitionofarelated partyand 2009 andwillbeimplementedbyGSKfrom 1stJanuary2011. IAS 24(Revised)‘Relatedpartydisclosures’ wasissuedinNovember financial instruments. in areas includingconsolidation,businesscombinationsand The project makesminoramendmentstoanumberofStandards 2010 andmostofthechangesare effective from 1stJanuary2011. The IASB’s annualimprovements project waspublishedinMay regardless ofthecurrency oftheshares. shares toallexistingshareholders toberecognised inequity, The amendmentrequires anissueofrightstoacquire additional and willbeimplementedbyGSKfrom 1stJanuary2011. – Classificationofrightsissues’wasissuedinOctober2009 AnamendmenttoIAS32‘Financialinstruments:Presentation position oftheGroup. is expectedtohaveamaterialimpactontheresults orfinancial future AnnualReports,although,intheircurrent forms, none interpretations havebeenissuedbytheIASBandare likelytoaffect The followingnewandamendedaccountingstandards andIFRIC 4 Notes tothefinancialstatements GSK Annual Report 2010 GSK Annual Report 116 Newaccountingrequirements Period endrates: Average rates: translations andtherelevant exchangerateswere: those undertakings.Thecurrencies whichmostinfluencethese Sterling andperiodendratestotranslatethenetassetsof subsidiaries, jointventures andassociatedundertakingsinto the periodtotranslateresults andcashflowsofoverseas The Group usestheaverageofexchangeratesprevailing during 5 Exchangerates £/Yen £/Euro £/US$ £/Yen £/Euro £/US$ 1.17 1.56 1.16 1.55 127 136 2010 .31.04 1.13 .11.44 1.61 .21.26 1.12 .61.85 1.56 5 131 150 4 192 146 092008 2009 Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

117 £m £m £m 2008 2008 2008 is 3,971 ell logy (restated) (restated) ct (restated) (restated) 20,381 24,352 ers garded garded are are ted on from from ates all urope, urope, tributed to ments on

£m £m £m 2009 2009 2009 629 496 707 414 848 782 901 742 851 796 GSK Annual Report 2010 6,977 5,817 2,416 1,584 1,870 2,897 2,298 1,847 1,181 1,191 1,457 1,301 3,706 2,539 1,605 1,513 8,578 8,254 4,674 7,087 5,847 2,895 2,177 2,628 1,848 1,605 1,513 2,3391,484 1,935 1,240 4,674 3,971 (restated) (restated) (restated) (restated) 23,694 20,381 28,368 23,694

£m £m £m 2010 2010 2010 678 688 994 962 952 7,238 1,086 1,753 2,570 1,396 4,326 1,087 1,566 7,648 5,010 6,548 3,556 3,102 1,566 2,456 1,602 5,010 23,382 28,392 23,382 costs such as vaccines R&D, central dermatology costs and central manufacturing costs not at costs such as vaccines R&D, central dermatology Segment information Segment OTC medicines Oral healthcare Nutritional healthcare Consumer Healthcare turnoverConsumer Healthcare by category Pharmaceutical turnover by therapeutic area Respiratory Consumer Healthcare turnover Consumer Healthcare Turnover by segment Turnover US pharmaceuticals

business and is reported within the relevant geographical pharmaceutical segments. The other trading and other unallocated trading and other segments. The other pharmaceutical geographical within the relevant is reported business and markets moved in two small certain products for addition, the responsibility been combined. In information has pharmaceuticals 6 from effect with internal structures changes in the reporting to reflect disclosures information its segmental GSK has revised dermato with the GSK heritage has been integrated segment. Stiefel shown as a separate is now 2010. ViiV1st January Healthcare Notes to the financial statements financial the to Notes the pharmaceuticals business to Consumer Healthcare. Comparative information has been restated onto a consistent basis. onto a consistent been restated information has Comparative Consumer Healthcare. business to the pharmaceuticals is re who to the Chief Executive Officer, provided based on the financial information being reported segments are operating GSK’s (CET). Individual memb of the Corporate Executive Team Decision Maker’ (CODM), and the responsibilities as the ‘Chief Operating R&D as w exclude allocations of globally funded profits pharmaceutical operating Asia Pacific/Japan regional Emerging Markets and of the CET are responsible for geographic regions of the Pharmaceuticals business, ViiV Healthcare and for the Consumer Healthc of the Pharmaceuticals business, ViiV Healthcare regions for geographic responsible of the CET are to the CODM. provided No geographic information is regularly restructuring. major before respectively, business as a whole, the USA, E for segment reporting, businesses. However, for the sustainability of the pharmaceutical R&D investment is essential alloc process reporting management manufacturing costs. GSK’s corporate functions and unallocated as central costs, principally on asset disposals. unallocated profits financial instruments and investments and intra-Group profit on a product sale to the market in which that sale is recorded, and the profit analyses below have been presen analyses below have and the profit in which that sale is recorded, sale to the market on a product profit intra-Group manufacturing sales, together with other segments. & Development and Chairman, Research of the excludes vaccines R&D) is the responsibility The Pharmaceuticals R&D segment (which a separate segment. as being reported therefore for legal matters, fair value move include corporate functions, costs disposal profits Corporate and other unallocated costs and that basis. tender sales and contra Canada, Puerto Rico, central vaccine unallocated pharmaceuticals segment includes The Other trading and Europe pharmaceuticals Europe Anti-virals Emerging Markets pharmaceuticals Central nervous system Asia Pacific/Japan pharmaceuticals and urogenital Cardiovascular ViiV Healthcare Metabolic Anti-bacterials Other trading and unallocated pharmaceuticals Other trading and unallocated pharmaceuticals Oncology and emesis Pharmaceuticals turnover Vaccines Dermatologicals ViiV Healthcare (HIV) ViiV Healthcare Other Financial statements P102–P191 (2009 –£1,680million;2008£1,980million)respectively, afterallocatingfinal-customerdiscountstothewholesalers. (2009 –£2,760million;2008£2,460million),£2,412million£2,710million)and£1,642millio HealthcareDuring 2010,USpharmaceuticalsandViiV madesalestothree wholesalersofapproximately £2,561million 6 Notes tothefinancialstatements Total depreciation andamortisation Major restructuring Depreciation andamortisationbefore majorrestructuring Corporate andotherunallocateddepreciation andamortisation Segment depreciation andamortisation Consumer Healthcare depreciation andamortisation Pharmaceuticals depreciation andamortisation Other tradingandunallocatedpharmaceuticals Pharmaceuticals R&D HealthcareViiV Asia Pacific/Japanpharmaceuticals Emerging Marketspharmaceuticals Europe pharmaceuticals US pharmaceuticals Depreciation andamortisation bysegment US pharmaceuticals Segment profit Europe pharmaceuticals Total operatingprofit Operating profit before majorrestructuring Pharmaceuticals operatingprofit Other tradingandunallocatedpharmaceuticalscosts Asia Pacific/Japanpharmaceuticals Emerging Marketspharmaceuticals Finance income Major restructuring Corporate andotherunallocatedcostsdisposalprofits Segment profit Consumer Healthcare operatingprofit Pharmaceuticals R&D HealthcareViiV Share ofaftertaxprofits ofassociatesandjointventures Profit ondisposalofinterest inassociate Finance costs Profit before taxation Profit aftertaxationforthe year Taxation GSK Annual Report 2010 GSK Annual Report 118 Segmentinformation continued (1,345) (4,666) (3,105) (1,304) 5,043 3,744 3,783 5,128 8,751 1,730 1,271 9,794 1,043 3,157 1,853 1,679 1,459 1,374 1,308 (783) (831) 2010 2010 116 851 220 809 262 101 81 85 66 29 25 51 31 £m £m 8 0419,479 10,441 (restated) (restated) 114 (1,220) (1,184) (2,840) (3,082) 222 (1,947) (2,222) ,3 5,461 5,933 ,9 3,229 3,993 ,2 7,141 8,425 8,259 9,257 8,598 9,510 1,016 1,352 ,7 1,005 1,071 ,9 6,659 7,891 ,6 4,712 5,669 ,6 1,231 1,562 1,154 1,401 1,078 1,321 1,026 1,258 75 (110) (705) 82 (1,118) (832) 73 (843) (783) 2009 2009 4 837 948 3 881 931 1 – 115 6 77 161 580 267 789 280 110 116 0313 70 448 64 076 52 80 63 11 22 36 15 29 24 £m £m 5– n (restated) (restated) 2008 2008 £m £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 119 £m £m 2008 2008 (restated) (restated) (restated) (restated) –– –– –– –– –– ––– (10) –– –– 12 11 72 1– (1) – (1)(9) (10) – £m £m 23 52 57 197 (11)(11) (10) (10) (11)(11) (20) (20) 118 107 124 30 251 142 252 142 275 194 332 391 2009 2009 GSK Annual Report 2010 (restated) (restated) – – – – – – – – – 2 1 1 5 4 (1) (4) (5) (5) (5) £m £m 89 (14) (19) 134 129 267 272 276 365 2010 2010 continued Segment information information Segment 6 Notes to the financial statements financial the to Notes Pharmaceuticals R&D ViiV Healthcare pharmaceuticals Other trading and unallocated pharmaceuticals Europe Emerging Markets pharmaceuticals Asia Pacific/Japan pharmaceuticals ViiV Healthcare Pharmaceuticals R&D Other trading and unallocated pharmaceuticals Pharmaceuticals impairment reversals impairment reversals Consumer Healthcare Segment impairment reversals reversals Corporate and other unallocated impairment major restructuring before Impairment reversals Major restructuring impairment reversals Total PP&E, intangible asset and goodwill impairment reversals by segment reversals PP&E, intangible asset and goodwill impairment US pharmaceuticals

Asia Pacific/Japan pharmaceuticals Pharmaceuticals impairment PP&E, intangible asset and goodwill impairment by segment impairment asset and goodwill PP&E, intangible US pharmaceuticals

Europe pharmaceuticals Europe Emerging Markets pharmaceuticals impairment Consumer Healthcare Segment impairment major restructuring Impairment before Corporate and other unallocated impairment Corporate and other Major restructuring Total impairment Total Financial statements P102–P191 Inter-segment turnover Rest ofWorld USA UK Europe pharmaceuticals US pharmaceuticals Net assetsbysegment 6 Notes tothefinancialstatements External turnover External Rest ofWorld USA UK Turnover includinginter-segment turnover Rest ofWorld USA UK Turnover bylocationofsubsidiary turnover External Rest ofWorld USA UK Turnover bylocationofcustomer The UKisregarded asbeingtheGroup’s countryofdomicile. Geographical information Emerging Marketspharmaceuticals Pharmaceuticals R&D HealthcareViiV Asia Pacific/Japanpharmaceuticals through thestandard costofproduct chargedtobusinesses. manufacturing operations,thedepreciation onwhich,totalling£616million(2009–£618million;2008£536million)isrecov The othertradingandunallocatedpharmaceuticalssegmentincludesassetsforthecentrallymanagedpharmaceuticalvaccine Net assets Assets heldforsale Current anddeferred taxation Derivative financialinstruments Investments inassociatesandjointventures Net debt Net operatingassets Consumer Healthcare netoperatingassets Pharmaceuticals netoperatingassets Other tradingandunallocatedpharmaceuticals Corporate andotherunallocatedoperatingnetassets Segment netoperatingassets GSK Annual Report 2010 GSK Annual Report 120 Segmentinformation continued 16,642 20,352 13,320 23,324 28,392 16,104 10,865 39,257 21,220 13,072 28,392 17,227 (8,859) (6,682) 1,031 1,840 1,656 1,057 9,745 1,081 2,972 9,355 2,933 5,116 3,717 2,032 4,965 9,345 1,820 2010 2010 616 832 868 2010 16 £m £m £m (3) 18,912 21,256 13,037 10,742 24,246 0369,811 10,316 83824,352 12,487 28,368 15,139 78131,998 15,977 37,841 12,925 19,661 13,711 24,352 12,970 28,368 9,746 16,189 10,315 (restated) (restated) (9,444) (5,334) 1,049 1,567 1,508 2,278 2,990 ,1 2,054 2,913 ,2 3,490 3,114 1,042 4,522 3,395 1,556 ,7 7,646 9,473 ,6 3,096 4,469 1,636 1,864 2009 835 982 336 895 2009 2009 14 29 £m £m £m ered (restated) 2008 2008 £m £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 121 d £m 2008 007 7,141 staff staff of the sh site future future SA, ents, 2010, £m £m £m 2009 2009 2009 GSK Annual Report 2010 5,270 2,6082,337 1,861 1,951 4,540 6,863 9,847 3,480 3,329 3,168 8,425 (restated) (restated) (restated) 21,980 11,204 18,912 £m £m £m 2010 2010 2010 420 5,066 1,033 3,177 6,972 2,330 4,235 3,783 9,230 10,372 22,410 16,642 continued cost saving projects in R&D, focused primarily on the simplification and streamlining of support infrastructure, including some of support infrastructure, in R&D, focused primarily on the simplification and streamlining cost saving projects the adoption of more customised sales approaches, leading to staff reductions in a number of sales forces, principally in the U in a number of sales forces, reductions leading to staff customised sales approaches, the adoption of more rationalisations, principally Verona in Italy and Harlow and Tonbridge in the UK; in Italy and Harlow and Tonbridge rationalisations, principally Verona and Crawley in the UK, giving rise to asset write-downs and of a number of manufacturing sites, including Dartford the closure France and Italy; in administrative and support functions. reductions leading to staff to simplify or eliminate processes, projects reductions; and reductions; Major restructuring programme Major restructuring Segment information information Segment payments are expected to be made in 2011 and 2012. The programme remains on track to deliver total annual pre-tax savings of pre-tax on track to deliver total annual remains expected to be made in 2011 and 2012. The programme payments are in incurred costs of £1,345 million Of the total restructuring the business. across £2.2 billion by 2012, with savings realised in the following areas: under the Operational Excellence programme £1,242 million was incurred • to 2012. Approximately 75% of these costs were incurred by 31st December 2010, and approximately 20% are expected to be incurre expected to be 20% are by 31st December 2010, and approximately incurred 75% of these costs were to 2012. Approximately and 25% are expected to be cash expenditures 75% of these costs are approximately in 2011 with the balance in 2012. In total, of potential exist over the exact amount and timing of cash outflows as a result expected to be asset write-downs. Uncertainties procedures, subject to employee consultation are programme of the restructuring exchange rate fluctuations and as many elements ca the majority of the remaining However, will be completed. when these procedures with precision making it difficult to predict In October 2007, GSK announced a significant new Operational Excellence programme to improve the effectiveness and productivity and productivity the effectiveness to improve new Operational Excellence programme In October 2007, GSK announced a significant and announced in by the Board was approved the Operational Excellence programme of its operations. A significant expansion of costs for the and announced in February 2010, when total approved by the Board February 2009. A further expansion was approved 2 £4.5 billion, over the period from to approximately £3.6 billion from increased were implementation of the expanded programme 7 Non-current assets by location Non-current UK UK Net operating assets by location Net operating assets Operating profit by location by profit Operating UK USA 6 Notes to the financial statements financial the to Notes USA Rest of World USA Rest of World assets Non-current financial instrum tax assets, derivative other investments, deferred to assets by location excludes amounts relating Non-current receivables. under insurance contracts and certain other non-current pension assets, amounts receivable Total operating profit operating Total Rest of World Net operating assets • • • • • • to the integration related programme the restructuring during the year under incurred costs of £103 million were The remaining Stiefel Laboratories, Inc. business in the USA, following its acquisition in July 2009. Financial statements P102–P191 feto prtn rft(5 68 (592) (332) (678) (117) (75) (145) (44) (503) (17) Effect onearnings Effect ontaxation Effect onprofit before taxation Net financeexpense Effect onoperatingprofit Research anddevelopment Selling, generalandadministration Cost ofsales 2010 The analysisofthecostsincurred undertheseprogrammes in2010,2009and2008isasfollows: 7 Notes tothefinancialstatements feto prtn rft(9)(9)(3)(1,118) (175) (231) (18) (304) (690) (143) (125) (197) (14) (177) (2) (832) (155) (258) (72) (392) (517) (68) (54) (57) be settledincashandincludetheterminationofleases,siteclosure costs,consultancyand project managementfees. (2009 –£124million,2008£137million)are non-cashitems,principallyaccelerateddepreciation. (15) Allothercharges havebee (337) Asset impairmentsof£75million(2009–£57million,2008 £197 million)andothernetcoststotalling£240million Effect onearnings (1) Effect ontaxation Effect onprofit before taxation Net financeexpense Effect onoperatingprofit Research anddevelopment Selling, generalandadministration Cost ofsales 2008 Effect onearnings Effect ontaxation Effect onprofit before taxation Net financeexpense Effect onoperatingprofit Research anddevelopment Selling, generalandadministration Cost ofsales 2009 GSK Annual Report 2010 GSK Annual Report 122 Majorrestructuring programme continued impairment impairment impairment 11 30 8)(639) (88) (370) (181) Asset Asset Asset 1)(8 (115) (58) (14) 4)(1)(3)(285) (132) (112) (41) £m £m £m reductions reductions reductions Staff Staff Staff £m £m £m Other Other Other costs costs costs £m £m £m

n or will n orwill (1,108) (1,348) (1,345) (1,123) (187) (493) (665) (839) (614) (835) 240 284 221 Total Total Total £m £m £m (3) (5) (3)

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 123 £m £m 2008 2008 lting llion e major (5) (10) (3) (5) £m £m 90 11 40 33 14 3 1544 7 (84) (57) (197) 2009 2009 296 307 539296 260 – (135) (63) (487) (740) (168) (53) (835) (1,123) (179) (51) GSK Annual Report 2010 1,135 541 – – 7 (6) (3) £m £m 17 17 40 (65) (75) 2010 2010 296 227 493 (837) (240) (233) (1,348) continued Other operating income Major restructuring programme programme restructuring Major Royalty income 8 Milestone income Impairment of equity investments Disposal of equity investments Disposal of other assets, asset rights and legal settlements Disposal of other assets, asset rights and of ViiV Healthcare on creation Gain recognised instruments Fair value movements on derivative financial Other income Royalty and milestone income is principally a core of recurring income from the out-licensing of intellectual property. the out-licensing of intellectual property. income from of recurring a core Royalty and milestone income is principally cost). This income/(cost) is reported within ‘Results before major restructuring’. ‘Results before within income/(cost) is reported cost). This The costs of the major restructuring programmes have arisen as follows: have arisen as programmes of the major restructuring The costs (see Note 29) programmes for major restructuring in provision Increase from minor restructuring activity initiated prior to October 2007 amounted to £5 million (2009 – £4 million cost, 2008 – £20 mi (2009 – £4 million cost, to £5 million October 2007 amounted initiated prior to activity minor restructuring from 7 104. Other income resu statement on page of the Income column in the major restructuring reported costs are These restructuring Notes to the financial statements financial the to Notes Amount of provision reversed unused (see Note 29) unused (see reversed Amount of provision Impairments losses recognised on liquidation of subsidiary exchange gain/(loss) recognised Foreign Other non-cash charges Other cash costs of th have been shortened as a result asset lives arising where accelerated depreciation principally are Other non-cash charges costs and consultancy and project site closure costs include the termination of leases, Other cash programmes. restructuring management fees. Net finance expense taxation before on profit Effect Financial statements P102–P191 inventory expiration. The reversals ofprioryear write-downs ofinventoriesprincipallyarisefrom thereassessment ofusageordemandexpectations Fees payabletothecompany’s auditoranditsassociatesinrelation totheGroup (seebelow) Sub-leasepayments Contingentrents Minimumleasepayments Operating leaserentals: Reversalofprioryearwrite-downinventories Write-downofinventories Costofinventoriesincludedincostsales Inventories: Net foreignexchangelosses/(gains) Impairment ofintangibleassetsandgoodwill,netreversals in2008 Amortisation ofintangibleassets Impairment ofproperty, plantandequipment,netofreversals Depreciation ofproperty,plantandequipment Distribution costs Advertising Employee costs(Note10) The followingitemshavebeenincludedinoperatingprofit: 9 Notes tothefinancialstatements Other services Audit In additiontotheabove,feespaidinrespect oftheGSKpensionschemeswere: GSK Annual Report 2010 GSK Annual Report comprising statutoryaudit£5.6million,taxationservices£0.2millionandother£0.3million. At 31stDecember2010,theamountduetoPricewaterhouseCoopersLLPanditsassociatesforfeesyetbeinvoicedwas£6.1 mil All otherservices,includingregulatory,complianceandtreasuryrelatedservices Other taxservices Audit andassuranceservices ofSarbanes-OxleyAct2002 Other assuranceservices,pursuanttolegislation,includingattestationunders.404 Audit ofaccountstheGroup’s UKandoverseassubsidiaries,pursuanttolegislation Audit ofparent companyand consolidatedfinancialstatements Fees payabletothecompany’sauditoranditsassociates 124 Operatingprofit 7,014 1,146 6,994 16.5 11.2 22.2 22.2 136 305 160 533 186 413 971 2010 2010 2010 (66) 3.2 2.5 3.3 2.0 0.4 14 60 £m £m £m 7 – ,4 5,734 6,743 ,3 920 1,130 ,6 6,524 7,167 5213.8 15.2 9.3 10.2 4119.2 24.1 4119.2 24.1 16 (118) (116) 6 143 160 7 298 276 6 (145) 163 7 115 172 3 311 432 4 256 149 6 310 363 2 805 923 2009 2009 2009 . 2.9 2.5 1.6 2.9 7.3 1.6 3.0 2.0 . 0.4 0.4 315 13 £m £m £m 61 –– prior to prior to lion, lion, 2008 2008 2008 £m £m £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 125 £m £m £m 2008 2008 2008 2008 10 Number ncial ing from ing from –2 421 (13) 412 33 11 (5) 159 (3) 4 £m £m £m 46 107 15 31 11 22 70 313 31 33 23 17 2009 2009 2009 2009 661 653 491 505 179 241 449 485 GSK Annual Report 2010 Number 5,387 4,640 7,167 6,524 31,46753,183 33,372 14,204 52,115 98,854 15,646 101,133 – – 8 1 3 2 £m £m £m 58 24 12 13 11 36 20 2010 2010 2010 2010 116 600 554 179 582 5,079 6,994 Number 30,883 53,778 13,824 98,485 Finance income Employee costs Employee 11 Interest income arising from: cash and cash equivalents Cost of share-based incentive plans Cost of share-based Pension and other post-employment costs Social security costs Social security and salaries Wages Social security costs Wages and salaries and Wages (Note 28) costs, including augmentations Pension and other post-employment 10 Notes to the financial statements financial the to Notes Cost of share-based incentive plans incentive Cost of share-based Severance and other costs from integration and restructuring activities integration and restructuring costs from Severance and other by 7% in CER terms. decreased In 2010, wages and salaries markets, individual countries, including, in some commensurate with local practice in benefits to employees, provides The Group car schemes and personal life assurance. insurance, subsidised healthcare year: during the (including Directors) of persons employed by the Group The average number Manufacturing Selling, general and administration and development Research at the end of each employees The numbers of Group employees excludes temporary and contract staff. The average number of Group plc in 20 on page 202. The average number of persons employed by GlaxoSmithKline given in the financial record financial year are was nil (2009 – nil). was as follows: and Senior Management (members of the CET) in aggregate, The compensation of the Directors available-for-sale investments available-for-sale derivatives at fair value through profit or loss profit derivatives at fair value through loans and receivables Realised gains on liquid investments Fair value movements on derivatives at fair value through profit or loss profit Fair value movements on derivatives at fair value through Net investment hedge ineffectiveness Unwinding of discounts on assets hedging instruments (see Note 41, ‘Fina or loss other than designated and effective profit All derivatives at fair value through income aris instruments under IAS 39. Interest financial classified as held-for-trading are disclosures’) instruments and related derivatives at fair value through profit or loss relates to swap interest income. to swap interest or loss relates profit derivatives at fair value through Financial statements P102–P191 financial instrumentsunderIAS39. All derivativesatfairvaluethrough profit orlossexcept designatedandeffective hedginginstrumentsare classifiedasheld-f Other financeexpense Net investmenthedgeineffectiveness Unwinding ofdiscountsonprovisions Notes tothefinancialstatements GSK Annual Report 2010 GSK Annual Report fairvaluemovementsonderivativesdesignatedashedginginstruments Fair valuehedges: derivativesatfairvaluethrough profit orloss financialliabilitiesatamortisedcost Interest expensearisingon: 12 126 Reclassification ofcashflowhedgefrom othercomprehensive income Fair valuemovementsonotherderivativesatfairthrough profit orloss fairvalueadjustmentsonhedgeditems Others AspenPharmacare Holdings Limited QuestDiagnosticsInc. Total turnover: Share ofaftertaxprofits ofQuestDiagnosticsInc. Associates: 13 Subsequent totheyear-end, GSKsolditsentire shareholding inQuestDiagnosticsInc. oftheAspengroupestimated earnings intheperiod. The results ofAspenPharmacare Holdings Others AspenPharmacare HoldingsLimited QuestDiagnosticsInc. Total profit: Share ofaftertaxlosses otherassociates Share ofaftertaxprofits ofAspenPharmacare HoldingsLimited Share ofjointventures ofturnover Share ofaftertax(losses)/profits ofjointventures Sales tojointventures and associates Summarised incomestatementinformationinrespect oftheGroup’s associatesissetoutbelow: Financecosts Associatesandjointventures Limited included inthesummarisedincomestatementinformationabove represent the 1,171 4,754 5,990 (831) (767) 675 233 465 104 2010 2010 2010 (25) (18) (16) (27) (23) (23) 26 65 79 32 81 18 90 £m £m £m (1) (3) (7) – ,7 3,919 4,779 ,5 3,922 4,853 73 (843) (783) 70 (664) (790) 6 307 465 314 467 2009 2009 2009 1)(16) (11) 3)92 (37) 1)(7) (14) 0(165) 20 8(90) 38 7– 67 347 73 2– 12 244 72 448 64 313 13 69 26 £m £m £m 1 – (1) 2 – (2) 3 (3) (3) 8 4 (8) 73 2– –– –– or-trading 2008 2008 2008 £m £m £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 – % 127 £m £m 2008 2008 2008 in- y profit y profit t of all n which billion duced he practice low rnings per 2 (3) 14 % fset by the £m £m 13 (5) 1920 15 19 (11) 8 3.5 1.9 0.50.1 2.1 0.7 0.6 0.10.2 (1.6) 0.5 2009 2009 2009 183 441 187 441 207 460 (1.8) (2.4) 600 2,213 (1.9) (1.3) (0.2) (0.4) 417 289 (0.9) 1.2 28.0 28.5 (183) (1,924) (192) 69 28.2 29.2 GSK Annual Report 2010 1,9972,414 1,589 1,878 2,222 1,947 – – – 1 1 2 % £m £m 82 8.1 1.7 1.4 5.5 6.2 4.4 (28) (24) (24) (74) 2010 2010 2010 (2.6) (3.7) (1.2) (6.5) 28.0 41.3 (156) (118) 1,496 1,422 1,304 Taxation Fair value movements on available-for-sale investments Fair value movements on available-for-sale Defined benefit plans Fair value movements on cash flow hedges income to equity and statement of comprehensive (charge)/credit Total

All of the above items have been charged to the statement of comprehensive income except for tax on share based payments. income except for tax on share All of the above items have been charged to the statement of comprehensive Deferred taxation Deferred based payments Share Foreign exchange movements Foreign income on items charged to equity and statement of comprehensive Tax taxation Current based payments Share Differences in overseas taxation rates Differences Benefit of special tax status UK statutory rate of taxation taxation rate on Group profits Reconciliation of the for the year charge based on profits Taxation rate tax at the UK statutory UK corporation R&D credits 14 Notes to the financial statements financial the to Notes Less double taxation relief Less double stock profit Inter-company based payments Impact of share of associates on profit Tax Losses for which no benefit is recognised Overseas taxation Current taxation Deferred taxation Other permanent differences Prior year items Restructuring rate Tax on the £4 arising low tax relief the impact of the relatively December 2010 reflects The higher tax rate for the year ended 31st ea in the taxation charge increased of this reduction The effect with the normal rates of tax in that territory. rates compared tax asset in respec a deferred IFRS to create under is required in 2010, 2.8p in 2009 and 2.8p in 2008. The Group by 1.6p share period inter-compan tax rate on current the Group in accounting treatment of this difference under UK and US GAAP). As a result of work- changes in the location arising from 2008 – 2.1% increase) by 1.7% in 2010 (2009 – 0.5% increase; under IFRS increased goods. and finished progress of legal provisions charged during the year and the non-deductibility of costs associated with certain site closures, partly of certain site closures, charged during the year and the non-deductibility of costs associated with of legal provisions the relatively exacerbated by are within the above reconciliation The percentages settlement of certain historical tax matters. profit. reported The impact of these overseas taxes on the over the UK tax rate. from the tax rate differs operates in countries where The Group taxed at re special status and are accorded are in Singapore certain operations arising from rate of tax is shown above. Profits i by applying the tax rate of the country at the year-end arising on inventory held by the Group profit inter-company unrealised was originally made and the tax paid, which is t the profit of the country where the inventory is held (rather than the tax rate Financial statements P102–P191 custos–(0 3)–(75) – (707) (35) 1,533 (114) – – – (51) – – 1,859 – – – 800 – – 93 – – (22) – – 117 425 (40) (1,563) 224 98 (512) 1,023 – 49 1,127 (1,339) 31stDecember2010 (463) Deferred taxliabilitiesat 31stDecember2010 Deferred taxassetsat At 31stDecember2010 Acquisitions rdtt qiy 2 – – 2 – – – – – – – – Credit/(charge) tostatementof Credit toequity Issues relating totaxation company distributionsprovides forexemptionfrom tax formostrepatriated profits, subjecttocertainexceptions. which relates totaxespayableonrepatriation anddividend withholdingtaxesleviedbyoverseastaxjurisdictions.UKlegislat (2009 –£29billion).Thedeferred taxonunremittedat31stDecember2010isestimatedtobe£500million(2009–£50 earnings the foreseeable future. Theaggregate amountoftheseunremitted profits atthebalancesheetdatewasapproximately £30billion that theGroup isabletocontrol thetimingofreversal ofthesetemporarydifferences anditisprobable thattheywilln No provision hasbeenmadefortaxationwhichwouldariseonthedistributionofprofits retained byoverseassubsidiaries,ont outcome ofagreements withrelevant taxauthorities or litigationwhere appropriate. agreed bytaxauthorities.Theultimateliabilityforsuchmattersmayvaryfrom theamountsprovided andisdependentuponthe GSK continuestobelievethatithasmadeadequateprovision forthe the casebacktoTax Courtforreconsideration. Thepartiesare seekingleavetoappealtheSupreme CourtofCanada. ajudgementoftheTaxCourt ofAppealoverturned CourtofCanadainrespect ofGSK’s transferpricingintheearly1990’s and During theyearGSKagreed andsettledfurtheropenyearswithmajortaxauthoritiesuptoincluding2008.InCanada,theF issues isacontinuingfactoflifeforGSK. delay innegotiationswithrevenue authoritiesastotheprofits onwhichindividualGroup companiesare liabletotax.Resoluti limited numberoflocations,withconsequentialcross-border supplyroutes intonumerous end-markets.Thisgivesrisetocomple The integratednature oftheGroup’s worldwideoperationsinvolvessignificantinvestmentinresearch andstrategicmanufacture 14 Notes tothefinancialstatements xhneajsmns()(0 01 2 1–111 – 31 – (2) 1,729 – 2 2,374 (1,702) 805 expenses forwhichataxdeductionisonlyavailableonpaid basis. 822 tax movementsarisefrom theoriginationandreversal oftemporarydifferences. Othernettemporarydifferences 7 mainlyinclude 126 The deferred taxcredit 126 toincomerelating tochangesintaxratesis£11million(2009–£9million,2008£18million).All 3 (168) 30 15 157 157 303 70 303 183 1,043 211 (10) 1,043 1,183 (5) (1,299) 1,183 (604) 177 24 Credit/(charge) toincome Exchange adjustments At 1stJanuary2010 1stJanuary2010 Deferred taxliabilitiesat 1stJanuary2010 Deferred taxassetsat Movement indeferredtaxassetsandliabilities GSK Annual Report 2010 GSK Annual Report 128 comprehensive income statement Taxation continued Accelerated allowances capital 68 146 2)––(9)–(7 ,0 (645) 1,702 (17) – (198) – – (28) – – (1,476) (628) 43 139 ,2 ,2 84517(2 380–1,859 – 800 93 (22) 117 425 98 1,023 1,127 (1,339) (463) 146 £m –

Intangibles 10 £m –

,2 ,2 845172 394(,3)2,566 (1,533) 914 93 29 117 425 98 1,023 1,127 group (126 profit Intra- £m –

) employment Pensions & other post benefits (36 £m 1

liabilities likelytoarisefrom ) losses losses (88 £m Tax Tax –

) disputes disputes & other & other 115 Legal Legal £m –

facturing facturing restruct- Manu- Manu- uring uring (42 £m –

) adjustments adjustments valuation valuation periods whichare openan Stock Stock 148 £m –

and award schemes schemes option option Share (35 £m –

) differences temporary temporary Other Other (27 26 £m net net

) ot reverse in ion relating to other deferred d not yet d notyet countries countries he grounds within within Offset on of such on ofsuch remanded £m ederal ederal accrued accrued

– – xity and xity and 0 million), 0 million),

at a at a

118 Total (26 £m

)

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 – d 129 £m 34 2008 2009 2008 159 pence millions he ges 4,204 4,397 tion h effect h effect verage o the ve s across s across of which no he UK be available tivity can all mes where mes where major – £m 14 39 31 2009 2010 2009 529 pence 12.1 16.0 12.1 16.1 GSK Annual Report 2010 millions 108.2120.3 88.1 104.1 109.1121.2 88.6 104.7 5,302 5,845 5,069 5,195 5,108 5,226 £m 76 96 43 2010 2009 2010 445 617 183 21.6 21.8 31.9 53.5 32.1 53.9 pence 5,085 5,128 millions Recognised Unrecognised 1 £m 98 2010 163 329 493 continued Earnings per share Taxation Taxation

its exercise price is below the average market price of GSK shares during the period and any performance conditions attaching t price is below the average market price of GSK shares its exercise scheme have been met at the balance sheet date. below. reconciled used in calculating basic and diluted earnings are The numbers of shares per share number of shares in issue during the period after deducting shares held by the ESOP Trusts and Treasury shares. The trustees ha shares. and Treasury held by the ESOP Trusts in issue during the period after deducting shares number of shares held by the ESOP Trusts. waived their rights to dividends on the shares earnings. before major restructuring The calculation of results before Adjusted earnings is calculated using results per share of the financial statements’. is described in Note 1 ‘Presentation restructuring used in the basic calcula number of shares Diluted earnings have been calculated after adjusting the weighted average per share sche forms part of the employee share A potentially dilutive share to assume the conversion of all potentially dilutive shares. Adjustment for major restructuring by the weighted a attributable to shareholders Basic and adjusted earnings have been calculated by dividing the profit per share Adjustment for major restructuring Diluted earnings per share major restructuring Diluted earnings before per share Dilution for share options Basic Weighted average number of shares in issue Basic earnings per share major restructuring Basic earnings before per share Diluted 15 Factors affecting the tax charge in future years in future the tax charge Factors affecting of profit The mix tax rate of the Group. effective the future factors which could affect many are there As a global organisation Tax losses Tax expiring: losses Trading Within 10 years and development ac tax authorities and the location of research territories, transfer pricing and other disputes with different 14 Notes to the financial statements financial the to Notes have a significant impact on the Group’s effective tax rate. effective have a significant impact on the Group’s tax rate. T effective the Group’s GSK has business operations could also impact Changes to tax legislation in territories where changes to the UK taxation system. In June 2010 the UK GovernmentGovernment some significant announced a phased has proposed t tax movements reflect April 2011. The deferred over 4 years from 28% to 24% in the main rate of corporation tax from reduction chan 2013, following a period of consultation. The UK Government April also continues to consult with business on proposed from reduction in the UK tax rate from 28% to 27% as it has been substantively enacted. In November 2010 the UK Government 28% to 27% as it has been reconfirme in the UK tax rate from reduction patents wit from rate of corporation tax to income apply a reduced which would a ‘patent box’ regime its intention to introduce expected to be enacted in 2012. companies. The majority of these changes are foreign to controlled to legislation relating In more than 10 years In more Available indefinitely Available At 31st December Deferred tax asset Deferred In addition, the Group had capital losses at 31st December 2010 of approximately £4.3 billion (2009 – £4.3 billion) in respect £4.3 billion (2009 – £4.3 billion) in respect losses at 31st December 2010 of approximately had capital In addition, the Group will taxable profit that future it is probable where recognised tax assets are Deferred tax asset has been recognised. deferred to utilise losses. Financial statements P102–P191 iiedprsae(ec)1 31 757 2,951 17 859 61 3,096 18 919 730 14 65 3,306 9thApril 2009 19 967 763 15 8thJanuary2009 679 13 9thOctober2008 10thJuly2008 8thApril 2010 7thJanuary2010 816 16 713 683 14 8thOctober2009 13 9thJuly2009 The amountsrecognised in eachyearare asfollows: those dividendspaidin2010,namelythethird andfourthinterimdividendsfor2009thefirstsecond 7thApril2011 759 dividend twoquartersafterthequartertowhichitrelates andonequarterafteritisdeclared. The2010financialstatements 701 15 Under IFRSinterimdividendsare onlyrecognised inthe financialstatementswhenpaidandnotdeclared. GSKnormallypays 14 6thJanuary2011 Paid 7thOctober2010 Dividend pershare(pence) 8thJuly2010 Total dividend(£m) 764 2008 15 Paid Dividend pershare(pence) Total dividend(£m) 2009 Paid/payable Dividend pershare(pence) Total dividend(£m) 2010 16 Notes tothefinancialstatements aiaie orwn ot 1 (5) 2010 GSK Annual Report – (614) (154) (184) 8 (493) – 2,322 (343) 76 10,686 5,979 67 Reclassifications Disposals andwrite-offs Capitalised borrowing costs Additions throughbusinesscombinations Additions Exchange adjustments Cost at1stJanuary2009 17 Dividends toshareholders 130 aiaie orwn ot 6 – (2) 2,236 (7) 10,541 – (661) (105) 6,118 60 – (111) (171) – – 80 2,240 7 (2) 10,515 6,002 20 (14) Cost at31stDecember2010 Transfer toassetsheldforsale Reclassifications Disposals andwrite-offs Capitalised borrowing costs Additions throughbusinesscombinations Additions Exchange adjustments Cost at31stDecember2009 Transfer toassetsheldforsale Dividends Property, plantandequipment is nei eoditrmTiditrmFut nei Total Fourthinterim Third interim Secondinterim First interim Land and buildings 0 3 (735) 430 803 309 432 188 2 3 (671) 432 223 523670 293 75 £m

and vehicles equipment 3,205 Plant, 2010 £m £m construction Assets in ,0 2,929 3,003 2009 £m £m

recognise for 2010. 18,987 18,895 18,757 a 1,423 1,038 (803) (990) (276) (774) 151 133 Total 2008 (16) (16) 27 £m £m 1 4 6

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

1 2 131 £m 20 11 19 18 (90) Total Total 136 175 440 607 519 242 (160) (610) (205) (602) (617) 9,678 9,374 9,045 (9,383) (9,850) (8,692) (1,130) (8,773) (1,146) (9,248) ulated

llion). on al – – 09 – es of rate. (WACC) (WACC)

sh ﬂows sh ﬂows £m less costs to GSK Annual Report 2010 Assets in construction £m Plant, equipment and vehicles

£m (27) (108) (25) (43) (160) (2) 3,729 3,144 2,172 buildings Land and continued Property, plant and equipment equipment and plant Property, Impairment losses Reversal of impairmentsExchange adjustmentsDisposals and write-offsImpairment losses Reversal of impairments December 2009Total depreciation and impairment at 31st December 2010Total depreciation and impairment at 31st Net book value at 1st January 2009 (2,240) (2,389) (7,082) (7,397) 1 (61) (64) 64 – 10 14 111 2 – 3,756 5 3,644 – (1) 2,278 – Disposals and write-offsImpairment at 31st December 2009 to assets held for saleTransfer Impairment at 31st December 2010Net book value at 31st December 2009Net book value at 31st December 2010 (153) 28 (396) 104 (61) (100) 18 4 (438) – 3,762 (64) 3,433 – 2,179 Depreciation at 1st January 2009Depreciation adjustmentsExchange Charge for the yearDisposals and write-offs sale to assets held for Transfer 2009 at 31st December Depreciation Exchange adjustmentsCharge for the yearDisposals and write-offs for saleTransfer to assets held December 2010Depreciation at 31st Impairment at 1st January 2009Exchange adjustments (2,062) (6,630) (2,087) – 128 (6,686) 1 129 (283) 312 (847) (2,289) – 478 1 (39) 147 (6,959) – (321) 11 – – (161) – (51) 95 – (825) 508 (412) – – – 6 (44) – of £54 million (2009 – £44 million), and a net book value of £41 million (2009 – £82 mi £126 million), accumulated depreciation 10 clauses. options or escalation or purchase include renewal Some lease agreements calculated based on either fair value decisions to rationalise facilities and are The impairment losses principally arise from risk-adjusted, post-tax ca value of the projected sell or value in use. The value in use calculations determine the net present 4 post-tax weighted average cost of capital asset or cash generating unit, applying a discount rate of the Group of the relevant cash flow calculati an impairment is indicated and a pre-tax specific risks. Where for relevant appropriate of 8%, adjusted where discount cash flows and a pre-tax using pre-tax the test would be reperformed result, is expected to give a materially different 11%. The impairment losses have been charged to cost discount rate of approximately is equivalent to a pre-tax WACC The Group SG&A £17 million (2009 – £18 million), and of sales £142 million (2009 – £95 million), R&D £46 million (2009 – £47 million) and programmes. the major restructuring include £57 million (2009 – £57 million) arising from the origin the conditions which gave rise to assets where of the impaired subsequent reviews Reversals of impairment arise from to cost of sales. have been credited All of the reversals deemed no longer to apply. impairments are 17 Notes to the financial statements financial the to Notes The net book value at 31st December 2010 of the Group’s land and buildings comprises freehold properties £3,427 million properties land and buildings comprises freehold The net book value at 31st December 2010 of the Group’s with leas £238 million (2009 – £239 million) and properties with leases of 50 years or more (2009 – £3,462 million), properties less than 50 years £64 million (2009 – £61 million). leased assets with a cost of £582 million (2009 – £561 million), accum Included in land and buildings at 31st December 2010 are leased assets with a cost of £95 million (20 £300 million). Included in plant, equipment and vehicles at 31st December 2010 are depreciation of £280 million (2009 – £261 million), impairment of £nil (2009 – £nil) and a net book value of £302 million (2009 depreciation Financial statements P102–P191 Others oai ehooyIc ConsumerHealthcare NovaMin Technology Inc. aoaoisPonxSAICy.EmergingMarketspharmaceuticals Laboratorios PhoenixS.A.I.C.yF. eti uiessfo C ..EmergingMarketsandAsiaPacificpharmaceuticals Certain businessesfrom UCB S.A. of onnSA Europe pharmaceuticals Polfa PoznanS.A. wfollowing businesses: The carryingvalueofgoodwill,translatedatyear-end exchangerates,ismadeupofbalancesarisingonacquisitionthe See Note38,‘Acquisitionsanddisposals’forfurtherdetails. The additionsintheyear, translatedatacquisitionexchange in theconsolidatedincomestatementundermajorrestructuring programme withinselling,generalandadministration. The impairmentlossesintheyeararose from thedecision toexitthePlivaResearch InstitutesiteinZagreb, Croatia. Thislo CNS, Inc. Net bookvalueat31stDecember oatsLmtdUS,Europe, EmergingMarkets,AsiaPacific,Japan,Otherpharmaceuticals Domantis Limited Net bookvalueat1stJanuary lxSihln ..Japanpharmaceuticals GlaxoSmithKline K.K. Cost at31stDecember Pfizer HIVbusiness Impairment losses iti hraetcl,Ic US,Europe, EmergingMarkets,AsiaPacific,Japan,Otherpharmaceuticals Sirtris Pharmaceuticals,Inc. Additions throughbusinesscombinations ein hraetcl,Ic USpharmaceuticals Reliant Pharmaceuticals,Inc. Exchange adjustments DBoeia oprto US,Europe, EmergingMarkets,AsiaPacific,Japan,Otherpharmaceuticals ID BiomedicalCorporation Cost at1stJanuary 18 Notes tothefinancialstatements tee aoaois n.US,Europe, EmergingMarkets,AsiaPacific,Otherpharmaceuticals Stiefel Laboratories,Inc. GSK Annual Report 2010 GSK Annual Report 132 Goodwill rates, arose primarilyon the acquisitionof Consumer Healthcare ViiV HealthcareViiV Cash generatingunit Laboratorios Phoenix

3,606 3,361 3,606 3,361 3,606 160 347 118 142 181 246 255 304 448 464 894 2010 2010 (10) ss isreported 95 52 66 89 £m £m S.A.I.C.yF. 3,361 2,101 3,361 1,376 2,101 3,361 (116) 270 118 137 181 208 255 294 434 426 901 2009 2009 50 87 £m £m

– – Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 133

dwill h air odwill. 11%. cals s follows: Europe, Europe, of the tablish separate 2010, lue of the alue, the alue, the to sell sent value GSK Annual Report 2010 Sales growth rates Sales growth margins Profit Discount rate Growth rates are internal are forecasts rates Growth based on both internal and external market information. past experience, Margins reflect adjusted for expected changes. Discount rate based on WACC. Group 2.5% p.a. Europe, Emerging Markets, Asia Pacific, Europe, Other pharmaceuticals CGUs CGU ViiV Healthcare Profit margins margins Profit Discount rate based on both internal and external market information. past experience, Margins reflect adjusted for expected changes. Discount rate based on WACC. Group Emerging Markets 1% p.a. Asia Pacific 0% p.a. Other 0% p.a. continued Goodwill Goodwill segment and the Stiefel business has been integrated with the GSK legacy dermatology business. Following these changes, the goo Following these dermatology business. with the GSK legacy has been integrated the Stiefel business segment and basisValuation Key assumptions in use Value rates Sales growth costs to sell Fair value less GSK revised its segmental disclosures to reflect changes in the internal reporting structure. ViiV Healthcare is now shown as a is now ViiV Healthcare structure. the internal changes in reporting to reflect disclosures its segmental GSK revised and Other pharmaceuti Markets, Asia Pacific Emerging to the US, Europe, has been allocated the acquisition of Stiefel arising on Determination of assumptions internal rates are forecasts Growth 18 1st January With from effect annually. for impairment at least tested are units which allocated to cash generating Goodwill is Notes to the financial statements financial the to Notes CGUs for impairment testing purposes as the benefits of the acquired business are expected to arise from these businesses. to arise from expected business are of the acquired as the benefits testing purposes CGUs for impairment split between the US, Pharmaceuticals and Domantis has been on the acquisitions of ID Biomedical, Sirtris The goodwill arising as either the benefit of the CGUs for impairment testing purposes Pacific, Japan and Other pharmaceutical Emerging Markets, Asia independent cash flows. businesses do not generate the CGUs or the acquired businesses is split among acquired cas pharmaceuticals Poland pharmaceuticals to the Europe from of Polfa Poznan S.A. goodwill has changed In 2010, the allocation internal the level at which GSK the Polfa Poznan S.A. go management monitors change of allocation reflects generating unit. This its magnitude. valuation model. acquisition based on the Group’s cash flow approach Fair value is calculated using a similar discounted value. risk-adjusted post-tax cash flows and terminal projected A post-tax discount rate is applied to the a significant goodwill balances are to the discounted cash flow models used in the impairment tests of the other Details relating cash flowsPeriod of specific projected Discount rate rate growth Terminal 5 years 6% p.a. decline Europe 8% 5 years 8% The valuation of the US pharmaceuticals cash generating unit for goodwill impairment testing purposes, has been prepared on a f has been prepared for goodwill impairment testing purposes, US pharmaceuticals cash generating unit The valuation of the basis, using turnovervalue less costs to sell data. observed market and earnings multiples derived from a value in use or a fair value less costs assessed using either other cash generating units are amounts of the The recoverable the net pre a post-tax discount rate is applied to calculate to which the goodwill is allocated. Initially cash generating unit 8%, as most cash generating units have of WACC rate used is based on the Group of the post-tax cash flows. The post-tax discount discount rate of approximately is equivalent to a pre-tax WACC The Group large parts of the Group. integrated operations across on the outcome sufficiently significant to have a material impact specific country risks are where The discount rate is increased value of the unit is close to or below its carrying v the impairment test indicates that the recoverable impairment test. Where to determine if an impairment exists and to es cash flows in order discount rate and pre-tax using a pre-tax test is reperformed model. Value in use is calculated as the net present value of the projected risk-adjusted post-tax cash flows plus a terminal va risk-adjusted value of the projected as the net present in use is calculated model. Value Financial statements P102–P191 icutrt %8% 3%p.a. 5years 8% 2%p.a. in animpairmentoftherelated goodwill. In eachcasethevaluationsindicatesufficientheadroom suchthatareasonably possiblechangetokeyassumptionsisunlikelyt with acarryingvalueof£708million(2009–£660million).Detailsindefinitelifebrandsare giveninNote19‘Otherintan The pharmaceuticalcashgeneratingunitsalsocompriseacollectionofsmallerincludingassetswithinde lives withacarryingvalueof£1.83billion(2009–£1.79billion). The ConsumerHealthcare cash generatingunitcomprisesacollectionofsmallercashunitsincludingbrandswithinde 5years no accountofnewproduct launches. in thevalueusecalculationsforpharmaceuticalscashgeneratingunitsreflect theimpactoffuture genericcompetition The terminalgrowth rates do notexceedthelong-termprojected growth rates for therelevant markets.Theterminalgrowth rate Terminal growth rate Discount rate Period ofspecificprojected cashflows Fairvaluelesscoststosell Growth ratesare internal Salesgrowth rates Fairvaluelesscoststosell Determination ofassumptions Key assumptions Valuation basis 18 Notes tothefinancialstatements GSK Annual Report 2010 GSK Annual Report 134 Goodwill continued Group WACC. Discount ratebasedon adjusted forexpectedchanges. Margins reflect pastexperience, marketinformation. and external forecasts basedonbothinternal Discount rate Profit margins aa hraetcl G ConsumerHealthcare CGU Japan pharmaceuticalsCGU Group WACC. Discount ratebasedon long-term averagegrowth rates. management’s estimateoffuture Terminal growth ratebasedon innovation andexpansion. support neededfor adjusted formanagement’s viewof investment basedonhistoricallevels Advertising andpromotion market information. andexternal based onbothinternal Growth ratesareforecasts internal Discount rate Terminal growth rate investment Advertising andpromotion Sales growth rates gible assets’. and take and take finite lives finite lives o result finite finite s used s used Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

2 5 135 (4) £m 13 81 16 85 17 21 23 24 (43) (38) (45) (15) Total Total 432 226 252 527 (351) (432) (533) (365) (172) (490) (150) (650) 5,869 8,183 7,951 8,532 2,722 (1,717) (2,047) (2,604) (2,537) (3,254) 10,720 11,786 £m brands GSK Annual Report 2010 Indefinite life £m brands Amortised £m 5,176 322 2,456 3,495 307 1,794 Licences, patents, etc. 3––– 1––– 6––– (8) (37) – – (4) (168) – – (1) (13) – (1) (5) (143) (2) – £m 30 1,883 51 758 (36) (193) (23) (99) (32) (304) – (29) (33) (431) – (26) (36) (587) – (27) 276 5,395 324 2,537 (698) (995) (24) – (113) (306) (13) – (768) (1,242) (37) – (106) (411) (16) – (862) (1,689) (53) – (801) (1,673) (37) (26) (898) (2,276) (53) (27) 1,003 4,794 331 1,823 1,030 6,849 359 2,482 1,174 7,671 377 2,564 software software Computer December 2009 December 2010 2009 229 2009 273 fs (17) (26) – – fs (25) (13) – – Other intangible assets intangible Other Notes to the financial statements financial the to Notes Cost at 1st January 2009 Cost at 1st 19 Net book value at 31st December Net book value at 31st December 2010 Exchange adjustments Capitalised internal development costs 1 Additions through business combinations Additions through Reclassifications 2009 Cost at 31st December (4) – – – Disposals and asset write-of Other additions 41 391 – – Exchange adjustmentsCapitalised internal development costs 8 14 150 7 55 Reclassifications 1 Capitalised borrowing costsCapitalised borrowing Other additionsDisposals and asset write-of – 2 58 469 – – – – Additions through business combinationsAdditions through – 214 11 27 Cost at 31st December 2010 Amortisation at 1st January 2009 Exchange adjustmentsCharge for the year 27 58 – – Disposals and asset write-offs 16 1 – – Amortisation at 31st December 2009 Exchange adjustments Charge for the year Amortisation at 31st December 2010 Disposals and asset write-offs 20 1 – – Impairment at 1st January 2009 Impairment losses Exchange adjustments 1 19 – 3 Impairment at 31st December 2009 Disposals and asset write-offs 2 22 – – Exchange adjustments Impairment losses Disposals and asset write-offsImpairment at 31st December 2010 3 – 2 – Total amortisation and impairment at 31st Total Total amortisation and impairment at 31st Total Net book value at 1st January Financial statements P102–P191 such that areasonably possiblechange tokeyassumptions isunlikely toresult inanimpairment ofthesebrands. estimates offuture long-termaveragegrowth ratesoftherelevant markets.Ineachcasethevaluations indicatesufficienthead conditions andsales erosion through competition. Theterminalgrowth ratesappliedofbetween 2%and3%are management’s are basedon pastexperienceandare reviewed as partofmanagement’s budgetingandstrategic planningcycleforchangesinmar the future expenditure required tomaintaintheproduct’s marketabilityandregistration intherelevant jurisdictions.Thesea appropriate forcountry-specificrisks.Themainassumptions includefuture salesprice andvolumegrowth, product contribution cash flowforecasts withaterminalvaluecalculationand a discountrateequaltotheGroup post-taxWACC of8%,adjustedwhere Each brandistestedannuallyfor impairmentapplyingafairvaluelesscoststosellmethodology, generally usingfouryearpo lives. Accordingly, theyare notamortised. The Group isnotaware ofanymateriallegal,regulatory, contractual,competitive,economicorotherfactorwhichcouldlimit market shares meanthattheriskofmarket-related factorscausingareduction inthelivesofbrandsisconsidered tober support. Thebrandsare inrelatively similarstableandprofitable marketsectors,withsimilarriskprofiles, andtheirsize,d Each ofthesebrandsisconsidered tohaveanindefinitelife,giventhestrength anddurabilityofthebrand levelofm Others Solpadeine Poligrip Biotene Corega acquisition ofStiefelLaboratories,Inc.in2009.Thebookvaluesthemajorbrandsare asfollows: Inc. in1994,BlockDrugCompany, Inc.in2001andCNS,2006,togetherwithanumberofpharmaceuticalbrandsfrom the Indefinite lifebrandscompriseaportfolioofConsumerHealthcare products primarilyacquired withtheacquisitionsofSterling Amortised brandsincludeOTCrightsrelating to Others Polident Fraxiparine largest individualitemsare asfollows: pursued. Note38,‘Acquisitionsanddisposals’givesdetailsofadditionsthrough businesscombinationsintheyear. Thebookv costs. Impairmentlossesof£143million(2009–£168million)principallyariseonassetsindevelopmentthatare nolongerbe ge either marketedorinuse,stilldevelopment.Thenetbookvalueincludes£5million(2009–£6million)ofinternally Licences, patents,etc.includesalargenumberofacquired licences,patents,know-howagreements andmarketingrights,which The netbookvalueofcomputersoftwaregeneratedcosts. includes£129million(2009–£80million)ofinternally Included intheimpairmentsaboveis£8millionarisingfrom themajorrestructuring programmes. Physiogel Duac Breathe Right Arzerra Research anddevelopment Stiefel tradename Selzentry Selling, generalandadministration Sensodyne Lovaza Cost ofsales Amortisation andimpairmentlosses,netofreversals, havebeenchargedintheincomestatementasfollows: 19 Notes tothefinancialstatements GSK Annual Report 2010 GSK Annual Report Panadol Fluviral 136 Otherintangibleassets continued alli , with a book value at 31st December 2010 of £252 million (2009 – £260 million). , withabookvalueat31stDecember2010of£252million(2009–£260million). 533 154 353 2010 26 £m mriainNetimpairmentlosses Amortisation 432 133 270 2009 29 £m 2,537 5,395 3,254 150 137 788 111 102 114 135 182 157 199 294 216 299 270 593 426 663 2010 2010 2010 iversification and iversification and 13 59 70 £m £m £m ssumptions ssumptions – nerated nerated elatively low. st-tax st-tax arketing arketing their useful their useful ing actively ing actively Winthrop, Winthrop, alues of the alues ofthe room and and are ket ket 2,456 5,176 3,040

172 170 753 108 102 115 158 176 165 193 191 209 337 271 637 399 648 2009 2009 2009 59 71 £m £m £m 1 1 Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

137 £m £m 64 (19) Total Total 2009 2009 121 in (689) llion 5,319 1,318 6,758 3,222 . (2,828) (3,536) ation est in cise had a e at e at ering Epivir tors. hin reholding reholding abilities , which is

8% interest 8% interest and £m £m 72 (73) 2010 360 (786) GSK Annual Report 2010 4,012 5,466 1,913 7,739 (3,727) (2,868) Associated Trizivir , undertakings )

–88 –5656 – (69) (69) (7) (10) (17) (3) (44) (47) (8 £m 36 312 348 28 524 552 46 849 895 Joint Combivir ventures ventures

(2) £m 11 40 65 12 81 (21) 2010 Total Total 895 1,081

£m 104 Associated undertakings )

(3) (18) £m 54 1,027 (23 Joint ventures ventures Investments in associates and joint ventures joint and in associates Investments

(Loss)/profit after tax recognised in the consolidated in the after tax recognised (Loss)/profit income statement Other movements – 11 Distributions received Transfer from other investments from Transfer – 40 Disposals – (2) Additions 30 35 At 1st JanuaryExchange adjustments 4 46 8 849 20 Notes to the financial statements financial the to Notes Aspen Pharmacare Holdings Limited Aspen Pharmacare Others Net assets Total assets: Total Quest Diagnostics Inc. Aspen Pharmacare Holdings Limited Aspen Pharmacare Others liabilities: Total Quest Diagnostics Inc. inform results Holdings Limited is based on preliminary of Aspen Pharmacare The summarised balance sheet information in respect and analysts forecasts available at 31st December 2010. and analysts forecasts li gross of (2009 – £57 million) and £12 million share assets of gross comprise £66 million share Investments in joint ventures Holdings, L.P. Shionogi-ViiV Healthcare in two joint ventures, 50% interests (2009 – £11 million). These principally arise from pharmaceutical business risk, and a 49% inter in Pharmaceutical Insurance Limited, which is a mutual insurance company covering development and manufacturing venture. GlaxoSmithKline - NeptunusBio, which is a flu vaccine research, GlaxoSmithKline - NeptunusBio Co., Ltd andDuring 2010, GSK made additional capital contributions of £6 million to Shenzhen Holdings, L.P. £24 million to Shionogi-ViiV Healthcare developing specified chemical compounds, and ViiV Healthcare Shire Canada, which primarily co-markets Shire developing specified chemical compounds, and ViiV Healthcare also include a 2 business. Investments in joint ventures now part of the ViiV Healthcare certain territories, both of which are The Group held two significant associated undertakings at 31st December 2010. associated undertakings at 31st December held two significant The Group had a book valu Stock Exchange. The investment the New York a US clinical laboratory business listed on Quest Diagnostics Inc., of $1.1 bi proceeds expected to generate gross by Quest Diagnostics which together are of shares and an accompanying repurchase (£0.7 billion) after tax. Aspen, listed on Holdings Limited. or 19% of Aspen Pharmacare owned 81.7 million shares At 31st December 2010, the Group and a major supplier of branded and generic largest pharmaceutical manufacturer the Johannesburg Stock Exchange, is Africa’s to the southern and nutritional products African and selected international markets. The investment pharmaceutical, healthcare At 31st December – £410 million) and a market value of £1,064 million (2009 – £1,153 million). At31st December 2010 of £494 million (2009 held less than 20% of the ownership owned 18.1% of Quest (2009 – 16.8%). Although the Group 31st December 2010, the Group both its significant sha influence through significant had the ability to exercise in Quest, the Group voting control and interest sub-committees. and Board of Directors on the Quest Board active participation and its nominated director’s Diagnostics Inc. The sale comprised a secondary public off in Quest shareholding GSK sold its entire Subsequent to the year-end million) million (2009 – £372 million) and a market value of £729 million (2009 – £505 book value at 31st December 2010 of £397 has the ability to exer of Aspen, the Group and voting control holds less than 20% of the ownership interest Although the Group of Direc active participation on the Aspen Board director’s and its nominated both its shareholding significant influence through classified wit holding in JCR Pharmaceuticals Ltd, previously to the Group’s other investments in 2010 relates The transfer from Other investments. associates is set out below: of the Group’s respect Summarised balance sheet information in Financial statements P102–P191 Other investmentsincludeassetsthathavebeenimpaired, asfollows: further declinesinfairvalueare immediatelytakentotheincomestatement. result from prolonged orsignificantdeclinesinthefairvalueofequityinvestments belowacquisitioncost,subsequentto income, togetherwithamountsreclassified from thefairvaluereserve onrecognition oftheimpairments.Theseimpairmentsinit The impairmentlossesrecorded inthetablesabovehavebeenrecognised inthe incomestatementfortheyearwithinotheropera year to27%. acquired atdifferent times.Thetransfertoassociatesrelates totheGroup’s holdinginJCRPharmaceuticals,whichincreased On disposalofinvestments,fairvaluemovementsare reclassified from equitytotheincomestatementbasedonaveragecostfor £491 million(2009–£245million),theincrease primarilyarisingfrom anumberofadditionalinvestmentsduringtheyear. investments inentitieswhere theGroup hasentered intoresearch collaborations.Otherinvestmentsincludelisted current marketvalueofsimilarinstrumentsanddiscountedcashflowstheunderlyingnetassets.TheGroup holdsanumberof bid price.Forotherinvestments,thefairvalueisestimatedbymanagementwithreference torelevant availableinformation,i sheet date.Forinvestmentstradedinanactivemarket,thefairvalueisdeterminedbyreference totherelevant stockexchang Other investmentscomprisenon-current equityinvestmentswhichare available-for-sale investmentsrecorded atfairvalueea At 31stDecember Disposals Transfer toinvestmentsinassociatesandjointventures Impairment losses Net fairvaluemovements Additions Exchange adjustments Other receivables At 1stJanuary 21 Notes tothefinancialstatements 22 Carrying valueat31stDecember Subsequent fairvalueincreases Impairments recognised in theincomestatement Original cost GSK Annual Report 2010 GSK Annual Report 23 Pension schemesinsurplus Amounts receivable under insurancecontracts 138 Finished goods Work inprogress Raw materialsandconsumables Othernon-current assets Otherinvestments Inventories 3,837 1,620 1,466 (340) 134 429 751 711 281 454 556 190 343 2010 2010 2010 2010 (27) (40) (60) 45 96 23 £m £m £m £m 7 during the during the which any which any ncluding the ncluding the e quoted e quoted of of ch balance ch balance ially ially shares equity equity ting ting 4,064 1,474 1,437 1,153 (292) 152 401 454 175 478 583 261 299 2009 2009 2009 2009 (57) (56) (95) (48) 43 57 23 £m £m £m £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 1 1 139 (6) £m £m £m £m 48 20 21 13 14 (10) (18) 2009 2009 2009 2009 636 301 116 129 856 6,492 5,486 5,689 6,545 g the – 6 2 (1) £m 54 £m £m £m 10 16 50 16 (19) 2010 150 116 2010 2010 2010 742 256 GSK Annual Report 2010 1,027 6,057 5,030 5,793 4,727 Assets held for sale Trade and other receivables and other Trade Cash and cash equivalents Other receivables stated after deductin and are joint ventures associates and (2009 – £32 million) due from include £42 million receivables Trade provision for bad and doubtful debts. for bad and doubtful provision Employee loans and advances Land and buildings Plant, equipment and vehicles 26 Prepaid pension contributions Prepaid and accrued income Other prepayments receivable Interest At 31st December Charge for the year for of amounts provided Subsequent recoveries Utilised Bad and doubtful debt provision Bad and doubtful debt At 1st January Exchange adjustments Trade receivables Trade 24 Notes to the financial statements financial the to Notes Cash at bank and in hand Short-term deposits 25 Financial statements P102–P191 Notes tothefinancialstatements GSK Annual Report 2010 GSK Annual Report pensionable remuneration andlengthofservice.Some‘hybrid’ definedbenefitschemesalsoincludecontribution sections. contributions paidinrespect ofeachemployee;orbydefinedbenefitschemes,whereby retirement benefitsare basedonemployee by stateschemes;definedcontributionschemes,whereby retirement benefitsare determinedbythevalueoffundsarisingfrom These arrangementshavebeendevelopedinaccordance Pensionbenefitscanbepr withlocalpracticesinthecountries concerned. GSK entitiesoperatepensionarrangementswhichcovertheGroup’s materialobligationstoprovide pensionstoretired employees The costsofthedefinedbenefitpensionandpost-retirement healthcare schemesare c 28 Other accruals Customer returnandrebate accruals Deferred income Other payables Social security Wages andsalaries Trade payables 27 140 Research anddevelopment Selling, generalandadministration Other post-employmentcosts Defined contributionpensionschemes Defined benefitschemes Unfunded post-retirement healthcare schemes Unfunded definedbenefitpensionschemes Funded definedbenefit/hybridpensionschemes Analysed as: Other post-employmentcosts Unfunded post-retirement healthcare schemes Other overseaspensionsschemes US pensionschemes UK pensionschemes Pension andotherpost-employmentcosts Cost ofsales Trade andother payablesinclude£26million(2009–£23million)duetoassociatesandjointventures. Future eventscouldcausetheassumptionsonwhichaccrualsare basedtochange,whichcouldaffect thefuture results oft the lightofhistoricalexperienceactualrebates, discountsorallowancesgivenandreturnsmadeanychangesinarrange upon, amongstotherthings,thetypesofbuyinggroup andproduct salesmix.Thelevelofaccrualisreviewed andadjustedquar recognition ofthesale.Asamountsare estimated theymaynotfullyreflect thefinaloutcomeandare subjecttochangedepe amendments. Accrualsare madeatthetimeofsalebutactualamountspaidare basedonclaimsmadesometimeaftertheinit or allowancespayabletocustomers,principallyintheUSA,andhaveincreased duringtheyearasaresult oftheUShealthcare Customer returnandrebate accrualsare provided forbytheGroup atthepointofsaleinrespect oftheestimatedrebates, dis Pensionsandotherpost-employmentbenefits Trade andotherpayables harged intheincomestatementasfollows: 509 138 254 117 554 509 156 325 554 156 125 115 158 2010 45 28 £m – – 6,888 1,703 1,632 2,141 5 459 120 160 453 179 137 195 121 505 491 459 453 318 505 338 491 87 101 0 236 206 2009 296 115 931 2010 0118 90 118 60 90 94 842 38 23 25 £m 70 £m –4 –4 counts counts reform ments. ments. he Group. terly in terly in ndent ndent . ial ial ovided ovided 6,772 1,888 1,379 1,855 1,089 280 125 156 2008 2009 £m £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 141 er 2008 Years % pa rial A Female re

is in ated cts ovements n at the allocation ntinue long-term that the mined by of a 2009 % pa and return. 1.70 1.70 1.60 1.20 2.20 2.10 4.70 5.00 3.00 3.10 ty study in 2007, GSK Annual Report 2010 Male Years 2010 % pa 1.70 1.30 2.20 4.50 3.50 UK USA Years 2008 % pa Female n/a n/a 2009 % pa 2.50 2.50 4.75 4.50 5.75 6.00 4.50 4.50 Male Years 27.429.7 28.7 30.5 24.6 26.5 26.3 27.4 n/a 2010 % pa 2.25 4.20 5.20 4.50 UK USA Rest of World 2008 % pa continued n/a n/a 2009 % pa 3.60 2.70 3.60 2.90 5.70 6.20 4.60 3.90 n/a 2010 % pa 3.50 3.50 5.50 4.50 Pensions and other post-employment benefits benefits post-employment other and Pensions Inflation rate Cash balance credit/conversion rate Cash balance credit/conversion Expected pension increases Discount rate general fund, or are insurance contracts. Assets are invested in different classes in order to maintain a balance between risk in order classes in different invested insurance contracts. Assets are general fund, or are asset liabili of any individual investment. Following an failure of the diversified to limit the financial effect Investments are allocation of investment in equities. During 2009, it was agreed gradually the decided to adopt a strategy to reduce the Group Rate of increase of future earnings of future Rate of increase adjusting the PCA00 standard mortality tables to reflect recent scheme experience. These rates are then projected to reflect impr to reflect then projected rates are scheme experience. These recent mortality tables to reflect standard adjusting the PCA00 for 2030 Projected trusts, either as specific assets or as a proportion generally held in separately administered The assets of funded schemes are contributions in bonds. The target investment of the deficit reduction primarily through would be increased pace of reallocation the USA. has applied the following financial assumptions in assessing the defined benefit liabilities: The Group Current countries pension benefits are provided on an unfunded basis, some administered by trustee companies. Formal, independent, actua Formal, independent, by trustee companies. administered basis, some on an unfunded provided benefits are countries pension years. every three normally at least regularly, undertaken are main plans of the Group’s valuations A derived from rates are income. Discount statement of comprehensive the through recognised are in the year Actuarial movements governmenta bond yields bonds where market in corporate is no deep there in countries where bond yields except rated corporate 3% and 4% is added to long of between governmentthe portfolio mix of index-linked, bonds. An equity risk premium and corporate are pension increases inflation rate and term government of return on equities. Projected bond yields to give the expected rate deter Gilts. In the UK, mortality rates are fixed interest gap between long-term index-linked and based on the yield predictions assumed to co higher levels which are observed recently at with the medium cohort (i.e. improvements in life expectancy in line to 50% of the total. in the US scheme has been reduced of equities and property employees and former SmithKline operated for the benefit of former Glaxo Wellcome In the UK the defined benefit pension schemes entitled to new entrants in 2001 and subsequent UK employees are closed separate. These schemes were Beecham employees remain Beecham defined benefit schemes were and SmithKline the USA the former Glaxo Wellcome to join a defined contribution scheme. In schemes, the principal one of which healthcare operates a number of post-retirement merged during 2001. In addition, the Group 28 certain unit method. In the projected calculated using purposes have been schemes for accounting of defined benefit Pension costs Notes to the financial statements financial the to Notes used. Discount rates are selected to reflect the term of the expected benefit payments. The expected rate of return on bonds refle The expected rate of return on bonds the term of the expected benefit payments. to reflect selected are used. Discount rates calcul are and females. In the USA, mortality rates of 1% per year for both males thereafter improvements to 2020) with minimum the white collar adjustment. using scale AA, with generational table, projected using the RP2000 fully individual the to apply in 2030 for an the age of 60 and projected assumed now for an individual at The average life expectancy age of 60 is as follows: Financial statements P102–P191 in relation tothedefinedbenefitpensionandpost-retirement healthcare schemeswere asfollows: The amountsrecorded intheincomestatementand ofcomprehensive incomeforthethree yearsended31stDecember2010 28 Notes tothefinancialstatements GSK Annual Report 2010 GSK Annual Report 142 atsriecs – (3) – 70 64 30 68 151 – 30 425 130 comprehensive Actuarial gains/(losses)recorded inthestatementof Settlements andcurtailments Interest onschemeliabilities Expected returnonpension Past servicecost Current servicecost Amounts chargedtooperatingprofit 2010 urn evc ot116 42135 251 64 66 – 121 Expected returnonpensionscheme Past servicecost Current servicecost Amounts chargedtooperatingprofit 2009 2008 atsriecs 021 4 30 12 2 246 59 10 61 – 126 Expected returnonpensionscheme Past servicecost Current servicecost Amounts chargedtooperatingprofit neeto ceelaiiis38186 8 74 588 62 148 54 378 Settlements andcurtailments Interest onschemeliabilities neeto ceelaiiis37115 5 62 551 53 121 377 costs arisingfrom majorrestructuring programmes (seeNote29‘Otherprovisions’). The amountsincludedwithinsettlementsandcurtailmentsinclude £110million(2009–£72million;2008£208million)ofaugm The totalactuariallossesrecorded inthestatementofcomprehensive incomesince1stJanuary2003amountto£2,048million. comprehensive income Actuarial (losses)/gainsrecorded inthestatementof Settlements andcurtailments Interest onschemeliabilities comprehensive income Actuarial (losses)/gainsrecorded inthestatementof Pensionsandotherpost-employmentbenefits noe73 income scheme assets assets assets continued 37 11 4)(1)– (514) (46) (121) (347) 42 14 4)(3)– (633) (47) (144) (442) 76 56 8)(,3)64 (1,434) (82) (576) (776) 47 14 (51) (134) (427) 58 5 7)(6)1 (660) (77) (5) (578) 3 04 4 118 22 341 165 45 (22) 60 12 236 175 5 1 80 115 158 0 46 6 90 363 63 94 206 £m £m £m UK UK UK USA USA USA 3(37) 43 £m £m £m 6 6 (27) (6) – (6) 1)4 8 44 (17) 7 Rest ofWorld Rest ofWorld Rest ofWorld £m £m £m Pensions Pensions Pensions Group 62 – (612) Group Group 5 156 353 4 73 31 640 268 9(80 79 747 57 £m £m £m –5

Post-retirement Post-retirement Post-retirement benefits entation entation benefits benefits Group Group Group £m £m £m

) Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 ) )

143 (1) (1) £m £m Fair 23 23 Fair value 470 768 425 value Group Group 6,041 4,044 5,355 4,101 1,384 1,164 1,646 (1,744 (1,745) (1,768) (1,745) (1,224) (1,247) (1,224) (1,223

10,694 12,156 (12,438) (13,379) other ion ) ) ) ) ) )

1 £m £m Fair Fair GSK Annual Report 2010 value value (241 (250 (273 (250 (251 (1,479 % % Average Average Average Average of return of return expected rate expected rate ) ) ) ) ) ) )

£m £m Fair Fair value value (556 (473 (473 (473 (471 (2,781

% % of return of return Expected rate Expected rate ) ) ) ) ) )

UK USA Rest of World UK USA Rest of World Group £m £m Fair Fair value value (947 (947) (558) (240) (947) (558) (263) (947) (558) (240) (501 (501 (501 (501 7,499 2,072 1,123 1,076 243 65 8,618 2,310 1,228 continued (8,446) (2,628) (1,364) (9,119

% % 7.004.50 272 2,460 7.25 4.75 1,012 147 3.10 7.00 572 6 8.00 4,698 8.25 1,092 7.40 251 8.00 4,209 8.25 914 7.50 232 7.004.90 2910.50 2,632 367 7.25 5.00 159 0.25 907 92 7.00 3.50 562 20 3.80 309 3.50 1,188 0.25 59 3.80 399 of return of return Expected rate Expected rate balance sheet plan assets scheme obligations Pensions and other post-employment benefits benefits post-employment other and Pensions benefits defined benefit pension schemes in the Group are as follows: are in the Group pension schemes defined benefit 28 for data together with aggregated pension schemes, and US defined benefit liabilities of the UK of the assets and The fair values Notes to the financial statements financial the to Notes Bonds Property Equities 2010 At 31st December Equities At 31st December 2009 past service costUnrecognised Recognised on the balance sheet assetsIncluded in other non-current – – (2) – 1 23 Property Bonds Other assets Fair value of assets value of scheme obligations Present Included in pensions and other post-employment benefits Actual return on Other assets Actual return on plan assets of specified pensioner liabilities. an insurance contract that will guarantee payment In December 2010, the UK scheme purchased above at a value of £698 mill value of scheme obligations’ in the table ‘Present This is included within ‘Other assets’ and the at 31st December 2010. 881 240 43 Included in other non-current assetsIncluded in other non-current Included in pensions and other post-employment – – 23 Recognised on the Unrecognised past service costUnrecognised – (2 Present value of Present Fair value of assets Financial statements P102–P191 28 Notes tothefinancialstatements GSK Annual Report 2010 GSK Annual Report (6) 39 1 (6) 39 1 – – – – – – Actual returnonplan benefits Included inpensionsandotherpost-employment Included inothernon-current assets Recognised onthebalancesheet Restriction onsurplus Unrecognised pastservicecost Present valueofscheme Fair valueofassets Other assets Bonds Property Equities At 31stDecember2008 144 Pensionsandotherpost-employmentbenefits assets obligations Expected rate of return .54 .02 .536372 612 3,921 306 4,383 4.25 22 598 3.25 6.75 211 26 7.00 1.50 893 259 5.25 7.25 838 40 8.25 2,430 2.75 331 4.75 6.75 3,334 7.75 %

129 40 8)(1,806) (87) (470) (1,249) (10,980) (1,357) (2,738) (6,885) continued ,3 ,1 ,3 9,288 1,137 2,016 6,135 70 72 25 (1,697) (1,736) (225) (264) (1,697) (225) (722) (1,692) (722) (220) (722) (750) (750) (722) (750) (750) value Fair £m K S Rs fWrd Group RestofWorld USA UK

Expected rate of return %

value Fair £m

expected rate of return Average % value Fair £m

value Fair £m

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 145 £m

ely Group Group beneﬁts cheme, scheme, Post-retirement Post-retirement GSK Annual Report 2010

–14 7 (8) (1) 34 £m (28) (13) (57) (44) (25)(48) (11) (4) (38) (9) 636 73 403 133 572 69 468 53 (473) (80) (640) (73) (588) (74) (268) (31) (243) (5) (111) (38) (168) (16) (551) (62) (258) (28) Group Group 1,011 64 (1,536) 1 (1,106) (351) Pensions (13,379)(13,380) (1,459) (1,425) (10,980) (1,354) (12,438) (1,253) (10,338) (1,019) £m Rest of World Rest of World £m USA (84) (27) (753) (353) –(2)1 UK £m (20) – (8) (30) (30) 3 (54) (7) 68 (17)(29) – – (8) (19) (33) – (5) 313 243 80 (381) (63) (29) (425) (151) (64) (378) (148) (62) (130) (68) (70) (121) (58) (64) (175) (12) 19 (377) (121) (53) (126) (71) (61) (1,307) (127) (102) (9,119) (2,781)(9,119) (1,479) (2,783) (1,478) (6,885) (2,738) (1,357) (8,446) (2,628) (1,364) (7,371) (1,945) (1,022) continued Pensions and other post-employment benefits benefits post-employment other and Pensions Scheme participants’ contributions Settlements and curtailments Actuarial losses (2009 – £765 million; 2008 – £553 million). for the US pension s scheme has been assessed using the same assumptions as healthcare The liability for the US post-retirement medical inflation of 8% (2009 – 8.5%), grading down to 4.75% in 2018 and thereafter. together with the assumption for future costs. on Group in the cap The main change was an increase scheme was amended. healthcare During 2007, the US post-retirement gain of in a one-off amended. The changes resulted were plan healthcare During 2009, both the US pension and post-retirement was £1,288 million (2009 – £1,102 million;£37 million in the income statement. At 31st December 2010 the US plan obligation immediat is not recognised with IAS 19 the unvested part of a benefit improvement in accordance 2008 – £1,223 million). However, amount the income statement. At 31st December 2010, the unrecognised gradually through on the balance sheet but is recognised of the change in the US post-retirement to the effect of £34 million (2009 – £40 million; 2008 – £51 million) primarily relates which amounted to £36 million (2009 – £42 million; 2008 – £53 miilion). Settlements and curtailments cost Interest 2010 contribution sections with obligations totalling £961 million at 31st December The UK defined benefit schemes include defined Interest cost Interest Actuarial (losses)/gains Service cost Exchange adjustmentsService cost Scheme participants’ contributions Benefits paidAcquisitions Obligations at 31st December 2009 Exchange adjustments – 294 109 345 – 156 71 Actuarial gains contributions Scheme participants’ Benefits paid to other provisionsTransfers – 915 282 – 38 126 58 – 60 Settlements and curtailments Obligations at 31st December 2010 past service cost Unrecognised 2010 Recognised on the balance sheet at 31st December Exchange adjustments cost Interest – Benefits paid Obligations at 31st December 2008 Obligations at 31st December Obligations at 1st January 2008 Obligations Movements in defined benefit obligations in defined benefit Movements Service cost 28 Notes to the financial statements financial the to Notes Financial statements P102–P191 xhneajsmns–6 26 51 66 134 defined benefitpensionschemesand£65millioninrespect ofpost-retirement benefits. – Employer contributionsfor2011,includingspecialfundingcontributions, are estimatedto beapproximately £800million inres 427 is expectedtobeatthe31stDecember2011actuarialvaluation. contributions are basedonadiscountrateof5.25%andaninflationassumption2.8%. Thenextreview ofcontribution levels 2008 actuarialfundingvaluation.Theadditionalcontributions are expectedtobe£365million peryearfor2011to2013.The 46 trustees oftheUKpensionschemestomakeadditionalcontributions toeliminatethepensiondeficitidentifiedat31stDecem 2008 –£200million)and£91million(2009£95million; –£nil)totheUSscheme.In2009,GSKreached anagreement with During 2010,theGroup madespecialfundingcontributionstotheUKpensionschemes totalling£365million(2009–£332 121 2010 (2009–£765million;2008£553million). The UKdefinedbenefitschemesincludecontributionsectionswithaccountbalancestotalling£961millionat31stDecember – 347 Actuarial gains/(losses) Expected returnonassets Exchange adjustments Actuarial gains Settlements andcurtailments Expected returnonassets Exchange adjustments Funded The definedbenefitpensionobligationisanalysedasfollows: 28 Notes tothefinancialstatements mlyrcnrbtos301 93 5 3 Assets at31stDecember2010 10 298 47 Benefits paid – – 598 340 144 33 – – Assets at31stDecember2009 442 Acquisitions Benefits paid Assets at31stDecember2008 Benefits paid Scheme participants’contributions Employer contributions Actuarial losses Settlements andcurtailments Expected returnonassets Exchange adjustments Assets at1stJanuary Post-retirement benefitsare unfunded. Unfunded GSK Annual Report 2010 GSK Annual Report Movements infairvaluesofassets 146 mlyrcnrbtos5115108 8 175 – 531 20 110 8 190 – 594 17 Scheme participants’contributions Employer contributions Scheme participants’contributions Employer contributions Pensionsandotherpost-employmentbenefits 2008 continued 161 64 (134) (614) (1,691) ,3 ,1 1,137 2,016 6,135 ,1 ,1 1,228 2,310 8,618 1,123 2,072 7,499 ,9 ,0 885 2,004 7,293 33 23 (80) (243) (313) (71) (156) (345) 22 16 (60) (126) (282) 5 0 (8) 106 454 19 122 729 2–18 – 22 £m UK (51) – – 21 (93) (221) USA £m Rest ofWorld £m (13,379 (13,033 (346 2010 216– 12,156 – 10,694 012– 10,182 Pensions £m 249 – (2,439) ,8 – 9,288 Group 34 – (314) 66 (73) (636) (69) (572) 48 (53) (468) ) ) ) 1 – 612 – 514 4 44 – – 443 633 896 1 60 – 814 552 58 – 894 870 5)– (51) 0– 40 2– 92 89 38 813 28 11 25 £m 3–

(12,438 (12,126 (312 2009 £m ) ) ) Post-retirement pect of pect of

(10,980) (10,662) ber ber beneﬁts ; the the Group (318)

2008 £m £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 147 £m Group Group beneﬁts Post-retirement Post-retirement GSK Annual Report 2010

–– –1% 9– 2% 5% 1% 2% 5% 8% 1% – 1% 1% £m 26% (95) 17 (43) (14) 552 870 120 6 196 421 (156) (1,019) (145) (14) Group Group 9,248 – 9,288 – (1,744) (1,253) (1,097) (1,063) (1,692) (1,354) (2,439) (1,223) (1,459) Pensions 12,156 – 10,694 – 10,182 – (12,438) (1,253) (13,379) (1,459) (10,338) (1,019) (10,345) (1,063) (10,980) (1,354) £m Rest of World Rest of World £m USA (30) 6 ) (614) (134) UK £m (78) 59 (137) (37) (16) (42) 168 46 (18) (890) 4 (211) (750) (722) (220) (148) 2 1 7,293 2,004 885 6,554 1,953 741 6,135 2,016 1,137 (7,371) (1,945) (1,022) (7,444) (1,949) (952) (6,885) (2,738) (1,357) (1,691 continued liabilities 33 liabilities assets liabilities obligations obligations obligations scheme assets Pensions and other post-employment benefits benefits post-employment other and Pensions (Deficits)/surpluses in the schemes (Deficits)/surpluses in the schemes Percentage of scheme obligations at 31st December 2007Percentage Fair value of assets value of scheme Present – 2% 1% Deficits in the schemes Percentage of scheme assets at 31st December 2007Percentage Experience gains/(losses) of scheme 2% 2% of scheme assets at 31st December 2006Percentage Experience (losses)/gains of scheme of scheme obligations at 31st December 2006Percentage 2% Fair value of assets value of scheme Present 3% – 9% 1% 4% 4% 2006 Experience gains of scheme assets 227 168 26 2007 Experience gains/(losses) of scheme 2008 Experience losses of 2009 assetsExperience gains of scheme 729 122 19 2010 of scheme assetsExperience gains/(losses) 454 106 (8) History of experience gains and losses experience gains and History of 31st December 2010 of scheme assets at Percentage of scheme liabilitiesExperience (losses)/gains at 31st December 2010 of scheme obligations Percentage Fair value of assets value of scheme obligationsPresent Deficits in the schemes 5% – 5% of scheme assets at 31st December 2009Percentage (45) –Experience gains/(losses) of scheme liabilities of scheme obligations at 31st December 2009Percentage 1% 5Fair value of assets of scheme obligations value Present – (9,119)Deficits in the schemes 10% (2,781) (3) 2% 6% (1,479) of scheme assets at 31st December 2008Percentage 8,618 162 1%Experience (losses)/gains of scheme (501) 2,310 2% of scheme obligations at 31st December 2008Percentage (27) (471) 1% Fair value of assets 1,228 of scheme value Present (8,446) (15) (251) 28% (2,628) 2% 30% (1,364) 7,499 – (947) 12% 2,072 (556) – 1,123 (241) 28 Notes to the financial statements financial the to Notes Financial statements P102–P191 Effect ofchangesinassumptionsusedontheannualdefinedbenefitpensionandpost-retirement costsorthebenefitobligations: 28 Notes tothefinancialstatements ob ete fe n er3612272 156 8 23 4 – 217 1 – 162 6 3 346 (4) 7 12 At 31stDecember To besettledafteroneyear To besettledwithinone At 31stDecember Reclassifications andothermovements Transfer topensionsobligations Utilised Unwinding ofdiscount Reversed unused Charge forthe Exchange adjustments At 1stJanuary 29 Increase inpensionobligation Increase inannualpension cost A 0.25%increase ininflation wouldhavethefollowingapproximate effect: Increase inpost-retirement benefitsobligation Increase inannualpost-retirement benefitscost A 1%increase intherateof future healthcare inflationwouldhavethefollowing approximate effect: Increase inannualpension cost A 0.25%decrease inexpectedratesofreturnonassetswouldhavethefollowingapproximate effect: Increase inpost-retirement benefitsobligation Increase inpensionobligation Increase inannualpost-retirement benefitscost Increase inannualpensioncost A oneyearincrease inlifeexpectancywouldhavethefollowingapproximate effect: Increase inpost-retirement benefitsobligation Increase inpensionobligation Increase inannualpost-retirement benefitscost Increase inannualpensioncost A 0.25%decrease indiscountratewouldhavethefollowingapproximate effect: GSK Annual Report 2010 GSK Annual Report 148 Sensitivity analysis Otherprovisions Pensionsandotherpost-employmentbenefits 2010 year 2010 2010 year and other 207 60 3)(7 (19) (17) (35) (610) (2,047) disputes ,2 7 4 5351 55 241 574 2,020 ,0 7 5 7332 176 27 332 4 27 251 15 34 674 251 – 512 674 4,000 3,654 39 4,000 837 4,111 13 4)()()(16) (4) (5) (40) (103) Legal £m 45()(11) – (8) – 5 – 24 (110) – –

continued restructuring programmes Major £m

provisions Employee related £m

manufacturing reorganisation Integration and £m provisions Other £m

(2,728) 3,241 5,284 4,380 5,284 5,002 (110) (168) 904 Total 339 305 472 10 18 19 25 25 28 60 20 41 £m £m 1 4 4 –

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 149 GSK Annual Report 2010 Employee related provisions Employee related medical benefits include certain provisions Employee related and their spouses in the USA. Atto disabled employees for these benefits amounted the provision 31st December 2010, – £118 million). Other employee benefitsto £120 million (2009 costs, jubilee awards for severance a variety of provisions reflect benefits.and other long-service reorganisation Integration and manufacturing reorganisations for integration and manufacturing Provisions programmes to ongoing restructuring related costs reflect Note 7, ‘Majornot included within the costs disclosed in programmes’. restructuring Other provisions of is contingent consideration in respect Included in other provisions Laboratories Inc. in 2009.business acquisitions, principally of Stiefel certain criteria beingThe contingent consideration is payable upon provision The aggregate met by certain specified dates in the future. 31st December 2010for these items amounts to £164 million at (2009 – £161 million). Pension augmentations arising from staff redundancies of redundancies staff from arising augmentations Pension during the have been charged (2009 – £72 million) £110 million as obligations provision to the pension transferred year and then benefits’. other post-employment 28 ‘Pensions and shown in Note as impairments of have been recognised Asset write-downs plant in Note 17 ‘Property, plant and equipment property, are the amounts provided The majority of and equipment’. in the next two years. expected to be utilised ; the investigation by ; the investigation by Paxil continued and other products. The discount on The discount and other products. Avandia Other provisions provisions Other Major restructuring programmes Major restructuring In October 2007 GSK announced a significant new Operational and the effectiveness to improve Excellence programme of its operations (see Note 7 ‘Major restructuring productivity A significant expansion of the Operational Excellence programme’). and announced in February by the Board was approved programme and by the Board 2009. A further expansion was approved announced in February 2010. made when severance payments are for staff Provisions management has made a formal decision to eliminate certain of positions and this has been communicated to the groups severance is made for staff No provision employees affected. made immediately. payments that are GSK is involved in a number of legal and other disputes, legal and other disputes, in a number of GSK is involved Note 44 claims, as set out in of possible including notification disputes for legal and other Provisions ‘Legal proceedings’. property, intellectual liability, to product relating include amounts anti-trust, government investigations, contract terminations, rental. clean-up and property self-insurance, environmental in relation to provisions primarily relates The charge for the year the US Governmentto the investigation by into the Group’s liability site at Cidra, Puerto Rico; product former manufacturing to relating and anti-trust litigation 29 Notes to the financial statements financial the to Notes (2009 – £5 million by £2 million in 2010 decreased the provisions cash risk-adjusted projected and was calculated using increase) The movement in 2010 includes rates of return. flows and risk-free arising from of £10 million (2009 – £6 million increase) a decrease a change in the discount rate in the year. to certain products, liability claims related product of In respect history of claims made and settlements to is sufficient there estimate of the provision enable management to make a reliable to cover unasserted claims. In certain cases an IBNR required actuarial technique is used to not reported) but (incurred for such matters determine this estimate. The ultimate liability and is dependent upon the amounts provided may vary from investigations and possible the outcome of litigation proceedings, settlement negotiations. business that a number of of the Group’s It is in the nature using the IBNR actuarial these matters, including those provided and litigation overtechnique, may be the subject of negotiation several years. £117 millionAt 31st December 2010, it is expected that made for legal and other (2009 – £97 million) of the provision This amount is party insurers. by third disputes will be reimbursed in Note 22, ‘Other non-current included within ’Other receivables’ a discussion For and other receivables’. assets’ and Note 24, ‘Trade of legal issues, see Note 44 ‘Legal proceedings’. the US Attorney’s Office for the District of Colorado into the Office for the District of Colorado the US Attorney’s liability and product practices, US sales and promotional Group’s cases regarding Legal and other disputes Legal and Financial statements P102–P191 Other payables Accruals anddeferred income 30 Notes tothefinancialstatements Net debt Obligations underfinanceleases Bank loans LondonStockExchange NewYork StockExchange 5.25% £European Medium Term Note2033 LondonStockExchange NewYork StockExchange 4.00% 5.65% US$USMediumTerm Note2018 5.625% 3.875% 4.375% US$USMediumTerm Note2014 4.85% US$USMediumTerm Note2013 NewYork StockExchange 5.125% 3.00% Long-term borrowings: Bank loansandoverdrafts Commercial paper US$ FloatingRateNote2010 Short-term borrowings: Cash andcashequivalents Liquid investments Current assets: 32 ‘Legal proceedings’. were pledgedascollateralforcontingentliabilities.Fordiscussionsoftaxandlegalissues,refer toNote14,‘Taxation’ an business, amountedto£165million(2009–£150million).At31stDecember2010,£4£9million)offinancialass At 31stDecember2010,contingentliabilities,comprisingguarantees,discountedbillsandotheritemsarisinginthenormalco 31 .7%U$U eimTr oe23 LondonStockExchange 5.375% US$USMediumTerm Note2034 Obligations underfinanceleases Loan stock .7%U$U eimTr oe23 NewYork StockExchange LondonStockExchange 6.375% £European MediumTerm Note2039 6.375% US$USMediumTerm Note2038 .5 uoenMdu emNt 02LondonStockExchange 5.25% £European MediumTerm Note2042 GSK Annual Report 2010 GSK Annual Report 150 Netdebt Othernon-current liabilities Contingentliabilities Á Á European MediumTerm Note2025 Á Á Á European MediumTerm Note2012 European MediumTerm Note2017 European MediumTerm Note2015 European MediumTerm Note2012 Listing exchange London StockExchange London StockExchange London StockExchange London StockExchange London StockExchange (14,809) (1,062) (1,358) (1,919) (1,756) (1,049) (1,599) (1,744) (8,859) 6,241 6,057 (632) (640) (981) (259) (291) (318) (694) (985) d Note 44, d Note44, 184 594 491 103 2010 2010 (32) (71 £m £m (1) – – – ) urse of urse of (14,786) ets ets (1,100) (1,404) (1,985) (1,701) (1,548 (1,471) (1,689) (9,444) 6,813 6,545 (990) (621) (621) (653) (662) (979) (182) (308) (693) (984) 268 605 481 124 2009 2009 (40) (90 £m £m (7) – ) ) Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 6 151 £m 16 44 38 26 16 (16) 2009 146 130 d %). nts

n) 8 8 evocable llion £m 37 32 21 13 (16) 2010 119 103 GSK Annual Report 2010 -insurance are -insurance are The average effective interest rate of all notes at 31st December 2010 was approximately 5.2% 2010 was approximately rate of all notes at 31st December interest The average effective years. continued Net debt Net (2009 – approximately 5.3%). (2009 – approximately dates between 3.92% and 6.46%. The repayment rates at effective after five years carry interest repayable Long-term borrowings 2017 to 2042. range from Total future rental payments rental future Total Rental payments due after five years finance charges Future Finance lease obligations Rental payments due within one year other government bonds. The effective interest rate on liquid investments at 31st December 2010 was approximately 1.6% 2010 was approximately investments at 31st December rate on liquid interest other government The effective bonds. and fixed ratesearning at floating December 2010 balances at 31st 4.6%). Liquid investment interest (2009 – approximately million and £267 million). (2009 – £1 million respectively £2 million and £182 amount to 0.7 1.3% (2009 – approximately was approximately cash equivalents at 31st December 2010 rate on cash and interest The effective to £5,752 million an at floating and fixed rates amount balances at 31st December 2010 earningCash and cash equivalents interest – £6,372 million and £17 million). (2009 £166 million respectively instruments and to in Note 41, ‘Financial of cash and cash equivalents is referred quality the credit policy regarding GSK’s disclosures’. related than five falls due in more (£69 million) (2009 – $103 million (£64 million)) as security against irr Notes with a par value of $107 million in US Treasury of self in respect Provisions self-insurance activity. Group’s of the behalf in respect issued on the Group’s letters of credit for legal and other disputes discussed in Note 29, ‘Other provisions’. included within the provisions years Rental payments due between one and two years Rental payments due between two and three and four years Rental payments due between three years Rental payments due between four and five finance lease obligations Total Secured liabilities Secured has pledged investme assets in the year (2009 – £nil). The Group and current by charges on non-current GSK had no loans secured Long-term borrowings £8.2 billion (2009 – £9.5 billio of £14.8 billion (2009 – £14.8 billion) of which GSK had long-term borrowings At the year-end, Short-term borrowings was in issue at 31st December 2010 of which none paper programme, (£6.4 billion) commercial GSK has a US $10 billion (2009 – $3.9 bi days duration of $3.9 billion (£2.5 billion) million)) and committed facilities of 364 (2009 – $1 billion (£621 Liquid investments are classified as available-for-sale investments. At 31st December 2010, they included US Treasury Notes and Notes Treasury they included US 31st December 2010, investments. At classified as available-for-sale are Liquid investments as shown in the table above. and liquid investments, cash and cash equivalents annually, (£2.4 billion)) renewable 2010 was 4.5% (2009 – 4.8%). at 31st December bank loans and overdrafts rate on current interest The weighted average at floating and fixed rates amount to £70 million and £33 millio Finance lease obligations at 31st December 2010 bearing interest 32 Notes to the financial statements financial the to Notes respectively (2009 – £89 million and £41 million). respectively Current assets Current Financial statements P102–P191 33 Notes tothefinancialstatements GSK Annual Report 2010 GSK Annual Report of £123.4million. January 2011to3rd February 2011.Intheperiod4thFebruary2011to24th10.4millionshares were purchased at be determinedbythecompanyandisdependentonmarketconditionsotherfactors.Noshares were purchased intheperiod1s factors, in2011.Theexactamountandtimingofpurchases andwhethertheshares willbeheldasTreasury shares orbe cancell long-term share buy-backprogramme andexpectedtorepurchase £1-2billionofshares, dependingonmarketconditionsandother The companydidnotpurchase anyofitsownshares in2010.On3rd February2011, GSKannouncedthatitwouldcommenceanew the shares heldintheESOP Trust are disclosedinNote42,‘Employee share schemes’. Treasury shares and5,090,791,949shares were infree issue.Allissuedshares are fullypaid.Thenominal,carryingandmarket At 31stDecember2010,oftheissuedshare capital,105,472,070shares were held intheESOPTrust, 474,194,158shares were hel Number (‘000)ofunissuedshares notunderoption Number (‘000)ofshares issuable underoutstandingoptions(Note42) At 31stDecember2010 Issued undershare option At 31stDecember2009 Issued undershare option At 31stDecember2008 Share capitalpurchased Issued undershare option At 1stJanuary2008 Share capitalissuedandfullypaid At 31stDecember At 31stDecember At 31stDecember Share capitalauthorised 152 Share capitalandshare premium account 2010 2009 2008 and cancelled schemes schemes schemes 00000002,500 2,500 2,500 10,000,000,000 10,000,000,000 10,000,000,000 ,7,5,7 ,1 1,428 1,418 1,368 5,670,458,177 1,416 1,326 5,665,128,719 1,415 1,266 5,661,316,237 1,503 6,012,587,026 369098 9)– (90) (356,910,908) 31st December ,2,5 60 42 2 1 60 5,329,458 2 3,812,482 5,640,119 4,122,410 207,132 Ordinary Shares of25peach ubr£ £m £m Number 2010

31st December values of valuesof 4,121,761 ed will ed will 213,110 premium a cost a cost d as d as Share t 2009 Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

5 153 (2) (2) (2) £m £m 90 10 40 26 13 66 17 Total Total (32) (19) (19) (39) (57) (16) Total Total lion) 359 181 568 351 900 292 10 1,262 exchange translation ulative of the £m £m Non- Other GSK Annual Report 2010 reserves interests interests controlling controlling

£m £m earnings Retained Cash ﬂow hedge reserve

9 335 (75) 269 Net translation exchange included in: Net translation £m £m reserve reserve reserve Fair value Fair value –– (32) (2) – – – – – (23) 4 – –––90 ––40–– (40) 1 – – 30 (4) – –––(2) – (5) 3 – –5–– – 67 (1) – 1––– 1––– 2––– £m 10––– 13––– 17––– (19) – – – (57) – – – (16) – – – shares ESOP Trust ESOP Trust Movements in equity Movements Exchange movements on overseas net assetsExchange movements on liquidation of overseas subsidiaryReclassification of exchange At 31st December 2008 on overseas net assetsExchange movements on liquidation of overseas subsidiaryReclassification of exchange At 31st December 2009Exchange movements on overseas net assets or disposal of overseas subsidiariesReclassification of exchange on liquidation At 31st December 2010 – – 84 – 1 (2) (44) – 952 1 – – 84 (161) 64 – (44) (2) 1,017 10 (34) 145 1,371 (194) 11 21 (11) 1,166 11 166 1,370 (45) 1,309 1,132 (24) 1,296 The analysis of other reserves is as follows: The analysis of other reserves Transferred to income and expense in the year on disposals Transferred to income and expense in the year on impairment Transferred At 1st January 2008 (1,617) 49 (7) 1,934 Net fair value movement in the year Ordinary Shares purchased and cancelled purchased Shares Ordinary Ordinary Shares acquired by ESOP Trusts by acquired Shares Ordinary Ordinary Shares transferred by ESOP Trusts transferred Shares Ordinary At 31st December 2008 to income and expense in the year on disposals Transferred to income and expense in the year on impairment Transferred (1,445) (8) (3) 2,024 Write-down of shares held by ESOP Trusts of shares Write-down Net fair value movement in the year 18 Ordinary Shares acquired by ESOP Trusts by acquired Shares Ordinary Ordinary Shares transferred by ESOP Trusts transferred Shares Ordinary interest Put option over non-controlling to income and expense in the year on disposals Transferred Write-down of shares held by ESOP Trusts of shares Write-down At 31st December 2009 to income and expense in the year on impairment Transferred 35 (1,138) 22 (6) 2,022 Net fair value movement in the year Ordinary Shares acquired by ESOP Trusts acquired Shares Ordinary Ordinary Shares transferred by ESOP Trusts transferred Shares Ordinary At 31st December 2010 amounting to £1,849 million at 31st December 20 reserves include various non-distributable merger and pre-merger Other reserves result as a created reserve also include the capital redemption (2009 – £1,849 million; 2008 – £1,849 million). Other reserves (845) 89 (4) 2,022 Write-down of shares held by ESOP Trusts of shares Write-down amounting to £175 million at 31st December 2010 (2009 – £175 million; 2008 – £175 million). buy-back programme share 29 At 1st January 2008 34 2008 – £5,190 mil – £7,221 million; December 2010 (2009 million at 31st amounted to £6,041 Retained earnings other reserves and Notes to the financial statements financial the to Notes of which £472 million (2009 – £390 million; 2008 – £391 million) relates to joint ventures and associated undertakings. The cum associated undertakings. and to joint ventures £391 million) relates million; 2008 – million (2009 – £390 of which £472 following table: shown below in the exchange in equity is translation Financial statements P102–P191 The aggregate compensation oftheDirectors andCETisgiveninNote10,‘EmployeeCosts’. Healthcarein certainterritories.At31stDecember2010,thebalancepayablebyGSKtoViiV Canadawas£4million(2009–£nil At 31stDecember2010,GSKhelda50%interest Healthcare inViiV Shire Canada,whichprimarilyco-markets (2009 –£14million). venture of£42million(2009–£15million).At31stDecember2010,thebalanceduetoGSKfrom thejointventure was£20milli the research anddevelopmentactivitiesconductedby thatjointventure company. During2010, GSKprovided servicestothejoin In 2010,boththeGroup andShionogi&Co.Ltd.entered intotransactionswiththeir50/50USjointventure companyinsupport to Aspenwas£12million(2009–£13million). At 31stDecember2010,thebalanceduetoGSKfrom Aspenwas£22million(2009–£18million)andthebalancepayablebyGSK During 2010,GSKdistributed£81million(2009–£18million)ofitsproducts through Aspen’s extensivedistributionnetwork. GSK helda19%interest inAspenPharmacare Holdings Limitedat31stDecember2010(2009–19%). (£0.7 billion)aftertax. and anaccompanyingrepurchase ofshares byQuestDiagnosticswhichtogetherare expectedtogenerategross proceeds of$1.1bi Subsequent totheyear-end, GSKsolditsentire shareholding inQuestDiagnostics Inc.Thesalecomprisedasecondarypublicof (2009 –£10million). (2009 –£47million)totheGroup. At31stDecember2010,thebalancepayablebyGSKtoQuestDiagnosticswas£10million support theGroup’s clinicaltrialstestingrequirements worldwide.During2010,QuestDiagnosticsprovided servicesof£41mil parties toalong-termcontractualrelationship underwhichQuestDiagnosticsistheprimaryprovider ofclinicallaboratoryte GSK helda18.1%interest inQuestDiagnosticsInc.at31stDecember2010(2009–16.8%).TheGroup andQuestDiagnosticsare 35 Notes tothefinancialstatements Profit aftertax 36 Tax onprofits Cash generatedfrom operations Other Share-based incentiveplans Increase/(decrease) inpensionandotherprovisions (Decrease)/increase inotherpayables Increase/(decrease) intradepayables Depreciation Finance incomenetoffinancecosts Share ofaftertaxprofitsassociatesandjointventures settlements of£2billionandfurthercontributionstothedefined benefitpensionschemes. The increase inpensionandotherprovisions primarilyreflects thechargeforlegalcostsinyearof£4billion,partlyoff Decrease/(increase) inother receivables Decrease/(increase) intrade receivables Decrease/(increase) ininventories Changes inworkingcapital: Profit onsaleofequityinvestments Profit onsaleofinvestments inassociates Profit onsaleofintangibleassets Impairment andassetswrittenoff Amortisation ofintangibleassets GSK Annual Report 2010 GSK Annual Report 154 Adjustmentsreconciling profit aftertaxtooperatingcashflows Relatedpartytransactions 1,853 1,304 6,778 8,631 1,653 1,146 (179) (118) 179 154 715 905 238 411 533 2010 (63) (81) (17) £m (8) 6 Combivir ,6 4,712 5,669 ,2 1,947 2,222 ,7 4,343 3,876 ,4 9,055 9,545 920 1,130 30 548 (320) 14 22 (134) 85 (170) (835) 43 519 (411) (473) (132) 15 – (115) , 0 (162) 409 7 241 (39) 179 499 530 713 4 436 311 445 432 2009 4)(268) (40) (48) (64) 4)(33) (40) set by legal set bylegal Trizivir £m sting to sting to lion lion fering fering and ). t of of on on llion llion Epivir 2008 £m

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 – – 155 £m £m (41) (41) (72) 2008 184 (250) 5,807 6,057 siness

(8,859) (14,737) (14,809) by using e goodwill At 31.12.10 £30 million n below: e major (9) – £m £m 48 48 (87) (905) (62) (43) 2009 102 3,059 729 (4,134) and further sales GSK Annual Report 2010 1,054 1,148 1,041 (1,918) (1,358) (5,523) (9,444) (10,173) Cash flow (10,173) (6,039) – £m £m 45 61 (58) (91) (20) 2010 585 (642) 1,290 (9,444) (8,859) Acquisitions £m Reclassifications £m Other £m Exchange £m (621)(621) – (24) – – – – – – 621 645 (177) 4 – – – (77) 6,368 81 – – 12 (654) 6,545 77 – – 12 (577) (1,294) (25) (18) (15) (20) 1,331 (14,786) (2) (40) 15 – 4 (14,696) (1) (40) – – – At 31.12.09 Reconciliation of net cash flow to movement in net debt in net movement to cash flow of net Reconciliation Acquisitions and disposals Decrease)/increase in cash and bank overdrafts in Decrease)/increase 37 Notes to the financial statements financial the to Notes Net increase in long-term loans Net increase in long-term of short-term loans Net repayment under finance leases Net repayment of obligations Exchange adjustments Other non-cash movements Movement in net debt Net debt at end of year ( Net debt at beginning of year Net debt at Cash inflow from liquid investments Cash inflow from liquid acquired Debt of subsidiary undertakings Debt due within one year: Commercial paper Eurobonds and Medium-Term Notes OtherDebt due after one year: Eurobonds, Medium-Term Notes and private financing OtherNet debt (52) (1) (90) (18) (9,444) (15) (1) 61 (20) (58) – 65 – 15 (8) – 590 4 For further information on significant changes in net debt see Note 32 ‘Net debt’. For further information on significant changes Overdrafts Liquid investments 268 7 – – – (91) Analysis of changes in net debt Cash and cash equivalents 2010 in Latin America, for cash. The products focused on the development, marketing and sale of branded generic and over-the-counter price of £174 million included £11 million of net cash, £121 million of intangible assets, £72 million of goodwill and purchase On 10th June 2010, GSK acquired 100% of the issued share capital of Laboratorios Phoenix S.A.C.yF., a leading pharmaceutical bu capital of Laboratorios Phoenix S.A.C.yF., 100% of the issued share On 10th June 2010, GSK acquired Acquisitions Laboratorios Phoenix S.A.C.yF. 38 give and other businesses are ventures Details of the acquisition and disposal of significant subsidiaries and associates, joint of other net liabilities. The goodwill arising on the acquisition of this business reflects the potential for business synergies of other net liabilities. The goodwill arising on the acquisition of this business reflects following the acquisition of an established market participant. None of th market presence in GSK’s increase the through growth recognised is expected to be deductible for income tax purposes. recognised operating segment. This transaction has been accounted for as part of the Emerging Markets reported of Phoenix are The results method of accounting. the purchase turnover loss after tax (befor for the full year are of £60 million and of Laboratorios Phoenix S.A C.yF. results The pro-forma of £2 million. restructuring) Financial statements P102–P191 Transaction costsexpensedin2010arisingontheacquisitionofLaboratoriosPhoenixS.A.C.yF. amountedto£3million. Since acquisition,GSKrecorded of£35millionandaftertaxlosses(before turnover majorrestructuring) of£0.5millionfrom Laboratorios PhoenixS.A.C.yF. Acquisitions 2010 38 Notes tothefinancialstatements arvlegi eonsdo ovrino soit osbiir 8 (8) 32 (8) 12 Acquisition costsexpensedin2010arisingonotheracquisitions totalled£7million. – 20 is reported asProfit ondisposalofinterest inassociatestheincomestatement. The Group recognised againof£8millionasresult ofmeasuringatfairvalueanassociateheldpriortotheacquisitiondat The results oftheotheracquisitionsare reported primarilyaspartoftheEmergingMarketsreportable operatingsegment. for incometaxpurposes. recognised inrespect offurtherconsiderationforaprioryearacquisition.Nonethegoodwillrecognised isexpectedtobe GSK’s marketpresence followingtheacquisitionoftheseestablished marketparticipants.Inaddition,goodwillof£13million The goodwillarisingontheacquisitionsreflects thepotentialforbusinesssynergiesand further salesgrowth through theincr identify theimpactofacquisitionsonGroup profit fortheyear. £51 millionfortheyear. AssomeofthesubsidiarieshavebeenfullyintegratedintoGSKbusinessitisnotpracticableto 46 If theotheracquisitionshadbeenmadeatbeginningofyear, itisestimatedthatGroupwouldhaveincreased turnover Total consideration 7 Fair valuegainrecognised on conversionofassociatetosubsidiary Goodwill 39 Other liabilities Deferred taxprovision Other assetsincludingcashandequivalents Property, plantandequipment Intangible assets Net assetsacquired of netcash. During theyear, GSKcompletedthree smallersubsidiaryacquisitionsforcash.Thetotalpurchase priceof£198millioninclude Other acquisitions Total consideration Goodwill Other liabilities Deferred taxprovision Other assetsincludingcashandequivalents Property, plantandequipment Intangible assets Net assetsacquired GSK Annual Report 2010 GSK Annual Report 156 Acquisitionsanddisposals continued

continued Book value Book value 1)–(10) – (10) (39) (12) (27) 216198 176 22 174 157 17 219131 109 22 102 85 17 £m £m 1 4)(42) (41) (1) 2 131 128 92113 61016 3)(33) –7575 (33) – –7272 121 121 –

adjustments adjustments Fair value Fair value £m £m separately separately e. This gain e. Thisgain deductible deductible the business. the business. ease in ease in was was d £1 million d £1million by by Fair value Fair value £m £m

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

157 £m £m Fair Total Total value nd nt joint iddle tside of of of er net racticable to n GSK egions and £m £m GSK Annual Report 2010 ventures ventures and joint Fair value Associates adjustment

– (56)–8787 (56) 1–1 5–5 (5) – (5) £m £m Book value 417 28418 445 418 (28) 59 390 477 Other acquisitions

£m Phoenix

continued

continued Acquisitions and disposals Acquisitions Net assets acquired Intangible assets venture in which the Group has a 49% share, an investment in an associate of £32 million to increase the Group’s share to 27% a share the Group’s to increase investment in an associate of £32 million an share, has a 49% in which the Group venture associates totalling £3 million. other investments in Subseque included several leading pharmaceutical brands in a number of disease areas. East, Asia Pacific and Latin America which £445 million of intangible assets, £87 million of goodwill and £60 million of oth £477 million included £5 million of net cash, the r throughout growth the potential for product of this business reflects liabilities. The goodwill arising on the acquisition method of accounting. This transaction has been accounted for by the purchase the expected synergies for the Group. marketed ou had been previously rights that a number of legal entities and product The transaction included acquisition of both plant and equipment Property, Cash and cash equivalents tax provision Deferred Other liabilities Goodwill consideration Total On 31st March 2009, the Group acquired from UCB S.A. its marketed product portfolio across certain territories in Africa, the M portfolio across UCB S.A. its marketed product from acquired 2009, the Group On 31st March Acquisitions UCB S.A. Certain businesses from 2009 Net cash consideration paidNet cash consideration considerationDeferred Cash consideration, net of cash acquired 163 163 197 191 – 61 61 421 6 415 – 6 Cash flows cash considerationTotal acquiredCash and cash equivalents net of cash acquiredCash consideration, 163 (11) 197 174 (1) 198 61 – 421 61 (12) 433 GSK made cash and non-cash contributions of £24 million in a joint venture in which the Group has a 50% share, £6 million in a £6 million has a 50% share, the Group in which million in a joint venture of £24 cash and non-cash contributions GSK made Acquisitions Acquisitions joint ventures in associates and Investments price transaction. The purchase completed further country acquisitions which formed part of the original to this date the Group p into the GSK business after acquisition and it is not therefore was integrated portfolio acquired those entities. The product for the period of 2009 after acquisition. of this transaction after tax arising as a result identify the result turnover of £26 million. Since acquisitio portfolio recorded that the product During 2009, prior to acquisition it is estimated acquired. turnover the products of £77 million in 2009 from recorded 38 2010 Notes to the financial statements financial the to Notes Financial statements P102–P191 Excluding restructuring costs, theStiefelacquisitionresulted inadilutionofGSK’s pershare earnings oflessthan1%in20 GSK expectstodeliverannualpre-tax costsavingsofupto£155millionby2012withrestructuring costsofapproximately £205 Cost synergiesforthebusinessare expectedprimarilyfrom combiningmanufacturingandadministrativefunctions.Aspreviously benefit from Stiefel’s specialitysalesforce relationships andexperiencedmanagementindermatology. distribution andcommercial organisations,particularlyinmarketssuchasBrazil,Russia,India,ChinaandJapan.GSK’s produc The businesswillprovide significantopportunitiesforbothsalesandcostsynergies.Stiefel’s products willbenefitfrom GSK’s intangible assetsamortisation. included intheGroup accounts.In2009,sinceacquisition,Stiefelmadeanoperatingprofit of£35millionbefore restructuring and£78millionoflossaftertax(includingrestructuring£248 millionofturnover costs)related totheperiodsinceacquisit of £547millionandalossaftertax(includingrestructuring costs)of£103millionfortheyearended31stDecember2009, up to$300million(£183million)dependingonthefuture performanceofcertainproducts. StiefelLaboratoriesInc.hadaturn portfolio, and£253millionofothernetliabilities.Thepurchase priceincludedpotentialobligationstomakeadditionalpaym goodwill, representing thepotentialforadditionalgrowth from thecombinationofStiefelbusinessandGSK’s existingderm by specifieddatesinthefuture) included£74millionofcashandequivalents,£1,513intangibleassets,£885m The purchase priceof£2,219million(includingcontingentcashconsideration£152payableuponcertaincriteriabei company foracashconsiderationof£1,993millionnetacquired andincluding£326millionofdebtrepaid onacquisitio On 22ndJuly2009,theGroup acquired alloftheshare capitalofStiefelLaboratories,Inc.,theworld’s largestprivatederma Stiefel Laboratories,Inc. Acquisitions 2009 38 Notes tothefinancialstatements GSK Annual Report 2010 GSK Annual Report 111 – 257 111 47 210 to Pfizerrecorded atbookvalue,inreturnfor85%ofPfizer’s HIVbusinessrecorded atfairvalue. GSK recognised anaccountinggainof£296milliononthistransactionarisingthedisposal ofa15%interest in GSK’s HIVbu HealthcareViiV includingtherighttopreferential dividendsbasedonthesalesperformanceofcertainproducts. potential forgrowth ofbothpartners’HIVproducts Healthcare. withinViiV Thenon-controlling interest represents Pfizer’s int interests and£255million of goodwillrepresenting theeconomiesofscalegained from thecombinationoftwobusinessesan of intangibleassets,£172milliondeferred taxliability, £21millionofothernetassets,£316increase innon-con GSK’s HIVbusiness,contingentconsiderationandtransactioncosts,wasvaluedat£383million.Thisrepresented by£595mi Limited, asub-group owned 85%byGSKand15%Pfizer. TheconsiderationgivenbyGSK,representing 15%ofthenetvalue On 30thOctober2009,GSKacquired PfizerInc.’s Healthcare HIVbusinessandcombineditwithitsowntoformViiV HealthcareViiV Limited Total consideration Goodwill Otherliabilities Deferred taxprovision Otherassetsincludingcashandequivalents Property, plantandequipment Intangibleassets Net assetsacquired 158 Acquisitionsanddisposals continued

continued 21 (251) – (251) 7 ,4 2,219 1,840 379 1,513 1,239 274 7 5 1,334 955 379 value Book 5(3)(296) (331) 35 £m 8 885 885 – adjustment Fair value 09. trolling ion andare £m tological tological global global ents of ents of erest in ts will ts will which which ng met ng met costs and costsand illion of illion of million. million. over over reported, atology atology n. n. siness siness llion llion d the d the value Fair £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

159 £m £m Fair 37 18 Total Total value 328 383 increased increased a 50% ng account

e to £m £m Other GSK Annual Report 2010 ing costs, was Fair value adjustment – (172) (172) –– (316) 255 (316) 255 £m £m Inc. 13 582 595 23 42123 444 360 383 Book value Stiefel Laboratories, £m Certain businesses of UCB S.A. continued

continued Acquisitions and disposals Acquisitions of the transition status in various territories, £1 million of turnover territories, £1 million status in various of the transition restructur loss after tax, including and £23 million of in 2009. accounts in the Group recognised The acquired Pfizer HIV business had a turnover Pfizer after taki in 2009, of which, after tax of £39 million million and a loss of £89 The acquired by £477 million for the year. As some of the acquisitions have been fully integrated into the GSK business it is not practicabl As some of the acquisitions by £477 million for the year. for the year. profit separately identify the impact of the acquisitions on the Group Cash considerationCash and cash equivalents acquiredNet cash considerationContingent consideration considerationNet purchase turnover that Group would have it is estimated made at the beginning of the year, If the acquisitions of subsidiaries had been (5) (74) 477 472 (15) 472 2,067 – 1,993 2,145 (94) 371 152 356 358 2,915 2,821 2 2,975 154 Cash flows Acquisitions Acquisitions 38 2009 Notes to the financial statements financial the to Notes Other assets including cash and cash equivalents Other assets including tax provision Deferred 10 11 21 Net assets acquired Intangible assets Non-controlling interests Non-controlling Goodwill consideration Total Consideration Fair value of assets contributed by GSK by GSK Fair value of contingent equity contributed costs Direct consideration Total Other acquisitions has in which the Group million in five subsidiaries, £16 million in a joint venture Other investments in the year included £327 share and £20 million in an associate in which the Group has an initial 40% share. has £20 million in an associate in which the Group and share Financial statements P102–P191 loss aftertaxrelated totheperiodafteracquisitionandare includedintheGroup accountsin2008. and£14mill of£nilandalossaftertax£25millionin2008,which £nil ofturnover Pharmaceuticals Inc.hadaturnover by theexistenceincompanyofahighlyexperienceddevelopmentteamthatencompassesallaspectssirtuinbiology. Sirtr metabolic, neurology, andimmuno-inflammationresearch efforts byestablishingaworld-leadingpresence inthesirtuinfield,aid by thepurchase methodofaccounting.Thegoodwillarisingontheacquisitionreflects thepotentialforenablingGSKtoenhance sirtuins, arecently discovered classofenzymesthatSirtris believescontrol theageingprocess. Thistransactionhasbeenac Type 2diabetes.Sirtris’drugcandidatesare designedtomimiccertainbeneficialhealtheffects ofcalorierestriction byacti orally available,smallmoleculedrugswiththepotentialtotreat diseasesassociatedwithageing,includingmetabolicdisease based inMassachusetts,USAforacashconsiderationof£376million.Thecompanyisfocusedondiscoveringanddevelopingprop On 5thJune2008,theGroup acquired 100%ofthe issued share capitalofSirtrisPharmaceuticalsInc.,abiopharmaceuticalcomp Sirtris PharmaceuticalsInc. Acquisitions 2008 38 Notes tothefinancialstatements e ahpyeto custos3419463 (52) 139 – 324 (52) 86 – 86 and combinedGroup profit fortheyearwouldhavebeen£4,705million. If thesubsidiarieshadbeenacquired atthebeginningof2008,combinedGroupforyearwouldhavebeen£24,373mi turnover Net cashpaymentonacquisitions Cash andcashequivalentsacquired Cash consideration Cash flows venture inwhichtheGroup hasa50%share and£2millioninanassociatewhich theGroup hasa36.8%holding. Other investmentsintheyearincluded£140millionasubsidiary, ofwhich£10millionwasdeferred, afurther£6millionin Other acquisitions Total consideration Goodwill Otherliabilities Deferred taxprovision Otherassetsincludingcashandequivalents Property, plantandequipment Intangibleassets Net assetsacquired GSK Annual Report 2010 GSK Annual Report 160 Acquisitionsanddisposals continued

continued Sirtris 7 3 515 139 376 value Book 3)–(39) – (39) 937376 134 327 85 49 49 £m £m 2–2 4 242 242 (21) – (21) 106 – 106 – adjustment Fair value Other vation of vation of counted for counted for £m £m s such as s suchas ion of ion of a joint ajoint is is ed ed its its any any rietary, llion llion value Total Fair £m £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 – ,

161 £m £m 72 50 21 14 69 86 82 52 16 2009 2009 111 337 416 ls, date. s’.

uding 1,460 . or or udes n 12,280 10,733 25,125 achieved. ry 2011, swaps. ng and ng and £m £m 73 46 32 25 37 16 2010 2010 123 116 415 380 285 242 GSK Annual Report 2010 1,127 1,095 11,762 10,312 25,256 Commitments Post balance sheet events commitments obligations and Contractual financial statements: in the for but not provided Contracted assets Intangible 39 Notes to the financial statements financial the to Notes Subsequent to the year end, GSK completed the acquisition of the three business combinations referred to in Note 39 ‘Commitment business combinations referred Subsequent to the year end, GSK completed the acquisition of the three in Quest Diagnostics Inc. The sale comprised a secondary public offeri shareholding Since the year end, GSK has sold its entire of $1.1 billio proceeds expected to generate gross together are by Quest Diagnostics which of shares an accompanying repurchase (£0.7 billion) after tax. and the intention buy-back programme, February 2011, GSK announced that the company has initiated a new long-term share On 3rd conditions. In the period 4th February 2011 to 24th Februa in 2011, depending on market billion of shares £1-2 is to repurchase 40 Rental payments due within one year operating leases Commitments under non-cancellable 10.4 million shares were purchased at a cost of £123.4 million. purchased were 10.4 million shares Property, plant and equipment Property, Rental payments due between one and two years Rental payments due between one and two Investments Rental payments due between two and three years Rental payments due between two and three Purchase commitments Purchase Rental payments due between three and four years Rental payments due between three Business combinations Rental payments due between four and five years Rental payments due between four and five Pensions Rental payments due after five years Other commitments Total commitments under non-cancellable operating leases Total Interest on loans Interest Finance lease charges Commitments in respect of future interest payable on loans are disclosed before taking into account the effect of interest rate of interest taking into account the effect disclosed before payable on loans are interest of future Commitments in respect Actelion Pharmaceuticals Limited, Targacept, Inc. and Neurosearch A/S which were terminated or curtailed during the year. A/S which were Inc. and Neurosearch Actelion Pharmaceuticals Limited, Targacept, signed in 2010 but not completed at the balance sheet agreements three to business combinations reflect The commitments relating £130 million. of approximately the normal ongoing annual funding requirement and other alliances payments to be made under licences to revenue also has other commitments which principally relate The Group The commitments related to intangible assets include milestone payments, which are dependent on successful clinical development which are assets include milestone payments, to intangible The commitments related are be paid if all milestones, however unlikely, the maximum that would sales targets, and which represent on meeting specified made in 2010 under licensing and other agreements not risk-adjusted or discounted. A number of commitments were The amounts are Isis Pharmaceutica Fondazione Telethon, Biologics AG, Amplimmune Inc., Apeiron including arrangements with Amicus Therapeutics, year transactions incl commitments due on prior by reduced offset arrangements were Inc. and Shionogi & Co., Limited. These new UK pension schemes to make additional contributions to eliminate the with the trustees of the an agreement In 2009, GSK reached excl 2008 actuarial funding valuation. The table above shows this commitment, but pension deficit identified at the 31st December Financial statements P102–P191 risks arisingfrom underlying businessactivities,notforspeculation. transactions infinancialinstrumentsare undertakentomanagethe and ourTreasury policiesspecificallyprohibit suchactivity. All GSK doesnotholdorissuederivativesforspeculativepurposes changes inforeign exchangeratesandinterest rates. for Group purposesandtomanageexposure tofunding risksfrom used toswapborrowings andliquidassetsintocurrencies required foreign currency contracts,interest rateandcurrency swaps,are operations. Thesederivatives,principallycomprisingforward and derivativefinancialinstrumentstomanagerisksfrom these GSK usesavarietyoffinancialinstrumentstofinanceitsoperations environment regularly. auditorsreviewactivities. Ourinternal theTreasury control internal Its membersreceive managementinformationrelating to treasury Officer, meetsonamonthlybasistoreview treasury activities. A Treasury ManagementGroup (TMG)chaired byourChiefFinancial the Board ofDirectors, mostrecently on7thOctober2010. activities arebypoliciesandprocedures governed approved by and financialrisksinsupportofourstrategicobjectives.Treasury fundingrequirements andinternal and monitorourexternal of Sterlingprofits. Therole ofCorporateTreasury istomanage GlaxoSmithKline plcreports inSterlingandpaysdividendsout 41 Notes tothefinancialstatements funding requirements. market issuesandborrowing facilities,tomeetanticipated Our policyistoborrow centrally, usingavarietyofcapital factors, weexpecttopurchase £1-2billionofshares. programme anddependingonmarketconditionsother repurchases. In2011,aspartofanewlong-termshare buy-back maturing debtand,totheextentdeterminedbyBoard, share outflows ofcapitalexpenditure, tax,dividends,repayment of development ofnewproducts. Itisalsousedtomakeroutine Operating cashflowisusedtofundinvestmentinresearch and operating costsandouroperationsare cashgenerative. or differentiation. Sellingmarginsare sufficienttocovernormal pharmaceutical products compete largelyonproduct efficacy significantlevelsofpatentortrademarkprotection, our With companies establishedinthemarketswhichwetrade. GSK operatesonaglobalbasis,primarilythrough subsidiary will continuetobeassessedagainststrictfinancialcriteria. attractive, investinbolt-onacquisitions.Investmentopportunities dividends, undertakeshare repurchases or, where returnsare more Our commitmentistousefree cashflowtosupportincreasing statement ofchangesinequity‘onpage107). Note 32,‘Netdebt’)andshareholders’ equity(see’Consolidated The capitalstructure ofthe Group consistsofnetdebt(see requirements annually. The Board reviews theGroup’s dividendpolicyandfunding shareholders through anappropriate balanceofdebtandequity. andtooptimisereturn able tooperateasgoingconcerns We manageourcapitalto ensure thatentitiesintheGroup are Capital management GSK Annual Report 2010 GSK Annual Report 162 Financialinstrumentsandrelated disclosures programme andthesuccessofourworkingcapitalinitiatives. reduce in2010,reflecting thebenefitsofourongoing restructuring and paymentoflegalcostsintheyear. Netdebtcontinuedto cash generationwassufficienttofinancetheGroup’s acquisitions attributable toshareholders of£1,634million.TheGroup’s positive dividend distributionfortheyearof£3,205millionoverearnings of £1,582millionarisesprincipallyasaresult oftheexcess £20,186 millionin2009to£18,6042010.Thedecrease Total capital(equityandnetdebt)oftheGroup hasdecreased from repurchases in2010. pay dividendsandmakeacquisitions.GSKdidnotanyshare are on-lent,contributedasequitytocertainsubsidiariesorused These borrowings, togetherwithcashgeneratedfrom operations, cash flowforecast onamonthly basis. positive cashflowfrom operating units.TheTMGmonitorsthe £6.2 billionat31stDecember2010.We alsobenefitfrom strong and cashequivalentsliquidinvestments,whichamountedto As wellasourcommittedfacilitieswealsohadsubstantialcash with Standard andPoor’s andMoody’s respectively. Service ‘Moody’s’. Ourshort-termdebtratingsare A-1andP-1 Standard andPoor’s andA1stableoutlookbyMoody’s Investors February 2008.Currently we are ratedA+stableoutlookby 2042. Ourlong-termdebtratingshaveremained stablesince The long-termborrowings mature atdatesbetween2012and notes inissueunderthisprogramme. At 31stDecember2010,wehad$10.1billion(£6.5billion)of this programme. We alsohaveaUSshelfregistration statement. At 31stDecember2010,wehad£8.3billionofnotesinissueunder We haveaEuropean MediumTerm Noteprogramme of£15billion. positive cashflowfrom operating units. the financialstatements,‘Netdebt’.We alsobenefitfrom strong further informationonthesefacilities,pleaserefer toNote32 facilities tobeadequategivencurrent liquidityrequirements. For renewed inOctober2010.We considerthislevelofcommitted and $3.9billionofcommittedfacilities.Thefacilitieswere last term financeundertheUS$10 billioncommercial paperprogramme of long-termborrowings, includingbonds,togetherwithshort- We manageournetborrowing requirements through aportfolio Liquidity risk fair valueorcashflowhedgesoftherelevant assetsorliabilities. instrument. Interest ratederivativeinstrumentsare accountedforas The durationofthisswapmatchestheprincipal borrowingsexternal intotheinterest ratecouponrequired byGSK. We useaseriesofinterest rateswapstoredenominate oneofour trading profit. of floatinginterest paymentstoaprescribed percentage of The policyoninterest rateriskmanagementlimitstheamount Interest rateriskmanagement Market risk Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 163 £m £m 10 Total Total 211 172 360 es

6,413 5,660 1,305 6,999

oor’s oor’s swapped US gn ent e two Forward Forward nd s rating ly. rency. source source anks and tanding using £m £m n of credit n of credit r internal trading o the long-term f counterparties for Ba1/BB+ Ba1/BB+ GSK Annual Report 2010 ed for the purpose £m £m Baa3/BBB- Baa3/BBB- Credit rating of counterparty Credit Credit rating of counterparty Credit £m £m eport on relationship b eport on relationship Baa2/BBB Baa2/BBB £m £m Baa1/BBB+ Baa1/BBB+ £m £m A2/A A2/A throughout this period. A r throughout £m £m A1/A+ A1/A+ continued £m £m Aa3/AA- Aa3/AA- £m £m Aa2/AA Aa2/AA 1,385 1,359 1,467 102 – 27 63 10 5,206 1,772 1,226 2,494 67 1 – 84 16 £m £m 2,335 1,433 1,401 1,616 102 – 27 74 11 Aaa/AAA Aaa/AAA Financial instruments and related disclosures disclosures and related instruments Financial their credit ratings is presented annually to the TMG for approval. ratings is presented their credit t with one counterparty is limited by reference may have of ﬁnancial instruments the Group risk in respect credit The aggregate ratings o The table below sets out the credit and Poor’s. and Standard assigned for that counterparty by Moody’s ratings credit contract is consider asset position on each derivative and derivatives. The gross liquid investments, cash and cash equivalents the amount at risk is the net position with each counterparty. of this table, though, under the ISDA contracts, a investments includes bank deposits with Allied Irish Bank and State Bank of India The £92 million invested in Baa3/BBB- rated purpos used either for local cash management purposes or for local investment Indian Government bonds. These counterparties are is not the sole shareholder. GSK where Government includes Greek bonds issued in lieu of settlement on long outs The £27 million invested in Ba1/BB+ rated investments amounts and bank deposits with HDFC Bank, a domestic bank used in India to invest funds locally. amounts and bank deposits with HDFC Bank, Bank balances and deposits 793 US Treasury and Treasury repo only repo and Treasury US Treasury money market fundsCorporate debt instrumentsGovernment securities party financial derivatives3rd Total the opinion of th Where respectively. and Poor’s and Standard as assigned by Moody’s ratings in the above tables are The credit 1,305 data is the only local rating agency Where GSK assigns the lower rating of the two to the counterparty. rating agencies differ, – and Poor’s Investor Services or Standard converted to global ratings equivalent to those of Moody’s available, the ratings are – 237 – – 48 – – 10 32 – – – 106 43 – – – – – – – – – – – – – – – 11 – – – 1 186 10 292

published conversion tables. into, foreign currencies that match investments in overseas Group assets may be treated as a hedge against the relevant assets. against the relevant as a hedge assets may be treated in overseas Group that match investments currencies into, foreign (see ‘Net investm assets Group to our investment in overseas our exposure to reduce currencies also used in major contracts are party financial derivatives3rd Total – 23 49 100 552 1,795 – 1,285 2,594 – 67 – 1 – – – 92 27 2009 2010 Bank balances and deposits – We seek to denominate borrowings in the currencies of our principal assets and cash flows. These are primarily denominated in US These are of our principal assets and cash flows. the currencies in seek to denominate borrowings We in, or denominated Borrowings as required. can be swapped into other currencies borrowings and Sterling. Certain dollars, Euros month to assets for major currencies of borrowings the ratio note for further details). The TMG reviews hedges’ section of this Government securities 192 – – – – – – 8 11 Credit risk Credit million) which is the total of the Group’s risk to be £12,285 million (2009 – £13,434 credit considers its maximum The Group the Group’ risk. See page 165 for details on do not bear credit exception of ’Other investments’ which financial assets with the currency cash flows are hedged selectively under the management of Corporate Treasury. We manage the cash surpluses or borrowing the cash surpluses manage We Treasury. management of Corporate selectively under the hedged are cash flows currency originating cur back into the repayments contracts to hedge future using forward of subsidiary companies centrally requirements total financial assets. and P and Standard with Moody’s risk is £1.3 billion with JP Morgan Chase (Aa1/AA- rated concentration of credit greatest GSK’s concentratio the greatest comprising £1.2 billion invested in deposits and £0.1 billion of derivatives. In 2009, respectively), to the exposure only money market funds which bear credit repo Treasury and Treasury risk was £1.3 billion of investments in US respectively). and Poor’s and Standard Government (Aaa/AAA rated with Moody’s risk credit Treasury-related to counterparty risk approach GSK has continued to maintain its conservative only repo and Treasury US Treasury money market fundsCorporate debt instruments – 360 – – 10 – – – – – – – – – – – – – 41 risk management exchange Foreign ope of overseas arising on internal The exposure not hedged. and external transaction exposures trade flows are currency Foreign Notes to the financial statements financial the to Notes subsidiaries to transaction risk is minimised by matching local currency income with local currency costs. For this purpose, ou costs. For this purpose, local currency income with local currency minimised by matching to transaction risk is subsidiaries forei risk. Exceptional currency foreign terms to reduce payment manage inter-company centrally and we matched are transactions Financial statements P102–P191 receivables balance. USA nocustomeraccountsformore than5%ofthetrade debts (seeNote24,‘Trade andotherreceivables’). Outsidethe required inexcessofthenormalprovision forbadanddoubtful However, the Group believesthere isnofurthercredit riskprovision risk ratings,andestablishmentperiodicreview ofcredit limits. and Standard &Poor’s credit ratings, developmentofGSKinternal wholesalers includesreview oftheirquarterlyfinancialinformation The Group’s credit riskmonitoring activitiesrelating tothese Group’s financialresults. financial difficulty, itcouldmateriallyandadverselyaffect the of thesewholesalerssuchthat,ifoneormore ofthemencounters The Group isexposedtoa concentration ofcredit riskinrespect wholesalers totalling£890million(2009–£867million). 2010, theGroup hadtrade receivables duefrom thesethree 85% oftheGroup’s USpharmaceuticalsales.At31stDecember Sales tothethree largestwholesalers amounttoapproximately in additiontohospitals,pharmacies,physiciansandothergroups. Group sellsitsproducts through asmallnumberofwholesalers In theUSA,inlinewithotherpharmaceuticalcompanies, Wholesale andretail credit risk limits asappropriate. so thatchangescanbemadetoinvestmentlevelsorauthority and, whenchangesinratingsoccur, notifiesCorporateTreasury The CCOalsomonitorsthecredit ratingofthesecounterparties breach oftheselimitswouldbereported totheCFO immediately. (CCO) whooperatesindependentlyofCorporateTreasury. Any of theselimitsismonitored dailybyaCorporateComplianceOfficer from Moody’s andStandard andPoor’s. CorporateTreasury’s usage and investmentcounterpartiesbasedonlong-termcredit ratings Global counterpartylimitsare assignedtoeachofGSK’s banking rating ofA-1/P1. corporate debtinstrumentswithaminimumshort-termcredit US Treasury repo onlymoneymarketfundsandshortterm liquid assetsinbankdeposits,AAA/AaaratedUSTreasuries and 85% ownedsubsidiary. TheGroup mayinvestcentrallymanaged Healthcare,£0.9 billioncentrallymanagedcashheldbyViiV an 31st December2010,allavailablewithin3months.Thisexcludes Our centrallymanagedcashreserves amountedto£3.0billionat continued 41 Notes tothefinancialstatements or liquidation sale. or liquidationsale. current transactionbetweenwillingparties,otherthaninaforced at theamountwhichinstrumentcouldbeexchangedin a The fairvaluesofthefinancialassetsandliabilitiesare included 31st December2010and2009. fair valuesoftheGroup’s financialassetsandliabilitiesat The tableonpage165presents thecarryingamountsand Fair valueoffinancialassetsandliabilities GSK Annual Report 2010 GSK Annual Report 164 Financial instrumentsandrelated disclosures • • • • • • • • • • • the fairvalues: The followingmethodsandassumptionswere usedtoestimate annually. At31stDecember2010thesewere undrawn. (2009 –$3.9billion(£2.4billion))of364daysduration,renewable The Group hascommittedfacilitiesof$3.9billion(£2.5billion) Committed facilities deducted from retained earnings. cost of£6,286million(2009–million)whichhasbeen reserves. At31stDecember 2010,GSKheldTreasury shares ata of theseshares hasbeenrecognised asadeductionfrom other carrying value,whichisthelowerofcostorexpectedproceeds, of optionsandawards under employeeincentiveschemes.The represent purchases bytheESOPTrusts tosatisfyfuture exercises (2009 –£1,554million)basedonquotedmarketprice.Theshares (2009 –£1,138million)withafairvalueof£1,308million (ESOP) Trusts heldGSKshares withacarryingvalueof£845million At 31stDecember2010,theEmployeeShare OwnershipPlan Fair valueofinvestmentsinGSKshares surrender value discounted cashflows exchange ratesatthebalancesheetdate other loans the carryingamountincaseoffloatingratebankloansand the Eurobonds andotherfixedrateborrowings; approximates to amount becauseoftheshortmaturitytheseinstruments discounted cashflowsoftheunderlyingnetassets current marketvalueofsimilarinstrumentsorbyreference tothe bid price;otherinvestmentsdeterminedbyreference to the determined byreference totherelevant stockexchangequoted securities becauseoftheirshortrepricing periods based onprincipalamountsinthecaseofnon-marketable based onobservableinputsinthecaseofmarketablesecurities; Cash andcashequivalents–approximates tothecarryingamount Lease obligations–approximates tothecarryingamount. Company-owned lifeinsurancepolicies–basedoncash Receivables andpayables–approximates tothecarryingamount Interest rateswaps–based onthenetpresent valueof Currency swaps–basedon marketdataatthebalancesheetdate Forward exchangecontracts–basedonmarketdataand Long-term loans–basedonquotedmarketpricesinthecaseof Short-term loansandoverdrafts –approximates tothe carrying Other investments–tradedinanactivemarket Liquid investments–basedonquotedmarketpricesorcalculated Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 165 £m Fair value 2009 (7) (7) £m 93 93 14 14 (55) (55) value 104 104 153 153 254268 254 454 268 454 (113) (113) (130) (130) (182) (182) (621) (621) GSK Annual Report 2010 6,271 6,271 6,545 6,545 Carrying (8,588) (9,634) (6,051) (6,051) (9,178) (9,864) (6,139) (6,499) 13,888 13,888 (22,476) (23,522) (16,257) (17,303) £m Fair 2010 value –– –– £m 93 93 97 97 12 12 (23) (23) 187 187 172 172 711 711 184 184 value (170) (170) (103) (103) (260) (260) 5,667 5,667 6,057 6,057 (8,887) (10,204) (6,590) (6,590) (8,708) (9,653) (6,029) (6,401) Carrying 12,996 12,996 (21,883) (23,200) (15,100) (16,417) continued Financial instruments and related disclosures disclosures and related instruments Financial Net financial assets and financial liabilities Total financial liabilities Total Other derivatives Other Held-for-trading financial liabilities: Held-for-trading Derivatives designated as accounting hedges and and other payables, Other provisions Trade liabilities in scope of IAS 39 Other non-current Total borrowings Total – obligations under finance leases – other loans and private financing – bank loans and overdrafts paper – commercial – other bonds Financial liabilities measured at amortised cost: Financial liabilities measured Borrowings: – bonds in a designated hedging relationship Other derivatives Other financial assets Total Financial assets at fair value through profit or loss: profit Financial assets at fair value through financial assets: Held-for-trading assets Other non-current Derivatives designated as accounting hedges Liquid investments: investments: Available-for-sale investments Liquid Other – Government bonds Loans and receivables: – other and certain Other non-current and other receivables Trade assets in scope of IAS 39 liquid investments Total 41 Notes to the financial statements financial the to Notes Cash and cash equivalents Cash and cash Financial statements P102–P191 the Level3instruments. exchanges during theyear. A reasonably possiblechange inassumptionsisunlikelyto result inamaterialchange inthefairv in otheroperatingincome.Transfers outof Level 3of£26million(2009–£nil)relate toequityinvestmentswhichwere listed Net lossesof£13million(2009 –£11million)attributabletoLevel3financialinstrumentsheld attheendofyearwere re At 31stDecember Exchange Transfers from Level3 Disposals Additions (Losses)/gains recognised inothercomprehensive income Losses recognised intheincomestatement one ormore ofthesignificantinputstovaluationmodelisnotbasedonobservablemarketdata,instrumentclassified asset orliabilityisclassifiedasLevel2,provided allsignificantinputstothevaluationmodelusedare basedonobservable determining theirfairvalue.Where possible,quotedpricesinactivemarketsare used(Level1).Where suchpricesare notava The followingtablescategorisetheGroup’s financialassetsandliabilitiesheldatfairvaluebythevaluationmethodologyapp 41 Notes tothefinancialstatements Drvtvsdsgae sacutn egs–(5 (55) 153 454 268 – – 209 – 104 (55) 153 – – 19 – – 245 104 249 – At 1stJanuary Movements intheyearforfinancialinstrumentsmeasured usingLevel3valuationmethods are presented below: – – 220 Otherderivatives – (23) Derivativesdesignatedasaccountinghedges Held–for–trading financialliabilities: – 187 Financial liabilitiesatfairvalue – 25 – – Otherderivatives 491 97 Derivativesdesignatedasaccountinghedges 159 Held–for–trading financialassets: Othernon-current assets Financial assetsatfairvaluethrough profit orloss: – Otherinvestments Liquidinvestments Available–for–sale financial assets: Financial assetsatfairvalue At 31stDecember2009 Otherderivatives Derivativesdesignatedasaccountinghedges Held–for–trading financialliabilities: Financial liabilitiesatfairvalue Otherderivatives Derivativesdesignatedasaccountinghedges Held–for–trading financialassets: Othernon-current assets Financial assetsatfairvaluethrough profit orloss: Otherinvestments Liquidinvestments Available–for–sale financialassets: Financial assetsatfairvalue At 31stDecember2010 GSK Annual Report 2010 GSK Annual Report 166 Financial instrumentsandrelated disclosures continued Level 1 Level 1 9 6 0 1,072 209 369 494 221 401 650 £m £m –93 –93 –92 1 18 (168) (113) – – (168) (113) – – (1) (1) (192) (169) – – Level 2 Level 2 £m £m Level 3 Level 3 market data. If market data.If 220 209 2010 (26) (13) 51 £m £m £m (3) (1) 3 lied in lied in ilable, the ilable, the asLevel3. alue of onstock ported 1,272 (193) (170) 209 187 711 184 159 Total 2009 (23) Total (17) (11) 81 97 93 £m £m £m (4) 1 – Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 167 £m £m £m 60 54 78 2009 2009 2009 105 262 559 583 651 (605) 6,492 7,075 6,424 7,075 (6,772) (3,241) (6,051) (4,567) llion) ts has (10,618) (10,618) due nts within alances n the scope erest erest et, bilities cluding £m £m £m 61 66 67 2010 2010 2010 138 134 466 556 495 (594) GSK Annual Report 2010 5,793 6,349 5,854 6,349 (6,590) (5,284) (6,176) (6,888) (12,766) (12,766) Other liabilities include payments on account, tax andOther liabilities include payments on account, continued Accrued wages and salaries are included within financial liabilities. Accrued wages and salaries are Financial instruments and related disclosures disclosures and related instruments Financial Past due by 91–180 days Past due by 181–365 days of our customers, in countries. Given the profile state hospital authorities in certain European due from receivables to relates not past risk has been identified with the trade receivables large wholesalers and government backed agencies, no further credit has been made. other than those balances for which an allowance Past due by 31–90 days £127 million (2009 – £132 mi than 90 days total £194 million (2009 – £192 million). Of this balance Amounts past due by greater Other non-current assets include company-owned life insurance policies. Other assets include tax receivables, pension surplus b pension include tax receivables, policies. Other assets life insurance include company-owned assets Other non-current than 365 days Past due by more Past due by 1–30 days Trade and other receivables (Note 24) (Note and other receivables Trade The following table reconciles financial assets within Trade and other receivables and Other non-current assets which fall withi and Other non-current receivables and other within Trade financial assets table reconciles The following earning. Financial instrume non-interest predominantly assets are The financial balance sheet amounts. the relevant of IAS 39 to IAS 39. outside the scope of are which and prepayments, 22) assets (Note Other non-current Analysed as: scope of IAS 39 Financial assets in Other assets for bad or doubtful deb no provision past due and for which financial assets which are The following table shows the age of such 41 Notes to the financial statements financial the to Notes been made: Analysed as: Financial liabilities in scope of IAS 39 Other provisions (Note 29) Other provisions liabilities (Note 30) Other non-current Other liabilities Trade and other payables (Note 27) Trade Trade and other payables, Other provisions and Other non-current liabilities in scope of IAS 39 non-current and Other and other payables, Other provisions Trade lia non-current and Other and other payables, Other provisions financial liabilities within Trade The following table reconciles Trade and other receivables and Other non-current assets in scope of IAS 39 assets in scope and Other non-current receivables and other Trade non-int predominantly are balance sheet amounts. The financial liabilities relevant which fall within the scope of IAS 39 to the bearing. social security payables and provisions which do not constitute contractual obligations to deliver cash or another financial ass which do not constitute contractual obligations to deliver social security payables and provisions outside the scope of IAS 39. which are Financial statements P102–P191 Debt interest raterepricing table For thepurposeofthistable,debtisdefinedasallclassesborrowings otherthanobligationsunderfinanceleases. The maturityanalysisoffixedratedebtisstatedbycontractualandfloatinginterest raterepricing d The followingtablesetsouttheexposure oftheGroup tointerest ratesondebtbefore andaftertheeffect ofinterest rates 41 Notes tothefinancialstatements Total Greater thantenyears Between fiveandtenyears Between fourandfiveyears Between three andfouryears Between twoandthree years Between oneandtwoyears Floating andfixedratedebtlessthanoneyear Fixedrateinterest Original issuanceprofile: Total interest bearing Floatingrateinterest Non-interest bearing GSK Annual Report 2010 GSK Annual Report 20% appreciation oftheUSdollar 168 Non-functional currency foreign exchangeexposure been excludedfrom thisanalysis. functional currency ofthe entity thatholdsthem.Inter-company loanswhichare fullyhedgedtomaturitywithacurrency swap benchmark. Inthetablebelow, financialinstrumentsare onlyconsidered sensitivetoforeign exchange rateswhere theyare not considered movementsin these currencies overthelastthree yearsandhasconcluded thata20%movementinratesisreasonab exposure. Thesethree currencies are themajorforeign currencies inwhichGSK’s financialinstrumentsare denominated.GSKhas obligations underfinanceleasesandcertainnon-derivativefinancialinstrumentsnotinnetdebtwhichdopresent amate The tablesbelowshowtheGroup’s sensitivitytoforeign exchangeratesonitsUSdollar, Euro andYen financialinstrumentsexc Foreign exchangesensitivity intended toillustratethesensitivityofsuchfinancialinstrumentschangesinrelevant foreign exchangeandinterest rates. Financial instrumentsaffected bymarketriskincludeborrowings, depositsandderivativefinancialinstruments.Thefollowinga hedge designationsinplaceat31stDecember. the debtandderivativesportfolioproportion offinancialinstrumentsinforeign currencies are allconstantandonthe The sensitivityanalysishasbeenprepared ontheassumptionthatamountofnetdebt,ratiofixedtofloatinginterest Sensitivity analysis Group asset.Foreign exchange sensitivityonGroup assetsotherthanfinancialinstrumentsisnotincludedabove. positions were closedoutin2010.Therefore, adepreciation onthecurrency swapwouldgiveriseto a corresponding appreciati The movementsinequityrelate toforeign exchangepositionsusedtohedgeGroup assetsdenominatedinEuro. TheUSdollarand provisions were included. are notincludedinthetableabove.Thecombinedsensitivity ofthesehedginginstrumentsandtheprovisions wouldbeinsignifi receivables. Whilstthehedginginstrumentsprovide economichedges,therelated provisions are notfinancialinstrumentsandth The movementsintheincomestatementrelate primarilytohedginginstrumentsforUS legal provisions, andtotrade payablesan A 20%depreciation ofthestatedcurrencies wouldhaveanequalandoppositeeffect. 20% appreciation oftheYen 20% appreciation oftheEuro Financial instrumentsandrelated disclosures 1,9)– (14,997) 1,5)1,049 (14,757) 1,9)– (14,996) 1,9)– (14,997) continued 534 – – – (5,354) – 1,049 (2,819) – (1,358) (1,049) (1,599) (2,559) 29 (1,049) (259) 29 (1,049) (239) Debt £m 1 – (1)

rate swaps Effect of interest £m inincome Increase (14,997 (13,708 (14,996 (14,997 8 – 386 (5,354 (2,819 (1,358 (1,599 (2,559 (1,308 (1,288 51,697 35 £m –– Total 2010 £m (1 –

) ) ) ) ) ) ) ) ) ) ) ) Reduction in equity 1,2)–(16,127) – (16,127) 1,9)90(13,706) 990 (14,696) 1,2)–(16,126) – (16,126) 1,2)–(16,127) – (16,127) 2010 536 (5,306) (4,205) – (1,548) – (2,647) – (5,306) – (4,205) (2,421) (1,548) (990) (2,647) (1,431) 140 90 (2,420) (990) (1,430) £m 90 9 – 990 (990) Debt £m 1 (1) – (1) –––

rate swaps in income Effect of Increase interest 1 755 214 £m 21,779 72 £m 545 waps. waps. ates. ates.

basis of the basisofthe on on the on the cant if the cant ifthe rates of ratesof nalyses are erefore d trade d trade Reduction Yen Yen luding have in equity in the rial 2009 2009 Total le £m £m

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

(2) 169 £m £m 89 38 18 £m £m Total Total 2009 2009 523 686 Total Total (1,921) (4,913) (7,331) (3,530) (2,297) (1,591) in income in net debt (10,450) (32,033) me he effects he effects erest rates. erest relate relate over the last financial n one year is mber is defined is defined Increase/(decrease) Increase/(decrease) Increase/(decrease) Increase/(decrease) instruments n equity. e sheet date. £m £m ) ) tively uments, being the GSK Annual Report 2010 £m £m 29 37 (18 (13 and other and other 2010 2010 851 606 in net debt in net debt liabilities not liabilities not Trade payables Trade Trade payables Trade in income in net debt £m £m leases leases Increase/(decrease) Increase/(decrease) Increase/(decrease) under finance under finance on obligations on obligations Finance charge Finance charge

£m £m leases leases Obligations Obligations under ﬁnance under ﬁnance

£m £m debt debt Interest on Interest Interest on Interest

£m £m Debt Debt continued Financial instruments and related disclosures disclosures and related instruments Financial Due in less than one yearBetween one and two years yearsBetween two and three and four yearsBetween three Between four and five yearsBetween five and ten years than ten yearsGreater contractual cash flowsGross (1,431) (2,655) (1,553) – (757) (754) (932) (594) (4,230) (753) (40) (16,183) (24) (2,088) (536) (14) (5,382) (10,733) (32) (5,251) (4) (15) (2) (5) (130) (2) (5,828) (6) (28) – (8,060) (1) (16) (1) (14) (161) (3,463) (6,051) (2,177) (15) (33,113) (952) – (5) (6,349) (1,479) – (10,633) At 31st December 2010 Due in less than one year (259) (755) (32) (5) (6,280) primarily to foreign exchange contracts used to hedge the Group’s currency net assets and US legal provisions. net assets and US currency to hedge the Group’s exchange contracts used foreign primarily to rates in US dollar interest 2% (200 basis points) increase financial liabilities and derivative instruments Contractual cash flows for non-derivative non-derivative for the Group’s payable contractual cash flows including interest The following is an analysis of the anticipated the purpose of this table, debt rate swaps has been excluded. For of interest liabilities on an undiscounted basis. The impact is calculated based on debt held at 31st Dece except for obligations under finance leases. Interest as all classes of borrowings rate at the balanc interest is estimated using the prevailing issuance. Floating rate interest without taking account of future translated using spot rates at 31st December. are currencies Cash flows in foreign Between one and two years yearsBetween two and three and four yearsBetween three Between four and five yearsBetween five and ten years than ten yearsGreater (2,564) (1,603) (962) (756) (638) (1,368) (2,831) (559) (27) (538) (18) (2,053) (5,425) (11) (5,013) (5) (7) (3) (8) (2) (178) (35) (1) – – (57) (7) – (21) (12) 2% (200 basis points) increase in Sterling interest rates in Sterling interest 2% (200 basis points) increase movements on net debt exchange Impact of foreign of the US dollar 20% appreciation of foreign exchange derivatives, which are not part of net debt but affect future foreign currency cash flows. These derivatives cash flows. currency foreign future of net debt but affect not part derivatives, which are exchange of foreign of the Euro 20% appreciation of the Yen 20% appreciation effect. would have an equal and opposite currencies of the stated A 20% depreciation rate sensitivity Interest financial instr rate Sterling, US dollar and Euro rates on its floating sensitivity to interest the Group’s The table below shows rates movements in these interest GSK has considered issued debt and held investments. in which GSK has historically currencies rates interest in Euro 2% (200 basis points) increase in inco 1.0%. The maximum increase/(decrease) less than currently by 2% as they are rates could not be decreased These interest rates respec interest million) for Sterling, US Dollar and Euro be limited to (£8 million), £2 million and (£11 would therefore financial derivatives and other currency rate movements on foreign Interest (2009 – £1 million, (£4 million) and (£2 million)). in these int or decrease balance sheet based on a 2% increase to the Group’s a material exposure not in net debt do not present contractual cash flowsGross At 31st December 2009 (15,012) (10,312) (103) (16) (6,590) 41 adjusting for t of net debt based on the composition exchange rates to foreign sensitivity the Group’s presents The table below Notes to the financial statements financial the to Notes three years and has concluded that a 2% (200 basis points) increase is a reasonable benchmark. Debt with a maturity of less tha benchmark. is a reasonable that a 2% (200 basis points) increase years and has concluded three o to have a material effect rates is not deemed basis points) movement in interest floating rate for this calculation. A 2% (200 Financial statements P102–P191 Total Non-current Current Analysed as: Total derivativeinstruments Derivatives notdesignatedasaccountinghedges Embedded andotherderivatives (principalamount–£6,474million(2009£8,568million)) Foreign exchangecontracts Derivatives designatedasaccountinghedges (principalamount–£3,506million(2009£7,756million)) Net investmenthedges–Foreign exchangecontracts (principalamount–£962million(2009£932million)) Fair valuehedges–Interest rateswaps The followingtablesetsoutthefairvaluesofderivativesheldbyGSK. Derivative financialinstrumentsandhedgingprogrammes Gross contractualcashflows Greater thanfiveyears Between fourandfiveyears Between three andfouryears Between twoandthree years Between oneandtwoyears Less thanoneyear was recorded oncash flow hedgesduring2010. The netfairvaluemovementson cashflowhedgesare disclosed intheconsolidatedstatementofcomprehensive income.Noineffec exchange exposure arisingontheGBPequivalentinterest costonEuro loansissuedandsettledinJulyDecember 2010. The Group hasalsoentered intoanumberofforeign exchangeforward contracts anddesignatedthemascashflowhedgesofthe hedge andincludedintheinitial carryingvalueofgoodwillandintangiblesrecorded on theacquisitionofentity. cash flowhedgematured atthatdate.Theamountrecognised inothercomprehensive incomein2010wasremoved uponmaturityoft arising ontheUSdollarpurchase considerationofahighlyprobable businessacquisition.Theacquisitionoccurred inOctober The Group entered intoanumberofforeign exchangeforward contractsanddesignatedthemasacashflowhedgeoftheexchange Cash flowhedges in theperiodtooffset theexchangegainsandlossesonrelated inter-company lendingandborrowing. inter-company loansanddeposits,butare notdesignatedasaccountinghedges.Changesinfairvalueare takentotheincomest consisting primarilyofcurrency swapswithatotalcredit fairvalueof£72million(2009–£19credit) whichrepresen of contractsare forperiodsof12monthsorless.At31stDecember2010,theGroup heldoutstandingforeign exchangecontracts The principalamountonforeign exchangecontractsisthenettotalofoutstandingpositions atthebalancesheetdate.Themaj Derivative financialinstruments this table,though,inpractice,theGroup usesstandard settlementarrangementstoreduce itsliquidityrequirements onthese translated usingspotratesat31stDecember. Thegross cashflowsofforeign exchangecontractsare presented forthepurposes embedded derivativesandequityoptionswhichare notmaterial,usingundiscountedcashflows.Cashflowsinforeign currencies a The followingtableprovides ananalysisoftheanticipatedcontractualcashflowsforGroup’s derivativeinstruments,exclu 41 Notes tothefinancialstatements GSK Annual Report 2010 GSK Annual Report 170 Financial instrumentsandrelated disclosures continued Receivables 388(13,893) 13,888 (13,511) 13,555 Assets 8 (365) 288 9 (193) 190 9 (193) 190 4(7) (10) 14 31 7(5) 97 3(188) 93 3(170) 93 8(160) 88 7(23) 97 7– 97 £m £m –– –– (10) 5 (23) – Fair value Liabilities Payables 2010 2010 £m £m Receivables 179(21,720) 21,729 (21,318) 21,341 Assets 8 (321) 285 9 (168) 197 2 (168) 129 9 (168) 197 0 (55) 104 1(19) 21 2(51) 72 0(11) 10 8– 68 3(113) 93 9(108) 89 6(55) 36 8– 68 £m £m 4(5) –– t hedges of t hedgesof 2010 and the 2010 andthe ding ding instruments. of of ority ority atement atement re re Fair value

Liabilities tiveness tiveness Payables 2009 2009 £m he he £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 171 S lc at Plan, del has by the ses d from d from uro uro rmance

ice, the cted shares cted shares the date share share ria. ash. hare plan hare ranting of sts’. fair value fair value eness is ations. GSK Annual Report 2010 2009 2008 5.2% 4.8% 5 years 5 years £11.72 £11.59 $33.73 $45.02 3-4 years years 3 23% – 29% 19% – 24% 1.4% – 2.9% 1.3% – 4.8% 2010 5.3% £12.04 $37.29 5 years 3-4 years 26% – 29% 0.8% – 1.9% 5.85 billion issued in previous years is designated as a net investment hedge in respect of the foreign currency translation currency of the foreign in respect years is designated as a net investment hedge previous 5.85 billion issued in Á Employee share schemes Employee share Risk-free interest rate interest Risk-free loan capital of ineffectiv operations. Net investment hedge in its Euro net investment on consolidation of the Group’s risk principally arising based payment charge, the Black-Scholes option pricing mo to arrive at the share For the purposes of valuing options and awards as follows: for 2008, 2009 and 2010 are been used. The assumptions used in the model Option pricing 42 p or ADS in GlaxoSmithKline shares granted to employees to acquire options are whereby option schemes, operates share The Group Net investment hedges Net investment currency of the foreign in respect investment hedges designated as net were exchange contracts certain foreign year, During the oper foreign and Yen Euro in its US Dollar, net investment the Group’s on consolidation of risk principally arising translation operations. In addition, E foreign of its Euro in respect held such net investment hedges only the Group At 31st December 2010, ‘Finance income’. disclosed in Note 11, operates the Performance Share schemes. In addition, GSK award schemes and share option share the grant price, savings-related to in GlaxoSmithKline plc at no cost, subject or ADS shares the achievement granted to employees to acquire are awards whereby Dividend yield Fair value hedges Fair value of the hedged is the variability hedge. The risk being swaps as a fair value rate a series of interest has designated The Group Notes to the financial statements financial the to Notes of the bond arising from interest rate fluctuations. Gains and losses on fair value hedges are disclosed in Note 12, ‘Finance co in Note 12, ‘Finance disclosed fair value hedges are Gains and losses on rate fluctuations. interest arising from of the bond AD or shares acquire granted to employees to are awards Plan, whereby Value targets and the Share of specified performance Group Volatility Expected lives of options granted under: schemes option Share price for grants in the year: average share Weighted Shares Ordinary in GlaxoSmithKline plc at no cost after a three year vesting period. The granting of restricted share awards has replaced the g has replaced awards share granting of restricted year vesting period. The at no cost after a three in GlaxoSmithKline plc schemes award option and share share Savings-related ADS options to certain employees as the cost of the scheme more readily equates to the potential gain to be made by the employee an readily the scheme more options to certain employees as the cost of s The fair value of performance appropriate. price history where and five year share is determined based on the three Volatility 2010 onwards, no further grants will be made under the savings-related share option schemes. share no further grants will be made under the savings-related 2010 onwards, the date of grant. Grants of restri ten years from and between three normally exercisable option schemes are Grants under share determined based on weighted average historic exerci grants take into account market conditions. Expected lives of options were and share awards are normally exercisable at the end of the three year vesting/performance period. Grants under savings-related at the end of the three exercisable normally are awards and share subject to performance crite the 2004 grant, the CET are from and, with effect to the Directors options awarded of grant. Share of options. option schemes are normally exercisable after three years’ saving. Grants under share option schemes and awards under the Perfo option schemes and awards years’ saving. Grants under share after three normally exercisable option schemes are c will be settled in plc but in some circumstances or ADS in GSK shares normally granted to employees to acquire are Plan Share with UK pract market price ruling at the date of grant. In accordance granted at the option schemes are Options under the share price ruling at granted at a price 20% below the market are option schemes share majority of options under the savings-related Financial statements P102–P191 42 Notes tothefinancialstatements GSK Annual Report 2010 GSK Annual Report £12.46 $38.71 – £10.02 (800) £9.59 £10.45 – (1,310) –£10.50 5,955 £9.51 £11.09 £9.77 £11.34 – (3,377) (1,460) $49.62 8,065 £12.39 £2.22 $36.59 (7,776) $45.73 –$58.00 £10.67 £9.72 $3.95 (916) $33.42 £10.26 72,111 (2,401) £10.38 $37.29 1,648 (453) $55.64 £2.56 11,254 $37.03 7,384 (9,447) $46.88 £11.02 $3.41 £9.51 (353) £15.10 £1.19 73,419 8,538 –£19.40 $33.68 (21,551) £11.86 £10.76 £14.02 Weighted averageremaining 5,570 $53.13 £12.04 7,741 (3,625) priceonexercise 110,100 (7,497) $42.18 $49.29 11,257 $3.84 Weighted averagemarket £17.18 (1,989) £1.16 75,478 Range ofexercise prices $44.89 (21,269) £11.80 £14.32 £11.76 $49.91 At 31stDecember2010 7,690 (2,660) 124,019 Options lapsed 11,393 77,274 £16.52 Options exercised £1.32 Options granted (21,602) £11.84 £14.93 £11.50 At 31stDecember2009 (2,198) 136,555 Options lapsed 11,314 Options exercised £15.38 Options granted 149,041 At 31stDecember2008 Options lapsed Options exercised Options granted At 1stJanuary2008 Options outstanding 172 There hasbeennochangeintheeffective exercise priceofanyoutstandingoptionsduringtheyear. within thevariousschemerules. Options normallybecomeexercisable from three yearsfrom thedateofgrantbutmay, undercertaincircumstances, vestearlier t3s eebr21 132£48 381$82 7 £10.50 175 £11.40 254 £11.45 3,248 $48.26 53,831 $47.63 53,493 $48.57 – 55,384 £14.80 81,362 – – £14.86 – 94,967 – £15.29 – – – 22.04.13 – 109,207 $45.73 £9.72 23.04.12 – 25.04.11 £9.51 72,111 £10.50 – 1,429 – – 175 4,351 – – 21.07.20 $37.29 – At 31stDecember2010 22.07.19 – $33.68 7,152 05.11.18 – $44.90 25.07.17 7,228 At 31stDecember2009 – $57.54 02.11.15 28.07.16 £14.02 7,196 $47.31 – $51.32 21.07.20 7,061 £12.04 110,100 At 31stDecember2008 374 22.07.19 5,427 – 02.12.14 £11.76 11,001 $43.17 27.07.18 £11.50 25.07.17 10,827 16.12.13 5,516 £14.81 $43.54 28.11.16 10,306 03.12.12 02.11.15 £14.69 9,041 Options exercisable $37.68 £13.07 9,186 6,979 28.11.11 4,727 155 03.12.14 $51.85 £11.23 18,244 16.12.13 5,074 £12.67 03.12.12 £11.98 16,256 29.11.11 £18.13 11,414 29,047 Total 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 cnrcullf .9yas43 er 1.52years 4.39years 4.19years at 31stDecember2010 Options outstanding contractuallife Year ofgrant Employee share schemes Number

continued 000 Number

000

Weighted exercise Weighted Number exercise price schemes –shares price 000 schemes –shares schemes -shares Share option

Share option Share option Weighted Weighted exercise exercise value Latest fair price date Number Number 000

000

Weighted Weighted exercise Number exercise price price 000 schemes –ADS schemes –ADS

schemes -ADS Share option Share option Share option Weighted Weighted exercise exercise value Latest price fair date Number Number 5,955 000 000

Weighted Weighted Number exercise £9.59 Exercise share optionschemes share optionschemes share optionschemes price price 000 Savings-related Savings-related Savings-related

as set out as setout Weighted Weighted exercise exercise Latest value price date fair Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 173

ectors the . h eriod ntage ail tional fair value fair value Weighted Weighted Weighted Weighted wards wards ich ADS ADS GSK Annual Report 2010 Number (000) Number (000) fair value fair value Weighted Weighted Weighted Weighted Shares Shares Shares Shares Number (000) Number (000) continued

Employee share schemes share Employee GlaxoSmithKline share award schemes award share GlaxoSmithKline The remaining 60% of the award is based on relative TSR performance against a comparator group as described on pages 85 and 87. group TSR performance against a comparator on relative is based 60% of the award The remaining and members of the CET prior to 2009 are subject to a single performance condition which compares GSK’s TSR over the period wit TSR over the period GSK’s which compares performance condition subject to a single 2009 are of the CET prior to and members and members granted in 2009 and 2010 to Directors awards over the same period. For in the comparator group the TSR of companies period year measurement cash flow targets over a three adjusted free is based on the achievement of of the award 40% of the CET, years and half over four years. over three is measured of each award Half of the TSR element each of wh performance conditions consist of two parts, eligible employees prior to 2009 the made to all other For those awards Performance Share Plan Share Performance perce at no cost. The and senior executives to Directors granted are awards Plan whereby a Performance Share operates The Group to Dir granted Awards period. year measurement over a three Group performance of the vests is based upon the that of each award in the UK Ret to the increase EPS growth GSK’s compares The first part of the performance condition award. applies to 50% of the the p TSR over GSK’s condition compares period. The second part of the performance measurement year three Prices Index over the the first part of 2009 onwards, granted from For awards over the same period. in the comparator group with the TSR of companies 42 Notes to the financial statements financial the to Notes performance condition continues to be based on EPS. The second part of the performance condition is based on strategic or opera part of the performance condition is based continues to be based on EPS. The second performance condition business area. period, specific to the employee’s year measurement over a three business measures, vest after three years. There are no performance criteria attached. are years. There vest after three At 1st January 2008 grantedAwards exercisedAwards cancelledAwards At 31st December 2008 grantedAwards exercisedAwards cancelledAwards At 31st December 2009 grantedAwards exercisedAwards cancelledAwards At 31st December 2010 9,634 5,572 13,688 (926) (592) £9.85 8,283 5,572 4,640 (4,345) 14,235 $36.46 11,362 (680) £9.86 (931) (630) 5,844 4,291 14,252 (4,993) £10.04 $30.53 (3,783) 11,309 (834) 4,355 (561) $31.30 10,978 (3,939) (747) The Group operates a Share Value Plan whereby awards are granted, in the form of shares, to certain employees at no cost. The a to certain granted, in the form of shares, are awards Plan whereby Value operates a Share The Group Share Value Plan Value Share At 1st January 2008 grantedAwards exercisedAwards cancelledAwards At 31st December 2008 grantedAwards exercisedAwards cancelledAwards At 31st December 2009 grantedAwards exercisedAwards cancelledAwards At 31st December 2010 5,731 2,834 (1,519) 6,535 (511) £7.77 4,327 3,365 1,467 (1,270) 7,606 (1,024) $27.99 (1,516) £8.80 3,858 (420) 3,812 1,392 8,893 (440) (2,085) $29.45 £9.13 3,732 (1,497) (21) 1,624 $29.91 3,613 (1,357) (386) Number of shares and ADS issuable Number of shares Financial statements P102–P191 Market value Carrying value Shares heldforshare optionschemes Market value Carrying value 50% oftheaward initiallyvestingandthen25%ineachofthesubsequenttwoyears.There are noperformancecriteriaattached executives atnocost.Awards typicallyvestoverathree-year periodcommencingonthefourthanniversaryfrom dateofgrantw The Group operatesaDeferred InvestmentAward Planwhereby awards are granted,intheformofnotionalshares, tocertainseni 42 Notes tothefinancialstatements t3s eebr21 4 280 209 Nominal value 744 Number ofshares (‘000) 119 549 96 Nominal value 538 Number ofshares(‘000) Shares heldforshare 224 award schemes SmithKline BeechamMid-Term IncentivePlan.Thetrusteeshavewaivedtheirrightstodividendsontheshares heldbytheESOP T to retainedTheTrusts earnings. alsoacquire andholdshares tomeet notionaldividendsre-invested ondeferred awards undert proceeds receivable from employeesonexercise. Ifthere isdeemedtobeapermanentdiminutioninvaluethisreflected bya Trusts are chargedtotheincomestatement.Shares heldbytheESOP Trusts are deductedfrom otherreserves andheldattheval purchase shares ontheopenmarketwithfinanceprovided bytheGroup bywayofloansorcontributions.CostsrunningtheESO made underemployeeincentiveplansandoptionsgrantedshare optionschemes.ThetrusteesoftheESOPTrusts The Group sponsorsEmployee Share OwnershipPlan(ESOP)Trusts toacquire andholdshares inGlaxoSmithKlineplcto satisfyawa Employee Share Ownership PlanTrusts At 31stDecember2010 Awards cancelled Awards exercised Awards granted At 31stDecember2009 Awards cancelled Awards exercised Awards granted At 31stDecember2008 Awards cancelled Awards exercised Awards granted At 1stJanuary2008 Number ofshares andADSissuable GSK Annual Report 2010 GSK Annual Report 174 Deferred InvestmentAward Plan Employee share schemes

continued Number (000) Shares 9 1.09 $36.85 96 £12.20 290 $43.80 70 £11.70 334 2)(16) (9) (10) (32) (23) (72) (20) (20) (15) (20) 6£20 3 $31.94 132 £12.04 46 (27) – Weighted fair value Number (000) 54,347 51,125 674 637 634 208 2010 2010 ADS 14 13 £m £m he he transfer transfer ue of ue of ith ith rusts. 60,538 57,197 . Weighted or or fair value rds P 799 921 755 217 2009 2009 15 14 £m £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 175 . wise. activities. GSK Annual Report 2010 Sector Activity % Location Subsidiary BrentfordBrentfordBrentfordBrentfordBrentford (One) Limited +GlaxoSmithKline Holdings Brentford Unlimited +GlaxoSmithKline Services Brentford Limited +GlaxoSmithKline Mercury Brentford GlaxoSmithKline Finance plcBrentford GlaxoSmithKline Capital plc Brentford SmithKline Beecham Limited Brentford Limited Wellcome Brentford Limited Glaxo Group Brentford Glaxo Operations UK Limited Brentford Ph,CH Export Limited GlaxoSmithKline Brentford & Development Limited Research GlaxoSmithKline Cambridge GlaxoSmithKline UK LimitedBrentford Ph,CH Glaxochem Pte Ltd (i)Brentford h Setfirst Limited Brentford Foundation Limited The Wellcome Ph Domantis Limited s Limited ViiV Healthcare Ph,CH PhRixensart UK Limited ViiV Healthcare Ph,CH Services Limited Ph,CH Trading ViiV Healthcare h d e h m p r f d r Brøndby f Ph GlaxoSmithKline Biologicals S.A. Ph Ph,CH Ph Marly le Roi PhMarly le Roi GlaxoSmithKline Pharma A/S Ph p e Marly le Roi h Marly le Roi h PhSt. Amand Les Eaux GlaxoSmithKline S.A.S. Laboratoire Ph m p S.A.S. Production Wellcome Glaxo GlaxoSmithKline Biologicals S.A.S. Ph,CH p Sante Grand Public S.A.S. GlaxoSmithKline Munich S.A.S. ViiV Healthcare Ph Ph e f Ph h 85 h Ph s m Milan d r h GlaxoSmithKline GmbH & Co. KG 85 d e m p r Verona 85 CH Ph Ph Ph S.p.A. GlaxoSmithKline Consumer Healthcare Ph GlaxoSmithKline Manufacturing S.p.A. m r d m m p p Ph Ph CH d h m s m 85 Ph m p Principal Group companies Group Principal All companies are incorporated in their principal country of operation except where stated. except where country of operation in their principal incorporated are All companies 43 2010 at 31st December Group of the GlaxoSmithKline associated undertakings principal subsidiary and the represent The following Notes to the financial statements financial the to Notes Details are given of the principal country of operation, the location of the headquarters, the business sector and the business the business sector of the headquarters, of operation, the location the principal country given of Details are other is shown interest its percentage except where by the Group is wholly owned of these undertakings capital share The equity Austria Belgium Genval Vienna Czech RepublicS.A. PragueDenmark GlaxoSmithKline Finland Orestadt France GlaxoSmithKline Pharma GmbH s.r.o. GlaxoSmithKline Espoo Marly le Roi A/S GlaxoSmithKline Consumer Healthcare Germany GlaxoSmithKline S.A.S. Groupe GlaxoSmithKline OyGreece BuehlHungaryItaly Ph m Athens CH Ph Budapest GmbH & Co. KG GlaxoSmithKline Consumer Healthcare Verona Ph,CH m m GlaxoSmithKline A.E.B.E Limited Products GlaxoSmithKline Medicine and Healthcare CH m Ph,CH Ph d h m p r s GlaxoSmithKline S.p.A. e m Ph h m Ph,CH m Ph m d h Europe England Brentford +GlaxoSmithKline Holdings Limited Ph,CH h Financial statements P102–P191 ehrad es lxSihln ..P m Ph fh Ph,CH GlaxoSmithKlineB.V. (Luxembourg)S.A.R.L GlaxoSmithKlineInternational Zeist Mamer Netherlands Luxembourg Europe 43 Notes tothefinancialstatements utai ooi lxSihln utai t t hC dem pr dhms m Ph,CH Ph,CH mpr Ph Ph i emps GlaxoSmithKline(China) InvestmentCo.Ltd Ph,CH Ph,CH GlaxoSmithKline AustraliaPtyLtd Beijing GlaxoSmithKline PuertoRicoInc. m Boronia hmp China GlaxoSmithKlineMexicoS.A.deC.V. m Ph Australia m Guaynabo Delegacion Tlalpan Ph GlaxoSmithKline Inc. Asia Pacific GlaxoSmithKlineInsuranceLtd Puerto Rico Ph Ph Mexico Mississauga m m s Hamilton Canada Ph Bermuda CH Ph,CH Americas StiefelLaboratories,Inc. GlaxoSmithKlineAB e Research Triangle Park GlaxoSmithKlineS.A. dpr GlaxoSmithKlineAG Ph USA p m Muenchenbuchsee Solna USA GlaxoSmithKline Trading GlaxoSmithKlineHealthcare ZAO ZAO Ph Switzerland Madrid Europharm HoldingS.A. Ph Sweden Ph Moscow Moscow Spain GlaxoSmithKlineTrading ServicesLimited(ii) m Ph Federation Brasov Russian GlaxoSmithKline-Produtos Farmaceuticos,Limitada SmithKlineBeecham(Cork)Limited(ii) Romania Cork GlaxoSmithKlinePharmaceuticalsS.A. Carrigaline Alges Ireland GlaxoSmithKline Republic of Poznan Portugal AS Poland Norway Oslo GSK Annual Report 2010 GSK Annual Report 176 PrincipalGroup companies ogKn lxSihln iie hC m mp Ph,CH h Ph 55 dmpr Ph CH dmpr Smith Kline&French LaboratoriesLtd Sino-AmericanTianjin m Ph r GlaxoSmithKline Biologicals(Shanghai) Ltd 85 f GlaxoSmithKline Limited m mp CH hm Tianjin Ph Shanghai Ph Hong Kong Ph Ph CH h dehmprs Ph,CH IDBiomedicalCorporation 88 IDBiomedicalCorporationofQuebec mp GlaxoSmithKlineConsumerHealthcare Inc. Ph,CH p CH Quebec City Laval Mississauga Ph m SirtrisPharmaceuticalsInc. GlaxoSmithKlineCapitalInc. mrs GlaxoSmithKlineHoldings(Americas)Inc. BlockDrugCompany, Inc. Healthcare ViiV Company Research Triangle Park GlaxoSmithKlineConsumerHealthcare, L.P. CH Cambridge Ph CorixaCorporation Wilmington GlaxoSmithKlineLLC m Wilmington p p Pittsburgh Pittsburgh m Philadelphia Ph Marietta CH CH GlaxoSmithKlineConsumerHealthcare S.A. Ph GlaxoWellcome, S.A. m Aranda deDuero me Madrid GlaxoSmithKline (GSK)S.R.L. CH CH GlaxoSmithKlineDungarvanLimited(ii) GlaxoSmithKline(Ireland) Limited Stafford Miller(Ireland) Limited(ii) GlaxoSmithKlineConsumerHealthcare (Ireland) Limited(ii) Bucharest Dungarvan Dungarvan Dublin GlaxoSmithKlineConsumerHealthcare Sp.zo.o. Dublin GSKServicesSp.zo.o. Warsaw Poznan es lxSihln osmrHatcr ..C m CH GlaxoSmithKlineConsumerHealthcare B.V. Zeist oainSubsidiary Location continued etrAtvt % Activity Sector Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 177 Inc. y of h the GSK Annual Report 2010 d e m p r Sector Activity % Sector Activity % Ph,CH d m p Comercial y Financiera Comercial Ph d e m p continued See Note 20 for further details. d development, e exporting, f finance, h holding company, i insurance, m marketing, p production, r research, s service r research, i insurance, m marketing, p production, d development, e exporting, f finance, h holding company, Location Associate Location Subsidiary Buenos Aires Laboratorios Phoenix Sociedad Anonima Industrial NabhaSelangor Limited (iii) Healthcare GlaxoSmithKline Consumer Sdn BhdConsumer Healthcare GlaxoSmithKline Singapore CH GlaxoSmithKline Pte Ltd d e m p r CH 43 m Ph,CH m dominant influence. Diagnostics Inc. Consolidated as a subsidiary undertaking in accordance with Section 1162 (4)(a) of the Companies Act 2006 on the grounds of with Section 1162 (4)(a) of the Companies Act 2006 on the grounds Consolidated as a subsidiary undertaking in accordance in Quest shareholding GSK sold its entire of significant influence. Subsequent to the year-end Equity accounted on the grounds Principal Group companies companies Group Principal the company, and the company has fully and unconditionally guaranteed the securities issued by each of GlaxoSmithKline Capital and the company has fully and the company, and GlaxoSmithKline Capital plc. Registrar of Companies. Each of GlaxoSmithKline Capital Inc. and GlaxoSmithKline Capital plc is a wholly-owned finance subsidiar Registrar of Companies. Each of GlaxoSmithKline Capital Inc. and GlaxoSmithKline Key Business sector: Pharmaceuticals, CH Consumer Healthcare Ph Business activity: Annual Return filed wit to be subsidiary and associated undertakings will be attached to the company’s Full details of all Group Middle East & Africa South Africa(i) Johannesburg Incorporated in Singapore. (ii) Act 1986 (Ireland). of Section 7 of the Companies (Amendment) the provisions Exempt from (iii) Holdings Limited (iv) Aspen Pharmacare (iv) Ph,CH m p r 19 USA Madison Quest Diagnostics Incorporated (iv) Clinical testing 18 Japan Tokyo GlaxoSmithKline K.K. Latin America Argentina Buenos Aires GlaxoSmithKline Argentina S.A. Ph,CH USA Middle East & Africa EgyptSouth AfricaTurkey Johannesburg Cairo GlaxoSmithKline South Africa (Pty) Limited Istanbul GlaxoSmithKline S.A.E GlaxoSmithKline Ilaclari Sanayi ve Ticaret A.S. Ph,CH e m p Ph,CH m Ph m p 91 BrazilColombiaVenezuela Bogota Rio de Janeiro Caracas Brasil Limitada GlaxoSmithKline Colombia S.A. GlaxoSmithKline C.A. Venezuela, GlaxoSmithKline Ph,CH Ph,CH Ph,CH p e m m m Japan MalaysiaNew Zealand Petaling JayaPakistan Auckland PhilippinesSingapore Karachi Sdn Bhd Pharmaceutical GlaxoSmithKline Makati NZ Limited GlaxoSmithKline South Korea SingaporeThailand Seoul GlaxoSmithKline Pakistan Limited GlaxoSmithKline Philippines Inc Bangkok Pte Ltd Manufacturing Glaxo Wellcome Limited Korea GlaxoSmithKline Ph GlaxoSmithKline (Thailand) Limited m Ph,CH Ph,CH Ph Ph,CH m e m p d h p r 82 Ph ,CH Ph,CH m m m India Mumbai GlaxoSmithKline Pharmaceuticals Limited Ph m p 51 Asia Pacific 43 Notes to the financial statements financial the to Notes + held wholly owned subsidiary of GlaxoSmithKline plc. Directly Financial statements P102–P191 The mostsignificantofthesemattersare describedbelow. which thejudgmentsare incurred orthesettlementsentered into. the results ofoperation the Group inthereporting periodin If thiswere tohappen,itcould haveamaterialadverseimpacton reported intheGroup’s financial accounts byamaterialamount. any legalproceedings willnot exceedtheamountofprovisions can benoassurancethatanylossesresult from theoutcomeof The Group’s positioncouldchangeovertime,and,therefore, there proceedings, investigations andpossiblesettlementnegotiations. amounts provided andisdependent upontheoutcomeoflitigation £4.0 billion.Theultimateliabilityforlegalclaimsmayvaryfrom the including taxmattersdescribedinNote14,‘Taxation’) was the Group’s aggregate provision forlegalandotherdisputes(not described inNote29,‘Otherprovisions’. At31stDecember2010, is usedtodetermineandestimatetheGroup’s exposure, as reported (IBNR)estimateusing actuarialtechniquesasappropriate to coverunassertedclaims.Incertaincasesanincurred butnot management tomakeareliable estimateoftheprovision required is sufficienthistoryofclaimsmadeandsettlementstoenable respect ofproduct liabilityclaimsrelated tocertainproducts there estimate canbemadeofthelikelyoutcomedispute.In where anoutflowofresources isconsidered probable andareliable made, aftertakingappropriate legalandotherspecialistadvice, charged toselling,generalandadministrationcosts.Provisions are Legal expensesincurred andprovisions related tolegalclaimsare results ofoperationsfortheGroup. decrease insalesofthatproduct andcouldmaterially affect future at issue.Theconsequencesofanysuchlosscouldbeasignificant these casescouldresult inlossofpatentprotection for theproduct assertions ofnon-infringementthosepatents.Alossinany the Group’s patentsonvariousproducts orprocesses aswell claims includechallengestothevalidityandenforceability of included butnoprovision wouldbemade.Intellectualproperty In thesecases,appropriate disclosures aboutsuchcases wouldbe if any, thatcouldresult from ultimateresolution oftheproceedings. possible tomakeareliable estimateoftheexpectedfinancialeffect, become involvedinlegalproceedings inrespect ofwhich itisnot and policies’Note29,‘Otherprovisions’. TheGroup may on aregular basisassummarisedinNote2,‘Accountingprinciples private litigation.TheGroup makesprovision forthese proceedings investigations,aswellrelated tax, anti-trustandgovernmental proceedings, principallyproduct liability, intellectualproperty, The Group isinvolvedinsignificantlegalandadministrative 44 Notes tothefinancialstatements covering A numberofcompanieshavechallengedtheGroup’s patents Advair/Seretide Intellectual property GSK Annual Report 2010 GSK Annual Report 178 whether to appeal this decision. whether toappeal thisdecision. product untilSeptember2013.TheGroup isdetermining Protection Certificate(SPC)whichextendsprotection forthe The Hagueon26thJanuary2011 revoked theSupplementary in anactionbrought bySandozandHexal,theDistrictCourt of step. TheGroup hasappealedthisdecision.IntheNetherlands, Group’s German Hexal, NeolabandIvax,theFederalCourtinMunichrevoked the in 2004.On23rd February2010,inactionsbrought byMylan, combination patentcoveringtheproduct intheUKwasrevoked the Netherlands.Asreported previously, theGroup’s including intheUK,Belgium,France,Germany, Ireland and Legalproceedings Advair / Seretide Seretide incertainEuropean jurisdictions, combination patent for lack of inventive combinationpatentforlackof inventive Seretide

the decisiontoCourtofAppealsforFederalCircuit. 20th June2014,theexpirationdateofpatent.Teva appealed decision, Teva isprecluded from launching itsgenericproduct until argatroban wasinfringedand notinvalid.Asaresult oftheCourt’s that Mitsubishi’s patentcoveringtheformulationforinjectable its partnersprevailed against Teva, withthetrialjudgeruling of theMitsubishipatent.On17thJune2010,Group and a certificationofinvalidity, unenforceability andnon-infringement an Abbreviated NewDrug Application (ANDA)withtheFDA expires inJune2014.Barr (now Teva Pharmaceuticals,Inc.)filed marketing rightsforargatroban totheGroup. TheMitsubishipatent Application approved bythe USFDA.Encysivelicensedthe of heparin-inducedthrombocytopenia andholdstheNewDrug from Mitsubishi,Encysivedeveloped argatroban forthetreatment composition patentcoveringargatroban. Pursuanttoalicense Laboratories, Inc.forinfringementofMitsubishi’s pharmaceutical DistrictofNewYorkDistrict CourtfortheSouthern againstBarr Corporation andtheGroup filedanactionintheUnitedStates In December2007,EncysivePharmaceuticalsInc.,MitsubishiKasei Argatroban The case is in its early stages. The caseisinitsearlystages. lymphatic leukemiawithananti-CD-20 monoclonalantibody. No. 7,682,612.Thatpatentclaimsthetreatment ofchronic Arzerra allegingthattheGroup’s DistrictofCalifornia Southern saleof against theGroup intheUnitedStatesDistrictCourtfor On 23rd March 2010,GenentechandBiogenIdecfiledsuit where DistrictofCalifornia thesuitiscurrently Northern pending. and filedanewcaseintheUnitedStatesDistrictCourtfor 2009. InFebruary2010,theGroup voluntarilydismissedthecase chronic lymphocyticleukaemia(anorphanindication)inOctober Arzerra invalid, unenforceable, ornotinfringedbytheGroup’s product which isownedjointlybyGenentech,Inc.andCityofHope, that USPatentNo.6,331,415(theso-called‘CabillyII’patent), DistrictofFloridaforadeclaration District CourtfortheSouthern In October2009,theGroup filedanactionintheUnitedStates Arzerra To date,nogeneric Group’s Belgian In January2011,Sandozinitiatedarevocation actionagainstthe is subjecttoaSPCwhichextendsprotection untilSeptember2013. the combinationproduct in Trial hasbeenscheduledforJune2011.Thebasicpatentcovering was filedbySandozwiththeTribunal deGrandeInstanceofParis. An actionforrevocation oftheFrench No trialdatehasbeensetfortheappeal. The Group filedanappealofthisdecisioninOctober2009. on 26thJune2009findingthepatentinvalidforobviousness. behalf ofIvaxinJuly2008.TheHighCourthandeddownadecision combination inIreland wasfiledintheHighCourtDublinon A revocation actionagainstthebasicpatentcovering patents covering major European marketdespitetherevocation ofcertain Group induces and contributes to infringement of US Patent inducesandcontributestoinfringementofUSPatent (ofatumumab). Seretide Seretide Seretide Arzerra patent. patent. insomecountries. product hasbeenapproved inany Seretide wasapproved bytheFDAfor expired inSeptember2010but Seretide combination patent combinationpatent Seretide

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 179 pursuant to a GSK Annual Report 2010 include composition Levitra were granted to Pronova were Combivir Lovaza . Teva had filed an ANDA with the FDA . Teva Levitra , which expires in 2018, is invalid, unenforceable or not in 2018, is invalid, unenforceable , which expires are invalid, unenforceable, or not infringed. The patents invalid, unenforceable, are Levitra of matter (3TC/lamivudine), combination (lamivudine and AZT) (lamivudine combination of matter (3TC/lamivudine), and in 2010, 2012 that expire crystal form patents and lamivudine notice received 2007, the Group In September 2016, respectively. with the FDA alleging Inc. filed an ANDA Pharmaceuticals, that Teva invalid. patent is that the combination filed an action in the United Group In November 2007, the against Teva the District of Delaware States District Court for Inc. for infringement of the combinationPharmaceuticals USA to settle the agreed and Teva the Group patent. In April 2010, the terms of the settlement, Teva Under suit filed by the Group. enter the US market in the fourth quarterwill obtain a license to In light of the certain circumstances. of 2011, or earlier under court dismissed the case on 26th May 2010.settlement, the district that Lupin Ltd. filed a notice received In July 2008, the Group is FDA alleging that the combination patent certification with the Lupin also filed a certification invalid or not infringed by its product. form of lamivudine patent covering the crystal that the Group’s filed suit the Group is invalid or not infringed. In August 2008, Court for the District ofagainst Lupin in the United States District for infringement of its combination patent. In March Delaware by mutual consent2009, the action against Lupin was stayed On 26th May 2010, of the case against Teva. pending resolution was settled the first ANDA filer, case against Teva, the Group’s its case against the and dismissed. Lupin may choose to reactivate Lupin will not be However, the terms of the stay. under Group or until the expiration for its product able to obtain final approval 180-day exclusivity period. of Teva’s forfeiture Levitra participates in the marketing of The Group In July 2009, Bayer with Bayer Healthcare. agreement co-promotion the United States Pharmaceuticals in against Teva suit brought for infringement of its District Court for the District of Delaware to patent relating the active ingredient with a certification that the patent covering in Lovaza notice that Teva received 2009, the Group In March Pharmaceuticals USA, Inc., Par Pharmaceutical, Inc., and Apotex Inc., had filed ANDAs with a certification that two patents covering Lovaza is the licensee under these in 2013 and 2017. The Group expire Biopharma Norge AS, the owner of the patents, patents. Pronova Par and Apotex in the United States District Court for sued Teva, of the ANDAs will be stayed FDA approval the District of Delaware. until the earlier of May 2012 or a decision favourable to one of the 2011. March has been set by the court for 28th generics. Trial is not a party to these suits. The Group additional patents covering Three and Apotex Par sued Teva, and June 2010. Pronova between March on these patents, and a separate trial has been scheduled for January 2012. No additional 30-month stay attached to a suit3rd under these patents. Combivir for in the Orange Book Patents listed the by was put into effect infringed. A stay against FDA approval in the case adversefiling of the lawsuit until the earlier of a decision the trial date in theto Bayer or November 2011. In January 2011, 31st October 2011 to 27th February matter was extended from consented to an extension of the stay against FDA 2012, and Teva by an amount equal to the extension of the trial date. approval is not a party to this suit. The Group . Avodart (belimumab). product before before product Jalyn product until the later product Benlysta

Avodart . is a combination of dutasteride continued and its use to treat benign prostatic benign prostatic to treat and its use Jalyn Benlysta , alleging that the Group patent expiring , alleging that the Group Avodart Jalyn and . Anchen cannot launch its generic Avodart Legal proceedings proceedings Legal of September 2013 or expiration or forfeiture of Teva’s 180-day of Teva’s of September 2013 or expiration or forfeiture District sued Anchen in the United States The Group exclusivity. in January 2011. Court for the District of Delaware the expiration of the non-challenged patents in September 2013.the expiration of the non-challenged patents Anchen cannot launch its generic The Group has a licence to this patent from HGS but was not a has a licence to this patent from The Group The equivalent European party to these litigation proceedings. the patent was upheld in October 2009 on a final appeal from filed Patent Office following an opposition proceeding European the other European This UK decision does not affect by Eli Lilly. Patent. HGS appealed the this same European patents arising from Court decided that it UK decision. In July 2010, the UK Supreme would hear the appeal. A hearing date for the appeal has been set or HGS’ the Group’s for 18th July 2011. This decision will not affect ability to market and sell Benlysta In February 2010, the UK Court of Appeal upheld an earlier High the Human Genome Sciences (HGS) UK Court decision revoking by was brought Patent No. EP0939804. The claim for revocation and Eli Lilly in 2006 on the patent which claims the cytokine BLyS such as any antibody that binds to BLyS, in 2015 that covers dutasteride was invalid or not infringed byin 2015 that covers dutasteride was invalid products. their proposed by the same patents that cover and tamsulosin and is covered Avodart In January 2008, the Group received notice that Barr Laboratories notice that received 2008, the Group In January of an allegation of invalidity with the FDA with filed an ANDA which cover the in the Orange Book patents listed the three in active ingredient 44 Avodart Notes to the financial statements financial the to Notes Banner’s notification contained a ‘Paragraph IV’ certification Banner’s patents expiring in 2013 and one patent alleging that two Group proposed invalid or not infringed by Banner’s expiring in 2015 were the same patents These patents are generic dutasteride product. in March settlement with Teva the subject of the Group’s that were was the first to file a complete ANDA with a 2010. Since Teva exclusivity as to allParagraph IV certification, it holds 180-day until the expiration orlater filers. Banner cannot enter the market sued Banner The Group 180 days of exclusivity. of Teva’s forfeiture in District of Delaware in the United States District Court for the January 2011. Inc. sent the Group In December 2010, Anchen Pharmaceuticals, IV certificationsnotices that it had filed ANDAs with Paragraph for hyperplasia. Two of these patents expire in 2013, and one expires expires in 2013, and one of these patents expire hyperplasia. Two filed an action in the United 2008, the Group in 2015. In February against Barr for the District of Delaware States District Court for and 2010, the Group patents. In March infringement of these a settlement of the Pharmaceuticals, Inc.) reached Barr (now Teva 2010, the district court dismissed the case.litigation. On 12th May enter the will obtain a license to Teva Pursuant to the settlement, in the fourth quarter dutasteride product US market with a generic certain circumstances. of 2015 or earlier under notice Pharmacaps, Inc. sent the Group In November 2010, Banner to market a generic version of that it had filed an ANDA Financial statements P102–P191 party toanyofthelawsuitsbrought byPozen. approval ofagenericproduct untilApril2011.TheGroup isnota awaiting adecision. court. AtrialwasheldinOctober2010,andthepartiesare USA, Inc.andDr. Reddy’s underthesamepatentsin District ofTexas. In2009,PozenalsosuedTeva Pharmaceuticals for infringementofitspatentsintheDistrictCourtEastern Pozen filedsuitagainstAlphapharmandMylaninJanuary2009 January 2012. that theGroup willceasepromoting On 15thFebruary2011,AstellasandtheGroup announced market inOctober, 2018. Under thetermsofsettlement,Teva willbe able toenterthe The partiessettled,andthecasewasdismissed28thJune2010. basic patent,whichexpires in2018,wasinvalidorunenforceable. notice thatTeva hadfiledanANDAwithacertification thatthe covering theactiveingredient in DistrictofNewYorkthe Southern forinfringementofitspatent Teva PharmaceuticalsUSA,Inc.intheFederalDistrict Courtfor Astellas PharmaInc.InSeptember2009,filedsuitagainst relating to Treximet Mylan Pharmaceuticals,thattheFDAhadaccepteditsANDAfor Group received aletterfrom Alphapharmanditsdesignatedagent, DistrictofTexas.Court fortheEastern InNovember2008,the Pozen filedsuitagainstParunderthree ofitspatentsintheDistrict Pozen’s patentsare licensedtotheGroup. InNovember2008, circumstances. Thecasewasdismissed24thMay2010. with itsproduct inthethird quarterof2011orearlier incertain Glenmark hasreceived aroyalty-bearing licencetoenter themarket the caseinApril2010.Undertermsofsettlementagreement, hydrochloride anditsuseforpreventing malaria.The Group settled expire in2014,coverthecombinationofatovaquoneandproguanil were invalid,unenforceable, ornotinfringed.These patents, which for Group hadreceived notificationthatGlenmarkhadfiled anANDA Inc. USAforinfringementofitspatentsrelated to Court fortheDistrictofDelaware againstGlenmarkGenerics In August2009,theGroup filedsuitintheUnitedStatesDistrict Malarone 44 Notes tothefinancialstatements The Group markets Vesicare relating to which includedacertificationthatpatentsownedbyPozen,Inc. Pharmaceuticals thattheFDAhadaccepteditsANDAfor In October2008,theGroup received aletterfrom Par Treximet The litigationhasbeendismissedwithrespect toallparties. as litigationbrought byApotex againsttheGroup inCanada. DistrictofPennsylvania,aswell US DistrictCourtfortheEastern Seroxat the Group resolved allclaimsbyandagainstApotex in the Following acourt-ordered mediationinthesecondquarter of2010, Paxil/Seroxat GSK Annual Report 2010 GSK Annual Report 180 Legalproceedings Malarone patent infringement and anti-trust litigation venued in the patentinfringementandanti-trustlitigationvenuedinthe , whichalsoincludedacertificationthatPozen’s patents Treximet Treximet , withcertificationallegingthattheGroup’s patents were invalid,unenforceable ornotinfringed. were invalid,unenforceable ornotinfringed. Vesicare Treximet intheUSAunderlicensefrom hasdataexclusivitythatprecludes continued Vesicare Vesicare . Astellashadreceived intheUSAby Malarone Treximet . The . The Paxil/ , class actionsare pendinginCanada,andare atanearlystage. briefing ofwhethertocertifytheclassactionisunderway. Eleven One purportedclassactionon settle themajorityofclaimspendingasFebruary, 2011 liability casesintheUSA,Group hasreached agreements to respectincludes anestimateoffuture tosuchproduct claims.With provision forpotentialsettlementsaccordingly, whichprovision theproduct, other negativepublicityconcerning andadjusted its result oftheregulatory actiontakenbyFDAandinpartbasedon product liabilitycasesregarding The Group hascontinuedto receive asignificantnumberofnew containing medicines. who havedecidednottotakepioglitazoneorpioglitazone- control withotherdiabetes medications,andtothosepatients to newpatientswhoare unable toachieveadequateglycemic those patientsalready taking arosiglitazone-containing medicine, announced achangeinthelabelingfor and otherregulatory agencies. On7thFebruary2011,theFDA The Group isworkingtoimplement thedecisionsofFDA,EMA in othercountriesare reviewing orhavetakenregulatory action. rosigilitazone (includingall that ithaddeterminedtosuspendthemarketingauthorisationfor the medicine.InEU,EMAannouncedon23September2010 and MitigationStrategy(REMS)program toensure thesafeuseof of additional labelingandrestrictions onusetoensure thatthebenefits keeping allrosiglitazone products onthemarket,butrequiring On 23rd September2010, the FDAtookactiononrosiglitazone, and/or consumerprotection laws. and CorruptOrganizationsAct(RICO),stateunfairtradepractices various stateandfederallaws,includingTheRacketeerInfluenced of third partypayersandconsumers assertingclaimsarisingunder are 14purportedclassactionsseekingeconomicdamagesonbehalf havebeencoordinatedCalifornia inLosAngeles.Additionally, there been coordinated intheMassTort Program; casesinstatecourt number ofstatecourts.CasesfiledincourtPhiladelphiahave DistrictofPennsylvania.Caseshavealsobeenfiledina Eastern proceeding pendingintheUnitedStatesDistrictCourtfor of of individualsassertingpersonalinjuryclaimsarisingouttheuse The Group hasbeennamedinproduct liabilitylawsuits onbehalf A matters are describedbelow. and consumerhealthcare products. Themostsignificant ofthose of product liabilitylawsuitsrelated totheGroup’s pharmaceutical become evident.TheGroup iscurrently adefendantin anumber introduced intothemarketplace,unanticipatedsafetyissuesmay bodies. Notwithstandingtheseefforts, whendrugsandvaccinesare products forusebyhumansfollowingapproval byregulatory of potentialproducts todeterminethesafetyandefficacyof Pre-clinical andclinicaltrialsare conductedduringthe development Product liability vandia Avandia Avandia continue to outweigh its risks, including a Risk Evaluation continuetooutweighitsrisks,includingaRiskEvaluation . Thefederalcasesare partofamulti-districtlitigation Avandia Avandia Avandia products). Regulatory agencies products). Regulatoryagencies has been filed in Israel, and hasbeenfiledinIsrael,and Avandia in the USA, in part as a intheUSA,partasa to restrict use to torestrict useto Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 181 GSK Annual Report 2010 Thimerosal pharmaceutical a number of other along with The Group, individual a defendant in numerous has been named as companies, in and federal district courts lawsuits in state personal injury in the used a preservative that thimerosal, the USA alleging disorders causes neurodevelopmental of vaccines, manufacture injuries, including autism.and other purported class actions, although there the cases are of Two whether any of those cases will behas been no determination action. A number of purported class as a class permitted to proceed have been withdrawn or dismissed.actions in other jurisdictions punitive and including compensatory, seek remedies Plaintiffs well as the cost of a fund for medicalstatutory damages as monitoring and research. the limited number of cases in report, As of the date of this and vaccine manufacturers trial dates, that have approached medicinal products containing of other thimerosal manufacturers expert of plaintiffs’ have been successful in excluding testimony have that plaintiffs witnesses on causation, specifically on grounds between thimerosal failed to establish that the hypothesised link reliable is generally accepted as disorders and neurodevelopmental scientific community. within the relevant of the UnitedIn February 2009, the Office of Special Masters of the first three States Court of Federal Claims rejected 4,900 autism claims filed under the National approximately (NVICP) on the grounds Injury Compensation Program Vaccine scientific evidence linking reliable that claimants failed to produce including autism.their vaccinations to their medical conditions, from The findings was not a party to these proceedings. The Group lawsuits againstthem cannot be used as evidence in the pending upheld on appeal by the United decisions were All three the Group. NVICP claimants of the three States Court of Federal Claims. Two Court of Appeals forappealed the rulings to the United States which affirmed the decisions of the United the Federal Circuit claimant has elected not States Court of Federal Claims. The third the NVICP. the decision from to appeal further and has rejected an action either againstThis claimant now has the option of filing in the vaccine and/or the physician who administered the Group been commenced.question. As of this date, no such action has 4,900 NVICP claimants also will approximately The remaining ultimately have the option of pursuing personal injury lawsuits including the Group. against the vaccine manufacturers, Court issued On 22nd February 2011, the United States Supreme Wyeth, Inc., which involved the issue its decision in Bruesewitz v. Injury Compensation Act (NVICA) of whether the National Vaccine claiming that lawsuits against vaccine manufacturers precludes defectively designed. The by the NVICP are vaccines covered Court affirmed the decision of the United States Court Supreme and held that the NVICA pre-empts Circuit of Appeal for the Third by brought all design defect claims against vaccine manufacturers seeking compensation for injury or death caused by a plaintiffs side effects. vaccine’s number of in the has not seen an increase date, the Group To civil lawsuits filed against it following the announcement of the NVCIP decisions. Since the scope of the Bruesewitz ruling impacts to pursue claims that the design of only the ability of plaintiffs certain childhood vaccines was defective because it included the its impact on the willingness of as a preservative, use of thimerosal to pursue their civil lawsuits based on other legal theories plaintiffs no cases are there unknown. As of the date of this report, remains is a defendant. scheduled for trial in 2011 in which the Group

Paxil Paxil . during pregnancy. during pregnancy. Paxil Paxil continued from the market. from Poligrip (paroxetine) has caused a variety of injuries. has caused (paroxetine) caused patients to suffer symptoms on symptoms caused patients to suffer Paxil Paxil causes copper depletion and permanent neurologic causes copper depletion and permanent neurologic committed or attempted to commit suicide or acts of committed or attempted Paxil Legal proceedings proceedings Legal Poligrip injury. The federal cases are part of the Denture Cream Adhesive Cream part of the Denture The federal cases are injury. multi-district litigation (MDL) in the United States District Court for the Southern which was established in June District of Florida defendants in this & Gamble are and Procter 2009. Both the Group purported class actions asserting litigation. Included in the MDL are laws and economic loss claims under state consumer protection exceptions (two claims for medical monitoring. With current three all of state court cases in Pennsylvania and one in New York), the state court cases have been consolidated in the Philadelphia Purported class actions asserting consumer Program. Mass Tort has reached also filed in Canada. The Group fraud claims were in principle to settle the vast majority of current agreements has voluntarily withdrawn all zinc-containing cases. The Group formulations of Poligrip liability lawsuits and claims Beginning in 2005, a number of product in in both state and federal courts against the Group filed were alleging that the zincthe USA, including purported class actions, in Many of these lawsuits and claims allege that the use of allege that the use lawsuits and claims Many of these The Group has received numerous lawsuits and claims alleging lawsuits numerous has received The Group that use of 44 Paxil CR Paxil and Notes to the financial statements financial the to Notes during pregnancy resulted in the birth of a child with birth defects the birth of a child in resulted during pregnancy who lawsuits and claims allege that patients or health issues. Other took claims allege that of lawsuits and group a third violence. Finally, the use of litigation purported class action remains There during pregnancy. in Canada concerning use of discontinuing treatment with discontinuing treatment A California court granted plaintiffs’ motion to certify a class in aA California motion court granted plaintiffs’ damages, focusedconsumer fraud lawsuit seeking only economic on discontinuation symptoms. the Quebec court’s In Canada, the Court of Appeal affirmed motion to certify a class of patients who denial of plaintiffs’ That litigationallegedly experienced discontinuation symptoms. is now concluded. the from In the UK, public funding has been withdrawn funding to pursue of claimants who had received hundreds has caused common issues in litigation alleging that paroxetine and dependency. withdrawal reactions from them to suffer decision to withdraw funding The Legal Services Commission’s Panel by someis being appealed to a Special Cases Review their claims, andclaimants. Other claimants have discontinued in the High Court inthe trial listed to commence in early 2011 London has been vacated. The Group has reached agreements to settle the vast majority of to settle the agreements has reached The Group as of February 2011. Other matters havethe US claims pending scheduled payment. Some lawsuits remain been dismissed without cases scheduled for trial in the Philadelphiafor trial, including nine and June 2011 concerning in May use of Program Mass Tort Financial statements P102–P191 the requested information. The Group iscooperatingwith theinvestigationandproviding Group’s allegedpromotion of Advertising andCommunicationrequesting informationonthe an October2002letterfrom theFDA’s DivisionofDrugMarketing, isalsoinquiringabouttheGroup’sThe government response to initsinvestigation. government inquiry isnationwide.TheGroup continuestocooperatewiththe issued from theUSAttorney’s officeinColorado,thescopeof travel andentertainment.Althoughtheoriginalsubpoenawas training programmes, clinicalstudiesandrelated grants, fees, other speakerevents,specialissueboards, advisoryboards, speaker as Group-sponsored continuingmedicaleducationprogrammes, alleged promotion ofallthesedrugsforoff-label uses, aswell respect to the DistrictofMassachusettsandexpandedtopresent with was latertakenoverbytheUnitedStatesAttorney’s officefor for theperiodfrom January1997to2004.Thatinvestigation promotional practicesrelating tonineofitslargestselling products, States Attorney’s officeinColoradoregarding theGroup’s salesand In February2004,theGroup received asubpoenafrom theUnited ‘Colorado Investigation’ Sales andmarketingregulation 44 Notes tothefinancialstatements the SECorDOJin2010regarding thismatter. no furtheraction.TheGroup hasreceived nofurthercontactfrom Group thatithadcompleteditsinvestigationandintendstotake the programme. On9thSeptember2010,theSFOnotified production ofdocumentsrelated totheGroup’s participationin Fraud Office(SFO)issuedaformalnoticetotheGroup requiring also initiatedaninvestigation.InDecember2007,theUKSerious that programme. TheUnitedStatesDepartmentofJustice(DOJ) SEC inFebruary2006respect oftheGroup’s participationin for FoodProgramme, theGroup received asubpoenafrom the officialsinconnectionwiththeUNOil paid toIraqigovernment Following aUnitedNationsreport allegingthatbribeshadbeen UN OilforFoodProgramme early days. development andmarketingof various statutoryandcommonlawclaimsrelating totheGroup’s General’s OfficebothhavefiledsuitagainsttheGroup asserting General’sThe UtahAttorney OfficeandtheLouisianaAttorney these offices. development andmarketing from Generalofficesrelating anumberofStateAttorneys tothe Avandia documents relating tothe development andmarketingof Department ofJusticesubpoenaitreceived inJune2010seeking The Group isintheprocess ofresponding toaUnitedStates Avandia GSK Annual Report 2010 GSK Annual Report 182 Legalproceedings . TheGroup hasalsoreceived CivilInvestigativeDemands -related matters Advair . Inparticular, hasinquired thegovernment about Avandia continued Wellbutrin SR Avandia , and is cooperating with , andiscooperatingwith . Thesuitsare intheir foroff-label use. vacated, andtheGroup deniedliabilityaspartofthesettlement. The Group hassettledthecasewithKentucky. Thejudgmentwas of Kentuckyanadditional$5,828,000instatutorypenalties. statutes. InJanuary2010,thejudgeincaseawarded theState but notliableunderthestate’s Medicaidfraudandfalseadvertising the Group liableforviolating thestate’s consumerprotection laws, in anothersuchcasefiledbytheStateofKentucky. Thejuryfound $661,860 compensatorydamagesonlyverdict againsttheGroup In November2009,aKentuckystatecourtjuryreturned AWP issuesiscontinuingwithsixstates. DOJ Settlementorseparatenegotiations.Litigationconcerning programmes inmore thantwo-thirds ofthestatesthrough the The Group hasseparatelyresolved AWP claimsbystateMedicaid behalf ofin-statepatientsasconsumers. recovery onbehalfofthestates aspayersand,insomecases,on covered bythestates’Medicaid programmes. Thestatesseek AWP and/orWAC pricereporting forpharmaceuticalproducts other drugcompaniesclaimingdamagesandrestitution dueto lawsuits instateandfederalcourtsagainsttheGroup andmany and mostofthecountiesinNewYork Statehavefiledcivil A numberofstates,through theirrespectivegeneral, attorneys of Massachusetts. MDL proceeding intheUnited StatesDistrictCourtforthe action settlementrelating to theGroup’s pricereporting inan final approval ofa$70million nationwideprivatepayerclass as arequirement ofthesettlement.In2007,Group received The Group alsoamendeditsexistingcorporateintegrityagreement relating tothepricingandmarketingof toresolve settlement withthefederalgovernment allegations programmes. In2005,theGroup reached a$149millioncivil reimbursed undertheMedicare, Medicaidandother insurance cost’ (WAC) havebeendeterminedandreported forvariousdrugs the way‘averagewholesaleprice’(AWP) and‘wholesaleacquisition have violatedfederalorstatefraudandabuselawsasaresult of that numerous pharmaceuticalcompanies,includingtheGroup, investigating and/orbringingcivillitigationregarding allegations putative classesofprivatepayershaveforseveralyearsnowbeen The UnitedStatesDepartmentofJustice,anumberstatesand Average wholesaleprice is cooperatingwiththeinvestigation. regarding anydrugusedtotreat HIV-infected adults.TheGroup as educationalprograms, grantsorpaymentstophysicians sales andmarketingpracticesforthree HIVproducts, as well DistrictofNewYork’sEastern USAttorney’s Officeregarding On 26thJuly2010,theGroup received asubpoenafrom the HIV divisioninquiry Zofran and Kytril . Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 183 purchased for purchased GSK Annual Report 2010 for use by patients Paxil Paxil to minors. There also to minors. There Paxil to children and adolescents. The Group Group and adolescents. The to children in children and adolescents, similar cases, and adolescents, in children Paxil Paxil use by patients under the age of 18. Following a class settlement 18. Following a class under the age of use by patients the United States District Court forwith consumers in 2007, a $40 million class in 2008 approved the District of Minnesota on behalf of lawsuits seeking recovery settlement of ensuing payers for payments and other third-party insurance companies of for prescriptions settlements. In 2009, a similar purporteddenied liability in both in United States District Court for the Districtclass action was filed of all federal, state and local governmentof Minnesota on behalf of prescriptions entities that paid for action in Canada seeking a similar purported class remains party payers behalf of individuals, third economic damages on and governmental entities that purchased under the age of 18. Inquiry SEC/DOJ FCPA The US Securities and Exchange Commission (SEC) and the US conducting an industry-wide Department of Justice (DOJ) are investigation into whether pharmaceutical companies may have Corrupt Practices Act relating engaged in violations of the Foreign to the sale of pharmaceuticals, including in Argentina, Brazil, Poland, Russia and Saudi Arabia. Italy, Canada, China, Germany, is one of the companies that have been asked to The Group to this inquiry and is cooperating with the SEC and DOJ. respond Paxil/Seroxat by the of a lawsuit filed 2004 settlement Group’s Following the to disclose alleging failure office Attorney State General’s New York use of data on the filed by private class actions, were purported to be some of which paid for amounts recover seeking to plaintiffs Cidra, Puerto Rico manufacturing site the United a subpoena from received In April 2005, the Group of records production Boston requesting Office in States Attorney’s Rico, its manufacturing facilities located in Cidra, Puerto regarding in July 2007, thewhich have since ceased operations. In addition, learned Court for the DistrictGroup that the United States District by a former brought of Massachusetts had unsealed a complaint claiming monetaryemployee under the federal False Claims Act to of the Cidra facility of the alleged failure damages as a result (GMPs) in the comply with FDA Good Manufacturing Processes of various products. manufacture with finalised an agreement On 26th October 2010, the Group the District of Massachusetts and Office for the US Attorney’s to the investigation of the US Department of Justice with respect Cidra, Puerto Rico. former manufacturing facility in the Group’s settlement of and as a comprehensive Under the agreement the investigation, arising from pending claims against the Group paid a total of $750 million (£500 million) in civil and the Group Rico, Inc., a subsidiarycriminal penalties, and SB Pharmco Puerto in is pleaded guilty to certain charges. The Group of the Group, with of negotiating a Corporate Integrity Agreement the process the Office of Inspector General that will cover manufacturing compliance matters. Civil Investigative Demands and a has received The Group several State Attorneys to subpoena from General offices relating at the matters at issue in the federal investigation. The enquiries are is cooperating with these offices. an early stage, and the Group continued Legal proceedings proceedings Legal 340B Programme is defending an action filed in federal court in the The Group United States District Court for the Northern District of California which seeks to county, by the County of Santa Clara and one other in a putative class of hospitals, clinics and other entities represent discounted ‘ceiling prices’ on California eligible to receive that are known as the ‘340B pharmaceuticals under a federal programme other and numerous allege that the Group Plaintiffs Programme.’ have been setting ‘ceiling prices’ pharmaceutical manufacturers contract that governshigher than allowed by law and, under the the entities in overcharged and have therefore the programme, California eligible to participate in the 340B Programme. that are in August The lawsuit was dismissed in 2006. It was reinstated Court 2008 following an appeal. The United States Supreme issue of whether 340B entities have standing the to review agreed 340B contract with under the manufacturers’ to sue manufacturers the government. in the case all proceedings The trial court stayed decision. Oral argument before Court’s until after the Supreme on 19th January 2011. The Supreme Court occurred the Supreme Court has not yet issued its decision. In March 2008, the Group received a broad letter request from from letter request a broad received 2008, the Group In March Justice seeking a range of documentsthe US Department of nominal pricing arrangements since all of the Group’s to relating is continuing to Group 1994 and any possible bundled sales. The documents. cooperate in the investigation and produce for subpoenas and requests has also received The Group and Michigan Delaware documents and information from nominal price arrangements. The Group the Group’s to related responsive producing is cooperating in those investigations and documents. In addition to these governmental investigations, allegations concerning nominal pricing have been made in the into any has not entered litigation. The Group 340B Programme 2003. nominal price arrangements since December The Group responded to two letter requests from the United States from letter requests to two responded The Group Februarydated April 2004 and on Finance, Senate Committee to the nominal relating and information 2005, for documents the under requirements reporting to the best price price exception In January 2007, the committee Programme. Medicaid Drug Rebate pharmaceutical manufacturers its findings that some released price exception contrary to used the nominal inappropriately intent. In May of Congressional interpretation the committee’s by the United States Department was advised 2004, the Group nominal certain of the Group’s of Justice that it is investigating sales arrangements to determine whetherpricing and bundled under the exception to the best pricethose arrangements qualify laws. or violate civil statutes or requirements reporting 44 Notes to the financial statements financial the to Notes Nominal pricing Financial statements P102–P191 the certifiedclassofdirect purchasers. has scheduledtrialfor27thJune2011withregard totheclaimsof plaintiffs tofilearenewed motionforclasscertification.Thecourt entered anorder grantingthemotionofindirect purchaser A classofdirect purchasers hasbeencertified.Thecourtrecently that agenericmanufacturer didnotinfringetheGroup’s patents. Wellbutrin SR The complaintsfollowedtheintroduction ofgenericcompetitionto Seroxat infringement andanti-trustlitigationwithApotexregarding As notedpreviously onpage180,theGroup hassettled itspatent Paxil/Seroxat Anti-trust/competition 44 Notes tothefinancialstatements affirmed thedismissalofcomplaint. Thecaseisnowconcluded. granted. TheUnitedStatesCourt ofAppealsfortheSecondCircuit anti-trust laws.TheGroup’s motionto dismissthecomplaintwas pharmaceutical products toRxUSAinviolationoffederal and state that thedefendantsengagedin aconspiracytorefuse tosupply DistrictofNew York.Court fortheEastern The complaint alleges manufacturers andwholesalersintheUnitedStatesDistrict filed suitagainsttheGroup andmanyotherpharmaceutical In July2006,RxUSAWholesale,Inc.,a‘secondarywholesaler,’ Secondary wholesaler Group inobtainingandenforcing patentscovering laws through shamlitigation andfraudonthepatentofficeby Wellbutrin SR against theGroup onbehalf ofdirect andindirect purchasers of DistrictofPennsylvania United StatesDistrictCourtfortheEastern several ofwhichpurportedtobeclassactions,were filedinthe In December2004,January2005andFebruary2005,lawsuits, Wellbutrin SR is intheprocess ofresponding totheCommission’s request. settlement agreements inthe pharmaceuticalssector. TheGroup is thesecondmonitoringexercise bytheCommissionpatent and European EconomicArea markets.Therequest forinformation relating topatentsettlement agreements affecting European Union from theGroup andanumberofotherpharmaceuticalcompanies On 17thJanuary2011,theCommissionrequested information and improvement. Commission andrecommended regulatory reform practices andidentifiedareas forfollowupscrutinybythe Commission statedthatitdidnotattacklegitimatepatenting as innovatorcompanies’defensivestrategies.Inthisreport, the generic entrywere asmuchthefaultofregulatory environment the preliminary report, thefinalreport concededthatdelaysin The finalreport wasissuedinJuly2009.Whilenotcontradicting employ measures tohindergenericscomingontothemarket. may leadtoobstaclesinnovationandthatinnovatorcompanies 2008. Thereport suggeststhatdefensivepatentingstrategies The Commissionpublishedapreliminary report inNovember and genericpharmaceuticalcompanies,includingtheGroup. and initiatedinspectionsatthepremises ofanumberinnovator into certainaspectsofcompetitioninthepharmaceuticalsector In January2008,theEuropean Commissionannouncedaninquiry EU sectorinquiry GSK Annual Report 2010 GSK Annual Report 184 Legalproceedings , andthelitigationhasbeendismissedastoallparties. in April 2004, after district and appellate court rulings inApril2004,afterdistrictandappellatecourtrulings . The complaints allege violations of US anti-trust . ThecomplaintsallegeviolationsofUSanti-trust continued Wellbutrin SR Paxil / . The Group’s motiontodismissRoxane’s complaintwasdenied. motions todismisstheircomplaintandamendedcomplaints. the claimsofpurportedclassindirect purchasers through was grantedbythecourt.TheGroup hassuccessfullynarrowed litigation. Themotionofthedirect purchasers tocertifyaclass by theGroup ofallegedlysham citizenpetitionsandsubsequent the market.Thepredicate for alloftheseallegationswasthefiling the Group’s allegedactionsunlawfullydelayingRoxane’s entryinto Laboratories, Inc.,agenericcompetitor, seekinglostprofits from competitive prices.Additionally, asuithasbeenfiledbyRoxane power inthe‘market’for Pennsylvania allegingtheGroup illegallymaintainedmonopoly Districtof filed intheUnitedStatesDistrictCourtforEastern Purported direct andindirect purchaser classactionshavebeen Flonase for April2011. class ofdirect purchasers. Aclasscertificationhearing isscheduled the remaining claimsaswelltheonesbrought bythe purported purchasers. Thecasehasproceeded todiscoverywith respect to representatives andmanyoftheclaimsassertedby indirect granted inrespect ofsome,butnotall,theclaimsclass dismiss theamendedcomplaintofindirect purchasers was filing, byBiovail,ofcitizenpetitions.TheGroup’s motionto to theenforcement ofBiovail’s unlawful monopolisationandotheranti-trustviolationsrelated purported classesofdirect andindirect purchasers whoallege Actions havebeenfiledagainstBiovailandtheGroup by Wellbutrin XL under ERISA. under ERISA. defendants breached theirfiduciarydutiestoplanparticipants retirement plans,claiming thattheGroup andthe individual on behalfofhimselfandallother participantsintheGroup’s value oftheGroup’s stockdropped. Plaintiff hasbrought suit these alleged‘misleadingstatements’ were exposed,the misleading publicstatementsabout Group anditsofficers,directors andcertainemployeesmade DistrictofNewYork.Southern Thecomplaintalleges thatthe 27th August2010intheUnitedStatesDistrictCourtfor A putativeclassactionsuitwasfiledagainsttheGroup on scheduled forJuly2011. against Stiefel’s formeraccountants.Trial oftheremaining claimsis pre-empts stateandcommonlaw, aswellamalpracticeclaim common lawbreach offiduciarydutyclaimsholdingthatERISA go forward, theCourtdismissedFloridaSecuritiesActand securities claimsagainsttheindividualdefendantsandStiefelcould against theindividualStiefeldefendantsaswellfederal part. Specifically, whiletheCourtdeterminedthatERISAclaims defendants’ motiontodismisswasgrantedinpartanddenied that StiefelwasabouttobesoldtheGroup. InJanuary2010, a greatly undervaluedprice andwithoutdisclosingtoemployees to selltheirshares intheemployee stockplanbacktoStiefelat federal andstatesecuritieslawsbyinducingStiefelemployees violated USEmployeeRetirement IncomeSecurityAct(ERISA)and The complaintallegesthatStiefelanditsofficersdirectors DistrictofFlorida. United StatesDistrictCourtfortheSouthern and formeremployeesofStiefelLaboratories,Inc.,wasfiledin On 6thJuly2009,aclassactionsuitbrought onbehalfofcurrent Securities/ERISA classactions Commercial andcorporate Flonase Wellbutrin XL andchargedplaintiffs supra- Avandia , and that when , andthatwhen patents and the patentsandthe Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 185 GSK Annual Report 2010 Environmental matters Environmental relating responsibility notified of its potential has been The Group at certain disposal practices and its past waste to past operations of the subject of these matters are in the USA. Some sites, primarily state by the US federal or initiated proceedings litigation, including and tort costs governments disposal, site remediation for waste parties. by private actions brought party it may be a responsible has been advised that The Group 12 appear on the National 28 sites, of which at approximately Response Environmental by the Comprehensive Priority List created Act (Superfund). These proceedings Compensation and Liability facilities, waste the operators of hazardous seek to require to the sites and generators of hazardous transporters of waste the sites to clean up the sites or to reimburse waste disposed of at the government Group for cleanup costs. In most instances, the waste. Although generator of hazardous is involved as an alleged jointly and severally are that the defendants Superfund provides resolved frequently are these proceedings liable for cleanup costs, and quantity of waste disposed of by the on the basis of the nature liability for cleanup proportionate generator at the site. The Group’s about 20 of the sitescosts has been substantially determined for to above. referred site to site. from potential liability varies greatly The Group’s at such remediation While the cost of investigation, study and accrues routinely Group sites could, over time, be substantial, the of the liability for such matters. to its share amounts related and to include additional and to include Paxil continued and Wellbutrin SR Wellbutrin Legal proceedings proceedings Legal Wage and hour claims Wage filed purported class actions were In December 2006, two US Group’s the entire on behalf of against the Group actions, which These representatives. pharmaceutical sales States District Court to the United filed in or transferred were of California,for the Central District those initially alleged that California not ‘exempt’ employees under law are representatives consequently Act (FLSA) and are Standards and/or the US Fair Labor among other things. entitled to overtime pay, their complaints to assert a class subsequently amended Plaintiffs representatives action, limited solely to pharmaceutical sales working in California, and only asserting claims under California’s wage and hour laws. punitive and statutory The suits seek a variety of compensatory, moved for summary judgment dismissing damages. The Group on the ground the claims of the putative class representatives are exempt employees. The Court held that there that they were of Appeals for theappeals pending in the United States Court with virtually in cases involving other manufacturers Ninth Circuit ruling deferred the same factual and legal arguments. It therefore any further activityon the summary judgment motion and stayed at least one of thein the case until the appellate court rules in other companies’ pending cases. filed in the United States District Court for the District case, A third a nationwideof Arizona in August 2008, sought to establish US pharmaceutical Group’s collective action on behalf of the entire that those representatives on the ground sales representatives sought exempt employees under the FLSA. Plaintiffs not were worked by the Group’s double damages for all overtime allegedly year period. over a three pharmaceutical sales representatives motion for Group’s In November 2009, the Court granted the on the ground summary judgment and dismissed the lawsuit ‘exempt’ employees under were that the sales representatives appealed the the outside sales exemption to the FLSA. Plaintiffs decision to the United States Court of Appeals for the Ninth Circuit. issued an opinion in On 14th February 2011, the Ninth Circuit affirming the judgment of the United States favour of the Group District Court for the District of Arizona and finding that the exempt employees are pharmaceutical sales representatives Group’s not under the outside sales exemption to the FLSA and, therefore, entitled to overtime pay. In November 2010, a purported class action was filed against in the United States District Court for the Northernthe Group pharmaceutical sales on behalf of the Group’s District of New York during the past six years. in New York working representatives not are alleges that these sales representatives The plaintiff entitled to overtime are ‘exempt’ employees, and, therefore, closely follow wage and hour laws which under the New York filed Act. In January 2011, a plaintiff the US Fair Labor Standards a similar purported class action in Florida state court alleging that entitled to are pharmaceutical sales representatives the Group’s overtime under the FLSA. 44 add allegations their complaint to have amended Plaintiffs concerning Notes to the financial statements financial the to Notes Group defendants and individual members of the Group’s of the Group’s individual members defendants and Group to dismiss on filed a motion The Group benefits committees. 2011. 4th February Financial statements P102–P191 the UK,where comparablelegislationmaybedifferent. statements. Accesstothewebsiteisavailablefrom outside thepreparation governing anddisseminationoffinancial Report onthecompany’s websiteinaccordance withUKlegislation are responsible forthemaintenanceandintegrityofAnnual printed formandmadeavailableonthewebsite.TheDirectors are includedintheAnnualReport,whichispublishedhard copy The financialstatementsfortheyearended31stDecember2010 Auditors’ report (page187). company financialstatementsare setoutintheIndependent The responsibilities oftheauditors inrelation totheparent on pages188to191ofthisreport. ended 31stDecember2010andsupportingnotes,are setout 31st December2010,comprisingthebalancesheetforyear The parent companyfinancial statementsfortheyearended fraud andotherirregularities. for takingreasonable steps fortheprevention anddetectionof responsible forsafeguarding theassetsofcompanyandhence Report complywiththeCompaniesAct2006.Theyare also that theparent companyfinancial statementsandRemuneration financial positionofthecompanyandtoenablethemensure transactions anddisclosewithreasonable accuracyatanytimethe records thatare sufficienttoshowandexplainthecompany’s The Directors are responsible forkeepingadequateaccounting • • • required to: In preparing thosefinancialstatements,theDirectors are and fairviewofthestateaffairs ofthecompanyforthatperiod. financial statementsunlesstheyare satisfiedthattheygiveatrue company lawtheDirectors mustnotapprove theparent company (United KingdomGenerallyAcceptedAccountingPractice).Under with UnitedKingdomAccountingStandards andapplicablelaw to prepare theparent companyfinancialstatementsinaccordance for eachfinancialyear. UnderthatlawtheDirectors haveelected Company lawrequires theDirectors toprepare financialstatements Report inaccordance withapplicablelawandregulations. GlaxoSmithKline plc,financialstatementsandtheRemuneration The Directors are responsible forpreparing theparent company, relation tothecompany’s financialstatements Directors’ statementofresponsibilities in Directors’ statementofresponsibilities GSK Annual Report 2010 GSK Annual Report 186 parent companyfinancialstatements. subject toanymaterialdepartures disclosedandexplainedinthe that applicableUKAccountingStandards havebeenfollowed, reasonable andprudent; them consistently; state withregard totheparent companyfinancialstatements make judgementsandaccountingestimatesthatare select suitableaccountingpoliciesandthenapply the CombinedCodewhichare specifiedfortheirreview. the Directors’ statementof complianceinrelation tothosepointsof As required bytheFSA’s ListingRules, theauditorshaveconsidered on page63. 58 to80,andhascompliedwithitsprovisions exceptasdescribed sectiononpages FRC, asdescribedintheCorporateGovernance Principles ofSection1theCombinedCodemantainedby The Board considersthatGlaxoSmithKline plcappliestheMain The CombinedCode financial statements. basisinpreparing they continuetoadoptthegoingconcern in operationalexistencefortheforeseeable future. For thisreason, expectation thatthecompanyhasadequateresources tocontinue After makingenquiries,theDirectors haveareasonable basis Going concern with theprovisions ofSection418theCompaniesAct2006. This confirmationisgivenandshouldbeinterpreted inaccordance • • confirmed that: The Directors inofficeatthedateofthisReporthaveeach Disclosure ofinformationtoauditors 1st March 2011 Chairman Sir ChristopherGent auditors are aware ofthatinformation. relevant auditinformationandtoestablishthatthecompany’s taken asaDirector tomakehimselforherselfaware of any information ofwhichthecompany’s auditorsare unaware; and he or she has taken all the steps that he or she ought to have he orshehastakenallthestepsthatoughttohave so farasheorsheisaware, there isnorelevant audit Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 187 GSK Annual Report 2010 adequate accounting records have not been kept by the parent by the parent have not been kept records adequate accounting for our audit have not been or returns adequate company, or branches not visited by us; from received and the part of company financial statements the parent not in to be audited are Remuneration Report the Directors’ or and returns; records with the accounting agreement by law are specified remuneration of directors’ certain disclosures not made; or and explanations we all the information we have not received for our audit. require Matters on which we are required to report report to required are which we on Matters by exception of the following matters respect in report have nothing to We to you if, us to report Act 2006 requires the Companies where in our opinion: • • • • Other matters financial statements of separately on the Group reported have We December 2010.GlaxoSmithKline plc for the year ended 31st with section in accordance The Company has passed a resolution senior statutory auditor’s 506 of the Companies Act 2006 that the name should not be stated. PricewaterhouseCoopers LLP Accountants and Statutory Auditors Chartered London 2011 1st March to the members of GlaxoSmithKline plc GlaxoSmithKline of the members to the part of the Directors’ Remuneration Report to be audited has the part of the Directors’ Report for the financial yearthe information given in the Directors’ give a true and fair view of the state of the company’s affairs affairs give a true and fair view of the state of the company’s with United in accordance prepared have been properly of with the requirements in accordance have been prepared been properly prepared in accordance with the Companies Act in accordance prepared been properly 2006; and is prepared company financial statements are for which the parent company financial statements. consistent with the parent as at 31st December 2010; Kingdom Generally Accepted Accounting Practice; and the Companies Act 2006. In our opinion: • • Opinion on other matters prescribed by the by Opinion on other matters prescribed Companies Act 2006 Opinion on financial statements company financial statements: In our opinion the parent • • • Scope of the audit of the financial statements Scope of the audit of the financial the amounts andAn audit involves obtaining evidence about in the financial statements sufficient to give reasonable disclosures material from free assurance that the financial statements are an This includes error. misstatement, whether caused by fraud or to appropriate are assessment of: whether the accounting policies and have been consistently circumstances company’s the parent of significant applied and adequately disclosed; the reasonableness and the overall accounting estimates made by the directors; of the financial statements. presentation As explained more fully in the Directors’ statement of Directors’ fully in the As explained more responsible are 186, the directors set out on page responsibilities financial statements company of the parent for the preparation that they give a true and fair view. and for being satisfied an opinion on the express is to audit and Our responsibility with applicable in accordance company financial statements parent on Auditing (UK and Ireland). law and International Standards Auditing Practices us to comply with the require Those standards for Auditors. Ethical Standards Board’s for and only including the opinions, has been prepared This report, with Chapter members as a body in accordance for the company’s for no other purpose.3 of Part 16 of the Companies Act 2006 and in giving these opinions, accept or assume responsibility do not, We to whom this report for any other purpose or to any other person expressly save where is shown or into whose hands it may come our prior consent in writing. by agreed Respective responsibilities of directors and of directors Respective responsibilities auditors We have audited the parent company financial statements of statements financial company the parent have audited We 2010 ended 31st December plc for the year GlaxoSmithKline GAAP and the Balance Sheet – UK the Company which comprise that has framework The financial reporting Notes A-H. related law and United is applicable in their preparation been applied Kingdom Generally (United Standards Kingdom Accounting Practice). Accepted Accounting Independent Auditors’ report report Auditors’ Independent Financial statements P102–P191 Registered number:3888792 GlaxoSmithKline plc Chairman Sir ChristopherGent Approved bytheBoard on1stMarch 2011. Equity shareholders’ funds Profit andlossaccount Other reserves Share premium account Current assets Cash atbank rdtr:aonsdewti n erF Called upshare capital Capital andreserves Net assets Net current liabilities Creditors: amountsduewithinoneyear Debtors Fixed assets–investments Company balancesheet–UKGAAP GSK Annual Report 2010 GSK Annual Report 188 at 31stDecember2010 Notes G G H H D E

14,159 10,031 14,159 19,659 (5,500) (6,230) 1,282 1,428 1,418 720 730 2010 10 £m 17,309 13,270 17,309 19,632 (2,323) (3,068) 1,255 1,368 1,416 736 745 2009 £m 9 Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 189 GSK Annual Report 2010 Operating proﬁt

Taxation at the amounts expected to be paid is provided tax Current or substantially enactedapplying tax rates that have been enacted by the balance sheet date. or accelerated is deferred The company accounts for taxation which which have originated but not of timing differences by reason only tax assets are the balance sheet date. Deferred by reversed recoverable considered to the extent that they are recognised taxable profits. against future at the average tax rates that are tax is measured Deferred the timing differences expected to apply in the periods in which tax liabilities and assets are Deferred to reverse. expected are not discounted. Financial guarantees to guarantees issued by the company on behalf Liabilities relating at fair value and amortised initially recognised of its subsidiaries are over the life of the guarantee. C to the audit of the A fee of £11,140 (2009 – £11,140) relating company has been charged in operating profit. Expenditure received goods and services of respect in is recognised Expenditure is terms. Provision with contractual in accordance when supplied of liability in respect for a future an obligation exists made when obligation can be the amount of the and where a past event estimated. reliably companies Investments in subsidiary held at cost less any companies are Investments in subsidiary for impairment. provision Impairment of investments for impairment reviewed investments are The carrying value of the investment might be impaired. is an indication that when there to is charged an impairment review from resulting Any provision in the year concerned.the income statement based payments Share to its subsidiaries of a grant overThe issuance by the company additional capital contributions options, represents the company’s investment inby the company in its subsidiaries. An additional in shareholders’ increase in a corresponding subsidiaries results The additional capital contribution is based on the fair equity. underlying grant’s value of the grant issued, allocated over the vesting period. Presentation of the financial statements financial of the Presentation Accounting policies Dividends paid and received are included in the accounts in the are Dividends paid and received actually paid or received. dividends are period in which the related Dividends paid and received Foreign currency transactions are recorded at the exchange rate at recorded transactions are currency Foreign rate if hedged forward ruling on the date of transaction, or at the assets and currency exchange contract. Foreign by a forward translated at rates of exchange ruling at the balance liabilities are rate. sheet date, or at the forward B transactions currency Foreign Accounting principles and policies of the balance sheet in conformity with generally The preparation management to make accepted accounting principles requires amounts the reported estimates and assumptions that affect of contingent assets and of assets and liabilities and disclosure Actual amounts couldliabilities at the date of the balance sheet. those estimates. from differ with the in accordance The balance sheet has been prepared and the Board by accounting policies approved company’s described in Note B. Accounting convention and standards using the historical cost The balance sheet has been prepared UK accounting standards. convention and complies with applicable The financial statements, which are prepared on a going concern on prepared which are The financial statements, UK generally accepted with drawn up in accordance basis, are (UK GAAP) and with UK accountingaccounting principles 2010, with comparative figures as at 31st December presentation comparative appropriate, 2009. Where as at 31st December with a consistent presentation to ensure reclassified are figures year information. current and of the Companies Act 2006, the profit As permitted by s.408 in this Annual Report. loss account of the company is not presented Preparation of financial statements Preparation GlaxoSmithKline plc is the parent company of GSK, a major global company plc is the parent GlaxoSmithKline and discovery, in the creation which is engaged group healthcare of pharmaceutical and marketing manufacture development, (OTC) medicines vaccines, over-the-counter including products, consumer products. and health-related A of business Description Notes to the company balance sheet – UK GAAP GAAP – UK sheet balance company the to Notes Financial statements P102–P191 Capital contributionrelating toshare basedpayments Shares inGlaxoSmithKlineMercury Limited disclosed within debtors (see Note E). disclosed withindebtors(seeNoteE). The amountduefrom the subsidiary companiesinrelation totheseguaranteefeeswillberecovered overthelifeofbondsa In aggregate, thecompany hasoutstandingguaranteesover$10billionofdebtinstruments. The companyhasguaranteeddebtissuedbyoneofitssubsidiarycompaniesforwhichitreceives anannualfeefrom thesubsidia Shares inGlaxoSmithKlineHoldingsLimited Amounts owedbyGroup undertakings Amounts dueaftermore than oneyear: Other creditors Shares inGlaxoSmithKlineHoldings(One)Limited Amounts owedbyGroup undertakings Amounts owedtoGroup undertakings Shares inGlaxoSmithKlineServicesUnlimited D Notes tothecompanybalancesheet–UKGAAP Bank overdraft Amounts duewithinoneyear: F UK Corporationtaxrecoverable Amounts duewithinoneyear: E GSK Annual Report 2010 GSK Annual Report 190 Creditors Debtors

Fixed assets 19,659 18,552 17,888 1,107 6,230 5,774 720 385 447 335 112 613 223 2010 2010 2010 33 18 £m £m £m 9 nd are ry. 19,632 18,552 17,888 1,080 3,068 2,606 736 392 454 344 116 613 228 2009 2009 2009 33 18 £m £m £m 8 Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

191 £m 39 27 (34) 2009 Total Total Share Share

d as 5,000 premium premium ion). (3,003) (3,205) 12,489 14,525 11,313 ion ned 213,110 million 4,121,761 serve at values of 31st December

£m GSK Annual Report 2010 Proﬁt and Proﬁt loss account – (3,003) – (3,205) £m 2010 Other reserves reserves Number £m £m 1,216 11,273 1,255 13,270 1,282 10,031 Ordinary Shares of 25p each Shares Ordinary 207,132 4,122,410 31st December 5,665,128,719 1,4165,670,458,177 1,368 1,418 1,428

Reserves Share capital and share premium account premium and share capital Share Post balance sheet event (2009 – £3,003 million), gave a retained loss of £3,239 million (2009 – profit of £1,997 million). The profit and loss account re of £1,997 million). The profit loss of £3,239 million (2009 – profit (2009 – £3,003 million), gave a retained I and the intention is to repurchase buy-back programme, February 2011, the company initiated a new long-term share On 3rd in 2011, depending on market conditions. In the period 4th February 2011 to 24th February 2011 10.4 mill £1-2 billion of shares At 1st January 2009 H to shareholders attributable Profit Loss attributable to shareholders of £5,000 million), which after dividends of £3,205 The loss of GlaxoSmithKline plc for the year was £34 million (2009 – profit (2009 – £4,096 mill million is unrealised 31st December 2010 stood at £10,031 million (2009 – £13,270 million), of which £4,096 at a cost of £123.4 million. purchased were shares – 5,000 – (34) Number (‘000) of shares issuable under outstanding options Number (‘000) of shares At 31st December 2009 Share capital authorised Share 2009At 31st December At 31st December 2010 paid capital issued and fully Share At 1st January 2009 option schemesIssued under share option schemesIssued under share At 31st December 2010 10,000,000,000 10,000,000,000 2,500 3,812,482 2,500 5,661,316,237 5,329,458 1 1,415Dividends to shareholders 2 1,326 42 At 31st December 2009 60 Dividends to shareholders At 31st December 2010 G Notes to the company balance sheet – UK GAAP – UK sheet balance company the to Notes Number (‘000) of unissued shares not under option Number (‘000) of unissued shares hel were 474,194,158 shares held in the ESOP Trust, were capital, 105,472,070 shares At 31st December 2010, of the issued share based payments to share Capital contribution relating based payments to share Capital contribution relating 39 – 27 – Treasury shares and 5,090,791,949 shares were in free issue. All issued shares are fully paid. The nominal, carrying and market fully paid. The nominal, are issue. All issued shares in free were shares and 5,090,791,949 shares Treasury the shares held in the ESOP Trust are disclosed in Note 42, ‘Employee share schemes’. disclosed in Note 42, ‘Employee share are held in the ESOP Trust the shares would commence a new February 2011, GSK announced that it On 3rd in 2010. any of its own shares The company did not purchase 2011. depending on market conditions, in of shares, £1-2 billion and expected to repurchase buy-back programme long-term share or be cancelled will be determi shares will be held as Treasury and whether the shares The exact amount and timing of purchases 1st January 2011 in the period purchased were conditions and other factors. No shares by the company and is dependent on market at a cost of purchased were 2011. In the period 4th February 2011 to 24th February 2011 10.4 million shares February to 3rd £123.4 million. Shareholder information P192–P212 statements’. The calculationofresults before majorrestructuring isdescribedinNote1tothefinancialstatements,‘Presentation ofthefi financial year2010. An unauditedanalysisoftheGroup results andpharmaceutical salesbytherapeuticarea isprovided byquarterinSterlingfor Quarterly trend Financial record GSK Annual Report 2010 GSK Annual Report 192 aain(,0)(157) (690) (240) 58 57 (1,304) (2) (>100) (>100) 8 (320) (2) 118 (3 1,634 (2,077) (4) (55) (831) 18 116 (59) 3 (1,097) 219 7 51 3,783 (14) 3 48 9 4 (16) 8 493 (7,592) (4,461) 8 1,267 5,930 36 (4,457) Diluted earningspershare(pence) (1) 7 Basic earningspershare(pence) 81 36 Profit attributabletoshareholders (2) 5 Profit attributabletonon-controlling interests (13,053) Profit aftertaxationfortheperiod 23,382 5,010 Tax rate% Taxation Profit beforetaxation Share ofaftertaxprofits ofassociatesandjointventures Profit ondisposalofinterest inassociate Finance costs Finance income Operating profit Other operatingincome Research anddevelopment Selling, generalandadministration Cost ofsales Total turnover –ConsumerHealthcare Turnover –Pharmaceuticals Income statement–total aain(,4)(134) (384) (240) 57 (>100) (1,544) (6) (>100) 8 (37) (6) (11) 118 (1) 2,742 (13) (1,980) (3) (45) (828) 7,197 18 116 (48) 4 (1,083) 219 54 5,128 – 4 – 51 (1) 8 493 (7,405) (4,289) – 28,392 35 (3,964) Diluted earningspershare(pence) Adjusted earningspershare(pence) 81 35 Profit attributabletoshareholders Profit attributabletonon-controlling interests (12,388) Profit aftertaxationfortheperiod Tax rate% Taxation Profit beforetaxation Share ofaftertaxprofits ofassociatesandjointventures Profit ondisposalofinterest inassociate Finance costs Finance income Operating profit Other operatingincome Research anddevelopment Selling, generalandadministration Cost ofsales Total turnover Income statement–results before majorrestructuring 832()–717(3 (11) (13) 7,197 – (1) 28,392 ,6 5)(3 37 >0)(>100) (>100) (327) (>100) (>100) (53) (193) (56) (48) 2,961 (52) 4,505 ,5 7)(7 63 >0)(>100) (>100) (633) (>100) (>100) (67) (476) (71) (60) 1,853 (64) 3,157 35 (7.5)p (>100) (>100) (7.5)p 69.4% (56) (59) 53.5p 53.9p 34.3% 19 (13.4)p (>100) (>100) (13.6)p 33.0% (71) (75) 31.9p 32.1p 41.3% mCR %£ E%£% CER% £m £% CER% £m 2mnh 00Q42010 12 months2010 58 nancial nancial the ) Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 193 GSK Annual Report 2010 Q3 2010 Q2 2010 Q1 2010 ––– –– – £m CER% £% £m CER% £% £m CER% £% 55 52 55 952216 81 19 22 199 17 25 55 52 55 952216 81 19 22 199 17 25 28.2p28.0p (6) (1) 2.6p (99) 2.5p (92) 30.7p 16 17 30.4p (480)24.4% (312) 63.2% 27.7% (618) (196) (188) (204) (948) 8 10 (994) 5 8 (939) (9) (13) 25.3p25.1p (10) (4) (6.0)p (129) (121) (5.9)p 26.4p 18 18 26.1p (456)25.3% (155) 159.8% 27.8% (536) (197) (189) (205) 1,4911,436 (5) 1 182 (96) 130 (89) 1,615 18 18 1,560 1,971 (10) (5) 494 (86) (78) 2,233 16 16 2,129 (9) (4) 641 (80) (73) 2,395 21 21 6,813 (2) 1 7,025 – 4 7,357 13 9 1,3431,288 (8) (2) (252) (304) 1,395 19 1,340 19 1,799 (11) (6) (97) 1,931 15 16 5,5531,2606,813 (3) 4 (1) (2) 8 11,958 (10) (5) 5,773 1,252 – 7,025 3 3 – 7 4 51 (106) (98) 6,126 1,231 14 7,357 9 9 13 2,094 7 9 22 22 (1,875)(1,956) 9 (9) 8 (5) (1,626) (3,845) 71 (2) 73 – (2,298) (1,924) 18 19 17 8 (1,906)(2,040)(1,004) 7 (9) 11 7 (5) 14 (1,657) (4,202) (1,196) 82 4 21 (83) 2 (23) (2,350) (1,160) (1,952) 17 11 7 7 9 3 Financial record Financial Shareholder information P192–P212 Pharmaceutical turnover –totalGroupPharmaceutical turnover Quarterly trend Financial record GSK Annual Report 2010 GSK Annual Report VIIV Healthcare (HIV) Other Dermatologicals Vaccines Oncology andemesis Anti-bacterials Metabolic Cardiovascular andurogenital Central nervoussystem Anti-virals Respiratory 194 eaii 6 8 110(6 1)173 32 38 197 (13) (16) >100 170 >100 698 11 >100 9 >100 includes co-promotionPharmaceutical turnover income. 275 189 >100 Trizivir 9 >100 Selzentry 58 Lexiva Epzicom/Kivexa 5 Epivir Combivir (81) 164 (82) 161 Zovirax Soriatane Duac Dermovate Bactroban Synflorix Rotarix Infanrix, Pediarix Hepatitis Flu pandemic Fluarix, FluLaval Cervarix Boostrix Votrient Tyverb/Tykerb Promacta Hycamtin Arzerra Augmentin Bonviva/Boniva Avandia Volibris Vesicare Lovaza Fraxiparine Coreg Avodart Arixtra Wellbutrin Treximet Seroxat/Paxil Requip Lamictal Imigran/Imitrex Zeffix Valtrex Relenza Hepsera Zyrtec Ventolin Serevent Seretide/Advair Flixotide/Flovent Flixonase/Flonase Avamys/Veramyst rdcs4 7)(4 0(5 6)12(6 2)19(0 (14) (10) 169 (23) (26) 152 (62) (65) 70 (74) (76) 49 products ,3 1)(4 ,5 3 1 ,7 ,2 49 14 6,126 3 – 5,773 (1) (3) 5,553 (14) (16) 5,930 4 9 1,264 3 – 1,286 8 5 1,243 (1) (4) 1,346 ,2 1)(5 ,5 4 1 ,8 ,5 511 15 5,753 4 – 5,384 (1) (4) 5,152 (15) (17) 5,527 2 6 1,766 5 2 1,829 8 5 1,726 – (2) 1,917 4 3 2 3 4 3 1 (4) (1) 131 9 8 140 5 (5) 3 (3) 138 166 (2) 14 (3) 14 >100 17 146 176 >100 23 1,411 1 169 24 (9) 1 17 5 (6) 939 168 356 2 1 22 24 (3) 175 (22) 19 9 24 (18) (4) 14 15 982 3 190 107 230 337 20 13 (35) 9 (30) 139 33 (2) 172 (36) (33) 570 29 (4) 994 (17) (16) 17 213 1 138 (11) (12) 333 13 14 (16) (56) – 120 106 (13) 10 157 (2) 24 (58) 417 172 (4) 654 125 19 (2) 20 19 (9) 15 – – 138 370 (63) 18 16 (65) 1 123 133 (4) 15 3 156 14 (46) 110 5 450 (4) 650 8 (44) 11 116 24 358 (11) 196 147 7 4 13 22 20 115 (47) 11 177 6 131 1 16 (50) (8) 696 134 1 286 436 (2) (15) (3) 201 (65) 18 (1) 128 (68) 130 (14) 15 11 218 450 130 7 (62) 2 (64) 187 224 (1) (1) 142 (5) 220 0 4 3 0 1 8 7 7 (11) (7) 373 17 20 3 211 1 15 389 12 >100 2 >100 239 265 (1) 15 401 >100 14 >100 262 (3) 238 (4) 24 21 403 20 19 272 306 13 10 288 6 2 3 5 7 6 4 3 1 6 1)(14) (10) 160 (1) (3) 144 (6) (7) 153 (3) (2) 168 mCR %£ E%£ mCR £% CER% £m £% CER% £m £% CER% £m 2>0 102 9––1 – – (32) (15) 19 (27) (8) (18) 38 (27) (15) 41 – – (23) 58 28 – (27) – 82 – (9) 61 – (29) (13) – (10) (12) – 49 19 36 (16) 15 (13) (7) 39 27 (18) 27 18 27 (19) – – 86 – (9) (21) – – (9) (6) – 14 – (6) – (12) 38 (29) (6) (15) – 19 33 – (6) (43) 17 39 20 (10) 15 19 31 60 (35) – 65 5 29 30 45 96 19 15 (35) 60 (18) 58 >100 – (3) – 56 >100 30 (45) (18) 32 11 43 77 58 (9) – >100 – 22 (3) (49) – 62 36 >100 5 31 39 19 (11) 38 (3) (7) 10 39 – (32) 29 53 18 33 99 (33) 8 33 – 3 >100 – 6 – >100 (38) >100 50 37 >100 – 6 17 (3) 43 (40) 40 – 90 – 4 32 14 52 13 39 71 – 8 17 51 (7) (63) 4 56 >100 – 14 27 4 64 2 >100 (63) 22 13 49 (12) 8 29 167 (2) 48 26 23 – 13 4 40 11 59 19 (18) 48 26 64 25 – 79 56 >100 (12) 76 25 (70) (15) 40 >100 58 64 >100 (7) (70) 42 7 (15) 68 70 11 15 >100 (69) (2) 37 69 20 9 7 35 67 10 (67) 25 12 (14) (3) 49 30 >100 100 20 14 (16) 13 (2) 23 (72) >100 30 (36) 57 80 >100 28 (11) 14 (70) 44 55 >100 (36) 60 4 (30) (9) 7 10 79 10 33 812 17 (4) 29 (33) 52 13 57 18 17 11 11 28 21 – 20 10083 (73) (62) 8 16 16 29 (49) 17 11 (73) (24) 13 17 (60) 54 (46) 7 60 13 20 44 (25) 18 7 (13) 84 72 17 176 >100 13 52 (35) (8) 3 (13) >100 35 62 (18) 48 7 32 18 (30) 16 18 (87) (56) 8 (8) 13 31 (16) 33 – 52 29 6 (97) 45 (59) 34 2 55 51 8 58 – 8 46 165 41 – (4) 20 (4) 28 14 80 (5) (12) 53 (73) – (8) 21 (90) 21 55 7 6 (14) (75) 22 (9) (91) 14 19 (38) 50 52 95 32 – 18 16 (40) 60 57 (11) 14 19 50 9 (57) 10 (96) (13) (60) 29 11 (96) 64 – 48 5 96 23 32 11 33 (5) 40 (18) 6 (21) 23 52 50 3 45 37 50 10>0 – – 5 – – 8 – – 9 >100 >100 9 421 321 Q22010 Q32010 Q4 2010 mCR £% CER% £m Q1 2010 Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 195 Q1 2010 £m CER% £% GSK Annual Report 2010 (89) (89) 2 (91) (82) 8 (44) (50) Q4 2010 Q3 2010 Q2 2010 ––– ––– ––– ––– ––– ––– ––– ––– – (100) (100) 5 – – 12 (8) (8) 10 (29) (29) ––– ––– ––– ––– ––– ––– ––– ––– – (100) (100) - (100) (100) – – – – – – – (100) (100) 1 ––– ––– ––– ––– ––– ––– ––– ––– 5 (17) (17) 8 >100 >100 18 >100 >100 6 (40) (40) 3 (25) (25) 3 (25) (25) 4 (40) (20) 3 – (25) 7 (30) (30) 4 (25) – 5 (70) (75) 8 (85) (85) 6 >100 100 8 – – 7 – – 5 – – 1 (75) (75) 4 – – 6 – – 2 – – 6 20 20 6 100 100 7 >100 >100 6 >100 >100 6 >100 100 8 14 14 6 >100 >100 4 (20) (20) 9–– 8–– 9–– 8–– 17 71549 13 (25) (25) – 15 2 16 (7) (6) – 50 – 37 20 43 11 17 11 (6) 45 (6) 38 17 41 (10) 16 (15) (11) 35 (16) – (8) (5)24 – (83) (81) – 27 13 (91) (73) (90) (71) 94 5 (69) (84) (68) (74) 107 (55) 30 >100 (58) >100 41 (82) (81) 57 (84) (83) 118 (66) (64) 154 (42) (47) 15 (65) (65) 18 (11) (5) 18 (45) (45) 24 (11) (14) 6610 (11)14 (38) (8) (38) – 70 13 – >100 5 >100 13 9 11 (13) (13) 83 60 83 29 15 33 25 10 25 38 61 25 (23) 13 (29) – (7) 498641 12 1 29 14 32 4 43 43 87 28 34 8 5 10 9 46 36 44 88 (16) 39 2 (12) 39 6 42 27 (12) 76 18 (18) 12 4 31 3 7 27 4 8 30 12 15 25 13 4 16 (38) (33) 14 (41) (36) 21 (29) (25) 24 (10) (17) 40 (75) (73) 32 (78) (76) 77 (51) (48) 89 (36) (41) 75 (16)14 (13) (46) (46) 89 34 21 (17) 39 (13) 94 24 2 (4) 7 – 92 24 41 – 31 (8) 28 65 653621 30 41 18 33 67 24 71 38 17 23 (27) 26 27 (23) 19 24 40 9 (64) 3 15 (59) 55 5 27 36 32 93 (13) 80 (18) 1711 >100 14 >100 21 9 18 – 42 50 – 18 8 – – 6 – 17 5 73 – – 55 28 >100 >100 81 29 29 – – – 1 – – 94 1 3 93 22 26 74 >100 >100 97 100 >100 1215 (14)17 (14)14 (7) – 8 14 – 6 8 (7) 20 (7) 19 27 8 58 14 33 75 58 (13) 100 15 (7) 17 – 5 11 – 25 – (20) – 25 (27) 17 18 26 – >100 >100 – – – 341055 (30)20 (17) (28) (16) (17)16 (20) (13) (20) (38) 36 10 (38) 50 (19) 19 (25) (16) (8) (17) 19 (25) (21) (4) (22) 39 10 (17) (16) 20 57 (9) (11) 19 (17) 10 14 (9) 48 (13) (24) 34 (10) (24) (30) 10 21 (17) (36) (15) 19 (15) (23) (22) (33) (37) £m CER% £% £m CER% £% £m CER% £% 875 (6)118670 (4) – (7) 846 3 (5) 9 649 105 14 19 6 868 24 11 1 109 655 5 8 (3) 805 12 1 3 630 99 (5) 4 8 (4) – 114 (37) (36) 124 3 8 131 (11) (8) 136 (32) (37) 422 10 13 409 17 22 403 8 12 337 6 (2) 146 11 14 137 20 25 138 29 33 107 10 2 171 (44) (42) 278 32 35 143 (31) (27) 171 55 44 163 (16) (14) 162 (8) (4) 176 3 7 159 (11) (18) 1,854 (22) (20) 1,950 (8) (4) 1,935 (13) (10) 1,909 (1) (9) products 40 (65) (63) 33 (70) (66) 75 (33) (30) 89 (14) (21) Pharmaceutical turnoverPharmaceutical – USA Avamys/Veramyst Quarterly trend Quarterly Financial record Financial Respiratory Flixonase/Flonase Flixotide/Flovent Seretide/Advair Serevent Ventolin Zyrtec Hepsera Relenza Valtrex Zeffix Anti-virals Central nervous system Imigran/Imitrex Lamictal Requip Seroxat/Paxil Treximet Cardiovascular and urogenital Cardiovascular Wellbutrin Arixtra Avodart Coreg Fraxiparine Lovaza Vesicare Metabolic Volibris Augmentin Avandia Avandia Bonviva/Boniva Anti-bacterials Arzerra Hycamtin Oncology and emesis Promacta Vaccines Boostrix Cervarix Fluarix, FluLaval Flu pandemicHepatitisInfanrix, Pediarix Rotarix Synflorix – (100) 56 (100) 6 1 10 – 97 – 39 45 – 62 – (33) – (29) 92 – 92 – 77 – Tyverb/Tykerb Votrient Bactroban Dermovate Duac Soriatane Dermatologicals Zovirax Other VIIV Healthcare (HIV) VIIV Healthcare Combivir Epivir Epzicom/Kivexa Lexiva Selzentry Trizivir Pharmaceutical turnover income. includes co-promotion Shareholder information P192–P212 Pharmaceutical turnover –EuropePharmaceutical turnover Quarterly trend Financial record GSK Annual Report 2010 GSK Annual Report VIIV Healthcare (HIV) Other Dermatologicals Vaccines Oncology andemesis Anti-bacterials Metabolic Cardiovascular andurogenital Central nervoussystem Anti-virals Respiratory 196 eaii 3–()5 1)(5 3(3 1)6 – 2 61 >100 (13) >100 (13) 304 63 >100 >100 (15) 92 (14) 55 (50) includes co-promotionPharmaceutical turnover income. (50) Trizivir (2) 2 Selzentry Lexiva – Epzicom/Kivexa Epivir (82) Combivir 63 (82) 90 Zovirax Soriatane Duac Dermovate Bactroban Synflorix Rotarix Infanrix, Pediarix Hepatitis Flu pandemic Fluarix, FluLaval Cervarix Boostrix Augmentin Bonviva/Boniva Avandia Volibris Vesicare Lovaza Fraxiparine Coreg Avodart Arixtra Wellbutrin Treximet Seroxat/Paxil Requip Lamictal Imigran/Imitrex Zeffix Valtrex Relenza Hepsera Zyrtec Ventolin Serevent Seretide/Advair Flixotide/Flovent Flixonase/Flonase Avamys/Veramyst Votrient Tyverb/Tykerb Promacta Hycamtin Arzerra rdcs()––2 5)(2 4(2 2)3 1)(12) (12) 38 (26) (22) 34 (52) (52) 20 – – (4) products ,4 2)(6 ,2 9 1)1501()1831 13 16 1,893 (1) 1 1,580 (11) (9) 1,428 (26) (24) 1,647 2 21 6()()192 014()(5) (2) 104 20 22 109 (9) (6) 96 19 22 120 7 10 423 (2) – 392 (2) – 370 (5) (3) 416 4 5 6 3 1)(2 4 4 6 5 3 (5) (3) 159 (6) (4) 145 (12) (10) 136 (6) >100 (5) >100 613 145 14 14 (22) 365 (21) (10) 142 (8) 9 (14) 310 11 (12) 153 120 (51) (49) (12) 6 393 (9) 8 121 (3) 154 (2) (13) (11) 1 140 153 4 (5) (3) 144 137 3 4 (6) 6 6 (4) 159 569 131 (3) (10) (1) (8) 535 132 (5) (3) 488 (6) (4) 557 mCR %£ E%£ mCR £% CER% £m £% CER% £m £% CER% £m 1>0 101 1–– 3 – 6 (11) 11 64 (29) (12) (12) 17 – (20) 3 15 (17) (30) – 5 33 (25) (19) 9 61 (13) 14 (19) 13 (19) (5) (21) – 30 (16) 100 (13) (2) – – >100 (13) 15 13 57 62 (28) – 13 10 25 (25) (26) 51 – – >100 9 26 (32) (29) >100 >100 51 >100 63 (21) 14 2 11 (24) – 59 10 10 (22) 63 13 10 – (67) 28 15 11 (65) – 59 50 21 99 9 (17) (5) (6) 11 (35) (13) 9 (5) (4) (35) 14 (10) 50 12 11 20 – 47 62 (7) >100 11 18 >100 18 61 8 – – 32 (26) 17 (4) 23 50 18 (22) (2) 37 40 43 (23) – 26 50 13 13 >100 17 (23) 25 49 >100 9 11 13 (9) 19 9 55 (5) 17 (21) (41) (12) 36 (7) 19 6 (3) 22 (21) (41) 29 (45) (12) 100 44 39 22 13 27 37 10 (42) 43 22 3 100 37 55 10 9 (19) 14 (19) (39) (8) (45) 6 (3) (9) – (17) (15) (35) (43) 19 (81) (8) (3) (9) 86 36 34 22 – 25 14 23 (80) (79) 41 22 (17) 37 86 21 (78) 13 44 25 (6) 37 (17) (6) (16) (16) (14) (59) 35 13 28 (8) 56 10 (8) (13) (16) (14) 10 (4) – (59) (6) (3) 31 13 38 26 (8) – 19 (64) 16 – 45 32 22 – 3 (64) 50 35 24 (17) (14) 31 22 22 (63) 26 (9) (11) – 35 (17) (9) (63) 31 11 (13) (8) (9) (20) (72) 24 14 12 (10) 19 (9) 21 (20) 33 (71) 39 34 (9) (11) 24 20 (11) (63) 11 (11) (13) (61) 32 – 11 (73) (11) 24 15 8 (73) (10) 10 33 (17) 24 (7) (17) (14) – 9 38 (10) 24 (10) 9 42 10 12 52 92 12 22 22 141 41 24 (13) (7) 22 13 28 22 (20) (20) 21 12 21 (21) 23 (21) 11 19 24 (20) (20) 25 12 9(3 1)5 1)(9 3(3 1)6 2)(25) (23) 63 (13) (13) 53 (19) (16) 55 (16) (13) 69 2)(7 2)(5 0(7 1)1 2)(29) – (21) – 10 (13) (13) 6 (17) 7 (17) – – 10 (13) – – (13) – (25) 7 8 (25) 12 6 9 13 (14) 40 25 – (33) (27) 40 50 (42) (27) 6 14 5 8 8 (18) – – (43) (9) (14) (43) – 9 4–– 7 8 5–– 5–– 6 5–– (27) 73317 (36) (27) (36) 8 6–– 9 7–– 7–– – – 7 (25) (13) 6 – (14) 7 (14) (14) ––– 6 ––– ––– 1–– – – – ––– ––– ––– 1–– 1–– 3–– ––– 1–– ––– 3–– 1–– 3–– – – –– ––– ––– ––– – (98) (97) 2 ––– (92) ––– ––– (96) ––– ––– ––– ––– ––– 2 ––– ––– ––– ––– (95) ––– (95) ––– ––– 2 ––– – – ––– – ––– ––– ––– – 421 321 Q22010 Q32010 Q4 2010 3 5()()7 61 82 24 24 68 18 26 78 (7) (6) 65 (3) mCR £% CER% £m – Q1 2010 (2) Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 – – 197 Q1 2010 (5) – £m CER% £% GSK Annual Report 2010 14 12 8 – ) – – – 1 – – Q4 2010 Q3 2010 Q2 2010 – – – – – – – – – – – – – – – –– – – – – – – – – – – – – – – – – – – – 1 – – – – – – – (100) – – – – – – – – – – – 1 – – – – – – – – – – 1 –– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (50) (100) 3 (75) (25 – (100) (100) 1 – – 1– – – – – – – – – – – (100) – – – – – 3 >100 >100 >100 37 17 17 >100 50 83 50 26 20 20 14 14 – – 6 7 3 20 20 14 – – – 8 6 (14) – 14 (14) 6 – – 4 >100 >100 7 – – 8 233 17 6 – 50 – 50 4 (33) 1 (33) (80) (80) 2 100 100 3 50 50 9 50 50 3 8 50 50 33 33 2 9 – 60 80 – 7 2100 100 60 40 1 – – 29 50 50 9 – – 2 29 29 7 – – 2100 17 17 100 5 67 67 6 25 50 9 14 29 (33) 72 – 121 – – 75 75 –>100 86 71 72 2 >100 6 – – (33) 50 – 1 50 50 2100 (33) 2 >100 – – –(33) – 3 – – 50 50 9 >100 100 8 >100 >100 4 – – 4 9 >100 >100 (33) (33) 5 >100 >100 (50)1 4 (50)33 1 – – 33 2 1100 14 33 33 100 – – 3 1 – – 2 33 100 – – – 100 1 3 – – – – 50 – – 3 50 50 8 – – 717 – 833 33 5(17) – (1) – – 1 (92) (92) –(100) – 1 – – 78 29 26 26 29 78 74 6 9 6917 15 70 12 4 82 39 44 7311 – – 7 35 40 69 – – 74 82 7 6250 57 67 – – 75 72 59 5 73 79 – – 19 (17) (17) 18 17 13 13 17 6 6 16 20 43 43 1913 56 44 36 36 45 36 36 1635 13 13 20 1 74>100 7 (56) (89) >100 7 14 11 (53) (89) – – 11 22 20 26 10 – (34) (100) (8) – (100) – (31) (17) 17 (25) (29) 36 28 24 34 21 21 15 25 25 36 15 26 33 27 36 2817 (43) 14 (39) 25 17 40 40 11 12 22 22 (61) (61) 31 (9) (3) 31 18 11 26 67 73 24 69 85 7 (36) (36) 6 (33) (40) 11 38 38 12 33 33 985 14 18 10 77 (11)30 20 20 – 11 27 11 17 – 1261 (13) 86 18 23 10 50 50 31 (9) 12 18 10 14 80 – 25 29 56 75 75 9 2462 22 24 28 23 63 (10)16 42 33 13 13 14 9 15 22 24 (7)– 5 19 19 53 27 36 14 59 11 13 – – 20 45 17 17 10 13 (14) 12 14 47 7 (5) 8 (8) 9 15(12) – 15 15 8 1639 28 34 25 33 32 15 7 10 8 15 36 12 21 24 29 – (8) 11 4 £m CER% £% £m CER% £% £m CER% £% 113 62 64 106969 30 34 16 86 19 24 26 80 873 30 27 14 17 848 17 22 866 43 36 159 14 15 151 7 9 153 8 12 146260 11 14 216 11 4 29 32 179 18 23 272>100 >100 162 17 20 162 17 145 11 14 16625 19 143 30 24 products 3 (76) (82) 2 (90) (90) 18 (14) (14) 19 6 6 VIIV Healthcare (HIV) VIIV Healthcare Other Dermatologicals Vaccines Oncology and emesis Metabolic Anti-bacterials Cardiovascular and urogenital Cardiovascular Central nervous system Anti-virals Respiratory Pharmaceutical turnoverPharmaceutical Markets – Emerging Quarterly trend Quarterly Financial record Financial Bactroban Dermovate Duac Soriatane Zovirax Augmentin Boostrix pandemicCervarix Fluarix, FluLaval Flu HepatitisInfanrix, Pediarix Rotarix Synflorix (60) 25 (55) 6 23 17 28 20 – – 43 (9) – – 152 (9) – – 25 9 14 20 17 11 Arixtra Avodart Coreg Fraxiparine Lovaza Vesicare Volibris Avandia Bonviva/Boniva Arzerra Hycamtin Promacta Tyverb/Tykerb Votrient Combivir Epivir Epzicom/Kivexa Lexiva Selzentry Trizivir Pharmaceutical turnover income. includes co-promotion Avamys/Veramyst Flixonase/Flonase Flixotide/Flovent Seretide/Advair Serevent Ventolin Zyrtec Imigran/Imitrex Lamictal Requip Seroxat/Paxil Treximet Wellbutrin Hepsera Relenza Valtrex Zeffix Shareholder information P192–P212 Pharmaceutical turnover includes co-promotionPharmaceutical turnover income. Trizivir Selzentry Lexiva Epzicom/Kivexa Epivir Combivir VIIV Healthcare (HIV) Other Dermatologicals Vaccines Oncology andemesis eaii 21 21 02 32 233 22 24 43 >100 >100 29 242 20 – 6 – – 140 17 >100 >100 22 49 11 (57) 22 (67) 46 Zovirax Soriatane Duac Dermovate Bactroban Synflorix Rotarix Infanrix, Pediarix Hepatitis Flu pandemic Fluarix, FluLaval Cervarix Boostrix Votrient Tyverb/Tykerb Promacta Hycamtin Arzerra Augmentin Anti-bacterials Bonviva/Boniva Avandia Volibris Vesicare Lovaza Fraxiparine Coreg Avodart Arixtra Metabolic Cardiovascular andurogenital Wellbutrin Treximet Seroxat/Paxil Requip Lamictal Imigran/Imitrex Zeffix Valtrex Relenza Hepsera Central nervoussystem Anti-virals Respiratory Zyrtec Ventolin Serevent Seretide/Advair Flixotide/Flovent Flixonase/Flonase Avamys/Veramyst Pharmaceutical turnover –RestofWorldPharmaceutical turnover Quarterly trend Financial record GSK Annual Report 2010 GSK Annual Report 198 rdcs1 6)(0 5(0 4)2 1)42 (4) 4 23 4 (13) 25 (42) (50) 15 (60) (64) 10 products ,5 1)()91()91011 11053 35 35 1,085 31 16 1,021 9 (1) 901 (6) (16) 1,057 7 2)(7 7 1>0 5 10>0 5 10>100 >100 355 >100 >100 252 >100 81 178 (17) (28) 170 4 4 1 4 2 1 19 – 3 96 11 (1) 28 129 8 23 131 4 4 (4) 249 24 118 10 15 153 9 2 (4) 21 260 11 142 17 147 5 14 247 2 17 175 5 323 mCR %£ E%£ mCR £% CER% £m £% CER% £m £% CER% £m 91 91 34 6–71 21 13 7 – – 17 (5) 9 4 37 7 – 11 (17) – 32 (17) 59 – 24 16 10 100 10 (4) 49 95 33 46 (7) (17) – 44 13 22 23 69 (14) 20 (20) 6 13 19 93 16 10 44 76 – – 19 14 10 56 (6) 19 59 10 (9) – 16 19 5 >100 11 12 36 10 11 >100 11 12 2 27 45 5 6 – (8) 15 47 (6) (15) 44 >100 88 >100 12 2 18 17 29 (2) 2 (12) 2 21 31 (2) >100 50 18 >100 49 13 25 43 24 100 21 (6) (2) 21 88 >100 12 (17) (8) >100 52 16 – 34 17 50 47 27 78 47 (19) 19 78 (28) 41 2 61 16 44 25 (2) 37 42 (25) >100 89 (32) 28 40 20 63 >100 41 100 23 32 79 0(1 2(4 3 9()35 7 (12) (10) – 67 (7) – – 5 67 59 (7) 9 10 10 – (7) 21 3 (50) 41 13 33 6 21 – 50 (5) (49) 5 11 17 13 12 (9) 51 79 9 23 – 12 (27) (18) 12 18 (5) 11 8 19 (49) (27) 2 (18) (3) (92) 20 (5) (8) (41) 122 6 38 9 16 14 – 20 (14) 47 20 38 (23) 15 63 – (2) 19 72 – 1 >100 (7) 12 (9) 18 (5) >100 11 (14) 11 – 16 12 (14) 11 – 2 (18) 8 83 23 (98) (33) 45 13 (15) 56 10 (6) (11) (98) 25 10 (30) 27 47 27 41 (48) 17 33 90 2 (30) 17 16 7 18 (55) (36) 16 – 11 14 11 7 (36) 5 15 81 14 (7) (88) – (2) 21 (14) 7 (3) (89) 16 (55) 75 6 7 (12) 49 17 39 (59) 4 50 17 – (6) 98 (13) – 7 (2) (18) 19 25 (16) 11 – >100 48 >100 11 12 1(0 32 52 33 9–– – 19 33 33 20 35 24 23 5 (10) 21 0 10 2)1>0 – – >100 – 1 – (20) 3 (25) 5 (100) 3 100 – – – – 4 5 100 (100) 1 60 (33) – (17) 40 – (33) (33) – – 8 >100 (67) 5 >100 ––– – 100 4 7 4 >100 ––– (75) – >100 – 2–– 67 2 (75) 7 1–– 67 >100 – 4 100 – 2 >100 67 5 10 – – – 1 5 40 – – (1) – >100 40 >100 – – 3 7 – 9 70 7 (50) 1 – 50 (17) 2 100 – – (33) 17 (33) (33) – 4 – (33) – 13 – 5 – 4 2 (33) – 8 – 3 2 (33) 100 1 (17) 8 1 – 29 33 (20) 6 ––– 67 14 (100) (60) (33) – ––– – 3 ––– 4 (33) 9 1–– 4 2 – 100 67 100 – >100 – 100 5 4 4 – ––– (33) ––– 3 1–– 33 (67) 1–– 2 – 4 10>0 0 106––1–– 100 – 100 4 1 (33) – (33) – 2 6 – >100 (25) 100 4 5 50 6–– >100 7–– >100 – 6–– 3 6–– 3 – – – ––_ ––– 1–– ––– ––– 1–– ––– ––– ––– ––– 1–– ––– ––– ––– 1–– ––– – – – -–– ––– ––– ––– 0 10–(0 – (50) – >100 100 4 – – 1 – ––– – 1–– ––– – ––– Q4 2010 Q3 2010 Q2 2010 mCR £% CER% £m Q1 2010 Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 199 Q1 2010 Q1 2010 £m CER% £% £m CER% £% GSK Annual Report 2010 Q4 2010 Q3 2010 Q2 2010 Q4 2010 Q3 2010 Q2 2010 £m CER% £% £m CER% £%£m CER% £m £% CER% £% £m CER% £% £m CER% £% 1,267 4 7 1,260 4 8 1,252 3 7 1,231 9 7 1,267 4 7 1,260 4 8 1,252 3 7 1,231 9 7 Quarterly trend Quarterly turnover Healthcare Consumer Financial record Financial Over-the-counter medicinesOver-the-counter Oral healthcareNutritional healthcare 645 1 211 4 411 7 7 601 10 10 1 259 400 5 12 4 16 593 7 (2) 249 410 3 6 9 10 617 12 11 233 381 12 8 10 5 4 USAEuropeRest of World 485 279 503 13 (3) 5 22 (5) 7 520 491 249 15 (2) (25) (4) (3) 496 – 493 11 263 (2) 22 – (3) 514 4 471 13 246 13 9 3 8 (5) Shareholder information P192–P212 Other Dermatologicals Vaccines Oncology andemesis Anti-bacterials Metabolic Cardiovascular andurogenital Central nervoussystem HIV Anti-virals Turnover bybusinesssegment Accounting Standards Board. Five yearrecord isprepared inaccordance withIFRSasadoptedbytheEuropean UnionandalsowithIFRSasissuedbytheInter A record offinancialperformanceisprovided, analysedinaccordance withcurrent reporting practice.Theinformationincluded Five yearrecord Financial record Nutritional healthcare Oral healthcare OTC medicines Consumer Healthcare turnover sale ismade. includesco-promotion Healthcare isincludedinthegeographicareaPharmaceutical turnover income.In2010ViiV turnover inwh Other Asia Pacific/Japan Emerging Markets Europe USA bygeographicareaPharmaceutical turnover Respiratory bytherapeuticareaPharmaceutical turnover Consumer Healthcare Pharmaceutical GSK Annual Report 2010 GSK Annual Report 200 23,382 23,382 28,392 23,382 1,087 4,326 1,396 2,570 1,753 1,566 1,602 2,456 1,035 3,204 3,702 7,133 8,308 1,086 5,010 5,010 7,238 994 688 678 952 2010 2010 2010 2010 £m £m £m £m 3642,8 91320,013 19,163 20,381 23,694 3642,8 91320,013 19,163 20,381 23,694 23,225 22,716 24,352 28,368 3642,8 91320,013 19,163 20,381 23,694 ,0 ,3 ,9 1,692 1,993 2,539 3,706 ,5 ,0 ,1 1,271 1,213 1,301 1,457 ,8 ,9 ,0 1,870 1,508 1,191 1,181 ,9 ,4 ,5 1,636 1,554 1,847 2,298 ,7 ,9 ,4 3,642 3,348 2,897 1,870 ,0 ,1 ,4 1,515 1,442 1,513 1,605 ,8 ,4 ,4 993 1,561 1,049 1,788 1,240 1,935 1,484 2,339 1,666 1,769 5,437 1,701 1,883 10,353 5,560 1,918 9,273 2,282 6,483 2,715 8,894 3,000 7,720 9,294 1,191 1,478 1,584 2,416 3,212 3,553 3,971 4,674 ,7 ,7 ,5 3,212 3,553 3,971 4,674 ,7 ,1 ,3 4,991 5,032 5,817 6,977 4 8 4 769 743 782 848 0 1 7 367 375 414 707 2 9 7 1,069 477 496 629 6 0 4 788 746 804 965 5 9 1 658 716 796 851 2009 2009 2009 2009 £m £m £m £m 2008 2008 2008 2008 £m £m £m £m 2007 2007 2007 2007 £m £m £m £m national national in the in the ich a 2006 2006 2006 2006 £m £m £m £m Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

201 £m £m 2006 2006 2006 millions £m £m 2007 2007 2007 GSK Annual Report 2010 millions £m £m £m 2008 2008 2008 2008 millions %%%% £m £m £m 2009 2009 2009 2009 737 387 307 262 pence pence pence pence pence pence 82.8 73.1 76.2 90.6 millions 121.2 104.7 109.1 88.6 94.4 95.5 5,069 5,195 5,524 5,643 120.3 104.1 108.2 88.1 93.7 94.5 5,108 5,226 5,567 5,700 8,425 7,141 7,593 7,808 9,257 8,259 7,891 6,659 7,452 7,799 8,726 7,782 5,669 4,712 5,310 5,498 6,283 5,551 25,292 22,124 17,377 14,561 28,368 24,352 22,716 23,225 28,368 24,352 17,570 17,269 13,626 10,992 42,862 39,393 31,003 25,553 10,742 8,318 9,910 9,648 10,005 7,931 9,603 9,386 10,742 8,318 9,910 9,648 (12,118) (10,017) (10,345) (7,265) (20,002) (21,058) (10,748) (8,640) (32,120) (31,075) (21,093) (15,905) % £m £m £m 2010 2010 2010 2010 858 53.9 30.8 32.1 53.5 31.9 pence pence 5,085 5,128 3,783 5,128 3,157 4,505 1,853 2,961 9,745 8,887 9,745 millions 26,194 28,392 28,392 16,036 42,230 (12,794) (19,691) (32,485) Balance sheet assets Non-current Return on capital employed Weighted average number of shares in issue: average number of shares Weighted Basic Adjusted earnings per share Turnover Basic earnings per share Turnover Financial results – total – results Financial Financial record Financial Adjusted diluted earnings per share Diluted earnings per share Diluted of average net assets over the year. taxation as a percentage before Return on capital employed is calculated as total profit Current assets Current Operating profit Operating Operating profit Financial results – before major restructuring – before Financial results Profit before taxation before Profit taxation before Profit assets Total Profit after taxation Profit taxation after Profit Current liabilities Current Non-current liabilities Non-current Total liabilities Total Net assets Shareholders’ equity Shareholders’ Non-controlling interests Non-controlling Total equity Total Shareholder information P192–P212 and managedbyGSKonacontractbasis. employees isthenumberofpermanentemployedstaff attheendoffinancialperiod.Itexcludesthoseemployeeswhoare empl The geographicdistributionofemployeesinthetableaboveisbasedonlocationGSK’s subsidiarycompanies.Thenumber Research anddevelopment Administration Selling Manufacturing Rest ofWorld Canada LatinAmerica MiddleEast,Africa Japan AsiaPacific,includingChina Rest ofWorld: Europe USA Number ofemployees Financial record The 4pm buying rate on 24th February 2011 was £1 = US$1.61. =US$1.61. The 4pmbuyingrateon24thFebruary2011was£1 * Low High The averageratefortheyeariscalculatedasofnoonbuyingrateseachdayyear. Average for Sterlingasreported by the FederalReserveBankofNewYork (‘noonbuyingrate’)*. As aguidetoholdersofADS,thefollowingtablessetout,forperiodsindicated,informationonexchangerateUS d Exchange rates GSK Annual Report 2010 GSK Annual Report 202 rates havebeenusedforsubsequentcalculations. On 31stDecember2008,theFederalReserveBankofNewYork ceasedpublishingnoonbuyingrates.TheBankofEngland4pm 1.60 1.62 2011 Feb 96,461 13,082 43,918 30,611 96,461 38,996 23,388 39,910 17,555 8,850 2,106 6,432 3,609 3,461 1.55 .515 .515 1.53 1.58 1.57 1.60 1.55 1.63 1.54 1.59 1.55 1.60 2010 2010 2011 Jan 9939,0 0,8 102,695 15,952 103,483 44,484 16,029 33,235 99,003 44,499 15,164 102,695 33,995 99,913 32,211 42,430 14,725 103,483 32,622 31,776 44,621 99,003 31,162 33,150 17,570 99,913 35,271 45,758 17,525 24,726 46,869 18,983 24,838 44,677 21,011 21,176 42,048 22,594 ,0 ,8 ,6 9,024 8,960 8,787 2,386 5,856 3,204 9,405 2,562 3,195 5,249 3,156 2,362 3,284 5,228 3,403 2,208 3,174 5,169 3,619 3,264 .618 .01.85 2.00 1.85 1.56 0920 072006 2007 2008 2009 0920 072006 2007 2008 2009 2010 Dec 2010 Nov 2010 Oct ollars ollars of of oyed oyed 2010 Sept

Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 203 /BLA AL: Feb07 GSK Annual Report 2010 Achieved Regulatory review milestones review cluded in this list. Biological License Application Biological License conducted in a of efficacy, of dose and initial evaluation Determination versus placebo and/or established Large comparative study (compound small number of patients small number benefit and safety in patients to establish clinical treatment) BLA MAA NDA (Europe) Authorisation Application Marketing Phase I Application (USA) New Drug in volunteers usually conducted clinical pharmacology, Evaluation of Phase II Phase III human angiotensin converting recombinant syndrome distress acute respiratory I † anti-CD20 human monoclonal antibody (s.c.) (s.c.) anti-CD20 human monoclonal antibody multiple sclerosis rheumatoid arthritis II II anti-CD3 monoclonal antibody (i.v.) type 1 diabetes III anti-CD3 monoclonal antibody (i.v.) myaesthenia gravis II anti-CD3 monoclonal antibody (i.v.) anti-CD3 monoclonal antibody (s.c. & i.v.) anti-CD3 monoclonal antibody (s.c.) rheumatoid arthritis Graves eye disease type 1 diabetes I I I † † † † † † † activator for nuclear kappa anti-receptor bone metastatic disease Submitted N/A N/A (+ Doxil) II IL18 immunomodulator (+ topoisomerase ovarian cancer I † † Lp-PLA2 inhibitor Lp-PLA2 atherosclerosis III GLP 1 agonist type 2 diabetes III agonist glucagon-like peptide 1 (GLP 1) heart failure II † † † Month of EU Positive Opinion Month Approvable or Complete Response Letter received – indicates received Complete Response Letter or Month Approvable that ultimately approval may be given subject to resolution of approval may be given subject that ultimately outstanding queries Month of first regulatory approval (for MAA, this is the first EU regulatory approval (for MAA, Month of first approval letter) sodium dependent glucose transport (SGLT1) type 2 diabetes I domain antibody targetted multi-component malignant melanoma I Lp-PLA2 inhibitor atherosclerosis Lp-PLA2 II † † † anti-B lymphocyte stimulator monoclonal systemic lupus erythematosus Submitted S: Jun10 S: Jun10 anti-B lymphocyte stimulator monoclonal systemic lupus erythematosus II hormone parathyroid osteoporosis II † † human monoclonal antibody anti-CD20 anti-CD20 human monoclonal antibody patients) large B cell lymphoma (relapsed diffuse patients) & relapsed follicular lymphoma (refractory anti-CD20 human monoclonal antibody III III patients) lymphocytic leukaemia (refractory chronic Approved A: Apr10 A: Oct09 anti-CD20 human monoclonal antibody first line therapy & use lymphocytic leukaemia, chronic III † † † † † synthetic factor Xa inhibitor syndrome of acute coronary treatment Approved A: Aug07 anti-RANK ligand human monoclonal antibody postmenopausal osteoporosis Approved A: May10 N/A anti-RANK ligand human monoclonal antibody hormone ablative/chemotherapy bone loss in prostate Approved N/A N/A † † party with third In-license or other alliance relationship PO TA Approval FDA Tentative MAA and NDA/BLA Regulatory milestones shown in the table below are those that have been achieved. Future filing dates are not in filing dates are been achieved. Future those that have milestones shown in the table below are MAA and NDA/BLA Regulatory AL/CR S A submission Month of first

Compound Type Indication Phase MAA NDA Key † Product development pipeline development Product Cardiovascular & Metabolic 1614235 albiglutide Biopharmaceuticals 933776 1070806 1223249 2401502 antibody beta amyloid monoclonal IL18 monoclonal antibody NOGO-A monoclonal antibody disorders Alzheimer’s & multiple sclerosis lateral sclerosis amyotrophic metabolic disease I I I Prolia cancer patients Arixtra darapladib Sep07 & Arzerra otelixizumab denosumab Prolia antibody (i.v.) Benlysta 2245840 256073 557296 1278863 1278863 1292263 SIRT1 activator (HM74A) high afﬁnity nicotinic acid receptor 1521498 inhibitor metabolic disorders 2245840 oxytocin antagonist inhibitor hydroxylase losmapimod prolyl inhibitor hydroxylase retosiban prolyl agonist 119 (GRP119) coupled receptor rilapladib G-protein inverse agonist mu-opioid receptor metabolic disorders p38 kinase inhibitor SIRT1 activator agonist oxytocin antagonist disease renal associated with chronic anaemia (also COPD & psoriasis) sarcopaenia arterial disease peripheral compulsive eating disorders ejaculation premature II II disease (also COPD & pain) cardiovascular type 2 diabetes (also COPD & psoriasis) I labour pre-term threatened II II II II II II II mepolizumab ofatumumab ofatumumab otelixizumab anti-IL5 monoclonal antibody Arzerra antibody (s.c.) polyposis asthma & nasal severe Arzerra II (RANK) ligand human monoclonal antibody patients in relapsed albiglutide Arzerra otelixizumab otelixizumab otelixizumab 249320 315234 768974 Benlysta inhibitor) monoclonal glycoprotein myelin-associated stroke M monoclonal antibody oncostatin antibody rheumatoid arthritis II II iboctadekin anzyme 2 2586881 (APN01) vaccine Shareholder information P192–P212 Mar10 Her2andEGFRdualkinaseinhibitor Revolade/Promacta Duodart/Jalyn Avodart (retigabine/ezogabine) Horizant Relenza inhibitor Horizant

Product developmentpipeline 455 hpttsCvrsihbtr eaii I I II hepatitisC hepatitisC bacterialinfections polypeptidedeformylaseinhibitor hepatitisCvirusinhibitor hepatitisCvirusinhibitor tafenoquine 1322322 2485852 2336805 aoai mlikns nignssihbtr(y rp) g-eae aua eeeain I II 2010 GSK Annual Report I age-related maculardegeneration(alsocancerindications) age-related maculardegeneration III multi-kinaseangiogenesisinhibitor(eyedrops) multi-kinaseangiogenesisinhibitor(oral) I pazopanib I pazopanib I Ophthalmology I I metastatic melanoma BRafprotein kinaseinhibitor postoperativenausea&vomiting cancer Revolade/Promacta cancer (MEK1/2)+Pi3alphakinaseinhibitor cancer Votrient 2118436 cancer NDA II foretinib NK1antagonist(i.v.) focaladhesion kinaseinhibitor 2285921 MAA AKTprotein1120212 kinaseinhibitor Pi3kinase inhibitor 1120212 Phase AKTprotein kinaseinhibitor 1120212 vestipitant I 2256098 2141795 2126458 2110183 Oncology dementia &schizophrenia II agonist histamineH3antagonist Indication multiplesclerosis sphingosine-1-phosphatereceptor 1(S1P1) firategrast 742457 5HT6 649868 dementia 239512 2018682 Neurosciences antagonist Type 2251052 Infectious Diseases Compound 204 Votrient Tyverb/Tykerb Votrient Votrient Votrient (C-met)kinaseinhibitor Tyverb/Tykerb Tyverb/Tykerb Tyverb/Tykerb Revolade/Promacta 1120212 Revolade/Promacta Jan09& Oct10 Trobalt/Potiga reiat K naoit ersin&axey I II II depression &anxiety pain (also cardiovascular disease&COPD) NK1antagonist p38kinase inhibitor IPX066 orvepitant losmapimod † nuaiiaeihbtr(.. iflez II III influenza neuraminidaseinhibitor(i.v.) † oaiepeusr+DP eabxls akno’ ies II N/A III Parkinson’s disease dopamineprecursor +DOPA decarboxylase † -lh euts niio rdcini h iko rsaecne Sbitd :Sp9& CR:Jan11 S:Sep09& Submitted reduction in theriskofprostate cancer 5-alphareductase inhibitor ut-iaeagoeei niio oaincne,mitnneteay I III ovarian cancer, maintenancetherapy multi-kinaseangiogenesisinhibitor ut-iaeagoeei niio rnlcl acr prvd :Jn0 A:Oct09 A:Jun10 Approved III III renal cellcancer multi-kinaseangiogenesis inhibitor sarcoma renal cellcancer, adjuvanttherapy multi-kinaseangiogenesisinhibitor multi-kinaseangiogenesisinhibitor + † † † rxnatgns sepdsres I II sleepdisorders orexin antagonist msnhmleihla rniinfco ailr ea elcrioaadohrcnes I II papillaryrenal cellcarcinoma andothercancers mesenchymal-epithelialtransitionfactor † † † † † † otg-ae acu hne ouao rsls essnrm Sbitd S: Submitted N/A II restless legssyndrome voltage-gatedcalciumchannelmodulator post-herpeticneuralgia voltage-gatedcalciumchannelmodulator ecltRAsnhts niio oa .. bceilifcin I bacterialinfections leucylt-RNAsynthetaseinhibitor(oral&i.v.) E12ihbtr eattcmlnm II III II II metastaticmelanoma I II pancreatic cancer thrombocytopaenia MEK1/2inhibitor thrombopoietin receptor agonist MEK1/2inhibitor metastaticmelanoma MEK1/2inhibitor+BRafprotein kinaseinhibitor cancer +2118436 mitogen-activatedprotein kinaseinhibitor +BKM120 † Tyverb/Tykerb ulapa nernatgns VA) utpeslrss I II multiplesclerosis dualalpha4integrinantagonist(VLA4) † -mnqioie lsoimvvxmlra II Plasmodiumvivaxmalaria 8-aminoquinoline e2adEF ulkns niio bes acr rtln hrp Apoe A u1 A:Jan10 A:Jun10 Approved III breast cancer, firstlinetherapy III Her2andEGFRdualkinaseinhibitor III head&necksquamouscellcarcinoma (resectable disease) gastriccancer breast cancer, adjuvanttherapy Her2andEGFRdualkinaseinhibitor Her2andEGFRdualkinaseinhibitor Her2andEGFRdualkinaseinhibitor -lh euts niio lh lce bng rsai yepai xdds obnto Apoe A a1 A:Jun10 A:Mar10 Approved benignprostatic hyperplasia-fixeddosecombination 5-alphareductase inhibitor+alphablocker nuoa oasu hne pnr plpy-prilsiue Sbitd PO:Jan11 Submitted epilepsy-partialseizures neuronal potassiumchannelopener

† † † † hobpitnrcpo gns iipti hobctpei upr Apoe A a1 A:Nov08 A:Mar10 Approved idiopathicthrombocytopaenic purpura III thrombopoietin receptor agonist III II hepatitisCinducedthrombocytopaenia chronic liverdiseaseinducedthrombocytopaenia oncology-related thrombocytopaenia thrombopoietin receptor agonist thrombopoietin receptor agonist thrombopoietin receptor agonist † ut-iaeagoeei niio iﬂmaoybes acr I III inﬂammatorybreast cancer multi-kinaseangiogenesisinhibitor+

review milestones Achieved Regulatory AchievedRegulatory CR: Nov10 Sep08, /BLA Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 205 /BLA Jun09 GSK Annual Report 2010 Achieved Regulatory Achieved review milestones review

CCR9 antagonist disease Crohn’s III † beta2 agonist long-acting COPD III † based H5N1 vaccine cell-culture pandemic influenza prophylaxis I † long-acting beta2 agonist + 685698) long-acting beta2 agonist + COPD III + 685698) long-acting beta2 agonist + asthma III † conjugated C & Y & Haemophilus influenzae Neisseria meningitis groups Submitted N/A CR: Jun10 (FLAP) 5-lipoxygenase-activating protein asthma II recombinant (Plasmodium falciparum) malaria prophylaxis III N/A † † † (MenACWY-TT) (MenACWY-TT) conjugated A, C, W & Y disease prophylaxis Neisseria meningitis groups Submitted beta2 agonist muscarinic antagonist, COPD II inactivated split – monovalent (Quebec) H5N1 pandemic influenza prophylaxis Submitted PO: Nov10 N/A † Compound Type Indication Phase MAA NDA

Product development pipeline development Product Other Vaccines Flu pandemic Paediatric Vaccines Heptavalent combination conjugated vaccine MMR S. pneumoniae paediatric – conjugated recombinant glucocorticoid agonist next generation Mosquirix MenHibrix (Hib-MenCY-TT) live attenuated pneumoniae disease prophylaxis Streptococcus Neisseria meningitis C, Haemophilus influenzae type b, II II measles, mumps, rubella prophylaxis B, tetanus, pertussis and poliomyelitis diphtheria, Hepatitis disease prophylaxis type b disease prophylaxis II (USA) A: Oct03 Nimenrix 1605786 (CCX282) Relovair (vilanterol glucocorticoid agonist 962040 1399686 2190915 agonist motilin receptor conjugate (oral) anti-inflammatory macrolide disease inflammatory bowel delayed gastric emptying II II Respiratory & Immuno-inflammation Respiratory antagonist 610677 705498 asthma 1322888 agonist 1325756 urotensin 1440115 2245840 asthma p38 kinase inhibitor (inhaled) 2245840 potential vanilloid (TRPV1) transient receptor 256066 pruritis agonist 656933 motilin receptor (CXCR2) antagonist glucocorticoid 685698 receptor chemokine 681323 antagonist (topical) 705498 SIRT1 activator COPD SIRT1 activator COPD 870086 PDE4 inhibitor (inhaled) 870086 I (CXCR2) antagonist chemokine receptor 961081 gastric emptying delayed p38 kinase inhibitor (i.v.) cystic fibrosis II potential vanilloid (TRPV1) transient receptor rhinitis non-allergic (inhaled) novel glucocorticoid agonist (topical) novel glucocorticoid agonist antagonist (intranasal) COPD COPD (also type 2 diabetes & sarcopaenia) psoriasis (also type 2 diabetes & sarcopaenia) asthma atopic dermatitis syndrome distress lung injury & acute respiratory acute I II I I II I I II II II II II Pumarix (Canada) HIV HIV recombinant Tuberculosis Flu vaccine Zoster prophylaxis pandemic Flu (pre-) (Quebec) H5N1 inactivated split – monovalent recombinant influenza prophylaxis & pandemic pre-pandemic inactivated split – quadrivalent recombinant tuberculosis recombinant II Submitted N/A seasonal influenza prophylaxis S: HIV disease prophylaxis HIV disease immunotherapy Zoster prevention Herpes III II I III vilanterol (642444) vilanterol Relovair (vilanterol losmapimod 573719 573719 + vilanterol (642444) acetylcholine antagonist + muscarinic inhibitor (oral) p38 kinase antagonist muscarinic acetylcholine COPD inhibitor COPD disease & pain) COPD (also cardiovascular II III III Shareholder information P192–P212 Product developmentpipeline F229 CR naoit I netos I II II HIVinfections (ADA-SCID) HIVinfections non-nucleosidereverse transcriptaseinhibitor CCR5antagonist inhibitors(fixeddosecombination) sulphate+lamivudine 1349572 1349572 UK-453061 PF-232798 2248761 migalastat HCl 2696273 abx aoaois eprtr I II I I* I Alzheimer’s diseasetreatment vaccine I*&II I & II 2010 GSK Annual Report respiratory neuroscience inflammatorydisease stemcellgenetherapy oncology cancer * Two assets Nabi nicotine Affiris Telethon InstituteforGeneTherapy A:Apr10 Theravance pain Ranbaxy Laboratories I Prosensa Therapeutics OncoMed Pharmaceuticals Approved Galapagos autoimmune ChemoCentryx III Cancer Research UK Company Disease Option-based allianceswiththird partiesthatincludeassetsinPhaseIorlaterdevelopment: NDA vaccine MAA III onychomycosis Phase acnevulgaris III I II disease I III 1265744 I Healthcare)HIV (ViiV Area treatment ofnon-smallcelllungcancer oralanti-fungal treatment ofacutemyelogenousleukaemia treatment ofmelanoma Veltin itraconazole tablets treatment ofmetastaticmelanoma I* treatment ofresectable non-smallcelllungcancer retinoid foam (calcipotrienefoam) treatment ofmetastaticmelanoma Sorilux Phase Duac Indication tazarotene foam Stiefel (latestageassetsonly) recombinant recombinant recombinant 2402968 recombinant recombinant Rare Diseases recombinant MAGE-A3 MAGE-A3 WT1 NY-ESO-1 Type PRAME PRAME Antigen SpecificCancerImmunotherapeutic(ASCI) Compound 206 lwds cidmcnbnolprxd e an ugrs umte S:Nov10 Submitted acnevulgaris clindamycin/benzoylperoxide gel lowdose niitcrtni e an ugrs prvd A:Jul10 Approved acnevulgaris antibiotic/retinoid gel iai 3aao ml omdrt lqepoiss prvd A:Oct10 Approved mildtomoderateplaquepsoriasis vitaminD3analog † † † † † † I ners niio HVifcin II III II III I HIVinfections HIVintegraseinhibitor III HIVinfections HIVinfections HIVintegraseinhibitor+reverse transcriptase non-nucleosidereverse transcriptaseinhibitor HIVinfections HIVintegraseinhibitor (long-actingformulation) +abacavir III Duchennemusculardystrophy adenosinedeaminasesevere combinedimmunedeficiency ex-vivostemcellgenetherapy antisenseoligonucleotide † hraooia hprn Fbydsae I III Fabrydisease pharmacologicalchaperone review milestones Achieved Regulatory AchievedRegulatory /BLA Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212

0 207 US$ 1.5 1.0 0.5 3.5 3.0 2.5 2.0 GSK Annual Report 2010 US dividends per ADS • 2006 2007 2008 2009 2010 2006 2007 2008 2009 UK dividends per share 30 20 10 pence US$ pence 70 0 60 50 40 Dividend calendar QuarterQ4 2010Q1 2011 9th February 2011 11th February 2011Q2 2011 Ex-dividend dateQ3 2011April 2011 7th 4th May 2011 2nd November 2011 August 2011 3rd 4th November 2011 2012 5th January 5th August 2011 calendar Financial reporting 6th October 2011 6th May 2011 date Record Date Publication 7th July 2011 Results announcements Payment date Quarter 1Quarter 2Quarter 3 4Preliminary/Quarter Annual Report/SummaryResults announcements issued to the London Stock Exchange Results announcements are they are available on its news service. Shortly afterwards, and are made available on the website and sent issued to the media, are to the US Securities and Exchange Commission and the NYSE. 2012 February/March Financial reports February 2012 not needingGSK publishes an Annual Report and for the shareholder the full detail of the Report, a Summary document. These are the date of publication on the website. The Summaryavailable from April 2011 October 2011 the may elect to receive Shareholders is sent to all shareholders. July 2011 AlternativelyAnnual Report by writing to the registrars. shareholders notification by email of the publication ofmay elect to receive on www.shareview.co.uk. by registering financial reports website. available on GSK’s are financial reports Copies of previous in the UK and the registrars Printed copies can be obtained from the GSK Response Center in the USA. from Dividends per ADS per Dividends dollars in per ADS in US sets out the dividends The table below US dollars at applicable years, translated into the last five exchange rates. Year 20102009200820072006 2.04 1.93 2.01 2.14 1.80 •

£ 45 40 35 25 60 55 50 30 US$ 2008 pence £ 2009 9.87 9.95 2.7% 0.5% 12.85 12.79 13.34 13.85 13.20 12.85 £ 2010 13.20 13.40 10.95 12.40 (6.1%) ice (US$) US ADR pr

• UK share price 8 11 10 12 9 14 13 £ 15 01/01/08 31/12/08 31/12/09 31/12/10 01/01/08 31/12/08 31/12/09 Year Year 20102009200820072006 65 61 57 53 48 Dividends per share in the last ﬁve years.The table below sets out the dividends per share Dividends cash returns increase It continues to GSK pays dividends quarterly. Dividends remain its dividend policy. through to shareholders return and GSK is an essential component of total shareholder its dividend over the long-term. Details committed to increasing the amount and the payment dates of the dividends declared, given in Note 16 to the ﬁnancial statements, ‘Dividends’. are SmithKline Beecham plc Floating RateSmithKline Beecham plc Floating Loan Stock 1990/2010 Unsecured exchange, wasThe Loan Stock, which was not listed on any i.e. £1 for every £1 of loan stock at par, in its entirety redeemed held, on 1st June 2010. Market capitalisation in issue excluding The market capitalisation, based on shares at 31st December 2010 was of GlaxoSmithKline shares, Treasury largest company by£64 billion. At that date GSK was the sixth market capitalisation on the FTSE index. At 1st January Share price Share The Ordinary Shares of the company are listed on the London Stock on the listed are the company of Shares The Ordinary in the form Exchange (NYSE) Stock on the New York Exchange and and details of listed debt (ADS). For Depositary Shares of American 32, ‘Net debt’. to Note it is listed refer where Shareholder information Shareholder High during the year Low during the year At 31st December Increase/(decrease) The table above sets out the middle market closing prices. TheThe table above sets by 6.1% in 2010. This compares decreased price share company’s index by 9% during the year. in the FTSE 100 with an increase 2011 was £11.78. price on 24th February The share •

Shareholder information P192–P212 sustainability andcommunityinvestment. to medicines,research andbusinessethics,environmental and performanceonresponsibility areas includingaccess online on21stMarch 2011.ThiswilloutlineGSK’s approach We willpublishour2010CorporateResponsibiltyReport Corporate ResponsibilityReport Shareholder information for shareholders’. 50.15 share ownership issetoutonpage210‘Taxation 47.87 information 58.38 theUKandUStaxeffects General informationconcerning of 32.02 59.35 27.27 Taxation 29.11 54.36 39.24 * to24thFebruary2011 36.56 38.78 39.04 34.36 Year 37.03 ended31stDecember2006 38.72 40.47 41.86 38.28 32.34 Year ended31stDecember2007 40.03 38.66 36.33 42.97 Year 42.91 ended31stDecember2008 40.85 39.57 Quarter ended31stMarch 2009 40.04 39.86 36.98 33.78 Quarter ended30thJune2009 38.28 Quarter ended30thSeptember2009 39.15 40.47 Quarter ended31stDecember2009 41.86 Quarter ended31stMarch 2010 Quarter ended30thJune2010 Quarter ended30thSeptember2010 Quarter ended31stDecember2010 September 2010 October 2010 November 2010 December 2010 January 2011 February 2011* Quarter ended31stMarch 2011* sales pricesinUSdollarsfortheADSonNYSE. on theLondonStockExchange,andhighlowlastreported and lowmiddlemarketclosingquotationsinpencefortheshares The followingtablessetout,fortheperiodsindicated,high Nature oftradingmarket GSK Annual Report 2010 GSK Annual Report 1326 1160 995 1577 1003 987 1493 1385 1305 1117 1249 1221 1063 1196 1219 Year 1212 1119 ended31st December2006 1290 1319 1231 Year ended31st December2007 1129 1252 1340 1334 Year 1262 1281 ended31st December2008 1128 1277 Quarter ended31stMarch 2009 1270 1095 1212 Quarter ended30thJune2009 1200 Quarter ended30thSeptember2009 1290 1319 Quarter ended31stDecember2009 Quarter ended31stMarch 2010 Quarter ended30thJune2010 Quarter ended30thSeptember2010 1128 Quarter ended31stDecember2010 September 2010 1270 October 2010 November 2010 December 2010 January 2011 February 2011* Quarter ended31stMarch 2011* 208 98 36.33 39.86 ihLow High ihLow High US dollarsperADS Pence pershare with theinstructionsgiven. and returningthevotingcard provided bythebankinaccordance shares represented bytheirADRshouldbevotedcompleting instruct TheBankofNewYork Mellonastothewayinwhich attend andvoteonthebusinesstobetransacted.ADRholdersmay from TheBankofNewYork Mellonwhichwillenablethemto ADR holderswishingtoattendthemeetingmustobtainaproxy attend andvoteatthemeeting. representative orproxy inrespect oftheirshareholding inorder to arrange withthatnomineeservicetobeappointedasacorporate Investors holdingshares through anomineeserviceshould those committees. the Board’s Committeeswilltakequestionsonmattersrelating to be opportunityforquestionstotheBoard, andtheChairmenof performance oftheGroup anditsfuture development. There will there willbeapresentation bytheChiefExecutiveOfﬁcer onthe with privateshareholders. Inadditiontotheformalbusiness The AGMisthecompany’s principalforumforcommunication London SW1P3EE Broad Sanctuary, Westminster, The QueenElizabethIIConference Centre, 5thMay2011 Annual GeneralMeeting2011 Annual Report. made availableonthewebsitedoesnotconstitutepartofthis price isavailableonGSK’s websiteatwww.gsk.com. Information Information aboutthecompanyincludingdetailsofshare Internet e: +1 2157514000(outsidetheUSA) Tel: 18888255249(UStollfree) Tel: One FranklinPlaza,POBox7929, PhiladelphiaPA 19101 USA +44(0)2080475000 Tel: 980 Great West Road, Brentford, MiddlesexTW89GS UK Investor relations maybecontactedasfollows: Investor relations should beaddressed totheregistrars. Queries relating toreceipt ofduplicatecopiesGSK’s publications Duplicate publications respect of,thecompany’s shares. Articles ofAssociationontherighttobeaholderof,andvote in only tonon-residents oftheUKunderEnglishlaworcompany’s who are non-residents oftheUK.There are nolimitationsrelating dividends orotherpaymentstoholdersofthecompany’s shares the importorexportofcapitalaffecting theremittance of There are currently noUKlaws,decrees orregulations restricting affecting securityholders Exchange controls andother limitations inspection attheRegistered Ofﬁceofthecompany. documents referred tointhisAnnualReportare availablefor The ArticlesofAssociationthecompanyandother Documents ondisplay Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 209

f shares Number of mber of GSK Annual Report 2010 shares % of total accounts % of total accounts Number of 157,670 100 100157,670 5,670,458,177 100 100 5,670,458,177 Glaxo Wellcome and SmithKline Beecham SmithKline and Wellcome Glaxo PEPs Corporate Limited Centre The Share HP21 8SZ Bucks Aylesbury, Road, House, Oxford Oxford Tel: +44 (0)1296 414141 administrator ADR programme by: is administered The ADR programme Services BNY Mellon Shareowner PO Box 358516 15252-8516 Pittsburgh, PA www.bnymellon.com/shareowner Tel: free) 1 877 353 1154 (US toll Tel: the USA) +1 201 680 6825 (outside email: [email protected] ADS a direct Global BuyDIRECT, provide The administrators also plan for ADR holders. and dividend reinvestment purchase/sale GSK Response Center Tel: 825 5249 (US toll free) 1 888 of the details above is not intended to be an The provision investment activity. invitation or inducement to engage in an a stockbroker dealing should be obtained from Advice on share or independent financial adviser. GlaxoSmithKline Corporate Sponsored Nominee Sponsored GlaxoSmithKline Corporate service Shareview Dividend Reinvestment Plan. Nominee dealing account and Individual Savings Account (ISA) Nominee dealing account and Individual Shareholders may trade shares, either held in certificates or in either held in certificates or may trade shares, Shareholders Nominee by internet or telephonethe Corporate Sponsored by dealing service provided Dealing, a share Shareview through Equiniti Financial Services Limited. For internet deals log on to For telephone deals call www.shareview.co.uk/dealing. 08456 037 037 (inside the UK only). eitherFor the Investment Account and ISA service, or call 0845 300 0430. www.shareview.co.uk/dealing to 6.00pm, available between 8.00am services are Telephone to 4.30pm). Monday to Friday (market trading hours 8.00am Share dealing service dealing Share • • • dealing service Share • • Registrar are: registrars The company’s Equiniti Limited Sussex BN99 6DA West Spencer Road, Lancing, Aspect House, www.shareview.co.uk Tel: 2991 (inside the UK) 0871 384 Tel: +44 (0)121 415 7067 (outside the UK) Monday to Friday. 8.30am to 5.30pm, open from Lines are services: the following Equiniti also provides • Shareholder information Shareholder Held by Nominee companiesInvestment and trust companiesInsurance companiesIndividuals and other corporate bodiesBNY (Nominees) Limited by GlaxoSmithKline shares Held as Treasury whereby ADR programme, the company’s BNY (Nominees) Limited represents holding held through Mellon’s The Bank of New York 752,137,377 of 25p nominal value. At 24th February 2011, BNY (Nominees) Limited held Shares two Ordinary each ADS represents at that date. shares capital excluding Treasury 14.50% of the issued share representing Shares Ordinary and the number o in the USA was 1,118 with holdings of 1,314,614 shares, At 24th February 2011, the number of holders of shares 129,521 39 1 28,100 82 – 8 – 18 1 5 – – 74 8 252,304,068 – 4,195,447,676 474,194,158 1,626,510 – 13 746,880,931 4,834 Holding of shares Up to 1,000 1,001 to 5,000 5,001 to 100,000 100,001 to 1,000,000 Over 1,000,000 112,292 35,996 8,144 827 411 71 23 5 1 – 1 1 2 5 41,170,410 91 77,156,810 117,679,956 302,361,401 5,132,089,600 Analysis of shareholdings at 31st December 2010 Analysis of shareholdings registered holders of the ADR was 32,203 with holdings of 376,067,688 ADR. Certain of these shares and ADR were held by brokers and ADR were of the ADR was 32,203 with holdings of 376,067,688 ADR. Certain of these shares holders registered or other nominees. As a result the number of holders of record or registered holders in the USA is not representative of the nu holders in the USA is not representative or registered the number of holders of record or other nominees. As a result of beneficial holders. beneficial holders or of the residence Shareholder information P192–P212 amended (theCode). RevenueCodeof1986,as and forthepurposesofUSInternal Convention), estateandgifttaxes(EstateGiftTax Convention) taxation conventionsrelating toincomeandgains(IncomeTax underlying shares forthepurposesofcurrent USA/UK double US holdersofADRgenerallywillbetreated astheownersof implications ofthecurrent UK/USIncomeTax convention. consequences understateandlocaltaxlawsintheUSA of thepurchase andownershipoftheirshares orADR, andthe advised toconsulttheiradviserswithrespect tothetaxconsequences of thesesecurities.Itisintendedonlyasageneralguide.Holdersare of allthepossibletaxconsequencespurchase orownership of theUKorUSAissetoutbelow. Itisnotacompleteanalysis consequences forcertainholdersofshares andADRwhoare citizens A summaryofcertainUKtaxandUSfederalincome Taxation informationforshareholders of 0.5%the consideration forthetransfer. certain exemptions, bepayableonthetransfer ofshares atarate UK stampdutyorreserve will, subjectto tax(SDRT) Stamp duty against taxpayableintheUK. would generallyprovide fortaxpaidintheUSAtobecredited tax andUSestateorgifttax,the EstateandGiftTax Convention If suchagiftorotherdisposalwere subjecttobothUKinheritance market value. of anytransferbywaygiftorotherdisposalatlessthanfull which thevalueofshareholder’s estateisreduced asaresult transfer ofshares orADR.Tax maybechargedontheamountby Individual shareholders maybeliabletoinheritancetaxonthe Inheritance tax allowable loss. allowance mayreduce achargeablegainbutwillnotcreate an to theextentthatsuchgainsarisedueinflation.Indexation to anindexationallowancewhichappliesreduce capitalgains combination ofbothrates.Corporationtaxpayersmaybeentitled a disposalofshares orADR maybetaxedat18%or28%a income taxlimit.Inothercases,ataxablecapitalgainaccruingon shareholder’s taxableincomeforthetaxyearexceedsbasicrate ADR willbetaxedat28%if,afterallallowabledeductions,such amount, ataxablecapitalgainaccruingondisposalofshares or availability ofanyexemptionorrelief suchastheannualexempt of shares orADR.Fordisposals byindividualsandsubjecttothe UK shareholders maybeliable forUKtaxongainsthedisposal Taxation ofcapitalgains position, theyshouldconsulttheirownprofessional advisers. corporation tax.Ifshareholders are inanydoubtastotheir note thatdividendsare generally entitledtoexemptionfrom UK resident shareholders thatare corporationtaxpayersshould is imposedfortaxpayerswhoseincomeabove£150,000. subsequent taxyears,anadditionalrateofincomeondividends less thantheassociatedtaxcredit. Forthetaxyear2010-11and dividend, butisnotrepayable toshareholders withataxliabilityof set againsttheindividual’s incometaxliabilityinrespect ofthegross amount ofaoneninthdividendtaxcredit. Thetaxcredit maybe income taxonthefullamountofdividendspaid,grossed upforthe UK resident individualshareholders willgenerallybesubjecttoUK Taxation ofdividends shares ascapitalassets. This summaryonlyappliestoaUKresident shareholder thatholds UK shareholders GSK Annual Report 2010 GSK Annual Report 210 in respect ofqualifieddividends received before 2013. US holderwillbesubjecttotaxationatamaximumrateof15% exceptions forshort-termorhedgedpositions,anindividualeligible the daydividendsare received bytheholder. Subjecttocertain US dollaramountcalculatedbyreference totheexchangerateon Dividends paidinpoundsSterlingwillbeincludedincomethe are payableinUSdollars;dividendsonshares are payableinSterling. received deductionallowedtoUScorporations.DividendsonADR dividend incomeforUStaxpurposes.Itisnoteligiblethe The gross amountofdividendsreceived istreated asforeign source Taxation ofdividends own (directly orindirectly) 10%ormore ofthevotingstockGSK. of ashare orADRandonemore otherpositions,and personsthat part ofanintegratedinvestment(includinga‘straddle’)comprised dealers insecuritiesorcurrencies, personsthatholdshares orADRas tax rules,suchasbanks,tax-exemptentities,insurancecompanies, not address thetaxtreatment ofholdersthatare subjecttospecial on intheUKthrough abranchoragency. Thesummaryalsodoes for thepurposesofatrade,profession orvocationthatiscarried not resident intheUKfortaxpurposesanddoesnotholdshares of theshares orADR)thatholdsshares orADRascapital assets,is subject toUSfederalincometaxonanetbasisinrespect the USAoradomesticcorporationpersonthatisotherwise summaryonlyappliestoashareholderThis (acitizenorresident of US shareholders SDRT atarateof 0.5%. SDRT exceptions, result inliabilitytoUKstampdutyor, asthecase maybe, the transfer. Anysaleoftheunderlying shares would,subject tocertain an ADRwouldbe payableatarateof0.5%the considerationfor remains atalltimesoutsidetheUK.Anystampdutyontransfer of of anADRprovided thatanyinstrumentoftransferisexecutedand transfer anADR.NoUKstampduty shouldbepayableonthetransfer wouldbepayable onthetransferof,oragreementNo SDRT to (if transferred fornoconsideration). of anyconsiderationprovided (iftransferred onsale),ortheirvalue or depositoryatarateof1.5%theirprice(ifissued),theamount be payableonanyissueortransferofshares totheADRcustodian will,subjecttocertainexemptions, UK stampdutyorSDRT Stamp duty generally subjecttoUKinheritancetax. Under theEstateandGiftTax Convention, aUSshareholder isnot Estate andgifttaxes totheIRS. information isfurnished a holder’s USfederalincometaxliability provided therequired amounts withheldwillbeallowedasarefund orcredit against of theirnon-USstatusinconnectionwithpaymentsreceived. Any backup withholding,butmayberequired toprovide acertification Non-US holdersgenerallyare notsubjecttoinformationreporting or number andcertifiesthatnolossofexemptionhasoccurred. or otherexemptrecipient or provides ataxpayeridentification subject tobackupwithholdingunlesstheUSholderisacorporation intermediaries are subjectto informationreporting andmaybe ADR, paidwithintheUSAorthrough certainUS-related financial Dividends andpaymentsoftheproceeds onasaleofshares or Information reporting and backupwithholding holders) iftheshares orADR were heldformore thanoneyear. capital gains(subjecttoreduced ratesoftaxationforindividual or otherdisposalofshares or ADR.Suchgainswillbelong-term but willbesubjecttoUStaxoncapitalgainsrealised onthesale Generally, US holderswillnotbesubjecttoUKcapitalgainstax, Taxation ofcapitalgains Business review P08–P57 Governance and remuneration P58–P101 Financial statements P102–P191 Shareholder information P192–P212 211 GSK Annual Report 2010 Turnover Revenue. Turnover Treasury share share Treasury stock. Treasury Subsidiary control. and/or exercises shareholding An entity in which GlaxoSmithKline holds a majority Shares in issue Shares outstanding. The number of shares Share premium account account premium Share Additional paid-up capital or paid-in surplus (not distributable). Share option Share Stock option. Shareholders’ funds Shareholders’ equity. Shareholders’ Share capital Share fully paid. capital stock or common stock issued and Shares, Ordinary Profit attributable to shareholders attributable to shareholders Profit Net income. Profit Income. Profit Intangible fixed assets brands, licences, patents, Assets without physical substance, such as computer software, outside parties. from rights purchased know-how and marketing Hedging rate movements, or interest currency to foreign of risk, normally in relation The reduction commitments. by making off-setting The Group The Group GlaxoSmithKline plc and its subsidiary undertakings. Gearing ratio of total equity. Net debt as a percentage Freehold Freehold Ownership with absolute rights in perpetuity. Finance lease Capital lease. Employee Share Ownership Plan Trusts Ownership Plan Trusts Employee Share employee incentive plans. satisfy share-based to established by the Group Trusts Diluted earnings per share income per share. Diluted Derivative financial instrument the price or rate of some underlying item. A financial instrument that derives its value from Defined contribution plan a level of pension dependent upon the growth Pension plan with specific contributions and of the pension fund. Defined benefit plan called ‘final salary scheme’. Pension plan with specific employee benefits, often Currency swap Currency those currencies, of with a subsequent re-exchange coupled An exchange of two currencies, exchange rates and dates. at agreed The company GlaxoSmithKline plc. Combined Code the by the Listing Rules of the Financial Services Authority to address Guidelines required Corporate Governance. principal aspects of CER growth CER growth at constant exchange rates. Growth Called-up share capital Called-up share fully paid. issued and Shares, Ordinary Basic earnings per share Basic earnings per share Basic income per share. American Depositary Shares (ADS) (ADS) Shares American Depositary Shares. two Ordinary Stock Exchange; represents Listed on the New York Ordinary Shares. Receipt (ADR) American Depositary Ordinary two title to an ADS. Each GlaxoSmithKline ADR represents Receipt evidencing Terms used in the Annual Report Annual in the used Terms capital allowances Accelerated brief description US equivalent or delay of fixed assets that the purchase arising from in excess of depreciation allowance Tax of tax. The US equivalent of tax depreciation. the charging and payment Glossary of terms of Glossary Shareholder information P192–P212 nelculpoet 14 87 71 46 103 64 211 30 200 186 46 47 34 controlInternal framework 125 Interest rateriskmanagement 126 Intellectual property Independent Auditors’report 116 41 Incentive plans Improving accesstomedicines andpolicy Governance 125 Goodwill 132 Glossary ofterms 129 Foreign exchangemanagement 171 162 Five yearrecord 91 70 underUKGAAP Financial statementsofGlaxoSmithKlineplc,prepared Financial review 2009 Financial review 2010 96 Financial positionandresources Financial instrumentsandrelated disclosures Finance income Finance costs 101 Executive Director termsand conditions 69 102 62 Exchange rates 40 Employees 33,202 101 Employee share schemes 60 43,150 Employee costs pershareEarnings politicalexpenditure Donations topoliticalorganisationsand Dividends 130,207 Directors’ statementofresponsibilities 74 Directors’ interests incontracts 104 63 106 Directors’ interests 11,17,18,19,27,36,49,199 Directors andSeniorManagement 108 Dialogue withshareholders 08 107 Critical accountingpolicies 104 Corporate governance Corporate ExecutiveTeam 04 139 Contingent liabilities Consumer Healthcare 139 Consolidated statementofcomprehensive income 94 Consolidated statementofchangesinequity 126 Consolidated incomestatement Consolidated cashflowstatement Consolidated balancesheet 71,208 Competition 14 155 Committee reports Commitments 43,161 08 Combined Code Chairman andCEOsummary 110 Cash andcashequivalents Business review Board 58 Associates andjointventures Assets heldforsale Annual remuneration Annual GeneralMeeting 154 Adjustments reconciling profit aftertaxtooperatingcash flows Acquisitions anddisposals Accounting principlesandpolicies 2010 Performanceoverview Index GSK Annual Report 2010 GSK Annual Report 212 Page ol akt 20 79 46 42 139 140 207 97 192 210 22 53 World market 69 US lawandregulation 117 Treasury operations Trademarks 14 29 Trade andotherreceivables Trade andotherpayables 81 152 Total equity 84 10 Taxation informationforshareholders Taxation 127 Strategy 07 154 192 Shareholder information Share price Share options Share capitalandshare premium account 18 Share capitalandcontrol Segment reviews Segment information 130 Risk factors 175 203 Responsible business Research anddevelopment Remuneration Report 161 34 Remuneration policy 148 Related partytransactions 155 Regulation 18 Registrar 209 109 123 Reconciliation ofnetcashflowtomovementindebt 138 Quarterly trend 150 Property, 138 124 plantandequipment Products 14 135 Product developmentpipeline 140 150 Principal Group companies Price controls Presentation ofthefinancial statements Post balancesheetevents 95 109 Pharmaceutical turnover Pensions andotherpost-employmentbenefits 153 116 Outlook 07 208 Other provisions 178 Other operatingincome 19 Other non-current liabilities 92 Other non-current assets 208 Other investments 121 09 Other intangibleassets Operating profit Notes tothefinancialstatements Non-Executive Directors’ fees Non-Executive Director termsandconditions New accountingrequirements 114 Net debt Nature oftradingmarket Movements inequity 137 Manufacturing andsupply Major restructuring programme Legal proceedings Key performanceindicators Key accountingjudgementsandestimates Investor relations Investments inassociatesandjointventures Inventories 138 Page History and development of the company GlaxoSmithKline plc is a public limited company incorporated on 6th December 1999 under English law. Its shares are listed on the London Stock Exchange and the New York Stock Exchange. On 27th December 2000 the company acquired Glaxo Wellcome plc and SmithKline Beecham plc, both English public limited companies, by way of a scheme of arrangement for the merger of the two companies. GSK and its subsidiaries and associates constitute a major global healthcare group engaged in the creation, discovery, development, manufacture and marketing of pharmaceutical and consumer health-related products. Annual Report and Summary This report is the Annual Report of GlaxoSmithKline plc for the year ended 31st December 2010, prepared in accordance with United Kingdom requirements. It was approved by the Board of Directors on 1st March 2011 and published on 2nd March 2011. A summary of the year, intended for the shareholder not needing the full detail of the Annual Report, is produced as a separate document and issued to all shareholders. The summary does not constitute a set of summary financial statements as defined by section 428 of the Companies Act 2006. The Annual Report is issued to shareholders who have elected to receive it. Both documents are available on GSK’s website. In this Report ‘GlaxoSmithKline’, the ‘Group’ or ‘GSK’ means GlaxoSmithKline plc and its subsidiaries; the ‘company’ means GlaxoSmithKline plc; ‘GlaxoSmithKline share’ means an Ordinary Share of GlaxoSmithKline plc of 25p; American Depositary Shares (ADS) each represent two GlaxoSmithKline shares. Brand names Brand names appearing in italics throughout this report are trademarks either owned by and/or licensed to GlaxoSmithKline or associated companies, with the exception of Benlysta, a trademark of Human Genome Science, Boniva/Bonviva, a trademark of Roche, Botox, a trademark of Allergan, Levitra, a trademark of Bayer, NicoDerm, a trademark of Elan, Johnson & Johnson, Merrell, Novartis, Sanofi-Aventis or GlaxoSmithKline, Potiga, a trademark of Valeant, Prolia, a trademark of Amgen, Vesicare, a trademark of Astellas Pharmaceuticals in many countries and of Yamanouchi Pharmaceuticals in certain countries and Volibris, a trademark of Gilead, all of which are used in certain countries under licence by the Group. Exchange rates The Group operates in many countries and earns revenues and incurs costs in many currencies. The results of the Group, as reported in Sterling, are affected by movements in exchange rates between Sterling and other currencies. Average exchange rates prevailing during the period are used to translate the results and cash flows of overseas subsidiaries, associates and joint ventures into Sterling. Period end rates are used to translate the net assets of those entities. The currencies that most influence the Group’s results remain the US dollar, the Euro, the Yen and Sterling. Details of the exchange rates used by the Group are given in Note 5 ‘Exchange Rates’ on page 116. During 2010, average Sterling exchange rates were stronger against the Euro but weaker against the US dollar and the Yen compared with 2009. Year end Sterling exchange rates were also stronger against the Euro but weaker against the US dollar and the Yen. We have chosen ten Andrew Witty introduction Watch our CEO review the year and outline how we are committed case studies from 2010 to running our business responsibly. that demonstrate the progress we have made against our strategic priorities. Each of these stories may be viewed online at: www.gsk.com/ corporatereporting Case studies Here you will find downloadable pdf’s of: Delivering the next generation of medicines • Annual Report

• 2010 Review • Form 20-F • Corporate Responsibility Review Maintaining our leadership position in respiratory

Web information on: • Link to the World of GSK Investing in nutritional healthcare • Link to the Corporate Responsibility Report

Conducting a sophisticated approach to pricing

Strengthening our biopharmaceuticals business

Extending access in the developing world

Growing our global vaccines business

Building our leadership position in dermatology

Evolving the US business model

www.gsk.com

Head Ofﬁce and Registered Ofﬁce Creating a rare diseases unit GlaxoSmithKline plc 980 Great West Road Brentford, Middlesex TW8 9GS United Kingdom Tel: +44 (0)20 8047 5000 Registered number: 3888792 Printed in the UK. The paper used in the production of this document is made from 100% post consumer waste. The pulp is bleached using a totally chlorine free process.