Answering the Questions that mAtter Annual Report 2007 Five Questions. Five Answers. One mission. Question How are you adapting your business model to one succeed in the current healthcare environment? Answer page 4 Question Why do you have a Consumer Healthcare two business? Answer page 5 Question Share prices in the sector haven’t performed well, three what is the outlook for GSK? Answer page 6 Question How is your research and development pipeline four performing? Answer page 7 Question What are you doing to improve healthcare in the five developing world? Answer page 8 Website GlaxoSmithKline’s website www.gsk.com gives additional information on the Group. Information made available on the website does not constitute part of this Annual Report. 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 9 to 86, 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 9 to 86 inclusive consist of a 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. 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 50 to 53 of this Annual Report. Contents Chairman and CEO summary 3 Mission Five questions, five answers 4 Our global quest is to improve the quality of human life by enabling people to do more, feel better and live longer. Report of the Directors Business review 9 Our Spirit Corporate governance 59 We undertake our quest with the Remuneration Report 71 enthusiasm of entrepreneurs, excited by the constant search for innovation. We value performance achieved with integrity. We will attain success as a world class global leader with each and every one of our OF THE DIRECTORS REPORT people contributing with passion and an unmatched sense of urgency. Financial statements Directors’ statements of responsibility 88 Independent Auditors’ report 89 Consolidated income statement 90 Consolidated balance sheet 91 Consolidated cash flow statement 92 Consolidated statement of recognised income and expense 93 Notes to the financial statements 94 Financial statements of GlaxoSmithKline plc 159 FINANCIAL STATEMENTS Investor information Financial record 166 Shareholder information 175 Taxation information for shareholders 179 Glossary of terms 180 Index Inside back cover GSK Annual Report 2007 I 1 INVESTOR INFORMATION Annual Report and Annual Review History and development of the company This report is the Annual Report of GlaxoSmithKline plc for the year GlaxoSmithKline plc is a public limited company incorporated on ended 31st December 2007, prepared in accordance with United 6th December 1999 under English law. Its shares are listed on the Kingdom requirements. It was approved by the Board of Directors on London Stock Exchange and the New York Stock Exchange. On 27th February 2008 and published on 28th February 2008. 27th December 2000 the company acquired Glaxo Wellcome plc and SmithKline Beecham plc, both English public limited companies, A summary report on the year, the Annual Review 2007, which is by way of a scheme of arrange ment for the merger of the two prepared in accordance with United Kingdom requirements and companies. Both Glaxo Wellcome and SmithKline Beecham were intended for the investor not needing the full detail of the Annual major global healthcare businesses. Report, is produced as a separate document. It includes the joint statement by the Chairman and the Chief Executive Officer, a GSK plc and its subsidiary and associated undertakings constitute a summary review of operations, summary financial statements major global healthcare group engaged in the creation, discovery, and a summary remuneration report. The Annual Review is issued development, manufacture and marketing of pharma ceutical and to all shareholders. The Annual Report is issued to shareholders consumer health-related products. who have elected to receive it. Both documents are available on GSK has its corporate head office in London. It also has operational GSK’s website. headquarters in Philadelphia and Research Triangle Park, USA, and In this Report ‘GlaxoSmithKline’, the ‘Group’ or ‘GSK’ means operations in some 114 countries, with products sold in over 140 GlaxoSmithKline plc and its subsidiary undertakings; the ‘company’ countries. The principal research and development (R&D) facilities means GlaxoSmithKline plc; ‘GlaxoSmithKline share’ means an are in the UK, the USA, Belgium, Italy, Japan and Spain. Products are Ordinary share of GlaxoSmithKline plc of 25p; an American Depositary currently manufactured in some 38 countries. Share (ADS) represents two GlaxoSmithKline shares. The major markets for the Group’s products are the USA, France, Business performance Japan, the UK, Italy, Germany and Spain. Business performance, which is a supplemental non-IFRS measure, Business segments is the primary performance measure used by management and is GSK operates principally in two industry segments: presented after excluding costs relating to the new Operational Excellence programme, which commenced in October 2007. • Pharmaceuticals (prescription pharmaceuticals and vaccines) Management believes that exclusion of these items provides a better • Consumer Healthcare (over-the-counter medicines, oral care and reflection of the way in which the business is managed and gives a nutritional healthcare). more useful indication of the underlying performance of the Group. This information, which is provided in addition to the total results Brand names appearing in italics throughout this report are prepared under IFRS, is given to assist shareholders to gain a clearer trademarks either owned by and/or licensed to GlaxoSmithKline understanding of the underlying performance of the business and or associated companies, with the exception of Baycol and Levitra, to increase comparability for the periods presented. trademarks of Bayer, Boniva/Bonviva, a trademark of Roche, Citrucel, a trademark of Merrell Pharmaceuticals, Entereg, a trademark of Exchange rates Adolor Corporation in the USA, Hepsera, a trademark of Gilead The Group operates in many countries and earns revenues and incurs Sciences in some countries including the USA, HuMax-CD20 a costs in many currencies. The results of the Group, as reported in trademark of Genmab, Integrilin, a trademark of Millennium Sterling, are affected by movements in exchange rates between Pharmaceuticals, Lymphostat B, a trademark of Human Genome Sterling and other currencies. Average exchange rates prevailing Sciences, Nicoderm, a trademark of Sanofi-Aventis, Pfizer Canada, during the period are used to translate the results and cash flows Elan, Novartis, Merrell or GlaxoSmithKline, and Vesicare, a trademark of overseas subsidiaries, associates and joint ventures into Sterling. of Astellas Pharmaceuticals in many countries and of Yamanouchi Period end rates are used to translate the net assets of those entities. Pharmaceuticals in certain countries, all of which are used in certain The currencies which most influence these translations are the US countries under licence by the Group. dollar, the Euro and the Japanese Yen. 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