Notes to Financial Statements
As of December 31,
2021 and 2020 and for the Year Ended December 31, 2021
| 1. | Description
of the Plan |
The
following description of the GSK Puerto Rico 401(k) Plan (the “Plan”) provides only general information. Participants
should refer to the Plan Document or Summary Plan Description for a more complete description of the Plan’s provisions.
General
The
Plan is a defined contribution plan sponsored by GSK Puerto Rico, Inc. (“GSK” or the “Company”). The Plan
was established to encourage and assist Company employees to save regularly for retirement. The Plan is subject to the provisions
of the Employee Retirement Income Security Act of 1974 (ERISA).
Contributions
Each
year, participants may contribute up to 50% of pre-tax annual compensation and up to 10% of after-tax annual compensation, as
defined in the Plan Document. Participants who have attained age 50 before the end of the Plan’s
year are also eligible to make catch-up contributions. Participants may also contribute amounts representing distributions from
other Puerto Rico qualified retirement plans, subject to the terms of the Plan. Participants may direct the investment of the
contributions into various investment options offered by the Plan and may change those options at any time during the year.
Effective
January 1, 2021, the Company makes contributions to the accounts of employees with one hour of credited service. The Company makes
contributions to the accounts of employees with one hour of credited service in two ways. The Company matches 100% of employee
pre-tax contributions up to 4% of the employee’s eligible pay as defined by the Plan Document. If Hacienda limits restricts
pre-tax contributions to less than 4% of eligible pay, after-tax contributions will be matched to provide a total matching contribution
of 4% of eligible pay. Additionally, the Company provides for GSK core contributions of 7% of eligible employee compensation,
regardless of whether the employee voluntarily contributes to the Plan. Participants decide how to invest the Company contributions
into the various investment options offered by the Plan and may change those options at any time during the year.
During
2021 the total amount of the employee and employer contributions was $10,417,626; rollover contributions of $224,207 are included
in this amount.
Participant Accounts
Each
participant’s account is credited with the participant’s contributions, Company matching contributions, GSK core contributions
and investment earnings or losses as applicable and charged with fees as applicable. The earnings on investments are allocated
daily to the individual accounts of participants. These allocations are based on each participant’s relative interest in
the fair value of the assets held in each fund, except for dividends and unrealized appreciation and depreciation on the GSK American
Depository Receipts (ADRs), as held in the GlaxoSmithKline Stock Fund (the “GSK Stock Fund"), which are allocated based
upon the number of units held in the individual accounts of participants. The benefit, to which a participant is entitled, is
the benefit that can be provided from the participant’s vested account. The Plan’s investments include the GSK Stock
Fund. The GSK Stock Fund is comprised of GSK American Depository Shares (ADRs). Each ADR represents two ordinary shares of GlaxoSmithKline
plc. In addition, the GSK Stock Fund holds a small percentage invested in the State Street Institutional Treasury Money Market
Fund, managed by State Street Global Advisors (SSGA) for liquidity.
GSK Puerto Rico 401(k) Plan
Notes to Financial Statements
As of December 31,
2021 and 2020 and for the Year Ended December 31, 2021
Nonparticipant-Directed
Investments
If
a participant does not designate an investment direction, their future contributions and earnings will be invested in the age-appropriate
Vanguard Target Retirement Trust Plus fund closest to the year that the participant turns age 65. The participant can change this
future investment direction as well as transfer any accumulated holdings to any other fund in the Plan at any time.
Vesting
Participants
are immediately and fully vested in their participant contributions, GSK matching contributions and GSK core contributions, plus
actual earnings thereon.
Payment of Benefits
While
employed, participants may withdraw their after-tax contributions, and prior company matching contributions. Current company matching
contributions may not be withdrawn until termination of employment.
Participants
become entitled to payment of the total value of their accounts at the time of termination, retirement, disability, or death.
Participants
with account balances less than $5,000 must take an immediate distribution and can receive investments in the GSK Stock Fund in
GSK ADRs. Participants can choose whether to rollover their payment or take a payment in cash. Participants who do not make an
election will receive their payment in cash.
If
the account balance is greater than $5,000, participants have the option of electing (1) up to four partial distributions each
year from their account balance; (2) a total distribution of their account balance as annual installments over a period not exceeding
20 years, or as a lump sum distribution of cash or if invested in the GSK Stock Fund those distributions
may be made in GSK ADRs.
Administrative
Expenses
Investment
management fees are borne by Plan participants. Investment management fees for certain funds are recorded as Administrative Expenses
and Investment Management Fees in the Statement of Changes in Net Assets Available for Benefits. Other Investment management fees
are deducted from the respective fund investment returns. During the year ended December 31, 2021, the Company paid administrative
expenses of $249,000 on behalf of the Plan.
In
addition to the Administrative Expenses and Investment Management Fees borne by Plan participants, during the year ended December
31, 2021 the Company paid to Banco Popular de Puerto Rico, the Trustee $75,672 and State Street Bank and Trust Company, the custodian
$45,299 for 2021.
| 2. | Summary
of Significant Accounting Policies and Recent Accounting Pronouncements |
Basis of Presentation
The
accompanying financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles
generally accepted in the United States of America.
Use of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein,
and disclosure of contingent assets and liabilities. Actual results could differ from those estimates and differences could be
material.
GSK Puerto Rico 401(k) Plan
Notes to Financial Statements
As of December 31,
2021 and 2020 and for the Year Ended December 31, 2021
Cash
Cash
represents the cash balance held in a deposit account at Banco Popular de Puerto Rico (“BPPR”). The Trustee of the
Plan is BBPR (the Trustee); the deposit account is used to receive contributions from the Company and remit to State Street Bank
and Trust Company and receive payment of benefits from State Street Bank and Trust Company for payment to participants. Interest
earned is used to pay administrative expenses of the Plan. There was no interest earned on cash balances as of December 31, 2021.
Investment Valuation
and Income Recognition
The
Plan’s investments are stated at fair value as defined by the FASB Accounting Standards Codification (ASC) 820. Plan Management
determines the Plan's valuation policies utilizing information provided by the investment advisers and custodians.
The
following is a description of the valuation methodologies used for the investments measured at fair value. There
have been no changes in methodologies used at December 31, 2021 and 2020.
| ● | Common
stock: valued at the closing price reported on the active market on which the individual
security is traded. |
| ● | Money
market fund and mutual funds: Valued at the daily closing price as reported by the fund.
These funds are registered with the Securities and Exchange Commission and are required
to publish their daily net asset value and to transact at that price. These funds held
by the Plan are deemed to be actively traded. |
| ● | Common
collective trust funds: valued at the net asset value of units of a bank collective trust.
The net asset value as provided by the trustee is used as a practical expedient to estimate
fair value. The net asset value is based on the fair value of the underlying investments
held by the fund less its liabilities. This practical expedient is not used when it is
determined to be probable that the fund will sell the investment for an amount different
than the reported net asset value. |
The
measurement methods as described above may not be indicative of net realizable value or reflective of future fair values. Furthermore,
while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value
measurement at the reporting date.
Purchases
and sales of investments are recorded on the trade-date basis. Interest income is recognized as earned. Dividend income is recorded
on the ex-dividend date.
The
Plan presents, in the Statement of Changes in Net Assets Available for Benefits, the net appreciation in the fair value of its
investments, which includes realized gains and losses and unrealized appreciation and depreciation.
Benefits Paid
to Participants
Benefits paid to participants
from participants’ accounts are recorded when paid.
Fair
Value Measurement
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to
the Disclosure Requirements for Fair Value Measurement, which amends certain disclosure requirements of ASC 820. The ASU removed
the requirement to disclose the amount of and reasons for transfers between level 1 and level 2 of the fair value hierarchy as
well as the policy for timing of transfers between levels. The ASU also modified the disclosure for investments in certain entities
that calculate NAV to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption
might lapse only if the investee has communicated the timing to the Plan or announced the timing publicly. It also clarified
the measurement uncertainty disclosure to communicate information about the uncertainty in measurement as of the reporting date.
The Plan adopted ASU 2018-13 on January 1, 2020 retrospectively. The adoption of this ASU did not have a material impact on the
Plan’s financial statements.
GSK Puerto Rico 401(k) Plan
Notes to Financial Statements
As of December 31,
2021 and 2020 and for the Year Ended December 31, 2021
| 3. | Fair
Value Measurements |
The
framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. To increase consistency and comparability in fair value measurements and related disclosures, the Plan utilizes
the fair valuation hierarchy required by FASB ASC 820-10 which prioritizes the inputs to valuation techniques and to measure fair
value into the following three broad levels:
| Level 1 | Inputs to the valuation
methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to
access at the measurement date (i.e. common stocks and mutual funds). |
| Level 2 | Inputs other than quoted
prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not
considered to be active (i.e. common collective trust funds). |
| Level 3 | Inputs to the valuation
methodology are unobservable and significant to the fair value measurement. |
| |
Assets at Fair Value as of December 31, 2021 |
|
| |
Level 1 |
|
|
Level 2 |
| |
Level 3 |
| |
Total |
|
Common stock | |
$ | 10,021,990 | |
|
$ | — | | |
$ | — | | |
$ | 10,021,990 | |
Money market fund | |
| 94,458 | |
|
| — | | |
| — | | |
| 94,458 | |
Mutual funds | |
| 27,293,647 | |
|
| — | | |
| — | | |
| 27,293,647 | |
| |
| 37,410,095 | |
|
| — | | |
| — | | |
| 37,410,095 | |
Investments measured at net asset value as a
practical expedient (a) | |
| — | |
|
| — | | |
| — | | |
| 52,529,008 | |
| |
$ | 37,410,095 | |
|
| — | | |
| — | | |
$ | 89,939,103 | |
GSK Puerto Rico 401(k) Plan
Notes to Financial Statements
As of December 31, 2021 and 2020 and for the Year Ended December 31, 2021
| |
Assets
at Fair Value as of December 31, 2020 | |
| |
Level
1 | | |
Level
2 | | |
Level
3 | | |
Total | |
Common
stock | |
$ | 8,275,584 | | |
$ | — | | |
$ | — | | |
$ | 8,275,584 | |
Money market fund | |
| 162,175 | | |
| — | | |
| — | | |
| 162,175 | |
Mutual funds | |
| 20,493,411 | | |
| — | | |
| — | | |
| 20,493,411 | |
| |
| 28,931,170 | | |
| — | | |
| — | | |
| 28,931,170 | |
Investments measured
at net asset value as a practical
expedient (a) | |
| — | | |
| — | | |
| — | | |
| 47,408,102 | |
| |
$ | 28,931,170 | | |
$ | — | | |
$ | — | | |
$ | 76,339,272 | |
(a)
Certain investments that were measured at net asset value per share (or its equivalent) as practical expedient have not been classified
in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair
value hierarchy to the line items presented in the Statements of Net Assets Available for Benefits.
The
following summarizes investments measured at fair value based on NAV per share as a practical expedient as of December 31,
2021 and 2020, respectively.
|
December 31, 2021 |
|
Fair Value |
|
Unfunded Commitments |
|
Redemption Frequency |
|
Redemption Notice Period |
* |
State Street Global Advisors Funds |
|
$ |
41,628,536 |
|
n/a |
|
Daily |
|
8:30am EST on T+1 for participant-directed redemptions.
In accordance with the relevant Declaration of Trust for the Commingled Funds, SSGA requests emailed notice 15 days in advance
of Trade Date for all plan-directed contributions or redemptions that are of significant size, as determined by SSGA in its
sole discretion. |
|
|
|
|
|
|
|
|
|
|
|
Vanguard Retirement Savings Trust IV |
|
|
7,879,097 |
|
n/a |
|
Daily subject to frequent trading provisions |
|
No defined period. |
|
|
|
|
|
|
|
|
|
|
|
BlackRock Government Short Term Investment Fund |
|
|
3,021,375 |
|
n/a |
|
Avg 10 per month |
|
In
the event of Plan (non-participant) directed activity into or out of the Collective Funds, the Trustees will provide the
Manager with thirty (30) days advance notification in order to allow for coordination of order placement, trading and
specification of settlement date. |
|
|
|
|
|
|
|
|
|
|
|
Total December 31, 2021 |
|
$ |
52,529,008 |
|
|
|
|
|
|
GSK Puerto Rico 401(k) Plan
Notes to Financial Statements
As of December 31, 2021 and 2020 and for the Year Ended December 31, 2021
|
December 31, 2020 |
|
Fair Value |
|
Unfunded Commitments |
|
Redemption Frequency |
|
Redemption Notice Period |
* |
State Street Global Advisors Funds |
|
$ |
35,757,038 |
|
n/a |
|
Daily |
|
8:30am EST on T+1 for participant-directed redemptions.
In accordance with the relevant Declaration of Trust for the Commingled Funds, SSGA requests emailed notice 15 days in advance
of Trade Date for all plan-directed contributions or redemptions that are of significant size, as determined by SSGA in its
sole discretion. |
|
|
|
|
|
|
|
|
|
|
|
|
Vanguard Retirement Savings Trust IV |
|
|
8,003,401 |
|
n/a |
|
Daily subject to frequent trading provisions |
|
12 months’ advance notice for a full or
partial redemption of trust units at full book-value or 30 business days’ notice for other plan-directed redemptions
(which may result in proceeds at less than the full book value). These provisions do not apply for participant-directed redemptions. |
|
|
|
|
|
|
|
|
|
|
|
BlackRock Government Short Term Investment Fund |
|
|
3,647,663 |
|
n/a |
|
Avg 10 per month |
|
In the event of Plan (non-participant) directed
activity into or out of the Collective Funds, the Trustees will provide the Manager with thirty (30) days advance notification
in order to allow for coordination of order placement, trading and specification of settlement date. |
|
|
|
|
|
|
|
|
|
|
|
|
Total December 31, 2020 |
|
$ |
47,408,102 |
|
|
|
|
|
|
*State
Street Global Advisor Funds includes 4 funds (for 2021, see individual funds as listed in attached Schedule H, line 4i –
Schedule of Assets Held Common Collective Trust Section)
| 4. | Related
Party and Party in Interest Transactions |
Certain
Plan investments are common collective trust funds and mutual funds managed by SSGA, an investment management division of State
Street Bank and Trust Company, which is the custodian of the Plan and therefore, related transactions qualify as party-in-interest
transactions. BPPR remits all contributions received from the Company to State Street Bank and Trust Company who invests these
contributions as directed by participants. BPPR makes distributions from the Plan in accordance with the Agency Agreement.
During
the year ended December 31, 2021, the Plan purchased $10,231,112 and sold $10,211,890 of the GSK Stock Fund, which included
purchases of $4,250,681 and sales of $4,175,870 of GSK ADRs, respectively, and received dividends of $503,285.
Although
it has not expressed any intent to do so, the Company has the right under the Plan Document to discontinue its contributions at
any time and to terminate the Plan subject to the provisions of ERISA.
The
Plan is exempt from Puerto Rico income taxes under the provisions of the Puerto Rican Internal Revenue Code (the “PRIRC”),
enacted on January 31, 2011. The 2011 PRIRC replaced the 1994 PRIRC, as amended. The Government of Puerto Rico Treasury Department
has determined and informed the Company by a letter dated April 22, 2008 that the Plan and trust established thereunder is exempt
from local income taxes. Although the Plan has been amended since receiving the above letter, the Plan administrator and the Plan's
tax counsel believe that the Plan is designed, and is currently being operated, in compliance with the applicable requirements
of the PRIRC and, therefore, believe that the Plan is qualified, and the related trust is tax-exempt.
GSK Puerto Rico 401(k) Plan
Notes to Financial Statements
As of December 31, 2021 and 2020 and for the Year Ended December 31, 2021
| 7. | Risks
and Uncertainties |
The
Plan invests in various investment options. These investment options are exposed to various risks, such as interest rate, market
and credit risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes
in the values of investments will occur in the near term and that such changes could materially affect participants’ account
balances and the amounts reported in the Statements of Net Assets Available for Benefits.
Included
in investments at December 31, 2021 and 2020, are shares of GSK’s common stock of $10,021,990 and $8,275,584 respectively.
This investment represents 11.07 percent and 10.77 percent of net assets available for benefits at December 31, 2021 and
2020, respectively. A significant decline in the market value of GSK’s stock would affect the net assets available for benefits.
As
of December 31, 2021 and 2020, the following investments represent 5.0 percent or more of the net assets available for benefits:
2021 | |
| |
Investment | |
Fair Value of Investment | |
State Street S&P 500 Equity Index Fund (NL Class A) | |
$ | 24,882,842 | |
GlaxoSmithKline plc ADR | |
| 10,021,990 | |
Vanguard Retirement Savings Trust IV | |
| 7,879,097 | |
State Street US Extended Market Equity Index Fund (NL Class C) | |
| 7,801,138 | |
State Street Global All Cap Equity Ex-US Index (NL Class A) | |
| 5,190,410 | |
2020 | |
| |
Investment | |
Fair
Value of Investment | |
State Street
S&P 500 Index Non-Lending Series Fund (Class A) | |
$ | 17,713,760 | |
GlaxoSmithKline plc
ADR | |
| 8,275,584 | |
Vanguard Retirement
Savings Trust IV | |
| 8,003,401 | |
State Street US Extended
Market Index Non-Lending Series Fund (Class C) | |
| 6,599,860 | |
State Street International
Index Non-Lending Series Fund (Class A) | |
| 4,358,018 | |
State Street US Bond
Index Non-Lending Series Fund (Class A) | |
| 3,912,219 | |
There
are no other individual investments that represent more than 5.0 percent of the net assets available for benefits at December
31, 2021 and 2020.
Current
events
The
ongoing novel coronavirus (COVID-19) was declared a pandemic by the World Health Organization on March 11, 2020. The outbreak
has negatively impacted the world economy and common stock share prices for many companies, including GSK PLC’s common stock
share price. The Plan’s investment in the common stock of GSK PLC is stated at fair value based on the closing price of
$44.10 per share at December 31, 2021. The impact of COVID-19 on companies continues to evolve rapidly and its future effects
on the Plan’s financials statements are uncertain.
GSK Puerto Rico 401(k) Plan
Notes to Financial Statements
As of December 31, 2021 and 2020 and for the Year Ended December 31, 2021
In
February 2020, Puerto Rico Treasury provided the option for retirement plan sponsors to offer temporary tax-favored treatment
for participant withdrawals due to the recent earthquakes. In March 2020, Puerto Rico Treasury amended the earthquake relief to
also include relief related to COVID-19. The provisions of the tax relief relating to the earthquakes and COVID-19 may be effective
and operationalized immediately, prior to amending the Plan Document.
Plan
management has adopted certain tax relief provisions relating to withdrawals which became effective in April 2020. The Plan
will formally be amended by the end of the 2022 plan year.
GSK
core contributions have changed to 7% effective January 1, 2021, for eligible employee compensation, regardless of whether
the employee voluntarily contributes to the Plan.
Effective
February 25, 2021 two new investment funds were added to the GSK Puerto Rico 401(k) Plan menu, and two investment funds were removed
from the Plan.
Subsequent
events were evaluated through June 13th ,2022, the date the financial statements were issued.
GSK’s
Consumer Healthcare business will become an independent company through a proposed demerger from GSK in mid-2022. The new business
will be called Haleon. A defined contribution plan is being established for Consumer Healthcare Puerto Rico employees and they
will join this plan at or before the date of the Demerger. The US defined contribution plan assets related to Consumer Healthcare
employees will be transferred to this plan.
Supplemental
Schedule