Notes
to Financial Statements
As of December 31,
2020 and 2019 and for the Year Ended December 31, 2020
|
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.
The
Company makes contributions to the accounts of employees with one year 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. 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
the year 2020 the total amount of the employee and employer contributions was $8,619,936; rollover contributions of $1,791,291
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 represent 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.
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.
GSK
Puerto Rico 401(k) Plan
Notes
to Financial Statements
As of December 31,
2020 and 2019 and for the Year Ended December 31, 2020
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.
If the participant account balance is less than $5,000, payment is in the form of a lump sum distribution of cash or if invested
in the GSK Stock Fund those distributions may be made in GSK ADRs. The GSK Stock Fund invests in GSK ADRs listed on the New York
Stock Exchange representing two ordinary shares of GlaxoSmithKline plc.
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.
Participant
Loans Receivable
The
Plan does not allow participants to take out loans as defined in the Plan document. The loan balance at December 31, 2019, is
a result of the transfer from the Novartis Corporation
Investment Savings Plan. These loans will be honored up to or before maturity and there will be no new loans issued. Principal
and interest are paid ratably through semi-monthly payroll deductions or cashier check if participant is no longer employed.
Participant
loans are considered party-in-interest transactions.
Administrative
Expenses
Investment
management fees are borne by Plan participants. Investment management fees for certain funds are recorded as Administrative Expenses
and 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, 2020, the Company paid administrative expenses
of $206,697 on behalf of the Plan.
In
addition to the Administrative Expenses and Management Fees borne by Plan participants, during the year ended December 31, 2020
the Company paid to Banco Popular de Puerto Rico, the Trustee $63,701 and State Street Bank and Trust Company, the custodian $44,488
for 2020.
|
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,
2020 and 2019 and for the Year Ended December 31, 2020
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, 2020.
Investment
Valuation and Income Recognition
The
Plan’s investments are stated at fair value as defined by the FASB Accounting Standards Codification (ASC) 820. The Plan’s
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, 2020 and 2019.
|
●
|
Common
stock: valued at the closing price reported on the active market on which the individual
security is traded.
|
|
●
|
Mutual
funds: valued at the quoted net asset value (NAV) of shares held by the Plan at year
end.
|
|
●
|
Money
market funds: valued at cost plus accrued interest; preserves principal and liquidity
and the maintenance of a stable $1.00 per share NAV.
|
|
●
|
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.
GSK
Puerto Rico 401(k) Plan
Notes
to Financial Statements
As of December 31,
2020 and 2019 and for the Year Ended December 31, 2020
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.
|
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, 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
|
|
GSK Puerto Rico 401(k) Plan
Notes to Financial Statements
As of December 31, 2020 and 2019 and for the Year Ended December 31, 2020
|
|
Assets at Fair Value as of December 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
9,730,924
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,730,924
|
|
Money market fund
|
|
|
55,422
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,422
|
|
Mutual funds
|
|
|
16,889,664
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,889,664
|
|
|
|
|
26,676,010
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,676,010
|
|
Investments measured at net asset value as a practical expedient (a)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38,950,188
|
|
|
|
$
|
26,676,010
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
65,626,198
|
|
(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, 2020 and 2019, respectively.
|
|
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
|
|
|
|
|
|
|
|
GSK Puerto Rico 401(k) Plan
Notes to Financial Statements
As of December 31, 2020 and 2019 and for the Year Ended December 31, 2020
|
|
December 31, 2019
|
|
Fair Value
|
|
|
Unfunded Commitments
|
|
Redemption Frequency
|
|
Redemption Notice Period
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
State Street Global Advisors Funds
|
|
$
|
28,363,582
|
|
|
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
|
|
|
7,424,109
|
|
|
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
|
|
|
3,162,497
|
|
|
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, 2019
|
|
$
|
38,950,188
|
|
|
|
|
|
|
|
*State Street Global Advisor
Funds includes 5 funds (for 2020, 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, the 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,
2020, the Plan purchased $12,718,480 and sold $11,914,392 of the GSK Stock Fund, which included purchases of $5,616,621 and sales
of $4,906,754 of GSK ADRs, respectively, and received dividends of $437,402.
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, 2020 and 2019 and for the Year Ended December 31, 2020
|
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,
2020 and 2019, are shares of GSK’s common stock of $8,275,584 and $9,730,924 respectively. This investment represents 10.77
percent and 14.77 percent of net assets available for benefits at December 31, 2020 and 2019, respectively. A significant
decline in the market value of GSK’s stock would affect the net assets available for benefits.
As of December 31, 2020 and 2019,
the following investments represent more than 5.0 percent of the net assets available for benefits:
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
|
|
2019
|
|
|
|
|
|
|
|
Investment
|
|
Fair Value of Investment
|
|
|
|
|
|
State Street S&P 500 Index Non-Lending Series Fund (Class A)
|
|
$
|
14,870,084
|
|
GlaxoSmithKline plc ADR
|
|
|
9,730,924
|
|
Vanguard Retirement Savings Trust IV
|
|
|
7,424,109
|
|
State Street US Extended Market Index Non-Lending Series Fund (Class C)
|
|
|
5,303,638
|
|
State Street International Index Non-Lending Series Fund (Class A)
|
|
|
3,692,799
|
|
There are no other individual
investments that represent more than 5.0 percent of the net assets available for benefits at December 31, 2020 and 2019.
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 $36.80 per share at December 31,
2020. 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, 2020 and 2019 and for the Year Ended December 31, 2020
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.
Subsequent events were evaluated
through June 8, 2021, the date the financial statements were issued.
The Company makes contributions
to the accounts of employees with one year of credited service, which has changed to one hour of credited service effective January
1, 2021.
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.
Supplemental Schedule