SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2003
or
___ TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _____
Commission file number 1-13896
A. Full title of the Plan and the address of the Plan, if different from that
of the issuer named below:
Elan 401(k) Savings Plan
B. Name of issuer of the securities held pursuant to the Plan and the address
of its principal executive offices:
ELAN CORPORATION, PLC
LINCOLN HOUSE, LINCOLN PLACE
DUBLIN 2, IRELAND
Table of Contents
Page
Report of Registered Independent Accounting Firm 1
Financial Statements:
Statements of Net Assets Available for Benefits as of
December 31, 2003 and 2002 2
Statements of Changes in Net Assets Available for
Benefits for the years ended December 31, 2003 and 2002 3
Notes to Financial Statements 4
Supplemental Schedules*:
Schedule H, Line 4i-- Schedule of Assets (Held at End of Year)
as of December 31, 2003 10
Schedule G, Part III-- Schedule of Nonexempt Transactions for
the year ended December 31, 2003 11
Exhibit Index:
Exhibit 23.1 -- Consent of Registered Independent Accounting Firm
_________________________
* Other schedules required by 29 CFR 2520.103-10 of the Department of Labor's
Rules and Regulations for Reporting and Disclosure under ERISA have been
omitted because they are not applicable.
-i-
Report of Registered Independent Accounting Firm
The Plan Administrator of Elan 401(k) Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of Elan 401(k) Savings Plan as of December 31, 2003 and 2002, and the related
statements of changes in net assets available for benefits for the years then
ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2003 and 2002, and the changes in net assets available for benefits
for the years then ended in conformity with U. S. generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules Schedule H,
Line 4i-schedule of assets (held at end of year) as of December 31, 2003, and
Schedule G, Part III-schedule of nonexempt transactions for the year ended
December 31, 2003, are presented for the purpose of additional analysis and are
not a required part of the basic financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedules are the responsibility of the Plan's management
and have been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, are fairly stated, in all
material respects, in relation to the basic financial statements taken as a
whole.
/s/KPMG LLP
San Diego, California
June 11, 2004
ELAN
401(k) SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 2003 and 2002
2003 2002
------------ -----------
Assets:
Investments (see note 3) $117,666,235 107,037,948
Cash, non-interest bearing 837 1,993
Receivables:
Employer contribution 1,643,782 1,234,060
Participant contributions 8,541 30,541
Interest receivable 33,948 28,399
Other receivable 71,337 --
------------ -----------
Total receivables 1,757,608 1,293,000
------------ -----------
Total assets 119,424,680 108,332,941
------------ -----------
Liabilities - accounts payable: 161,348 --
------------ -----------
Net assets available for benefits $119,263,332 108,332,941
============ ===========
See accompanying notes to financial statements.
2
ELAN
401(k) SAVINGS PLAN
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 2003 and 2002
2003 2002
-------------- ---------------
Additions (deductions) to (from) net assets attributed to:
Investment (loss) income:
Interest $ 88,589 138,826
Net appreciation (depreciation) in fair value of investments (see note 3) 25,089,113 (36,507,519)
-------------- ---------------
25,177,702 (36,368,693)
-------------- ---------------
Contributions:
Participants 10,800,857 17,466,807
Employer 6,134,689 21,288,545
-------------- ---------------
16,935,546 38,755,352
-------------- ---------------
Transfers in (see note 4) -- 48,045,569
-------------- ---------------
Total net additions 42,113,248 50,432,228
-------------- ---------------
Benefits paid and administrative expenses:
Benefits paid to participants 30,964,635 10,406,208
Administrative expenses 218,222 38,288
-------------- ---------------
Total deductions 31,182,857 10,444,496
-------------- ---------------
Net increase 10,930,391 39,987,732
Net assets available for benefits:
Beginning of year 108,332,941 68,345,209
-------------- ---------------
End of year $ 119,263,332 108,332,941
============== ===============
See accompanying notes to financial statements.
3
ELAN
401(k) SAVINGS PLAN
Notes to Financial Statements
December 31, 2003 and 2002
(1) Description of Plan
The following description of the Elan 401(k) Savings Plan (the Plan)
provides only general information. Participants should refer to the Plan
document for a more complete description of the Plan's provisions.
(a) General
The Plan is a defined contribution plan available to all eligible
employees of Athena Neurosciences, Inc. (Athena or the Company) and
its participating U.S. subsidiaries, including wholly owned
subsidiaries of such entities. Effective January 1, 1999, the Plan was
amended, restated, and renamed the Elan Pharmaceuticals 401(k) Plan
(Former Plan). Effective January 1, 2002, the Plan was amended,
restated, and renamed the Elan 401(k) Savings Plan. The Plan, as
amended, is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA).
(b) Administration
The board of directors of the Company has named an administrative
committee (the Administrative Committee) to serve as administrator and
fiduciary to the Plan and an investment committee to oversee the
Plan's investment options in accordance with the governing investment
policy. Effective January 1, 2002, the Company contracted with the
American Express Trust Company (Trustee) to serve as Trustee and
recordkeeper of the Plan. Prior to 2002, all expenses incurred for
administering the Plan were paid by the Company. During 2002, the Plan
implemented an expense payment policy to allow for reasonable
administrative expenses to be paid from the Plan's forfeiture account.
The forfeitures account may also be used to pay for employer
contributions. At December 31, 2003 and 2002, the balance in the
forfeiture account was $647,681 and $540,323, respectively.
In December 2001, the Company determined that up to 462,200 of its
Elan Corporation, plc American Depository Shares (ADS) purchased by
the Trustee under the Former Plan, in open market transactions on
behalf of participants under the Former Plan between January 1, 1998
and December 31, 2001, were not registered in accordance with the
Securities Act of 1933, as amended. The Company on behalf of the Plan:
(1) authorized the filing of a Form S-8 Registration Statement
covering up to 2 million shares of ADS, effective January 1, 2002,
(2) authorized the change of trustee, effective January 1, 2002, to
American Express Trust Company, and (3) approved the merger of the
Dura Pharmaceuticals, Inc., The Liposome Company, Inc., and the Delsys
Pharmaceuticals, Inc. plans into the Plan.
In late 2002, the Company conducted a rescission offer (the Rescission
Offer), pursuant to which the Company offered eligible individuals the
right to rescind purchases of ADS made under the Former Plan between
January 1, 1998 and December 31, 2001. The Rescission Offer commenced
on November 1, 2002 and expired on December 2, 2002. The total
payments made by the Company in connection with the Rescission Offer
were $13,040,867 and are included in the employer contributions in the
2002 statement of changes in net assets available for benefits.
In connection with the change of the Plan's Trustee and recordkeeper
and the merger of the three plans into the Plan, the Company
instituted two blackout periods during 2002. The first commenced on
December 15, 2001 and ended February 15, 2002. During the first
blackout period, the ADS market value decreased from $41.35 per share
to $15.43 per share. The second
4
(Continued)
ELAN
401(k) SAVINGS PLAN
Notes to Financial Statements
December 31, 2003 and 2002
blackout period commenced on March 15, 2002 and ended April 25, 2002
and affected only those participants who had merged into the Plan from
the Delsys Pharmaceuticals, Inc. plan. During the second blackout
period, the Elan Corporation, plc ADS market value decreased from
$15.65 per share to $10.00 per share.
Further, effective August 16, 2003, the Plan was subject to a blackout
(the Blackout) with respect to purchases of ADS. The Blackout was
imposed because of the Elan Corporation, plc delay in filing its 2002
Annual Report on Form 20-F. During the Blackout, all current
contributions designated by Plan participants for the ADS were
temporarily directed to the American Express Cash Management Fund,
Inc.
On September 9, 2003, the Blackout was lifted, and (i) all participant
funds in the American Express Cash Management Fund, Inc. were
transferred to the Elan Corporation, plc ADS; and (ii) all new
contributions designated by participants to be invested in the Elan
Corporation, plc ADS were invested as directed.
The Company and certain of its former and current officers and
directors are named as defendants in a putative class action in the
U.S. District Court for the Southern District of New York, which
consolidated various class actions filed in early 2002 (the Class
Action). The amended and consolidated complaint filed January 24, 2003
in the Class Action alleges violations of the federal securities laws.
The Company is also the subject of an investigation by the SEC's
Division of Enforcement commenced on or about February 12, 2002. The
Company believes that the investigation relates, in part, to the
issues and allegations asserted in the Class Action noted above.
(c) Contributions
In 2003 and 2002, participants could contribute up to 20% of their
pre-tax annual compensation, as defined in the Plan (Employee
Contribution). Participants could also contribute amounts representing
distributions from other qualified plans (Rollover Contribution).
In 2003 and 2002, the Company made nondiscretionary contributions
(Safe Harbor Contribution) equal to 3% of the participant's eligible
compensation. In 2003 and 2002, the Company's Safe Harbor
Contributions totaled $4,516,014 and $7,070,835, respectively. The
Company may, in its sole discretion, make annual contributions to
those eligible participants, as defined in the Plan. Discretionary
employer contributions of $1,618,675 and $1,176,843 were paid to the
Plan in March of 2004 and 2003, respectively, for the 2003 and 2002
plan years, respectively. No other contributions were made for the
years ended December 31, 2003 and 2002, other than the Rescission
Offer noted above. Contributions are subject to certain limitations.
Eligible participants aged 50 and older may contribute amounts in
excess of the Plan's deferral limits or in excess of the maximum
pre-tax contribution deferral permitted by the Internal Revenue
Service (IRS) as catch-up contributions, as defined in the Plan.
(d) Investment Options
Participants direct the investment of their contributions into the
various investment options offered by the Plan. As of December 31,
2003 and December 31, 2002,the Plan offered eleven mutual funds (with
aggressive,
5
(Continued)
ELAN
401(k) SAVINGS PLAN
Notes to Financial Statements
December 31, 2003 and 2002
moderate and conservative investment objectives), one collective
investment fund, and an ADS fund as investment options for
participants. Effective January 1, 2002, restrictions were placed on
the amount of new employee contributions that can be invested in ADS
such that no more than 20% of employee contributions can be invested
in ADS. Participants were not required to divest their existing
holdings; however, a participant cannot make an intra-plan transfer
into the ADS fund.
(e) Participant Accounts
Each participant's account is credited with the participant's
contributions, an allocation of the respective Company contributions
and an allocation of the Plan's investment income or loss and
expenses, if any. Allocation of the Company's contribution is as
defined by the Plan. Investment income or loss is allocated to the
participant's account based upon the participant's proportionate share
of the funds within the Plan.
(f) Vesting
All participants' individual accounts are 100% vested.
(g) Loans to Participants
Participants may borrow from their fund accounts a minimum of $1,000
up to a maximum of $50,000 or 50% of their vested account balance,
whichever is less. Loans are secured by the participant's vested
account balance and bear interest at a fixed rate equal to the prime
rate at the time the loan is made plus 1%. The loans must be repaid to
the Plan within a five-year period, unless the loan is used for the
purchase of a principal residence in which case a reasonable period of
time is to be used. Such loans shall be repaid by payroll deduction,
or any other method approved by the Administrative Committee, which
requires level amortization of principal and repayments no less
frequently than quarterly, and must be repaid at least over the loan
period. Outstanding loans at December 31, 2003 and 2002, carried
interest rates, which ranged from 5.0% to 11.5%, and 3.0% to 11.5%,
respectively, with maturity dates through 2017 and 2031, respectively.
In the event that a participant's services are terminated for any
reason, the loan must be repaid in full as defined in the Plan.
(h) Payment of Benefits
Upon termination of service, the participant or beneficiary may elect
to leave their account balance in the Plan or receive their total
vested account balance in a lump sum amount. The Plan requires
automatic lump sum distribution upon termination of service, plus 45
days, of participant vested account balances that are $5,000 or less.
(i) Voting Rights
Each participant who has ADS allocated to their individual
participant account is entitled to exercise voting rights attributable
to the ADS and is notified by the trustee prior to the time that such
rights are to be exercised. The trustee is not permitted to instruct a
vote for any ADS for which instructions have not been provided by a
participant.
6
(Continued)
ELAN
401(k) SAVINGS PLAN
Notes to Financial Statements
December 31, 2003 and 2002
(2) Summary of Accounting Policies
(a) Basis of Accounting
The accompanying financial statements and supplemental schedules are
prepared on the accrual method of accounting.
(b) Use of Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles 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.
The Plan may invest in various types of investment securities.
Investment securities 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 at least reasonably possible
that changes in the values of investment securities will occur in the
near term and that such changes could materially affect the amounts
reported in the statements of net assets available for benefits.
Included in the Plan's net assets available for benefits at December
31, 2003 and 2002, are investments in ADS amounting to $5,262,396 and
$1,864,408, respectively, whose value could be subject to change based
upon market conditions. See note 9.
(c) Investment Valuation and Income Recognition
The Plan's investments in mutual funds, collective investment fund and
ADS are valued at fair value, as measured by quoted market prices.
All receivables and participant loans are valued at cost, which
approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis.
Dividends are recorded on the ex-dividend date. Interest income is
accrued when earned. Capital gain distributions are included in
investment income.
(d) Payment of Benefits
Benefits are recorded when paid.
(e) Administrative Expenses
Administrative expenses of $218,222 and $38,288, including legal,
audit, and administrative expenses, were incurred by the Plan during
the years ended December 31, 2003 and 2002, respectively.
7
(Continued)
ELAN
401(k) SAVINGS PLAN
Notes to Financial Statements
December 31, 2003 and 2002
(3) Investments
The following table presents investments in the Plan that individually
represent 5% or more of the Plan's net assets at December 31:
2003 2002
------------ -------------
American Balanced Fund $22,774,330 24,665,036
AXP New Dimensions Fund 17,667,005 16,324,528
AXP S&P 500 Index Fund 11,421,869 8,936,042
Templeton Foreign Fund 9,159,942 7,638,979
Artisan Mid Cap Fund 8,149,391 5,799,416
AET Income II 7,847,043 10,230,756
PIMCO Total Return 7,760,817 8,910,250
Baron Growth Fund 7,585,427 (A)
Mutual Shares Fund 7,377,179 6,872,398
Royce Total Return Fund 6,604,571 (A)
(A) Investment did not exceed 5% of the Plan's net assets as of December
31, 2002.
During 2003 and 2002, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated
(depreciated) in value by $25,089,113 and $(36,507,519), respectively, as
follows:
2003 2002
------------- ------------
ADS $ 3,352,718 (24,990,446)
Mutual funds 21,376,914 (11,943,608)
Collective investment fund 359,481 426,535
------------- ------------
$ 25,089,113 (36,507,519)
============= ============
(4) Plan Mergers/Transfers
Three 401(k) plans sponsored by subsidiaries of Athena merged into the Plan
during the year ended December 31, 2002. These 401(k) plans included The
Liposome Company, Inc. 401(k) Plan, Dura Pharmaceuticals, Inc. 401(k) Plan
and the Delsys Pharmaceuticals 401(k) Plan. The transfers of these plan
assets are reflected as transfers in on the statement of changes in net
assets available for benefits for the year ended December 31, 2002. The
amounts related to each transfer are as follows:
Plan Net assets Loans Total
---------------------------------- ------------ --------------- ---------------
The Liposome Company, Inc. $19,211,841 285,218 19,497,059
Dura Pharmaceuticals, Inc. 27,247,710 639,739 27,887,449
Delsys Pharmaceuticals, Inc. 642,229 18,832 661,061
------------ --------------- ---------------
Total $47,101,780 943,789 48,045,569
============ =============== ===============
8
(Continued)
ELAN
401(k) SAVINGS PLAN
Notes to Financial Statements
December 31, 2003 and 2002
(5) Party-in-Interest Transactions
Certain Plan investments are shares of a collective investment fund and
mutual funds managed by the trustee, and therefore, these transactions
qualify as party-in-interest transactions. Duplicate fees incurred by the
Plan for audit, consulting and investment management services amounted to
$218,222 and $38,288 for the years ended December 31, 2003 and 2002,
respectively.
(6) Prohibited Transactions
During 2002, the Company did not remit to the Plan various employee
contributions timely, totaling $133,770. The interest rate used to
calculate the lost income due to the untimely remittances ranged from 6.21%
to 21.86%, which resulted in $729 and $2,149 of lost income due to the Plan
by the Company in 2003 and 2002, respectively. Of the lost income paid to
the Plan during 2003 and 2002, the Plan erroneously paid $2,624 out of the
forfeiture account. To correct this error, in 2004, the Company intends to
reimburse the Plan for this transaction plus lost income to the forfeiture
account in the amount of $51. The interest rate used to calculate the lost
income is 6.00%.
During 2003, the Plan erroneously paid $68,713 of non-plan related expenses
from the forfeiture account. To correct this error, in 2004, the Company
intends to reimburse the Plan for these expenses plus lost income of
$3,231. The interest rate used to calculate the lost income is 6.00%.
(7) Plan Termination
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants would become fully vested in the Company
discretionary profit sharing contributions.
(8) Tax Status
The Internal Revenue Service (IRS) has determined and informed the Company
by a letter dated April 19, 2004, that the Plan and related trust are
designed in accordance with applicable sections of the Internal Revenue
Code (IRC). The plan administrator and the Plan's tax counsel believe that
the amended and restated Plan is designed and is currently being operated
in accordance with the applicable requirements of the IRC.
(9) Subsequent Event
From December 31, 2003 through June 11, 2004, the ADS market value
increased from $6.89 per share to $22.00 per share.
9
ELAN
401(k) SAVINGS PLAN
Schedule H, Line 4i-- Schedule of Assets (held at End of Year)
December 31, 2003
Description of investment including
Identity of issue, borrower, maturity date, rate of interest, Current
lessor, or similar party collateral, par, or maturity value Cost value
------------------------------------ ------------------------------------------ ----------- ---------------
* AXP New Dimensions Fund Mutual Fund $ ** 17,667,005
* AXP S&P 500 Index Fund Mutual Fund ** 11,421,869
AMCAP Fund Mutual Fund ** 2,569,060
American Balanced Fund Mutual Fund ** 22,774,330
Ameristock Mutual Fund Mutual Fund ** 2,460,624
Artisan Mid Cap Fund Mutual Fund ** 8,149,391
Baron Growth Fund Mutual Fund ** 7,585,427
Mutual Shares Fund Mutual Fund ** 7,377,179
PIMCO Total Return Mutual Fund ** 7,760,817
ROYCE Total Return Fund Mutual Fund ** 6,604,571
Templeton Foreign Fund Mutual Fund ** 9,159,942
* AET Income II Collective Investment Fund ** 7,847,043
* Elan Corporation, plc ADS American depositary receipts 10,231,225 5,262,396
* Participant Loans Interest rates range from 5.0% to 11.5%
with maturity dates through 2017 -- 1,026,581
------------
Total $ 117,666,235
============
* Represents a party-in-interest transaction.
** Cost information is not required for participant-directed investments.
See accompanying Report of Registered Independent Accounting Firm.
10
ELAN
401(k) SAVINGS PLAN
Schedule G, Part III -- Schedule of Nonexempt Transactions
Year ended December 31, 2003
Relationship to Description of transaction
plan, employer, including maturity date,
Identity of or other rate of interest, collateral Original
party involved party-in-interest par, or maturity value Amount Net Gain
---------------------------- ------------------- ------------------------------------- -------- ----------
* Elan Pharmaceuticals, Inc. Wholly owned Erroneous payment of expense
subsidiary of the from the plan. The interest
plan sponsor rate used to calculate lost
income was 6.00%. $ 68,713 3,231
Erroneous payment of lost income
to participants. The interest
rate used to calculate lost
income was 6.00%. $ 2,624 51
* Represents a party-in-interest transaction.
See accompanying Report of Registered Independent Accounting Firm.
11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
members of the Administrative Committee have duly caused this annual report to
be signed on its behalf by the undersigned thereunto duly authorized.
ELAN 401(k) SAVINGS PLAN
By: /s/Robert J. Conti
------------------------------------------
Name: Robert J. Conti
Title: Chairman, Investment Committee and
Member, Administrative Committee
Date: June 28, 2004
S-1
ELAN
401(k) SAVINGS PLAN
December 31, 2003 and 2002
Index to Exhibit
EXHIBIT
NUMBER
------
23.1 Consent of Registered Independent Accounting Firm