SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
Annual Report Pursuant to Section 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended December 31, 2005
Commission file number: 0-10736
A. Full title of the plan and the address of the plan, if different from that of the issuer named below:
Guilford Pharmaceuticals Inc. 401(k) Plan
B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
MGI PHARMA, INC.
5775 West Old Shakopee Road, Suite 100
Bloomington, MN 55437-3174
GUILFORD PHARMACEUTICALS, INC. 401(K) PLAN
Financial Statements and Supplemental Schedules
December 31, 2005 and 2004
(With Report of Independent Registered Public Accounting Firm)
Guilford Pharmaceuticals, Inc. 401(k) Plan
Table of Contents
| | | | | |
| | | Page | |
| Report of Independent Registered Public Accounting Firm | | | 1 | |
| Statements of Net Assets Available for Benefits | | | 2 | |
| Statement of Changes in Net Assets Available for Benefits | | | 3 | |
| Notes to Financial Statements | | | 4 | |
| | | | | |
Supplemental Schedules | | | | |
| 1 Schedule of Assets (Held at End of Year) | | | 9 | |
| 2 Schedule of Reportable Transactions | | | 10 | |
Report of Independent Registered Public Accounting Firm
The Board of Trustees
Guilford Pharmaceuticals, Inc. 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits of Guilford Pharmaceuticals, Inc. 401 (k) Plan (the Plan) as of December 31, 2005 and 2004, and the related statement of changes in net assets available for benefits for the year ended December 31, 2005. 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 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, 2005 and 2004, and the changes in net assets available for benefits for the year ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets (held at end of year) as of December 31, 2005 and reportable transactions for the year ended December 31, 2005 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. These supplemental schedules are the responsibility of the Plan’s management. The supplemental schedules have been subjected to the auditing procedures applied in the audit 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.
Minneapolis, Minnesota
July 13, 2006
Guilford Pharmaceuticals, Inc. 401(k) Plan
Statements of Net Assets Available for Benefits
December 31, 2005 and 2004
| | | | | | | | | |
| | | 2005 | | | 2004 | |
| Assets: | | | | | | | | |
| Investments at fair value (note 6): | | | | | | | | |
| Mutual funds | | $ | 12,500,559 | | | | 11,168,416 | |
| MGI PHARMA, INC. common stock | | | 862,420 | | | | — | |
| Guilford Pharmaceuticals, Inc. common stock | | | — | | | | 1,791,787 | |
| Participant loans | | | 150,838 | | | | 112,558 | |
| | | | | | | |
| | | | 13,513,817 | | | | 13,072,761 | |
| | | | | | | |
| Receivables: | | | | | | | | |
| Employee contributions | | | 53,432 | | | | — | |
| Employer contribution | | | 136,111 | | | | — | |
| | | | | | | |
| Total receivables | | | 189,543 | | | | — | |
| | | | | | | |
| Net assets available for benefits | | $ | 13,703,360 | | | | 13,072,761 | |
| | | | | | | |
See accompanying notes to financial statements.
2
Guilford Pharmaceuticals, Inc. 401(k) Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2005
| | | | | |
| | | 2005 | |
| Additions: | | | | |
| Investment (loss): | | | | |
| Net depreciation in fair value of investments (note 6) | | $ | (579,316 | ) |
| Interest and dividends | | | 383,514 | |
| | | | |
| Net investment loss | | | (195,802 | ) |
| | | | |
| Contributions: | | | | |
| Employer | | | 1,197,625 | |
| Employee | | | 2,147,645 | |
| | | | |
| Total contributions | | | 3,345,270 | |
| | | | |
| Deductions: | | | | |
| Benefits paid to participants | | | (2,521,119 | ) |
| Plan administrator fees | | | 2,250 | |
| | | | |
| Total deductions | | | (2,518,869 | ) |
| | | | |
| Net increase in net assets available for benefits | | | 630,599 | |
| Net assets available for benefits: | | | | |
| Beginning of year | | | 13,072,761 | |
| | | | |
| End of year | | $ | 13,703,360 | |
| | | | |
See accompanying notes to financial statements.
3
Guilford Pharmaceuticals, Inc. 401 (k) Plan
Notes to Financial Statements
December 31, 2005 and 2004
| 1. | | Summary Description of the Plan |
| |
| | | The following description of the Guilford Pharmaceuticals, Inc. 401(k) Plan (the “Plan”) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions. |
| |
| | | General — The Plan is a 401(k) defined contribution plan covering substantially all full time employees of Guilford Pharmaceuticals, Inc. who are age twenty-one or older. Prior to September 19, 2002, employees must have also completed three months of service to be eligible under the Plan. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). |
| |
| | | Effective October 3, 2005, Guilford Pharmaceuticals, Inc. (“Guilford”) was purchased by MGI PHARMA, INC. (“MGI”). Plan assets that were invested in Guilford common stock at October 3, 2005 were converted to MGI common stock. The plan assets of the Guilford Pharmaceuticals, Inc. 401(k) Plan were merged into the MGI PHARMA, INC. Retirement Plan on January 1, 2006. |
| |
| | | Contributions — Each year, participants may contribute a portion of their pre-tax annual compensation as defined by the Plan, not to exceed the Internal Revenue Service defined limits. Participants may also contribute amounts representing distributions from other qualified defined benefit or contribution plans. Participants direct their investments into various investment options offered by the Plan. The Plan currently offers sixteen mutual funds and the Company’s common stock as investment options for participants. The Company, at its general election, contributes 50 percent of the first 6 percent of compensation that a participant contributes to the Plan. Matching contributions are made quarterly. Effective September 19, 2002, employees must be employed on the last day of the quarter in order to share in the matching contributions for that quarter. Effective October 3, 2005, all employer contributions are invested directly in MGI common stock. Prior to the acquisition of Guilford by MGI, all employer contributions were invested directly in Guilford common stock. Upon credit to participants’ accounts, the employees’ contribution may be directed to other investment options by the participants. Contributions are subject to certain limitations. |
| |
| | | Participant Accounts — Each participant’s account is credited with the participant’s contribution and allocations of (a) the Company’s contributions and (b) Plan earnings, and charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account. |
| |
| | | Vesting — Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the company’s matching portion of their accounts plus actual earnings thereon is based on years of service. Matching contributions are subject to a graded vesting schedule of 25% for each year of service until the participant is fully vested after 4 years of service. |
| |
| | | Forfeited Accounts — At December 31, 2005, nonvested forfeited accounts totaled $54,026. Forfeitures will be used to either reduce future employer matching contributions or to pay plan expenses. |
| |
| | | Participant Loans — Participants may borrow from their fund accounts up to a maximum amount that is equal to the lesser of $50,000 or 50 percent of their vested account balance. Loan transactions are treated as a transfer to (from) the investment fund from (to) the participant loan fund. Loan terms range |
4
Guilford Pharmaceuticals, Inc. 401 (k) Plan
Notes to Financial Statements
December 31, 2005 and 2004
| | | from 1-5 years (or longer for the purchase of a primary residence). The loans are secured by the balance in the participant’s account. Participant loans bear interest based on the prime rate of interest plus 2 percent. At December 31, 2005, interest rates on loans ranged from 6 percent to 9 percent. Principal and interest is paid ratably through payroll deductions. |
| |
| | | Payment of Benefits — On termination of service due to death, disability or retirement, a participant may elect to receive either a lump-sum amount equal to the value of the participant’s vested interest in his or her account, installments over a period not to exceed the participant’s lifetime or the joint lifetime of the participant and the participant’s spouse, or a life annuity contract for a participant who rolled over money from a prior plan where this option was available. For termination of service due to other reasons, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution. |
| |
| 2. | | Summary of Accounting Policies |
| |
| | | Basis of Accounting — The accompanying financial statements of the Plan are prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles. |
| |
| | | Contributions and Contribution Receivables — Contributions are recorded on the accrual method of accounting. Contributions receivable are obligations arising from amounts owed to the Plan from Participants or the Company that have not been included in the Plan’s investments at year end. Contribution receivables are recorded at cost, which approximates their fair value. |
| |
| | | 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, liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. |
| |
| | | Investment Valuation and Income Recognition — The Plan’s investments are stated at fair value, except for its participant loans, which are stated at cost, which approximates fair market value. Shares of registered investment companies are valued at quoted market prices which represent the net asset value of shares held by the Plan at year-end. MGI common stock is valued at its quoted market price. |
| |
| | | Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. |
| |
| | | Risks and Uncertainties — The Plan provides for various investment options of specified registered investment companies. The underlying investments held by the registered investment companies may include stocks, bonds, fixed income securities, mutual funds and other investment securities. Such investments are exposed to various risks, such as interest rate, market and credit risk. 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 in the near term could materially affect participant account balances and the amounts reported in the statement of net assets available for plan benefits. |
| |
| | | Payment of Benefits — Benefits are recorded when paid. |
| |
| | | Concentration of Market Risk — At December 31, 2005, approximately 6% of the Plan’s net assets were invested in the common stock of the Company. The underlying value of the Company’s common stock |
5
Guilford Pharmaceuticals, Inc. 401 (k) Plan
Notes to Financial Statements
December 31, 2005 and 2004
| | | is entirely dependent upon the performance of the Company and the market’s evaluation of such performance. It is at least reasonably possible that changes in the fair value of the Company’s common stock in the near term could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits and the statements of changes in net assets available for benefits. |
| |
| 3. | | Tax Status |
| |
| | | The Internal Revenue Service has determined and informed the Company by a letter dated January 15, 2004, that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). Although the Plan has been amended since the determination letter, the Plan Administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC. |
| |
| 4. | | Party-in-interest Transactions |
| |
| | | The Plan engaged in transactions involving the Trustee, Reliance Trust Company, and the Company, which are parties-in-interest with respect to the Plan. These transactions are not considered “prohibited transactions” under Section 408(b)(8) and are not prohibited by the Employee Retirement Income Security Act of 1974 (ERISA). |
| |
| 5. | | Plan Merger |
| |
| | | Effective January 1, 2006, the Plan’s assets were merged into the MGI PHARMA, INC. Retirement Plan. |
| |
| 6. | | Investments |
| |
| | | The following table presents the fair value of investments. Investments representing more than 5 percent of the total Plan assets are identified with an asterisk (*). |
| | | | | | | | | |
| | | December 31, | | | December 31, | |
| | | 2005 | | | 2004 | |
| Investments at fair value, as determined by quoted market price: | | | | | | | | |
| Franklin Templeton Growth | | $ | 1,950,039 | * | | | 2,237,772 | * |
| American Growth Fund | | | 1,577,031 | * | | | 1,273,355 | * |
| Columbia Acorn Class A | | | 1,230,452 | * | | | 1,127,209 | * |
| Davis NY Venture | | | 1,084,648 | * | | | 908,110 | * |
| Munder Index 500 | | | 1,019,345 | * | | | 1,116,034 | * |
| Calamos Growth | | | 876,348 | * | | | — | |
| MGI PHARMA, INC. | | | 862,420 | * | | | — | |
| Franklin US Government Securities | | | 648,163 | | | | 724,048 | * |
| Oppenheimer International Growth | | | 627,114 | | | | 529,742 | |
| Lord Abbett Mid Cap Value A | | | 585,278 | | | | 510,182 | |
| Federated Capital Preservation | | | 569,645 | | | | 559,567 | |
6
Guilford Pharmaceuticals, Inc. 401 (k) Plan
Notes to Financial Statements
December 31, 2005 and 2004
| | | | | | | | | |
| Euro Pacific | | | 529,512 | | | | 237,769 | |
| Franklin Templeton Conservative | | | 500,211 | | | | 83,992 | |
| Goldman Sachs Small Cap Value A | | | 411,182 | | | | 342,391 | |
| Fidelity Advisor Mid Cap T | | | 395,483 | | | | 286,339 | |
| Franklin Templeton Moderate | | | 360,274 | | | | 366,352 | |
| Fidelity Advisor — Non Mid Cap | | | 135,834 | | | | — | |
| Guilford Pharmaceuticals, Inc. | | | — | | | | 1,791,787 | * |
| Van Kampen Emerging Growth | | | — | | | | 865,554 | * |
| | | | | | | |
| Total investments at fair value | | | 13,362,979 | | | | 12,960,203 | |
| Investments at cost, which approximate fair value: | | | | | | | | |
| Participant Loans | | | 150,838 | | | | 112,558 | |
| | | | | | | |
| Total investments | | $ | 13,513,817 | | | | 13,072,761 | |
| | | | | | | |
| | | During 2005, the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated (depreciated) in value as follows: |
| | | | | | | | | |
| | | 2005 | | | | | |
| Mutual funds | | $ | 652,383 | | | | | |
| Guilford Pharmaceuticals, Inc. common stock | | | (443,068 | ) | | | | |
| MGI Pharma, Inc. common stock | | | (788,631 | ) | | | | |
| | | | | | | | |
| | | $ | (579,316 | ) | | | | |
| | | | | | | | |
| 7. | | Non-participant-directed Investments |
| |
| | | The MGI and Guilford stock funds include both participant-directed and non-participant directed amounts. Information regarding the changes in net assets related to this fund is as follows: |
| | | | | | | | | |
| | | 2005 | | | 2004 | |
| Guilford Pharmaceuticals, Inc. common stock | | $ | — | | | | 1,791,787 | |
| MGI PHARMA, INC. common stock | | | 862,420 | | | | — | |
| Contribution receivable from MGI PHARMA, INC. | | | 136,111 | | | | — | |
| | | | | | | |
| Net assets | | $ | 998,531 | | | | 1,791,787 | |
| | | | | | | |
7
Guilford Pharmaceuticals, Inc. 401 (k) Plan
Notes to Financial Statements
December 31, 2005 and 2004
| | | | | |
| | | Nine months ended | |
| | | September 30, 2005 | |
| Guilford common stock — Changes in net assets | | | | |
| Net depreciation in fair value of investments | | $ | (443,068 | ) |
| Contributions — employer | | | 590,179 | |
| Contributions — participant | | | 88,059 | |
| Transfer to other funds | | | (43,412 | ) |
| Forfeitures | | | (17,880 | ) |
| Distributions | | | (306,874 | ) |
| Other | | | (10,446 | ) |
| | | | |
| Decrease in nonparticipant-directed investments | | $ | (143,442 | ) |
| | | | |
| | | | | |
| | | Three months ended | |
| | | December 31, 2005 | |
| MGI PHARMA common stock — Changes in net assets | | | | |
| Net depreciation in fair value of investments | | $ | (788,631 | ) |
| Contributions — employer | | | 136,111 | |
| Contributions — participant | | | 15,001 | |
| Transfer to other funds | | | 22,864 | |
| Forfeitures | | | (9,660 | ) |
| Distributions | | | (24,439 | ) |
| Other | | | (1,060 | ) |
| | | | |
| Decrease in nonparticipant-directed investments | | $ | (649,814 | ) |
| | | | |
| | | Of the above net assets, the net assets of the non-participant directed investments are $732,486 and $1,140,872 as of December 31, 2005 and 2004 respectively. |
| |
| | | Non-Participant-directed investments include a cash contribution of $471,335 due to the conversion of Guilford stock to MGI stock at October 3, 2005. |
| |
| 8. | | Subsequent Event |
| |
| | | Effective January 1, 2006, the participants’ Plan assets were transferred from Milliman to Fidelity, whereupon some investment options changed. Fidelity became the new service provider and trustee for the MGI PHARMA, INC. Retirement Plan. |
8
Schedule 1
Guilford Pharmaceuticals, Inc. 401(k) Plan
Schedule of Assets (Held at End of Year)
December 31, 2005
| | | | | | | | | | | | | | | |
| | | | | Face amount | | | | | | Fair market |
| Identity of Issuer | | Description | | or shares | | Cost | | Value |
| Franklin Templeton Growth | | Registered Investment Fund | | | 138,203 | | | | ** | | | $ | 1,950,039 | |
| American Growth Fund | | Registered Investment Fund | | | 51,103 | | | | ** | | | | 1,577,031 | |
| Columbia Acorn Class A | | Registered Investment Fund | | | 44,630 | | | | ** | | | | 1,230,452 | |
| Davis NY Venture | | Registered Investment Fund | | | 32,185 | | | | ** | | | | 1,084,648 | |
| Munder Index 500 | | Registered Investment Fund | | | 39,266 | | | | ** | | | | 1,019,345 | |
| Calamos Growth | | Registered Investment Fund | | | 15,916 | | | | ** | | | | 876,348 | |
| Franklin US Government Securities | | Registered Investment Fund | | | 99,411 | | | | ** | | | | 648,163 | |
| Oppenheimer International Growth | | Registered Investment Fund | | | 28,953 | | | | ** | | | | 627,114 | |
| Lord Abbett Mid Cap Value A | | Registered Investment Fund | | | 26,117 | | | | ** | | | | 585,278 | |
| Federated Capital Preservation | | Registered Investment Fund | | | 59,964 | | | | ** | | | | 569,645 | |
| American Funds Euro Pacific | | Registered Investment Fund | | | 12,884 | | | | ** | | | | 529,512 | |
| Franklin Templeton Conservative | | Registered Investment Fund | | | 39,263 | | | | ** | | | | 500,211 | |
| Goldman Sachs Small Cap Value A | | Registered Investment Fund | | | 10,073 | | | | ** | | | | 411,182 | |
| Fidelity Advisor Mid Cap T | | Registered Investment Fund | | | 16,295 | | | | ** | | | | 395,483 | |
| Franklin Templeton Moderate | | Registered Investment Fund | | | 27,418 | | | | ** | | | | 360,274 | |
| Fidelity Advisor — Non Mid Cap | | Registered Investment Fund | | | 5,531 | | | | ** | | | | 135,834 | |
| *MGI PHARMA, INC. | | Common Stock, par value $0.01 | | | 46,820 | | | | 1,035,613 | | | | 862,420 | |
| Participant loans | | Loans to participants with interest rates ranging from 6% – 9% | | | | | | | ** | | | | 150,838 | |
| | | | | | | | | | | | | | | |
| Total | | | | | | | | | | | | $ | 13,513,817 | |
| | | | | | | | | | | | | | | |
| | |
| * | | Represents party-in-interest. |
| |
| ** | | Cost information not required for participant-directed investments. |
See accompanying report of independent registered public accounting firm.
9
Schedule 2
Guilford Pharmaceuticals, Inc. 401(k) Plan
Schedule of Reportable Transactions
Year ended December 31, 2005
| | | | | | | | | | | | | | | | | | | | | |
| | | Number of | | | Number | | | | | | | | | | | |
| | | purchases | | | of sales | | | | | | | Fair | | | Net gain | |
| Description of assets | | transactions | | | transactions | | | Cost | | | value | | | or loss | |
| 5% series of transactions by Rule 2520.103-6: | | | | | | | | | | | | | | | | | | | | |
| Calamos Growth | | | 107 | | | | | | | $ | 949,497 | | | | 949,497 | | | | | |
| Calamos Growth | | | | | | | 45 | | | | 125,274 | | | | 126,277 | | | | 1,003 | |
| Columbia Funds Acorn Fund | | | 112 | | | | | | | | 361,400 | | | | 361,400 | | | | | |
| Columbia Funds Acorn Fund | | | | | | | 77 | | | | 320,702 | | | | 329,453 | | | | 8,751 | |
| Davis New York Venture | | | 147 | | | | | | | | 444,746 | | | | 444,746 | | | | | |
| Davis New York Venture | | | | | | | 71 | | | | 356,941 | | | | 369,216 | | | | 12,275 | |
| Franklin Templeton Conservative | | | 97 | | | | | | | | 539,096 | | | | 539,096 | | | | | |
| Franklin Templeton Conservative | | | | | | | 56 | | | | 130,590 | | | | 130,983 | | | | 393 | |
| American FDS Growth | | | 149 | | | | | | | | 546,381 | | | | 546,381 | | | | | |
| American FDS Growth | | | | | | | 85 | | | | 404,876 | | | | 426,422 | | | | 21,546 | |
| Van Kampen Am Cap Emerging Growth Fund | | | 17 | | | | | | | | 20,630 | | | | 20,630 | | | | | |
| Van Kampen Am Cap Emerging Growth Fund | | | | | | | 15 | | | | 886,979 | | | | 872,266 | | | | (14,713 | ) |
| Federated Cap Preservation Fund | | | 183 | | | | | | | | 496,591 | | | | 496,591 | | | | | |
| Federated Cap Preservation Fund | | | | | | | 97 | | | | 486,537 | | | | 486,537 | | | | — | |
| * Guilford Pharmaceutical Inc. commom stock | | | 93 | | | | | | | | 249,495 | | | | 249,495 | | | | | |
| * Guilford Pharmaceutical Inc. commom stock | | | | | | | 105 | | | | 2,240,209 | | | | 862,917 | | | | (1,377,292 | ) |
| 5% individual transactions by Rule 2520.103-6: | | | | | | | | | | | | | | | | | | | | |
| Calamos Growth Fund | | | 1 | | | | — | | | | 749,159 | | | | 749,159 | | | | | |
| Van Kampen Am Cap Emerging Growth Fund | | | — | | | | 1 | | | | 761,442 | | | | 749,159 | | | | (12,283 | ) |
*Represents party-in-interest.
| | |
| Note: | | Reportable transactions are those transactions which either singly or in a series of combined purchases and sales during the year exceed 5% of the fair value of the Plan’s assets at the beginning of the year. |
See accompanying report of independent registered public accounting firm.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administrative Committee has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| | | | | |
| Date: July 13, 2006 | Guilford Pharmaceuticals Inc. 401(k) Plan
| |
| | By: | /s/ William F. Spengler | |
| | | Name: | William F. Spengler | |
| | | Title: | Senior Vice President & Chief Financial Officer | |
| |
Exhibit Index
| | | |
| Exhibit No. | | Exhibit |
| |
| 23 | | Consent of KPMG LLP |
