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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________
Commission File Number 0-19119
A. Full title of the plan and the address of the plan, if different from that of
the issuer named below:
Cephalon, Inc. 401(k) Profit Sharing Plan
B. Name of the issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Cephalon, Inc.
145 Brandywine Parkway,
West Chester, Pennsylvania 19380-4245
(610) 344-0200
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REQUIRED INFORMATION
The Cephalon, Inc. 401(k) Profit Sharing Plan (the "Plan") is subject
to the Employee Retirement Income Security Act of 1974 ("ERISA") and the Plan's
financial statements and schedules have been prepared in accordance with the
financial reporting requirements of ERISA. Such financial statements and
schedules are included in this Report in lieu of the information required by
Items 1-3 of Form 11-K.
Cephalon, Inc.
401(k) Profit Sharing Plan
Table of Contents
December 31, 2001 and 2000
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Page(s)
Financial Statements:
Report of Independent Accountants 1 - 2
Statements of Net Assets Available for Benefits 3
Statement of Changes in Net Assets Available for Benefits 4
Notes to Financial Statements 5 - 11
Supplemental Schedule:
Schedule of Assets Held for Investment Purposes at December 31, 2001,
Schedule H, Part IV, Item 4 12
Report of Independent Accountants
To the Participants and Plan Administrator of
Cephalon, Inc. 401(k) Profit Sharing Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Cephalon, Inc. 401(k) Profit Sharing Plan (the "Plan") at December 31,
2001, and the changes in net assets available for benefits for the year ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America. 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 of these
statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Our audits are conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of Assets Held
for Investment Purposes is presented for the purpose of additional analysis and
is not a required part of the basic financial statements but is 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. This supplemental schedule is the responsibility of the Plan's management.
The supplemental schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, is fairly
sated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
June 14, 2002
(This is a copy of last year's report and it has not been reissued)
Report of Independent Public Accountants
To the plan administrator of
Cephalon, Inc. 401(k) Profit Sharing Plan:
We have audited the accompanying financial statements and supplemental schedule
of Cephalon, Inc. 401(k) Profit Sharing Plan as of December 31, 2000 and 1999,
and for year ended December 31, 2000, as listed in accompanying index. These
financial statements and schedules referred below are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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 financial status of the Plan as of December 31, 2000
and 1999, and the changes in its financial status for the year ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in the
accompanying index is presented for purposes of additional analysis and is not a
required part of basic financial statements but is 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 schedule has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
August 24, 2001
Cephalon, Inc.
401(k) Profit Sharing Plan
Statements of Net Assets Available for Benefits
December 31, 2001 and 2000
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2001 2000
Investments, at fair value $ 33,540,175 $ 27,276,258
Loans to participants 355,903 140,990
Contributions receivable 334,638 397,129
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Net assets available for benefits $ 34,230,716 $ 27,814,377
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The accompanying notes are an integral part of the accompanying financial
statements.
-3-
Cephalon, Inc.
401(k) Profit Sharing Plan
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 2001
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Additions:
Net appreciation in fair value of investments $ 493,896
Interest and dividend income 344,512
Employee contributions 4,632,978
Employer contributions 2,416,955
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Total additions 7,888,341
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Deductions:
Distributions to participants 1,376,331
Administrative fees 95,671
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Total deductions 1,472,002
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Net increase 6,416,339
Net assets available for benefits:
Beginning of year 27,814,377
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End of year $ 34,230,716
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The accompanying notes are an integral part of the accompanying financial
statements.
-4-
Cephalon, Inc.
401(k) Profit Sharing Plan
Notes to Financial Statements
December 31, 2001 and 2000
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1. Description of Plan
The following description of the Cephalon, Inc. 401(k) Profit Sharing Plan
(the Plan) provides only general information. Participants should refer to
the Plan document for a more complete description of the Plan's provisions.
General
Cephalon, Inc. and Subsidiaries (the Company) established the Plan effective
January 1, 1990.
Eligibility and Participation
The Plan is a defined contribution plan covering all full-time employees age
21 or older. Prior to October 1, 2000, eligible employees enrolled in the
Plan on the first day of the quarter following their initial hire date.
Effective October 1, 2000, the Plan was amended to allow eligible employees
to enroll on the first day of the month following their initial hire date.
On October 1, 2000, the Company completed a merger with Anesta Corporation
(Anesta) under which the Company acquired all of the outstanding shares of
Anesta in a tax-free, stock-for-stock transaction. On November 1, 2000,
eligible employees of Anesta were permitted to enroll in the Plan. The
acquisition agreement credits Anesta employees for prior service. The Plan
is administered by a committee of Company employees who are not compensated
for administrative services rendered, and is subject to the provisions of
the Employee Retirement Income Security Act of 1974 (ERISA), as amended.
Contributions
Each year, participants may contribute up to 15 percent of their annual
pre-tax compensation. Participant annual pre-tax deferrals are limited to
the maximum allowable under the Internal Revenue Code. The Company makes a
matching contribution equal to 100 percent of the employee elected salary
deferral up to 6 percent of compensation. A portion of this matching
contribution is contributed in Company stock. The Company may also
contribute an annual discretionary contribution. There were no discretionary
contributions made in 2001. The Plan's administrative committee may limit
the amount of contributions if it is determined that such limitation is
necessary to satisfy the requirements of the Internal Revenue Code (IRC).
Investment changes for both existing balances and/or future contributions
can be made by participants on a quarterly basis.
Participant Accounts
Each participant's account is credited with the participant's elective
contribution and allocations of (a) employer matching contribution, (b) Plan
earnings, net of administrative expenses, and (c) the Company's
discretionary contribution, if applicable. Earnings and discretionary
contributions are allocated on a weighted-average basis, based on Plan
participants' total contributions to date.
-5-
Cephalon, Inc.
401(k) Profit Sharing Plan
Notes to Financial Statements
December 31, 2001 and 2000
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Vesting and Forfeitures
Participants are immediately fully vested in their contributions plus
actual earnings thereon. Vesting in the Company's matching and
discretionary contribution portions of their accounts, plus the actual
earnings thereon, is based on years of service as follows:
Vested
Years of Service Percentages
Less than 1 year 0%
1 year 25
2 years 50
3 years 75
4 years or more 100
Any employee of Anesta, as of November 1, 2000, shall receive a year of
vested service for each year of service earned under the Anesta Corporation
401(k) Retirement Savings Plan. After completing one year of service,
participants vest 25 percent per year until fully vested after four years
of credited service.
Upon termination of employment, any portion of a participant's account
attributable to employer matching contributions, and investment earnings
credited thereon, which is not vested in accordance with the table above,
shall be forfeited at the time of the participant's termination and used to
reduce the amount of future employer matching contributions.
At December 31, 2001, forfeited nonvested accounts totaled $4,599. These
accounts will be used to reduce future employer contributions. Also, in
2001, employer contributions were reduced by $59,993 and 2,216 shares of
stock from forfeited nonvested accounts.
Payment of Benefits
Upon termination of service, benefits are paid in the form of a single
lump-sum payment, except for benefits representing the vested stock portion
of employer matching contributions, which are paid in the form of Company
stock.
Withdrawals and Loans During Employment
Withdrawals
Benefit withdrawals are generally made following the daily valuation of the
Plan for those requests processed during the quarter. As of December 31,
2000, there were no distributions due to participants. As of December 31,
2001, distributions of $17,000 were due to participants. See Note 7 for the
reconciliation to Form 5500.
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Cephalon, Inc.
401(k) Profit Sharing Plan
Notes to Financial Statements
December 31, 2001 and 2000
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Loans to Participants
Loans to any qualified participant are granted at the discretion of the
Plan's administrative committee. Participants may borrow from their fund
accounts a minimum of $1,000 and up to a maximum of $50,000, or 50 percent
of their account balance, whichever is less. Interest rates for participant
loans is the prime rate at the time of the loan plus 1 percent. As of
December 31, 2001, loans outstanding had interest rates ranging from 5.75%
to 9.5%.
2. Summary of Significant Accounting Policies
Basis of Accounting
These financial statements are prepared under the accrual basis of
accounting.
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 disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of additions and deductions during the reporting period. Actual
results could differ from those estimates.
Valuation of Investments
Shares of mutual funds and Cephalon, Inc. Common Stock are valued at quoted
market prices which represent the net asset value of shares held by the
Plan at year-end. Participant loans are valued at cost, which approximates
fair value. Purchase and sales of investments are reflected on the
trade-date basis. Dividend income is recorded on the ex-dividend date.
Risks and Uncertainties
The Plan provides for various investment options in any combination of
certain mutual funds and Company stock. Investment securities are exposed
to various risks, such as interest rate, market and credit. Due to the
level of the risk associated with certain investment securities and the
level of uncertainty related to changes in the value of investment
securities, it is at least reasonably possible that changes in risks in the
near term would materially affect participants' account balances and the
amounts reported in the statement of net assets available for benefits and
the statement of changes in net assets available for benefits.
Trustee/Recordkeeper
Recordkeeping services are provided by ARIS Corporation. Effective January
1, 2001, Fidelity Investments replaced Wilmington Trust as the custodian of
the assets. Wilmington Trust functions as a passive trustee, providing
Quarterly Reviews, Annual Schedule Preparation and Annual SAS 70 Reviews.
Payment of Benefits
Benefits are recorded when paid.
-7-
Cephalon, Inc.
401(k) Profit Sharing Plan
Notes to Financial Statements
December 31, 2001 and 2000
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Administrative Expenses
Certain administrative costs and expenses incidental to the management of
the Plan are paid by the Plan. Third party recordkeeping services for the
Company's Common Stock and other services are paid by the Company and are
not reimbursed by the Plan.
3. Investments
The following are investments that represent 5 percent or more of the
Plan's net assets at December 31.
2001 2000
Fidelity Cash Reserves $ 3,445,062 $ -
Cephalon, Inc. Common Stock 15,711,098 12,035,042
The investment balances, investment income, and net appreciation in fair
value of investments have been certified as complete and accurate by the
trustee of the Plan at December 31, 2001 and 2000.
During 2001 the Plan's investments incurred net appreciation in value of
$493,896 as follows:
Mutual funds $ (2,144,976)
Cephalon, Inc. Common stock 2,638,872
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Net appreciation $ 493,896
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Company Stock
Participants may direct up to 20 percent of their contributions to purchase
stock of the Company. The Plan obtains the stock of the Company by making
purchases in the open market, through private transactions or block trades,
or may be contributed, or purchased from, the Company out of treasury
shares.
-8-
Cephalon, Inc.
401(k) Profit Sharing Plan
Notes to Financial Statements
December 31, 2001 and 2000
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Under this Plan, a portion of the Cephalon, Inc. Common stock is the only
nonparticipant-directed investment. In 2001, the Company matched one-half
of each employee's salary deferral of up to 6 percent of compensation in
Company stock. The Company makes matching contributions quarterly. The
number of shares contributed is determined using an average price of the
stock during the quarter. Participants can use pre-tax contributions to
purchase common stock of the Company, limited to 20 percent of an
employee's pre-tax contribution. As of December 31, 2001, all shares of
Company stock held by or due to the Plan are stated at fair value based on
quoted market prices. Information about the net assets relating to the
nonparticipant-directed investments is as follows:
For the
Year Ended
Changes in Net Assets December 31, 2001
Contributions $ 1,394,535
Net appreciation 2,580,153
Benefits paid to participants (562,499)
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$ 3,412,189
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4. 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 will become 100% vested in their accounts.
5. Tax Status
The Internal Revenue Service has determined and informed the plan sponsor
in a letter dated September 18, 1995, that the Plan is designed in
accordance with applicable sections of the Internal Revenue Code (IRC). The
Plan has been amended since receiving the determination letter. However,
the Plan administrator and Plan's tax counsel believe that the Plan is
designed and is currently being operated in compliance with the applicable
sections of IRC.
6. Related-Party Transactions
Certain Plan investments are shares of mutual funds managed by Fidelity
Investments. Until December 31, 2001, Wilmington Trust was the trustee as
defined by the Plan and, therefore, these transactions qualify as
party-in-interest transactions. Fees paid by the Plan for the investment
management services were $95,671 for the year ended December 31, 2001.
-9-
Cephalon, Inc.
401(k) Profit Sharing Plan
Notes to Financial Statements
December 31, 2001 and 2000
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7. Reconciliation to Form 5500
The following is a reconciliation of net assets available for benefits per
the financial statements at December 31, 2001:
Net assets available for benefits per the financial statements $ 34,230,716
Amounts allocated to withdrawing participants (17,000)
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Net assets available for benefits per the Form 5500 $ 34,213,716
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The following is a reconciliation of benefits paid to participants per the
financial statements for the year ended December 31, 2001, to Form 5500:
Benefits paid to participants per the financial statements $ 1,376,331
Amounts allocated to withdrawing participants at December 31, 2001 17,000
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Benefits paid to participants per Form 5500 $ 1,393,331
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Amounts allocated to withdrawing participants are recorded on the Form 5500
for benefit claims that have been processed and approved for payment prior
to December 31, 2001, but not yet paid as of that date.
8. Subsequent Event
Effective January 1, 2002, the Company amended the Plan to reflect the
following:
. Eligibility to participate in the Plan will commence on the employee's
first day of employment.
. The percentage of compensation that participants may elect to defer
under the Plan is increased from fifteen percent to twenty percent of
eligible compensation.
. Participants in the Plan who are aged 50 and older can make additional
salary deferral contributions to the Plan that will qualify as catch-up
contributions, provided, however, that such catch-up contributions shall
not be eligible for Company matching contributions.
. All participants in the Plan with existing account balances and who had
not terminated employment prior to January 1, 2002, shall be fully and
immediately vested in all Company matching contributions made to the
Plan on their behalf.
. A participant may, at any time, reallocate matching contributions made
to the Plan on behalf of the participant in shares of Company common
stock among the other investment options offered under the Plan, subject
to applicable securities law limitations and related Company policies,
and such other administrative limitations as the Plan Administrator may
impose.
-10-
Cephalon, Inc.
401(k) Profit Sharing Plan
Notes to Financial Statements
December 31, 2001 and 2000
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. Company matching contributions shall be made to the Plan on behalf of
each Plan participant in an amount that is equal to one-hundred percent
of the salary deferral contributions made on behalf of a participant for
the 2002 Plan year, up to the first six percent of the participant's
eligible compensation for the 2002 Plan year. Additionally, Company
matching contributions made to the Plan for the 2002 Plan year shall be
contributed in the form of shares of Company common stock with respect
to fifty percent of the Company matching contributions.
-11-
Schedule I
Cephalon, Inc. E.I.N. #23-2484489
401(k) Profit Sharing Plan P.I.N. #001
Schedule h, Part iv, Item i - Schedule of Assets Held at End of Year
As of December 31, 2001
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Description of Investment Fair Value
American Century Income Growth $ 403,691
American Century Int'l Growth 352,405
Ameristock Mutual Fund 1,155,678
Artisan Internat'l 311,795
Berger Small Cap Value 350,386
Citizens Global Equity Standard 279,480
Eclipse Small Cap Value 39,690
Spartan 500 Index 775,278
Fidelity Equity Income II 388,827
Fidelity Growth Company 1,511,800
Gabelli Growth 485,625
Invesco Dynamics 520,135
Invesco Technology Class II 361,225
Janus Twenty 1,165,088
Janus Venture 421,599
Managers Special Equity 232,112
MSIF Mid Cap Value Portfolio 262,697
Red Oak technology Select 195,337
KS Emerging Growth 532,836
T Rowe Price Mid Cap Growth 479,855
Royce Premier Fund 60,210
Royce Opportunity Fund 203,673
Selected American Shares 402,082
Turner Small Capital Fund 435,732
Turner Midcap Growth 408,217
Vanguard Growth Index 4
Fidelity US Bond Index 875,409
Strong Government Securities 816,399
SIT Mutual Inc Balanced 146,723
Value Line Asset Allocation 371,492
Fidelity Cash Reserves 3,445,062
Cash 438,535
Cephalon, Inc Common Stock 5,711,098
Participant loans, interest rates, 5.75% to 9.5% maturing at
various dates through January 2032 355,903
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$ 33,896,078
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-12-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other person who administers the employee benefit plan) have
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
CEPHALON, INC. 401(K) PROFIT SHARING PLAN
By: /s/ Carl A. Savini
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Carl A. Savini
Senior Vice President - Human Resources of Cephalon, Inc.
(Plan Administrator)
Date June 26, 2002
EXHIBIT INDEX
Exhibit
Number Exhibit
23.1 Consent of Pricewaterhouse Coopers LLP.