SECURITIES AND EXCHANGE COMMISSION
Washington D.C.
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
Of the Securities Exchange Act of 1934
For Quarter Ended June 30. 1997 Commission File Number 0-7955
Mentor Corporation
(Exact name of registrant as specified in its charter)
Minnesota 41-0950791
(State of Incorporation) (I.R.S. Employer Identification Number)
5425 Hollister Avenue, Santa Barbara, California 93111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (805) 681-6000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 of 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months or
for such shorter period that the registrant was required to file
such reports and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
The number of shares outstanding for each of the Issuer's classes
of common stock as of August 13, 1997 was:
Common stock, $.10 par value 24,879,048 shares
Mentor Corporation
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Financial
Position -- June 30, 1997 and March 31,1997...... 3-4
Consolidated Statements of Income -- Three Months
Ended June 30, 1997 and 1996................ 5
Condensed Consolidated Statements of Cash Flows --
Three Months Ended June 30, 1997 and 1996... 6
Notes to Condensed Consolidated Financial Statements--
June 30, 1997............................ 7-8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition............... 9-11
Part II. Other Information
Item 1. Legal Proceedings........................... 12
Item 2. Changes in Securities........................ 12
Item 3. Defaults upon Senior Securities.............. 12
Item 4. Submission of Matters to a Vote of
Security Holders .......................... 12
Item 5. Other Information............................ 12
Item 6. Exhibits and Reports on Form 8-K............. 12
List of Exhibits
11. Statement Regarding Computation of Per Share Earnings
<PAGE>
Mentor Corporation
Condensed Consolidated Statements of Financial Position
June 30, 1997 and March 31, 1997
(Unaudited)
June 30, March 31,
(dollars in thousands) 1997 1997
ASSETS
Current assets:
Cash and marketable securities $ 35,404 $ 27,808
Accounts receivable, net 38,609 37,961
Inventories 40,017 38,205
Deferred income taxes 10,333 6,282
Other 1,886 5,502
Total current assets 126,249 115,758
Property, plant and equipment,
net of accumulated depreciation 32,466 31,328
Other assets:
Patents, licenses, and trademarks
net of accumulated amortization 4,357 4,616
Goodwill, net of accumulated 14,071 14,218
amortization
Other assets 2,574 725
21,002 19,559
Total assets $ 179,717 $ 166,645
See Notes to Condensed Consolidated Financial Statements
<PAGE>
Mentor Corporation
Condensed Consolidated Statements of Financial Position
June 30, 1997 and March 31, 1997
(Unaudited)
June 30, March 31,
(dollars in thousands) 1997 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,336 $ 4,443
Accrued compensation 6,554 8,560
Income taxes payable 6,722 90
Dividends payable 627 628
Sales returns 5,795 5,791
Other accrued liabilities 9,404 8,025
Current portion of long term debt 49 50
Total current liabilities 33,487 27,587
Long-term deferred taxes 1,415 701
Long-term debt _ 8
Shareholders' equity:
Common shares, $.10 par value:
Authorized-- 50,000,000 shares
Issued and outstanding:
24,810,900 shares at June 30, 1997
24,806,748 shares at March 31, 1997 2,481 2,481
Capital in excess of par 33,934 34,565
Cumulative translation adjustment (777) (693)
Retained earnings 109,177 101,996
Shareholders' equity 144,815 138,349
Total liabilities and shareholders' equity $179,717 $166,645
See Notes to Condensed Consolidated Financial Statements
<PAGE>
Mentor Corporation
Consolidated Statements of Income
Three Months Ended June 30, 1997 and 1996
(Unaudited)
(in thousands, except per share data) 1997 1996
Net sales $ 55,291 $ 50,388
Costs and expenses:
Cost of sales 18,275 16,653
Selling, general and administrative 20,309 18,838
Research and development 5,109 4,052
43,693 39,543
Operating income 11,598 10,845
Interest expense (11) (212)
Interest income 324 210
Other expense (70) (53)
Income before income taxes 11,841 10,790
Income taxes 4,038 3,701
Net income $ 7,803 $ 7,089
Earnings per share:
$ .30 $ .27
See notes to consolidated financial statements
<PAGE>
Mentor Corporation
Condensed Consolidated Statements of Cash Flows
Three Months Ended June 30, 1997 and 1996
(Unaudited)
(in thousands) 1997 1996
Cash flows from operating $ 13,935 $ 7,839
activities
Cash flows from investing
activities:
Purchase of property, (3,111) (3,909)
equipment, and intangibles
Reduction of notes receivable 40 (17)
Investment in marketing partner (2,006) _
(5,077) (3,926)
Cash flows from financing
activities:
Exercise of stock options 890 401
Dividends paid (624) (622)
Reduction of long-term debt (9) (195)
Repurchase of common stock (1,519) (1,686)
(1,262) (2,102)
Increase in cash, cash
equivalents, and marketable
securities 7,596 1,811
Cash at beginning of period 27,808 18,541
Cash at end of period $ 35,404 $ 20,352
See notes to consolidated financial statements
<PAGE>
Mentor Corporation
Notes to Condensed Consolidated Financial Statements
June 30, 1997
Note A
Inventories at June 30, 1997 and March 31, 1997, consisted of:
June 30 March 31
(In thousands)
Raw materials $ 13,317 $ 12,477
Work in process 6,453 5,379
Finished goods 20,247 20,349
$ 40,017 $ 38,205
Note B
Primary earnings per share is computed based on the weighted
average number of Common Stock and Common Stock equivalents
outstanding during the period. Common Stock equivalents
represent the dilutive effect of the assumed exercise of certain
outstanding options. The difference between primary and fully
diluted earnings per share was not material.
Note C
The amounts set forth in the accompanying statements are
unaudited but, in the opinion of management, reflect all
adjustments (consisting only of normal accruals) necessary for a
fair statement of the results of operations for the periods
presented. Operating results for the three month period ended
June 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended March 31, 1998. It is
suggested that the condensed consolidated financial statements
included herein be read in conjunction with the Company's annual
report on form 10-K for the year ended March 31, 1997.
Note D
The Company's three quarterly interim reporting periods are each
approximately thirteen week periods ending on the Friday nearest
the end of the third calendar month. The fiscal year end remains
March 31. To facilitate ease of presentation, each interim
period is shown as if it ended on the last day of the appropriate
calendar month. The actual dates on which each quarter ended are
shown below:
Fiscal 1998 Fiscal 1997
First Quarter June 30, 1997 June 30, 1996
Second Quarter September 26, 1997 September 29, 1996
Third Quarter January 2, 1998 December 29, 1996
<PAGE>
Mentor Corporation
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Except for the historical information contained herein, the
matters discussed in this Management's Discussion are forward-
looking statements, the accuracy of which is necessarily subject
to risks and uncertainties. Actual results may differ
significantly from the discussion of such matters in the forward
looking statements. Potential risks and uncertainties include,
without limitation, those mentioned in this report and, in
particular, the factors described under "Factors That May Affect
Future Results of Operations" in the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1997.
RESULTS OF OPERATIONS
Sales
Sales for the three months ended June 30, 1997 increased 10% to
$55.3 million, compared to $50.4 million the prior year. Growth
was particularly strong in sales of plastic surgery products,
continuing trends of the past several quarters.
Sales by Principal Product Line
For the Three Months Ended
June 30,
Percent
1997 1996 Change
Plastic surgery products $ 31,799 $ 27,187 17.0%
Urology products 14,762 14,261 3.5%
Ophthalmology products 8,730 8,940 (2.3)%
$ 55,291 $ 50,388 9.7%
During the quarter, the Company announced two new product
alliances. The first is directed toward treatment of prostate
cancer using radioactive seeds. The Company will be the world
wide marketing partner for seeds produced by North American
Scientific, Inc. The second agreement is with PerImmune, Inc.,
under which the Company will be the exclusive world-wide
marketing partner for a bladder cancer test developed and
manufactured by PerImmune. The Company anticipates product sales
in each of these areas by the end of the year.
Cost of Sales
Cost of sales was 33.1% for the three months ended June 30, 1997,
relatively flat compared to 33.0% for the same period last year.
Selling, General and Administrative Expenses
Selling, General and Administrative expenses decreased to 36.7%
of sales in the quarter compared to 37.4% in the previous year.
The Company is seeing productivity improvements in several of its
administrative areas.
Research and Development
Research and development expenses were 9.2% of sales for the
first quarter, compared to 8.0% for the prior year. The Company
continues to spend substantial funds on its premarket approval
applications ("PMAAs") for its saline breast implants, silicone
gel filled breast implants, and penile implants. The Company is
committed to a variety of clinical and laboratory studies in
connection with these products. Other major products under
development include Urethrin, a product for treating urinary
incontinence, an ultrasonic assisted liposuction device and an
alternate filler breast implant.
Interest and Other Income and Expense
Interest expense decreased $201 thousand in the quarter over the
prior year. Included in interest expense last year was $189
thousand for the quarter ($379 thousand for fiscal year 1997) in
imputed interest on the Litigation Settlement Obligation. The
imputed interest ceased following the final payment on the
obligation in September 1996.
Interest income increased from $210 thousand last year to $324
thousand this year, resulting from higher cash balances.
Income Taxes
The effective rate of corporate income taxes was 34.1% for the
quarter, compared to 34.3% in the same period a year ago.
Net Income
Net earnings per primary share increased to $.30 for the three
months ended June 30, 1997, compared to $.27 last year, due to
the increased sales.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company's working capital was $93 million
compared to $88 million at March 31, 1997. The Company's working
capital needs were provided from operations.
The Company generated $13.9 million of cash from operations
during the three months ended June 30, 1997, compared to $7.8
million the previous year. The increase was caused by higher net
income, increased depreciation, collection of certain receivables
and an overall increase in current liabilities when compared to
last year.
The Company anticipates investing approximately $12 million in
facilities and capital equipment in fiscal 1998. The majority of
the expenditures will be to increase capacity at the Company's
manufacturing facilities in Puerto Rico, Texas and Minneapolis.
During the first quarter of fiscal 1998, the Company entered into
two new product alliances. As part of the agreement with North
American Scientific, the Company took a $1 million equity
position, and will be investing an additional $2 million upon
completion of certain milestones by North American. Similarly,
the Company has taken a $1 million equity position in PerImmunne,
its marketing partner for a anew bladder cancer test.
For the past several years, the Company has paid a quarterly cash
dividend of $.025 per share. At the indicated rate of $.10 per
year, the aggregate annual dividend would equal approximately
$2.5 million.
The Company's Board of Directors has authorized the repurchase of
up to 1,000,000 shares of Common Stock. The shares purchased and
retired under this program will be used to offset stock options
previously granted to employees of the Company under existing
stock option plans. During the first quarter of fiscal 1998, the
Company repurchased 69,500 shares for consideration of $1.5
million.
The Company's principal source of liquidity at June 30, 1997
consisted of $35 million in cash and marketable securities plus
$15 million available under a line of credit.
<PAGE>
PART II
Item 1. Legal Proceedings
In regards to the litigation reported in Item 3 of the
annual report on Form 10-K for the fiscal year ended March 31,
1997, there have been no material changes.
Item 2. Changes in Securities
No changes have been made in any registered securities.
Item 3. Defaults Upon Senior Securities
No event constituting a material default has occurred
respecting any senior security of the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 Statement regarding computation of Per Share
Earnings
Pursuant to the requirement of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
MENTOR CORPORATION
(Registrant)
DATE: August 14, 1997 BY: /s/ANTHONY R. GETTE
Anthony R. Gette
President and
Chief Operating Officer
DATE: August 14, 1997 BY: /s/GARY E. MISTLIN
Gary E. Mistlin
Chief Financial Officer
<PAGE>
EXHIBIT 11
MENTOR CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
June 30,
1997 1996
PRIMARY:
Primary Earnings $ 7,803 $ 7,089
Average Shares Outstanding 24,782 24,847
Net effect of dilutive stock options -
based on the treasury stock method
using average stock market price 1,345 1,454
Total Shares for Primary Earnings 26,128 26,301
Primary Earnings Per Share $ 0.30 $ 0.27
FULLY DILUTED:
Primary Earnings $ 7,803 $ 7,089
Interest and Related Expenses on 6 3/4%
debentures eliminated _ _
Fully diluted earnings $ 7,803 $ 7,089
Average Shares Outstanding 24,782 24,847
Net effect of dilutive stock options -
based on the treasury stock method
using the higher of ending and average
stock market prices 1,529 1,529
Additional shares issued in assumed
conversion of 6 3/4% debentures at
16.50 per share _ _
Total shares for fully diluted 26,311 26,376
Fully Diluted Earnings Per Share $ 0.30 $ 0.27
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000064892
<NAME> FDS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-1-1997
<PERIOD-END> JUN-27-1997
<CASH> 25,293
<SECURITIES> 10,112
<RECEIVABLES> 41,144
<ALLOWANCES> (2,534)
<INVENTORY> 40,017
<CURRENT-ASSETS> 126,250
<PP&E> 32,466
<DEPRECIATION> 4,866
<TOTAL-ASSETS> 179,717
<CURRENT-LIABILITIES> 33,487
<BONDS> 0
0
0
<COMMON> 2,481
<OTHER-SE> 144,816
<TOTAL-LIABILITY-AND-EQUITY> 179,717
<SALES> 55,291
<TOTAL-REVENUES> 55,291
<CGS> 18,275
<TOTAL-COSTS> 43,693
<OTHER-EXPENSES> 70
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 11,841
<INCOME-TAX> 4,038
<INCOME-CONTINUING> 7,803
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,803
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
