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 the Quarterly Period June 30, 2000
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)
201 Mentor Drive, Santa Barbara, California 93111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (805) 879-6000
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.
x Yes No
The number of shares outstanding for each of the Issuer's classes
of common stock as of August 9, 2000 was:
Common stock, $.10 par value 23,401,157 shares
Mentor Corporation
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Financial
Position -- June 30, 2000 and March 31, 2000
Consolidated Statements of Income -- Three Months
Ended June 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows --
Three Months Ended June 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements--
June 30, 2000
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits
10 Management Contract or Compensatory Plans or Arrangements
27 Financial Data Schedule
Mentor Corporation
Condensed Consolidated Statements of Financial Position
June 30, 2000 and March 31, 2000
(Unaudited)
June 30, March 31,
(dollars in thousands) 2000 2000
ASSETS
Current assets:
Cash and cash equivalents $ 18,560 $ 24,313
Marketable securities 57,982 52,563
Accounts receivable, net 43,374 45,310
Inventories 35,424 34,441
Deferred income taxes 6,552 5,739
Prepaid expenses and other 6,747 6,096
Total current assets 168,639 168,462
Property and equipment, net 34,975 36,522
Intangibles, net 3,890 4,008
Goodwill, net 4,543 4,394
Long-term marketable securities
and investments 9,566 12,848
Other assets 4,396 4,472
57,370 62,244
Total assets $ 226,009 $ 230,706
See Notes to Condensed Consolidated Financial Statements
Mentor Corporation
Condensed Consolidated Statements of Financial Position
June 30, 2000 and March 31, 2000
(Unaudited)
June 30, March 31,
(dollars in thousands) 2000 2000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,078 $ 10,342
Accrued compensation 5,005 8,972
Income taxes payable 4,916 3,868
Dividends payable 598 608
Sales returns 6,192 6,401
Warranty and related reserves 7,325 6,563
Accrued royalties 1,498 1,600
Other accrued liabilities 6,642 5,967
Total current liabilities 41,254 44,321
Deferred income taxes 2,764 2,743
Shareholders' equity:
Common stock, $.10 par value:
Authorized 50,000,000 shares
Issued and outstanding:
23,912,909 shares at
June 30, 2000
24,208,834 shares at
March 31, 2000 2,391 2,421
Capital in excess of par value 3,126 9,876
Foreign currency translation
adjustments (3,189) (2,694)
Net unrealized gains on securities 2,903 5,017
Retained earnings 176,760 169,022
$ 181,991 $ 183,642
Total liabilities and shareholders'
Equity $ 226,009 $ 230,706
See Notes to Condensed Consolidated Financial Statements
Mentor Corporation
Consolidated Statements of Income
Three Months Ended June 30, 2000 and 1999
(Unaudited)
(in thousands, except per share
data) 2000 1999
Net sales $ 66,785 $ 60,144
Costs and expenses:
Cost of sales 24,951 21,520
Selling, general and
administrative 26,440 24,531
Research and development 4,272 4,126
55,663 50,177
Operating income from continuing
operations 11,122 9,967
Interest expense (65) (19)
Interest income 1,129 175
Other income, net 176 73
Income from continuing operations
before income taxes 12,362 10,196
Income taxes 4,029 3,220
Income from continuing operations 8,333 6,976
Income from discontinued
operations, net of taxes - 6,937
Net income $ 8,333 $ 13,913
Basic earnings per share:
Continuing operations $ .35 $ .28
Discontinued operations - .29
Basic earnings per share $ .35 $ .57
Diluted earnings per share:
Continuing operations $ .34 $ .28
Discontinued operations - .28
Diluted earnings per share $ .34 $ .56
See notes to consolidated financial statements
Mentor Corporation
Condensed Consolidated Statements of Cash Flows
Three Months Ended June 30, 2000 and 1999
(Unaudited)
(in thousands) 2000 1999
Net cash provided by continuing
operating activities $ 7,269 $ 5,199
Net cash provided by discontinued
operating activities - 2,318
Net cash provided by operating
activities 7,269 7,517
Cash from Investing Activities:
Purchases of property, equipment,
and intangibles (836) (3,453)
Purchases and sales of marketable
securities, net (4,877) (244)
Other, net 76 (105)
Net cash used for continuing
investing activities (5,637) (3,802)
Net cash provided by discontinued
investing activities - 38,377
Net cash provided by (used for)
investing activities (5,637) 34,575
Cash from Financing Activities:
Proceeds from exercise of stock
options 641 994
Dividends paid (605) (613)
Borrowings under line of credit
agreement 6,000 -
Repayments under line of credit
agreement (6,000) (4,000)
Repurchase of common stock (7,421) (3,488)
Net cash used for financing activities (7,385) (7,107)
Increase (decrease) in cash and cash
equivalents (5,753) 34,985
Cash and cash equivalents at beginning
of period 24,313 19,533
Cash and cash equivalents at end of
period $ 18,560 $ 54,518
See notes to consolidated financial statements
Mentor Corporation
Notes to Condensed Consolidated Financial Statements
June 30, 2000
Note A - Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with instructions to Form 10-Q and Article 10 of Regulation S-
X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three-month period ended June 30, 2000
are not necessarily indicative of the results that may be
expected for the year ended March 31, 2001.
The balance sheet at March 31, 2000 has been derived from the
audited financial statements at that date but does not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended March 31, 2000.
Note B - Inventories
Inventories at June 30, 2000 and March 31, 2000 consisted of:
(in thousands) June 30, March 31,
Raw materials $ 6,243 $ 5,880
Work in process 6,374 7,068
Finished goods 22,807 21,493
$ 35,424 $ 34,441
Note C - Long-Term Marketable Securities
The Company's long-term marketable securities and investments
include the Company's equity investments in its manufacturing
partners, Intracel Corporation and North American Scientific,
Inc. (NASI) and shares of Paradigm Medical Industries, Inc.
(Paradigm) received in connection with the sale of assets of
discontinued operations. Intracel Corporation is developing a
new potential treatment for bladder cancer. The Intracel
Corporation investment is carried at $3 million adjusted cost as
quoted market prices are not available. Also included is a
equity interest in NASI, the Company's manufacturing partner
under an exclusive agreement for the distribution of
brachytherapy seeds for the treatment of prostate cancer, and an
equity interest in Paradigm. These investments are recorded at
fair market value of $6,503,000, (cost of $2,037,000) and
$9,840,000 (cost of $2,122,000) based upon quoted stock market
prices at June 30, 2000 and March 31, 2000, respectively. The
unrealized gain of $2,903,000 and $5,017,000, net of taxes of
$1,563,000 and $2,701,000, at June 30, and March 31, 2000,
respectively, is reported as a separate component of
shareholders' equity. During the quarter ended June 30, 2000,
the Company sold a portion of its NASI securities and realized a
gain of $457,000 which was reflected in other income, net.
Note D - Comprehensive Income
The components of comprehensive income for the three months ended
June 30, 2000 and 1999 are listed below:
(in thousands) 2000 1999
Net income $ 8,333 $ 13,913
Foreign currency translation adjustment (496) (728)
Unrealized gains (losses) on investment (2,114) 669
activities
Comprehensive income $ 5,723 $ 13,854
Note E - Business Segment Information
The Company's operations are principally managed on a functional
basis and reported on a product or geographic basis. As a result
there are four reportable segments: Aesthetic and General
Surgery, Surgical Urology, Clinical and Consumer Healthcare
products, and International.
The Aesthetic and General Surgery products segment consists
primarily of breast implants, tissue expanders and the Company's
Contour Genesis Ultrasonic equipment product line along with
equipment and disposables for traditional liposuction. The
Surgical Urology segment includes penile implants, surgical
incontinence products and brachytherapy seeds for the treatment
of prostate cancer. The Clinical and Consumer Healthcare segment
includes catheters and other products for the management of
urinary incontinence and retention. The International segment
includes the operations of the Company's wholly owned
international sales offices, which cover most of the Company's
implantable product lines, and a small European manufacturing and
distribution facility. Segment revenues include domestic sales,
sales to independent foreign distributors and sales to the
Company's direct international sales offices.
Selected financial information for the Company's reportable
segments for the quarter ended June 30, 2000 and 1999 follows:
Three Months Ended
June 30,
(in thousands) 2000 1999
Revenues
Aesthetic and General Surgery $ 35,902 $ 34,154
Surgical Urology 13,652 10,473
Clinical and Consumer Healthcare 11,756 9,802
International 11,431 10,849
Total reportable segments 72,741 65,278
Elimination of inter-segment
revenues (5,956) (5,134)
Total consolidated revenues $ 66,785 $ 60,144
Three Months Ended
June 30,
(in thousands) 2000 1999
Operating profit (loss) from
continuing operations
Aesthetic and General Surgery $ 8,893 $ 11,328
Surgical Urology 1,551 599
Clinical and Consumer Healthcare 2,098 1,204
International 2,158 1,946
Total reportable segments 14,700 15,077
Corporate operating loss (3,578) (5,109)
Interest expense (65) (19)
Interest income 1,129 175
Other income 176 72
Income from continuing operations
before taxes $ 12,362 $ 10,196
(in thousands) June 30, March 31,
2000 2000
Identifiable assets
Aesthetic and General Surgery $ 55,594 $ 56,583
Surgical Urology 23,704 23,429
Clinical and Consumer Healthcare 24,233 26,714
International 26,258 24,627
Total reportable segments 129,789 131,353
Corporate and other 96,220 99,353
Consolidated assets $ 226,009 $ 230,706
Note F - Discontinued Operations
In May 1999, the Company announced that its Board of Directors
had decided to divest the ophthalmology business, which accounted
for approximately 16% of sales in fiscal 1999. Consistent with
the plan to dispose of its ophthalmic business segment, the net
assets and operations of the ophthalmic segment of the business,
comprised of the intraocular lens products and ophthalmic
equipment lines, have been classified as discontinued operations.
A summary of the results of operations for discontinued
operations for the quarter ended June 30, 1999 follows:
(in thousands) 1999
Revenues $ 9,078
Income before income taxes 566
Income tax expense 1,103
Net (loss) from discontinued operations (537)
Gain from disposal, net of taxes of $3,826 7,474
Net income from discontinued operations $ 6,937
During the quarter ended June 30, 1999, the Company completed the
sale of the assets of the intraocular lens business, for cash
consideration of $38.4 million. As disclosed in the Company's
annual report on Form 10-K for March 31, 2000, the remaining
assets related to the ophthalmic business segment were disposed
of in the quarter ending December 31, 1999.
At June 30, 2000 and March 31, 2000, remaining assets and
liabilities related to discontinued operations were not
significant.
Note G - Earnings per Share
A reconciliation of weighted average shares outstanding, used to
calculate basic earnings per share, to weighted average shares
outstanding assuming dilution, used to calculate diluted earnings
per share, follows:
Three Months Ended
June 30,
2000 1999
Average outstanding shares:
Basic 23,933 24,522
Shares issuable through
Options 658 508
Average common shares
Outstanding: diluted 24,591 25,030
Shares issuable through options are determined using the treasury
stock method.
Note H - Interim Reporting
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 for each quarter end are shown
below:
Fiscal 2001 Fiscal 2000
First Quarter June 30, 2000 July 2, 1999
Second Quarter September 29, 2000 October 1, 1999
Third Quarter December 29, 2000 December 31, 1999
Note I - Effects of Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 "Revenue Recognition in
Financial Statements" or SAB 101. SAB 101 summarizes certain of
the SEC Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The
Company is currently evaluating the potential impact, if any,
that this SAB will have on its revenue recognition policies.
However, based on preliminary evaluations, the Company does not
believe that this SAB will result in any material change to its
revenue recognition policies. SAB 101 will become effective for
the fourth quarter ending March 31, 2001.
Note J - Event Subsequent to June 30, 2000
During the quarter ended June 30, the Company initiated the
purchase of the rights of a limited partnership, established in
1983, for which the Company is the General Partner, according to
the terms of the partnership agreement, as amended. Subsequent
to June 30, the Company expects to complete the purchase in a
lump sum payment of approximately $760 thousand in cash and 464
thousand restricted common shares, valued at the fair market
value on the date of issuance, of approximately $9 million.
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 contain certain
forward-looking statements that involve risk and uncertainty.
Such forward-looking statements are characterized by future or
conditional verbs and include statements regarding new and
existing products, technologies and opportunities, market and
industry segment growth and demand and acceptance of new and
existing products. Such statements are only predictions and our
actual results may differ materially from those anticipated in
these forward-looking statements. Factors that may cause such
differences include, but are not limited to, increased
competition, changes in product demand, changes in market
acceptance, new product development, obtaining FDA approval of
new and existing products, changes in government regulation,
supply of raw materials, changes in reimbursement practices,
adverse results of litigation and other risks identified in this
Form 10-Q or in other documents filed by the Company with the
Securities and Exchange Commission. Specific attention should be
directed to the sections entitled "Government Regulation",
"Product Liability", and "Factors that May Effect Future Results
of Operations" in the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 2000. The Company assumes no
obligation to update forward-looking statements as circumstances
change.
In May 1999, the Company announced that its Board of Directors
decided to divest the ophthalmology business, which accounted for
approximately 16% of sales in fiscal 1999. The Company completed
the sale of the assets of the intraocular lens portion of the
ophthalmology business in the quarter ended June 30, 1999. In
the quarter ended December 31, 1999, the Company completed the
sale of the remaining assets of the Ophthalmology business,
primarily the equipment product lines. Accordingly, the Company
accounts for the ophthalmic business as a "Discontinued
Operations" in accordance with Generally Accepted Accounting
Principles. Accordingly, results of operations of the ophthalmic
business are reported, on a net basis, as a single line on the
financials. All prior period amounts in this Form 10-Q have been
presented to exclude operating the results of the ophthalmic
business as discontinued operations.
RESULTS OF OPERATIONS
Sales
Sales for the three months ended June 30, 2000 increased 11% to
$66.8 million, compared to $60.1 million for the prior year.
Growth was particularly strong in sales of surgical urology
products, increasing 28% compared to a year ago. The growth is
attributable to increased sales of brachytherapy seeds for the
treatment of prostate cancer and the Suspend r Sling for treating
female urinary incontinence. Sales of penile implants increased
10% from the previous year. Sales of Aesthetics & General
Surgery Products increased 5% compared to a year ago. The growth
rate was less than recent quarters as strong sales in the
previous quarter pushed physician inventory levels to higher than
normal levels. Competitive activity also contributed to less
than historical growth rates. Clinical and Consumer Healthcare
product sales, primarily for the management of urinary
incontinence, increased 15%. Growth in this product line is
expected to be approximately the market rate of growth, or 6 to 7
percent annually. Comparative quarter to quarter fluctuations in
growth rates can occur due to changes in distributor ordering
patterns and items affecting the comparative quarters of the
prior year, among other factors. Sales for the quarter ending
September 30, 2000 are likely to be below sales of the
comparative quarter in the prior year. Sales in the prior year's
quarter were aided by a price increase implemented late in the
quarter ended September 30, 1999. As a result of an announced
price increase, sales were unusually strong due to stocking
orders in advance of the increase.
Sales by Principal Product Line
Three Months Ended June 30,
(in thousands) Percent
2000 1999 Change
Aesthetic & General Surgery Products $ 40,826 $ 38,756 5%
Surgical Urology Products 13,955 10,925 28%
Clinical & Consumer Healthcare Products 12,004 10,463 15%
$ 66,785 $ 60,144 11%
Cost of Sales
Cost of sales was 37.4% of sales for the three months ended June
30, 2000 compared to 35.8% for the same period last year. The
Company's product mix has changed somewhat in recent years. A
greater percentage of total sales are represented by two products
(brachytherapy seeds and the Suspendr Sling) which are
distributed under alliance agreements. These products generate
gross margins of approximately 50%, which is lower than the
margin generated by products manufactured and distributed by the
Company.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were 39.6% of sales
in the quarter compared to 40.8% in the previous year. The
decrease reflects efficiencies of scale in the Company's selling,
general and administrative spending, partially offset by
increases in marketing programs and spending on the Company's
direct-to-consumer advertising campaign targeting the Aesthetic
surgery market.
Research and Development
Research and development expenses were 6.4% of sales for the
quarter, compared to 6.9% for the prior year. The decrease is
attributable to the completion of the Company's submission of its
premarket approval applications ("PMAAs") for its saline breast
implants and inflatable penile implants late in fiscal year 2000.
In May 2000, the Company received FDA approval for saline-filled
breast implants and in July received similar regulatory clearance
on our inflatable penile implants. Although the Company has
successfully completed these PMAA submissions, the amount of
spending on research and development is not expected to decrease
as the focus of research and development efforts will shift
towards new product development. In addition, the Company is
committed to a variety of clinical and laboratory studies in
connection with its ultrasonic liposuction equipment, gel-filled
mammary implants and other products.
The Company has an investment in Intracel Corporation, its
manufacturing partner for a potential bladder cancer treatment.
The Intracel agreement required the Company to pay $1 million per
year for three years to defray the costs of the clinical trials
for the product. That agreement has been modified to increase
Mentor's commitment by $1 million. The Company has previously
paid $2 million to Intracel for the clinical trials, and will pay
the remaining $2 million in quarterly payments of $250 thousand
beginning on July 1, 2000.
Interest and Other Income and Expense
Interest expense was $65 thousand in the quarter compared to $19
thousand in the previous year. During the quarter the Company
borrowed under its line of credit to fund its stock repurchase
program. The borrowings were repaid during the quarter.
Interest income for the three months ended June 30, 2000
increased to $1.1 million from $175 thousand for the comparable
period in the previous year. The increase is a result of higher
cash balances from operations and $59.3 million in proceeds from
the sale of the assets of the ophthalmic business reported as
discontinued operations received after the first quarter in the
previous year. Further, the Company increased its use of fully
taxable investments, which have a higher coupon rate and also
benefited from higher prevailing interest rates.
Other income and expense, primarily includes realized gains on
sales of marketable securities recorded as long-term marketable
securities available for sale, gains or losses on disposals of
assets, and foreign currency gains or losses related to the
Company's foreign operations. In the first quarter of fiscal
2001, the Company recorded a gain of $457 thousand on the sale of
long-term marketable securities, which was partially offset by
realized foreign currency transaction losses.
Income Taxes
The effective rate of corporate income taxes was 32.6% for the
quarter, compared to 31.6% in the same period a year ago.
Discontinued Operations
In May 1999, the Company announced that its Board of Directors
decided to divest the ophthalmology business, which accounted for
approximately 16% of sales in fiscal 1999. The Company completed
the sale of the assets of the intraocular lens portion of the
ophthalmology business in the quarter ended June 30, 1999.
Accordingly, the Company accounts for the ophthalmic business as
a "Discontinued Operations" in accordance with Generally Accepted
Accounting Principles.
At March 31, 2000 the Company had completed its divestiture and
discontinued operations, accordingly there were no significant
remaining assets or liabilities related to the Ophthalmic
division. For the quarter ended June 30, 1999 the Company had a
loss on discontinued operations of $537 thousand, net of tax.
Also, during the quarter ended June 30, 1999, the Company
completed the sale of the assets of the intraocular lens
business, recording a gain of $7.5 million, net of tax.
Income from Continuing Operations
Income from continuing operations for the first quarter of fiscal
2001 was $8.3 million, compared to $7.0 million the previous
year, an increase of 19%. Diluted earnings per share from
continuing operations were $0.34 for the quarter compared to
$0.28 for the comparable period last year, an increase of 21%.
Increased sales, lower operating expenses, and increased interest
income contributed to the improvement in net income. There were
no discontinued operations during the quarter. The results of
discontinued operations for the quarter ended June 30, 1999
included a $0.02 per share loss for the quarter, and a gain on
the sale of the intraocular lens business of $0.30 per share.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company's working capital was $127 million
compared to $124 million at March 31, 2000. The Company's
working capital needs were provided from operations.
The Company generated $7.3 million of cash from continuing
operations during the three months ended June 30, 2000, compared
to $7.5 million the previous year.
The Company anticipates investing approximately $12 million in
facilities and capital equipment in fiscal 2001. The majority of
the expenditures will be for facility upgrades at the Company's
facilities in The Netherlands and Texas, as well as for enhancing
the Company's information technology capabilities.
The Company has a line of credit for $25 million. In order to
temporarily fund stock repurchases in fiscal 2001, the Company
borrowed and repaid $6 million on its line of credit during the
quarter ended June 30, 2000.
The Company's Board of Directors has authorized an ongoing stock
repurchase program. The objectives of the program, among other
items, are to offset the issuance of stock options, provide
liquidity to the market and to reduce the overall number of
shares outstanding. Repurchases are subject to market conditions
and cash availability. In May 1999, the Board increased the
repurchase authorization by 4 million shares. The Company intends
to continue the share repurchase program in fiscal 2001, and
repurchased approximately 400 thousand shares for $7.4 million
during the first quarter, and an additional 520 thousand shares
for $11.1 million early in the second quarter.
For the last 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
$2.4 million.
Certain technologies related to the manufacture of mammary
prostheses were developed under a 1983 agreement with a limited
partnership whereby they contributed money towards the
development of the technology in exchange for payments based upon
future sales of the products utilizing the technology. The
Company paid approximately $2 million in such payments to the
partnership for last year. The Company was the general partner
for this partnership. The agreement included an option to
purchase the technology and thereby terminate the partnership.
The Company has exercised its option to make a lump sum payment
to the Limited Partners in lieu of all future payments and rights
according to the Agreement of Purchase and Sale between Mentor
Corporation and the Partnership, as amended. The Limited
Partners could elect to be paid in cash, Company's stock, or a
combination. This transaction will be recorded in the second
quarter ending September 30, 2000, for approximately $760
thousand in cash and 464 thousand restricted shares of the
Company's stock, valued at the fair market value on the date of
issuance, of approximately $9 million. The decrease in payments
will be offseted by the increased amortization of the new
intangible and the additional common shares outstanding, thus
having a neutral effect on earnings per share.
The Company's principal source of liquidity at June 30, 2000
consisted of $76.5 million in cash and marketable securities plus
$25 million available under its line of credit. The Company
believes that funds generated from operations, its cash and
marketable securities and funds available under its line of
credit will be adequate to meet its working capital and capital
expenditure requirements through fiscal 2001.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material changes in the Company's exposure to
market risk as reported in Item 7A in the annual report on Form
10-K for the fiscal year ended March 31, 2000.
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,
2000, 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
(a) Exhibits
Management Contract or Compensatory Plan or
Arrangement
10(v) Compensation Guarantees, dated April 1,
1999 between Mentor Corporation and
Trevor M. Pritchard
10(w) Promissory Note Re: Bridge/Retention
Loan, dated April 1, 1999 between Mentor
Corporation and Trevor M. Pritchard
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three
months ended June 30, 2000.
Pursuant to the requirements 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 10, 2000 BY: /s/ANTHONY R. GETTE
Anthony R. Gette
President and
Chief Executive Officer
DATE: August 10, 2000 BY: /s/ADEL MICHAEL
Adel Michael
Senior Vice President
Chief Financial Officer
COMPENSATION GUARANTEES
This Compensation Guarantee (the "Guarantee") is made and
entered into as of April 1, 1999, between MENTOR CORPORATION
("COMPANY") and TREVOR M. PRITCHARD ("EMPLOYEE").
RECITALS
A. COMPANY and EMPLOYEE are parties to that certain Employment
Agreement, dated December 1, 1998, (the "Agreement"). All terms
defined in the Agreement that are not defined in this Guarantee
shall have the same meanings when used herein.
B. The parties desire to modify the Agreement in order, inter
alia, to provide for the terms of compensation and additional
benefits to be provided to EMPLOYEE.
GUARANTEE
EMPLOYEE and COMPANY, intending to be legally bound, agree
as follows:
1. Compensation.
1.1 Base Compensation. As of April 1, 1999, COMPANY agrees to
pay EMPLOYEE an annualized base salary of Two Hundred Sixty
Thousand Dollars ($260,000.00), less applicable withholdings,
payable in equal installments no less frequently than semi-
monthly. COMPANY further agrees that, as of April 1, 2000,
EMPLOYEE's annualized base salary will be increased to not less
than Two Hundred Ninety Thousand Dollars ($290,000.00), less
applicable withholdings, payable in equal installments no less
frequently than semi-monthly.
1.2 Cash Incentive Bonus. For the twelve-month period ending
March 31, 2000, EMPLOYEE's bonus will be guaranteed, subject to
the limitations set forth in the Agreement, to be at least the
fifty percent (50%) target set forth in the Agreement. For the
fiscal year commencing April 1, 2000, EMPLOYEE will remain
eligible, subject to the limitations set forth in the Agreement,
for a bonus of fifty percent (50%) or more, but the bonus, if
any, will not be guaranteed, but shall be provided on a
discretionary basis by COMPANY in its sole discretion, and will
be tied to mutually-agreed initiatives and objectives.
2. Effect Of This Guarantee. Except as expressly modified
herein, all terms of the Agreement remain in full force and
effect.
3. Assistance of Counsel. EMPLOYEE expressly acknowledges that
he was represented by counsel of his own choosing in connection
with the negotiation of the terms of this Guarantee.
The parties execute this Guarantee as of the date stated above:
TREVOR M. PRITCHARD MENTOR CORPORATION
/s/TREVOR M. PRITCHARD By /s/ANTHONY R. GETTE
Anthony R. Gette
President and Chief Operating
Officer
NOTICE ADDRESS: NOTICE ADDRESS:
17014 Kimwood Court 5425 Hollister Avenue
Chesterfield, Missouri 63005 Santa Barbara, California
93111
PROMISSORY NOTE RE: BRIDGE/RETENTION LOAN
$150,000.00 Los Angeles,
California
April 1, 1999
FOR VALUE RECEIVED, the undersigned (EMPLOYEE) agrees and
promises to pay to the order of Mentor Corporation, a Delaware
corporation, or its successors or assigns (the COMPANY) the
principal sum of One Hundred Fifty Thousand Dollars ($150,000.00)
together with interest on the unpaid principal balance according
to the terms and subject to the conditions set forth in this
promissory note (this Note).
1. Term. Upon (i) the termination of EMPLOYEE's employment
with COMPANY, whether voluntary or involuntary, and whether with
cause or without cause; (ii) EMPLOYEE's death; or (iii)
EMPLOYEE's Disability as that term is defined in the Employment
Agreement executed concurrently herewith, the principal amount
hereof then unpaid, together with all interest accrued thereon,
shall be due and payable. By executing this Note, EMPLOYEE
expressly agrees that COMPANY is authorized to deduct the
outstanding principal and interest amounts due hereunder from any
amounts due and owing to EMPLOYEE (or to his heirs,
beneficiaries, estate, administrator or executor) at the time of
the termination of his employment or his death or Disability, as
provided by the Employment Agreement executed concurrently
herewith. Any additional amount of principal and interest owing
hereunder shall be paid in full by EMPLOYEE or by his estate,
administrator or executor within sixty (60) days after the
termination of EMPLOYEE's employment or his death or Disability,
or at such other time or on such other terms as may be approved
by COMPANY in writing.
2. Interest. This Note shall bear interest at the rate of four
percent (4%) per annum. Interest on the principal balance of
this Note from time to time outstanding will be computed on the
basis of a 360-day year but shall be calculated for the actual
number of days in the period for which interest is charged.
3. Full Forgiveness of Note.
a. Third Anniversary. Upon the third anniversary of
EMPLOYEE's employment with COMPANY, November 30, 2001, provided
that EMPLOYEE still is employed with COMPANY, COMPANY shall
forgive the entire original principal amount hereof, together
with all interest accrued on such amount.
b. Change in Control. Upon any of the following events: (i)
the sale, lease or other disposition of all or substantially all
of COMPANY's assets to a single purchaser or group of related
purchasers; (ii) the sale, lease or other disposition, in one
transaction or a series of related transactions of the majority
of COMPANY's outstanding capital stock; or (iii) the merger or
consolidation of COMPANY into or with another corporation in
which the stockholders of COMPANY shall own less than 50% of the
voting securities of the surviving corporation (all of which
events shall be referred to as a Change in Control), provided
that EMPLOYEE is employed with COMPANY as of the date of the
Change in Control, COMPANY shall forgive the entire original
principal amount hereof, together with all interest accrued on
such amount.
4. Form of Payment. Principal and interest shall be paid
in lawful money of the United States of America at the principal
office of COMPANY or at such other place as COMPANY shall have
designated to EMPLOYEE in writing.
5. Miscellaneous.
a. This Note shall be governed and construed as to
validity and performance and shall be enforced in accordance with
the laws of the State of California without regard to its
conflict of law rules. The exclusive jurisdiction and venue of
any legal action instituted by any party to this Note shall be
Santa Barbara County, California. The prevailing party in any
action to enforce the terms of this Note shall be entitled to
recover their reasonable attorneys' fees and costs from the
losing party.
b. EMPLOYEE waives presentment, protest, and demand, notice of
protest, notice of demand, and dishonor and notice of nonpayment
of this Note. EMPLOYEE expressly agrees that this Note or any
payment under this Note may be extended by COMPANY from time to
time without in any way affecting the liability of EMPLOYEE
hereunder.
c. If any provision or any word, term, clause or part of any
provision of this Note shall be invalid for any reason, the same
shall be ineffective, but the remainder of this Note and of the
provision shall not be affected and shall remain in full force
and effect.
d. Any of the terms or conditions of this Note may be waived by
COMPANY, but no such waiver shall affect or impair the rights of
COMPANY to require observance, performance, or satisfaction,
either of that term or condition as it applies on a subsequent
occasion or of any other term or condition of this Note.
/s/TREVOR M. PRICHARD
Trevor M. Pritchard
17014 Kimwood Court
Chesterfield, Missouri 63005
