0000064892-95-000014.txt : 19950816 0000064892-95-000014.hdr.sgml : 19950816 ACCESSION NUMBER: 0000064892-95-000014 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950815 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MENTOR CORP /MN/ CENTRAL INDEX KEY: 0000064892 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 410950791 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-07955 FILM NUMBER: 95564011 BUSINESS ADDRESS: STREET 1: 5425 HOLLISTER AVENUE CITY: SANTA BARBARA STATE: CA ZIP: 93111 BUSINESS PHONE: 8056816000 MAIL ADDRESS: STREET 1: 5425 HOLLISTER AVENUE CITY: SANTA BARBARA STATE: CA ZIP: 93111 10-Q/A 1 AMENDMENT TO FORM 10-Q FOR QUARTER ENDED 6/30/95 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. 1995 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 11, 1995 was: Common stock, $.10 par value 12,323,076 shares Mentor Corporation INDEX Part I. Financial Information Item 1. Financial Statements (unaudited) Condensed Consolidated Statements of Financial Position -- June 30, 1995 and March 31,1995....................3-4 Consolidated Statements of Income -- Three Months Ended June 30, 1995 and 1994.....................................5 Condensed Consolidated Statements of Cash Flows -- Three Months Ended June 30, 1995 and 1994........................6 Notes to Condensed Consolidated Financial Statements-- June 30, 1995..................................................7-8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.............................9-12 Part II. Other Information Item 1. Legal Proceedings..................................................13 Item 2. Changes in Securities..............................................13 Item 3. Defaults upon Senior Securities....................................13 Item 4. Submission of Matters to a Vote of Security Holders ...............13 Item 5. Other Information..................................................13 Item 6. Exhibits and Reports on Form 8-K...................................13 List of Exhibits 11. Statement Regarding Computation of Per Share Earnings
Mentor Corporation Condensed Consolidated Statements of Financial Position June 30, 1995 and March 31, 1995 (Unaudited) June 30, March 31, (dollars in thousands) 1995 1995 ASSETS Current assets: Cash and marketable securities $ 17,576 $ 11,379 Accounts receivable, net 32,907 30,026 Inventories 30,272 29,994 Deferred income taxes 6,436 6,918 Other 2,035 2,741 Total current assets $ 89,226 $ 81,058 Property, plant and equipment, net of accumulated depreciation 26,302 25,538 Other assets: Deferred income taxes 1,714 1,400 Patents, licenses, trademarks and bond issue costs net of accumulated amortization 5,471 6,287 Goodwill, net of accumulated amortization 13,420 13,523 Other assets 927 954 21,532 22,164 Total assets $ 137,060 $ 128,760
See Notes to Condensed Consolidated Financial Statements
Mentor Corporation Condensed Consolidated Statements of Financial Position June 30, 1995 and March 31, 1995 (Unaudited) June 30, March 31, (dollars in thousands) 1995 1995 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts Payable $ 3,940 $ 2,996 Accrued compensation 4,205 5,620 Income taxes payable 3,744 606 Interest payable - 1,145 Dividends payable 625 549 Sales returns 5,965 4,765 Litigation settlement obligation 5,333 5,333 Other accrued liabilities 5,906 5,568 Short-term borrowings and current portion of long-term debt 733 731 Total current liabilities $ 30,451 $ 27,313 Long-term debt 295 473 Litigation settlement obligation 5,852 5,678 Convertible subordinated debentures - 24,182 Shareholders' equity: Common shares, $.10 par value: Authorized-- 20,000,000 shares Issued and outstanding: 12,366,121 shares at June 30, 1995 10,898,388 shares at March 31, 1995 1,237 1,090 Capital in excess of par 39,343 15,031 Cumulative translation adjustment (260) (283) Retained earnings 60,142 55,276 Shareholders' equity $ 100,462 $ 71,114 Total liabilities and shareholders' equity $ 137,060 $ 128,760
See Notes to Condensed Consolidated Financial Statements
Mentor Corporation Consolidated Statements of Income Three Months Ended June 30, 1995 and 1994 (Unaudited) (in thousands, except per share data) 1995 1994 Net sales $ 43,729 $ 34,729 Costs and expenses: Cost of sales 14,746 12,339 Selling, general and administrative 16,711 13,491 Research and development 3,420 2,400 $ 34,877 $ 28,230 Operating income 8,852 6,499 Interest expense (465) (859) Interest income 72 110 Other expense (45) - Income before income taxes $ 8,414 $ 5,750 Income taxes 2,930 2,060 Net income $ 5,484 $ 3,690 Earnings per share: Primary $ .45 $ .34 Supplemental / Fully diluted $ .43 $ .32
See notes to consolidated financial statements
Mentor Corporation Condensed Consolidated Statements of Cash Flows Three Months Ended June 30, 1995 and 1994 (Unaudited) (in thousands) 1995 1994 Cash flows from operating activities $ 8,556 $ 3,600 Cash flows from investing activities: Sale of equipment, intangibles and other assets 147 1 Purchase of property, equipment, and intangibles (2,093) (1,457) Reduction of notes receivable 24 237 $ (1,922) $ (1,219) Cash flows from financing activities: Exercise of stock options 282 339 Dividends paid (542) - Reduction of long-term debt (177) (163) Net repayment under line of credit agreement - 550 $ (437) $ (374) Increase (decrease) in cash, cash equivalents, and marketable securities 6,197 2,007 Cash at beginning of period 11,379 10,329 Cash at end of period $ 17,576 $ 12,336
See notes to consolidated financial statements Mentor Corporation Notes to Condensed Consolidated Financial Statements June 30, 1995 Note A Inventories at June 30, 1995 and March 31, 1995, consisted of:
June 30 March 31 (In thousands) Raw Materials $ 10,731 $ 9,294 Work in process 12,489 5,264 Finished goods 7,052 15,436 $ 30,272 $ 29,994
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 calculation of supplemental and fully diluted earnings per share assumes the Convertible Subordinated Debentures are converted into Common Stock at the beginning of the period and interest expense related to the debentures, net of tax, is added to net income. 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, 1995 are not necessarily indicative of the results that may be expected for the year ended March 31, 1996. 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, 1995. 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 1996 Fiscal 1995 First Quarter June 30, 1995 July 1, 1994 Second Quarter September 29, 1995 September 30, 1994 Third Quarter December 29, 1995 December 30, 1994 Mentor Corporation Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS Sales Sales for the three months ended June 30, 1995 increased 26% to $43.7 million, compared to $34.7 million the prior year. Growth was particularly strong in sales of plastic surgery products, up 50% over the prior year. In October 1994, the Company acquired the intraocular lens (IOL) product line of Optical Radiation Corporation, a subsidiary of Benson Eyecare Corporation. This acquisition accounted for the large increase in ophthalmology sales in the quarter. Sales by Principal Product Line For the Three Months Ended June 30, Percent 1995 1994 Change Plastic surgery products $ 23,112 $ 15,404 50.0% Urology products 11,598 12,951 -10.4% Ophthalmology products 9,019 6,374 41.5% $ 43,729 $ 34,729 25.9% Cost of Sales Cost of sales was 33.7% for the three months ended June 30, 1995, compared to 35.5% for the same period last year. Increased efficiencies at the Company's Texas facility accounted for most of the increase. In addition, the Company's manufacturing plant in the Netherlands is now in full production. It had been in a start up mode prior to this quarter. Selling, General and Administrative Expenses Selling, general & administrative expenses decreased to 38.2% of sales in the quarter compared to 38.8% in the previous year. The Company is seeing productivity improvements in its sales efforts, particularly in the plastic surgery division. Research and Development Research and development expenses were 7.8% of sales for the first quarter, compared to 6.9% for the prior year. The Company continues to spend 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. The Company expects to spend the same amount of money on these PMAAs in fiscal 1996 as it did in fiscal 1995. In addition, the Company is beginning clinical studies on several new products, specifically its Urethrin product for treating urinary incontinence. Thus the Company expects to spend more in research & development as a percent of sales in fiscal 1996 than it did in fiscal 1995. Interest and Other Income and Expense Interest expense decreased $394 thousand in the quarter over the prior year. At June 30, 1994, the Company had short term borrowings of approximately $5 million, while at both March 31, 1995 and June 30, 1995, there were no balances outstanding. In addition, the Company called for the redemption of its 63/4% Convertible Subordinated Debentures during the quarter. As of June 30, 1995, the debentures had been either converted into Common Stock or redeemed. Interest income decreased from $110 thousand last year to $72 thousand this year. Included in interest expense last year was $250 thousand for the quarter ($1.0 million for the fiscal year) in imputed interest on the Litigation Settlement Obligation. In fiscal 1996, this amount decreased to $175 thousand for the quarter ($700 thousand for fiscal 1996). Income Taxes The effective rate of corporate income taxes was 34.8% for the quarter, compared to 35.8% in the same period a year ago. The acquisition of the IOL product line included a manufacturing facility in Puerto Rico, which under current United States tax laws receives Section 936 tax incentives. Net Income Net earnings per primary share increased to $.45 for the three months ended June 30, 1995, compared to $.34 last year, due to the increased sales and lower operating expenses ratios. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1995, the Company's working capital was $ 58.8 million compared to $53.7 million at March 31, 1995. The Company's working capital needs were provided from operations. The Company generated $ 8.6 million of cash from operations during the three months ended June 30, 1995, compared to $ 3.6 million the previous year. Net income increased $1.8 million compared to the prior year. The net change in current liabilities was an additional source of cash of $4.6 million compared to last year. The Company anticipates investing approximately $8 million in facilities and capital equipment in fiscal 1996. The majority of the expenditures will be to complete the buildout of its manufacturing facilities in Texas and Puerto Rico, and for data processing equipment and software. During fiscal 1994, the Company finalized its agreement with the Federal Multi-District Plaintiffs Steering committee, which settled all outstanding breast implant litigation and claims against the Company. The agreement established a settlement fund of $25.8 million, to be funded by the Company and its insurers. Under the terms of the agreement, the Company is required to make two more payments of $5.3 million each in September 1995 and 1996. This will complete the Company's obligations under the Agreement. At the Annual Meeting of Shareholders, held September, 1994, the Company announced the resumption of a quarterly cash dividend of $.05 per share. At the indicated rate of $.20 per year, the aggregate annual dividend would equal approximately $2.5 million. During the first quarter, the Company called for the redemption of its convertible subordinated debentures, with a Redemption Date of June 30, 1995. At March 31, 1995, the outstanding balance was $24.2 million. At the option of the debenture holder, the debentures could be converted into Common Stock at the conversion price of $16.50. Any debentures not converted into Common Stock by the redemption date would be purchased by Mentor at 100 percent of their principal amount, plus accrued interest. As of June 30, all but $73 thousand of the debentures had been converted into Common Stock. A total of 1,461,000 shares were issued to debenture holders. Interest accrued on the debentures but not paid as a result of the conversion ($1.4 million as of June 30, 1995) was charged, net of applicable tax benefits, directly to shareholders' equity. There was no impact to the income statement. In the first quarter, the Company announced that its Board of Directors had authorized the repurchase of up to 250,000 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 July, 1995, after the end of the first quarter, the Company had repurchased 86,000 shares for consideration of $2.4 million. During the first quarter, the Company executed a new secured $15 million credit agreement to replace its existing lines of credit. Borrowings under the Agreement will accrue interest at the prevailing prime rate. The Agreement includes certain covenants which, among others, limit the dividends the Company may pay and require maintenance of certain levels of tangible net worth and debt service ratios. An annual commitment fee of .25% will be paid on the unused portion of the $15 million credit line. At June 30, 1995, the Company had no amounts outstanding under this line. The Company's principal source of liquidity at June 30, 1995 consisted of $ 17.6 million in cash and marketable securities plus $15.0 million available under its line of credit. PART II Item 1. Legal Proceedings In the ordinary course of its business, the Company experiences various types of claims which sometimes result in litigation or other legal proceedings. The Company does not anticipate that any of these proceedings will have any material adverse effect on the Company. 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 11, 1995 BY: Anthony R. Gette President and Chief Operating Officer DATE: August 11, 1995 BY: Gary E. Mistlin Chief Financial Officer EX-11 2 COMPUTATION REGARDING PER SHARE EARNINGS
EXHIBIT 11 MENTOR CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED JUNE 30, 1995 1994 PRIMARY: PRIMARY EARNINGS $5,484 $3,690 AVERAGE SHARES OUTSTANDING 11,480 10,701 NET EFFECT OF DILUTIVE STOCK OPTIONS--BASED ON THE TREASURY STOCK METHOD USING AVERAGE STOCK MARKET PRICE 575 148 TOTAL SHARES FOR PRIMARY EARNINGS 12,055 10,849 PRIMARY EARNINGS PER SHARE $0.45 $0.34 SUPPLEMENTAL AND FULLY DILUTED: PRIMARY EARNINGS $5,484 $3,690 INTEREST AND RELATED EXPENSES ON 6 3/4% DEBENTURES ELIMINATED 165 279 FULLY DILUTED EARNINGS $5,649 $3,969 AVERAGE SHARES OUTSTANDING 12,327 10,701 NET EFFECT OF DILUTIVE STOCK OPTIONS--BASED ON THE TREASURY STOCK METHOD USING THE HIGHER OF ENDING AND AVERAGE STOCK PRICES MARKET PRICES 702 189 ADDITIONAL SHARES ISSUED IN ASSUMED CONVERSION OF 6 3/4% DEBENTURES AT $16.50 PER SHARE 26 1,466 TOTAL SHARES FOR SUPPLEMENTAL/ FULLY DILUTED 13,055 12,356 SUPPLEMENTAL/FULLY DILUTED EARNINGS PER SHARE $0.43 $0.32
Note: In June 1995 the Company's 6 3/4% Subordinated Converitible Debenture was converted into shares of Common stock. The Supplemental calculation is presented in lieu of the fully diluted calculation and assumes the conversion took place at the beginning of the period. This calculation also adds interest expense net of tax for the period back to net income. EX-27 3 FDS
5 1,000 3-MOS MAR-31-1996 JUN-30-1995 17,576 0 34,296 1,389 30,272 89,226 45,074 18,772 137,060 30,451 0 1,237 0 0 99,225 137,060 43,729 43,729 14,746 34,877 0 0 465 8,414 2,930 5,484 0 0 0 5,484 .45 .43