-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BiDu7D+9PR2/p5b6ouLFuJoHC3eFL//BDqrTUirbwhEnuTiWL5bcDAI9Lh8nKlq9 HJmcwebQB6hbbHJKLMPH3A== 0000064892-96-000006.txt : 19961106 0000064892-96-000006.hdr.sgml : 19961106 ACCESSION NUMBER: 0000064892-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961105 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 SEC ACT: 1934 Act SEC FILE NUMBER: 000-07955 FILM NUMBER: 96654507 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 1 FORM 10-Q FOR QUARTER ENDED 9/30/96 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 September 30. 1996 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 October 31, 1996 was: Common stock, $.10 par value 24,896,580 shares Mentor Corporation INDEX Part I. Financial Information Item 1. Financial Statements (unaudited) Condensed Consolidated Statements of Financial Position -- September 30, 1996 and March 31,1996 3-4 Consolidated Statements of Income -- Three Months Ended September 30, 1996 and 1995 5 Consolidated Statements of Income -- Six Months Ended September 30, 1996 and 1995 6 Condensed Consolidated Statements of Cash Flows -- Six Months Ended September 30, 1996 and 1995 7 Notes to Condensed Consolidated Financial Statements-- September 30, 1996 8-9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10-12 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 September 30, 1996 and March 31, 1996 (Unaudited) September 30, March 31, (dollars in thousands) 1996 1996 ASSETS Current assets: Cash and marketable securities $ 14,199 $ 18,541 Accounts receivable, net 38,819 34,855 Inventories 37,096 35,158 Deferred income taxes 10,148 10,148 Other 3,919 3,143 Total current assets 104,181 101,845 Property, plant and equipment, net of accumulated depreciation 31,741 29,317 Other assets: Deferred income taxes -- -- Patents, licenses, trademarks and bond issue costs net of accumulated amortization 4,706 4,689 Goodwill, net of accumulated amortization 13,097 13,109 Other assets 560 658 18,363 18,456 Total assets $154,285 $149,618
See Notes to Condensed Consolidated Financial Statements
Mentor Corporation Condensed Consolidated Statements of Financial Position September 30, 1996 and March 31, 1996 (Unaudited) September 30, March 31, (dollars in thousands) 1996 1996 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,061 $ 5,003 Accrued compensation 5,894 6,153 Income taxes payable 705 428 Interest payable --- 3 Dividends payable 629 628 Sales returns 6,580 6,705 Litigation settlement obligation 115 4,950 Other accrued liabilities 6,221 7,425 Short-term borrowings and current portion of long-term debt 51 415 Total current liabilities 25,256 31,710 Long-term deferred taxes 1,400 1,355 Long-term debt 30 58 Shareholders' equity: Common shares, $.10 par value: Authorized-- 20,000,000 shares Issued and outstanding: 24,896,580 shares at September 30, 1996 24,860,642 shares at March 31, 1996 2,490 2,486 Capital in excess of par 36,647 37,840 Cumulative translation adjustment (282) (445) Retained earnings 88,744 76,614 Shareholders' equity 127,599 116,495 Total liabilities and shareholders' equity $154,285 $149,618
See Notes to Condensed Consolidated Financial Statements
Mentor Corporation Consolidated Statements of Income Three Months Ended September 30, 1996 and 1995 (Unaudited) (in thousands, except per share data) 1996 1995 Net Sales $ 48,156 $ 42,328 Costs and expenses: Cost of sales 16,066 14,707 Selling, general and administrative 18,458 15,782 Research and development 4,012 3,078 38,536 33,567 Operating income 9,620 8,761 Interest expense (249) (213) Interest income 261 87 Other expense (64) (114) Income before income taxes 9,568 8,521 Income taxes 3,282 2,965 Net income 6,286 5,556 Earnings per share: Primary .24 .21
See notes to consolidated financial statements
Mentor Corporation Consolidated Statements of Income Six Months Ended September 30, 1996 and 1995 (Unaudited) (in thousands, except per share data) 1996 1995 Net sales $98,544 $86,057 Costs and expenses: Cost of sales 32,719 29,453 Selling, general and administrative 37,296 32,493 Research and development 8,064 6,497 78,079 68,443 Operating income 20,465 17,614 Interest expense (461) (700) Interest income 471 187 Other expense (117) (166) Income before income taxes 20,358 16,935 Income taxes 6,983 5,895 Net income $13,375 $11,040 Earnings per share: Primary $ .51 $ .44 Supplemental/Fully diluted .51 .42
See notes to consolidated financial statements
Mentor Corporation Condensed Consolidated Statements of Cash Flows Six Months Ended September 30, 1996 and 1995 (Unaudited) (in thousands) 1996 1995 Cash flows from operating activities % 5,450 $7,651 Cash flows from investing activities: Sale of equipment, intangibles and other assets 2 150 Purchase of property, equipment, and intangibles (7,008) (4,555) Reduction of notes receivable 40 77 (6,966) (4,328) Cash flows from financing activities: Exercise of stock options 967 1,271 Dividends paid (1,244) (1,161) Reduction of long-term debt (392) (483) Expiration of Puts 104 -- Net repayment under line of credit agreement -- -- Repurchase of common stock (2,261) (2,398) (2,826) (2,771) Increase (decrease) in cash, cash equivalents, and marketable securities (4,342) 552 Cash at beginning of period 18,541 11,379 Cash at end of period $14,199 $11,931
See notes to consolidated financial statements Mentor Corporation Notes to Condensed Consolidated Financial Statements September 30, 1996 Note A Inventories at September 30, 1996 and March 31, 1996, consisted of:
September 30 March 31 (In thousands) Raw materials $ 8,952 $ 10,191 Work in process 10,026 9,040 Finished goods 18,118 15,927 $37,096 35,158
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. These Debentures were converted into Common Stock at June 30, 1995. Effective September 27, 1995, the Company issued 12,356,856 shares of Common Stock in connection with a two-for-one stock split. All references in the financial statements with regard to number of shares of Common Stock and related dividend and per share amounts have been restated to reflect the stock split. 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 six month period ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended March 31, 1997. 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, 1996. 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 1997 Fiscal 1996 First Quarter June 30, 1996 July 1, 1995 Second Quarter September 29, 1996 September 30, 1995 Third Quarter December 29, 1996 December 30, 1995 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. RESULTS OF OPERATIONS Sales Sales for the three months ended September 30, 1996 increased 14% to $48.2 million, compared to $42.3 million the prior year. Growth was particularly strong in sales of plastic surgery and surgical urology products, continuing trends of the past several quarters.
Sales by Principal Product Line For the Three Months Ended For the Six Months Ended September 30, September 30, Percent Percent 1996 1995 Change 1996 1995 Change Plastic surgery products $25,484 $20,651 23.4% $52,837 $43,764 20.7% Urology products 14,526 13,063 11.2% 28,711 24,662 16.4% Ophthalmology products 8,146 8,614 (5.4)% 16,998 17,631 (3.6)% $48,156 $42,328 13.8% $98,546 $86,057 14.5%
Cost of Sales Cost of sales was 33.4% for the three months ended September 30, 1996, compared to 34.7% for the same period last year. The improvement was aided by a greater proportion of higher margin product in the sales mix. Selling, General and Administrative Expenses Selling, General and Administrative expenses were 38.3% of sales in the quarter compared to 37.3% in the previous year. The Company incurred additional administrative and legal expenses in the quarter to settle certain outstanding litigation. See Item 1 - Legal Proceedings. Research and Development Research and development expenses were 8.3% of sales for the quarter, compared to 7.3% 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 studies underway include Urethrin, a product for treating urinary incontinence and the Memory Lens, a foldable IOL. The premarket approval application for the Memory Lens was submitted for filing with the FDA during the quarter. The Company expects to pursue a number of additional clinical studies in the coming year, for products such as ultrasonic assisted liposuction and an alternate filler breast implant. Thus the Company expects to spend more in research and development as a percent of sales in fiscal 1997 than it did in fiscal 1996. Interest and Other Income and Expense Interest expense increased $36 thousand in the quarter over the prior year. Included in interest expense last year was $175 thousand for the quarter ($700 thousand for the fiscal year) in imputed interest on the Litigation Settlement Obligation. In fiscal 1997, this amount was $189 thousand for the quarter ($379 thousand for fiscal 1997). This imputed interest will now cease as the final payment on the Obligation was made in September 1996. Interest income increased from $87 thousand last year to $261 thousand this year, resulting from higher cash balances. Income Taxes The effective rate of corporate income taxes was 34.3% for the quarter, compared to 34.8% in the same period a year ago. Net Income Net earnings per primary share increased to $.24 for the three months ended September 30, 1996, compared to $.21 last year, due to the increased sales. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1996, the Company's working capital was $79 million compared to $70 million at March 31, 1996. The Company's working capital needs were provided from operations. The Company generated $5 million of cash from operations during the six months ended September 30, 1996, compared to $8 million the previous year. Increased Net Income was offset by reductions in current liabilities due to the final payment on litigation settlement obligation. See discussion below. The Company anticipates investing approximately $10 million in facilities and capital equipment in fiscal 1997. The majority of the expenditures will be to increase capacity at the Company's manufacturing facilities in Texas and Minneapolis. 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 made one more payment of $5.3 million in September 1996. This completed the Company's monetary obligations under the Agreement. At the Annual Meeting of Shareholders, held September, 1994, the Company announced the resumption of 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. In the first quarter of fiscal 1996, the Company announced that its Board of Directors had authorized the repurchase of up to 500,000 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 half of fiscal 1997, the Company repurchased 95,000 shares for consideration of $2.3 million. The Company's principal source of liquidity at September 30, 1996 consisted of $14 million in cash and marketable securities plus $15 million available under its line of credit. 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, 1996, the following has occurred: In 1989, the Company acquired from the Ares-Serono Group a dermal filler implant product line, related assets and technology. The dermal filler product is a physiologically compatible material which is injected into the skin for correcting scars and other skin defects. The technology acquired included, among other things, a license agreement to certain patents and patent applications developed by Sheldon Gottlieb, M.D. In addition to the dermal filler product, the license agreement also included a patent for a purported wound healing product. Dr. Gottlieb had alleged that Mentor, along with Serono Laboratories, Inc.(a subsidiary of Ares-Serono Group), did not use its best efforts to market the dermal filler product nor the purported wound healing product, in violation of the license agreement. During the second quarter of fiscal 1997, the case was settled under terms which did not materially affect the financial statements. 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 a. Annual Meeting of Shareholders, September 12, 1996 b. Approval of Amendments to 1991 Stock Option Plan. Yes votes: 9,430,617 No votes: 8,351,554 Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K Exhibit 11 Statement regarding computation of Per Share Earnings EX-11 2 STATEMENT REGARDING COMPUTATION OF EPS EXHIBIT 11
MENTOR CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 PRIMARY: Primary Earnings $ 6,286 $ 5,556 $13,375 $11,040 Average Shares Outstanding 24,876 24,813 24,862 23,877 Net effect of dilutive stock options based on the treasury stock method using average stock market price 1,569 1,705 1,524 1,492 Total Shares for Primary Earnings 26,445 26,518 26,386 25,369 Primary Earnings Per Share $ 0.24 $ 0.21 $ 0.51 $ 0.44 SUPPLEMENTAL AND FULLY DILUTED: Primary Earnings $ 6,286 $ 5,556 $ 13,375 $ 11,040 Interest and Related Expenses on 6 3/4% debentures eliminated -- -- -- 165 Fully diluted earnings $ 6,286 $ 5,556 $ 13,375 $ 11,205 Average Shares Outstanding 24,876 24,812 24,861 24,662 Net effect of dilutive stock options based on the treasury stock method using the higher of ending and average stock market prices 1,589 1,939 1,599 1,916 Additional shares issued in assumed conversion of 6 3/4% debentures at 16.50 per share -- -- -- 52 Total shares for supplemental/fully diluted 26,465 26,751 26,460 26,630 Fully Diluted/Supplemental Earnings Per Share $ 0.24 $ 0.21 $ 0.51 $ 0.42
Note: In June 1996 the Company's 6 3/4% Sub-ordinated Convertible 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 for the period, net of tax, back to net income. Note: The shares outstanding for 1995 have been adjusted to reflect a two-for-one split of the Company's Common Stock in the form of a 100 percent stock dividend effective September 27, 1995. 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: November 1, 1996 BY: /s/ANTHONY R. GETTE -------------------- Anthony R. Gette President and Chief Operating Officer DATE: November 1, 1996 BY: /s/GARY E. MISTLIN ------------------- Gary E. Mistlin Chief Financial Officer EX-27 3 FDS PURSUANT TO ARTICLE 5, REGULATION SX
5 1,000 3-MOS MAR-31-1997 SEP-30-1996 14,199 0 41,372 2,553 37,096 104,175 31,741 4,013 154,279 25,250 0 0 0 2,490 125,109 154,279 48,156 48,156 16,066 38,536 64 0 249 9,568 3,282 13,375 0 0 0 6,286 .24 .24
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