Mentor Corporation (NYSE:MNT), a leading supplier of medical
products for the global aesthetic market, today announced financial
results for the second quarter ended September 26, 2008. �We
continue to manage the elements of our business that we can control
in this challenging economic environment. Although net sales were
generally flat, we continued to grow share and increased the mix of
our MemoryGelTM breast implants being used in the domestic market.
This has offset declining domestic unit trends for the cosmetic
segment of the business. Additionally, we saw strong demand for
reconstruction products and stable international sales growth.
Finally, we are pleased that we have met our commitment to complete
patient enrollment in the MemoryGel Post-Approval Study well in
advance of the FDA mandated deadline,� said Joshua H. Levine,
President and Chief Executive Officer of Mentor Corporation. Total
Net Sales Total net sales were $84.5 million in the second quarter
of fiscal year 2009, a decrease of 1% from net sales of $85.4
million in the second quarter of fiscal year 2008. The decrease in
net sales is primarily attributable to a decline in domestic breast
implant sales. This decrease was partly offset by growth in
international sales and growth of the Company�s reconstruction
products across all markets. Reconstruction products include tissue
expanders sold worldwide and NeoFormTM dermis tissue sold
domestically. Total net sales for the second quarter of fiscal year
2009 included foreign exchange benefits of $1.0 million. Gross
Profit and Gross Margin Gross profit for the second quarter of
fiscal year 2009 was $58.9 million, or 69.7% of net sales, compared
to $59.9 million, or 70.2% of net sales, in the second quarter of
fiscal year 2008. The second quarter of last year included a $1.4
million charge for the �step-up� valuation of inventory associated
with the Perouse acquisition. Excluding this charge, gross margin
on a non-GAAP basis was 71.8% for the second quarter last year. The
current year gross margin percentage has been negatively impacted
by lower production volumes, manufacturing support costs and
inventory reserves. Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) in the
second quarter of fiscal year 2009 were $38.0 million, or 45.0% of
sales, compared to $33.4 million, or 39.1% of sales, in the second
quarter of fiscal year 2008. The increase over last year primarily
relates to higher costs associated with domestic and international
marketing infrastructure and programs, partly offset by lower
incentive compensation. The second quarter of fiscal year 2009
includes approximately $1.5 million in expenses related to the
evaluation of a potential strategic opportunity. Excluding this
$1.5 million, SG&A would have been 43.2% of sales in the second
quarter of fiscal year 2009. Research and Development Expenses
Research and development expenses in the second quarter of fiscal
year 2009 were $10.9 million, a decrease of $1.3 million, or 11%,
from the second quarter of fiscal year 2008. Spending reductions
were primarily associated with MemoryGel post-approval enrollment
and dermal filler development costs. -- � Dermal Fillers Mentor
anticipates approval for Prevelle(R) Shape (formerly Puragen(TM)
Plus) in the fourth quarter of fiscal year 2009. The clinical study
for Prevelle(R) Volume (formerly DGE) is complete, with anticipated
FDA submission in the fourth quarter of fiscal year 2009 and
anticipated approval in the second quarter of fiscal year 2010. �
-- Botulinum Toxin Type A Program All studies to support the
cosmetic indication for glabellar rhytides, or frown lines, have
been completed or are in the follow-up phase. Data analysis is now
complete for the first of the three cosmetic pivotal trials and the
study report has been submitted to the FDA. The results are
encouraging with all study endpoints achieving high statistical
significance. � With the Phase I study now complete for cervical
dystonia/spasmodic torticollis indication, next phase clinical
trials are now in the design and planning stage. � -- MemoryGel(TM)
silicone gel-filled breast implants Post-Approval Study (PAS) As of
October 30, 2008, Mentor has completed patient enrollment in the
PAS. The Company has exceeded the target of 42,900 patients
required by the PMA post-approval conditions. Net Interest Income
(Expense) and Other Income (Expense) Net interest income (expense)
was $(0.8) million and $(0.1) million in the second quarter of
fiscal year 2009 and 2008, respectively. The decrease in interest
income was due to lower cash and marketable securities balances as
a result of repurchases of shares of the Company�s common stock
during fiscal 2008. The increase in Other Income (Expense) over the
prior year mainly relates to favorable currency gains associated
with the strengthening of the US Dollar. Effective Tax Rate
Mentor�s effective tax rate for continuing operations in the second
quarter of fiscal year 2009 was 5.2% compared to 26.0% in the
second quarter of fiscal year 2008. This decrease was primarily due
to a $2.3 million tax benefit related to a restructuring of the
Company�s foreign operations. Earnings Per Share Excluding the
results of discontinued operations, Mentor reported diluted
earnings per share from continuing operations of $0.28 in the
second quarter of fiscal year 2009, compared to $0.27 reported in
the second quarter of fiscal year 2008. Excluding the impact of the
$1.5 million in expenses related to the evaluation of a strategic
opportunity and the $2.3 million tax benefit noted above, non-GAAP
diluted earnings per share from continuing operations were $0.24
for the second quarter of fiscal year 2009. Excluding the $1.4
million charge for the �step-up� valuation of inventory associated
with the Perouse acquisition, diluted earnings per share from
continuing operations on a non-GAAP basis were $0.29 in the second
quarter of fiscal 2008. Balance Sheet (comparison to prior
year-end) Mentor ended the second quarter of fiscal year 2009 with
$97.8 million in cash and marketable securities, compared to $109.9
million at the end of fiscal year 2008. Fiscal Year 2009 Guidance
Mentor is updating its full fiscal year 2009 guidance as follows: �
Net sales in the range of $355 million to $370 million; and Diluted
GAAP earnings per share in the range of $1.10 to $1.20. Conference
Call Mentor Corporation has scheduled a conference call today
regarding this announcement. Those interested in listening to a
recording of the call may dial (800) 839-3011 at 6:00 p.m. ET today
until Midnight ET, Wednesday, November 12, 2008. You may also
listen to the live web cast at 5:00 p.m. ET today or the archived
call at www.mentorcorp.com under Investor Relations and �Audio
Archives.� Safe Harbor Statement This release contains
forward-looking statements including, but not limited to,
statements relating to Mentor�s current and anticipated product
development activity and expenses, and market acceptance of those
products; the approval with conditions by the FDA of the Company�s
MemoryGel silicone gel breast implants premarket approval
application (PMA); the continuation of clinical studies with
respect to the Company�s botulinum toxin Type A program; the
development program for a portfolio of hyaluronic acid-based dermal
fillers; domestic and international marketing programs; and fiscal
year 2009 guidance with respect to net sales and diluted earnings
per share. These forward-looking statements and the assumptions
about the factors that influence them are based on the limited
information available to Mentor at this time. A number of factors
could cause actual results to differ from the forward-looking
statements including, but not limited to, U.S. market acceptance
and adoption of MemoryGel breast implants; patient follow-up in the
FDA-mandated post-approval study for MemoryGel breast implants; the
amount and timing of expenses to be incurred with respect to the
MemoryGel breast implants post-approval study; the ability of the
Company to move forward in a timely and cost-effective manner with
the PMAs for its hyaluronic acid-based dermal fillers; the timing
and outcome of the PMAs submitted to the FDA; results and expenses
of clinical development programs; the timing and outcome of various
clinical trials undertaken by the Company; the impact on revenue
and expenses of delays in FDA approval and other governmental
agencies for the approval and sale of any of the Company�s
products; seasonal and economic factors (U.S. and internationally)
which affect demand for aesthetic products and procedures; the
ability of the Company to identify and implement other product
opportunities in the global aesthetics marketplace; competitive
pressures and other factors such as the introduction or regulatory
approval of new products by competitors and pricing of competing
products and the resulting effects on sales and pricing of the
Company�s products; disruptions or other problems with sources of
supply; significant product liability or other claims arising from
the sales or uses of products; negative publicity concerning the
safety of the Company's products; difficulties with new product
development, introduction and market acceptance; changes in the mix
of the Company�s products sold; patent and intellectual property
conflicts; product recalls; FDA or other governmental agency
rejection of new or existing products; changes in Medicare,
Medicaid or third-party reimbursement policies; changes in
government regulation; use of hazardous or environmentally
sensitive materials; and other events. Important factors that may
cause such a difference for Mentor include, but are not limited to,
those factors described in the Company�s Annual Report on Form
10-K, Quarterly Reports on Form 10-Q, recent Current Reports on
Form 8-K and other Securities and Exchange Commission filings.
These filings discuss the foregoing risks as well as other
important risk factors that could contribute to such differences or
otherwise affect the Company�s business, results of operations and
financial condition. The Company undertakes no obligation to revise
or update publicly any forward-looking statement for any reason.
Note Regarding Use of Non-GAAP Financial Measures The financial
measures of non-GAAP gross margin, non-GAAP SG&A expense, and
diluted non-GAAP earnings per share from continuing operations
included in this press release are different from those otherwise
presented under GAAP as these non-GAAP measures exclude certain
items. In the second quarter of fiscal year 2009, these items
included $1.5 million in expenses related to the evaluation of a
potential strategic opportunity and a $2.3 million tax benefit
related to a restructuring of the Company�s foreign operations.
Neither of these items were recorded in the second quarter of
fiscal 2008. The second quarter of fiscal year 2008 included
expense recorded as cost of sales as a result of the "step-up"
valuation of inventory related to the Perouse acquisition. This
item was not recorded in the second quarter of fiscal 2009. Mentor
has provided these measures in addition to GAAP financial results
because management believes these non-GAAP measures provide a
consistent basis for comparison between quarters and of
profitability rates that are not influenced by these charges and
therefore are helpful in understanding Mentor's underlying
operating results. These non-GAAP measures are some of the primary
measures Mentor's management uses for planning and forecasting.
These measures are not in accordance with, or an alternative to,
GAAP and these non-GAAP measures may not be comparable to
information provided by other companies. Reconciliations of GAAP to
non-GAAP results are presented at the end of this press release.
About Mentor Mentor is a leading supplier of medical products for
the global aesthetic market. The Company develops, manufactures,
and markets innovative, science-based products for surgical and
non-surgical medical procedures that allow patients to retain a
more youthful appearance and improve their quality of life. The
Company's website is www.mentorcorp.com. MENTOR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (unaudited, in thousands, except
per share data) � � � � Three Months Ended Six Months Ended
September 26, � September 28, Percent September 26, � September 28,
Percent 2008 � 2007 Change 2008 � 2007 Change Net sales $ 84,488 $
85,390 (1 )% $ 190,024 $ 180,954 5 % � Cost of sales 25,615 �
25,480 � (1 )% 55,010 � 46,704 � (18 )% Gross profit 58,873 59,910
(2 )% 135,014 134,250 1 % � Selling, general and administrative
38,033 33,397 (14 )% 81,000 69,442 (17 )% Research and development
10,871 12,203 11 % 21,853 22,517 3 % � � � � 48,904 45,600 (7 )%
102,853 91,959 (12 )% � � � � Operating income from continuing
operations 9,969 � 14,310 � (30 )% 32,161 � 42,291 � (24 )% �
Interest expense (1,327 ) (1,447 ) 8 % (2,797 ) (2,911 ) 4 %
Interest income 513 1,373 (63 )% 1,107 6,147 (82 )% Other income
(expense), net 1,539 (675 ) 328 % 1,573 (969 ) 262 % � � � � Income
before income taxes 10,694 � 13,561 � (21 )% 32,044 � 44,558 � (28
)% � Income taxes 554 � 3,532 � 84 % 6,802 � 12,785 � 47 % Net
income from continuing operations 10,140 � 10,029 � 1 % 25,242 �
31,773 � (21 )% Loss from discontinued operations (net of income
tax benefit of $218 and $51 for Q2; $431 and $63 for YTD) (334 )
(111 ) (201 )% (719 ) (117 ) (515 )% Net income $ 9,806 � $ 9,918 �
(1 )% $ 24,523 � $ 31,656 � (23 )% � Basic earnings (loss) per
share: Earnings per share from continuing operations $ 0.30 $ 0.29
3 % $ 0.75 $ 0.85 (12 )% Loss per share from discontinued
operations (0.01 ) - - (0.02 ) - - Basic earnings per share $ 0.29
$ 0.29 0 % $ 0.73 $ 0.85 (14 )% � Diluted earnings (loss) per
share: Earnings per share from continuing operations $ 0.28 $ 0.27
4 % $ 0.68 $ 0.76 (11 )% Loss per share from discontinued
operations (0.01 ) - - (0.02 ) - - Diluted earnings per share $
0.27 $ 0.26 4 % $ 0.66 $ 0.76 (13 )% � Dividends per share $ 0.20 $
0.20 0 % $ 0.40 $ 0.40 0 % � Weighted average shares outstanding
Basic 33,520 34,044 2 % 33,496 37,237 10 % Diluted 39,311 40,683 3
% 39,294 43,803 10 % � � MENTOR CORPORATION CONSOLIDATED STATEMENTS
OF INCOME (unaudited, in thousands, except per share data) � �
Three Months Ended � Three Months Ended September 26, 2008
September 28, 2007 � Non-GAAP � � Non-GAAP � GAAP � Adjustments �
Adjusted GAAP � Adjustments � Adjusted Net sales $ 84,488 $ 84,488
$ 85,390 $ 85,390 � Cost of sales 25,615 � � 25,615 � 25,480 �
(1,375 ) 24,105 � Gross profit 58,873 - 58,873 59,910 1,375 61,285
� Selling, general and administrative 38,033 (1,526 ) 36,507 33,397
33,397 Research and development 10,871 10,871 12,203 12,203 � � � �
� � 48,904 (1,526 ) 47,378 45,600 - 45,600 � � � � � � Operating
income from continuing operations 9,969 � 1,526 � 11,495 � 14,310 �
1,375 � 15,685 � � Interest expense (1,327 ) (1,327 ) (1,447 )
(1,447 ) Interest income 513 513 1,373 1,373 Other income
(expense), net 1,539 1,539 (675 ) (675 ) � � � � � � Income before
income taxes 10,694 � 1,526 � 12,220 � 13,561 � 1,375 � 14,936 � �
Income taxes 554 � 2,909 � 3,463 � 3,532 � 454 � 3,986 � Net income
from continuing operations 10,140 � (1,383 ) 8,757 � 10,029 � 921 �
10,950 � Loss from discontinued operations (334 ) � (334 ) (111 ) �
(111 ) Net income $ 9,806 � $ (1,383 ) $ 8,423 � $ 9,918 � $ 921 �
$ 10,839 � � Basic earnings (loss) per share Earnings per share
from continuing operations $ 0.30 $ (0.04 ) $ 0.26 $ 0.29 $ 0.03 $
0.32 Loss per share from discontinued operations (0.01 ) - (0.01 )
- - - Basic earnings per share $ 0.29 $ (0.04 ) $ 0.25 $ 0.29 $
0.03 $ 0.32 � Diluted earnings (loss) per share Earnings per share
from continuing operations $ 0.28 $ (0.04 ) $ 0.24 $ 0.27 $ 0.02 $
0.29 Loss per share from discontinued operations (0.01 ) - (0.01 )
- - - Diluted earnings per share $ 0.27 $ (0.04 ) $ 0.23 $ 0.26 $
0.02 $ 0.29 � Dividends per share $ 0.20 - $ 0.20 $ 0.20 - $ 0.20 �
Weighted average shares outstanding Basic 33,520 33,520 33,520
34,044 34,044 34,044 Diluted 39,311 39,311 39,311 40,683 40,683
40,683 � � MENTOR CORPORATION SALES BY PRINCIPAL PRODUCT LINE
(unaudited, in thousands) � � � � Three Months Ended Six Months
Ended September 26, � September 28, Percent September 26, �
September 28, Percent 2008 � 2007 Change 2008 � 2007 Change �
Breast aesthetics $ 74,411 $ 75,674 (2 )% $ 168,343 $ 160,933 5 %
Body contouring 3,389 3,661 (7 )% 7,134 7,690 (7 )% Other
aesthetics, including facial 6,688 6,055 10 % 14,547 12,331 18 %
Net sales $ 84,488 $ 85,390 (1 )% $ 190,024 $ 180,954 5 % � � � �
MENTOR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands) � � � Assets September 26, 2008 � � March
31, 2008 Current assets: Cash and marketable securities $ 97,812 $
109,915 Accounts receivable, net 77,111 82,060 Inventories 52,011
49,940 Deferred income taxes 29,389 29,040 Prepaid expenses and
other 26,895 � � 19,307 Total current assets 283,218 290,262 �
Property, plant and equipment, net 68,804 58,252 Intangible assets,
net 36,430 36,336 Goodwill, net 47,099 49,707 Other assets 6,670
6,022 � � � � Total assets $ 442,221 � � $ 440,579 � Liabilities
and shareholders' equity Current liabilities $ 114,112 $ 118,389
Long-term liabilities 28,371 29,156 Convertible subordinated notes
150,000 150,000 Shareholders� equity 149,738 � � 143,034 Total
liabilities and shareholders' equity $ 442,221 � � $ 440,579 � �
MENTOR CORPORATION CALCULATION OF DILUTED EARNINGS PER SHARE
(Unaudited, in thousands, except per share data) � � � � � � � � �
� � � � � � � Fiscal Year 2008ended March 31, 2008 Fiscal Year 2009
Six months ended September 26, 2008 Q1 � Q2 � Q3 � Q4 � FY Q1 � Q2
� FY Net income as reported from continuing operations $ 21,744 � $
10,029 � $ 12,112 � $ 11,066 � $ 54,951 $ 15,102 � $ 10,140 � $
25,242 Add back after tax interest expense on convertible notes 802
� � 802 � � 802 � � 802 � 3,208 802 � � 802 � � 1,604 � Numerator
for diluted EPS calculation for continuing operations $ 22,546 � �
$ 10,831 � � $ 12,914 � � $ 11,868 � $ 58,159 $ 15,904 � � $ 10,942
� � $ 26,846 � Numerator for diluted EPS calculation for
discontinued operations $ (6 ) � $ (111 ) � $ (170 ) � $ 8,751 � $
8,464 $ (385 ) � $ (334 ) � $ (719 ) � Weighted average shares
outstanding 40,465 34,044 33,602 33,443 35,375 33,472 33,520 33,496
Shares issuable through exercise of stock options 678 659 502 312
538 271 222 247 Shares issuable through conversion of convertible
notes 5,165 5,170 5,177 5,187 5,175 5,196 5,207 5,201 Additional
dilution for unvested restricted shares outstanding 285 292 308 299
296 338 362 350 Shares issuable through exercise of warrants
(treasury stock method) 357 � � 518 � � 259 � � - � 65 - � � - � �
- � Denominator for diluted EPS from continuing operations 46,950 �
� 40,683 � � 39,848 � � 39,241 � 41,449 39,277 � � 39,311 � �
39,294 � Denominator for diluted EPS from discontinued operations
40,465 � � 34,044 � � 33,602 � � 39,241 � 41,449 33,472 � � 33,520
� � 33,496 � � Diluted earnings per share from continuing
operations $ 0.48 $ 0.27 $ 0.32 $ 0.30 $ 1.40 $ 0.40 $ 0.28 $ 0.68
Diluted earnings (loss) per share from discontinued operations $ -
$ - $ (0.01 ) $ 0.22 $ 0.20 $ (0.01 ) $ (0.01 ) $ (0.02 ) �
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