Mail Stop 6010
January 12, 2006
Via U.S. Mail and Facsimile to (805) 964-2712
Loren McFarland
Chief Financial Officer
Mentor Corporation
201 Mentor Drive
Santa Barbara, CA 93111
Re: Mentor Corporation
Form 10-K/A for the Fiscal Year Ended March 31, 2005
Filed July 29, 2005
File No. 001-31744
Dear Mr. McFarland:
We have reviewed your filing and have the following
comments.
We have limited our review of your filing to those issues we have
addressed in our comments. In our comments, we ask you to provide
us
with information so we may better understand your disclosure.
After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-K/A for the Fiscal Year Ended March 31, 2005
Management`s Discussion and Analysis, page 31
Liquidity and Capital Resources, page 39
1. We noted from a review of your consolidated balance sheets and
income statements that your days sales outstanding in accounts
receivable is approximately 80 days. Please tell us and revise
future filings to disclose the specific factors, including third
party reimbursement, which drive this figure. Additionally,
please
disclose how this collection cycle impacts your usage and
availability of cash and any consequences the cycle has on the
recognition of revenue or sales returns and allowances.
Consolidated Financial Statements, page 63
Note A - Summary of Significant Accounting Polices, page 70
Revenue Recognition, page 72
2. We see on page 76 that you have deferred revenue of $11.8
million.
Please tell us and disclose in future filings what types of
transactions and arrangements require you to defer recognizing
revenue and at what point all of the requirements for revenue
recognition are satisfied. Please also tell us how you measure
the
amount of deferred revenue and how you account for the associated
costs.
3. We note in your schedule of qualifying accounts on page 91 that
your accrual for sales returns and allowances has increased from
$7.8
million at March 31, 2002 to $13.6 million at March 31, 2005, with
no
apparent charge-offs or other deductions. Please tell us how you
account for sales returns and allowances and why. Cite the
accounting literature upon which you relied. Address why you do
not
reduce the accrual and tell us the amount of returns for each
period
presented.
Note B - Inventories, page 59
4. As part of your revenue recognition policy on page 72, you
identified that you have sales transactions that utilize inventory
held on consignment. Please tell us and disclose in future
filings
the amount of finished goods inventory which is considered on
consignment.
Note L - Long-Term Debt, page 84
5. We note on December 22, 2003, you issued $150 million of
convertible subordinated notes due January 1, 2024 along with a
European call warrant and a convertible note hedge. Please tell
us
and disclose in future filings the significant terms of the notes,
warrant and the convertible note hedge. Please all also tell us
how
you accounted for and valued the notes and issuance of the warrant
and the hedge. Discuss why the debt was recorded at its face
value
of $150 million and the warrant and hedge were both recorded in
permanent equity with a fair value of $7.7 million. Cite the
accounting literature upon which you relied and explain in detail
how
you applied that literature to the terms of your agreements.
Additionally, the methodology and significant assumptions of the
valuation model should be disclosed in future filings.
Note P - Contingencies, page 86
6. We note that you combine the accruals for your product
warranties
and product liability claims in your rollforward schedule. You
also
combine these two amounts in your discussion of the accounting
policy
for how you determine them. Please respond to the following
comments:
* Please tell us and disclose in future filings separate
accounting
policies for how you account for and measure product warranties
and
product liability claims.
* Please tell us and disclose in future filings a separate tabular
reconciliation of the changes in your aggregate product warranty
liability for each reporting period and include all of the items
required by paragraph 14(b) of FIN 45 in that reconciliation.
* While you are not required to present a separate tabular
reconciliation of the changes in your aggregate product liability
claims for each reporting period, if you do then you should
provide
that information separately from your product warranty
disclosures.
* Please tell us and disclose in future filings all of the
information required in MD&A and your financial statements by
paragraphs 9 and 10 of SFAS 5 and SAB Topic 5:Y with respect to
your
recorded and unrecorded product liabilities. Please also see
Release
33-8350 with respect to the disclosure of your critical accounting
estimates for warranties and product liability claims.
* Please tell us why you classify warranty and product liability
claims in selling, general and administrative expenses.
* We note from the disclosure on page 12 of your September 30,
2005
Form 10-Q, that you expanded your "limited warranty programs to
provide certain financial assistance for surgical procedures
within
ten years of implantation (increased from five years) and expanded
the program coverage to include breast implant sales in European
and
certain other countries, in addition to the United States."
Please
tell us the nature of this program and the costs related to
surgical
procedures. Please also tell us how you measure and account for
this
obligation and why. Cite the accounting literature upon which you
relied and how you applied that literature to your facts and
circumstances.
As appropriate, please respond to these comments within 10
business days or tell us when you will provide us with a response.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Kevin Kuhar, Staff Accountant, at (202) 551-
3662 or me at (202) 551-3604 if you have questions regarding these
comments on the financial statements and related matters. In this
regard, do not hesitate to contact Angela Crane, Branch Chief, at
(202) 551-3554.
Sincerely,
Kate Tillan
Assistant Chief Accountant
Loren McFarland
Mentor Corporation
January 12, 2006
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