**UNITED STATESSECURITIES ANDEXCHANGE COMMISSIONWashington, D.C. 20549**

**FORM 10-Q**

(Mark One)

x  QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedSeptember 30, 2003or

  TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition periodfrom ____ to _____

Commission File No. 0-7955

MENTOR CORPORATION (Exact Name of Registrant as Specified in its Charter)

                                                              Minnesota                                                                             41-0950791                                                 (State or other jurisdiction of                                                 (IRS Employer Identification No.)                                                    incorporation or organization)

201 Mentor Drive, SantaBarbara, California 93111(Address of Principal Executive Offices) (Zip Code)Registrant's telephone number including area code:  805/879-6000

               Indicate by check mark whether the Registrant (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or such shorter period that the Registrant was requiredto file such reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes x    No  o

                Indicate by check mark whether theRegistrant is an accelerated filer (as defined in Rule 12b-2 of the ExchangeAct).  Yes x    No  o

As of November 13, 2003 there were approximately 46,172,250Common Shares, par value $.10 outstanding.

----

**MENTOR CORPORATION**

# INDEX

| Part I. Financial  Information |
|--------------------------------|
| Item 1.                        | Consolidated Financial  Statements (unaudited)    |
|                                | Consolidated Balance  Sheets - September 30, 2003 and March 31, 2003    |
|                                | Consolidated Statements of Income - Three Months Ended September 30,  2003 and 2002  |
|                                | Consolidated Statements of Income - Six Months Ended September 30,  2003 and 2002  |
|                                | Consolidated Statements of Cash Flows -  Six Months Ended September 30, 2003 and 2002  |
|                                | Notes to Condensed Consolidated Financial Statements - September 30,  2003  |
| Item 2.                        | Management's Discussion and Analysis of Financial Condition and  Results of Operations   |
| Item 3.                        | Quantitative and Qualitative Disclosures About Market Risk  |
| Item 4.                        | Controls and Procedures  |
| Part II. Other  Information    |
| Item 1.                        | Legal Proceedings    |
| Item 2.                        | Changes in Securities and  Use of Proceeds    |
| 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

(a)     Exhibits  (b)    Reports on Form 8-K    |

----

# PART I - FINANCIAL INFORMATION

**Item 1.  Consolidated Financial Statements**
| Mentor CorporationConsolidated Balance Sheets(Unaudited)  |
|----------------------------------------------------------------|
| (in thousands)                                                 | **September 30, 2003** | March 31,   2003 |
| **Assets**                                                     | ** ** | ** ** |
| Current assets:                                                | ** ** | ** ** |
|   Cash and cash  equivalents                         | **$          101,044** | $        105,840 |
|   Marketable  securities                             | **198** |    184 |
|   Accounts  receivable, net                          | **78,366** | 79,784 |
|   Inventories                                        | **66,574** | 61,269 |
|   Deferred  income taxes                             | **17,251** | 15,253 |
|   Prepaid  expenses and other                        | **20,567** | 10,858 |
| Total current assets                                           | **284,000** | 273,188 |
|                                                           | ** ** |   |
| Property and equipment,  net                                   | **74,322** | 68,671 |
| Intangible assets, net                                         | **48,419** | 35,570 |
| Goodwill, net                                                  | **17,186** | 16,520 |
| Long-term marketable  securities and investments               | **9,446** | 3,741 |
| Other assets                                                   | **499** | 398 |
|                                                           | **$          433,872** | $        398,088 |
| See notes to condensed  consolidated financial statements.     | ** ** |   |

----

| Mentor Corporation  Consolidated Balance Sheets  (Unaudited)                                                                      |
|----------------------------------------------------------------------------------------------------------------------------------------|
| (in thousands)                                                                                                                         | **September 30,   2003** | March 31,   2003 |
| **Liabilities and  shareholders' equity**                                                                                              | ** ** |   |
| Current liabilities:                                                                                                                   | ** ** |   |
|   Accounts  payable                                                                                                          | **$      28,025 ** | $    26,759  |
|   Warranty and  related reserves                                                                                             | **22,122 ** |   19,989  |
|   Accrued  compensation                                                                                                      | **14,342 ** | 18,753  |
|   Short-term  bank borrowings                                                                                                | **8,661 ** | 8,176  |
|   Sales returns                                                                                                              | **8,913 ** | 10,455  |
|   Income taxes  payable                                                                                                      | **- ** | 453  |
|   Current  portion of purchase price related to acquired         technologies and acquisitions | **5,564 ** | 5,698  |
|   Dividends  payable                                                                                                         | **6,997 ** | 925  |
|   Accrued  royalties                                                                                                         | **496 ** | 770  |
|   Other                                                                                                                      | **16,131 ** | 13,214  |
| Total current liabilities                                                                                                              | **111,251 ** | 105,192  |
| Deferred income taxes                                                                                                                  | **2,320 ** | 2,216  |
| Long-term accrued  liabilities                                                                                                         | **14,469 ** | 13,970  |
|                                                                                                                                        | ** ** |   |
| Commitments and  contingencies                                                                                                         | ** ** |   |
|                                                                                                                                   | ** ** |   |
| Shareholders' equity:                                                                                                                  | ** ** |   |
|   Common Stock,  $.10 par value:                                                                                             | ** ** |   |
|     Authorized  - 150,000,000 shares; Issued and outstanding--                                                     | ** ** |   |
|     46,648,427  shares at September 30, 2003;                                                                      | ** ** |   |
|     46,237,324  shares at March 31, 2003;                                                                          | **4,665 ** | 4,624  |
|   Capital in  excess of par value                                                                                            | **3,738 ** | **-   ** |
|   Foreign currency  translation adjustments                                                                                  | **12,368 ** | 6,510  |
|   Net  unrealized gains (losses) on securities                                                                               | **33 ** | (112)  |
|   Retained  earnings                                                                                                         | **285,028 ** | 265,688  |
|                                                                                                                                   | **305,832 ** | 276,710  |
|                                                                                                                                   | **$     433,872 ** | $    398,088  |
| See notes to condensed  consolidated financial statements.                                                                             | ** ** |   |

----

| Mentor Corporation  Consolidated Statements of Income  Three Months Ended September 30, 2003 and 2002  (Unaudited) |
|--------------------------------------------------------------------------------------------------------------------|
|                                                                                                               | Three Months Ended  September 30, |
| (in thousands, except per  share data)                                                                             | **2003** | 2002 |
|                                                                                                                    | ** ** |   |
| Net sales                                                                                                          | **$       93,263 ** | $       89,586  |
| Cost of  sales                                                                                                     | **35,561 ** | 37,669  |
| Gross  profit                                                                                                      | **57,702 ** | 51,917  |
|                                                                                                                    | ** ** |   |
| Selling, general, and  administrative expense                                                                      | **33,899 ** | 30,157  |
| Research and development  expense                                                                                  | **7,711 ** | 5,365  |
|                                                                                                               | **41,610 ** | 35,522  |
|                                                                                                               | ** ** |   |
| Operating income                                                                                                   | **16,092 ** | 16,395  |
|  Interest expense                                                                                             | **(149)** | (236) |
|  Interest income                                                                                              | **323 ** | 672  |
|  Other income, net                                                                                            | **249 ** | 158  |
| Income before income  taxes                                                                                        | **16,515 ** | 16,989  |
| Income taxes                                                                                                       | **5,277 ** | 4,483  |
| Net income                                                                                                         | **$        11,238** | $       12,506  |
|                                                                                                                    | ** ** |   |
| Basic earnings per share                                                                                           | **$          0.24 ** | $           0.27  |
| Diluted earnings per  share                                                                                        | **$          0.23 ** | $           0.26  |
| Dividends per share                                                                                                | **$          0.15 ** | $         0.015  |
|                                                                                                                    | ** ** |   |
| Weighted  average shares outstanding                                                                               | ** ** |   |
| Basic                                                                                                              | **46,562** | 46,610 |
| Diluted                                                                                                            | **48,610** | 48,282 |
|                                                                                                                    |   |   |
| See notes to condensed  consolidated financial statements.                                                         |   |   |

----

| Mentor Corporation  Consolidated Statements of Income  Six Months Ended September 30, 2003 and 2002  (Unaudited) |
|------------------------------------------------------------------------------------------------------------------|
|                                                                                                             | Six Months Ended  September 30, |
| (in thousands, except per  share data)                                                                           | **2003** | 2002 |
|                                                                                                                  | ** ** |   |
| Net sales                                                                                                        | **$      198,369 ** | $       187,263  |
| Cost of sales                                                                                                    | **74,934 ** | 75,914  |
| Gross profit                                                                                                     | **123,435 ** | 111,349 |
|                                                                                                                  | ** ** |   |
| Selling, general, and  administrative expense                                                                    | **69,578 ** | 62,042  |
| Research and development  expense                                                                                | **15,254 ** | 10,739  |
|                                                                                                             | **84,832 ** | 72,781  |
|                                                                                                             | ** ** |   |
| Operating income                                                                                                 | **38,603 ** | 38,568  |
|  Interest expense                                                                                           | **(310)** | (537) |
|  Interest income                                                                                            | **719 ** | 1,232  |
|  Other income, net                                                                                          | **925 ** | 1,205  |
| Income before income  taxes                                                                                      | **39,937 ** | 40,468  |
| Income taxes                                                                                                     | **12,666 ** | 11,213  |
| Net income                                                                                                       | **$        27,271 ** | $        29,255  |
|                                                                                                                  | ** ** |   |
| Basic earnings per share                                                                                         | **$           0.59 ** | $           0.63  |
| Diluted earnings per  share                                                                                      | **$           0.56 ** | $           0.60  |
| Dividends per share                                                                                              | **$           0.17 ** | $           0.03  |
|                                                                                                                  | ** ** |   |
| Weighted  average shares outstanding                                                                             | ** ** |   |
| Basic                                                                                                            | **46,475  ** | 46,836   |
| Diluted                                                                                                          | **48,479  ** | 48,820   |
|                                                                                                                  |  |   |
| See notes to condensed  consolidated financial statements.                                                       |  |   |

----

| Mentor Corporation  Consolidated Statements of Cash Flows  Six Months Ended September 30, 2003 and 2002  (Unaudited) |
|----------------------------------------------------------------------------------------------------------------------|
| (in thousands)                                                                                                       | **2003** | 2002 |
| **Cash From Operating  Activities:**                                                                                 | ** ** |   |
| Net income                                                                                                           | **$    27,271 ** | $    29,255  |
| Adjustments to derive  cash flows from operating activities:                                                         | ** ** |   |
|   Depreciation                                                                                             | **6,453 ** | 5,913  |
|   Amortization                                                                                             | **1,658 ** | 1,949  |
|   Deferred  income taxes                                                                                   | **(2,131)** | (2,332) |
|   Tax benefit  from exercise of stock options                                                              | **2,778 ** | 1,103  |
|   Loss on sale  of assets                                                                                  | **(302)** | (425) |
|   Imputed  interest on long-term liabilities                                                               | **139 ** | 313  |
|   (Gain) loss  on long-term marketable securities                                                          | **136 ** | (403) |
| Changes in operating  assets and liabilities:                                                                        | ** ** |   |
|     Accounts  receivable                                                                         | **3,164 ** | 5,344   |
|     Inventories                                                                                  | **(3,754)** | (4,308)  |
|     Prepaid  income taxes and other current assets                                               | **(8,096)** | 3,405   |
|     Accounts  payable and accrued liabilities                                                    | **185 ** | 2,714   |
|     Income  taxes payable                                                                        | **(439)** | (3,071) |
|     Foreign  currency transaction (gain) loss                                                    | **(511)** | (113) |
| Net cash provided by  operating activities                                                                           | **26,551 ** | 39,344  |
| **Cash From Investing  Activities:**                                                                                 | ** ** |   |
| Purchases of property and  equipment                                                                                 | **(9,089)** | (7,591) |
| Purchases of intangibles                                                                                             | **(4,673)** | (665) |
| Purchases of marketable  securities                                                                                  | **(28,244)** | (914) |
| Sales of marketable  securities                                                                                      | **21,466 ** | 5,005  |
| Acquisitions, net of cash  acquired                                                                                  | **(7,192)** | (10,603) |
| Proceeds from sale of  property, equipment and intangibles                                                           | **-- ** | 500  |
| Net cash used for  investing activities                                                                              | **(27,732)** | (14,268) |
| **Cash From Financing  Activities:**                                                                                 | ** ** |   |
| Repurchase of common  stock                                                                                          | **(8,601)** | (12,199) |
| Proceeds from exercise of  stock options                                                                             | **6,602 ** | 3,203  |
| Dividends paid                                                                                                       | **(1,858)** | (1,413) |
| Borrowings (repayments)  under line of credit agreements, net                                                        | **(128)** | (707) |
| Net cash used for  financing activities                                                                              | **(3,985)** | 11,116  |
| Effect of currency  exchange rates on cash and cash     equivalents                                        | **370 ** | 623  |
| Increase (decrease) in  cash and cash equivalents                                                                    | **(4,796)** | 14,583  |
| Cash and cash equivalents  at beginning of year                                                                      | **105,840 ** | 60,398  |
| Cash and cash equivalents  at end of period                                                                          | **$101,044 ** | $    74,981  |

----

**MENTOR CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2003**

** Note A - Business Activity**

Mentor Corporation, (the "Company") wasincorporated in April 1969.  The Company develops, manufactures andmarkets a broad range of products for the medical specialties in three reportablesegments: aesthetic and general surgery (plastic and reconstructive surgery),surgical urology, and clinical and consumer healthcare.  The Company'sproducts are sold to hospitals, physicians and through various healthcaredealers, wholesalers, distributors, and retail outlets by multiple salesforces. The aesthetic and general surgery products segment consists primarilyof breast implants, tissue expanders and the Company's body contouring(liposuction) equipment and disposables.  The surgical urology segmentincludes penile implants, surgical incontinence products, and brachytherapyseeds for the treatment of prostate cancer and associated supplies and deliverysystems.  The clinical and consumer healthcare segment includes cathetersand other disposable products for the management of urinary incontinence andretention.  

**Note B - Summary of Significant Accounting Policies**

**Principles of Consolidation**

The consolidated financial statements include the accountsof the Company and all of its subsidiaries in which a controlling interest ismaintained.  For those subsidiaries where the Company owns less than 100%,the outside shareholders' interests are treated as minority interests. All intercompany accounts and transactions have been eliminated.  Certain prioryear amounts in previously issued financial statements have been reclassifiedto conform to the current year presentation.  

##### Basisof Presentation 

The financial information for the three and six-monthperiods ended September 30, 2003 and 2002 is unaudited but includes alladjustments (consisting only of normal recurring accruals, unless otherwiseindicated) which the Company considers necessary for a fair presentation of theresults of operations for these periods.  Interim results are not necessarilyindicative of results for the full fiscal year. ** **

**Use of Estimates**

Financial statements prepared in accordance with accountingprinciples generally accepted in the United States require management to makeestimates and judgments that affect amounts and disclosures reported in thefinancial statements.  Actual results could differ from those estimates.   A discussion of theCompany’s significant accounting policies is described in the“Significant Accounting Policies” section of“Management’s Discussion and Analysis of Results of Operations andFinancial Condition.”

**Stock Split, Changes in Authorized Shares and Move to NYSE**

On December 13, 2002 the Board of Directors authorized atwo-for-one stock split in the form of a 100% stock dividend distributed on orabout January 17, 2003 to shareholders of record as of December 31, 2002. All references in the financial statements to number of shares, per shareamounts and market prices of the Company's common stock have been retroactivelyrestated to reflect the increased number of common shares outstanding.

At the annual meeting of shareholders held on September 12,2002, the shareholders approved a proposal to amend the Company's RestatedArticles of Incorporation to increase authorized shares from 50,000,000 to150,000,000.

Effective August 5, 2003 the Company's shares began tradingon the New York Stock Exchange under the symbol MNT. 

**Effects of Recent Accounting Pronouncements**

In December 2002, the Financial Accounting Standards Board("FASB") issued Statement of Financial Accounting Standards("SFAS") 148, Accounting for Stock-Based Compensation - Transitionand Disclosure, effective for fiscal years ending after December 15,2002.  SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation,to provide alternative methods of transition for a voluntary change to the fairvalue method of accounting for stock-based employee compensation.  Inaddition, SFAS 148 amends the disclosure requirement of SFAS 123 to requiremore prominent disclosures, in both annual and interim financial statements,about the method of accounting for stock-based employee compensation and theeffect of the method used on reported results.  The Company has adoptedthe additional disclosure requirements of SFAS 148 and has elected to continueto follow the intrinsic value method of accounting as prescribed by AccountingPrinciples Board Opinion No. 25 (or APB 25), Accounting for Stock Issued toEmployees, to account for employee stock options.  

In May 2003, the FASB issued SFAS No. 149, "Amendmentof Statement 133 on Derivative Instruments and Hedging Activities,"effective for contracts entered into or modified after September 30, 2003 andfor hedging relationships designated after September 30, 2003. This rule amends SFAS No. 133, "Accounting for Derivative Instruments and HedgingActivities," as amended, to provide more consistent reporting of contractsas either derivatives or hybrid instruments.  The adoption of SFAS No. 149 is notexpected to have a material impact on the results of operations or thefinancial position of the Company. 

In May 2003, the FASB issued SFAS No. 150, "Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity," effective for financial instruments entered into or modifiedafter May 31, 2003, and otherwise is effective at the beginning of the firstinterim period beginning after September 15, 2003.  The adoption of SFAS No. 150 is notexpected to have a material impact on the results of operations or the financialposition of the Company. 

In January 2003, the FASB issued FIN 46, Consolidation ofVariable Interest Entities ("VIE").  FIN 46 defines a variableinterest entity as a corporation, partnership, trust, or any other legalstructure that does not have equity investors with a controlling financialinterest or that has equity investors that do not provide sufficient financialresources for the entity to support its activities.  FIN 46, effective in2003, requires consolidation of a VIE by the primary beneficiary of the assets,liabilities, and results of activities.    FIN 46 also requires certain disclosuresby all holders of a significant variable interest in a VIE that are not theprimary beneficiaries.  The adoption of this interpretation will have noimpact on the Company’s consolidated financial position or results ofoperations.

**Note C - Interim Reporting**

The Company's three quarterly interim reporting periods areeach thirteen-week periods ending on the Friday nearest the end of the thirdcalendar month of each calendar quarter.  The fiscal year end remainsMarch 31st.  To facilitate ease of presentation, each interimperiod is shown as if it ended on the last day of the appropriate calendarmonth.  The actual dates for each of the three interim quarters-end areshown below:
|                | Fiscal 2004        | Fiscal 2003        |
|----------------|--------------------|--------------------|
| First Quarter  | June 27, 2003      | June 28, 2002      |
| Second Quarter | September 26, 2003 | September 27, 2002 |
| Third Quarter  | January 2, 2004    | December 27, 2002  |

The accompanying unaudited condensed consolidated financialstatements for the three-month and six-month periods ended September 30, 2003and 2002 have been prepared in accordance with accounting principles generallyaccepted in the United States for interim financial information and withinstructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly,they do not include all of the information and footnotes required by accountingprinciples generally accepted in the United States for complete financialstatements.  In the opinion of management, all adjustments (consistingonly of normal recurring accruals, unless otherwise indicated) considerednecessary for a fair presentation of the results of operations for theindicated periods have been included.  Certain amounts recorded inprevious periods have been reclassified to conform to the current periodpresentation.  Operating results for the three-month and six-monthperiods ended September 30, 2003 are not necessarily indicative ofthe results for the full fiscal year. 

The balance sheet at March 31, 2003 has been derived fromthe audited financial statements at that date but does not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements.

The condensed consolidated financial statements should beread in conjunction with the Company's Annual Report on Form 10-K for the yearended March 31, 2003.** **

** Note D - Cash Equivalents, Marketable Securities, andLong-Term Marketable Securities and Investments**

All highly liquid investments with maturities of threemonths or less at the date of purchase are considered to be cash equivalents.

The Company considers its marketable securitiesavailable-for-sale as defined in SFAS No. 115, "Accounting for CertainInvestments in Debt and Equity Securities."  Realized gains andlosses and declines in value considered to be other than temporary are includedin income.  The cost of securities sold is based on the specificidentification method.  For short-term marketable securities, there wereno material realized or unrealized gains or losses, nor were there any materialdifferences between estimated fair values, based on quoted market prices, andthe costs of securities in the investment portfolio as of September 30, 2003 andMarch 31, 2003.  Short-term investments, except auction ratesecurities, mature between three months and one year from the purchasedate.  The Company's short-term marketable securities consist primarily ofmoney market mutual funds, U.S., state and municipal government obligations,auction rate securities, and investment grade corporate obligations includingcommercial paper.  Auction rate securities carry interest or dividendrates that reset every 28 days but have contractual maturities of greater thanone year. 

The Company's long-term marketable securities andinvestments include investments in Federal Home Loan Bank and MortgageAssociation bonds (FHLA bonds) with maturities of two to four years.  TheCompany has an investment in Paradigm Medical Industries, Inc.  Paradigm reported financial andoperational difficulties and its quoted market prices decreased substantiallyduring the year ended March 31, 2003.  In the quarter ended March31, 2003, the Company determined the decrease in market prices were more thantemporary and recorded a one-time impairment charge of $1,857,000 pre-tax inother income, net.  The remaininginvestment in Paradigm is recorded at $168,000 at September 30, 2003.

----

Available-for-sale investments at September 30, 2003 were asfollows:
| ** **                                                                           | ** **                    | ** **                                                         | **Gross**                                                                     | **Gross**                           | **Estimated** |
|--------------------------------------------------------------------------------------|-------------------------------|--------------------------------------------------------------------|-------------------------------------------------------------------------------|-------------------------------------|---------------|
| ** **                                                                           | ** **                    | **Adjusted**                                                       | **Unrealized**                                                                | **Unrealized**                      | **Fair**      |
| **(in thousands)**                                                                   | **Cost**                      | **Gains**                                                          | **Losses**                                                                    | **Value**                           |
| **Cash balances**                                                                    | **$   17,823** | **$          -** | **$           -**      | **$    17,823** |
| **Money market mutual  funds**                                                       | **83,221**                    | **-**                                                              | **-**                                                                         | **83,221**                          |
| **Marketable equity  securities**                                                    | **114**                       | **54**                                                             | **-**                                                                         | **168**                             |
| **U.S., State and  Municipal agency      obligations**                | **9,198**                     | **-**                                                              | **-**                                                                         | **9,198**                           |
| **Corporate debt  securities**                                                       | **278**                       | **-**                                                              | **-**                                                                         | **278**                             |
| **   Total  available-for-sale investments**                          | **$ 110,634**            | **$       54**                  | **$            ** | **$  110,688**            |
| ** **                                                                           | ** **                    | ** **                                                         | ** **                                                                    | ** **                          |
| **Included in cash and  cash equivalents**                                           | **$ 101,044**            | **$          -** | **$           -**      | **$  101,044**            |
| **Included in current  marketable securities**                                       | **198**                       | **-**                                                              | **-**                                                                         | **198**                             |
| **Included in long-term  marketable      securities and investments** | **9,392**                     | **54**                                                             | **-**                                                                         | **9,446**                           |
| **   Total  available-for-sale investments**                          | **$ 110,634**            | **$       54**                  | **$           -**      | **$  110,688**            |

Available-for-saleinvestments at March 31, 2003 were as follows:
|                                                                             |                      |                                                           | Gross                                                                | Gross                           | Estimated |
|----------------------------------------------------------------------------------|---------------------------|----------------------------------------------------------------|----------------------------------------------------------------------|---------------------------------|-----------|
|                                                                             |                      | Adjusted                                                       | Unrealized                                                           | Unrealized                      | Fair      |
| (in thousands)                                                                   | Cost                      | Gains                                                          | Losses                                                               | Value                           |
| Cash balances                                                                    | $   16,733 | $          - | $          -       | $    16,733 |
| Bank time deposits                                                               | -                         | -                                                              | -                                                                    | -                               |
| Money market mutual funds                                                        | 89,107                    | -                                                              | -                                                                    | 89,107                          |
| Marketable equity  securities                                                    | 3,493                     | 7                                                              | (2,040)                                                              | 1,460                           |
| U.S., State and Municipal  agency      obligations                | 2,184                     | 3                                                              | -                                                                    | 2,187                           |
| Corporate debt securities                                                        | 278                       | -                                                              | -                                                                    | 278                             |
|    Total available-for-sale  investments                          | $ 111,795            | $       10                  | $ (2,040)                                                       | $  109,765            |
|                                                                                  |                      |                                                           |                                                                 |                            |
| Included in cash and cash  equivalents                                           | $ 105,840            | $          - | $           - | $  105,840            |
| Included in current  marketable securities                                       | 184                       | -                                                              | -                                                                    | 184                             |
| Included in long-term  marketable      securities and investments | 5,771                     | 10                                                             | (2,040)                                                              | 3,741                           |
|    Total  available-for-sale investments                          | $ 111,795            | $       10                  | $ (2,040)                                                       | $  109,765            |

----

**Note E -Inventories**

Inventories are stated at the lower of cost or market, costdetermined by the first-in, first-out (FIFO) method.  The Company writesdown its inventory for estimated obsolescence or unmarketable inventory equalto the difference between the cost of inventory and the estimated market valuebased upon assumptions about future demand and market conditions.

Inventories at September 30, 2003 and March 31, 2003consisted of:
| (in thousands)  | **September 30,**                                      | March 31,                                           |
|-----------------|--------------------------------------------------------|-----------------------------------------------------|
| Raw materials   | **$        11,630** | $         12,175 |
| Work in process | **10,340**                                             | 10,894                                              |
| Finished goods  | **44,604**                                             | 38,200                                              |
|            | **$        66,574** | $        61,269  |

**Note F - Property and Equipment**

Property and equipment is stated at cost.  Depreciationis based on the useful lives of the properties and computed using thestraight-line method.  Buildings are depreciated over 30 years, furnitureand equipment over 3 to 10 years and leasehold improvements over the shorter oftheir estimated remaining lives or lease term.  Significant improvementsand betterments are capitalized while maintenance and repairs are charged tooperations as incurred.

Property and equipment at September 30, 2003 and March 31,2003 consisted of:
| (in thousands)                     | **September 30,**                                                    | March 31,                                                        |
|------------------------------------|----------------------------------------------------------------------|------------------------------------------------------------------|
| Land                               | **$         550 ** | $         538  |
| Buildings                          | **23,147 **                                                     | 24,595                                                      |
| Leasehold improvements             | **23,197 **                                                     | 23,551                                                      |
| Furniture, fixtures and  equipment | **88,730 **                                                     | 79,032                                                      |
| Construction in progress           | **11,246 **                                                     | 6,620                                                       |
|                                    | **146,870 **                                                    | 134,336                                                     |
| Less accumulated  depreciation     | **     (72,548)**                           |       (65,665)                          |
|                               | **$    74,322 **                            | $    68,671                             |

**Note G - Warranties**

The Companyprovides an accrual for the estimated cost of product warranties and productliability claims at the time revenue is recognized.  Such accruals are based on estimates,which are based on relevant factors such as historical experience, the warrantyperiod, estimated costs, levels of insurance and insurance retentions, identifiedproduct quality issues, if any, and to a limited extent, information developedby the insurance company using actuarial techniques.  The Company assesses the adequacy ofthese accruals periodically and adjusts the amounts as necessary based onactual experience and changes in future expectations.

Informationon changes in the Company’s accrued warranties and related reserves areas follows:
|                                          | Six Months Ended                                                                             |
|------------------------------------------|----------------------------------------------------------------------------------------------|
|                                          | September 30,                                                                                |
| (in  thousands)                          | **              2003** |               2002 |
| Beginning  warranty and related reserves | **$  19,989**                                                                           | $  16,252 |
| Costs of  warranty claims                | **(1,930)**                                                                                  | (1,900) |
| Accruals  for product warranties         | **4,063**                                                                                    | 3,704 |
| Ending  warranty and related reserves    | **$  22,122**                                                                           | $  18,056 |

 

 

----

**Note H - Other Comprehensive Income**

The components of comprehensive income are listed below:
|                                                                                      | Three Months Ended  September 30, | Six Months Ended   September 30, |
|-------------------------------------------------------------------------------------------|-----------------------------------|----------------------------------|
| (in thousands)                                                                            | **2003**                          | 2002                             | **2003** | 2002 |
| Net income                                                                                | **$  11,238**           | $  12,506              | **$  27,271** | $  29,255  |
| Foreign currency  translation adjustment                                                  | **826**                           | (926)                            | **5,858** | 6,593  |
| Unrealized (losses) on  marketable securities    and investment activities, net | **25**                            | (628)                            | **146** | (1,697) |
| Comprehensive income                                                                      | **$  12,089**           | $  10,952              | **$  33,275** | $  34,151  |

## Note I - Stock Options

The Company has granted options to key employees andnon-employee directors under its Amended 2000 Long-Term Incentive Plan (2000Plan) and 1991 Plan.  Optionsgranted under both plans are exercisable in four equal annual installmentsbeginning one year from the date of grant, and expire ten years from the dateof grant.  Options are granted at the fair market value as of the date ofgrant.  Options to purchase 1,073,135 shares of common stock at $21.00 pershare were granted during the quarter ended June 30, 2003.  No grants were made in the quarter ended September 30, 2003. 

Stock option exercise prices are set at the fair marketvalue of the Company's common stock on the date of grant and the related numberof shares granted is fixed at that point in time.  Therefore, under theprinciples of APB Opinion 25, the Company does not recognize compensation expenseassociated with the grant of stock options.  SFAS 123 "Accounting forStock-Based Compensation," requires the use of an option valuation modelto provide supplemental information regarding options granted after fiscal1995.  Pro forma information regarding net income and earnings per shareshown below were determined as if the Company had accounted for its employeestock options under the fair value method of that statement. The estimated fairvalue of the options is amortized ratably over the option's vestingperiod.  As required by SFAS No. 148, "Accounting for Stock-BasedCompensation - Transition and Disclosure - an amendment of FASB Statement No.123," the following table shows the estimated effect on net income andearnings per share if the Company had applied the fair value recognitionprovision of SFAS 123 to stock-based employee compensation.  The Company'spro forma information is as follows:
|                                                                                                                                       | Three Months Ended  September 30, | Six Months Ended   September 30, |
|---------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|----------------------------------|
| (in thousands except per  share data)                                                                                                 | **2003**                          | 2002                             | **2003** | 2002 |
| Net income: as  reported (1)                                                                                                     | **11,238 **                  | 12,506                      | **27,271 ** | 29,255  |
| Deduct: compensation  expense fair value    method                                                                     | **(1,899)**                       | (1,602)                          | **(3,319)** | (3,204) |
| Net income:  pro  forma                                                                                                          | **9,339 **                   | 10,904                      | **23,952 ** | 26,051  |
|                                                                                                                                       | ** **                        |                             | ** ** |   |
| Basic earnings per  share:  as reported                                                                                          | **.24 **                     | .27                         | **.59 ** | .63  |
| Basic earnings per  share:  pro forma                                                                                            | **.20 **                     | .21                         | **.51 ** | .54  |
|                                                                                                                                       | ** **                        |                             | ** ** |   |
| Diluted earnings per  share:  as reported                                                                                        | **.23 **                     | .26                         | **.56 ** | .60  |
| Diluted earnings per  share:  pro forma                                                                                          | **.20 **                     | .20                         | **.50 ** | .51  |
|   (1) Net income as reported includes no compensation        expense associated with stock grants. | ** **                        |                             | ** ** |   |

**Note J - Income Taxes**

The effective rate of corporate income taxes was 31.7% and 27.7%for the six-month periods ended September 30, 2003 and 2002 respectively. The effective tax rate for the six-month period ended September 2002 reflectsrefunds received in the first and second quarters of fiscal 2003 related to theamendment of tax returns for the Company's foreign sales corporation. 

----

**Note K - Earnings per Share**

A reconciliation of weighted average shares outstanding,used to calculate basic earnings per share, to weighted average sharesoutstanding assuming dilution, used to calculate diluted earnings per share,follows:
|           | Three Months Ended  September 30, | Six Months Ended  September 30, |
|----------------|-----------------------------------|---------------------------------|
| (in thousands) | **2003**                          | 2002                            | **2003** | 2002 |  
Weighted average  outstanding shares:  basic

**46,562**

46,610

**46,475**

46,836

 
Shares issuable through  exercise of stock options

**2,048**

1,672

**2,004**

1,984

 
Weighted average  outstanding shares:  diluted

**48,610**

48,282

**48,479**

48,820

 
Shares issuable through options are determined using thetreasury stock method.

Certain employee stock options were excluded from thecomputation of diluted earnings per share because their effect would have beenanti-dilutive.

**Note L - ShareRepurchase Program**

The Company has a stock repurchase program, primarily to offsetthe dilutive effect of our employee stock option plan, to provide liquidityto the market and to reduce the overall number of shares outstanding.  Allshares repurchased under the program are retired, and are no longeroutstanding. In May 1999, the Board of Directors authorized the repurchase of9.2 million shares of our stock and shares have been repurchased each yearunder this program including 1,421,000 shares for $22.3 million, and 1,464,000shares for $18.7 million in the years ended March 31, 2003 and 2002 respectively.  At March 31, 2003, 1.8 million shares were remainingunder this authorization.  On July 31, 2003the Board of Directors increased the authorized number of shares to berepurchased from 1.8 million to 4 million shares.  Since April 1, 2003, 1,146,000 shares have beenrepurchased for $23.8 million and 2.9 million shares remain authorized forrepurchase.   The timing of repurchases is subject to marketconditions, cash availability, and blackout period during which the Company isrestricted from repurchasing shares.  There is no guarantee that sharesauthorized for repurchase by the Board will ultimately be repurchased. 

**Note M - Acquisitions**

**Portex Ltd.**

On May 6, 2002, the Company purchased the assets of theurology and ostomy businesses of Portex Ltd., a subsidiary of Smiths Groupplc.  The acquired businesses, now named Mentor Medical, Ltd.,manufactures and markets incontinence and ostomy products primarily for thehome healthcare market.  The products are sold mainly in the UK, Germanyand the Netherlands.  The acquisition was valued at $11,232,000, of which$10,603,000 was paid in cash, plus an acquired liability of $629,000.  Theacquisition was accounted for using SFAS No. 141, "BusinessCombinations," using the purchase method of accounting, and the purchaseprice was allocated to the tangible and intangible net assets acquired on thebasis of their respective fair values on the acquisition date.  The totalpurchase price was preliminarily allocated to inventory of $3,150,000,buildings of $739,000, production equipment of $1,185,000, leaseholdimprovements of $621,000, patents, trademarks and licenses of $731,000 andgoodwill and other intangibles with indefinite lives of $4,806,000. 

**Mills Biopharmaceuticals, Inc.**

On February 1, 2003, the Company completed the acquisitionof Mills Biopharmaceuticals, Inc., a manufacturer of iodine brachytherapy seedsfor the treatment of prostate cancer.  The acquisition was accountedfor using SFAS No. 141, "Business Combinations," using the purchasemethod of accounting, and the purchase price was allocated to the tangible andintangible net assets acquired on the basis of their respective fair values onthe acquisition date.  The acquisition was valued at $4,063,000, net ofcash acquired, and was paid from existing cash balances.  The purchaseprice was preliminarily allocated to accounts receivable of $626,000, inventoryof $322,000, other assets of $36,000, production equipment of $830,000,long-term investments, preliminarily valued at $1,100,000, net of acquiredaccrued liabilities of $261,000 and goodwill and other intangibles withindefinite lives of $1,410,000. 

**A-Life Ltd  **

On August 25, 2003, the Company completed the acquisition ofA-Life Ltd which has developed a hyaluronic acid based dermal filler product fromVitrolife, AB.  The purchase price was allocated to the tangible andintangible net assets acquired on the basis of their respective fair values onthe acquisition date.  The acquisition was valued at $7.5 million, net ofcash acquired, and was paid from existing cash balances.  The purchaseprice was preliminarily allocated to accounts receivable $36,000, other assetsof $349,000, production equipment of $393,000, net of acquired accruedliabilities of $123,000 and intangible assets of $6,821,000. 

**Note N –Goodwill & Intangible Assets**

The aggregate amortization expense on intangible assets recorded forthe six months ended September 30, 2003 was $1,658,000.  The following table summarizes theestimated aggregate amortization expense for each of the five succeeding years:

  Year ended

Estimated Amortization Expense ( in thousands)

March 31, 2004

$3,655

March 31, 2005

$3,950

March 31, 2006

$3,841

March 31, 2007

$3,666

March 31, 2008

$3,652

 

 

** **

 

The changes in the carrying amount of goodwillfor the year ended March 31, 2003, and 2002 are as follows:

  (in thousands)

  Aesthetic and General Surgery

       Surgical     Urology

    Clinical and     Consumer      Healthcare

           Total

Balance at March 31, 2001 

$     692 

$  2,948 

$  3,055 

$   6,695 

Goodwill acquired during year

3,760 

- 

- 
3,760 

Goodwill amortization 

(442)

(35)

(103)

(580)

Balance at March 31, 2002 

4,010 

2,913 

2,952 

9,875 

Goodwill acquired during year 

- 

1,410 

5,235 

6,645 

Balance at March   31, 2003

4,010 

  4,323 

 8,187 

16,520 

Translation  and other 

- 

169 

497 

666 

Balance at September   30, 2003

$  4,010 

$  4,492 

$  8,684 

$ 17,186 

**Note O - Business Segment Information**

The Company's operations are principally managed andreported on a product basis.  There are three reportable segments: aesthetic and general surgery, surgical urology, and clinical and consumerhealthcare.  The accounting policies of the reportable segments are thesame as those described in the summary of significant accounting policiesexcept that certain expenses such as interest and certain corporate expensesare not allocated to the segments.

The aesthetic and general surgery products segment consistsprimarily of breast implants, tissue expanders and the Company's bodycontouring (liposuction) equipment and disposables.  The surgical urologysegment includes penile implants, surgical incontinence products, andbrachytherapy seeds for the treatment of prostate cancer.  The clinicaland consumer healthcare segment includes catheters and other disposableproducts for the management of urinary incontinence and retention.

Selected financial information for the Company's reportablesegments for the three-month and six-month periods ended September 30, 2003and 2002, and as of September 30, 2003 and March 31, 2003 is asfollows:

Three Months Ended   September 30,

Six Months Ended  September 30,

(in  thousands)

**2003**

2002

**2003**

2002

**Net Sales**

** **

 

** **

 

Aesthetic  and General Surgery

**$      47,199**

$      42,748  

**$     102,702**

$      96,428

Surgical  Urology

**23,903**

25,746

**51,992**

51,988

Clinical  and Consumer Healthcare 

**22,161**

21,092

**43,675**

38,847

  Total  consolidated revenues

**$      93,263**

$      89,586

**$    198,369**

$    187,263

 

** **

 

 

 

Three Months Ended   September 30,

Six Months Ended  September 30,

(in  thousands)

**2003**

2002

**2003**

2002

**Operating profit**

** **

 

 

 

Aesthetic  and General Surgery

**$      15,987 **

$      14,415  

**$      35,777**

$      34,356

Surgical  Urology

**(748)**

848

**788**

3,093

Clinical  and Consumer Healthcare

**3,111 **

3,678

**6,433**

6,459

  Total  reportable segments

**$      18,350 **

$      18,941

**$      42,998**

$      43,908

 

 

 

 

 

Three Months Ended   September 30,

Six Months Ended  September 30,

(in  thousands)

**2003**

2002

**2003**

2002

**Operating income**

** **

 

 

 

Reportable  segments

**$     18,350 **

$     18,941   

**$     42,998 **

$     43,908   

Corporate  operating expenses

**(2,258)**

(2,546)

**(4,395)**

(5,340)

Interest  expense

**(149)**

(236)

**(310)**

(537)

Interest  income

**323 **

672 

**719 **

1,232 

Other  income

**249 **

158  

**925 **

1,205 

Income  before income taxes

**$     16,515 **

$     16,989 

**$      39,937 **

$      40,468 

 

 

 

 

 

 

As of

 

(in  thousands)

**September 30, 2003**

March 31,  2003

**Identifiable assets**

** **

 

 

 

Aesthetic  and General Surgery

**$    111,834 **

$    102,570   

** **

** **

Surgical  Urology

**110,678 **

105,415 

** **

** **

Clinical  and Consumer Healthcare

**67,769 **

62,155 

** **

** **

  Total  reportable segments

**$   290,281 **

$   270,140 

** **

** **
 
**Item 2.**

**Management's  Discussion and Analysis of Financial Condition and Results of Operations**

CautionaryStatement

You should read the following discussion andanalysis in conjunction with our Unaudited Condensed Consolidated FinancialStatements and related Notes thereto contained elsewhere in this Report.  The information contained in thisQuarterly Report on Form 10-Q is not a complete description of ourbusiness or the risks associated with an investment in our common stock.  We urge you to carefully review andconsider the various disclosures made by us in this Report and in our otherreports filed with the Securities and Exchange Commission, including our AnnualReport on Form 10-K for the year ended March 31, 2003 and subsequentreports on Forms 10‐Q and 8‐K, which discuss our business ingreater detail.

The section entitled “RiskFactors” set forth below, and similar discussions in our other SECfilings, discuss some of the important risk factors that may affect ourbusiness, results of operations and financial condition.  You should carefully consider thoserisks, in addition to the other information in this Report and in our otherfilings with the SEC, before deciding to purchase, hold or sell our commonstock.

All statements included or incorporated byreference in this Report, other than statements or characterizations of historicalfact, are forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to, statements concerning:
- our anticipated growth strategies;
- our intention to introduce or seek regulatory  approval for new products;
- our ability to continueto meet FDA and other regulatory requirements;
- our anticipated outcomesof litigation and regulatory reviews;
- our ability to replacesources of supply without disruption or regulatory delay;
- our accounting estimates,assumptions and judgments, the market acceptance and performance of ourproducts, the competitive nature of and anticipated growth in our markets;
- our ability to consummateacquisitions and integrate their operations successfully;
- the need for additionalcapital; and
- the results of pendingand possible future litigation.

These forward-looking statements are based onour current expectations, estimates and projections about our industry,management’s beliefs, and certain assumptions made by us.  Forward-looking statements can often beidentified by words such as “anticipates,” “expects,”“intends,” “plans,” “predicts,”“believes,” “seeks,” “estimates,”“may,” “will,” “should,”“would,” “could,” “potential,”“continue,” “ongoing,” and similar expressions, andvariations or negatives of these words. In addition, any statements that refer to expectations, projections,forecasts or other characterizations of future events or circumstances,including any underlying assumptions, are forward-looking statements.  These forward-looking statements speakonly as of the date of this Report and are based upon the information availableto us at this time.  Suchinformation is subject to change, and we will not necessarily inform you ofsuch changes.  These statements arenot guarantees of future results and are subject to risks, uncertainties andassumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely fromthose expressed in any forward-looking statement as a result of variousfactors, some of which are listed under the section “Risk Factors”below.  We undertake no obligationto revise or update publicly any forward-looking statement for any reason.

**APPLICATION OF CRITICAL ACCOUNTING POLICIES**

Management's Discussion and Analysis of Financial Conditionand Results of Operations addresses our consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States.  The preparation of thesefinancial statements requires us to make estimates and assumptions that affectthe reported amounts of assets and liabilities, the disclosure of contingentassets and liabilities at the date of the financial statements, and thereported amounts of revenues and expenses during the reporting period.  Onan on-going basis, we evaluate our estimates and judgments.  We base ourestimates and judgments on historical experience and on various other factorsthat are believed to be reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying values of assetsand liabilities that are not readily apparent from other sources.  Actualresults may differ from these estimates under different assumptions orconditions.  

Management has identified the critical accounting policiesto be those related to revenue recognition, accounts receivable, inventories,warranties and related reserves, and goodwill and intangible asset impairment. These accounting polices are discussed in the “Management's Discussionand Analysis of Financial Condition and Results of Operations” and notesto the consolidated financial statements included in the Company's AnnualReport on Form 10-K for the fiscal year ended March 31, 2003.

On December 12, 2002 the Board of Directors authorized atwo-for-one stock split in the form of a 100% stock dividend distributed on orabout January 17, 2003 to shareholders of record as of December 31, 2002. All references in this report to the number of shares and per share amountshave been retroactively restated to reflect the increased number of commonshares outstanding.   

**RESULTS OF OPERATIONS**

**For the three-month period ended September 30, 2003 comparedto the three-month period ended September 30, 2002**
Seasonality
Our quarterly results reflect slight seasonality, as thesecond fiscal quarter ending September 30 generally tends to have the lowestrevenue of all of the quarters.  This is primarily due to lower levels ofsales of breast implants for augmentation, an elective procedure, as surgeonsand patients tend to take vacation, particularly in Europe, during this quarter.  

**Sales**

Sales for the three-month period ended September 30, 2003increased to $93.3 million from $89.6 million in the comparable period in theprevious year, an increase of 4%.  Foreignexchange rate movements, primarily the stronger Euro, had a favorableyear-to-year impact on international sales of $3.4 million for the three-monthperiod. 

Sales of aesthetic and general surgery products increased 10%to $47.2 million for the three months ended September 30, 2003 from $42.7 million in the same periodin the prior year.  Total sales of breast implants products increased 11% to$42.5 million for the quarter from $38.4 million in the same period of theprior year.   Approximately $.8million of the increase is attributable to the favorable impact of foreignexchange rate movements and the balance is primarily attributable to organicgrowth in units sales of our silicon gel implants and associated products usedin reconstruction surgeries.  Salesof body contouring products increased 28% to $3.5 million for the quarter from$2.8 million, over the same period in the prior year.  Increases in bodycontouring product sales are primarily attributable to increased liposuctionprocedural volumes as awareness and acceptance of this procedure increases. Theseincreases were partially offset by a decrease in other product revenues of $0.4million. 

Sales of surgical urology products decreased 7%to $23.9 million for the quarter ended September 30, 2003 from $25.7 million inthe prior year.  The $1.8 million decrease in segment revenue is the resultof a $3.3 million decrease in brachytherapy seed sales offset by a $1.6 millionfavorable impact of foreign exchange rate variations. In addition, penileimplant sales increased 10% to $5.7 million from $5.2 million in the comparableperiod of the prior year primarily due to higher average selling prices in theU.S. and acceptance of the TitanTM penile device in Europe.  Pelvic floor product revenue increased28% to $2.8 million from $2.2 million in the comparable period in the prioryear primarily due to increased unit volumes on continued momentum of several newproduct introductions made late in fiscal 2002.  In August 2003, we introduced theObTapeTM sling product for pelvic floor reconstruction for female urinaryincontinence to the U.S. market.  The ObTape, like our UraTapeTMproduct in Europe utilizes a simpler and lessinvasive surgical technique.  Brachytherapysales decreased $3.3 million or 49% from the comparable three-month period ofthe prior year, as a result of interruption of our supply of palladiumradioactive seeds after the expiration of our exclusive distribution agreementwith NASI. In addition, alternative procedures, changes in Medicarereimbursement, and additional competitive pressures have decreased proceduralvolumes and decreased average selling prices.  Due to difficulties inincreasing manufacturing capacity in a short time frame, we have been unable tosecure sufficient new vendor supply to fulfill customer orders.  These market factors and supplyinterruptions have resulted in lost sales of approximately $3 million perquarter, and may continue through the remainder of fiscal 2004.  Sales of disposable urinary care andother products totaled $11.9 million in the three-month period ending September 30, 2003compared to $11.7 million in the same period in the prior year.  A decrease in unit sales was offset bythe favorable impact of foreign exchange rate variations estimated to be $1.6million, resulting in a small overall increase.  

Sales of clinical and consumer healthcare products increased5% to $22.2 million for the quarter ended September 30, 2003 from $21.1 million in the sameperiod in the prior year.  Sales ofintermittent catheters increased 10% or $.7 million and were partially offsetby a decrease of 12% or $.6 million in sales of male external catheters ascompared to the same period of the prior year.  Sales of other disposablehomecare and ostomy products increased 10% to $10.1 million from $9.1 millionin the comparable period of the prior year primarily the favorable impact offoreign exchange rate variations of $1.0 million. 

Sales  by Principal Product Line

For  the Three Months Ended   September 30,

For  the Six Months Ended   September 30,

  (in thousands)

**2003**

  2002

Percent  Change

**2003**

  2002

Percent  Change

Aesthetic & General Surgery      Products

**$   47,199**

  $   42,748

  10%

**$   102,702**

  $   96,428

  6%

Surgical Urology Products

**23,903**

25,746

(7%)

**51,992**

51,988

--

Clinical & Consumer      Healthcare Products

**22,161**

  21,092

  5%

**43,675**

  38,847

  12%

** **

**$  93,263**

$  89,586

4%

**$ 198,369**

$ 187,263

6%

**Gross profit**

Gross profit margin increased to61.9% of net sales forthe quarter ended September 30, 2003, compared to 58.0% in the comparableperiod in fiscal 2003.  Gross profit for the aesthetic and general surgeryproducts improved to 74% of net sales, or $35 million for the three-monthperiod ending September 30, 2003 up from 71% in the comparableperiod in the prior year.  The increasein gross profit of $4 million is primarily attributable toimproved manufacturing efficiencies and efficiencies of scale.   Gross profit margin for surgical urologyproducts improved to 51% of net sales from 44% of net sales for the quarterended September 30, 2003 compared to the same period in theprior year.  Approximately 3%percentage points of the increase in gross margins percentage is attributableto the February 2003 acquisition of Mills Biopharmaceutical, Inc. tomanufacture our own iodine brachytherapy seeds, which added approximately $0.6million in gross profit for the three-month period.  The balance of the percentageimprovement is primarily the result of the significant changes in ourbrachytherapy seed business. Decreases in sales of brachytherapy seeds, particularlypalladium seeds, aided the improvement in gross margin percentage as theseproducts have a relatively low gross profit margin, approximately 30%, whenpurchased from other manufacturers. This shift in product mix towards highermargin products was a result of the decrease in brachytherapy seed sales as aresult of decreased average selling prices, decreased procedural volumes and theinterruption of supply of palladium seeds.   Gross profit margins forclinical and consumer healthcare products were unchanged at 49% of net salesfor the three-month period ended September 30, 2003 when compared to the sameperiod in the prior year.  Theimprovement from the prior year was primarily due to efficiencies of scale andimproved manufacturing efficiencies at our manufacturing facilities.

**Selling, General and Administrative**

Selling, general and administrative expenses increased to 36.3%of net sales, or $34 million for the quarter ended September 30, 2003,compared to 33.7% or $30 million for the comparable quarter in the prioryear.  The increase as a percentage of net sales is the result of additionalselling expenses in the Surgical Urology segment, primarily in ourinternational operations related to our disposable urinary care productsmanufactured by Porges, which accounted for $.9 million of the increase, and theeffect of currency rate variations, which had an unfavorable effect of $1.4million.  In addition, general andadministrative expenses increased primarily due to additional expenses of approximately$.6 million associated with our recently acquired subsidiaries, increasedinformation technology support, and non-capitalizable expenses related to theimplementation of our new J.D. Edwards information technology system, estimatedto be $1.1 million.  

**Research and Development**Research and development expenses for the three-month periodended September 30, 2003 increased from 6.0% to 8.3% as a percent of net sales,and were $7.7 million compared to $5.4 million for the comparable period a yearago.  Approximately $1.9 million of the increase is attributed to the Aestheticand General Surgery segment and is primarily due to increased activity in ourbreast implant studies as we prepare to file our gel implant PMA with theFDA.  The remaining increase of $.4 million is attributable to our ongoingdevelopment activities in our Surgical Urology segment and the development of automatedmanufacturing technologies.  Inaddition, we are committed to a variety of clinical and laboratory studies inconnection with our gel-filled and saline-filled mammary implants and otherproducts.  We expect the level of spending on research and developmentactivities to continue at the current levels for the remainder of fiscal 2004.

**Interest and Other Income and Expense**

Interest expense decreased to $149,000 in the second quarterof fiscal 2004, compared to $236,000 in the same period of the prioryear.  Interest expense includes interest on our foreign lines of creditand imputed interest on long-term liabilities recorded at net present valuerelated to the acquisitions of assets of South Bay Medical and ProSurg, Inc.during fiscal 2001 and 2002, respectively. The decrease in interest expense isattributable to the lower rates of interest, lower levels of borrowings anddecreased levels of imputed interest on acquisition liabilities. 

Interest income decreased to $323,000 in the second quarterof fiscal 2004 from $672,000 in the same period of the prior year.  The decrease is due to lower prevailinginterest rates on short-term investments and offset by higher levels of cashbalances available for investment. 

Other income (expense), net primarily includes gains orlosses on sales of marketable securities, disposals of non-operating assets,and foreign currency gains or losses related to our foreign operations.  OtherIncome, net increased for three-month period ended September 30, 2003 to$249,000 compared to $158,000 in the comparable period in the prioryear.  This increase was the resultof the favorable impact of the Euro’s relative strength compared to theU.S. dollar offset by loss on the sale of marketable securities of $136,000. 

**Income Taxes**

The effective rate of corporate income taxes for the three-monthsended September 30, 2003 was 32.0% as compared to 26.4% for the comparableperiod in the prior year.  The increase in the effective tax rate from thecomparable periods in the prior year represents a return to our historiceffective tax rate as the prior year rates reflected refunds received in the secondquarter of fiscal year 2003 related to the amendment of tax returns for ourforeign sales corporation.

**Net Income**

Net income for the three-month period ended September 30,2003 decreased 10% to $11.2 million from $12.5 million in the comparable periodin the prior year. Diluted earnings per share decreased 11% to $0.23 for the three-monthperiod compared to $0.26 for the comparable period last year.  Increased sales and lower cost of goodssold were offset by higher operating expenses, particularly research anddevelopment expenses, which resulted in a decrease in operating income.  Netincome was further negatively impacted by a higher effective tax rate. 

**For the six-month periods ended September 30, 2003 comparedto the six-month periods ended September 30, 2002.**

**Sales**

Sales for the six months ended September 30, 2003 increasedto $198.4 million from $187.3 million for the period in the prior year, anincrease of 6%.   Foreign exchange rate movements, primarily thestronger Euro, had a favorable year-to-year impact on international sales of $9.5million for the six-month period ended September 30, 2003.

Breast implant product sales increased to 7% to $92.6million for the six-month period ended September 30, 2003 from $86.8 millionfor the comparable period in the prior year.   Approximately $2.1 million of theincrease is attributable to the favorable impact of foreign exchange ratemovements and the balance is primarily attributable to organic growth in unitssales of our silicon gel implants and associated products used inreconstruction surgeries.  Bodycontouring products sales increased 17% to $7.1 million for the six-monthperiod ended September 30, 2003 from $6.1 million for thecomparable period in the prior year. Increases in body contouring product sales are primarily attributable toincreased liposuction procedural volumes as awareness and acceptance of thisprocedure increases. These increases were partially offset by a decrease inother product revenues of $0.5 million. 

Surgical Urology sales levels for the six-month period ended September 30, 2003 wereunchanged at $52.0 million in both years. Increases in the sales of penile implants, pelvic floor products, disposableurinary care and other products sales, along with favorable impacts of foreignexchange of $4.6 million were partially offset by a $9.6 million decrease inbrachytherapy product sales from the comparable six-month period in the prioryear.  Penile implants product salesfor the six-month period ended September 30, 2003 increased 6% to $12.0 million from$11.4 million compared to the same period in the prior year.  The growth is primarily attributable toincreased acceptance of our Titan® coated inflatable penile implant whichwas introduced in the third quarter of fiscal 2003 and has effectively replacedmost sales of our predecessor penile implant products.  Pelvic floor product revenue increased35% to $6.1 million from $4.5 million compared to the same period in the prioryear primarily due to increased unit volumes on continued momentum of several newproduct introductions made late in fiscal 2002 and favorable impact of foreigncurrency variations estimated to be $0.4 million.  Brachytherapy sales decreased to $7.1million or 47% for the comparable six-month period of the prior year, as aresult of interruption of our supply of palladium radioactive seeds after theexpiration of our exclusive distribution agreement with NASI.  In addition, alternative procedures,changes in Medicare reimbursement, and additional competitive pressures havedecreased procedural volumes and decreased average selling prices.  Due todifficulties in increasing manufacturing capacity in a short time frame, wehave been unable to secure sufficient new vendor supply to fulfill customerorders. These market factors and supply interruptions have resulted in lostsales of approximately $3 million per quarter, and which may continue through theremainder of fiscal 2004.  Sales ofdisposable urinary care and other products totaled $26.8 million in thethree-month period ending September 30, 2003 compared to $22.8 million in thesame period in the prior year.  Theincrease was primarily a result of the favorable impact of foreign exchangerate variations estimated to be $4.0 million. 

Sales of clinical and consumer healthcare products increased12% to $43.7 for the six-months period ended September 30, 2003 compared to thesame period in the prior year. Sales of intermittent catheters increased 8% or$1.0 million.  Sales of the maleexternal catheter decreased approximately $1 million or 9%.  Sales of other disposable homecare and ostomy products increased24% to $21.1 million from $16.4 million in thecomparable period of the prior year primarily the favorable impact of foreignexchange rate variations of $2.8 million. 

**Gross profit**

Gross profit margin increased to 62.2% of netsales for the six months ended September 30, 2003 compared to 59.5% in thecomparable period in fiscal 2003.  Gross profit margin for the aestheticand general surgery products improved to 73% from 71% or $6 million when compared to the same period inthe prior year, primarily due to efficiencies of scale and improvedmanufacturing efficiencies at our Texas facility, partially offset by startupcosts at our new manufacturing facility in the Netherlands.  Gross profitmargin for surgical urology products for the six-month period ended September 30, 2003 improvedto 52% from 46% of net sales when compared with the same period of the prioryear.  Approximately 3% percentagepoints of the increase in gross margins percentage is attributable to the February2003 acquisition of Mills Biopharmaceutical, Inc., to manufacture our owniodine brachytherapy seeds which added approximately $1.3 million in grossprofit for the period.  The balanceof the percentage improvement is primarily the result of the significantchanges in our brachytherapy seed business. Decreases in sales of brachytherapyseeds, particularly palladium seeds, aided the improvement in gross marginpercentage as these products have a relatively low gross profit margin, approximately30%, when purchased from other manufacturers. This shift in product mix towardshigher margin products was a result of the decrease in Brachytherapy seed salesas a result of decreased average selling prices, decreased procedural volumesand the interruption of supply of palladium seeds.   Gross profit margins forclinical and consumer healthcare products for the six-month period endedSeptember 30, 2003, increased from 48% to 50% of net sales when compared to thesame period in the prior year.  Theimprovement from the prior year was primarily due to improved manufacturingefficiencies and a shift in product mix for the period towards higher marginproducts.

**Selling, General and Administrative**

Selling, general and administrative expense increased to35.1% of net sales, or $70 million for the six-month period ended September 30,2003, compared to 33.1% or $62 million in the comparable period of the prioryear. The increase is the result additional selling expenses in the Surgical Urologysegment, primarily in our international operations related to our disposableurinary care products manufactured by Porges, which accounted for $2.1 millionof the increase, international operations related to Porges products, and the effectof currency rates variations, totaling $3.5 million.  General andadministrative expenses increased primarily due to additional expenses ofapproximately $1 million associated with our recently acquired subsidiaries. In addition, non-capitalizable expenses related to the implementation of ournew J.D. Edwards information technology system and support are estimated to be$2.4 million and were offset by approximately $1 million decrease in expensesat our corporate headquarters. 

**Research and Development**

Research and development expenses for the six-month periodended September 30, 2003 increased from 5.7% to 7.7% as a percent of net sales,and were $ 15.3 million compared to $10.7 million for the comparable period ayear ago.  Approximately $3.8 million of the increase is attributed to theAesthetic and General Surgery segment and is due to increased activity in ourbreast implant studies as we prepare to file our gel implant PMA with theFDA.  The remaining increase of $.8 million is primarily attributable toour ongoing development activities in our Surgical Urology segment and the developmentof automated manufacturing technologies.  In addition, the Company is committed toa variety of clinical and laboratory studies in connection with its gel-filledand saline-filled mammary implants and other products.  We expect thelevel of spending on research and development activities to continue at thecurrent levels for the remainder of fiscal 2004. 

**Interest and Other Income and Expense**

Interest expense for the six-month period ended September30, 2003 decreased to $310,000 from $537,000 in the comparable period in theprior year.  Interest expenseincludes interest on our foreign lines of credit and imputed interest onlong-term liabilities recorded at net present value related to the acquisitionsof assets of South Bay Medical and ProSurg, Inc. during fiscal 2001 and 2002,respectively. The decrease in interest expense is attributable to the lowerrates of interest, lower levels of borrowings and decreased levels of imputedinterest on acquisition liabilities. 

Interest income decreased to $719,000 for the six-monthperiod ended September 30, 2003 compared to $1,232,000 in thecomparable period of the prior year. The decrease is due to lower prevailing interest rates on short-terminvestments offset by higher levels of cash balances available for investment.

Other income (expense), net primarily includes gains orlosses on sales of marketable securities, disposals of non-operating assets,and foreign currency gains or losses related to our foreign operations.  Forthe six-month period ended September 30, 2003, other income (expense), netdecreased to $925,000 from $1,205,000 for the comparable period in the prioryear. The prior year amount includes a one-time gain on the sale of anintangible asset of $500,000 in the first quarter and is the primary reason forthe decrease from the prior year. 

**Income Taxes**

The effective rate of corporate income taxes for the six-monthsended September 30, 2003 was 31.7% as compared to 27.7% for the comparableperiod in the prior year.  The increase in the effective tax rate from thecomparable periods in the prior year represents a return to our historiceffective tax rate as the prior year rates reflected refunds received in thefirst and second quarters of fiscal year 2003 related to the amendment of taxreturns for our foreign sales corporation.

**Net Income**

Net income for the six-month period ended September 30, 2003decreased 7% to $27.3 million from $29.3 million in the comparable period inthe prior year.  Diluted earnings per share decreased 7% to $0.56 for thesix-month period compared to $0.60 for the comparable period last year. Increased sales and lower cost of goods sold were offset by higher operatingexpenses, particularly research and development expenses, which resulted in a decreasein operating income.  Net income was further negatively impacted by ahigher effective tax rate. 

**LIQUIDITY AND CAPITAL RESOURCES**

We had cash, cash equivalents and short-term marketablesecurities of $101 million at September 30, 2003, compared to $106 million atMarch 31, 2003.  Cash provided by operating activities has been and isexpected to continue to be our primary recurring source of funds.  Our workingcapital was $173 million at September 30, 2003, compared to $168 million at March 31, 2003. We generated $27 million of cash from operating activities during the sixmonths ended September 30, 2003, compared to $39 million during the same periodthe previous year.  Decreased cash flow from operating activities wasprimarily the result of decreased net income and increased tax deposits forfederal taxes due to the timing of income and extension payments.  

We anticipate investing approximately $18 million in fiscal2004 to upgrade production equipment and facilities for aesthetics production,complete brachytherapy seed production, purchase other production equipment andupgrade and replace our information technology systems with a new EnterpriseResource Planning System, (ERP) by JD Edwards.  During the six monthsended September 30, 2003, we invested $9 million in propertyand equipment, primarily in production equipment at our aesthetics facility in theNetherlands, healthcare production automation inour Minneapolis facility, and in informationtechnology systems.  

We received cash from the exercise of employee stockoptions.  Employee stock option exercises provided $6.6 million during thesix months ended September 30, 2003 compared to $3.2 million in thesame period the previous year.  Proceeds from the exercise of employeestock options will vary from period to period based upon, among other factors,fluctuations in the market value of our common shares relative to the exerciseprice of such options. 

We have a stock repurchase program, primarily to offset thedilutive effect of our employee stock option plans, provide liquidity to themarket and to reduce the overall number of shares outstanding.  All shares repurchased under the programare retired, and are no longer outstanding. In May 1999, the Board of Directorsauthorized the repurchase of 9.2 million shares of our stock and shares havebeen repurchased each year under this program including 1,421,000 shares for$22.3 million and 1,464,000 shares for $18.7 million in the years ended March 31, 2003and 2002, respectively.  At March 31, 2003 1.8million shares remained authorized for repurchase under thisauthorization.  On July 31, 2003the Board of Directors increased the authorized number of shares to berepurchased from 1.8 million to 4 million shares.  Since April 1, 2003, 1,146,000 shares have beenrepurchased for $23.8 million and 2.9 shares remain authorized for repurchase.  The timing of repurchases is subject to market conditions, cashavailability, and blackout period during which the Company is restricted fromrepurchasing shares.  Thereis no guarantee that shares authorized for repurchase by the Board willultimately be repurchased. 

In January 2001, we completed the acquisition of South BayMedical, a development stage company focused on the development of a newtechnology for a computer-based workstation and automated cartridge-basedneedle loading system for use in brachytherapy procedures.  The totalconsideration included $2 million in cash, 470,586 restricted shares of ourcommon stock having a fair market value of $4 million, and $13.6 million to bepaid in cash or our common stock over the next several years.  Thesefuture payments have been recorded as an acquisition obligation liability atnet present value ($11.6 million at September 30, 2003), and will continue toincrease as imputed interest is recorded.   Approximately $5.9 million of theacquisition obligation liability is to be paid in shares of our common stockvalued at fair market value on the date of issuance. 

In December 2001, we entered into several agreements withProSurg, Inc. to purchase certain patent rights and a supply of a bio-absorbableco-polymer product to be used in the surgical treatment of femaleincontinence.  The total consideration included $2.0 million in cash and$2.7 million in short and long-term payments due over the next severalyears.  The future payments have been recorded as an acquisitionobligation liability at net present value and will increase with imputedinterest to $3.0 million due in fiscal 2004 and over the next severalyears.  

On August 25, 2003, we completed the acquisition of A-LifeLtd a subsidiary of Vitrolife AB which has developed a hyaluronic acid baseddermal filler product.   The consideration totaled $7.5 million ofwhich $7.4 million was paid in cash from existing cash balances and theremainder in the form of accrued liabilities. 

On September 9, 2003 we entered into several transactions toacquire the exclusive marketing and distribution for products utilizinglicensed technologies related to treatment of uterine disorders from AMI, LLCand a related supply agreement with ProSurg, Inc.  We paid $3 million in cash and issued133,630 restricted shares of Mentor common stock valued at fair marketvalue $3 million based on quoted prices. The agreements commit Mentor to additional payments totaling$4.5 million upon the completion of certain developmental and regulatorymilestones. 

In October 2003, we acquired Informed Solutions, Inc. fortotal consideration of $3 million in cash, paid from available cash balances.  Informed Solutions provides practicemanagement software and consulting to plastic surgeons. The agreements commitMentor to additional payments totaling $1.7million based upon future sales and earnings thresholds. 

We have a secured line of credit for borrowings of up to $25million ("$25M Credit Agreement"), which accrue interest at theprevailing prime rate or at a mark-up over LIBOR at our discretion.  The$25M Credit Agreement includes certain covenants that, among other things,limit the dividends we may pay to one-half of the net income of the precedingyear and requires maintenance of certain levels of tangible net worth and debtservice ratios.  We use the $25M Credit Agreement to guarantee threecommercial letters of credit totaling $3.8 million.  Accordingly, althoughthere were no borrowings outstanding under the $25M Credit Agreement at September30, 2003, only $21.2 million was available for additional borrowings.

In addition, several lines of credit were established withlocal foreign lenders to facilitate operating cash flow needs at our foreignsubsidiaries.  These lines are at market rates of interest, are unsecuredand guaranteed by Mentor Corporation. They total $6.1 million, of which $3.5 million was outstanding, and $2.6million additional borrowings were available at September 30, 2003.  

In fiscal 2002, a line of credit of $7.0 million wasestablished to finance the construction of a new facility in Leiden, theNetherlands.  The line was subsequently converted to an operating line ofcredit.  The borrowings accrueinterest at EURIBOR plus 0.75% and are secured by the new facility and otherassets in the Netherlands.  At September 30, 2003, $5.2million was outstanding and $1.8 million was available under this line ofcredit.

At September 30, 2003, the total of our short-termborrowings under all lines of credit was $8.7 million and the weighted-averageinterest rate was 4.28%.  The total amount of additional borrowingsavailable to the Company under all lines of credit was $25.7 million as of September 30, 2003.  

For each of the first and second quarters of fiscal 2003, wepaid a quarterly cash dividend of $.03 per share.  In December 2002, ourBoard of Directors authorized a 2-for-1 stock split in the form of a 100% stockdividend and increased the quarterly dividend on a post-split basis from $.015per share to $.02 per share.  In July 2003, the Board of Directorsdeclared another increase in the quarterly dividend rate from $.02 per share to$.15 per share in an aggregate amount of $7.0 million.  It is our intent to continue to paydividends for the foreseeable future subject to, among other things, Boardapproval, cash availability, debt restrictions and alternative cash needs.

The following table summarizes contractual cash and othercommercial commitments at September 30, 2003:

(in thousands)**Contractual Cash  Obligations**

  Total

Less Than  1 Year

1-3  Years

4-5  Years

After 5  Years

Operating leases

$ 43,300

$  4,824

$14,261

$ 9,031

$15,184

   Total  Contractual Cash Obligations

$ 43,300

$  4,824

$14,261

$ 9,031

$15,184

 

 

 

 

 

**Commercial Commitments**

 

 

 

 

 

Lines of credit

$  8,661

$  8,661

$         -

$        -

$        -

Other commercial  commitments

20,236

7,344

9,542

1,370

1,980

   Total  Commercial Commitments

$28,897

$16,005

$  9,542

$ 1,370

$ 1,980

In addition, we have, at any one time, purchase orders inthe ordinary course of business for raw materials and other supplies, which mayin aggregate be significant but for which usage does not exceed oneyear.   

Our principal source of liquidity at September 30, 2003consisted of $101 million in cash, cash equivalents and short-term marketablesecurities, plus $26 million available under our existing lines ofcredit.  We believe that funds generated from operations, our cash, cashequivalents and marketable securities and funds available under our line ofcredit agreements will be adequate to meet our working capital needs andcapital expenditure investment requirements and commitments for the foreseeablefuture.  However, it is possible that we may need to raise additionalfunds to finance unforeseen requirements or to consummate acquisitions of otherbusiness, products or technologies.  We believe additional funds could beraised by selling equity or debt securities to the public or to selectedinvestors, or by borrowing money from financial institutions.  Inaddition, even though we may not have an immediate need additional funds, wemay still elect to sell additional equity or debt securities or obtain creditfacilities for other reasons.  We may not be able to obtain additionalfunds on terms that would be favorable to us, or at all.  If funds areraised by issuing additional equity securities or convertible debt securities,the ownership percentage of existing shareholders would be reduced.  Inaddition, the equity or debt securities issued by us may have rights,preferences or privileges senior to those of our common stock. 

**Forward-Looking Information Under the Private SecuritiesLitigation Reform Action of 1995**

The Private Securities Litigation Reform Act of 1995provides a "safe harbor" for forward-looking statements.  TheAct was designed to encourage companies to provide prospective informationabout them without fear of litigation.  The prospective information mustbe identified as forward-looking and must be accompanied by meaningfulcautionary statements identifying important factors that could cause actual resultsto differ materially from those projected in the statements.  Thestatements about the Company, plans, strategies, intentions, expectations andprospects contained throughout this document are based on currentexpectations.  These statements are forward-looking and actual results maydiffer materially from those predicted as of the date of this report in theforward-looking statements, which involve risks and uncertainties.  Inaddition, past financial performance is not necessarily a reliable indicator offuture performance and investors should not use historical performance toanticipate results or future period trends.  The Company does notundertake to update publicly any forward-looking statements for any reason,even if new information becomes available or other events occur in the future.

RiskFactors

*SIGNIFICANT PRODUCT LIABILITY CLAIMS ORPRODUCT RECALLS MAY FORCE US TO PAY SUBSTANTIAL DAMAGE AWARDS AND OTHEREXPENSES THAT COULD EXCEED OUR ACCRUALS AND INSURANCE COVERAGE.*

The manufacture and sale of medical devices exposes us tosignificant risk of product liability claims.  In the past, and currently, we have hada number of product liability claims relating to our products, and we may besubject to additional product liability claims in the future, some of which mayhave a negative impact on our business. Additionally, we could experience a material design or manufacturingfailure in our products, a quality system failure, other safety issues, orheightened regulatory scrutiny that would warrant a recall of some of ourproducts.  Our existing productliability insurance coverage may be inadequate to protect us from anyliabilities we might incur.  If aproduct liability claim or series of claims is brought against us for uninsuredliabilities or in excess of our insurance coverage, our business couldsuffer.  Some manufacturers thatsuffered such claims in the past have been forced to cease operations or evento declare bankruptcy.  In addition,a recall of some of our products could result in significant costs to us.

*WE ARESUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION, WHICH COULD MATERIALLY ADVERSELYAFFECT OUR BUSINESS.*

The production and marketing of our products and our ongoingresearch and development, pre-clinical testing and clinical trial activitiesare subject to extensive regulation and review by numerous governmentalauthorities both in the U.S. and abroad.  Most of the medical devices we developmust undergo rigorous pre-clinical and clinical testing and an extensiveregulatory approval process before they can be marketed.  This process makes it longer, harder andmore costly to bring our products to market, and we cannot guarantee that anyof our products will be approved. The pre-marketing approval process can be particularly expensive,uncertain and lengthy, and a number of devices for which FDA approval has beensought by other companies have never been approved for marketing.  In addition to testing and approvalprocedures, extensive regulations also govern marketing, manufacturing,distribution, labeling, and record-keeping procedures.  If we do not comply with applicableregulatory requirements, such violations could result in warning letters,non-approval, suspensions of regulatory approvals, civil penalties and criminalfines, product seizures and recalls, operating restrictions, injunctions, andcriminal prosecution. 

Delays in, withdrawal, or rejection of FDA or othergovernment entity approval of our products may also adversely affect ourbusiness.  Such delays or rejectionmay be encountered due to, among other reasons, government or regulatorydelays, lack of efficacy during clinical trials, unforeseen safety issues,slower than expected rate of patient recruitment for clinical trials, inabilityto follow patients after treatment in clinical trials, inconsistencies betweenearly clinical trial results and results obtained in later clinical trials,varying interpretations of data generated by clinical trials, or changes inregulatory policy during the period of product development in the U.S. andabroad.  In the U.S., there has been a continuing trendof more stringent FDA oversight in product clearance and enforcementactivities, causing medical device manufacturers to experience longer approvalcycles, greater risk and uncertainty, and higher expenses.  Internationally, there is a risk that wemay not be successful in meeting the quality standards or other certificationrequirements.  Even if regulatoryapproval of a product is granted, this approval may entail limitations on usesfor which the product may be labeled and promoted, or may prevent us frombroadening the uses of our current products for different applications.  In addition, we may not receive FDAapproval to export our products in the future, and countries to which productsare to be exported may not approve them for import. 

Our manufacturing facilities also are subject to continualgovernmental review and inspection. The FDA has stated publicly that compliance with manufacturingregulations will be scrutinized more strictly.  A governmental authority may challengeour compliance with applicable federal, state and foreign regulations.  In addition, any discovery of previouslyunknown problems with one of our products or facilities may result in restrictionson the product or the facility, including withdrawal of the product from themarket or other enforcement actions. 

From time to time, legislative or regulatory proposals areintroduced that could alter the review and approval process relating to medicaldevices.  It is possible that theFDA or other governmental authorities will issue additional regulations whichwould further reduce or restrict the sales of our present or proposed products.  Any change in legislation or regulationsthat govern the review and approval process relating to our current and futureproducts could make it more difficult and costly to obtain approval for newproducts, or to produce, market, and distribute existing products. 

*IF WE AREUNABLE TO CONTINUE TO DEVELOP AND COMMERCIALIZE NEW TECHNOLOGIES AND PRODUCTS,WE MAY EXPERIENCE A DECREASE IN DEMAND FOR OUR PRODUCTS OR OUR PRODUCTS COULDBECOME OBSOLETE.*** **

The medical device industry is highly competitive and issubject to significant and rapid technological change.  We believe that our ability to developor acquire new technologies is crucial to our success.  We are continually engaged in productdevelopment, improvement programs and required clinical studies to maintain andimprove our competitive position. Any significant delays in the above or termination of our clinicaltrials would materially and adversely affect our development andcommercialization timelines.  Wecannot guarantee that we will be successful in enhancing existing products, todevelop or acquire new products or technologies that will timely achieveregulatory approval or receive market acceptance.  

There is also a risk that our products may not gain marketacceptance among physicians, patients and the medical community generally.  The degree of market acceptance of anymedical device or other product that we develop will depend on a number offactors, including demonstrated clinical safety and efficacy,cost-effectiveness, potential advantages over alternative products, and ourmarketing and distribution capabilities. Physicians will not recommend our products if clinical and other data orother factors do not demonstrate their safety and efficacy compared to othercompeting products, or if our products do not best meet the particular needs ofthe individual patient.  

Our products compete with a number of other medical productsmanufactured by major companies, and may also compete with new productscurrently under development by others. In October 2003, our major competitor in our Aesthetic and generalsurgery segment, Inamed Corporation, presented its application to marketsilicon gel-filled breast implants to the General and Plastic Surgery AdvisoryPanel of the U.S. Food and Drug Administration.  The Panel voted their recommendationthat the FDA should approve, with conditions, Inamed’s gel-filled breastimplants for all indications – breast augmentation, reconstruction andrevision. The FDA has not yet acted on the Inamed’s application. Weintend to complete our application to the FDA for the pre-market approval forour silicon gel-filled implants for breast augmentation, reconstruction andrevision in December 2003.  Anydelay in the completion of our application, or its review or approval by theFDA, or the denial of our application would have a material adverse affect onour commercialization timelines, competitive position and ultimately ourrevenue and operating results. If our competitor gains FDA approval to marketits competitive products before we do, our competitive position maysuffer.  If our new products do notachieve significant market acceptance, or if our current products are not ableto continue competing successfully in the changing market, our sales andearnings may not grow as much as expected, or may even decline. 

*IF WE SUFFER NEGATIVE PUBLICITYCONCERNING THE SAFETY OF OUR PRODUCTS, OUR SALES MAY BE HARMED AND WE MAY BEFORCED TO WITHDRAW PRODUCTS.*

Physicians and potential patients may have a number ofconcerns about the safety of our products, including our breast and other implants,whether or not such concerns have a basis in generally accepted science orpeer-reviewed scientific research. Negative publicity – whether accurate or inaccurate–concerning our products could reduce market or governmental acceptanceof our products and could result in decreased product demand or productwithdrawal.  In addition,significant negative publicity could result in an increased number of productliability claims, whether or not these claims are supported by applicable law.*IF CHANGESIN THE ECONOMY AND CONSUMER SPENDING REDUCE CONSUMER DEMAND FOR OUR PRODUCTS,OUR SALES AND PROFITABILITY WOULD SUFFER.*

Certain elective procedures, such as breast augmentation,body contouring, and surgical treatment for male impotence are typically notcovered by insurance.  Adversechanges in the economy may cause consumers to reassess their spending choicesand reduce the demand for these surgeries and could have an adverse effect onconsumer spending.   This shiftcould have an adverse effect on our sales and profitability.  

*IF WE AREUNABLE TO IMPLEMENT NEW INFORMATION TECHNOLOGY SYSTEMS, OUR ABILITY TOMANUFACTURE AND SELL PRODUCTS, MAINTAIN REGULATORY COMPLIANCE AND MANAGE ANDREPORT OUR BUSINESS ACTIVITIES MAY BE IMPAIRED, DELAYED OR DIMINISHED, WHICHWOULD CAUSE SUBSTANTIAL BUSINESS INTERRUPTION AND LOSS OF SALES, CUSTOMERS ANDPROFITS.  *

We are in the process of designing and implementing anenterprise resource planning system that will be our primary businessmanagement system for nearly all of our businesses worldwide.  Many other companies have had severeproblems with computer system implementation of this nature and scope.  We are using a controlled project planand have assigned adequate staffing and other resources to the project toensure its successful implementation; however there is no assurance that thedesign will meet our current and future business needs or that it will operateas designed.  We are heavilydependent on such computer systems, and any failure or delay in the system implementationwould cause a substantial interruption to our business, additional expense, andloss of sales, customers, and profits. 

*IF WE AREUNABLE TO ACQUIRE COMPANIES, BUSINESSES OR TECHNOLOGIES AS PART OF OUR GROWTHSTRATEGY OR TO SUCCESSFULLY INTEGRATE PAST ACQUISITIONS, OUR GROWTH, SALES ANDPROFITABILITY WILL SUFFER.*

A significant portion of our recent growth has been theresult of acquisitions of other companies, businesses and technologies.  We intend to continue to acquire otherbusinesses and technologies to facilitate our future business strategies,although there can be no assurance that we will be able to identify appropriateacquisition candidates, consummate transactions or obtain agreements with termsfavorable to us.  Further, once abusiness is acquired, any inability to integrate the business, failure toretain and develop their workforce, or establish and maintain appropriatecommunications, performance expectations, regulatory compliance procedures,accounting controls, and reporting procedures could adversely affect our futuresales and earnings. 

*IF OURINTELLECTUAL PROPERTY RIGHTS DO NOT ADEQUATELY PROTECT OUR PRODUCTS ORTECHNOLOGIES, OTHERS COULD COMPETE AGAINST US MORE DIRECTLY, WHICH WOULD HURTOUR PROFITABILITY.*

Our success depends in part on our ability to obtain patentsor rights to patents, protect trade secrets, operate without infringing uponthe proprietary rights of others, and prevent others from infringing on ourpatents, trademarks and other intellectual property rights.  We will be able to protect ourintellectual property from unauthorized use by third parties only to the extentthat it is covered by valid and enforceable patents, trademarks or licenses.  Patent protection generally involvescomplex legal and factual questions and, therefore, enforceability of patentrights cannot be predicted with certainty; thus, any patents that we own orlicense from others may not provide us with adequate protection againstcompetitors.  Moreover, the laws ofcertain foreign countries do not recognize intellectual property rights orprotect them to the same extent as do the laws of the United States.

In addition to patents and trademarks, we rely on tradesecrets and proprietary know-how. We seek protection of these rights, in part, through confidentiality andproprietary information agreements. These agreements may not provide sufficient protection or adequateremedies for violation of our rights in the event of unauthorized use or disclosureof confidential and proprietary information.  Failure to protect our proprietaryrights could seriously impair our competitive position. 

*IF THIRDPARTIES CLAIM WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY RIGHTS, WE COULDSUFFER SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE PREVENTED FROMMARKETING OUR PRODUCTS.*

Our commercial success depends significantly on our abilityto operate without infringing the patents and other proprietary rights ofothers.  However, regardless of ourintent, our technologies may infringe upon the patents or violate otherproprietary rights of third parties. In the event of such infringement or violation, we may face expensivelitigation and may be prevented from selling existing products and pursuingproduct development or commercialization.

*WE DEPENDON SINGLE AND SOLE SOURCE SUPPLIERS FOR CERTAIN RAW MATERIALS AND LICENSEDPRODUCTS AND THE LOSS OF ANY SUPPLIER COULD ADVERSELY AFFECT OUR ABILITY TOMANUFACTURE OR SELL MANY OF OUR PRODUCTS.*

We currentlyrely on single or sole source suppliers for raw materials, including silicone,used in many of our products.  In the event that they cannot meet our requirements, we cannot guaranteethat we would be able to produce a sufficient amount of quality raw materialsin a timely manner.  We also dependon third party manufacturers for components and licensed products.  If there is a disruption in the supplyof these products, our sales and profitability would be adversely affected.  

On February 1, 2003, following the expiration ofour sole source brachytherapy seed supply agreement with North AmericanScientific, Inc. (NASI) supplying us with iodine and palladium seeds, wecompleted the acquisition of Mills Biopharmaceuticals Inc. (Mills), amanufacturer of iodine brachytherapy seeds.  We have since begun to supplyour customers with iodine seeds manufactured by Mills.  With regard to ourpalladium seed supply, on January 8, 2003 we announced that we had reached anonexclusive one-year agreement to distribute BestTM Palladium-103 brachytherapyseeds.  The agreement with Best expires on January 8, 2004.  Webelieve the agreement will be renewed or extended, however, if we are unable torenew or extend the agreement, on terms acceptable to us there may be aninterruption in our supply of palladium brachytherapy seeds.  We are alsoseeking other sources for similar radioactive seeds.  There is no assurancethat such seeds can be manufactured or obtained on terms satisfactory to us,without interruption or regulatory delay, or that such additional seeds willultimately be acceptable to customers.  Interruption of the supply ofseeds, additional competition, regulatory delay, additional costs to procureseeds, or loss of customers and market share may have a negative effect onrevenues and the results of operations.  

On November 4, 2002, we announced we had reached anagreement to purchase Mills Biopharmaceuticals Inc. (Mills), a manufacturer ofiodine brachytherapy seeds.  The purchase was completed February 1, 2003 followingthe expiration of our brachytherapy seed supply agreement with North AmericanScientific, Inc (NASI) to supply us with iodine and palladium seeds.   We have begun to supply customerswith iodine seeds manufactured by Mills.  In addition, on January 8, 2003, weannounced that we had reached a nonexclusive one-year agreement to distributeBest TM Palladium-103 brachytherapy seeds.  The agreement with Bestexpires on January 8, 2004.  We believe the agreement will be renewedor extended, however, if we are unable to renew or extend the agreement, onterms acceptable to us there may be an interruption in our supply of palladiumbrachytherapy seeds.  We are also seekingother sources for similar radioactive seeds.  There is no assurance thatsuch seeds can be manufactured or obtained on terms satisfactory to us, withoutinterruption or regulatory delay, or that such additional seeds will ultimatelybe acceptable to customers.  Interruption of the supply of seeds,additional competition, regulatory delay, additional costs to procure seeds, orloss of customers and market share may have a negative effect on revenues andthe results of operations.  

*OURINTERNATIONAL BUSINESS EXPOSES US TO A NUMBER OF RISKS.*

More than one-third of our sales are derived frominternational operations. Accordingly, any material decrease in foreign sales would have amaterial adverse effect on our overall sales and profitability.  Most of our international sales aredenominated in Euros, Canadian Dollars or U.S. Dollars.  Depreciation or devaluation of the localcurrencies of countries where we sell our products may result in our productsbecoming more expensive in local currency terms, thus reducing demand, whichcould have an adverse effect on our operating results.  Our operations and financial resultsalso may be significantly affected by other international factors, including:
- foreign government regulation of medical devices;  
- product liability, intellectual property and otherclaims; 
- new export license requirements; 
- political or economic instability in our targetmarkets; 
- trade restrictions; 
- changes in tax laws and tariffs; 
- managing foreign distributors and manufacturers;  
- managing foreign branch offices and staffing; and  
- competition 

If these risks actually materialize, our sales tointernational customers may decrease. 

*HEALTHCAREREIMBURSEMENT OR REFORM LEGISLATION COULD MATERIALLY AFFECT OUR BUSINESS.*

If any national healthcare reform or other legislation orregulations are passed that imposes limits on the amount of reimbursement forcertain types of medical procedures or products, the number or type of medicalprocedures that may be performed, or that has the effect of restricting aphysician's ability to select specific products for use in patient procedures,such changes could have a material adverse effect on the demand for our products.  Our revenues depend largely on U.S. and foreign government health careprograms and private health insurers reimbursing patients’ medicalexpenses.  Physicians, hospitals,and other health care providers may not purchase our products if they do notreceive satisfactory reimbursement from these third-party payers for the costof procedures using our products. In the U.S., there have been, and we expectthat there will continue to be, a number of federal and state legislative andregulatory proposals to implement greater governmental control over thehealthcare industry and its related costs. These proposals create uncertainty as to the future of our industry andmay have a material adverse effect on our ability to raise capital or to formcollaborations.  In a number offoreign markets, the pricing and profitability of healthcare products aresubject to governmental influence or control.  In addition, legislation or regulationsthat impose restrictions on the price that may be charged for healthcareproducts or medical devices may adversely affect our sales and profitability.

*IF OUR USEOF HAZARDOUS MATERIALS RESULTS IN CONTAMINATION OR INJURY, WE COULD SUFFERSIGNIFICANT FINANCIAL LOSS.  *

Our manufacturing and research activities involve the controlleduse of hazardous materials.  Wecannot eliminate the risk of accidental contamination or injury from thesematerials.  In the event of anaccident or environmental discharge, we may be held liable for any resultingdamages, which may exceed our financial resources and any applicable insurancecoverages. 

*FUTURECHANGES IN FINANCIAL ACCOUNTING STANDARDS MAY CAUSE ADVERSE UNEXPECTED REVENUEOR EXPENSE FLUCTUATIONS AND AFFECT OUR REPORTED RESULTS OF OPERATIONS.  *

A change in accounting standards could have a significanteffect on our reported results and may even affect our reporting oftransactions completed before the change is effective.  Any changes requiring that we recordcompensation expense in the statement of operations for employee stock optionsusing the fair value method could have a significant negative effect on ourreported results.  Newpronouncements and varying interpretations of existing pronouncements haveoccurred and may occur in the future. Changes to existing rules or current practices may adversely affect ourreported financial results of our business. 

*LITIGATIONMAY HARM OUR BUSINESS OR OTHERWISE DISTRACT OUR MANAGEMENT.*

Substantial, complex or extended litigation could cause usto incur large expenditures and distract our management, and could result insignificant monetary or equitable judgments against us.  For example, lawsuits by employees,patients, customers, licensors, licensees, suppliers, distributors,stockholders, or competitors could be very costly and substantially disrupt ourbusiness.  Disputes from time totime with such companies or individuals are not uncommon, and we cannot assurethat we will always be able to resolve such disputes out of court or on termsfavorable to us. 

**Item 3.**

**Quantitative And Qualitative  Disclosures About Market Risk**

There have been no material changes in our exposure tomarket risk as reported in Item 7A in our Annual Report on Form 10-K for thefiscal year ended March 31, 2003.

**Item 4.**

**Controls and Procedures**

Based on an evaluation of the effectiveness of ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)under the Securities Act of 1934, as amended), our Chief Executive Officer andour Chief Financial Officer have concluded that such controls and procedureswere effective as of the end of the period covered by this report.  Inconnection with such evaluation, no change in our internal control overfinancial reporting was identified that occurred during the period covered bythis report and that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

**PART II - OTHER INFORMATION**

**Item 1.         Legal Proceedings**

**         **None  

**Item 2.         Changes in Securities  and Use of Proceeds**

On September 9, 2003, Mentor Corporation issued  133,630 unregistered Common Shares to the shareholders of AMI, LLC under rule  506 of the Securities Act of 1933, as amended, in exchange for all the shares  of AMI, LLC, which owned certain patent and technology rights related to the  treatment of uterine disorders.  The shares were valued at $3.0 million  based upon average quoted market prices.   The shareholders represented to us their intention to hold the  securities for investment only and not with a view to a sale or any distribution  thereof.  The shareholders also  represented to us that they were sophisticated and able to protect their  interest in investing in the securities.  There were no commissions or  underwriters discount paid in connection with the shares.  Appropriate legends were affixed to the  stock certificate that was issued. 

**Item 3.         Defaults Upon Senior  Securities**

                    Not applicable.**Item 4.         Submission of Matters  to a Vote of Security Holders**

At the Company's 2003 Annual Meeting  of Shareholders held on September   10, 2003, the following proposals were  presented:

(1)  A proposal to fix the number of  directors at seven and to elect a Board of Directors of the Company to serve  until the next annual meeting, or until their successors are elected, approved  as follows:
          Name of Director 
 Votes For 
Votes WithheldChristopher J. Conway43,618,200 766,761Walter W. Faster    41,497,023 2,887,938Eugene G. Glover 43,689,200695,761Michael Nakonechny40,285,1834,099,778Ronald J. Rossi      41,495,983 2,888,978Jeffrey W. Ubben  43,507,440 877,521Dr. Richard W. Young 40,352,395 4,032,566
(2) A proposal to approve amendments to  the Company’s Bylaws to provide that the number of directors be  established by resolution of the Board of Directors was rejected.  The proposal received 15,934,812 votes  for, and 23,164,550 votes against. There were 88,823 abstentions and broker  non-votes.  

(3) A proposal to ratify the  appointment of Ernst & Young LLP to act as independent auditors of the  Company for the fiscal year ending March 31, 2004 was approved.  The proposal received 38,544,269 votes  for, and 593,330 against ratification.   There were 59,590 abstentions and broker non-votes. 

**Item 5.         Other Information                   **Effective August  5, 2003 the Company's shares began trading on the New York Stock Exchange                      under the symbol MNT. 

**Item 6.         Exhibits and Reports  on Form 8-K**

**                    (a) Exhibits**

31.1 Certification of Principal Executive Officer Pursuant To  Section 302 of The Sarbanes-Oxley Act of 2002.  31.2 Certification of Principal Financial Officer Pursuant To  Section 302 of The Sarbanes-Oxley Act of 2002.

32.1 CEO Certification  Pursuant To 18 U.S.C. Section 1350,  As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002,            filed herewith.  32.2 CFO Certification Pursuant To 18 U.S.C. Section 1350,  As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002,            filed herewith.

**(b) Reports on Form  8-K**
The following reports on Form 8-K were filed during the three months ended September 30, 2003.
1.  On July 30,  2003, a Current Report was filed with the SEC which furnished, under Item 12,  a press release issued by Mentor in connection with the fiscal 2004 first  quarter results of operations. 

****

**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

**MENTOR CORPORATION**

(Registrant)

Date:

November 13, 2003

By:

/S/CHRISTOPHER J.  CONWAY  Christopher J. Conway  President and Chief Executive Officer 

Date:

November 13, 2003

By:

/S/ADEL MICHAEL  Adel Michael  Executive Vice President  Chief Financial Officer |