-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DDX1mLBQx05JpfQivwwKKQz4i02FX4bofBwUxISxKu1fYCd5InIX1Aqrg4uOgIEA 0OolW12sHkdv0DwPHPrJPQ== 0000912057-01-007684.txt : 20010319 0000912057-01-007684.hdr.sgml : 20010319 ACCESSION NUMBER: 0000912057-01-007684 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010131 FILED AS OF DATE: 20010316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANTEL MEDICAL CORP CENTRAL INDEX KEY: 0000019446 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 221760285 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-06132 FILM NUMBER: 1570547 BUSINESS ADDRESS: STREET 1: 1135 BROAD STREET CITY: CLIFTON STATE: NJ ZIP: 07013 BUSINESS PHONE: 9734708700 MAIL ADDRESS: STREET 1: 1135 BROAD STREET STREET 2: 1135 BROAD STREET CITY: CLIFTON STATE: NJ ZIP: 07013 FORMER COMPANY: FORMER CONFORMED NAME: CANTEL INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: STENDIG INDUSTRIES INC DATE OF NAME CHANGE: 19890425 FORMER COMPANY: FORMER CONFORMED NAME: CHARVOZ CARSEN CORP DATE OF NAME CHANGE: 19861215 10-Q 1 a2041824z10-q.txt 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q /X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended January 31, 2001. or / / Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____ to _____. Commission file number: 0-6132 CANTEL MEDICAL CORP. -------------------- (Exact name of registrant as specified in its charter) DELAWARE 22-1760285 - ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 150 CLOVE ROAD, LITTLE FALLS, NEW JERSEY 07424 - --------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (973) 890-7220 -------------- Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes |X| No |_| Number of shares of Common Stock outstanding as of March 9, 2001: 4,474,812. PART I - FINANCIAL INFORMATION CANTEL MEDICAL CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollar Amounts in Thousands, Except Share Data) (Unaudited)
January 31, July 31, 2001 2000 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 1,956 $ 2,169 Available-for-sale securities 796 -- Accounts receivable, net 9,191 8,970 Inventories 9,678 6,992 Net assets related to discontinued business 571 3,095 Prepaid expenses and other current assets 480 475 -------- -------- Total current assets 22,672 21,701 Property and equipment, net 914 901 Intangible assets, net 1,272 1,345 Other assets 1,349 1,008 -------- -------- $ 26,207 $ 24,955 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,246 $ 5,054 Compensation payable 882 943 Other accrued expenses 1,252 979 Income taxes 839 594 -------- -------- Total current liabilities 7,219 7,570 Long-term debt -- 125 Deferred income taxes 96 97 Stockholders' equity: Preferred Stock, par value $1.00 per share; authorized 1,000,000 shares; none issued -- -- Common Stock, $.10 par value; authorized 12,000,000 shares; January 31 - 4,616,945 shares issued and 4,453,402 shares outstanding; July 31 - 4,597,220 shares issued and 4,438,381 shares outstanding 462 460 Additional capital 19,633 19,502 Retained earnings 1,733 96 Accumulated other comprehensive income: Unrealized gain on securities 71 -- Unrealized gain on currency hedging 33 -- Cumulative foreign currency translation adjustment (2,194) (2,097) Treasury Stock, at cost; January 31- 163,543 shares; July 31 -158,839 shares (846) (798) -------- -------- Total stockholders' equity 18,892 17,163 -------- -------- $ 26,207 $ 24,955 ======== ========
See accompanying notes. CANTEL MEDICAL CORP. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollar Amounts in Thousands, Except Per Share Data) (Unaudited)
Three Months Ended Six Months Ended January 31, January 31, 2001 2000 2001 2000 -------- -------- -------- -------- Net sales: Product sales $ 10,922 $ 8,813 $ 18,087 $ 15,698 Product service 1,655 1,312 3,111 2,631 -------- -------- -------- -------- Total net sales 12,577 10,125 21,198 18,329 -------- -------- -------- -------- Cost of sales: Product sales 6,580 5,548 10,626 9,857 Product service 809 656 1,590 1,440 -------- -------- -------- -------- Total cost of sales 7,389 6,204 12,216 11,297 -------- -------- -------- -------- Gross profit 5,188 3,921 8,982 7,032 Expenses: Shipping and warehouse 152 139 287 269 Selling 1,459 1,222 2,732 2,401 General and administrative 1,528 1,104 2,608 2,086 Research and development 256 219 455 361 -------- -------- -------- -------- Total operating expenses 3,395 2,684 6,082 5,117 -------- -------- -------- -------- Income from continuing operations before interest, other income and income taxes 1,793 1,237 2,900 1,915 Interest (income) expense, net (10) 75 (6) 131 Other income -- -- (7) -- -------- -------- -------- -------- Income from continuing operations before income taxes 1,803 1,162 2,913 1,784 Income taxes 815 539 1,276 776 -------- -------- -------- -------- Income from continuing operations 988 623 1,637 1,008 (Loss) income from discontinued operations -- (40) -- 70 -------- -------- -------- -------- Net income $ 988 $ 583 $ 1,637 $ 1,078 ======== ======== ======== ======== Earnings (loss) per common share: Basic: Continuing operations $ 0.22 $ 0.14 $ 0.37 $ 0.23 Discontinued operations -- (0.01) -- 0.01 -------- -------- -------- -------- Net income $ 0.22 $ 0.13 $ 0.37 $ 0.24 ======== ======== ======== ======== Diluted: Continuing operations $ 0.21 $ 0.14 $ 0.35 $ 0.23 Discontinued operations -- (0.01) -- 0.01 -------- -------- -------- -------- Net income $ 0.21 $ 0.13 $ 0.35 $ 0.24 ======== ======== ======== ========
See accompanying notes. 2 CANTEL MEDICAL CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar Amounts in Thousands) (Unaudited)
Six Months Ended January 31, 2001 2000 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations $ 1,637 $ 1,008 Adjustments to reconcile income from continuing operations to net cash (used in) provided by operating activities: Income from discontinued operations -- 70 Depreciation and amortization of continuing operations 282 222 Depreciation and amortization of discontinued operations -- 36 Changes in assets and liabilities: Accounts receivable (278) 1,178 Inventories (2,722) 70 Prepaid expenses and other current assets 27 17 Accounts payable and accrued expenses (548) (1,350) Income taxes 248 (389) ------- ------- Net cash (used in) provided by operating activities (1,354) 862 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (225) (245) Purchases of available-for-sale securities (725) -- Cash provided by (used in) discontinued operations 1,258 (1,370) Proceeds from transfer of discontinued operations 1,231 -- Other, net (359) (144) ------- ------- Net cash provided by (used in) investing activities 1,180 (1,759) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net (repayments) borrowings under credit facilities (125) 1,001 Proceeds from exercise of stock options 86 8 Purchases of Treasury Stock -- (208) ------- ------- Net cash (used in) provided by financing activities (39) 801 ------- ------- Decrease in cash and cash equivalents (213) (96) Cash and cash equivalents at beginning of period 2,169 534 ------- ------- Cash and cash equivalents at end of period $ 1,956 $ 438 ======= =======
See accompanying notes. 3 CANTEL MEDICAL CORP. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. BASIS OF PRESENTATION The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and the requirements of Form 10-Q and Rule 10.01 of Regulation S-X. Accordingly, they do not include certain information and note disclosures required by generally accepted accounting principles for annual financial reporting and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report of Cantel Medical Corp. (the "Company" or "Cantel") on Form 10-K for the fiscal year ended July 31, 2000, and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein. Cantel has two wholly-owned subsidiaries, Carsen Group Inc. ("Carsen"), its Canadian subsidiary, and MediVators, Inc. ("MediVators"), its United States subsidiary. The unaudited interim financial statements reflect all adjustments which management considers necessary for a fair presentation of the results of operations for these periods. The results of operations for the interim periods are not necessarily indicative of the results for the full year. The condensed consolidated balance sheet at July 31, 2000 was derived from the audited consolidated balance sheet of the Company at that date. Note 2. COMPREHENSIVE INCOME The Company has adopted Statement of Financial Accounting Standards No. 130, "REPORTING COMPREHENSIVE INCOME", which establishes standards for the reporting and disclosure of comprehensive income and its components in the financial statements. The adoption of this Statement had no impact on the Company's net income and an insignificant impact on stockholders' equity. The Company's comprehensive income for the three and six months ended January 31, 2001 and 2000 are set forth in the following table:
Three Months Ended Six Months Ended January 31, January 31, ----------------------- ------------------------- 2001 2000 2001 2000 ----------- -------- ----------- ---------- Net income $ 988,000 $583,000 $ 1,637,000 $1,078,000 Other comprehensive income (loss): Unrealized gain on securities 88,000 -- 71,000 -- Unrealized loss on currency hedging (122,000) -- (74,000) -- Foreign currency translation 347,000 235,000 (97,000) 505,000 ----------- -------- ----------- ---------- Comprehensive income $ 1,301,000 $818,000 $ 1,537,000 $1,583,000 =========== ======== =========== ==========
4 Note 3. HEDGING ACTIVITIES Effective August 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133, as amended, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS No. 133"). SFAS No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives will either be offset against the change in the fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of the change in fair value of a derivative that is designated as a hedge will be immediately recognized in earnings. The Company's Canadian subsidiary purchases and pays for a substantial portion of its products in United States dollars and is therefore exposed to fluctuations in the rates of exchange between the United States dollar and Canadian dollar. In order to hedge against the impact of such currency fluctuations on the purchases of inventories, Carsen enters into foreign currency forward contracts on firm purchases of such inventories in United States dollars. Total commitments for such foreign currency forward contracts amounted to $3,000,000 (United States dollars) at January 31, 2001 and cover a portion of Carsen's projected purchases of inventories through July 2001. These foreign currency forward contracts are designated as hedges, and therefore recognition of gains and losses is deferred within other comprehensive income until settlement of the underlying commitments. Realized gains and losses are recorded within cost of sales upon settlement. The Company does not hold any derivative financial instruments for speculative or trading purposes. The adoption of SFAS No. 133 on August 1, 2000 did not have a material impact on operations; however, it resulted in a $107,000 gain being recorded in other comprehensive income. Additionally, the fair value of the Company's derivatives was $33,000 at January 31, 2001, which resulted in the recording of an unrealized loss of $74,000 during the six months ended January 31, 2001. The entire January 31, 2001 deferred gain of $33,000 will be recognized in earnings during fiscal 2001. Note 4. DISCONTINUED OPERATIONS On October 6, 2000, Carsen consummated a transaction under an Asset Purchase Agreement with Olympus America Inc. ("Olympus") pursuant to which Carsen terminated its consumer products business and sold its inventories of Olympus consumer products to Olympus. The transaction had an effective date of July 31, 2000. 5 The purchase price for the inventory was $1,026,000, net of adjustments related to estimated warranty claims and promotional program expenses payable to Carsen's customers. Carsen will receive additional consideration from Olympus under the Purchase Agreement, including amounts related to transition services provided by Carsen subsequent to July 31, 2000. Such consideration includes (i) fixed cash amounts aggregating approximately $615,000 and (ii) twelve and one-half percent (12 1/2%) of Olympus' net sales of consumer products in Canada in excess of $8,000,000 during the period from August 1, 2000 through March 31, 2001. Approximately $115,000 of the fixed cash amounts were received during the six months ended January 31, 2001, and the remaining amounts are payable on various dates through April 30, 2001. Olympus also reimbursed Carsen for certain expenses related to the termination of Carsen's consumer products business. The discontinuance of the Consumer Products business has been reflected as a discontinued operation and is presented separately in the Company's Condensed Consolidated Financial Statements. The Company's Condensed Consolidated Statements of Income for the three and six months ended January 31, 2000 and Condensed Consolidated Statements of Cash Flows for the six months ended January 31, 2000 have been restated to conform to the current year's presentation. For the three months ended January 31, 2000, the loss from discontinued operations consisted of a pretax loss of $73,000 less a related income tax benefit of $33,000. For the six months ended January 31, 2000, the gain from discontinued operations consisted of pretax income of $125,000 less related income taxes of $55,000. The components of net assets related to discontinued business in the Condensed Consolidated Balance Sheets and the activity during the six months ended January 31, 2001 are set forth below:
July 31, Cash Received Other Cash January 31, 2000 on Closing Settlements 2001 ----------- ----------- ----------- --------- Trade accounts receivable, net of allowance for doubtful accounts of $99,000 at July 31 and $44,000 at January 31 $ 3,047,000 $ -- $(3,047,000) $ -- Consideration due under Purchase Agreement 1,989,000 (1,231,000) -- 758,000 Inventories 235,000 -- (57,000) 178,000 Accounts payable (1,531,000) -- 1,531,000 -- Accrued expenses: Customer promotions (332,000) -- 218,000 (114,000) Compensation and other (313,000) -- 62,000 (251,000) ----------- ----------- ----------- --------- Net assets related to discontinued business $ 3,095,000 $(1,231,000) $(1,293,000) $ 571,000 =========== =========== =========== =========
6 Note 5. EARNINGS PER COMMON SHARE Basic earnings per common share are computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per common share are computed based upon the weighted average number of common shares outstanding during the period plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price for the period. The following table sets forth the computation of basic and diluted earnings per common share:
Three Months Ended Six Months Ended January 31, January 31, -------------------------- -------------------------- 2001 2000 2001 2000 ---------- ------------- ---------- ------------- Numerator for basic and diluted earnings (loss) per common share: Income from continuing operations $ 988,000 $ 623,000 $1,637,000 $ 1,008,000 Income (loss) from discontinued operations -- (40,000) -- 70,000 ---------- ------------- ---------- ------------- Net income $ 988,000 $ 583,000 $1,637,000 $ 1,078,000 ========== ============= ========== ============= Denominator for basic and diluted earnings (loss) per common share: Denominator for basic earnings per common share - weighted average number of shares outstanding 4,446,011 4,411,621 4,442,468 4,414,697 Dilutive effect of common stock equivalents using the treasury stock method and the average market price for the period 286,921 57,126 257,485 61,615 ---------- ------------- ---------- ------------- Denominator for diluted earnings per common share - weighted average number of shares outstanding and common stock equivalents 4,732,932 4,468,747 4,699,953 4,476,312 ========== ============= ========== ============= Basic earnings (loss) per common share: Continuing operations $ 0.22 $ 0.14 $ 0.37 $ 0.23 Discontinued operations -- (0.01) -- 0.01 ---------- ------------- ---------- ------------- Net income $ 0.22 $ 0.13 $ 0.37 $ 0.24 ========== ============= ========== ============= Diluted earnings (loss) per common share: Continuing operations $ 0.21 $ 0.14 $ 0.35 $ 0.23 Discontinued operations -- (0.01) -- 0.01 ---------- ------------- ---------- ------------- Net income $ 0.21 $ 0.13 $ 0.35 $ 0.24 ========== ============= ========== =============
7 Note 6. FINANCING ARRANGEMENTS On February 23, 2001, the Company entered into a credit facility with a United States bank and a Canadian bank which provides for i) a $2,500,000 revolving credit facility for Cantel and MediVators (the "U.S. Borrowers") (the "U.S. Revolving Credit Facility") and ii) a $5,000,000 (United States dollars) revolving credit facility for Carsen (the "Canadian Borrower") (the "Canadian Revolving Credit Facility"), both of which revolving credit facilities expire on February 22, 2004, and iii) a $12,500,000 acquisition facility available to the U.S. Borrowers for permitted acquisitions in the United States through February 22, 2003 (the "Acquisition Facility"). Borrowings under the U.S. Revolving Credit Facility and the Acquisition Facility will bear interest at rates ranging from .25% to .75% above the United States lender's base rate, or at rates ranging from 2% to 3% above the London Interbank Offered Rate ("LIBOR"), depending upon the U.S. Borrowers' ratio of debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"). Borrowings under the Canadian Revolving Credit Facility may be in either Canadian dollars or United States dollars and will bear interest at rates ranging from .25% to .75% above the Canadian lender's base rate, or at rates ranging from 2% to 3% above the LIBOR rate, depending upon the Canadian Borrower's ratio of debt to EBITDA. The base rates associated with the United States lender and the Canadian lender were 8.50% and 6.75%, respectively, at March 9, 2001. Each of the credit facilities provides for available borrowings based upon percentages of eligible accounts receivable and inventories; requires the respective borrower to meet certain financial covenants; and is secured by substantially all assets of the respective borrower. In addition, the U.S. Revolving Credit Facility is secured by the pledge of all of the outstanding shares of MediVators stock owned by Cantel and the Canadian Revolving Credit Facility is secured by substantially all assets (including the pledge of 65% of the outstanding shares of Carsen stock owned by Cantel) of, and is guaranteed by, the U.S. Borrowers. Note 7. INCOME TAXES Income taxes consist primarily of taxes imposed on the Company's Canadian operations. The effective tax rate on Canadian operations was 42.5% and 44.2% for the six months ended January 31, 2001 and 2000, respectively. For the six months ended January 31, 2001, the consolidated effective tax rate was higher than the Canadian effective tax rate due to state income tax expense incurred by the United States operations, notwithstanding the fact that income generated by the United States operations is substantially offset by Federal tax benefits resulting from the utilization of net operating loss carryforwards. For the six months ended January 31, 2000, the consolidated effective tax rate was lower than the Canadian effective tax rate due to the fact that income generated by the United States operations is substantially offset by tax benefits resulting from the 8 utilization of net operating loss carryforwards for both Federal and state purposes. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF CONTINUING OPERATIONS Reference is made to the discontinuance of the Company's Consumer Products business, as more fully described in note 4 to the Condensed Consolidated Financial Statements. The results of continuing operations reflect primarily the results of Carsen and MediVators. There was no significant impact upon the Company's results of operations for the three and six months ended January 31, 2001, compared with the three and six months ended January 31, 2000, as a result of fluctuations in the rate of exchange between the United States dollar and Canadian dollar. The ensuing discussion should also be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2000. The following table gives information as to the net sales and the percentage to the total net sales accounted for by each operating segment of the Company.
Three Months Ended Six Months Ended January 31, January 31, -------------------------------------- -------------------------------------- 2001 2000 2001 2000 ----------------- ----------------- ----------------- ----------------- (Dollar amounts in thousands) $ % $ % $ % $ % -------- ---- -------- ---- -------- ---- -------- ---- Medical Products $ 5,664 45.0 $ 4,770 47.1 $ 9,300 43.9 $ 8,026 43.8 Infection Control Products 3,224 25.6 2,440 24.1 5,543 26.1 4,774 26.0 Scientific Products 2,240 17.8 1,784 17.6 3,571 16.8 3,184 17.4 Product Service 1,655 13.2 1,312 13.0 3,111 14.7 2,631 14.4 Elimination of inter- company sales of Infection Control Products (206) (1.6) (181) (1.8) (327) (1.5) (286) (1.6) -------- ----- -------- ----- -------- ----- -------- ----- $ 12,577 100.0 $ 10,125 100.0 $ 21,198 100.0 $ 18,329 100.0 ======== ===== ======== ===== ======== ===== ======== =====
Net sales increased by $2,452,000, or 24.2%, to $12,577,000 for the three months ended January 31, 2001, from $10,125,000 for the three months ended January 31, 2000. Net sales increased by $2,869,000, or 15.7%, to $21,198,000 for the six months ended January 31, 2001, from $18,329,000 for the six months ended January 31, 2000. These increases were attributable to increased sales in all of the Company's business segments. The increased sales of Medical Products was due primarily to an increase in demand, a portion of which was attributable to the introduction of new flexible endoscopy products, and selling price increases. The increased sales of Infection Control Products was due primarily to an increase in demand for consumables, including filters. 9 The increased sales of Scientific Products was primarily attributable to an increase in demand for microscopes and related imaging equipment. The increased sales of Product Service was due primarily to an increase in demand and selling price increases. Gross profit increased by $1,267,000, or 32.3%, to $5,188,000 for the three months ended January 31, 2001, from $3,921,000 for the three months ended January 31, 2000. Gross profit increased by $1,950,000, or 27.7%, to $8,982,000 for the six months ended January 31, 2001, from $7,032,000 for the six months ended January 31, 2000. Gross profit as a percentage of sales for the three and six months ended January 31, 2001 were 41.2% and 42.4%, respectively, compared with 38.7% and 38.4% for the three and six months ended January 31, 2000. The higher gross profit percentages for the three and six months ended January 31, 2001 were primarily attributable to a buy-in of Medical Products inventories during fiscal 2000 prior to receiving a supplier price increase, a portion of which inventories were sold during the three and six months ended January 31, 2001; selling price increases in Medical Products and Product Service; favorable sales mix associated with Product Service and Scientific Products; and favorable sales mix and manufacturing efficiencies associated with Infection Control Products. Shipping and warehouse expenses increased by $13,000 to $152,000 for the three months ended January 31, 2001, from $139,000 for the three months ended January 31, 2000. For the six months ended January 31, 2001, shipping and warehouse expenses increased by $18,000 to $287,000, from $269,000 for the six months ended January 31, 2000. Selling expenses as a percentage of net sales were 11.6% and 12.9% for the three and six months ended January 31, 2001, compared with 12.1% and 13.1% for the three and six months ended January 31, 2000. For the three and six months ended January 31, 2001, the decreases in selling expenses as a percentage of net sales was primarily attributable to the effect of the increased sales against the fixed portion of selling expenses and the reduction of commissions as a percentage of sales at Carsen due to a restructuring of certain compensation packages. General and administrative expenses increased by $424,000 to $1,528,000 for the three months ended January 31, 2001, from $1,104,000 for the three months ended January 31, 2000. For the six months ended January 31, 2001, general and administrative expenses increased by $522,000 to $2,608,000, from $2,086,000 for the six months ended January 31, 2000. These increases were primarily attributable to additional personnel, incentive compensation, consulting fees, rent, and depreciation and amortization. Research and development expenses increased by $37,000 to $256,000 for the three months ended January 31, 2001, from $219,000 for the 10 three months ended January 31, 2000. For the six months ended January 31, 2001, research and development expenses increased by $94,000 to $455,000, from $361,000 for the six months ended January 31, 2000. These increases were primarily attributable to an increase in personnel. Interest income was $10,000 for the three months ended January 31, 2001, compared with interest expense of $75,000 for the three months ended January 31, 2000. For the six months ended January 31, 2001, interest income was $6,000, compared with interest expense of $131,000 for the six months ended January 31, 2000. These changes in interest were attributable to interest income earned on cash and cash equivalents during the three and six months ended January 31, 2001, compared with interest expense on outstanding borrowings under the Company's revolving credit facilities during the three and six months ended January 31, 2000. Income from continuing operations before income taxes increased by $1,129,000 to $2,913,000 for the six months ended January 31, 2001, from $1,784,000 for the six months ended January 31, 2000. Income taxes consist primarily of taxes imposed on the Company's Canadian operations. The effective tax rate on Canadian operations was 42.5% and 44.2% for the six months ended January 31, 2001 and 2000, respectively. For the six months ended January 31, 2001, the consolidated effective tax rate was higher than the Canadian effective tax rate due to state income tax expense incurred by the United States operations, notwithstanding the fact that income generated by the United States operations is substantially offset by Federal tax benefits resulting from the utilization of net operating loss carryforwards. For the six months ended January 31, 2000, the consolidated effective tax rate was lower than the Canadian effective tax rate due to the fact that income generated by the United States operations is substantially offset by tax benefits resulting from the utilization of net operating loss carryforwards for both Federal and state purposes. LIQUIDITY AND CAPITAL RESOURCES At January 31, 2001, the Company's working capital was $15,453,000, compared with $14,131,000 at July 31, 2000. This increase primarily reflects an increase in inventories and a decrease in accounts payable, partially offset by a decrease in net assets related to discontinued business. Net cash used in operating activities was $1,354,000 for the six months ended January 31, 2001 compared with net cash provided by operating activities of $862,000 for the six months ended January 31, 2000. For the six months ended January 31, 2001, the net cash used in operating activities was primarily due to an increase in inventories and a decrease in accounts payable and accrued expenses, partially offset by income from continuing operations, after adjusting for depreciation and amortization. For the six months ended January 31, 11 2000, the net cash provided by operating activities was primarily due to income from continuing operations, after adjusting for depreciation and amortization, and a decrease in accounts receivable, partially offset by a decrease in accounts payable and accrued expenses. Net cash provided by investing activities was $1,180,000 for the six months ended January 31, 2001 compared with net cash used in investing activities of $1,759,000 for the six months ended January 31, 2000. For the six months ended January 31, 2001, the net cash provided by investing activities was primarily due to proceeds from the transfer of discontinued operations and a decrease in net assets related to discontinued business, partially offset by purchases of available-for-sale securities. For the six months ended January 31, 2000, net cash used in investing activities was primarily due to an increase in net assets related to discontinued business. Net cash used in financing activities was $39,000 for the six months ended January 31, 2001 compared with net cash provided by financing activities of $801,000 for the six months ended January 31, 2000. These changes were principally due to the fluctuations in outstanding borrowings under the Company's revolving credit facilities, partially offset for the six months ended January 31, 2000 by purchases of Treasury Stock. On February 23, 2001, the Company entered into a credit facility with a United States bank and a Canadian bank which provides for i) a $2,500,000 revolving credit facility for Cantel and MediVators (the "U.S. Borrowers") (the "U.S. Revolving Credit Facility") and ii) a $5,000,000 (United States dollars) revolving credit facility for Carsen (the "Canadian Borrower") (the "Canadian Revolving Credit Facility"), both of which revolving credit facilities expire on February 22, 2004, and iii) a $12,500,000 acquisition facility available to the U.S. Borrowers for permitted acquisitions in the United States through February 22, 2003 (the "Acquisition Facility"). Borrowings under the U.S. Revolving Credit Facility and the Acquisition Facility will bear interest at rates ranging from .25% to .75% above the United States lender's base rate, or at rates ranging from 2% to 3% above the London Interbank Offered Rate ("LIBOR"), depending upon the U.S. Borrowers' ratio of debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"). Borrowings under the Canadian Revolving Credit Facility may be in either Canadian dollars or United States dollars and will bear interest at rates ranging from .25% to .75% above the Canadian lender's base rate, or at rates ranging from 2% to 3% above the LIBOR rate, depending upon the Canadian Borrower's ratio of debt to EBITDA. The base rates associated with the United States lender and the Canadian lender were 8.50% and 6.75%, respectively, at March 9, 2001. Each of the credit facilities provides for available borrowings based upon percentages of eligible accounts receivable and inventories; requires the respective borrower to meet certain financial covenants; and is secured by substantially all assets of the respective borrower. In addition, the 12 U.S. Revolving Credit Facility is secured by the pledge of all of the outstanding shares of MediVators stock owned by Cantel and the Canadian Revolving Credit Facility is secured by substantially all assets (including the pledge of 65% of the outstanding shares of Carsen stock owned by Cantel) of, and is guaranteed by, the U.S. Borrowers. For the six months ended January 31, 2001, compared with the six months ended January 31, 2000, the average value of the Canadian dollar decreased by 2% relative to the value of the United States dollar. Changes in the value of the Canadian dollar against the United States dollar affects the Company's results of operations because the Company's Canadian subsidiary purchases substantially all of its products in United States dollars and sells its products in Canadian dollars. Such currency fluctuations also result in a corresponding change in the United States dollar value of the Company's assets that are denominated in Canadian dollars. Under the Carsen Revolving Credit Facility, the Company's Canadian subsidiary has a $15,000,000 (United States dollars) foreign currency hedging facility which is available to be used to hedge against the impact of such currency fluctuations on the purchases of inventories. Total commitments for foreign currency forward contracts (outstanding under a prior Carsen credit facility) amounted to $1,262,000 (United States dollars) at March 9, 2001 and cover a portion of Carsen's projected purchases of inventories through July 2001. The weighted average exchange rate of the forward contracts open at March 9, 2001 was $1.4586 Canadian dollar per United States dollar, or $.6856 United States dollar per Canadian dollar. The exchange rate published by the Wall Street Journal on March 9, 2001 was $1.5471 Canadian dollar per United States dollar, or $.6464 United States dollar per Canadian dollar. Effective August 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133, as amended, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS No. 133"). In accordance with SFAS No. 133, these foreign currency forward contracts are designated as hedges, and recognition of gains and losses is deferred within other comprehensive income until settlement of the underlying commitments. Realized gains and losses are recorded within cost of sales upon settlement. The adoption of SFAS No. 133 did not have a material impact on operations; however, it resulted in a $107,000 gain being recorded in other comprehensive income. Additionally, the fair value of the Company's derivatives was $33,000 at January 31, 2001, which resulted in the recording of an unrealized loss of $74,000 during the six months ended January 31, 2001. For purposes of translating the balance sheet, at January 31, 2001 compared with July 31, 2000, the value of the Canadian dollar decreased by 1% relative to the value of the United States dollar. As a result, at January 31, 2001, the negative cumulative foreign currency translation adjustment was increased by $97,000 compared to July 31, 13 2000, thereby decreasing stockholders' equity. The Company believes that its current cash position, anticipated cash flow from operations, amounts to be received related to the discontinuance of the Company's Consumer Products business and the funds available under the credit facilities will be sufficient to satisfy the Company's cash operating requirements for its existing operations for the foreseeable future. At March 9, 2001, $7,240,000 was available under the credit facilities. Inflation has not significantly impacted the Company's operations. Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. All forward-looking statements involve risks and uncertainties, including, without limitation, acceptance and demand of new products, the impact of competitive products and pricing, the Company's ability to successfully integrate and operate acquired and merged businesses and the risks associated with such businesses, and the risks detailed in the Company's filings and reports with the Securities and Exchange Commission. Such statements are only predictions, and actual events or results may differ materially from those projected. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK. Foreign currency market risk: Carsen purchases and pays for a substantial portion of its products in United States dollars, and Carsen's business could be materially and adversely affected by the imposition of trade barriers, fluctuations in the rates of currency exchange, tariff increases and import and export restrictions between the United States and Canada. Additionally, Carsen's financial statements are translated using the accounting policies described in Note 2 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2000. During the six months ended January 31, 2001 compared with the six months ended January 31, 2000, fluctuations in the exchange rates between the United States dollar and Canadian dollar had an insignificant impact upon the Company's results of operations and an adverse impact upon stockholders' equity, as described in Management's Discussion and Analysis of Financial Condition and Results of Operations. Interest rate market risk: The Company has two credit facilities for which the interest rate on outstanding borrowings, if any, is variable. Therefore, interest expense is affected by the general level of interest rates in the United States and Canada. 14 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There was no submission of matters to a vote during the three months ended January 31, 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits-none. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the three months ended January 31, 2001. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CANTEL MEDICAL CORP. Date: March 9, 2001 By: /s/ JAMES P. REILLY ------------------------ James P. Reilly, President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) By: /s/ CRAIG A. SHELDON ------------------------ Craig A. Sheldon, Vice President and Controller (Chief Accounting Officer) 16 -----END PRIVACY-ENHANCED MESSAGE-----