<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
/ X / Quarterly Report pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the quarterly period ended October 31, 1997.
or
/ / Transition Report pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the transition period from _____ to _____.
Commission file number: 0-6132
CANTEL INDUSTRIES, INC.
-----------------------
(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.)
1135 BROAD STREET, CLIFTON, NEW JERSEY 07013-3346
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code
(973) 470-8700
--------------
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 December 5, 1997: 4,166,322.
<PAGE>
PART I - FINANCIAL INFORMATION
CANTEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar Amounts in Thousands, Except Share Data)
(Unaudited)
October 31, July 31,
1997 1997
---------- ---------
ASSETS
Current assets:
Cash $ 597 $ 656
Accounts receivable 5,067 6,984
Inventories 8,921 8,974
Prepaid expenses and other current assets 559 395
------- -------
Total current assets 15,144 17,009
Property and equipment, at cost:
Furniture and equipment 2,041 2,009
Leasehold improvements 554 559
------- -------
2,595 2,568
Less accumulated depreciation and amortization (1,814) (1,801)
------- -------
781 767
Other assets 860 826
------- -------
$16,785 $18,602
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,107 $ 3,732
Compensation payable 692 909
Other accrued expenses 604 706
Income taxes payable - 556
------- -------
Total current liabilities 3,403 5,903
Long-term debt 2,207 1,594
Deferred income taxes 80 88
Stockholders' equity:
Preferred Stock, par value $1.00 per share;
authorized 1,000,000 shares; none issued - -
Common Stock, $.10 par value; authorized 7,500,000
shares; issued and outstanding October 31
and July 31 - 4,166,322 shares 417 417
Additional capital 17,609 17,609
Accumulated deficit (5,359) (5,652)
Cumulative foreign currency translation adjustment (1,572) (1,357)
------- -------
Total stockholders' equity 11,095 11,017
------- -------
$16,785 $18,602
------- -------
------- -------
See accompanying notes.
1
<PAGE>
CANTEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollar Amounts in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended
October 31,
1997 1996
------- -------
Net sales:
Product sales $ 7,230 $ 6,434
Product service 962 981
------- -------
Total net sales 8,192 7,415
------- -------
Cost of sales:
Product sales 4,965 4,245
Product service 537 628
------- -------
Total cost of sales 5,502 4,873
------- -------
Gross profit 2,690 2,542
Expenses:
Shipping and warehouse 143 141
Selling 951 894
General and administrative 832 837
Research and development 190 111
------- -------
Total operating expenses 2,116 1,983
------- -------
Income from operations before
interest expense and income
taxes 574 559
Interest expense 33 47
------- -------
Income before income taxes 541 512
Income taxes 248 290
------- -------
Net income $ 293 $ 222
------- -------
------- -------
Earnings per common share:
Primary $ 0.07 $ 0.05
------- -------
------- -------
Fully diluted $ 0.07 $ 0.05
------- -------
------- -------
See accompanying notes.
2
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CANTEL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
(Unaudited)
Three Months Ended
October 31,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 293 $ 222
Adjustments to reconcile net income
to net cash (used in) provided by operating
activities:
Depreciation and amortization 64 79
Deferred income taxes (8) 5
Changes in assets and liabilities:
Accounts receivable 1,917 (81)
Inventories 53 (671)
Prepaid expenses and other current assets (164) (94)
Accounts payable and accrued expenses (1,944) 1,093
Income taxes payable (556) 120
-------- --------
Net cash (used in) provided by operating activities (345) 673
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property and equipment (121) (142)
Other, net (206) 109
-------- --------
Net cash used in investing activities (327) (33)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under credit facilities 613 (647)
Proceeds from exercise of stock options - 41
-------- --------
Net cash provided by (used in) financing activities 613 (606)
-------- --------
(Decrease) increase in cash (59) 34
Cash at beginning of period 656 682
-------- --------
Cash at end of period $ 597 $ 716
-------- --------
-------- --------
See accompanying notes.
3
<PAGE>
CANTEL INDUSTRIES, INC.
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
Industries, Inc. (the "Company" or "Cantel") on Form 10-K for the fiscal year
ended July 31, 1997, and Management's Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere herein.
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, 1997 was derived from
the audited consolidated balance sheet of the Company at that date.
Certain items in the October 31, 1996 financial statements have been
reclassified from statements previously presented to conform to the presentation
of the October 31, 1997 financial statements.
Note 2. EARNINGS PER COMMON SHARE
Primary earnings per common share are computed based upon the weighted
average number of common shares outstanding during the period plus the dilutive
effect of options and warrants using the treasury stock method and the average
market price for the period.
Fully 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 options and warrants using the treasury stock method and the
higher of the period-end or average market price for the period.
4
<PAGE>
The following weighted average shares were used for the computation of
primary and fully diluted earnings per common share:
FOR THE
THREE MONTHS ENDED
OCTOBER 31,
---------------------
1997 1996
--------- ---------
Primary 4,382,845 4,321,142
--------- ---------
--------- ---------
Fully diluted 4,411,722 4,326,778
--------- ---------
--------- ---------
Note 3. FINANCING ARRANGEMENTS
The Company has two credit facilities, a $5,000,000 revolving credit
facility for Carsen and a $1,500,000 revolving credit facility for MediVators.
MediVators' revolving credit facility was reduced from $2,000,000 subsequent to
October 31, 1997 at MediVators' request.
Pursuant to the terms of the Carsen revolving credit facility, borrowings
under such facility must be paid in full no later than December 31, 1999.
Borrowings outstanding at October 31, 1997 and July 31, 1997 are in Canadian
dollars and bear interest at rates ranging from lender's Canadian prime rate to
.75% above the prime rate, depending upon Carsen's debt to equity ratio. At
October 31, 1997, the lender's Canadian prime rate was 5.25% and Carsen's
outstanding borrowings bear interest at a rate of .25% above the prime rate.
Subsequent to October 31, 1997, the lender's prime rate increased to 5.5% and
Carsen's borrowings will bear interest at such prime rate. A commitment fee on
the unused portion of this facility is payable in arrears at a rate of .25% per
annum, with interest on borrowings payable monthly. There were $1,561,000 (U.S.
dollars) of borrowings outstanding under this facility at October 31, 1997.
Pursuant to the terms of the MediVators revolving credit facility,
borrowings under such facility must be paid in full no later than December 3,
1998. Borrowings bear interest at 1.5% above the lender's United States prime
rate. The lender's prime rate was 8.5% at October 31, 1997. A commitment fee
on the unused portion of this facility is payable in arrears at a rate of .5%
per annum, with interest on borrowings payable monthly. There were $589,000 of
borrowings outstanding under this facility at October 31, 1997.
Each of the credit facilities provides for restrictions on available
borrowings based primarily upon percentages of eligible accounts receivable and
inventories; requires the subsidiary to
5
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meet certain financial covenants; are secured by substantially all assets of the
subsidiary; and are guaranteed by Cantel.
Note 4. INCOME TAXES
Income taxes primarily consist of foreign income taxes imposed on the
Company's Canadian operations. The effective tax rate on Canadian operations
was 44.9% and 44.6% for the three months ended October 31, 1997 and 1996,
respectively. However, the consolidated effective tax rate is higher due to the
fact that losses generated by the Company's combined U.S. operations cannot be
used to offset income generated by the Canadian operations.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The results of operations described hereafter reflect the results of the
Company's wholly-owned Canadian subsidiary, Carsen Group Inc. ("Carsen" or
"Canadian subsidiary") and its wholly-owned U.S. subsidiary, MediVators, Inc.
("MediVators" or "United States subsidiary"). 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, 1997.
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
OCTOBER 31,
--------------------------
1997 1996
--------------------------
(Dollar amounts in thousands)
$ % $ %
----- ----- ----- ----
Medical, Infection
Control and Scientific
Products:
Medical and
Infection Control
Products $3,835 46.8 $3,620 48.8
Scientific
Products 1,472 18.0 1,446 19.5
Product Service 962 11.7 981 13.2
Consumer Products 1,923 23.5 1,368 18.5
------ ----- ------ -----
$8,192 100.0 $7,415 100.0
------ ----- ------ -----
------ ----- ------ -----
Net sales increased by $777,000, or 10.5%, to $8,192,000 for the three
months ended October 31, 1997, from $7,415,000 for the three months ended
October 31, 1996. This increase was principally attributable to increased sales
of Medical and Infection Control Products and Consumer Products.
The increased sales of Medical and Infection Control Products for the three
months ended October 31, 1997 was primarily attributable to an increase in
demand for infection control products resulting from the continuing positive
impact of the strategic alliance with Olympus America Inc. ("Olympus") for the
sale of MediVators' endoscope disinfection equipment and related consumables.
The increased sales of Consumer Products for the three months ended October 31,
1997 was due to stronger demand for certain 35 mm. and digital camera models and
related accessories, some of which were not available during the three months
ended October 31, 1996.
7
<PAGE>
Gross profit increased by $148,000, or 5.8%, to $2,690,000 for the three
months ended October 31, 1997, from $2,542,000 for the three months end October
31, 1996. The gross profit margin for the three months ended October 31, 1997
was 32.8%, compared with 34.3% for the three months ended October 31, 1996. The
lower gross profit margin for the three months ended October 31, 1997 was
primarily attributable to more competitive sales of medical products; increased
sales of consumer products, which generally have lower profit margins; and the
adverse impact of a weaker Canadian dollar relative to the United States dollar,
since most of the Canadian subsidiary's purchases are denominated in United
States dollars. These margin decreases were partially offset by an increase in
certain types of endoscope repairs which generally produce higher margins.
Shipping and warehouse expenses increased by $2,000 to $143,000 for the
three months ended October 31, 1997, from $141,000 for the three months ended
October 31, 1996.
Selling expenses as a percentage of net sales decreased to 11.6% for the
three months ended October 31, 1997, from 12.1% for the three months ended
October 31, 1996. This decrease was principally attributable to the impact of
the increased sales for the three months ended October 31, 1997 against the
fixed portion of these expenses, partially offset by an increase in advertising
costs at Carsen.
General and administrative expenses decreased by $5,000 to $832,000 for the
three months ended October 31, 1997, from $837,000 for the three months ended
October 31, 1996.
Research and development expenses increased by $79,000 to $190,000 for the
three months ended October 31, 1997, from $111,000 for the three months ended
October 31, 1996. These increases were substantially due to the ongoing
development of new disinfection products at MediVators.
Interest expense decreased to $33,000 for the three months ended October
31, 1997, from $47,000 for the three months ended October 31, 1996. This
decrease was attributable to a decrease in average borrowings under the Carsen
revolving credit facility, partially offset by an increase in average borrowings
under the MediVators revolving credit facility, during the three months ended
October 31, 1997.
Income before income taxes increased by $29,000 to $541,000 for the three
months ended October 31, 1997, from $512,000 for the three months ended October
31, 1996.
Income taxes consist primarily of foreign income taxes imposed on the
Company's Canadian operations. The effective tax rate on Canadian operations
was 44.9% and 44.6% for the three months ended
8
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October 31, 1997 and 1996, respectively. However, the consolidated effective
tax rate is higher due to the fact that losses generated by the Company's
combined U.S. operations cannot be used to offset income generated by the
Canadian operations.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1997, the Company's working capital was $11,741,000,
compared with $11,106,000 at July 31, 1997. This increase primarily reflects
decreases in accounts payable, compensation payable and income taxes payable,
partially offset by a decrease in accounts receivable.
Net cash used in operating activities was $345,000 for the three months
ended October 31, 1997, compared with net cash provided by operating activities
of $673,000 for the three months ended October 31, 1996. For the three months
ended October 31, 1997, the net cash used in operating activities was primarily
due to decreases in accounts payable and accrued expenses and income taxes
payable, partially offset by income from operations after adjusting for
depreciation and amortization and a decrease in accounts receivable. For the
three months ended October 31, 1996, the net cash provided by operating
activities was primarily due to income from operations after adjusting for
depreciation and amortization and an increase in accounts payable and accrued
expenses, partially offset by an increase in inventories.
Net cash used in investing activities was $327,000 for the three months
ended October 31, 1997 and $33,000 for the three months ended October 31, 1996.
Net cash provided by financing activities was $613,000 for the three months
ended October 31, 1997, compared with net cash used in financing activities of
$606,000 for the three months ended October 31, 1996. These changes were
principally due to the fluctuations in outstanding borrowings under the
Company's revolving credit facilities.
The Company has two credit facilities, a $5,000,000 revolving credit
facility for Carsen and a $1,500,000 revolving credit facility for MediVators.
MediVators' revolving credit facility was reduced from $2,000,000 subsequent to
October 31, 1997 at MediVators' request.
Pursuant to the terms of the Carsen revolving credit facility, borrowings
under such facility must be paid in full no later than December 31, 1999.
Borrowings outstanding at October 31, 1997 and July 31, 1997 are in Canadian
dollars and bear interest at rates ranging from lender's Canadian prime rate to
.75% above the prime rate, depending upon Carsen's debt to equity ratio. At
October 31, 1997, the lender's Canadian prime rate was 5.25% and Carsen's
outstanding borrowings bear interest at a rate of .25% above the
9
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prime rate. Subsequent to October 31, 1997, the lender's prime rate increased
to 5.5% and Carsen's borrowings will bear interest at such prime rate. A
commitment fee on the unused portion of this facility is payable in arrears at a
rate of .25% per annum, with interest on borrowings payable monthly. There were
$1,561,000 (U.S. dollars) of borrowings outstanding under this facility at
October 31, 1997.
Pursuant to the terms of the MediVators revolving credit facility,
borrowings under such facility must be paid in full no later than December 3,
1998. Borrowings bear interest at 1.5% above the lender's United States prime
rate. The lender's prime rate was 8.5% at October 31, 1997. A commitment fee
on the unused portion of this facility is payable in arrears at a rate of .5%
per annum, with interest on borrowings payable monthly. There were $589,000 of
borrowings outstanding under this facility at October 31, 1997.
Each of the credit facilities provides for restrictions on available
borrowings based primarily upon percentages of eligible accounts receivable and
inventories; requires the subsidiary to meet certain financial covenants; are
secured by substantially all assets of the subsidiary; and are guaranteed by
Cantel.
A decrease in the value of the Canadian dollar against the United States
dollar could adversely affect the Company because the Company's Canadian
subsidiary purchases substantially all of its products in United States dollars
and sells its products in Canadian dollars. Under the Canadian credit facility,
the Company's Canadian subsidiary has a foreign exchange hedging facility of up
to $15,000,000 (U.S. dollars) which could be used to minimize future adverse
currency fluctuations as they relate to purchases of inventories. The Canadian
subsidiary has foreign exchange forward contracts at December 5, 1997
aggregating $9,000,000 (U.S. dollars) to hedge against possible declines in the
value of the Canadian dollar which would otherwise result in higher inventory
costs. Such contracts represented the Canadian subsidiary's projected purchases
of inventories for the months of February 1998 through July 1998. Such adverse
currency fluctuations could also result in a corresponding adverse change in the
United States dollar value of the Company's assets that are denominated in
Canadian dollars. During the three months ended October 31, 1997, such adverse
currency fluctuations reduced stockholders' equity by $215,000.
The average exchange rate of the contracts open at December 5, 1997 was
$1.3574 Canadian dollar per United States dollar, or $.7367 United States dollar
per Canadian dollar. The exchange rate published by the Wall Street Journal on
December 5, 1997, was $1.4227 Canadian dollar per United States dollar, or
$.7029 United States dollar per Canadian dollar.
10
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The Company believes that its anticipated cash flow from operations 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 December 5, 1997, $4,018,000 was available under the
credit facilities.
Inflation has not significantly impacted the Company's operations.
11
<PAGE>
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 October 31, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11, Computation of Earnings Per Share
Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months
ended October 31, 1997.
12
<PAGE>
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 INDUSTRIES, INC.
Date: December 12, 1997 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)
13
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EXHIBIT 11
CANTEL INDUSTRIES, INC.
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
October 31,
1997 1996
--------- ---------
PRIMARY
Weighted average number of
shares outstanding 4,166,322 3,891,803
Dilutive effect of options and
warrants using the treasury
stock method and average
market price for the period 216,523 429,339
--------- ---------
Weighted average number of
shares and common stock
equivalents 4,382,845 4,321,142
--------- ---------
--------- ---------
Net income $ 293,000 $ 222,000
--------- ---------
--------- ---------
Earnings per common share $ 0.07 $ 0.05
--------- ---------
--------- ---------
FULLY DILUTED
Weighted average number of
shares outstanding 4,166,322 3,891,803
Dilutive effect of options and
warrants using the treasury
stock method and the higher
of the period-end or average
market price for the period 245,400 434,975
--------- ---------
Weighted average number of
shares and common stock
equivalents 4,411,722 4,326,778
--------- ---------
--------- ---------
Net income $ 293,000 $ 222,000
--------- ---------
--------- ---------
Earnings per common share $ 0.07 $ 0.05
--------- ---------
--------- ---------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 1997 AND THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED OCTOBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 597,000
<SECURITIES> 0
<RECEIVABLES> 5,067,000
<ALLOWANCES> 0
<INVENTORY> 8,921,000
<CURRENT-ASSETS> 15,144,000
<PP&E> 2,595,000
<DEPRECIATION> 1,814,000
<TOTAL-ASSETS> 16,785,000
<CURRENT-LIABILITIES> 3,403,000
<BONDS> 2,207,000
0
0
<COMMON> 417,000
<OTHER-SE> 10,678,000
<TOTAL-LIABILITY-AND-EQUITY> 16,785,000
<SALES> 7,230,000
<TOTAL-REVENUES> 8,192,000
<CGS> 4,965,000
<TOTAL-COSTS> 5,502,000
<OTHER-EXPENSES> 2,116,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,000
<INCOME-PRETAX> 541,000
<INCOME-TAX> 248,000
<INCOME-CONTINUING> 293,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 293,000
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
