<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 Exchange Act of 1934
For the quarterly period ended October 31, 2000.
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
--------------
1135 BROAD STREET, CLIFTON, NEW JERSEY 07013
------------------------------------------------------------------
(Former address of principal executive offices) (Zip code)
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 8, 2000: 4,443,777.
<PAGE>
PART I - FINANCIAL INFORMATION
CANTEL MEDICAL CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar Amounts in Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
October 31, July 31,
2000 2000
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,523 $ 2,169
Accounts receivable, net 6,150 8,970
Inventories 8,641 6,992
Net assets related to discontinued business 575 3,095
Prepaid expenses and other current assets 707 475
-------- --------
Total current assets 17,596 21,701
Property and equipment, net 909 901
Available-for-sale securities 708 --
Intangible assets, net 1,308 1,345
Other assets 1,205 1,008
-------- --------
$ 21,726 $ 24,955
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,002 $ 5,054
Compensation payable 703 943
Other accrued expenses 892 979
Income taxes 437 594
-------- --------
Total current liabilities 4,034 7,570
Long-term debt 62 125
Deferred income taxes 94 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; October 31 - 4,607,320 shares issued and 4,443,777 shares
outstanding; July 31 - 4,597,220
shares issued and 4,438,381 shares outstanding 461 460
Additional capital 19,579 19,502
Retained earnings 745 96
Accumulated other comprehensive income:
Unrealized loss on securities (17) --
Unrealized gain on currency hedging 155 --
Cumulative foreign currency translation adjustment (2,541) (2,097)
Treasury Stock, at cost; October 31-
163,543 shares; July 31 -158,839 shares (846) (798)
-------- --------
Total stockholders' equity 17,536 17,163
-------- --------
$ 21,726 $ 24,955
======== ========
</TABLE>
See accompanying notes
1
<PAGE>
CANTEL MEDICAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollar Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
2000 1999
-------- --------
<S> <C> <C>
Net sales:
Product sales $ 7,165 $ 6,885
Product service 1,456 1,319
------- -------
Total net sales 8,621 8,204
------- -------
Cost of sales:
Product sales 4,046 4,309
Product service 781 784
------- -------
Total cost of sales 4,827 5,093
------- -------
Gross profit 3,794 3,111
Expenses:
Shipping and warehouse 135 130
Selling 1,273 1,179
General and administrative 1,080 982
Research and development 199 142
------- -------
Total operating expenses 2,687 2,433
------- -------
Income from continuing operations before
interest expense, other income and income
taxes 1,107 678
Interest expense 4 56
Other income (7) --
------- -------
Income from continuing operations
before income taxes 1,110 622
Income taxes 461 237
------- -------
Income from continuing operations 649 385
Income from discontinued operations -- 110
------- -------
Net income $ 649 $ 495
======= =======
Earnings per common share:
Basic:
Continuing operations $ 0.15 $ 0.09
Discontinued operations -- 0.02
------- -------
Net income $ 0.15 $ 0.11
======= =======
Diluted:
Continuing operations $ 0.14 $ 0.09
Discontinued operations -- 0.02
------- -------
Net income $ 0.14 $ 0.11
======= =======
</TABLE>
See accompanying notes.
2
<PAGE>
CANTEL MEDICAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
2000 1999
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 649 $ 385
Adjustments to reconcile income from continuing
operations to net cash (used in) provided by
operating activities:
Income from discontinued operations -- 110
Depreciation and amortization of continuing
operations 139 104
Depreciation and amortization of discontinued
operations -- 17
Changes in assets and liabilities:
Accounts receivable 2,688 2,388
Inventories (1,885) 655
Prepaid expenses and other current assets (88) (24)
Accounts payable and accrued expenses (3,325) (1,092)
Income taxes (145) (443)
------- -------
Net cash (used in) provided by operating activities (1,967) 2,100
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (130) (101)
Purchases of available-for-sale securities (725) --
Cash provided by (used in) discontinued operations 1,289 (1,940)
Proceeds from sale of discontinued operations 1,231 --
Other, net (311) (78)
------- -------
Net cash provided by (used in) investing activities 1,354 (2,119)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings under credit facilities (63) 218
Proceeds from exercise of stock options 30 --
Purchases of Treasury Stock -- (126)
------- -------
Net cash (used in) provided by financing activities (33) 92
------- -------
(Decrease) increase in cash and cash equivalents (646) 73
Cash and cash equivalents at beginning of period 2,169 534
------- -------
Cash and cash equivalents at end of period $ 1,523 $ 607
======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
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 or stockholders' equity. The Company's comprehensive income
for the three months ended October 31, 2000 and 1999 are set forth in the
following table:
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-----------------------
2000 1999
--------- ---------
<S> <C> <C>
Net income $649,000 $ 495,000
Other comprehensive income (loss):
Unrealized loss on securities (17,000) --
Unrealized gain on currency hedging 48,000 --
Foreign currency translation (444,000) 270,000
--------- ---------
Comprehensive income $236,000 $ 765,000
========= =========
</TABLE>
4
<PAGE>
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 $4,000,000 (United States dollars) at October 31, 2000 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 such derivatives was
$155,000 at October 31, 2000, which resulted in an unrealized gain of $48,000
during the three months ended October 31, 2000. The entire October 31, 2000
deferred gain of $155,000 will be recognized in earnings during fiscal 2001.
Note 4. DISCONTINUED OPERATIONS
On October 6, 2000, Carsen closed 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
<PAGE>
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
three months ended October 31, 2000, 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 and Cash Flows for the three months ended October 31, 1999
have been restated to conform to the current year's presentation. For the three
months ended October 31, 1999, income from discontinued operations consisted of
pretax income of $198,000 less related income taxes of $88,000.
The components of net assets related to discontinued business in the
Condensed Consolidated Balance Sheets and the activity during the three months
ended October 31, 2000 are set forth below:
<TABLE>
<CAPTION>
July 31, Settlement Other Cash October 31,
2000 on Closing Settlement 2000
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Trade accounts receivable, net
of allowance for doubtful
accounts of $99,000
at July 31 and
$94,000 at October 31 $ 3,047,000 $ -- $(2,977,000) $ 70,000
Consideration due
under Purchase Agreement 1,989,000 (1,231,000) -- 758,000
Inventories 235,000 -- (49,000) 186,000
Accounts payable (1,531,000) -- 1,531,000 --
Accrued expenses:
Customer promotions (332,000) -- 86,000 (246,000)
Compensation and other (313,000) -- 120,000 (193,000)
----------- ----------- ----------- -----------
Net assets related to
discontinued business $ 3,095,000 $(1,231,000) $(1,289,000) $ 575,000
=========== =========== =========== ===========
</TABLE>
6
<PAGE>
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:
<TABLE>
<CAPTION>
Three Months Ended
October 31,
--------------------------
2000 1999
---------- -------------
<S> <C> <C>
Numerator for basic and diluted
earnings per common share:
Income from continuing operations $ 649,000 $ 385,000
Income from discontinued operations -- 110,000
---------- -------------
Net income $ 649,000 $ 495,000
========== =============
Denominator for basic and diluted
earnings per common share:
Denominator for basic earnings
per common share - weighted
average number of shares
outstanding 4,438,925 4,417,773
Dilutive effect of common stock
equivalents using the treasury
stock method and the average
market price for the period 230,716 66,444
---------- -------------
Denominator for diluted earnings per
common share - weighted average number
of shares outstanding and common
stock equivalents 4,669,641 4,484,217
========== =============
Basic earnings per common share:
Continuing operations $ 0.15 $ 0.09
Discontinued operations -- 0.02
---------- -------------
Net income $ 0.15 $ 0.11
========== =============
Diluted earnings per common share:
Continuing operations $ 0.14 $ 0.09
Discontinued operations -- 0.02
---------- -------------
Net income $ 0.14 $ 0.11
========== =============
</TABLE>
7
<PAGE>
Note 6. FINANCING ARRANGEMENTS
The Company has two credit facilities, a $5,000,000 (United States
dollars) revolving credit facility for Carsen expiring on December 31, 2002 and
a $1,500,000 revolving credit facility for MediVators expiring on November 1,
2001. Borrowings under the Carsen revolving credit facility are in Canadian
dollars and bear interest at rates ranging from lender's prime rate to .75%
above the prime rate, depending upon Carsen's debt to equity ratio. At October
31, 2000, such rate was the lender's prime rate. Borrowings under the MediVators
revolving credit facility bear interest at the lender's prime rate plus 1%. The
prime rates associated with the Carsen and MediVators revolving credit
facilities were 7.50% and 9.50%, respectively, at October 31, 2000. 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; is secured by
substantially all assets of the subsidiary; and is guaranteed by Cantel.
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 44.1%
for the three months ended October 31, 2000 and 1999, respectively. For the
three months ended October 31, 2000 and 1999, 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.
8
<PAGE>
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 months ended October 31, 2000,
compared with the three months ended October 31, 1999, 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.
<TABLE>
<CAPTION>
Three Months Ended
October 31,
------------------------------
2000 1999
-------------------------------
(Dollar amounts in thousands)
$ % $ %
------- ----- ------- -----
<S> <C> <C> <C> <C>
Medical Products $ 3,636 42.2 $ 3,256 39.7
Infection Control Products 2,319 26.9 2,334 28.4
Scientific Products 1,331 15.4 1,400 17.1
Product Service 1,456 16.9 1,319 16.1
Elimination of intercompany
sales of Infection
Control Products (121) (1.4) (105) (1.3)
------- ----- ------- -----
$ 8,621 100.0 $ 8,204 100.0
======= ===== ======= =====
</TABLE>
Net sales increased by $417,000, or 5.1%, to $8,621,000 for the three
months ended October 31, 2000, from $8,204,000 for the three months ended
October 31, 1999. This increase was principally attributable to increased sales
of Medical Products. 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.
9
<PAGE>
Gross profit increased by $683,000, or 22.0%, to $3,794,000 for the three
months ended October 31, 2000, from $3,111,000 for the three months ended
October 31, 1999. Gross profit as a percentage of sales for the three months
ended October 31, 2000 was 44.0% compared with 37.9% for the three months ended
October 31, 1999. The higher gross profit percentage for the three months ended
October 31, 2000 was 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 months ended October 31,
2000; selling price increases in Medical Products and Product Service; favorable
sales mix associated with Product Service; and favorable sales mix and
manufacturing efficiencies associated with Infection Control Products.
Shipping and warehouse expenses increased by $5,000 to $135,000 for the
three months ended October 31, 2000, from $130,000 for the three months ended
October 31, 1999.
Selling expenses as a percentage of net sales were 14.8% for the three
months ended October 31, 2000, compared with 14.4% for the three months ended
October 31, 1999. For the three months ended October 31, 2000, the increase in
selling expenses as a percentage of net sales was primarily attributable to an
increase in personnel at MediVators to support both domestic and international
sales.
General and administrative expenses increased by $98,000 to $1,080,000 for
the three months ended October 31, 2000, from $982,000 for the three months
ended October 31, 1999. This increase was primarily attributable to personnel
costs, including incentive compensation, consulting fees, and computer hardware
and software depreciation and amortization.
Research and development expenses increased by $57,000 to $199,000 for the
three months ended October 31, 2000, from $142,000 for the three months ended
October 31, 1999. This increase was primarily attributable to an increase in
personnel.
Interest expense decreased to $4,000 for the three months ended October
31, 2000, from $56,000 for the three months ended October 31, 1999. This
decrease was attributable to a decrease in average outstanding borrowings under
the Company's revolving credit facilities during the three months ended October
31, 2000.
Income from continuing operations before income taxes increased by
$488,000 to $1,110,000 for the three months ended October 31, 2000, from
$622,000 for the three months ended October 31, 1999.
10
<PAGE>
Income taxes consist primarily of taxes imposed on the Company's Canadian
operations. The effective tax rate on Canadian operations was 42.5% and 44.1%
for the three months ended October 31, 2000 and 1999, respectively. For the
three months ended October 31, 2000 and 1999, 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.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 2000, the Company's working capital was $13,562,000,
compared with $14,131,000 at July 31, 2000. This decrease primarily reflects a
decrease in cash and cash equivalents, accounts receivable and net assets
related to discontinued business, partially offset by an increase in inventories
and a decrease in accounts payable.
Net cash used in operating activities was $1,967,000 for the three months
ended October 31, 2000 compared with net cash provided by operating activities
of $2,100,000 for the three months ended October 31, 1999. For the three months
ended October 31, 2000, 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 net income, after adjusting for depreciation and
amortization, and a decrease in accounts receivable. For the three months ended
October 31, 1999, the net cash provided by operating activities was primarily
due to net income, after adjusting for depreciation and amortization, and
decreases in accounts receivable and inventories, partially offset by decreases
in accounts payable and accrued expenses and income taxes.
Net cash provided by investing activities was $1,354,000 for the three
months ended October 31, 2000 compared with net cash used in investing
activities of $2,119,000 for the three months ended October 31, 1999. For the
three months ended October 31, 2000, the net cash provided by investing
activities was primarily due to proceeds from sale of discontinued operations
and a decrease in net assets related to discontinued business, partially offset
by purchases of available-for-sale securities. For the three months ended
October 31, 1999, 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 $33,000 for the three months
ended October 31, 2000 compared with net cash provided by financing activities
of $92,000 for the three months ended October 31, 1999. These changes were
principally due to the
11
<PAGE>
fluctuations in outstanding borrowings under the Company's revolving credit
facilities, partially offset for the three months ended October 31, 1999 by
purchases of Treasury Stock.
The Company has two credit facilities, a $5,000,000 (United States
dollars) revolving credit facility for Carsen expiring on December 31, 2002 and
a $1,500,000 revolving credit facility for MediVators expiring on November 1,
2001. Borrowings under the Carsen revolving credit facility are in Canadian
dollars and bear interest at rates ranging from lender's prime rate to .75%
above the prime rate, depending upon Carsen's debt to equity ratio. At October
31, 2000, such rate was the lender's prime rate. Borrowings under the MediVators
revolving credit facility bear interest at the lender's prime rate plus 1%. The
prime rates associated with the Carsen and MediVators revolving credit
facilities were 7.50% and 9.50%, respectively, at October 31, 2000. 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; is secured by
substantially all assets of the subsidiary; and is guaranteed by Cantel.
For the three months ended October 31, 2000, compared with the three
months ended October 31, 1999, the average value of the Canadian dollar
decreased by 1% 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 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 such foreign currency
forward contracts amounted to $4,343,000 (United States dollars) at December 8,
2000 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
December 8, 2000 was $1.4843 Canadian dollar per United States dollar, or $.6737
United States dollar per Canadian dollar. The exchange rate published by the
Wall Street Journal on December 8, 2000 was $1.5295 Canadian dollar per United
States dollar, or $.6538 United States dollar per Canadian dollar.
12
<PAGE>
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 such
derivatives was $155,000 at October 31, 2000, which resulted in an unrealized
gain of $48,000 during the three months ended October 31, 2000.
For purposes of translating the balance sheet, at October 31, 2000
compared with July 31, 2000, the value of the Canadian dollar decreased by 3%
relative to the value of the United States dollar. As a result, at October 31,
2000, the negative cumulative foreign currency translation adjustment was
increased by $444,000 compared to July 31, 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 December
8, 2000, $6,420,000 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.
13
<PAGE>
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 three
months ended October 31, 2000 compared with the three months ended October 31,
1999, 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 is variable. Therefore, interest
expense is affected by the general level of interest rates in the United States
and Canada.
14
<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, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27, Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on October 20, 2000 indicating that the
Company had terminated its consumer products business and sold its inventories
of Olympus consumer products to Olympus.
There were no other reports on Form 8-K filed during the three months
ended October 31, 2000.
15
<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 MEDICAL CORP.
Date: December 14, 2000
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
