<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended July 31, 2000
Commission File No. 0-6132
CANTEL MEDICAL CORP.
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(Exact name of registrant as specified in its charter)
Delaware 22-1760285
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1135 Broad Street, Clifton, New Jersey 07013
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(973) 470-8700
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
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(Title of Class)
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Aggregate market value of registrant's capital stock held by non-affiliates
(based on shares held and the closing price quoted by NASDAQ on October 6,
2000): $22,010,680
Number of shares of common stock outstanding as of the close of the period
covered by this report: 4,438,381
Documents incorporated by reference: None.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Cantel Medical Corp. (the "Company" or "Cantel") is a healthcare
company concentrating primarily in infection prevention and control products and
diagnostic and therapeutic medical and scientific equipment. Through its
wholly-owned United States subsidiary, MediVators, Inc. ("MediVators" or "United
States subsidiary"), Cantel serves customers worldwide by designing, developing,
manufacturing, marketing and distributing innovative products for the infection
prevention and control industry. Through its wholly-owned Canadian subsidiary,
Carsen Group Inc. ("Carsen" or "Canadian subsidiary"), Cantel markets and
distributes medical equipment (including flexible and rigid endoscopes),
precision instruments (including microscopes and high performance image analysis
hardware and software) and industrial equipment (including remote visual
inspection devices). Cantel's subsidiaries also provide technical maintenance
service for their own products, as well as for certain competitors' products.
Unless the context otherwise requires, references herein to the Company include
Cantel and its subsidiaries.
The medical and infection control products distributed by Carsen
consist of medical equipment, including flexible and rigid endoscopes, endoscope
disinfection equipment, surgical equipment and related accessories. The
infection control products manufactured and distributed by MediVators consist of
endoscope disinfection equipment and related accessories and supplies. The
scientific products distributed by Carsen consist of precision instruments,
including microscopes and related accessories, certain laboratory equipment and
related accessories and image analysis software and hardware; and industrial
technology equipment, including borescopes, fiberscopes, video image scopes and
related accessories.
Carsen distributes the majority of its medical and scientific
products pursuant to an agreement with Olympus America Inc. (the "Olympus
Agreement"), a United States affiliate of Olympus Optical Co. Ltd., a Japanese
corporation ("Olympus Optical"), under which the Company has been granted
exclusive distribution rights for certain Olympus products in Canada. Most of
such products are manufactured by Olympus Optical and its affiliates. Unless the
context otherwise requires, references herein to "Olympus" include Olympus
America Inc. and Olympus Optical, and their affiliates. Carsen, or its
predecessor, has been distributing Olympus products in Canada since 1949.
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Carsen also distributes other products under separate distribution
agreements, including additional medical, infection control and scientific
products and accessories.
All of MediVators' endoscope disinfection equipment is distributed
in the United States and Puerto Rico by Olympus pursuant to an agreement (the
"MediVators Agreement") under which Olympus has been granted exclusive
distribution rights in these territories. MediVators' endoscope disinfection
equipment is distributed in other countries under other exclusive distribution
agreements.
The following table gives information as to the percentage of
consolidated net sales accounted for by each operating segment during the
indicated periods.
<TABLE>
<CAPTION>
Year Ended July 31,
---------------------------
2000 1999 1998
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% % %
------- -------- --------
<S> <C> <C> <C>
Medical Products 41.8 45.0 42.0
Infection Control
Products 26.7 24.9 26.8
Scientific Products 20.1 18.3 19.8
Product Service 13.3 13.9 12.9
Elimination of inter-
company sales of
Infection Control
Products (1.9) (2.1) (1.5)
------- -------- --------
100.0 100.0 100.0
======= ======== ========
</TABLE>
MEDICAL PRODUCTS AND INFECTION CONTROL PRODUCTS
Medical Products and Infection Control Products are the Company's
major sources of revenue and profitability. These segments are comprised of the
medical and infection control equipment distributed and serviced by Carsen and
infection control equipment manufactured and sold by MediVators through its
worldwide distribution network.
MEDICAL EQUIPMENT. Carsen's principal source of revenue is from the
distribution to hospitals throughout Canada of specialized endoscopes, surgical
equipment and related accessories, the majority of which are manufactured by
Olympus. Olympus is the world's leading manufacturer of flexible endoscopes and
related products.
An endoscope is a device comprised of an optical imaging system
incorporated in a flexible or rigid tube that can be inserted inside a patient's
body through a natural opening or
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through a small incision. Endoscopy, the use of endoscopes in medical
procedures, is a valuable aid in the diagnosis and treatment of various
disorders. Endoscopy enables physicians to study and digitally capture an image
of certain organs and body tissue and, if necessary, to perform a biopsy
(removal of a small piece of tissue for microscopic analysis).
A flexible video endoscope consists of a high resolution solid state
image sensor contained in a flexible tube, which can be inserted into
irregularly shaped organs of a patient's body, such as the large intestine. The
control body of a flexible endoscope incorporates a steering mechanism and
contains working channels and is connected to an external light source and
processor, which permits a physician to view inside a patient's body. The
working tip of a flexible endoscope contains a lens and a solid state image
sensor and, in most cases, depending on the application, an outlet for air and
water. Most flexible endoscopes also have internal working channels which enable
accessories such as biopsy forceps to be passed to the tip. The solid state
image sensor enables a live image to be transmitted electronically to a monitor,
which image can be viewed by a physician and nurse as a medical procedure is
being performed. The flexible video endoscope comprises the majority of Carsen's
flexible endoscopy sales.
A rigid endoscope is a straight and narrow insertion tube consisting
of a series of relay lenses and light transmitting fibers that connect to an
external light source, which permits a surgeon to view inside a patient's body.
Flexible endoscopes are commonly used for visualization of, and
diagnosing disorders in, the esophagus, stomach, duodenum, and large intestine
(gastroenterology); upper airways and lungs (pneumology); nose and throat (ENT);
bladder, kidney and urinary tract (urology); and uterus (gynecology). Rigid
endoscopes are commonly used for urology, gynecology, orthopedics, ENT and
general surgery, including minimally invasive surgery.
Carsen also distributes various specialized medical instruments and
accessories utilized in both flexible and rigid endoscopy including scissors,
graspers, forceps and other surgical accessories; ambulatory PH and motility
monitoring equipment (which is used for diagnosis of various gastrointestinal
and respiratory disorders); urodynamics monitoring equipment (which is used for
diagnosis of various urinary tract disorders); endoscope disinfection equipment;
insufflators (which deliver and monitor gas to expand abdominal and other
cavities); video monitors, recorders and printers; "cold" light supplies (which
provide light for endoscopy procedures); and carts, trolleys and cleaners.
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All of the endoscopes and certain other medical instruments and
accessories distributed by Carsen are manufactured by Olympus. Other medical
products distributed by Carsen are manufactured by Sandhill Scientific, Inc.
(ambulatory PH and motility monitoring equipment), Life-Tech, Inc. (urodynamics
monitoring equipment), Sony of Canada Ltd. (video monitors, recorders and
printers), The Ruhof Corporation (enzymatic cleaners), MediSafe UK Limited (fine
lumen cleaners) and MediVators (endoscope disinfection equipment).
INFECTION CONTROL EQUIPMENT. MediVators' principal source of revenue
is from the manufacturing and sale of endoscope disinfection equipment and
related accessories and supplies to hospitals and clinics through various
distributors in the United States and internationally.
MediVators' primary product is the DSD-91, which received FDA 510(k)
clearance in March 1994. The DSD-91 is a microprocessor controlled dual
endoscope disinfection system. The DSD-91 will disinfect two endoscopes at a
time, can be used on a broad variety of endoscopes and is programmable by the
user. MediVators also manufactures less expensive single and dual endoscope
disinfection units, the designs of which were acquired in March 1998 with the
acquisition of Chris Lutz Medical, Inc.
Although endoscopes generally can be manually cleaned and
disinfected, there are many problems associated with such methods including the
lack of uniform cleaning procedures, personnel exposure to disinfectant fumes
and disinfectant residue levels in the endoscope. The level of disinfection to
be achieved depends upon many factors, principally contact time, temperature,
type and concentration of the active ingredients of the chemical disinfectant
and the nature of the microbial contamination. The chemical disinfectant to be
used in the disinfecting process generally will be selected by hospital
personnel based on the object to be disinfected, the hospital facilities and the
disinfectants available.
After manual cleaning, an endoscope is placed in the basin of the
disinfector which then disinfects the endoscope by pumping disinfectant
throughout the endoscope, including the endoscope's working channels. The
disinfector ensures that the endoscope, including the working channels, will be
exposed to the disinfectant for the recommended period of time. The disinfector
is operated by medical personnel such as technicians and nurses, and requires
minimal training to operate the disinfector.
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MediVators believes its disinfection equipment offers several
advantages over manual immersion in disinfectants. The disinfectors are designed
to pump disinfectant through all working channels of the endoscope, thus
exposing all areas of the endoscope to the disinfectant, resulting in more
thorough and consistent disinfection. This process can also inhibit the build up
of residue in the working channels. In addition, the entire disinfecting process
can be completed with minimal participation by the operator, freeing the
operator for other tasks, reducing the exposure of personnel to the chemicals
used in the disinfection process and reducing the risk of infectious diseases.
The disinfectors also reduce the risk of inconsistent manual disinfecting.
In prior years, MediVators also had a medical sharps disposal
business which provided for point-of-use destruction and decontamination of most
types of disposable medical sharps waste, such as syringes, scalpels, razors and
IV needles. There were no sales of sharps disposal systems in fiscal 1999 or
1998. During July 1999, MediVators discontinued this business and wrote-off its
remaining net investment, as described in Management's Discussion and Analysis
of Financial Condition and Results of Operations.
SCIENTIFIC PRODUCTS
The Scientific Products segment is comprised principally of the
precision instruments and the industrial technology equipment distributed by
Carsen.
PRECISION INSTRUMENTS. Carsen distributes Olympus microscopes and
complementary scientific equipment and accessories. Other instruments
distributed by Carsen include Media Cybernetics, Inc. high resolution image
analysis software and hardware; Narishige U.S.A., Inc. micromanipulators (which
enable a viewer to manipulate objects being viewed under a microscope);
Diagnostic Instruments, Inc., Sony of Canada Ltd. and Optikon Inc. digital
cameras for research microscopy; and Sheldon Manufacturing, Inc. incubators,
warming ovens and water baths (temperature control instruments) and anaerobic
chambers (controlled atmosphere for bacteriology applications), as well as
optical accessories such as high contrast optics, objectives (magnifying lenses)
and reticules and video calipers (both of which measure objects being viewed
under a microscope).
The precision instruments distributed by Carsen are sold to
hospitals for cytology, pathology and histology purposes; government
laboratories for research and forensics; universities and other educational
institutions for research and teaching purposes; and private and industrial
laboratories for
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bio-technology, geology, pharmacology, metallography, quality control and
manufacturing applications.
INDUSTRIAL TECHNOLOGY EQUIPMENT. Carsen distributes three types of
industrial technology equipment that are similar to medical endoscopes, but are
designed for the industrial market for use in remote visual inspection ("RVI").
RVI is the application of endoscopic technology for industrial uses. The
products distributed by Carsen, most of which are manufactured by Olympus,
consist of rigid borescopes (devices that are similar to rigid endoscopes),
which use a series of relay lenses to transmit an image through a stainless
steel insertion tube; fiberscopes (devices that are similar to flexible
endoscopes), which use fiberoptic image carrying bundles to transmit images
through a flexible insertion tube; and video image scopes, which utilize a
small, high resolution solid state image sensor that enables a picture to be
transmitted electronically to a monitor.
The industrial technology equipment distributed by Carsen is
generally purchased by large industrial companies engaged in the oil and gas,
aerospace, chemical, power generation, mining, forestry, semiconductor and
automotive industries, that require inspections of their machinery or processes
for research and development, measurement, maintenance or quality control.
Carsen also develops new applications for its products, which are then
customized by Carsen for such applications, based upon the nature of a company's
business.
PRODUCT SERVICE
Carsen operates service centers at its Markham, Ontario facility, as
well as in Montreal, Quebec and Vancouver, British Columbia that provide
warranty and out-of-warranty service and repairs for medical, infection control
and scientific products, a majority of which are distributed by Carsen. The
products distributed by Carsen bear a product warranty that entitles the
purchaser to warranty repairs and service at a nominal charge or no charge
during the warranty period. Generally Carsen, and not the manufacturer of the
product, is responsible for the cost of warranty repairs. The warranty period
for these products is generally one year. The customer pays Carsen on a time and
materials basis for out-of-warranty service of these products.
MediVators provides a one year warranty for repairs and service of
its infection control products. Generally, warranty repairs and service related
to the endoscope disinfection equipment are performed by the distributor for
these products. MediVators performs out-of-warranty service of its infection
control products for which the customer pays MediVators on a time and materials
basis.
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DISTRIBUTION AGREEMENTS
OLYMPUS/CARSEN AGREEMENT. The majority of Carsen's sales of medical
and scientific products have been made pursuant to the Olympus Agreement, under
which Olympus has granted Carsen the exclusive right to distribute the covered
Olympus products in Canada. All products sold by Carsen pursuant to the
agreement bear the "Olympus" trademark. The Olympus Agreement, as amended,
expires on March 31, 2004. If Carsen fulfills its obligations under the Olympus
Agreement, the parties will establish new minimum purchase requirements and
extend the Olympus Agreement through March 31, 2006.
During the term of the Olympus Agreement and for one year
thereafter, Carsen has agreed that it will not manufacture, distribute, sell or
represent for sale in Canada any products which are competitive with the Olympus
products covered by the Olympus Agreement.
The Olympus Agreement imposes minimum purchase obligations on Carsen
with respect to each of medical equipment, precision instruments and industrial
technology equipment. The aggregate annual minimum purchase obligations for all
such products are approximately $13.2 million, $17.0 million, $18.8 million and
$21.0 million during the contract years ending March 31, 2001, 2002, 2003 and
2004, respectively.
Subject to an allowance of a 10% shortfall from the minimum purchase
requirements in certain situations, Olympus has the option to terminate or
restructure the Olympus Agreement with respect to each product group for which
Carsen has failed to meet the minimum purchase requirements. If Carsen fails to
meet such requirements for both precision instruments and industrial technology
equipment, or for medical equipment, then Olympus has the option to terminate or
restructure the entire Olympus Agreement. Olympus may also terminate the Olympus
Agreement if Carsen breaches its other obligations under the Olympus Agreement.
MEDIVATORS/OLYMPUS AGREEMENT. MediVators has a four year agreement
with Olympus which expires on August 1, 2003, under which Olympus is granted the
exclusive right to distribute all MediVators' endoscope disinfection equipment
and related accessories and supplies in the United States and Puerto Rico. All
products sold by Olympus pursuant to this agreement bear both the "Olympus" and
"MediVators" trademarks.
This agreement provides for minimum purchase projections. Failure to
achieve the minimum purchase projections in any contract
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year could give MediVators the option to terminate the agreement. Net sales to
Olympus accounted for 15.9%, 12.7% and 15.6% of the Company's net sales in
fiscal 2000, 1999 and 1998, respectively.
DISCONTINUED OPERATIONS
On October 6, 2000, Carsen closed a transaction under an Asset
Purchase Agreement (the "Purchase Agreement") with 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.
The purchase price for the inventory was approximately $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. Such 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 Consolidated Financial Statements for the year ended July 31, 2000.
The Company's Consolidated Balance Sheet for the year ended July 31, 1999 and
the Consolidated Statements of Income and Cash Flows for the years ended July
31, 1999 and 1998 have been restated to conform to the 2000 presentation.
MARKETING
Carsen markets its products for each business segment through
separate, dedicated sales forces comprised of its own employees who are
compensated on a salary and commission basis.
MediVators sells its endoscope disinfection equipment and
related accessories, both in the United States and internationally, to
distributors operating under exclusive distribution agreements.
EFFECT OF CURRENCY FLUCTUATIONS AND TRADE BARRIERS
A substantial portion of the Company's products are imported from
the Far East and Western Europe, and the Company's business could be materially
and adversely affected by the
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imposition of trade barriers, fluctuations in the rates of exchange of various
currencies, tariff increases and import and export restrictions, affecting the
United States and Canada. Additionally, Carsen 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 exchange, tariff increases and import and export restrictions between
the United States and Canada. Fluctuations in the rates of exchange between the
United States and Canada had a slightly positive impact in fiscal 2000, and an
adverse impact in fiscal 1999, upon the Company's results of operations, as
described in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
COMPETITION
The Company distributes substantially all of its products in highly
competitive markets, which contain many products available from nationally and
internationally recognized competitors of the Company. Many of such competitors
have greater financial and technical resources than the Company and are
well-established, with reputations for success in the sale and service of their
products. In addition, certain companies have developed or may be expected to
develop technologies or products that could directly or indirectly compete with
the products manufactured and distributed by the Company. In some areas, the
Company competes with manufacturers who distribute and service their own
products and have greater financial and technical resources than the Company
and, as manufacturers, may have certain other competitive advantages over the
Company. The Company believes that the world-wide reputation for the quality and
innovation of its products among consumers, the Company's reputation for
providing quality product service, particularly with respect to medical and
infection control products, the numerous customer contacts developed during its
lengthy service as a distributor of Olympus products and the distribution
arrangement for certain MediVators infection control products with Olympus, give
the Company a competitive advantage with respect to certain of its products.
GOVERNMENT REGULATION
MediVators' products are subject to regulation by the United States
Food and Drug Administration ("FDA"), which regulates the testing,
manufacturing, packaging, distribution and marketing of medical devices in the
United States, including certain products manufactured by MediVators. Certain of
MediVators' products may be regulated by other governmental or private agencies,
including the Environmental Protection Agency ("EPA"), Underwriters Lab, Inc.,
and comparable agencies in certain foreign countries. The FDA and
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other agency clearances generally are required before MediVators can market new
products in the United States or make significant changes to existing products.
The FDA also has the authority to require a recall or modification of products
in the event of a defect.
The Food, Drug and Cosmetic Act of 1938 and Safe Medical Device Act
of 1990, each as amended, also require compliance with specific manufacturing
and quality assurance standards. The regulations also require that each
manufacturer establish a quality assurance program by which the manufacturer
monitors the design and manufacturing process and maintains records which show
compliance with the FDA regulations and the manufacturer's written
specifications and procedures relating to the devices. The FDA inspects medical
device manufacturers for compliance with their Quality Systems Regulations
("QSR's"). Manufacturers that fail to meet the QSR's may be issued reports or
citations for non-compliance. The Company was inspected by the FDA in May 2000
and no serious deficiencies were noted.
In addition, the Company's disinfectors must meet the requirements
of the European Medical Device Directive ("MDD") for their sale into the
European Union. In May 2000, MediVators was inspected and received notification
that its products continue to meet these requirements. This certification allows
MediVators to affix the CE mark to its products and to freely distribute such
products throughout the European Union. Federal, state and foreign regulations
regarding the manufacture and sale of MediVators' products are subject to
change. MediVators cannot predict what impact, if any, such changes might have
on its business.
Carsen's medical and infection control products are subject to
regulation by Health Canada - Therapeutics Products Programme ("TPP"), which
regulates the distribution and marketing of medical devices in Canada. Certain
of Carsen's products may be regulated by other governmental or private agencies,
including Canadian Standards Agency ("CSA"). TPP and other agency clearances
generally are required before Carsen can market new medical products in Canada.
TPP also has the authority to require a recall or modification in the event of
defect. In order to market its medical products in Canada, Carsen is required to
hold a Medical Device Establishment License provided by TPP.
PATENTS AND PROPRIETARY RIGHTS
MediVators' current disinfector products, including the DSD-91 and
the MV/CLM Series tabletop systems, utilize certain know-how developed within
the Company but have no patent protection.
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BACKLOG
On October 6, 2000, the Company's consolidated backlog from
continuing operations was approximately $1,119,000, compared with approximately
$1,750,000 on October 8, 1999.
EMPLOYEES
As of October 6, 2000, the Company employed 161 persons. Of the
Company's employees, 103 are located in Canada and 58 are located in the United
States; 16 are executives and/or managers, 39 are engaged in sales, 10 are
engaged in customer service, 28 are engaged in product service, 31 are engaged
in manufacturing, shipping and warehouse functions, 30 perform various
administrative functions and 7 are engaged in research and development.
None of the Company's employees are represented by labor unions. The
Company considers its relations with its employees to be satisfactory.
ITEM 2. PROPERTIES.
Carsen leases a building containing approximately 41,000 square
feet, located in Markham, Ontario. This facility is used for warehouse, service
and office space. The lease expires in July 2005, subject to the Company's
option to renew for five years. The lease provides for monthly base rent of
approximately $12,000. Additionally, Carsen leases space for two outside service
facilities in Montreal, Quebec and Vancouver, British Columbia containing
approximately 850 square feet and 750 square feet, respectively. The Montreal
facility lease expires in July 2004 and provides for monthly base rent of
approximately $400. The Vancouver facility lease expires in February 2003 and
provides for monthly base rent of approximately $425.
MediVators leases approximately 27,500 square feet of commercial
space, located in Eagan, Minnesota. This facility is used for manufacturing,
warehouse and office space. The lease expires on September 30, 2001, subject to
MediVators' option to renew for five years. The lease provides for monthly base
rent of approximately $14,000.
The Company has entered into a lease commencing in November 2000 for
its executive offices for approximately 3,700 square feet in Little Falls, New
Jersey. The lease expires in November 2005, subject to the Company's option to
renew for five years. The lease provides for monthly base rent of approximately
$9,000.
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The Company believes that its facilities are adequate for its
current needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the NASDAQ National Market
under the symbol "CNTL." The following table sets forth, for the periods
indicated, the high and low bid prices for the Common Stock as reported by
NASDAQ.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
YEAR ENDED JULY 31, 2000
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<S> <C> <C>
First Quarter $5 5/8 $4 3/4
Second Quarter 5 3/8 4 3/8
Third Quarter 6 3/4 5 1/16
Fourth Quarter $7 25/32 $5 21/64
YEAR ENDED JULY 31, 1999
------------------------
First Quarter $9 $6 1/2
Second Quarter 8 1/4 5 1/2
Third Quarter 7 5 1/4
Fourth Quarter $6 $5
</TABLE>
The Company has not paid any cash dividends on the Common Stock and
a change in this policy is not presently under consideration by the Board of
Directors.
On October 6, 2000, the closing price of the Company's Common Stock
was $9.25 and the Company had 202 record holders of Common Stock. A number of
such holders of record are brokers and other institutions holding shares of
Common Stock in "street name" for more than one beneficial owner.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The financial data in the following table is qualified in its
entirety by, and should be read in conjunction with, the financial statements
and notes thereto and other information incorporated by reference in this Form
10-K.
CONSOLIDATED STATEMENTS OF INCOME DATA (1):
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended July 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales .................. $ 40,988 $ 37,545 $ 30,161 $ 29,556 $ 25,632
Cost of sales (2) .......... 24,747 23,823 18,727 19,123 16,023
Gross profit ............... 16,241 13,722 11,434 10,433 9,609
Income from continuing
operations before
interest expense and
income taxes (3) ....... 5,141 3,867 3,104 2,683 1,776
Interest expense (4) ....... 225 271 179 143 258
Income from continuing
operations before
income taxes .......... 4,916 3,596 2,925 2,540 1,518
Income taxes (4) ........... 2,085 1,936 1,287 1,438 793
Income from continuing
operations ............ 2,831 1,660 1,638 1,102 725
Income (loss) from
discontinued operations (147) (291) 57 (6) (303)
-------- -------- -------- -------- --------
Net income ............... $ 2,684 $ 1,369 $ 1,695 $ 1,096 $ 422
======== ======== ======== ======== ========
Earnings per common share:
Basic: (5)
Continuing operations $ .64 $ .38 $ .39 $ .27 $ .19
Discontinued
operations ......... (.03) (.07) .01 -- (.08)
-------- -------- -------- -------- --------
Net income ........... $ .61 $ .31 $ .40 $ .27 $ 11
======== ======== ======== ======== ========
Diluted: (5) ...........
Continuing operations $ .63 $ .36 $ .37 $ .25 $ .17
Discontinued
operations ........... (.03) (.06) .01 -- (.07)
-------- -------- -------- -------- --------
Net income ........... $ .60 $ .30 $ .38 $ .25 $ .10
======== ======== ======== ======== ========
Weighted average number
of common and common
equivalent shares:
Basic .................. 4,412 4,394 4,240 4,073 3,790
Diluted ................ 4,479 4,591 4,484 4,354 4,309
</TABLE>
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CONSOLIDATED BALANCE SHEETS DATA (1):
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
July 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Total assets ......... $24,955 $23,726 $21,475 $18,082 $15,718
Current assets ....... 21,701 20,462 18,378 16,709 14,426
Current liabilities .. 7,570 7,521 5,191 5,383 2,801
Working capital ...... 14,131 12,941 13,187 11,326 11,625
Long-term debt, less
current portion .... 125 1,567 3,004 1,594 3,419
Stockholders' equity . 17,163 14,545 13,226 11,017 9,401
Book value per
outstanding common
share .............. $ 3.87 $ 3.28 $ 3.03 $ 2.64 $ 2.42
Common shares
outstanding ........ 4,438 4,441 4,367 4,166 3,889
</TABLE>
----------
(1) Consolidated statements of income and balance sheets data for fiscal 1996
through 1999 have been restated from amounts previously reported to
reflect the Consumer Products business as a discontinued operation.
(2) Includes for fiscal 1999 an inventory write-off of $452,000 associated
with the discontinuance of MediVators' medical sharps disposal business.
(3) Includes for fiscal 1999 costs of $467,000 associated with the
discontinuance of MediVators' medical sharps disposal business, as well as
costs of $74,000 associated with the termination of a proposed
acquisition. Includes for fiscal 1996 costs of $486,000 associated with
the MediVators merger.
(4) Includes for fiscal 1996 a recovery of prior years' federal and provincial
income taxes and withholding taxes of approximately $182,000 and interest
of approximately $103,000 arising from a negotiated settlement with
Revenue Canada of a prior year tax reassessment.
(5) In fiscal 1999, the charge of $467,000 associated with the discontinuance
of MediVators' medical sharps disposal business reduced basic and diluted
earnings per share from continuing operations by $0.10. Without this
charge, basic and diluted earnings per share from continuing operations
for fiscal 1999, as adjusted, would have been $0.48 and $0.46,
respectively.
-16-
<PAGE>
ITEM 7. 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 Item 1, "Business", and in note 6
to the Consolidated Financial Statements. The results of continuing operations
reflect primarily the results of Carsen and MediVators. Reference is also made
hereafter to the impact on the Company's results of operations of a stronger
Canadian dollar against the United States dollar during fiscal 2000 compared
with fiscal 1999 (increase in value of approximately 3% based upon month-end
exchange rates), and a weaker Canadian dollar against the United States dollar
during fiscal 1999 compared with fiscal 1998 (decrease in value of approximately
6%).
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>
Year Ended July 31,
-----------------------------------------------------------------------
2000 1999 1998
-----------------------------------------------------------------------
(Dollar amounts in thousands)
$ % $ % $ %
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Medical Products $ 17,114 41.8 $ 16,887 45.0 $ 12,679 42.0
Infection Control
Products 10,940 26.7 9,334 24.9 8,086 26.8
Scientific Products 8,231 20.1 6,868 18.3 5,957 19.8
Product Service 5,463 13.3 5,223 13.9 3,879 12.9
Elimination of inter-
company sales of
Infection Control
Products (760) (1.9) (767) (2.1) (440) (1.5)
-------- ------- -------- ------- -------- -------
$ 40,988 100.0 $ 37,545 100.0 $ 30,161 100.0
======== ======= ======== ======= ======== =======
</TABLE>
FISCAL 2000 COMPARED WITH FISCAL 1999
Net sales increased by $3,443,000, or 9.2%, to $40,988,000 in fiscal
2000, from $37,545,000 in fiscal 1999. This increase was attributable to the
increased sales of all business segments, with the largest increases
attributable to Infection Control Products and Scientific Products. Net sales
were positively impacted in fiscal 2000 compared with fiscal 1999 by
approximately $801,000 due to the translation of Carsen's net sales using a
stronger Canadian dollar against the United States dollar.
-17-
<PAGE>
For fiscal 2000, the increased sales of Infection Control Products
were primarily attributable to an increase in demand for infection control
products in the United States, and to a lesser extent, continued expansion and
improvement of the international distribution of MediVators' infection control
products and selling price increases. The increased sales of Scientific Products
were primarily attributable to an increase in demand for microscopes and related
imaging equipment.
Gross profit increased by $2,519,000, or 18.4%, to $16,241,000 in
fiscal 2000, from $13,722,000 in fiscal 1999. Gross profit was positively
impacted in fiscal 2000 compared with fiscal 1999 by approximately $294,000 due
to the translation of Carsen's gross profit using a stronger Canadian dollar
against the United States dollar.
Gross profit as a percentage of sales increased to 39.6% in fiscal
2000, from 36.5% in fiscal 1999. The higher gross profit percentage for fiscal
2000 was primarily attributable to the positive impact of a stronger Canadian
dollar relative to the United States dollar, since the Company's Canadian
subsidiary purchases substantially all of its products in United States dollars
and sells its products in Canadian dollars; favorable sales mix and
manufacturing efficiencies associated with infection control products; favorable
sales mix associated with Product Service; and the write-off in fiscal 1999 of
inventory in the amount of $452,000 associated with the discontinuance of
MediVators' medical sharps disposal business.
Shipping and warehouse expenses increased by $89,000 to $491,000 for
fiscal 2000, from $402,000 for fiscal 1999. The increase was attributable to
variable freight costs associated with the increase in sales volume.
Selling expenses as a percentage of net sales were 12.8% for fiscal
2000, compared with 12.5% for fiscal 1999. The increase was attributable to an
increase in personnel to support the increase in volume at the Company's
Canadian subsidiary.
General and administrative expenses increased by $646,000 to
$4,543,000 for fiscal 2000, from $3,897,000 for fiscal 1999. The increase was
primarily attributable to personnel costs, including incentive compensation, and
professional fees.
Research and development expenses increased by $47,000 to $836,000
for fiscal 2000, from $789,000 for fiscal 1999. This increase was due to an
increase in personnel costs and continuing engineering on existing products.
The Company incurred costs of $74,000 in fiscal 1999
-18-
<PAGE>
related to professional fees associated with the termination of a proposed
acquisition.
Interest expense decreased to $225,000 in fiscal 2000, from $271,000
in fiscal 1999. This decrease was attributable to a decrease in average
outstanding borrowings during fiscal 2000 under the Company's revolving credit
facilities, partially offset by an increase in average borrowing rates.
Income from continuing operations before income taxes increased by
$1,320,000, or 36.7%, to $4,916,000 for fiscal 2000, from $3,596,000 for fiscal
1999. Without the write-off associated with the discontinuance of MediVators'
medical sharps disposal business, income from continuing operations before
income taxes would have increased by $853,000, or 21.0%, for fiscal 2000.
Income taxes consist primarily of taxes imposed on the Company's
Canadian operations. The effective tax rate on Canadian operations was 43.9% and
46.1% for fiscal 2000 and 1999, respectively. For fiscal 2000, the consolidated
effective tax rate is 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.
FISCAL 1999 COMPARED WITH FISCAL 1998
Net sales increased by $7,384,000, or 24.5%, to $37,545,000 in
fiscal 1999, from $30,161,000 in fiscal 1998. This increase was attributable to
the increased sales of all business segments. Net sales were adversely impacted
in fiscal 1999 compared with fiscal 1998 by approximately $1,507,000 due to the
translation of Carsen's net sales using a weaker Canadian dollar against the
United States dollar.
For fiscal 1999, the increased sales of Medical Products in Canada
were principally due to an increase in demand, and to a lesser extent selling
price increases. The increased sales of Infection Control Products were
attributable to an increase in demand for infection control products in the
United States; continued expansion and improvement of the international
distribution of MediVators' infection control products; and to a lesser extent
selling price increases. The increased sales of Scientific Products were
primarily attributable to an increase in demand for microscopes. The increased
sales of Product Service were attributable to an expansion of the Company's
service business at Carsen and MediVators.
Gross profit increased by $2,288,000, or 20.0%, to $13,722,000 in
fiscal 1999, from $11,434,000 in fiscal 1998. Gross
-19-
<PAGE>
profit was adversely impacted in fiscal 1999 compared with fiscal 1998 by
approximately $520,000 due to the translation of Carsen's gross profit using a
weaker Canadian dollar against the United States dollar.
Gross profit as a percentage of sales decreased to 36.5% in fiscal
1999, from 37.9% in fiscal 1998. The lower gross profit percentage for fiscal
1999 was primarily attributable to the adverse impact of a weaker Canadian
dollar relative to the United States dollar, since the Company's Canadian
subsidiary purchases substantially all of its products in United States dollars
and sells its products in Canadian dollars; the write-off of inventory in the
amount of $452,000 associated with the discontinuance of MediVators' medical
sharps disposal business; and more competitive sales of medical products. The
gross profit percentage decrease was net of improvements in gross profit
percentage attributable to favorable sales mix, selling price increases and
volume related manufacturing efficiencies associated with infection control
products.
Shipping and warehouse expenses decreased by $18,000 to $402,000 for
fiscal 1999, from $420,000 for fiscal 1998.
Selling expenses as a percentage of net sales were 12.5% for fiscal
1999, compared with 11.9% for fiscal 1998. The increase was attributable to an
increase in advertising and sales promotion costs associated with infection
control products and higher personnel costs and commissions associated with
certain domestic sales of infection control products, partially offset by the
effect of the increased sales against the fixed portion of selling expenses.
General and administrative expenses increased by $440,000 to
$3,897,000 for fiscal 1999, from $3,457,000 for fiscal 1998. The increase was
primarily attributable to professional fees, amortization of intangible assets
related to the acquisition of Lutz Medical in March 1998, and increased internal
regulatory costs, including costs of ISO certification.
Research and development expenses decreased by $60,000 to $789,000
for fiscal 1999, from $849,000 for fiscal 1998. This decrease was due to a
reduction in personnel costs and third party laboratory testing.
The Company incurred costs of $74,000 in fiscal 1999 related to
professional fees associated with the termination of a proposed acquisition.
Interest expense increased to $271,000 in fiscal 1999, from $179,000
in fiscal 1998. This increase was primarily
-20-
<PAGE>
attributable to an increase in average borrowings outstanding during fiscal 2000
under the Company's revolving credit facilities.
Income from continuing operations before income taxes increased by
$671,000, or 22.9%, to $3,596,000 for fiscal 1999, from $2,925,000 for fiscal
1998. Without the write-off associated with the discontinuance of MediVators'
medical sharps disposal business, income from continuing operations before
income taxes would have increased by $1,138,000, or 38.9%, to $4,063,000 for
fiscal 1999.
Income taxes consist primarily of taxes imposed on the Company's
Canadian operations. The effective tax rate on Canadian operations was 46.1% and
45.1% for fiscal 1999 and 1998, respectively. For fiscal 1999, the consolidated
effective tax rate is higher than the Canadian effective tax rate due to the
fact that losses generated by the United States operations could not be used to
offset income generated by the Canadian operations. The overall loss generated
by the Company's United States operations was attributable to corporate
overhead, partially offset by net income at MediVators.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2000, the Company's working capital was $14,131,000,
compared with $12,941,000 at July 31, 1999. This increase primarily reflects
increases in cash and cash equivalents and net assets related to discontinued
business and a decrease in other accrued expenses, partially offset by a
decrease in inventories.
Net cash provided by operating activities was $4,668,000 for fiscal
2000, compared with net cash provided by operating activities of $1,916,000 for
fiscal 1999 and net cash used in operating activities of $320,000 for fiscal
1998. In fiscal 2000, net cash provided by operating activities was primarily
due to net income from continuing operations after adjusting for depreciation
and amortization and deferred income taxes, and decreases in inventories and
accounts receivable. In fiscal 1999, net cash provided by operating activities
was primarily due to net income from continuing operations after adjusting for
depreciation and amortization and the write-off associated with the medical
sharps disposal inventories, and an increase in accounts payable and accrued
expenses, partially offset by an increase in accounts receivable. In fiscal
1998, net cash used in operating activities was primarily due to increases in
accounts receivable, inventories and other current assets, partially offset by
net income from continuing operations after adjusting for depreciation and
amortization.
-21-
<PAGE>
Net cash used in investing activities was $1,392,000, $375,000 and
$1,373,000 in fiscal 2000, 1999 and 1998, respectively. In fiscal 2000, net cash
used in investing activities was primarily due to an increase in the net assets
related to discontinued operations and capital expenditures. In fiscal 1999, net
cash used in investing activities was primarily due to capital expenditures. In
fiscal 1998, the net cash used in investing activities was primarily due to an
increase in the net assets related to discontinued operations, capital
expenditures and the acquisition of Lutz Medical.
Net cash used in financing activities was $1,641,000 in fiscal 2000,
compared with net cash used in financing activities of $1,500,000 in fiscal 1999
and net cash provided by financing activities of $1,530,000 in fiscal 1998.
These changes were principally due to the fluctuations in outstanding borrowings
under the Company's revolving credit facilities, proceeds from the exercise of
stock options and, in fiscal 2000 and 1999, 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 August 1,
2001. Borrowings under the Carsen revolving credit facility 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 July
31, 2000, such rate was .25% above 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 July 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. There
were $125,000 and $1,561,000 of borrowings outstanding under these facilities at
July 31, 2000 and 1999, respectively.
During fiscal 2000 compared with fiscal 1999, the average value of
the Canadian dollar increased by 3% relative to the value of the United States
dollar. A change 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.
-22-
<PAGE>
Under the Carsen credit facility the Company's Canadian subsidiary
has a $15,000,000 (U.S. dollars) foreign exchange hedging facility which is
available to be used to minimize future adverse currency fluctuations as they
relate to purchases of inventories. At October 6, 2000, Carsen had foreign
exchange forward contracts aggregating $4,630,000 (United States dollars), to
hedge against possible declines in the value of the Canadian dollar which would
otherwise result in higher inventory costs. Such contracts represent a portion
of the Canadian subsidiary's projected purchases of inventories through July
2001. The weighted average exchange rate of the forward contracts open at
October 6, 2000 was $1.4605 Canadian dollar per United States dollar, or $.6847
United States dollar per Canadian dollar. The exchange rate published by the
Wall Street Journal on October 6, 2000 was $1.4964 Canadian dollar per United
States dollar, or $.6683 United States dollar per Canadian dollar.
For purposes of translating the balance sheet, at July 31, 2000
compared with July 31, 1999, the value of the Canadian dollar increased slightly
compared to the value of the United States dollar. As a result, at July 31,
2000, the negative cumulative foreign currency translation adjustment was
reduced by $133,000 compared to July 31, 1999, thereby slightly increasing
stockholders' equity. However, since July 31, 1997, the net increase in the
negative cumulative foreign currency translation adjustment (due to the
conversion of Carsen's net assets using a weaker Canadian dollar) has reduced
stockholders' equity by $740,000.
The Company believes that its current cash position, anticipated
cash flow from continuing operations, amounts to be received related to the
discontinuance of the Company's Consumer Products business and the funds
available under the revolving credit facilities will be sufficient to satisfy
the Company's cash operating requirements for the foreseeable future based upon
the current level of operations. At October 6, 2000, approximately $6,043,000
was available under the credit facilities.
As of July 31, 2000, the Company had net operating loss
carryforwards for financial statement and domestic tax reporting purposes
("NOLs") of approximately $15,886,000 which will expire through July 31, 2015.
Of this amount, approximately $1,100,000 represents NOLs accumulated by
MediVators prior to the MediVators merger, which may only be used against the
future earnings of MediVators and are subject to annual limitations due to the
ownership change.
In addition, the Company and its Canadian subsidiary cannot file
consolidated tax returns, for Canadian or United States income tax purposes.
Therefore, neither net losses sustained by
-23-
<PAGE>
the Company in the United States, if any, nor the NOLs can be utilized to reduce
Canadian federal or provincial income taxes payable by the Canadian subsidiary
on its taxable income, nor can losses sustained by the Canadian subsidiary, if
any, be used to offset taxable income earned by the Company in the United
States. This has resulted in the payment of income taxes by the Company in
Canada, notwithstanding net losses sustained, or NOL's utilized by, the Company
in the United States.
Inflation has not significantly impacted the Company's operations.
This 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, the ability
of the Company's vendors and distributors to complete the necessary actions to
achieve a year 2000 conversion for its computer systems and applications, 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 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES
ABOUT MARKET RISK.
Foreign currency market risk: Carsen 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 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. Fluctuations in the exchange
rates between the United States and Canada had a positive impact in fiscal 2000
and an adverse impact in fiscal 1999 upon the Company's results of operations
and stockholders' equity, as described in Management 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.
-24-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated Financial Statements, which is Item 14(a),
and the Consolidated Financial Statements and schedule attached to this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company has not had any disagreements with its accountants on
accounting or financial disclosure.
-25-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The current directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Charles M. Diker 65 Chairman of the Board and
Director
Alan J. Hirschfield 65 Vice Chairman of the Board,
Director and Chairman of the
Compensation Committee
Robert L. Barbanell 70 Director, Chairman of the Audit
Committee and a member of
the Compensation Committee
Joseph M. Cohen 63 Director
Darwin C. Dornbush, Esq. 70 Secretary and Director
Morris W. Offit 63 Director and a member of the
Audit Committee
James P. Reilly 60 President, Chief Executive
Officer and Director
John W. Rowe, M.D. 56 Director
Bruce Slovin 64 Director and a member of
the Audit Committee
Roy K. Malkin 54 President and Chief Executive
Officer of MediVators
Craig A. Sheldon 38 Vice President and Controller
William J. Vella 44 President and Chief Operating
Officer of Carsen
</TABLE>
Mr. Diker has served as Chairman of the Board of the Company since
April 1986. He is a private investor and a non-managing principal of Weiss, Peck
& Greer, an investment management company. Mr. Diker is also a director of AMF
Bowling, Inc. (NYSE), an owner and operator of bowling centers and a
manufacturer of bowling equipment, International Specialty Products (NYSE), a
specialty chemical company, and Chyron Corporation (NYSE), a supplier of
graphics for the television industry.
Mr. Hirschfield has served as Vice Chairman of the Board of
the Company since January 1988. He is currently a private investor and
consultant. From July 1992 to February 2000, Mr. Hirschfield served as
Co-Chairman and Co-Chief Executive Officer of Data Broadcasting Corp.
(NASDAQ), a communication services and technology company. Mr.
Hirschfield is a director of Data Broadcasting Corp. as well as Chyron
Corporation (NYSE), a supplier of graphics for the television industry and
Jackpot, Inc. (NYSE), an internet venture investor and incubator company.
-26-
<PAGE>
Mr. Barbanell has served as President of Robert L. Barbanell
Associates, Inc., a financial consulting company, since July 1994. Mr. Barbanell
is also Chairman of the Board and a director of Marine Drilling Companies, Inc.
(NYSE), a drilling contractor, a director of Kaye Group Inc. (NASDAQ), an
insurance brokerage and insurance underwriting company, a director of Blue
Dolphin Energy Company (NASDAQ), an oil and gas company, and a director of
Sentry Technology Corporation (NASDAQ), a security products company.
Mr. Cohen has served as Chairman of JM Cohen & Co., L.L.C., a family
investment group, since February 2000. From July 1998 until February 2000, Mr.
Cohen was Chairman of SG Cowen Securities Corp., a securities firm. From June
1967 until July 1998, Mr. Cohen was Managing Partner and Chairman of Cowen &
Company, a research and investment banking firm.
Mr. Dornbush has served as Secretary of the Company since July 1990.
He has been a partner in the law firm of Dornbush Mensch Mandelstam & Schaeffer,
LLP, which has been general counsel to the Company for more than the past five
years. Mr. Dornbush is also a director of Benihana, Inc. (NASDAQ), a company
which operates Japanese restaurants.
Mr. Offit has served as Chief Executive Officer of OFFITBANK (a
Wachovia company), a limited purpose trust company chartered by the New York
State Banking Department, since July 1990. Mr. Offit is a Trustee of Johns
Hopkins University where he served as Chairman of the Board of Trustees from
1990 through 1996. He serves as a director of Wachovia Corporation (NYSE), a
bank holding company.
Mr. Reilly has served as President and Chief Executive Officer of
the Company since June 1989. Mr. Reilly is a certified public accountant.
Dr. Rowe has served as President and CEO of Aetna US Healthcare
since September 2000. From July 1998 until September 2000, Dr. Rowe was
President and Chief Executive Officer of Mount Sinai NYU Health. From July 1988
until July 1998, Dr. Rowe was President of the Mount Sinai Hospital. From July
1988 until July 1999, Dr. Rowe was President of the Mount Sinai School of
Medicine. He also serves as a Professor of Medicine and of Geriatrics at the
Mount Sinai School of Medicine.
Mr. Slovin has served as President and a director of MacAndrews &
Forbes Holdings Inc. and Revlon Group, Inc., privately held industrial holding
companies, since 1985. Mr. Slovin is also a director of Kuala Healthcare, Inc.
(NASDAQ), a home health care
-27-
<PAGE>
services company, Infu-Tech, Inc. (NASDAQ), a home health care company, and M&F
Worldwide Corp. (NYSE), a manufacturer of licorice extract and flavorings.
Mr. Malkin has served as President and Chief Executive Officer of
MediVators since June 1999. From June 1984 until July 1994 and from November
1996 until May 1999, Mr. Malkin was President and Chief Executive Officer of RKM
Enterprises Ltd., a multi-national consulting group for the healthcare industry.
From July 1994 until October 1996, Mr. Malkin was employed by Steris
Corporation, most recently as Senior Vice President.
Mr. Sheldon has served as Vice President and Controller of the
Company since November 1994. Mr. Sheldon is a certified public accountant.
Mr. Vella has served as President and Chief Operating Officer of
Carsen since December 1996, as Executive Vice President from January 1995 until
November 1996, and prior thereto in various sales and sales management positions
since October 1981.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's
directors, executive officers, and any persons holding more than ten percent of
the Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in their ownership to the
Securities and Exchange Commission ("SEC"). Specific due dates have been
established by the SEC, and the Company is required to disclose in this Report
any failure to file by those dates. Based upon (i) the copies of Section 16(a)
reports that the Company received from such persons for their 2000 fiscal year
transactions and (ii) the written representations received from one or more of
such persons that no annual Form 5 reports were required to be filed for them
for the 2000 fiscal year, the Company believes that there has been compliance
with all Section 16(a) filing requirements applicable to such officers,
directors, and ten-percent beneficial owners for such fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth, for the fiscal years ended July 31,
2000, 1999 and 1998, compensation, including salary, bonuses, stock options and
certain other compensation, paid by the Company to the Chief Executive Officer
and to the other executive officers of the Company who received more than
$100,000 in salary and bonus during fiscal year 2000:
-28-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
----------------------------------------------------
Long-Term
Compensation
Annual Compensation (1) Awards (2)
----------------------- ------------
Name and Salary Bonus Options
Principal Position Year ($) ($) (#)
------------------ ---- ------- ------ -------
<S> <C> <C> <C> <C>
Charles M. Diker 2000 150,000 0 1,000
Chairman of the 1999 150,000 0 51,000
Company 1998 125,000 0 51,000
James P. Reilly(3) 2000 288,750 141,967 1,000
President and 1999 275,000 98,494 101,000
Chief Executive 1998 250,000 39,225 1,000
Officer of the
Company
Roy K. Malkin (4) 2000 175,000 60,000 5,000
President and 1999 20,192 0 50,000
Chief Executive
Officer of
MediVators, Inc.
Craig A. Sheldon 2000 121,750 27,000 25,000
Vice President 1999 109,000 18,000 6,000
and Controller 1998 97,500 15,000 5,000
of the Company
William J. Vella(5) 2000 169,950 40,000 25,000
President and 1999 144,997 69,668 10,000
Chief Operating 1998 133,447 16,500 10,000
Officer of
Carsen Group Inc.
</TABLE>
----------
(1) The Company did not pay or provide other forms of annual compensation
(such as perquisites and other personal benefits) to the above-named
executive officers having a value exceeding the lesser of $50,000 or 10%
of the total annual salary and bonus reported for such officers, with the
exception of a one-time relocation allowance provided to Mr. Malkin in the
amount of $58,877 paid during fiscal 2000.
-29-
<PAGE>
(2) The Company has no long-term incentive compensation plan other than the
1991 Employee Stock Option Plan, the 1997 Employee Stock Option Plan, the
MediVators 1991 Stock Option Plan, the 1991 Directors' Stock Option Plan
and the 1998 Directors' Stock Option Plan described herein and various
individually granted options. The Company does not award stock
appreciation rights, restricted stock awards or long-term incentive plan
pay-outs.
(3) In March 1999, the Company entered into a four year employment agreement
with James P. Reilly (the "Employment Agreement") which was effective as
of August 1, 1998. The Employment Agreement provides for (i) an annual
base salary of $275,000, subject to annual increases equal to the greater
of 5% or a cost of living formula, (ii) annual incentive compensation
equal to 6% of the increase in the current fiscal year's pre- tax income
over the highest pre-tax income of any prior fiscal year commencing July
31, 1998, subject to adjustment for specified events, (iii) bonuses of
$65,000 payable upon each of the execution of the Employment Agreement,
August 1, 1999 and August 1, 2000, (iv) participation in employee health,
insurance and other benefit plans, (v) maintenance by the Company of a
life insurance policy on the life of Mr. Reilly in the face amount of
$500,000 payable to his designated beneficiary, and (vi) use of a Company
owned or leased automobile. In addition, Mr. Reilly was granted a stock
option under the Company's 1997 Employee Stock Option Plan to purchase
100,000 shares of Common Stock at an exercise price equal to $6.00 (the
fair market value of the shares on the date of grant) and having a ten
year term. If the Employment Agreement expires and Mr. Reilly's employment
is terminated thereafter for any reason, Mr. Reilly will be entitled to a
severance payment equal to one year's base salary plus the amount of his
bonus for the most recently completed fiscal year (the "Severance
Amount"). In the event of a "Change In Control" (as defined in the
Employment Agreement), Mr. Reilly has a nine month option to terminate his
employment and receive a severance payment on a formula based on his
average compensation over the previous three years. If such termination
was prior to August 1, 1999, severance would have been 2.5 times such
average compensation. After August 1, 1999 such amount is reduced by 2.5%
per month, but not below the Severance Amount described above. The
Employment Agreement contains a non-competition provision applicable for
two years following termination of Mr. Reilly's employment. The Company
has the right to terminate the Agreement for death, disability and "cause"
(as defined in the Employment Agreement) and Mr. Reilly has the right to
terminate the Employment Agreement upon three month's notice.
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<PAGE>
(4) In May 1999, MediVators entered into an employment agreement with Roy K.
Malkin that expires on July 31, 2002. Mr. Malkin's employment agreement
provides for (i) an annual base salary of $175,000, subject to annual
increases equal to the greater of 5% or a cost of living formula, (ii)
annual incentive compensation commencing July 31, 2000, equal to 5% of the
increase in MediVators' current fiscal year's pre-tax income over
MediVators' highest pre-tax income of any prior fiscal year, (iii)
participation in employee health, insurance and other benefit plans, (iv)
maintenance by MediVators of a life insurance policy on the life of Mr.
Malkin in the face amount of $250,000 payable to his designated
beneficiary, (v) use of a Company owned or leased automobile and (vi) the
Company to grant Mr. Malkin an option to purchase 50,000 shares of Common
Stock under the 1997 Employee Stock Option Plan at an exercise price equal
to $5.25 (the fair market value of the shares on the date of grant). Mr.
Malkin was not employed by the Company prior to May 1999.
(5) Mr. Vella was paid his salary and bonus in Canadian dollars. The dollar
amounts above have been translated from Canadian dollars to U.S. dollars
based upon an average exchange rate during the respective fiscal year.
OPTION GRANTS IN FISCAL 2000
The following stock option information is furnished for the fiscal
year ended July 31, 2000 with respect to the Company's Chief Executive Officer
and the other executive officers of the Company named in the Compensation Table
above, for stock options granted during such fiscal year. Stock options were
granted without tandem stock appreciation rights.
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<PAGE>
<TABLE>
<CAPTION>
% of Total
Number of Options Potential Realizable
Shares Granted to Value at Assumed
Underlying Employees Exercise Annual Rates of Stock
Options During the Price Per Expiration Price Appreciation
Name Granted Fiscal Year Share ($) Date for Option Term ($)(1)
---- ---------- ----------- --------- ---------- ----------------------
5% 10%
--------- -----------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Diker 1,000 (2) 0.8 7.781 7/30/05 4,893 12,401
James P. Reilly 1,000 (2) 0.8 7.781 7/30/05 4,893 12,401
Roy K. Malkin 5,000 (3) 4.6 5.25 2/24/05 7,252 16,026
Craig A. Sheldon 25,000 (3) 19.3 5.25 2/24/05 36,262 80,129
William J. Vella 25,000 (3) 19.3 5.25 2/24/05 36,262 80,129
</TABLE>
----------
(1) Represents the potential realizable value of the options granted at
assumed 5% and 10% rates of compounded annual stock price
appreciation from the date of grant of such options.
(2) These options were granted under the Company's 1991 Directors' Stock
Option Plan. The exercise price per share of the options is the
market value per share on the date of grant. The options are subject
to vesting as follows: 50% of the total shares covered by the
options vest on the first anniversary of the date of grant and the
remaining 50% vest on the second anniversary of such date of grant.
(3) These options were granted under the Company's 1997 Employee Stock
Option Plan. The exercise price per share of the options is the
market value per share on the date of grant. The options are subject
to vesting as follows: 25% of the total shares covered by the
options vest on each of the first four anniversaries of the date of
the grant.
AGGREGATED OPTION EXERCISES IN FISCAL 2000
AND FISCAL YEAR-END OPTION VALUES
The following information is furnished for the fiscal year ended July 31,
2000 with respect to the Company's Chief Executive Officer and the other
executive officers of the Company named in the Compensation Table above, for
stock option exercises during such fiscal year.
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<PAGE>
<TABLE>
<CAPTION>
Number of Shares Value of
Underlying Unexercised Unexercised in-the-Money
Shares Options At 7/31/00 (#) Options At 7/31/00 ($)
Acquired On Value ---------------------------- ----------------------------
Name Exercise (#) Realized ($) Exercisable Non-exercisable Exercisable Non-exercisable
---- ------------ ------------ ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Diker 0 0 143,834 18,166 95,834 1,751
James P. Reilly 50,000 206,000 40,832 68,168 78,972 119,970
Roy K. Malkin 0 0 16,667 38,333 42,184 97,021
Craig A. Sheldon 1,775 444 12,750 33,250 6,647 72,750
William J. Vella 2,000 1,500 27,000 39,000 14,435 82,897
</TABLE>
STOCK OPTIONS
An aggregate of 250,000 shares of Common Stock is reserved for
issuance or available for grant under the Company's 1991 Employee Stock Option
Plan (the "1991 Employee Plan"). Options granted under the 1991 Employee Plan
are intended to qualify as incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). The 1991
Employee Plan is administered in all respects by a committee composed of at
least two non-employee members of the Company's Board of Directors who are
designated by the Board (the "Stock Option Committee"). The Stock Option
Committee may determine the employees to whom options are to be granted and the
number of shares subject to each option. Under the terms of the 1991 Employee
Plan, all employees of the Company or subsidiaries of the Company are eligible
for option grants. The option exercise price of options granted under the 1991
Employee Plan is fixed by the Stock Option Committee but must be no less than
100% of the fair market value of the shares of Common Stock subject to the
option at the time of grant, except that in the case of an employee who
possesses more than 10% of the total combined voting power of all classes of
stock of the Company (a "10% Holder"), the exercise price must be no less than
110% of said fair market value. Options may be exercised by the payment in full
in cash or by the tendering or cashless exchange of shares of Common Stock
having a fair market value, as determined by the Stock Option Committee, equal
to the option exercise price. Options granted under the 1991 Employee Plan may
not be exercised more than ten years after the date of grant, five years in the
case of an incentive stock option granted to a 10% Holder. All options
outstanding at July 31, 2000 under the 1991 Employee Plan have a term of five
years. At July 31, 2000, options to purchase 91,500 shares of Common Stock at
prices between $5.50 and $8.75 per share were outstanding under the 1991
Employee Plan, and 95,850 shares were available for grant under the 1991
Employee Plan. No additional options will be granted under the 1991 Employee
Plan.
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<PAGE>
An aggregate of 700,000 shares of Common Stock is reserved for
issuance or available for grant under the Company's 1997 Employee Stock Option
Plan, as amended (the "1997 Employee Plan"). Options granted under the 1997
Employee Plan are intended to qualify as incentive stock options within the
meaning of Section 422 of the Code. The 1997 Employee Plan is administered in
all respects by the Stock Option Committee. The Stock Option Committee may
determine the employees to whom options are to be granted and the number of
shares subject to each option. Under the terms of the 1997 Employee Plan, all
employees of the Company or subsidiaries of the Company are eligible for option
grants. The option exercise price of options granted under the 1997 Employee
Plan is fixed by the Stock Option Committee but must be no less than 100% of the
fair market value of the shares of Common Stock subject to the option at the
time of grant, except that in the case of a 10% Holder, the exercise price must
be no less than 110% of said fair market value. Options may be exercised by the
payment in full in cash or by the tendering or cashless exchange of shares of
Common Stock having a fair market value, as determined by the Stock Option
Committee, equal to the option exercise price. Options granted under the 1997
Employee Plan may not be exercised more than ten years after the date of grant,
five years in the case of an incentive stock option granted to a 10% Holder. All
options outstanding at July 31, 2000 under the 1997 Employee Plan have a term of
five years, except for 100,000 options granted to Mr. Reilly under the terms of
his employment agreement, which have a term of ten years. At July 31, 2000,
options to purchase 340,750 shares of Common Stock at prices between $4.875 and
$8.75 per share were outstanding under the 1997 Employee Plan, and 359,250
shares were available for grant under the 1997 Employee Plan.
An aggregate of 200,000 shares of Common Stock is reserved for
issuance or available for grant under the Company's 1991 Directors' Stock Option
Plan (the "1991 Directors' Plan"). Options granted under the 1991 Directors'
Plan do not qualify as incentive stock options within the meaning of Section 422
of the Code. The 1991 Directors' Plan provides for the automatic grant to each
of the Company's directors of options to purchase 1,000 shares of Common Stock
on the last business day of the Company's fiscal year. In addition, an option to
purchase 500 shares of Common Stock is granted automatically on the last
business day of each fiscal quarter to each director (exclusive of Messrs.
Diker, Reilly and Dornbush and any other director who serves as an officer or
employee of the Company) provided that the director attended any regularly
scheduled meeting of the Board, if any, held during such quarter. Each such
option grant is at an exercise price equal to the fair market value of the
Common Stock on the date of grant and has a ten year term. Mr. Dornbush, who is
both an officer and director of the Company (and who thereby does not receive
said quarterly option grant), was granted a non-plan option to purchase
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<PAGE>
500 shares of Common Stock on the last business day of each fiscal quarter
provided that Mr. Dornbush attended any regularly scheduled meeting of the
Board, if any, held during such quarter. The fiscal year options are exercisable
in two equal annual installments commencing on the first anniversary of the
grant thereof and the quarterly options, including the non-plan options issued
to Mr. Dornbush, are exercisable in full immediately. At July 31, 2000, options
to purchase 133,500 shares of Common Stock at prices between $2.00 and $10.25
per share were outstanding under the 1991 Directors' Plan, and 16,500 shares
were available for grant under the 1991 Directors' Plan. In addition, at July
31, 2000 Mr. Dornbush had non-plan options to purchase an aggregate of 6,000
shares of Common Stock at prices between $5.3125 and $8.75 per share. No
additional options will be granted under the 1991 Director's Plan, and no
additional quarterly non-plan options will be granted to Mr. Dornbush.
An aggregate of 200,000 shares of Common Stock is reserved for
issuance or available for grant under the Company's 1998 Directors' Stock Option
Plan (the "1998 Directors' Plan"). Options granted under the 1998 Directors'
Plan do not qualify as incentive stock options within the meaning of Section 422
of the Code. The 1998 Directors' Plan provides for the automatic grant to each
of the Company's directors of options to purchase 1,000 shares of Common Stock
on the last business day of the Company's fiscal year. In addition, an option to
purchase 500 shares of Common Stock is granted automatically on the last
business day of each fiscal quarter to each director (exclusive of Messrs. Diker
and Reilly and any other director who is a full-time employee of the Company)
provided that the director attended any regularly scheduled meeting of the
Board, if any, held during such quarter. Each such option grant is at an
exercise price equal to the fair market value of the Common Stock on the date of
grant. Options granted prior to July 31, 2000 have a ten year term and options
granted on and after July 31, 2000 have a five year term. The fiscal year
options are exercisable in two equal annual installments commencing on the first
anniversary of the grant thereof and the quarterly options are exercisable in
full immediately. At July 31, 2000 options to purchase 18,000 shares of Common
Stock at prices between $5.125 and $7.781 per share were outstanding under the
1998 Directors' Plan, and 182,000 shares were available for grant under the 1998
Directors' Plan.
The Company also has outstanding options granted by MediVators
prior to the MediVators merger under the MediVators 1991 Stock Option Plan (the
"MediVators Plan") which became fully exercisable as a result of the MediVators
merger. At July 31, 2000, options to purchase 8,035 shares of Common Stock at
prices between $6.08 and $8.27 per share were outstanding under the
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<PAGE>
MediVators Plan. No additional options will be granted under the MediVators
Plan.
In October 1996, Mr. Diker was granted a ten year non-plan option
to purchase 50,000 shares of Common Stock at an exercise price of $7.375 per
share. In October 1997, Mr. Diker was granted a ten year non-plan option to
purchase 50,000 shares of Common Stock at an exercise price of $7.00 per share.
In October 1998, Mr. Diker was granted a ten year non-plan option to purchase
50,000 shares of Common Stock at an exercise price of $7.75 per share. All of
said options are exercisable in full.
In October 1998, Dr. Rowe was granted a ten year non-plan option to
purchase 10,000 shares of Common Stock at an exercise price of $8.00 per share.
This option is exercisable in full. In March 1999, Dr. Rowe was granted a ten
year non-plan option to purchase 10,000 shares of Common Stock at an exercise
price of $6.375 per share. This option is exercisable in three equal annual
installments beginning March 1999.
In October 2000, Mr. Cohen was granted a five year non-plan option
to purchase 10,000 shares of Common Stock at an exercise price of $8.38 per
share. This option is exercisable in three equal annual installments beginning
October 2000.
REPORT ON EXECUTIVE COMPENSATION BY THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS AND THE STOCK OPTION COMMITTEE
The Compensation Committee of the Company's Board of Directors (the
"Committee") is responsible for setting and administering the policies which
govern annual executive compensation. The Committee is currently comprised of
two members, Mr. Hirschfield, Chairman, and Mr. Barbanell, both of whom are
non-employee directors.
Executive compensation for the fiscal year ended July 31, 2000
consisted of base salary plus an incentive bonus when earned. The policy of the
Committee, in consultation with the Chairman and the Chief Executive Officer, is
to provide compensation to the Chief Executive Officer and the Company's other
executive officers reflecting the contribution of such executives to the
Company's growth in sales and earnings, the implementation of strategic plans
consistent with the Company's long-term objectives, and the enhancement of
shareholder value.
Mr. Reilly, the President and Chief Executive Officer of the
Company, serves the Company pursuant to a four year employment agreement
effective as of August 1, 1998 and is compensated pursuant to the express terms
of such agreement.
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<PAGE>
Mr. Malkin, the President and Chief Executive Officer of
MediVators, serves MediVators pursuant to an employment agreement which
commenced on May 19, 1999 and expires on July 31, 2002, and is compensated
pursuant to the express terms of such agreement.
Long-term incentive compensation policy consists exclusively of the
award of stock options under the Company's 1991 Employee Plan and 1997 Employee
Plan and, in the case of officers who serve as directors of the Company,
non-discretionary annual option grants of 1,000 shares under the Company's 1991
Directors' Plan and 1998 Directors' Plan.
The Stock Option Committee under the 1991 Employee Plan and the
1997 Employee Plan is responsible for the award of stock options. Two
non-employee directors, Mr. Hirschfield and Mr. Barbanell, currently serve on
the Stock Option Committee, which administers the granting of options under the
1991 Employee Plan and the 1997 Employee Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No officer of the Company served on the Company's Compensation
Committee during its last fiscal year. Mr. Reilly, the President and Chief
Executive Officer of the Company, however, participated in deliberations
concerning executive compensation, except with respect to the compensation of
the Chairman of the Board and himself.
ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT.
OWNERSHIP OF SECURITIES
The following table sets forth stock ownership information as of
October 6, 2000 concerning (i) each director and persons nominated to become
directors of Cantel, (ii) each person (including any "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934) who is known by Cantel
to beneficially own more than five (5%) percent of the outstanding shares of
Cantel's Common Stock, (iii) the Chief Executive Officer and the other executive
officers named in the Summary Compensation Table above, and (iv) Cantel's
executive officers and directors as a group:
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<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percentage
of Beneficial Owners Position With the Company Ownership (1) of Class
-------------------- ------------------------- ------------- -----------
<S> <C> <C> <C>
Charles M. Diker Chairman of the Board and 987,633 (2) 21.5
One New York Plaza Director
New York, New York
Alan J. Hirschfield Vice Chairman of the Board 226,833 (3) 5.1
P.O. Box 7443 and Director
Jackson, Wyoming
Robert L. Barbanell Director 48,269 (4) 1.1
Joseph M. Cohen Director -- --
Darwin C. Dornbush, Esq. Secretary and Director 28,180 (5) .6
Morris W. Offit Director 58,000 (6) 1.3
James P. Reilly President and CEO and 154,282 (7) 3.4
Director
John W. Rowe, M.D. Director 20,667 (8) .5
Bruce Slovin Director 181,000 (9) 4.0
Roy K. Malkin President and CEO of 16,667 (10) .4
MediVators, Inc.
Craig A. Sheldon Vice President and 15,775 (11) .4
Controller
William J. Vella President and COO of 48,003 (12) 1.1
Carsen Group Inc.
All officers and 1,785,309 (13) 36.9
directors as a group
of 12 persons
</TABLE>
----------
(1) Unless otherwise noted, Cantel believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from October 6, 2000 upon the exercise of options. Each beneficial
owner's percentage ownership is determined by assuming that options that
are held by such person (but not
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<PAGE>
those held by any other person) and which are exercisable within 60 days
from October 6, 2000 have been exercised.
(2) Includes 160,500 shares which Mr. Diker may acquire pursuant to stock
options. Does not include an aggregate of 581,090 shares owned by (i) Mr.
Diker's wife, (ii) certain trusts for the benefit of Mr. Diker's children,
(iii) certain accounts with Weiss, Peck and Greer, an investment firm of
which Mr. Diker is a non-managing principal, over which accounts Mr. Diker
exercises investment discretion, (iv) the DicoGroup, Inc., a corporation
of which Mr. Diker serves as Chairman of the Board, and (v) a non-profit
corporation of which Mr. Diker and his wife are the principal officers and
directors. Mr. Diker disclaims beneficial ownership as to all of the
foregoing shares.
(3) Includes 30,500 shares which Mr. Hirschfield may acquire pursuant to stock
options.
(4) Includes 17,500 shares which Mr. Barbanell may acquire pursuant to stock
options. Does not include 2,500 shares owned by Mr. Barbanell's wife as to
which Mr. Barbanell disclaims beneficial ownership.
(5) Includes 18,500 shares which Mr. Dornbush may acquire pursuant to stock
options.
(6) Includes 26,000 shares which Mr. Offit may acquire pursuant to stock
options.
(7) Includes 40,832 shares which Mr. Reilly may acquire pursuant to stock
options. Does not include 87,115 shares owned by Mr. Reilly's wife as to
which Mr. Reilly disclaims beneficial ownership.
(8) Includes 20,667 shares which Dr. Rowe may acquire pursuant to stock
options.
(9) Includes 31,000 shares which Mr. Slovin may acquire pursuant to stock
options. Does not include an aggregate of 9,000 shares owned by (i)
certain trusts for the benefit of Mr. Slovin's children and (ii) a
charitable foundation established by Mr. Slovin. Mr. Slovin disclaims
beneficial ownership as to all of the foregoing shares.
(10) Includes 16,667 shares which Mr. Malkin may acquire pursuant to stock
options.
(11) Includes 14,000 shares which Mr. Sheldon may acquire pursuant to stock
options.
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<PAGE>
(12) Includes 30,000 shares which Mr. Vella may acquire pursuant to stock
options.
(13) Includes 406,166 shares which may be acquired pursuant to stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
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<PAGE>
PART IV
ITEM 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report on
Form 10-K for the fiscal year ended July 31, 2000.
1. CONSOLIDATED FINANCIAL STATEMENTS:
(i) Report of Independent Auditors.
(ii) Consolidated Balance Sheets as of July 31, 2000 and
1999.
(iii) Consolidated Statements of Income for the years ended
July 31, 2000, 1999 and 1998.
(iv) Consolidated Statements of Changes in Stockholders'
Equity for the years ended July 31, 2000, 1999 and 1998.
(v) Consolidated Statements of Cash Flows for the years
ended July 31, 2000, 1999 and 1998.
(vi) Notes to Consolidated Financial Statements.
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
(i) Schedule II - Valuation and Qualifying Accounts for the
years ended July 31, 2000, 1999 and 1998.
All other financial statement schedules are omitted since they are
not required, not applicable, or the information has been included in the
Consolidated Financial Statements or Notes thereto.
3. EXHIBITS:
2(a) - Asset Purchase Agreement dated as of March 16, 1998 by and
among Registrant, Chris Lutz Medical, Inc., Christopher C. Lutz and Bonolyn L.
Lutz. (Incorporated herein by reference to Exhibit 2(a) to Registrant's 1998
Annual Report on Form 10-K [the "1998 10-K"].)
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<PAGE>
2(b) - Asset Purchase Agreement between Carsen Group Inc. and
Olympus America Inc. dated as of October 6, 2000, among Registrant, Carsen
Group Inc. and Olympus America Inc. (Incorporated by reference to Exhibit
(2) of Registrant's Current Report on Form 8-K dated October 6, 2000
("2000 8-K").
3(a) - Registrant's Restated Certificate of Incorporation dated
July 20, 1978. (Incorporated herein by reference to Exhibit 3(a) to Registrant's
1981 Annual Report on Form 10-K.)
3(b) - Certificate of Amendment of Certificate of Incorporation of
Registrant, filed on February 16, 1982. (Incorporated herein by reference to
Exhibit 3(b) to Registrant's 1982 Annual Report on Form 10-K.)
3(c) - Certificate of Amendment of Certificate of Incorporation of
Registrant, filed on May 4, 1984. (Incorporated herein by reference to Exhibit
3(c) to Registrant's Quarterly Report on Form 10-Q for the quarter ended April
30, 1984.)
3(d) - Certificate of Amendment of Certificate of Incorporation of
Registrant, filed on August 19, 1986. (Incorporated herein by reference to
Exhibit 3(d) of Registrant's 1986 Annual Report on Form 10-K.)
3(e) - Certificate of Amendment of Certificate of Incorporation of
Registrant, filed on December 12, 1986. (Incorporated herein by reference to
Exhibit 3(e) of Registrant's 1987 Annual Report on Form 10-K [the "1987 10-K"].)
3(f) - Certificate of Amendment of Certificate of Incorporation of
Registrant, filed on April 3, 1987. (Incorporated herein by reference to Exhibit
3(f) of Registrant's 1987 10-K.)
3(g) - Certificate of Change of Registrant, filed on July 12, 1988.
(Incorporated herein by reference to Exhibit 3(g) of Registrant's 1988 Annual
Report on Form 10-K.)
3(h) - Certificate of Amendment of Certificate of Incorporation of
Registrant filed on April 17, 1989. (Incorporated herein by reference to Exhibit
3(h) to Registrant's 1989 Annual Report on Form 10-K.)
3(i) - Certificate of Amendment of Certificate of Incorporation of
Registrant, filed on May 10, 1999.
3(j) - Certificate of Amendment of Certificate of Incorporation of
Registrant, filed on April 5, 2000.
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<PAGE>
3(k) - Registrant's By-Laws adopted June 1, 1976, as amended
through the date of this Report. (Incorporated herein by reference to Exhibit
3(d) to Registrant's 1985 Annual Report on Form 10-K.)
10(a) - Registrant's 1991 Employee Stock Option Plan, as amended.
(Incorporated herein by reference to Exhibit 10(a) to Registrant's 1991 Annual
Report on Form 10-K [the "1991 10-K"].)
10(b) - Form of Stock Option Agreement under Registrant's 1991
Employee Stock Option Plan. (Incorporated herein by reference to Exhibit 10(b)
to Registrant's 1991 10-K.)
10(c) - Registrant's 1991 Directors' Stock Option Plan.
(Incorporated herein by reference to Exhibit 10(c) to Registrant's 1991 10-K.)
10(d) - Form of Stock Option Agreement under the Registrant's 1991
Directors Stock Option Plan. (Incorporated herein by reference to Exhibit 10(d)
to Registrant's 1991 10-K.)
10(e) - Agreement between Carsen Group Inc. and Olympus America
Inc., dated April 1, 1994. (Incorporated by reference to Exhibit 10(g) to
Registrant's 1994 Annual Report on Form 10-K.)
10(f) - Loan Agreement dated as of October 29, 1993 among
Registrant, Carsen Group Inc. and National Bank of Canada. (Incorporated herein
by reference to Exhibit 10(v) of Registrant's 1993 Annual Report on Form 10-K.)
10(g) - First Amendment to Loan Agreement, dated as of August 28,
1995, among Registrant, Carsen Group Inc. and National Bank of Canada.
(Incorporated herein by reference to Exhibit 10(n) of Registrant's 1995 Annual
Report on Form 10-K.)
10(h) - MediVators' 1991 Stock Option and Compensation Plan as
amended. (Incorporated by reference to Exhibit 10P to MediVators' Registration
Statement on Form S-3, File No. 33-79764.)
10(i) - Loan and Security Agreement dated as of May 27, 1996, among
MediVators, Inc., Disposal Sciences, Inc. and National Canada Finance Corp.
(Incorporated by reference to Exhibit 10(s) of Registrant's 1996 Annual Report
on Form 10-K [the "1996 10-K"].)
10(j) - Stock Option Agreement, dated as of October 17, 1996 ,
between the Registrant and Charles M. Diker. (Incorporated by reference to
Exhibit 10(v) of Registrant's 1996 10-K.)
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<PAGE>
10(k) - Registrant's 1997 Employee Stock Option Plan. (Incorporated
by reference to Exhibit 10(s) of Registrant's 1997 Annual Report on Form 10-K
[the "1997 10-K"].)
10(l) - Form of Incentive Stock Option Agreement under Registrant's
1997 Employee Stock Option Plan. (Incorporated by reference to Exhibit 10(t) of
the Registrant's 1997 10-K.)
10(m) - Second Loan Amending Agreement, dated as of April 19, 1996,
among Registrant, Carsen Group Inc. and National Bank of Canada. (Incorporated
by reference to Exhibit 10(w) of Registrant's 1997 10-K.)
10(n) - Third Loan Amending Agreement, dated as of March 7, 1997,
among Registrant, Carsen Group Inc. and National Bank of Canada. (Incorporated
by reference to Exhibit 10(x) of Registrant's 1997 10-K.)
10(o) - First Amendment to Distribution Agreement between Olympus
America Inc. and Carsen Group Inc., dated as of August 26, 1997, among
Registrant and Olympus America Inc. (Incorporated by reference to Exhibit 10(y)
of Registrant's 1997 10-K.)
10(p) - First Amendment to Loan and Security Agreement dated as of
December 1, 1997, among MediVators, Inc., Disposal Sciences, Inc. and National
Bank of Canada. (Incorporated by reference to Exhibit 10(u) of Registrant's 1998
10-K.)
10(q) - Second Amendment to Loan and Security Agreement dated as of
July 1, 1998, among MediVators, Inc., Disposal Sciences, Inc. and National Bank
of Canada. (Incorporated by reference to Exhibit 10(v) of Registrant's 1998
10-K.)
10(r) - Third Amendment to Loan and Security Agreement dated as of
October 26, 1998, among MediVators, Inc., Disposal Sciences, Inc. and National
Bank of Canada. (Incorporated by reference to Exhibit 10(w) of Registrant's 1998
10-K.)
10(s) - Stock Option Agreement, dated as of October 16, 1997,
between the Registrant and Charles M. Diker. (Incorporated by reference to
Exhibit 10(x) of Registrant's 1998 10-K.)
10(t) - Form of Non-Plan Stock Option Agreement between the
Registrant and Darwin C. Dornbush. (Incorporated by reference to Exhibit 10(y)
of Registrant's 1998 10-K.)
10(u) - Stock Option Agreement, dated as of October 5, 1998,
between the Registrant and John W. Rowe. (Incorporated by reference to Exhibit
10(z) of Registrant's 1998 10-K.)
-44-
<PAGE>
10(v) - Non-Competition Agreement, dated as of March 16, 1998,
between the Registrant, Christopher C. Lutz and Bonolyn L. Lutz. (Incorporated
by reference to Exhibit 10(aa) of Registrant's 1998 10-K.)
10(w) - Employment Agreement, dated as of May 19, 1999, between the
Registrant and Roy K. Malkin. (Incorporated by reference to Exhibit 10(z) of
Registrant's 1999 Annual Report on Form 10-K [the "1999 10-K"].)
10(x) - Employment Agreement, dated as of August 1, 1998, between
the Registrant and James P. Reilly. (Incorporated by reference to Exhibit 10(aa)
of Registrant's 1999 10-K.)
10(y) - Fourth Loan Amending Agreement, dated as of May 11, 1999,
among Registrant, Carsen Group Inc. and National Bank of Canada. (Incorporated
by reference to Exhibit 10(bb) of Registrant's 1999 10-K.)
10(z) - Fourth Amendment to Loan and Security Agreement dated as of
November 1, 1998, among MediVators, Inc., Disposal Sciences, Inc. and National
Bank of Canada. (Incorporated by reference to Exhibit 10(cc) of Registrant's
1999 10-K.)
10(aa) - Fifth Amendment to Loan and Security Agreement dated as of
October 1, 1999, among MediVators, Inc., Disposal Sciences, Inc. and National
Bank of Canada. (Incorporated by reference to Exhibit 10(dd) of Registrant's
1999 10-K.)
10(bb) - Distributor Agreement dated as of August 1, 1999,
among MediVators, Inc. and Olympus America Inc. - Endoscope Division.
(Incorporated by reference to Exhibit 10(ee) of Registrant's 1999 10-K.)
10(cc) - Stock Option Agreement, dated as of October 30, 1998,
between the Registrant and Charles M. Diker. (Incorporated by reference to
Exhibit 10(ff) of Registrant's 1999 10-K.)
10(dd) - Stock Option Agreement, dated as of March 10, 2000,
between the Registrant and John W. Rowe. (Incorporated by reference to Exhibit
10(gg) of Registrant's 1999 10-K.)
10(ee) - Second Amendment to Distribution Agreement between
Olympus America Inc. and Carsen Group Inc. dated as of October 6, 2000,
among Carsen Group Inc. and Olympus America Inc. (Incorporated by
reference to Exhibit (1) of Registrant's 2000 8-K).
-45-
<PAGE>
10(ff) - Sixth Amendment to Loan and Security Agreement dated as of
February 1, 2000, among MediVators, Inc., Disposal Sciences, Inc.
and National Bank of Canada.
10(gg) - Registrant's 1998 Director's Stock Option Plan.
10(hh) - Form of Quarterly Stock Option Agreement under the
Registrant's 1998 Directors Stock Option Plan.
10(ii) - Form of Annual Stock Option Agreement under the
Registrant's 1998 Directors Stock Option Plan.
10(jj) - Stock Option Agreement, dated as of October 10,
2000, between the Registrant and Joseph M. Cohen.
21 - Subsidiaries of Registrant.
24 - Consent of Ernst & Young LLP.
27 - Financial Data Schedule.
(b) REPORTS ON FORM 8-K: None.
-46-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: October 27, 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)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ Charles M. Diker Date: October 27, 2000
----------------------------
Charles M. Diker, a Director
and Chairman of the Board
/s/ James P. Reilly Date: October 27, 2000
----------------------------
James P. Reilly, a Director
and President
/s/ Robert L. Barbanell Date: October 27, 2000
----------------------------
Robert L. Barbanell, a Director
/s/ Joseph M. Cohen Date: October 27, 2000
----------------------------
Joseph M. Cohen, a Director
/s/ Darwin C. Dornbush Date: October 27, 2000
----------------------------
Darwin C. Dornbush, a Director
/s/ Alan J. Hirschfield Date: October 27, 2000
----------------------------
Alan J. Hirschfield, a Director
/s/ Morris W. Offit Date: October 27, 2000
----------------------------
Morris W. Offit, a Director
/s/ John W. Rowe Date: October 27, 2000
----------------------------
John W. Rowe, a Director
/s/ Bruce Slovin Date: October 27, 2000
----------------------------
Bruce Slovin, a Director
-47-
<PAGE>
CANTEL MEDICAL CORP.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000
<PAGE>
CONTENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . 1
Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . 2
Consolidated Statements of Income . . . . . . . . . . 3
Consolidated Statements of Changes
in Stockholders' Equity . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . 6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Cantel Medical Corp.
We have audited the accompanying consolidated balance sheets of Cantel Medical
Corp. as of July 31, 2000 and 1999 and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of the three
years in the period ended July 31, 2000. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cantel
Medical Corp. at July 31, 2000 and 1999 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
July 31, 2000, in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
September 26, 2000
<PAGE>
CANTEL MEDICAL CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 31,
2000 1999
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,169 $ 534
Accounts receivable, net of allowance for doubtful accounts
of $66 in 2000 and $40 in 1999 8,970 9,351
Inventories 6,992 7,481
Net assets related to discontinued business 3,095 2,245
Prepaid expenses and other current assets 475 851
------- -------
Total current assets 21,701 20,462
Property and equipment, at cost:
Furniture and equipment 2,107 1,729
Leasehold improvements 467 438
2,574 2,167
Less accumulated depreciation and amortization (1,673) (1,272)
901 895
Intangible assets, net 1,345 1,506
Other assets 1,008 863
------- -------
$24,955 $23,726
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,054 $ 4,786
Compensation payable 943 868
Other accrued expenses 979 1,321
Income taxes 594 546
Total current liabilities 7,570 7,521
Long-term debt 125 1,567
Deferred income taxes 97 93
Commitments and contingencies - -
Stockholders' equity:
Preferred Stock, par value $1.00 per share; authorized
1,000,000 shares; none issued - -
Common Stock, par value $.10 per share; authorized
12,000,000 shares; issued 2000 - 4,597,220 shares,
outstanding 2000 - 4,438,381 shares; issued 1999-
4,517,945 shares, outstanding 1999 - 4,440,445 shares 460 452
Additional capital 19,502 19,304
Retained earnings (deficit) 96 (2,588)
Accumulated other comprehensive income (loss):
Cumulative foreign currency translation adjustment (2,097) (2,230)
Treasury Stock, 2000 - 158,839 shares at cost; 1999 -
77,400 shares at cost (798) (393)
------- -------
Total stockholders' equity 17,163 14,545
------- -------
$24,955 $23,726
======= =======
</TABLE>
See accompanying notes.
2
<PAGE>
CANTEL MEDICAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Net sales:
Product sales $35,525 $32,322 $26,282
Product service 5,463 5,223 3,879
------- ------- -------
Total net sales 40,988 37,545 30,161
------- ------- -------
Cost of sales:
Product sales 21,885 20,321 16,448
Product service 2,862 3,050 2,279
Write-off of medical sharps inventories - 452 -
------- ------- -------
Total cost of sales 24,747 23,823 18,727
------- ------- -------
Gross profit 16,241 13,722 11,434
Expenses:
Shipping and warehouse 491 402 420
Selling 5,230 4,693 3,604
General and administrative 4,543 3,897 3,457
Research and development 836 789 849
Costs associated with proposed acquisition - 74 -
------- ------- -------
Total operating expenses 11,100 9,855 8,330
------- ------- -------
Income from continuing operations before interest
expense and income taxes 5,141 3,867 3,104
Interest expense 225 271 179
------- ------- -------
Income from continuing operations before income taxes 4,916 3,596 2,925
Income taxes 2,085 1,936 1,287
------- ------- -------
Income from continuing operations 2,831 1,660 1,638
Income (loss) from discontinued operations (97) (291) 57
Loss on disposal of discontinued operations (50) - -
------- ------- -------
Net income $ 2,684 $ 1,369 $ 1,695
======= ======= =======
Earnings per common share:
Basic:
Continuing operations $ 0.64 $ 0.38 $ 0.39
Discontinued operations (0.03) (0.07) 0.01
------- ------- -------
Net income $ 0.61 $ 0.31 $ 0.40
======= ======= =======
Diluted:
Continuing operations $ 0.63 $ 0.36 $ 0.37
Discontinued operations (0.03) (0.06) 0.01
------- ------- -------
Net income $ 0.60 $ 0.30 $ 0.38
======= ======= =======
</TABLE>
See accompanying notes.
3
<PAGE>
CANTEL MEDICAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED JULY 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ACCUMULATED TOTAL
NUMBER OF RETAINED OTHER TREASURY STOCK-
SHARES ADDITIONAL EARNINGS COMPREHENSIVE STOCK, HOLDERS'
OUTSTANDING AMOUNT CAPITAL (DEFICIT) INCOME (LOSS) AT COST EQUITY
----------- ------ ---------- ---------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1997 4,166,322 $ 417 $ 17,609 $ (5,652) $ (1,357) $ - $11,017
Exercise of options 20,189 2 118 120
Acquisition of
Lutz Medical 180,690 18 1,292 1,310
Translation adjustment (916) (916)
Net income 1,695 1,695
---------- ------ ---------- ---------- --------------- --------- -------
Balance, July 31, 1998 4,367,201 437 19,019 (3,957) (2,273) - 13,226
Exercise of options 154,882 15 315 330
Purchases of
Treasury Stock (77,400) (393) (393)
Escrow settlement
related to
Lutz Medical (4,138) (30) (30)
Translation adjustment 43 43
Net income 1,369 1,369
---------- ------ ---------- ---------- --------------- --------- -------
Balance, July 31, 1999 4,440,545 452 19,304 (2,588) (2,230) (393) 14,545
Exercise of options 42,336 8 198 (198) 8
Purchases of
Treasury Stock (44,500) (207) (207)
Translation adjustment 133 133
Net income 2,684 2,684
---------- ------ ---------- ---------- --------------- --------- -------
Balance, July 31, 2000 4,438,381 $ 460 $ 19,502 $ 96 $ (2,097) $ (798) $17,163
========== ====== ========== ========== =============== ========= =======
</TABLE>
See accompanying notes.
4
<PAGE>
CANTEL MEDICAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations $ 2,831 $ 1,660 $ 1,638
Adjustments to reconcile income from continuing
operations to net cash provided by (used in)
operating activities:
Income (loss) from discontinued operations (147) (291) 57
Depreciation and amortization of continuing operations 463 419 280
Depreciation and amortization of discontinued operations 87 63 52
Write-off of medical sharps inventories - 452 -
Deferred income taxes 256 39 (28)
Changes in assets and liabilities:
Accounts receivable 492 (2,672) (1,206)
Inventories 568 (249) (374)
Other current assets 379 178 (682)
Accounts payable and accrued expenses (68) 1,938 305
Income taxes (193) 379 (362)
------- ------- -------
Net cash provided by (used in) operating activities 4,668 1,916 (320)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (320) (272) (289)
Cash (used in) provided by discontinued operations (909) 179 (791)
Acquisition of Lutz Medical - - (315)
Other, net (163) (282) 22
------- ------- -------
Net cash used in investing activities (1,392) (375) (1,373)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings under credit facilities (1,436) (1,409) 1,417
Capital lease obligations (6) (28) (7)
Proceeds from exercise of stock options 8 330 120
Purchases of Treasury Stock (207) (393) -
------- ------- -------
Net cash (used in) provided by financing activities (1,641) (1,500) 1,530
------- ------- -------
Increase (decrease) in cash 1,635 41 (163)
Cash at beginning of year 534 493 656
------- ------- -------
Cash at end of year $ 2,169 $ 534 $ 493
======= ======= =======
</TABLE>
See accompanying notes.
5
<PAGE>
CANTEL MEDICAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 2000, 1999 AND 1998
1. BUSINESS DESCRIPTION
Cantel Medical Corp. ("Cantel") has two wholly-owned subsidiaries (collectively
known as the "Company"). Its United States subsidiary, MediVators, Inc.
("MediVators" or "United States subsidiary") is engaged in the manufacturing,
marketing, distribution and service of infection control products. Its Canadian
subsidiary, Carsen Group Inc. ("Carsen" or "Canadian subsidiary") is engaged in
the marketing, distribution and service of medical and infection control and
scientific products in Canada. Effective July 31, 2000, Carsen discontinued its
Consumer Products business and the results of Consumer Products have been
presented as a discontinued operation, as described in note 6 to the
Consolidated Financial Statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cantel Medical
Corp. and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue on product sales is generally recognized as products are shipped to
customers, net of provisions for sales allowances and similar items. Revenue on
service sales is recognized when repairs are completed and the products are
shipped to customers.
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS
Assets and liabilities of Carsen are translated into United States dollars at
year-end exchange rates; sales and expenses are translated using average
exchange rates during the year. The cumulative effect of the translation of
Carsen's financial statements is presented as a separate component of
stockholders' equity. Foreign exchange gains and losses related to the purchase
of inventories are included in cost of sales.
6
<PAGE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Additions and improvements are
capitalized, while maintenance and repair costs are expensed. When assets are
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the respective accounts and any resulting gain or loss is
included in income. Depreciation and amortization are provided on either the
straight-line method or, for certain furniture and equipment, the declining
balance method, over the estimated useful lives of the assets which generally
range from 3-7 years for furniture and equipment and the life of the lease for
leasehold improvements.
OTHER ASSETS
Inventories of sales samples which have not turned over within one year and
medical loaners available for customers are included in other assets and are
carried at the lower of cost or net realizable value.
STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards ("SFAS") No. 123,
"ACCOUNTING FOR STOCK-BASED COMPENSATION" ("SFAS 123"), the Company has elected
to follow Accounting Principal Board Opinion No. 25, "ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES" ("APB 25") and related interpretations in accounting for
its stock option plans. Under APB 25, no compensation expense is recognized at
the time of option grant if the exercise price of the Company's employee stock
option is fixed and equals or exceeds the fair market value of the underlying
common stock on the date of grant.
INCOME TAXES
The Company accounts for income taxes by the liability method in accordance with
SFAS No. 109 "ACCOUNTING FOR INCOME TAXES" ("SFAS No. 109").
7
<PAGE>
No income taxes have been provided on the undistributed earnings ($15,895,000 at
July 31, 2000) of Carsen since the Company does not intend to repatriate such
earnings unless no additional United States taxes would result upon such
repatriation.
INTANGIBLE ASSETS
In connection with the acquisition of Chris Lutz Medical, Inc. ("Lutz Medical")
during fiscal 1998, Cantel acquired intangible assets consisting primarily of
customer lists, intellectual property, a non-compete agreement and goodwill.
These intangible assets are being amortized on the straight-line method over the
estimated useful lives of the assets ranging from 3-20 years. Amortization
expense on intangible assets was $148,000, $167,000 and $68,000 for fiscal 2000,
1999 and 1998, respectively.
The carrying value of the Company's intangible assets is reviewed if the facts
and circumstances suggest that they may be permanently impaired. Such review is
based upon the undiscounted expected future operating profit derived from such
businesses. In the event such result is less than the carrying value of the
intangible assets, the carrying value of the intangible assets is reduced to an
amount that reflects the expected future benefit.
EARNINGS PER COMMON SHARE
Basic earnings per common share are computed based upon the weighted average
number of common shares outstanding during the year.
Diluted earnings per common share are computed based upon the weighted average
number of common shares outstanding during the year plus the dilutive effect of
options and warrants using the treasury stock method and the average market
price for the year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES",was issued, which is required to be adopted in years beginning after
June 15, 2000. Because of the Company's minimal use of hedging activities,
management does not anticipate that the adoption of this statement will have a
8
<PAGE>
significant effect on the financial position or results of operations of the
Company.
3. COMPREHENSIVE INCOME
The Company has adopted SFAS 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 years ended July 31, 2000, 1999 and 1998 are set
forth in the following table:
Year Ended July 31,
2000 1999 1998
-----------------------------------
Net income $2,684,000 $1,369,000 $1,695,000
Other comprehensive income (loss):
Foreign currency translation
adjustment 133,000 43,000 (916,000)
---------- ----------- -----------
Comprehensive income $2,817,000 $1,412,000 $ 779,000
========== =========== ============
4. UNUSUAL CHARGES
During fiscal 1999, the Company discontinued MediVators' medical sharps disposal
business, which business had virtually no sales and was not significant to the
results of operations for the Company's Infection Control business in fiscal
1999 and 1998. In connection with this discontinued business, the Company
wrote-off its remaining net investment in the amount of $467,000, of which
$452,000 represented inventories and is included within cost of sales.
Additionally, the Company incurred costs of $74,000 in fiscal 1999 related to
professional fees associated with the termination of a proposed acquisition.
5. INVENTORIES
A summary of inventories is as follows:
July 31,
2000 1999
--------------------------
Parts $1,811,000 $2,112,000
Work-in-process - 41,000
Finished Goods 5,181,000 5,328,000
---------- ----------
Total $6,992,000 $7,481,000
========== ==========
9
<PAGE>
6. DISCONTINUED OPERATIONS
On October 6, 2000, Carsen closed a transaction under an Asset Purchase
Agreement (the "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.
The purchase price for the inventory was approximately $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. Such 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 Consolidated
Financial Statements for the year ended July 31, 2000. The Company's
Consolidated Balance Sheet for the year ended July 31, 1999 and the Consolidated
Statements of Income and Cash Flows for the years ended July 31, 1999 and 1998
have been restated to conform to the 2000 presentation.
Operating results of the Consumer Products business are as follows:
Year Ended July 31,
2000 1999 1998
---------------------------------------
Net sales $15,825,000 $12,557,000 $ 9,848,000
============ ============ ============
Pretax operating income (loss) $ (164,000) $ (531,000) $ 106,000
Income tax expense (benefit) (67,000) (240,000) 49,000
------------ ------------ ------------
Income (loss) from
discontinued operations $ (97,000) $ (291,000) $ 57,000
============ ============ =============
10
<PAGE>
For the year ended July 31, 2000, the loss on disposal of the Consumer Products
business was $50,000, consisting of a pretax gain on disposal of $36,000 less
related income taxes of $86,000. In determining the loss on disposal, the
Company recorded additional consideration expected to be received of $758,000.
Additional consideration may be realized based upon future net sales of the
former Consumer Products business as stipulated in the Purchase Agreement.
The components of net assets related to discontinued business in the
Consolidated Balance Sheets include the following:
<TABLE>
<CAPTION>
July 31,
2000 1999
-----------------------
<S> <C> <C>
Trade accounts receivable, net of
allowance for doubtful accounts of
$99,000 in 2000 and $41,000 in 1999 $2,715,000 $1,856,000
Consideration due under Purchase
Agreement 1,989,000 --
Inventories 235,000 1,490,000
Intangible and other assets -- 211,000
Accounts payable (1,531,000) (1,257,000)
Accrued expenses (313,000) (55,000)
----------- -----------
Net assets related to
discontinued business $3,095,000 $2,245,000
=========== ===========
</TABLE>
7. 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 August 1, 2001.
Borrowings under the Carsen revolving credit facility 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 July 31,
2000, such rate was .25% above 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 July 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. There
were $125,000 and $1,561,000 of borrowings outstanding under these facilities at
July 31, 2000 and 1999, respectively.
11
<PAGE>
8. INCOME TAXES
Deferred income taxes recorded in the consolidated balance sheets at July 31,
2000 and 1999 include deferred tax assets related to net operating loss
carryforwards ("NOLs") of $5,401,000 and $5,746,000, respectively, which have
been fully offset by valuation allowances, and deferred tax liabilities of
$348,000 and $93,000, respectively. The valuation allowances have been
established equal to the full amount of the deferred tax assets, as the Company
was not assured at July 31, 2000 and 1999 that it was more likely than not that
a benefit will be realized.
For financial statement and domestic tax reporting purposes, the Company has
NOLs of approximately $15,886,000 at July 31, 2000, which expire through July
31, 2015. Of this amount, approximately $1,100,000 represents NOLs accumulated
by MediVators prior to the MediVators merger, which may only be used against the
future earnings of MediVators and are subject to annual limitations due to the
ownership change. The NOLs presented are based upon the tax returns as filed and
are subject to examination by the Internal Revenue Service.
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
-----------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United
States $ 74,000 $ -- $ 22,000 $ -- $ 5,000 $ --
Canada 2,008,000 3,000 1,875,000 39,000 1,310,000 (28,000)
---------- --------- ---------- --------- ---------- ---------
Total $2,082,000 $ 3,000 $1,897,000 $ 39,000 $1,315,000 $(28,000)
========== ========= ========== ========= ========== =========
</TABLE>
The components of income (loss) from continuing operations before income taxes
are as follows:
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
-------------------------------------------
<S> <C> <C> <C>
United States $ 338,000 $ (556,000) $ 79,000
Canada 4,578,000 4,152,000 2,846,000
---------- ---------- ----------
Total $4,916,000 $3,596,000 $2,925,000
========== ========== ==========
</TABLE>
12
<PAGE>
The effective tax rate differs from the United States statutory tax rate (34%)
due to the following:
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
--------------------------------------
<S> <C> <C> <C>
Expected statutory tax expense $1,671,000 $1,223,000 $ 994,000
Canadian dividend withholding 50,000 21,000 --
Differential attributable to
Canadian operations 454,000 502,000 315,000
Utilization of NOLs (100,000) -- (27,000)
Benefit not recognized on
domestic operating losses -- 189,000 --
State and local taxes 10,000 1,000 5,000
---------- ----------- ----------
Total $2,085,000 $1,936,000 $1,287,000
========== =========== ==========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
DISTRIBUTION AGREEMENTS
OLYMPUS/CARSEN AGREEMENT
The majority of Carsen's sales of medical and scientific products have been made
pursuant to an agreement (the "Olympus Agreement") with Olympus under which
Olympus has granted Carsen the exclusive right to distribute the covered Olympus
products in Canada. All products sold by Carsen pursuant to the agreement bear
the "Olympus" trademark. The Olympus Agreement, as amended, expires on March 31,
2004. If Carsen fulfills its obligations under the Olympus Agreement, the
parties will establish new minimum purchase requirements and extend the Olympus
Agreement through March 31, 2006.
During the term of the Olympus Agreement and for one year thereafter, Carsen has
agreed that it will not manufacture, distribute, sell or represent for sale in
Canada any products which are competitive with the Olympus products covered by
the Olympus Agreement.
The Olympus Agreement imposes minimum purchase obligations on Carsen with
respect to each of medical equipment, precision instruments and industrial
technology equipment. The aggregate annual minimum purchase obligations for all
such products are approximately $13.2 million, $17.0 million, $18.8 million and
$21.0 million during the contract years ending March 31, 2001, 2002, 2003 and
2004, respectively.
Subject to an allowance of a 10% shortfall from the minimum purchase
requirements in certain situations, Olympus has the option to terminate or
restructure the Olympus Agreement with respect to each product group for which
Carsen has failed to meet the minimum
13
<PAGE>
purchase requirements. If Carsen fails to meet such requirements for both
precision instruments and industrial technology equipment, or for medical
equipment, then Olympus has the option to terminate or restructure the entire
Olympus Agreement. Olympus may also terminate the Olympus Agreement if Carsen
breaches its other obligations under the Olympus Agreement.
MEDIVATORS/OLYMPUS AGREEMENT
MediVators has a four year agreement with Olympus (the "MediVators Agreement")
which expires on August 1, 2003, under which Olympus is granted the exclusive
right to distribute all MediVators' endoscope disinfection equipment and related
accessories and supplies in the United States and Puerto Rico. All products sold
by Olympus pursuant to this agreement bear both the "Olympus" and "MediVators"
trademarks.
This agreement provides for minimum purchase projections. Failure to achieve the
minimum purchase projections in any contract year could give MediVators the
option to terminate the agreement. Net sales to Olympus accounted for 15.9%,
12.7% and 15.6% of the Company's net sales in fiscal 2000, 1999 and 1998,
respectively.
Sales to Olympus are recognized on a bill and hold basis based upon the receipt
of a written purchase order from Olympus, the completion date specified in the
order, the actual completion of the manufacturing process and the invoicing of
goods. At July 31, 2000 and 1999, accounts receivable included bill and hold
receivables of approximately $897,000 and $314,000, respectively.
FOREIGN EXCHANGE CONTRACTS
The Company's Canadian subsidiary enters into foreign exchange forward contracts
and foreign exchange option contracts to purchase United States dollars to hedge
against currency fluctuations affecting purchases of inventories. Total
commitments for such foreign currency forward and option contracts amounted to
approximately $11,112,000 at July 31, 2000, and cover a portion of Carsen's
projected purchases of inventories through July 2001. The fair value of such
contracts at July 31, 2000, based upon current market quotes for contracts with
similar terms, approximated the carrying value of such contracts.
14
<PAGE>
LEASE OBLIGATIONS
Aggregate future minimum rental commitments at July 31, 2000 under operating
leases for property and equipment are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ending July 31,
2001 $ 410,000
2002 228,000
2003 189,000
2004 165,000
2005 149,000
Thereafter --
----------
Total rental commitments $1,141,000
==========
</TABLE>
Rent expense aggregated $429,000, $440,000 and $459,000 for fiscal 2000, 1999
and 1998, respectively, which includes amounts previously allocated to the
discontinued operations.
10. STOCKHOLDERS' EQUITY
The Company's 1991 Employee Stock Option Plan provides for the granting of
options to employees to purchase up to 250,000 shares of the Company's Common
Stock through January 2, 2001. Options under this plan are granted at no less
than 100% of the market price at the time of the grant, typically become
exercisable in four equal annual installments and expire up to a maximum of ten
years from the date of the grant. At July 31, 2000, 95,850 shares were available
for grant under this plan. No additional options will be granted under the 1991
Employee Stock Option Plan.
The Company's 1997 Employee Stock Option Plan, as amended, provides for the
granting of options to employees to purchase up to 700,000 shares of the
Company's Common Stock through October 15, 2007. Options under this plan are
granted at no less than 100% of the market price at the time of the grant,
typically become exercisable in four equal annual installments and expire up to
a maximum of ten years from the date of the grant. At July 31, 2000, 359,250
shares were available for grant under this plan.
The Company's 1991 Directors' Stock Option Plan provides for the granting of
options to directors to purchase up to 200,000 shares of its Common Stock.
Options under this plan may be granted to directors only. Under the plan,
options to purchase 1,000 shares are granted annually on the last business day
of the Company's fiscal year to each member of the Company's Board of Directors.
The annual options are exercisable, as to 50% of the number of shares, on the
first anniversary of the grant of such options and are exercisable for the
balance of such shares on the second anniversary of the grant of such options.
On a quarterly basis, options to purchase 500 shares are granted to each member
of the
15
<PAGE>
Company's Board, except for employees of the Company, in attendance at that
quarter's Board of Directors meeting. The quarterly options are exercisable
immediately. The exercise price of each option is the fair market value on the
date the option is granted, and the options expire ten years from the date of
the grant. At July 31, 2000, 16,500 shares were available for grant under this
plan. No additional options will be granted under the 1991 Directors' Stock
Option Plan.
The Company's 1998 Directors' Stock Option Plan provides for the granting of
options to directors to purchase up to 200,000 shares of its Common Stock.
Options under this plan may be granted to directors only. Under the plan,
options to purchase 1,000 shares are granted annually on the last business day
of the Company's fiscal year to each member of the Company's Board of Directors.
The annual options are exercisable, as to 50% of the number of shares, on the
first anniversary of the grant of such options and are exercisable for the
balance of such shares on the second anniversary of the grant of such options.
On a quarterly basis, options to purchase 500 shares are granted to each member
of the Company's Board, except for employees of the Company, in attendance at
that quarter's Board of Directors meeting. The quarterly options are exercisable
immediately. The exercise price of each option is the fair market value on the
date the option is granted. Options granted prior to July 31, 2000 have a ten
year term and options granted on or after July 31, 2000 have a five year term.
At July 31, 2000, 182,000 shares were available for grant under this plan.
The Company also has outstanding non-plan options which have been granted at the
market price at the time of grant and expire up to a maximum of ten years from
the date of grant, and options granted by MediVators prior to the Merger under
the MediVators 1991 Stock Option Plan which became fully exercisable as the
result of the Merger. No additional options will be granted under the MediVators
Stock Option Plan.
In accordance with the provisions of SFAS No. 123, the Company has elected to
follow APB Opinion 25 and related interpretations in accounting for its stock
option plans and, accordingly, does not recognize compensation expense. If
the Company had elected to recognize compensation expense based on the fair
value of the options granted at grant date as prescribed by SFAS No. 123,
income and diluted earnings per share from continuing operations would have
been $2,458,000 and $0.55, respectively, for fiscal 2000, $1,288,000 and
$0.28, respectively, for fiscal 1999 and $1,282,000 and $0.29, respectively,
for fiscal 1998. The pro forma effect on net income from continuing
operations for these years may not be representative of the pro forma effect
on net income from continuing operations in future years because it does not
take into
16
<PAGE>
consideration pro forma compensation expense related to grants made prior to
fiscal 1996.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option valuation model with the following assumptions: expected
dividend yield of 0%; expected stock price volatility ranging from .31 to .52;
risk-free interest rate at date of grant ranging from 5.61% to 6.19%; and
expected weighted average option lives of 1-10 years. Additionally, all options
were considered to be non-deductible for tax purposes in the valuation model.
The weighted average fair value of options granted in fiscal 2000, 1999 and 1998
was $2.65, $2.76 and $2.97 per share, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility and the
expected life. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing model does not necessarily provide a reliable
single measure of the fair value of its employee stock options.
17
<PAGE>
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Weighted
Number Average
of Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at July 31, 1997 613,696 $4.77
Granted 148,500 6.81
Canceled (45,191) 6.65
Exercised (21,842) 6.07
---------
Outstanding at July 31, 1998 695,163 5.03
Granted 305,000 6.36
Canceled (88,944) 6.20
Exercised (158,064) 2.23
---------
Outstanding at July 31, 1999 753,155 6.02
Granted 146,500 5.48
Canceled (52,595) 6.07
Exercised (79,275) 2.59
---------
Outstanding at July 31, 2000 767,785 $6.27
=========
Exercisable at July 31, 1998 496,498 $4.20
=========
Exercisable at July 31, 1999 426,365 $5.63
=========
Exercisable at July 31, 2000 449,827 $6.52
=========
</TABLE>
The following table summarizes additional information related to stock options
outstanding at July 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -----------------------------
Weighted
Average
Remaining Weighted Weighted
Number Contractual Average Number Average
Range of Outstanding Life Exercise Exercisable Exercise
Exercise Prices At July 31, 2000 (Months) Price At July 31, 2000 Price
--------------- ---------------- ------------ -------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
$1.75 - $4.00 50,000 17 $2.69 50,000 $2.69
$4.25 - $6.8125 426,557 67 $5.69 153,848 $5.81
$7.00 - $10.25 291,228 62 $7.72 245,979 $7.74
------- -------
$1.75 - $10.25 767,785 62 $6.27 449,827 $6.52
======= =======
</TABLE>
18
<PAGE>
11. NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Numerator for basic
and diluted earnings
per share:
Income from continuing
operations $ 2,831,000 $ 1,660,000 $ 1,638,000
Losses from discontinued
operations (147,000) (291,000) 57,000
------------- ------------- -------------
Net income $ 2,684,000 $ 1,369,000 $ 1,695,000
============= ============= =============
Denominator for basic
and diluted earnings
per share:
Denominator for basic
earnings per share -
weighted average number
of shares outstanding 4,411,805 4,394,406 4,240,023
Dilutive effect of options
and warrants using the
treasury stock method and
the average market price
for the year 67,676 196,934 243,862
------------- ------------- -------------
Denominator for diluted
earnings per share -
weighted average number
of shares and common
stock equivalents 4,479,481 4,591,340 4,483,885
============= ============= =============
Basic earnings per share:
Continuing operations $ 0.64 $ 0.38 $ 0.39
Discontinued operations (0.03) (0.07) 0.01
------------- ------------- -------------
Net income $ 0.61 $ 0.31 $ 0.40
============= ============= =============
Diluted earnings per share:
Continuing operations $ 0.63 $ 0.36 $ 0.37
Discontinued operations (0.03) (0.06) 0.01
------------- ------------- -------------
Net income $ 0.60 $ 0.30 $ 0.38
============= ============= =============
</TABLE>
In fiscal 1999, the charge of $467,000 associated with the discontinuance of
MediVators' medical sharps disposal business,
19
<PAGE>
as discussed in note 4 to the Consolidated Financial Statements, reduced basic
and diluted earnings per share from continuing operations by $0.10. Without this
charge, basic and diluted earnings per share from continuing operations for
fiscal 1999, as adjusted, would have been $0.48 and $0.46, respectively.
12. RETIREMENT PLANS
The Company has a 401(k) Savings and Retirement Plan (which commenced during
fiscal 1998) for the benefit of eligible United States employees. Contributions
by the Company are both discretionary and non-discretionary and are limited in
any year to the amount allowable by the Internal Revenue Service.
Carsen has a profit-sharing plan for the benefit of eligible employees.
Contributions by Carsen are discretionary and aggregate contributions are
limited in any year to the amount allowable as a deduction in computing taxable
income.
Aggregate contributions under these plans were $181,000, $108,000 and $90,000
for fiscal 2000, 1999 and 1998, respectively.
13. SUPPLEMENTAL INCOME STATEMENT AND CASH FLOW INFORMATION
Advertising costs charged to expenses were $13,000, $63,000 and $27,000 for
fiscal 2000, 1999 and 1998, respectively.
Interest paid was $228,000, $280,000 and $189,000 for fiscal 2000, 1999 and
1998, respectively.
Income tax payments, which related principally to the Company's Canadian
subsidiary, were $2,082,000, $1,319,000 and $1,798,000 for fiscal 2000, 1999 and
1998, respectively.
During fiscal 1998, 180,690 shares of Common Stock valued at $1,310,000 were
issued as part of the consideration paid for the Lutz Medical acquisition.
14. INFORMATION AS TO OPERATIONS IN DIFFERENT INDUSTRIES AND FOREIGN AND
DOMESTIC OPERATIONS
Cantel is a healthcare company concentrating primarily in infection prevention
and control products and diagnostic and therapeutic medical equipment. Through
its United States subsidiary, Cantel serves customers worldwide by designing,
developing, manufacturing, marketing and distributing innovative products for
the infection prevention and control industry. Through its Canadian subsidiary,
Cantel markets and distributes medical equipment (including flexible and rigid
endoscopes), precision instruments, (including microscopes and high
20
<PAGE>
performance image analysis hardware) and industrial equipment (including remote
visual inspection devices). Cantel's subsidiaries also provide technical
maintenance services for their own products, as well as for certain competitors'
products.
The medical, infection prevention and control and scientific products
distributed by the Company consist of diagnostic and therapeutic medical
equipment, including flexible and rigid endoscopes, endoscope disinfection
equipment, surgical equipment and related accessories that are sold to
hospitals; precision instruments, including microscopes and high performance
image analysis hardware and related accessories that are sold to educational
institutions, hospitals and government and industrial laboratories; and
industrial technology equipment, including borescopes, fiberscopes and video
image scopes that are sold primarily to large industrial companies.
In accordance with SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION", the Company has determined its reportable business
segments based upon an assessment of product types, organizational structure,
customers and internally prepared financial statements. The primary factors used
by management in analyzing segment performance are net sales and operating
income.
21
<PAGE>
(a) Information as to operating segments is summarized below:
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
------------------------------------------
<S> <C> <C> <C>
Net sales from continuing operations:
Medical Products $17,114,000 $16,887,000 $12,679,000
Infection Control Products 10,940,000 9,334,000 8,086,000
Scientific Products 8,231,000 6,868,000 5,957,000
Product Service 5,463,000 5,223,000 3,879,000
Elimination of inter-
company sales of
Infection Control Products (760,000) (767,000) (440,000)
----------- ----------- -----------
Total $40,988,000 $37,545,000 $30,161,000
=========== =========== ===========
Operating income from continuing operations:
Medical Products $ 2,909,000 $ 3,038,000 $ 1,972,000
Infection Control Products (1) 1,599,000 412,000 707,000
Scientific Products 531,000 231,000 317,000
Product Service 1,878,000 1,600,000 1,173,000
Elimination of intercompany
operating loss (income) of
Infection Control Products 1,000 (25,000) 2,000
----------- ----------- -----------
6,918,000 5,256,000 4,171,000
General corporate expenses (1,777,000) (1,389,000) (1,067,000)
Interest expense (225,000) (271,000) (179,000)
----------- ----------- -----------
Income from continuing operations
before income taxes(1) $ 4,916,000 $ 3,596,000 $ 2,925,000
=========== =========== ===========
</TABLE>
(1) Includes for fiscal 1999 costs of $467,000 associated with the
discontinuance of MediVators' medical sharps disposal business. Without this
write-off, fiscal 1999 operating income for Infection Control Products would
have been $879,000 and income from continuing operations before income taxes
would have been $4,063,000.
22
<PAGE>
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
------------------------------------------
<S> <C> <C> <C>
Identifiable assets:
Medical Products $ 7,830,000 $ 8,637,000 $ 6,940,000
Infection Control Products 4,732,000 5,317,000 5,572,000
Scientific Products 5,226,000 4,865,000 4,154,000
Product Service 1,825,000 1,819,000 1,458,000
General corporate 2,247,000 843,000 837,000
----------- ----------- -----------
Continuing operations 21,860,000 21,481,000 18,961,000
Discontinued operations (1) 3,095,000 2,245,000 2,514,000
----------- ----------- -----------
Total $24,955,000 $23,726,000 $21,475,000
=========== =========== ===========
Capital expenditures:
Medical Products $ 83,000 $ 122,000 $ 109,000
Infection Control Products 135,000 66,000 63,000
Scientific Products 41,000 49,000 82,000
Product Service 25,000 35,000 34,000
General corporate 36,000 -- 1,000
----------- ----------- -----------
Continuing operations 320,000 272,000 289,000
Discontinued operations 76,000 90,000 85,000
----------- ----------- -----------
Total $ 396,000 $ 362,000 $ 374,000
=========== =========== ===========
Depreciation and amortization:
Medical Products $ 100,000 $ 85,000 $ 66,000
Infection Control Products 286,000 265,000 131,000
Scientific Products 40,000 41,000 58,000
Product Service 32,000 24,000 20,000
General corporate 5,000 4,000 5,000
----------- ----------- -----------
Continuing operations 463,000 419,000 280,000
Discontinued operations 87,000 63,000 52,000
----------- ----------- -----------
Total $ 550,000 $ 482,000 $ 332,000
=========== =========== ===========
</TABLE>
(1) The amounts for fiscal 1999 and 1998 are shown net of current liabilities
in order to conform to the fiscal 2000 balance sheet presentation.
23
<PAGE>
(b) Information as to geographic areas is summarized below:
<TABLE>
<CAPTION>
Year Ended July 31,
2000 1999 1998
---------------------------------------
<S> <C> <C> <C>
Net sales from continuing operations:
United States $10,543,000 $ 8,994,000 $ 8,106,000
Canada 30,445,000 28,551,000 22,055,000
----------- ----------- -----------
Total $40,988,000 $37,545,000 $30,161,000
=========== =========== ===========
Operating income from continuing operations:
United States $ 1,779,000 $ 484,000 $ 768,000
Canada 5,139,000 4,772,000 3,403,000
----------- ----------- -----------
Total $ 6,918,000 $ 5,256,000 $ 4,171,000
=========== =========== ===========
Total assets:
United States $ 5,696,000 $ 5,573,000 $ 6,143,000
Canada (1) 19,259,000 18,153,000 15,332,000
----------- ----------- -----------
Total $24,955,000 $23,726,000 $21,475,000
=========== =========== ===========
</TABLE>
(1) The amounts for fiscal 1999 and 1998 are shown net of current liabilities in
order to conform to the fiscal 2000 balance sheet presentation.
24
<PAGE>
CANTEL MEDICAL CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
--------------------------------------------------------------------------------
BALANCE AT BALANCE
BEGINNING DEDUCTIONS AT END
OF PERIOD ADDITIONS (RECOVERIES) OF PERIOD
---------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts:
Continuing operations:
Year ended
July 31, 2000 $ 40,000 $ 39,000 $ 13,000 $ 66,000
==================================================
Year ended
July 31, 1999 $ 40,000 $ 49,000 $ 49,000 $ 40,000
==================================================
Year ended
July 31, 1998 $ 65,000 $ 23,000 $ 48,000 $ 40,000
==================================================
Discontinued operations:
Year ended
July 31, 2000 $ 41,000 $ 81,000 $ 23,000 $ 99,000
==================================================
Year ended
July 31, 1999 $ 22,000 $ 12,000 $ (7,000) $ 41,000
==================================================
Year ended
July 31, 1998 $ 17,000 $ 19,000 $ 14,000 $ 22,000
==================================================
</TABLE>
25
