Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jan. 31, 2016 | Feb. 29, 2016 | |
Document and Entity Information | ||
Entity Registrant Name | CANTEL MEDICAL CORP | |
Entity Central Index Key | 19,446 | |
Document Type | 10-Q | |
Document Period End Date | Jan. 31, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --07-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 41,700,815 | |
Document Fiscal Year Focus | 2,016 | |
Document Fiscal Period Focus | Q2 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Jan. 31, 2016 | Jul. 31, 2015 |
Current assets: | ||
Cash and cash equivalents | $ 21,604,000 | $ 31,720,000 |
Accounts receivable, net of allowance for doubtful accounts of $2,183 at January 31 and $2,092 at July 31 | 76,016,000 | 69,805,000 |
Inventories, net | 79,429,000 | 72,078,000 |
Deferred income taxes | 6,144,000 | 6,233,000 |
Prepaid expenses and other current assets | 13,353,000 | 8,525,000 |
Total current assets | 196,546,000 | 188,361,000 |
Property and equipment, net | 69,995,000 | 62,541,000 |
Intangible assets, net | 113,805,000 | 85,836,000 |
Goodwill | 277,847,000 | 241,951,000 |
Other assets | 5,135,000 | 5,342,000 |
Total assets | 663,328,000 | 584,031,000 |
Current liabilities: | ||
Accounts payable | 15,698,000 | 16,184,000 |
Compensation payable | 13,447,000 | 18,557,000 |
Accrued expenses | 18,872,000 | 15,092,000 |
Deferred revenue | 18,090,000 | 18,323,000 |
Income taxes payable | 2,468,000 | |
Total current liabilities | 66,107,000 | 70,624,000 |
Long-term debt | 133,500,000 | 78,500,000 |
Deferred income taxes | 32,611,000 | 23,722,000 |
Other long-term liabilities | $ 3,658,000 | $ 4,552,000 |
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 75,000,000 shares; issued January 31 - 46,073,596 shares, outstanding January 31 - 41,702,185 shares; issued July 31 - 45,913,154 shares, outstanding July 31 - 41,604,359 shares | $ 4,607,000 | $ 4,591,000 |
Additional paid-in capital | 161,170,000 | 156,050,000 |
Retained earnings | 314,246,000 | 287,105,000 |
Accumulated other comprehensive (loss) income | (6,802,000) | 1,224,000 |
Treasury Stock, at cost; January 31 - 4,371,411 shares at cost; July 31 - 4,308,795 shares at cost | (45,769,000) | (42,337,000) |
Total stockholders' equity | 427,452,000 | 406,633,000 |
Total liabilities and stockholders' equity | $ 663,328,000 | $ 584,031,000 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Jan. 31, 2016 | Jul. 31, 2015 |
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
Accounts receivable, allowance for doubtful accounts (in dollars) | $ 2,183 | $ 2,092 |
Preferred Stock, par value (in dollars per share) | $ 1 | $ 1 |
Preferred Stock, authorized shares | 1,000,000 | 1,000,000 |
Preferred Stock, shares issued | 0 | 0 |
Common Stock, par value (in dollars per share) | $ 0.10 | $ 0.10 |
Common Stock, authorized shares | 75,000,000 | 75,000,000 |
Common Stock, shares issued | 46,073,596 | 45,913,154 |
Common Stock, shares outstanding | 41,702,185 | 41,604,359 |
Treasury Stock, shares | 4,371,411 | 4,308,795 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jan. 31, 2016 | Jan. 31, 2015 | Jan. 31, 2016 | Jan. 31, 2015 | |
Net sales | ||||
Product sales | $ 138,702 | $ 118,350 | $ 272,508 | $ 238,149 |
Product services | 19,569 | 17,080 | 39,542 | 34,092 |
Total net sales | 158,271 | 135,430 | 312,050 | 272,241 |
Cost of sales | ||||
Product sales | 72,979 | 63,073 | 142,120 | 127,169 |
Product services | 12,955 | 11,766 | 26,395 | 23,967 |
Total cost of sales | 85,934 | 74,839 | 168,515 | 151,136 |
Gross profit | 72,337 | 60,591 | 143,535 | 121,105 |
Expenses: | ||||
Selling | 22,620 | 19,257 | 44,080 | 38,668 |
General and administrative | 22,252 | 19,822 | 44,449 | 38,329 |
Research and development | 3,069 | 3,211 | 6,834 | 6,760 |
Total operating expenses | 47,941 | 42,290 | 95,363 | 83,757 |
Income from operations | 24,396 | 18,301 | 48,172 | 37,348 |
Interest expense | 893 | 661 | 1,659 | 1,211 |
Interest income | (22) | (15) | (43) | (31) |
Income before income taxes | 23,525 | 17,655 | 46,556 | 36,168 |
Income taxes | 8,136 | 6,570 | 16,913 | 13,844 |
Net income | $ 15,389 | $ 11,085 | $ 29,643 | $ 22,324 |
Earnings per common share: | ||||
Basic (in dollars per share) | $ 0.37 | $ 0.27 | $ 0.71 | $ 0.54 |
Diluted (in dollars per share) | $ 0.37 | 0.27 | 0.71 | 0.54 |
Dividends per common share (in dollars per share) | $ 0.05 | $ 0.06 | $ 0.05 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jan. 31, 2016 | Jan. 31, 2015 | Jan. 31, 2016 | Jan. 31, 2015 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
Net income | $ 15,389 | $ 11,085 | $ 29,643 | $ 22,324 |
Other comprehensive loss: | ||||
Foreign currency translation | (7,199) | (5,609) | (8,026) | (7,500) |
Total other comprehensive loss | (7,199) | (5,609) | (8,026) | (7,500) |
Comprehensive income | $ 8,190 | $ 5,476 | $ 21,617 | $ 14,824 |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 6 Months Ended | |
Jan. 31, 2016 | Jan. 31, 2015 | |
Cash flows from operating activities | ||
Net income | $ 29,643,000 | $ 22,324,000 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation | 5,693,000 | 4,853,000 |
Amortization | 6,391,000 | 6,188,000 |
Stock-based compensation expense | 3,595,000 | 3,001,000 |
Amortization of debt issuance costs | 201,000 | 200,000 |
Loss on disposal of fixed assets | 111,000 | 37,000 |
Fair value adjustments to acquisition related liabilities | (571,000) | 274,000 |
Deferred income taxes | 688,000 | 676,000 |
Excess tax benefits from stock-based compensation | (1,541,000) | (2,463,000) |
Changes in assets and liabilities, net of assets acquired and liabilities assumed: | ||
Accounts receivable | (3,021,000) | 319,000 |
Inventories | (4,251,000) | (3,115,000) |
Prepaid expenses and other current assets | (5,034,000) | (3,822,000) |
Accounts payable and other current liabilities | (1,681,000) | (9,737,000) |
Income taxes | (1,952,000) | 103,000 |
Net cash provided by operating activities | 28,271,000 | 18,838,000 |
Cash flows from investing activities | ||
Capital expenditures | (7,635,000) | (5,272,000) |
Proceeds from disposal of fixed assets | 35,000 | 34,000 |
Acquisitions of businesses, net of cash acquired | (81,104,000) | (33,359,000) |
Other, net | 212,000 | 746,000 |
Net cash used in investing activities | (88,492,000) | (37,851,000) |
Cash flows from financing activities | ||
Borrowings under revolving credit facility | 83,000,000 | 37,000,000 |
Repayments under revolving credit facility | (28,000,000) | (22,000,000) |
Proceeds from exercises of stock options | 323,000 | |
Dividends paid | (2,502,000) | (2,076,000) |
Excess tax benefits from stock-based compensation | 1,541,000 | 2,463,000 |
Purchases of treasury stock | (3,432,000) | (3,424,000) |
Net cash provided by financing activities | 50,607,000 | 12,286,000 |
Effect of exchange rate changes on cash and cash equivalents | (502,000) | (962,000) |
Decrease in cash and cash equivalents | (10,116,000) | (7,689,000) |
Cash and cash equivalents at beginning of period | 31,720,000 | 31,781,000 |
Cash and cash equivalents at end of period | $ 21,604,000 | $ 24,092,000 |
Basis of Presentation
Basis of Presentation | 6 Months Ended |
Jan. 31, 2016 | |
Basis of Presentation | |
Basis of Presentation | Note 1. Basis of Presentation The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles for interim financial reporting and the requirements of Form 10-Q and Rule 10.01 of Regulation S-X. Accordingly, they do not include certain information and note disclosures required by generally accepted accounting principles for annual financial reporting and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Annual Report of Cantel Medical Corp. (“Cantel”) on Form 10-K for the fiscal year ended July 31, 2015 (the “2015 Form 10-K”) and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein. The unaudited interim financial statements reflect all adjustments (of a normal and recurring nature) which management considers necessary for a fair presentation of the results of operations for these periods. The results of operations for the interim periods are not necessarily indicative of the results for the full year. The Condensed Consolidated Balance Sheet at July 31, 2015 was derived from the audited Consolidated Balance Sheet of Cantel at that date. As more fully described in Note 15 to the Condensed Consolidated Financial Statements, we operate our business through the following four operating segments: Endoscopy, Water Purification and Filtration, Healthcare Disposables and Dialysis. The Specialty Packaging operating segment, which comprised the Other reporting segment for financial reporting purposes, was divested on April 7, 2015, as more fully described in Note 16 to the Condensed Consolidated Financial Statements. We operate our four operating segments through wholly-owned subsidiaries in the United States and internationally. Our principal operating subsidiaries in the United States are Medivators Inc., Mar Cor Purification, Inc., Crosstex International, Inc. and SPS Medical Supply Corp. Internationally, our primary operating subsidiaries include Cantel Medical (UK) Limited, Cantel Medical Asia/Pacific Ltd., Cantel Medical Devices (China) Co., Ltd., Biolab Equipment Ltd., Medivators B.V., Cantel Medical (Italy) S.r.l. and effective September 14, 2015, Medical Innovations Group Holdings Limited. We acquired all of the issued and outstanding stock of Medical Innovations Group Holdings Limited and certain affiliated companies (collectively, “MI”) on September 14, 2015, as more fully described in Note 3 to the Condensed Consolidated Financial Statements. The business of MI did not have a significant effect on our consolidated results of operations for the three and six months ended January 31, 2016 due to the size of the business in relation to our overall consolidated results of operations and is not reflected in our consolidated results of operations for the three and six months ended January 31, 2015. The acquisition of MI is included in our Endoscopy segment. In our prior fiscal year, we acquired (i) all of the issued and outstanding stock of MRLB International, Inc. (“MRLB”) on February 20, 2015 (the “DentaPure Acquisition”), (ii) certain net assets of Pure Water Solutions, Inc. (“PWS”) on January 1, 2015 (the “PWS Acquisition”) and (iii) all of the issued and outstanding stock of International Medical Service S.r.l. (“IMS”) on November 3, 2014 (the “IMS Acquisition”), as more fully described in Note 3 to the Condensed Consolidated Financial Statements. The businesses of MRLB (the “DentaPure Business”), PWS (the “PWS Business”) and IMS (the “IMS Business”) did not have a significant effect on our consolidated results of operations for the three and six months ended January 31, 2016 and 2015 due to the size of the businesses in relation to our overall consolidated results of operations. The DentaPure Business is included in our Healthcare Disposables segment, the PWS Business is included in our Water Purification and Filtration segment and the IMS Business is included in our Endoscopy segment. Subsequent to its acquisition, we changed the name of International Medical Service S.r.l. to Cantel Medical (Italy) S.r.l. Throughout this document, references to “Cantel,” “us,” “we,” “our,” and the “Company” are references to Cantel Medical Corp. and its subsidiaries, except where the context makes it clear the reference is to Cantel itself and not its subsidiaries. Subsequent Events On March 1, 2016, we acquired North American Science Associates, Inc.’s Sterility Assurance Monitoring Products division (the “NAMSA Acquisition”), as more fully described in Note 3 to the Condensed Consolidated Financial Statements. Since the NAMSA Acquisition was completed in our third quarter of fiscal 2016, its results of operations are not included in any periods presented. We do not expect the NAMSA Acquisition to have a significant effect on our consolidated results of operations for the remainder of fiscal 2016 due to the size of the acquisition in relation to our overall consolidated results of operations. The NAMSA Acquisition will be included in our Healthcare Disposables segment. We performed a review of events subsequent to January 31, 2016. Based upon that review, no other subsequent events occurred that required updating to our Condensed Consolidated Financial Statements or disclosures. |
Stock-Based Compensation
Stock-Based Compensation | 6 Months Ended |
Jan. 31, 2016 | |
Stock-Based Compensation | |
Stock-Based Compensation | Note 2. Stock-Based Compensation The following table shows the income statement components of stock-based compensation expense recognized in the Condensed Consolidated Statements of Income: Three Months Ended Six Months Ended January 31, January 31, 2016 2015 2016 2015 Cost of sales $ $ $ $ Operating expenses: Selling General and administrative Research and development Total operating expenses Stock-based compensation before income taxes Income tax benefits ) ) ) ) Total stock-based compensation expense, net of tax $ $ $ $ The above stock-based compensation expense before income taxes was recorded in the Condensed Consolidated Financial Statements as stock-based compensation expense and an increase to additional paid-in capital. The related income tax benefits were recorded as either an increase to current deferred income tax assets or long-term deferred income tax assets (which are netted with long-term deferred income tax liabilities) and a reduction to income tax expense. All of our stock options and stock awards (which consist only of restricted shares) are expected to be deductible for tax purposes, except for certain restricted shares granted to employees residing outside of the United States, and were tax-effected using the Company’s estimated U.S. effective tax rate at the time of grant. All of our stock options and stock awards are subject to graded vesting in which portions of the awards vest at different times during the vesting period, as opposed to awards that vest at the end of the vesting period. We recognize compensation expense for awards subject to graded vesting using the straight-line basis over the vesting period, reduced by estimated forfeitures. At January 31, 2016, total unrecognized stock-based compensation expense, before income taxes, related to total nonvested stock options and stock awards was $20,138,000 with a remaining weighted average period of 23 months over which such expense is expected to be recognized. Most of our nonvested awards relate to stock awards. We determine the fair value of each stock award using the closing market price of our common stock on the date of grant. A summary of nonvested stock award activity follows: Weighted Number of Average Shares Fair Value Nonvested stock awards at July 31, 2015 $ Granted Canceled ) Vested ) Nonvested stock awards at January 31, 2016 $ The fair value of each option grant was estimated on the date of grant using the Black-Scholes option valuation model with the following weighted average assumptions for options granted during the six months ended January 31, 2016 and 2015: Weighted-Average Black-Scholes Option Six Months Ended Six Months Ended Valuation Assumptions January 31, 2016 January 31, 2015 Dividend yield % % Expected volatility (1) % % Risk-free interest rate (2) % % Expected lives (in years) (3) (1) Volatility was based on historical closing prices of our common stock. (2) The U.S. Treasury rate based on the expected life at the date of grant. (3) Based on historical exercise behavior. Additionally, all options were considered to be deductible for tax purposes in the valuation model. Such non-qualified options were tax-effected using the Company’s estimated U.S. effective tax rate at the time of grant. For the six months ended January 31, 2016 and 2015, these non-qualified options had a weighted average fair value of $26.49 and $11.54, respectively. There were no option exercises during the three and six months ended January 31, 2016. For the six months ended January 31, 2015, the aggregate intrinsic value (i.e. the excess market price over the exercise price) of all options exercised was approximately $2,420,000. A summary of stock option activity follows: Weighted Number of Average Shares Exercise Price Outstanding at July 31, 2015 $ Granted Outstanding at January 31, 2016 $ Exercisable at July 31, 2015 $ Exercisable at January 31, 2016 $ If certain criteria are met when options are exercised or restricted stock becomes vested, we are allowed a deduction on our United States income tax return. Accordingly, we account for the income tax effect on such income tax deductions as a reduction of previously recorded deferred income tax assets and as a reduction of income taxes payable. Excess tax benefits arise when the ultimate tax effect of the deduction for tax purposes is greater than the tax benefit on stock compensation expense which was determined based upon the award’s fair value at the time the award was granted. The differences noted above between actual tax deductions and the previously recorded deferred income tax assets are recorded as additional paid-in capital. For the six months ended January 31, 2016 and 2015, income tax deductions of $3,169,000 and $4,271,000, respectively, were generated and increased additional paid-in capital by $1,541,000 and $2,463,000, respectively. We classify the cash flows resulting from excess tax benefits as financing cash flows in our Condensed Consolidated Statements of Cash Flows. In January 2016, the Cantel Medical Corp. 2016 Equity Incentive Plan (the “2016 Plan”) was approved by shareholders. As a result, no further options or awards will be granted under the Cantel Medical Corp. 2006 Equity Incentive Plan. The 2016 Plan provides for the granting of stock options, stock appreciation rights (SARs), restricted stock awards, restricted stock units (RSUs) and performance-based awards to our employees, independent contractors and consultants. It also provides the flexibility to grant equity-based awards to our non-employee directors. The 2016 Plan does not permit the granting of discounted options or discounted stock appreciation rights. The maximum number of shares as to which equity awards may be granted under the 2016 Plan is 1,200,000 shares. No awards have been granted under the 2016 Plan as of January 31, 2016. Once granted, restricted stock awards under this plan are subject to risk of forfeiture solely due to an employment length-of-service restriction, with such restriction lapsing as to one-third of the shares on each of the first three anniversaries of the grant date subject to being employed by the Company through such vesting date. The 2016 Plan will terminate on the date of our annual meeting of stockholders following the close of our fiscal year ending in 2025, unless terminated earlier by the Board of Directors. |
Acquisitions
Acquisitions | 6 Months Ended |
Jan. 31, 2016 | |
Acquisitions | |
Acquisitions | Note 3. Acquisitions Fiscal 2016 North American Science Associates, Inc. On March 1, 2016, we acquired certain net assets of NAMSA relating to its Sterility Assurance Monitoring Products division, a business with pre-acquisition adjusted annual revenues (unaudited) of approximately $5,700,000. The business manufactures a broad suite of high-quality biological and chemical indicators which are used to accurately monitor the effectiveness of sterilization processes primarily for manufacturers of medical device, life science and other products. The total consideration for the transaction, excluding acquisition-related costs, was $13,520,000. The NAMSA Acquisition will be included in our Healthcare Disposables segment. The principal reasons for the NAMSA Acquisition were (i) the ability to broaden our Healthcare Disposable segment’s presence into the industrial market, (ii) the opportunity to cross-sell our existing Healthcare Disposable products, (iii) the strategic benefit and cost savings to our overall sterility assurance monitoring business, (iv) to enhance our new product development and overall research and development capabilities and (v) the expectation that the acquisition will be accretive to our earnings per share (“EPS”) in fiscal 2017 and beyond. Since the NAMSA Acquisition was completed in our third quarter of fiscal 2016, its results of operations are not included in any periods presented. We do not expect the NAMSA Acquisition to have a significant effect on our consolidated results of operations for the remainder of fiscal 2016 due to the size of the acquisition in relation to our overall consolidated results of operations. Medical Innovations Group Holdings Limited On September 14, 2015, we acquired all of the issued and outstanding stock of MI, a private company with pre-acquisition annual revenues (unaudited) of approximately $28,500,000 providing specialized endoscopy medical devices and products primarily in the United Kingdom (the “MI Business” or the “MI Acquisition”). Principal products of MI include proprietary short-term and long-term endoscope transport and storage systems, a comprehensive range of endoscopic consumable accessories, OEM mobile medical carts, as well as specialized products for patient warming and patient transfer. With an employee base of approximately 100 individuals, including a complete sales organization and a manufacturing facility in Southend-on-Sea, England, the addition of MI complements our existing endoscopy business in the United States, the United Kingdom and other global markets. The MI Business is included in our Endoscopy segment. The total consideration for the transaction, excluding acquisition-related costs, was $79,556,000, net of an estimated $254,000 net asset value adjustment to be paid by the sellers, subject to finalization. The purchase price was preliminarily allocated to the assets acquired and assumed liabilities based on estimated fair values as follows: Preliminary Net Assets Allocation Current assets $ Property, plant and equipment Amortizable intangible assets: Customer relationships (17 - year life) Technology (10 - year life) Brand names (12 - year life) Current liabilities ) Deferred income tax liabilities ) Net assets acquired $ There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $38,973,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, is included in our Endoscopy segment. The principal reasons for the MI Acquisition were (i) the global expansion of our infection prevention and control product offerings in Endoscopy, (ii) the opportunity to sell our existing endoscopy products to MI’s installed base, (iii) the ability to combine the MI sales force with our existing United Kingdom organization to create what we believe will be a dominant UK sales force in endoscopy product sales and service, (iv) to achieve cost savings through various operating synergies, (v) the ability to leverage our direct sales force to accelerate the growth of MI products in the U.S. and various international markets, and (vi) the expectation that the acquisition will be accretive to our EPS in fiscal 2017 and beyond. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill. The MI Acquisition is included in our results of operations for the three months ended January 31, 2016 and the portion of the six months ended January 31, 2016 subsequent to its acquisition date, and is not reflected in the three and six months ended January 31, 2015. Fiscal 2015 DentaPure On February 20, 2015, we purchased all of the issued and outstanding stock of MRLB, a private company with pre-acquisition annual revenues (unaudited) of approximately $2,300,000, to obtain the DentaPure ® product line. The DentaPure product line is a proprietary, iodinated resin filter cartridge system used by dentists to maintain safe water quality in dental unit waterlines. It has been integrated into our Crosstex product portfolio. The DentaPure Business is included in our Healthcare Disposables segment. The total consideration for the transaction was $9,980,000, excluding acquisition-related costs. The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows: Final Net Assets Allocation Current assets $ Property, plant and equipment Amortizable intangible assets: Customer relationships (10- weighted average year life) Technology (10- year weighted average life) Brand names (10- year weighted average life) Current liabilities ) Deferred income tax liabilities ) Net assets acquired $ There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $6,104,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, is included in our Healthcare Disposables segment. The principal reasons for the DentaPure Acquisition were to (i) leverage the sales and marketing infrastructure of our Healthcare Disposables business by adding a branded, technologically differentiated, proprietary product line, (ii) strengthen our leadership position in a rapidly growing area of infection prevention and control, (iii) add a new product line that will provide for opportunities to cross-sell to biological monitoring customers and expand our waterline disinfection products and (iv) the expectation that the acquisition will be accretive to our EPS in fiscal 2016 and beyond. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill. The DentaPure Business is included in our results of operations for the three and six months ended January 31, 2016 and is not included in the three and six months ended January 31, 2015. This acquisition did not have a significant effect on our consolidated results of operations in the three and six months ended January 31, 2016 due to the size of the business in relation to our overall consolidated results of operations. Pure Water Solutions, Inc. On January 1, 2015, we purchased substantially all of the net assets of PWS, a private company based out of Ridgeland, Mississippi with pre-acquisition annual revenues (unaudited) of approximately $8,000,000 that provides water treatment services for commercial and industrial, laboratory and medical customers. The PWS Business is included in our Water Purification and Filtration segment. The total consideration for the transaction, excluding acquisition-related costs, was $11,835,000. The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows: Final Net Assets Allocation Current assets $ Property, plant and equipment Amortizable intangible assets (12- year weighted average life): Customer relationships (12- year life) Brand names (1- year life) Other assets Current liabilities ) Net assets acquired $ There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $2,965,000 was assigned to goodwill. Such goodwill, all of which is deductible for income tax purposes, is included in our Water Purification and Filtration segment. The principal reasons for the PWS Acquisition were (i) to strengthen our sales and service business by adding PWS’s strategic southeastern United States market presence to enable us to better serve our national customers, (ii) to further expand our business into the commercial, laboratory and research segments and (iii) the expectation that the acquisition will be accretive to our EPS in fiscal 2016 and beyond . Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill. The PWS Business is included in our results of operations for the three and six months ended January 31, 2016 and the three and six months ended January 31, 2015 subsequent to its acquisition date. This acquisition did not have a significant effect on our consolidated results of operations for the three and six months ended January 31, 2016 and 2015 due to the size of the business in relation to our overall consolidated results of operations. International Medical Service S.r.l. On November 3, 2014, we acquired all of the issued and outstanding stock of IMS, a privately owned company in Italy with pre-acquisition annual revenues (unaudited) of approximately $13,500,000 that manufactures and sells automated endoscope reprocessors (“AERs”), high-level disinfectant chemistries used in AERs, other infection prevention and control chemistries used in healthcare and dental markets, as well as technical service. The IMS Business is included in our Endoscopy segment. The total consideration for the transaction, excluding acquisition-related costs, was $24,610,000, which includes assumed debt of $2,498,000, a significant portion of which was subsequently repaid. The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows: Final Net Assets Allocation Current assets $ Property, plant and equipment Amortizable intangible assets (9- year weighted average life): Customer relationships (9- year life) Technology (9- year life) Other assets Current liabilities ) Deferred income tax liabilities ) Other long-term liabilities ) Net assets acquired $ There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $11,133,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, is included in our Endoscopy segment. Following the acquisition, we changed the name of IMS to Cantel Medical (Italy) S.r.l. The principal reasons for the IMS Acquisition were (i) to add a high quality manufacturing facility in Europe, (ii) the expansion of our product offerings with a broader range of advanced endoscope reprocessing equipment suitable for various international markets, (iii) the opportunity to transition our existing Italy business from a distribution model to a direct sales model , (iv) the opportunity to leverage IMS’s chemistry manufacturing capabilities to enhance and expand our existing product portfolio while reducing freight and logistics expenses related to the export of chemistries from the United States, (v) the ability to expand our footprint and infrastructure in Europe and (vi) the expectation that the acquisition will be accretive to our EPS in fiscal 2016 and beyond. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill. The IMS Business is included in our results of operations for the three and six months ended January 31, 2016, the three months ended January 31, 2015 and the portion of the six months ended January 31, 2015 subsequent to its acquisition date. The IMS Business did not have a significant effect on our consolidated results of operations for the three and six months ended January 31, 2016 and 2015 due to the size of the business in relation to our overall consolidated results of operations. |
Recent Accounting Pronouncement
Recent Accounting Pronouncements | 6 Months Ended |
Jan. 31, 2016 | |
Recent Accounting Pronouncements | |
Recent Accounting Pronouncements | Note 4. Recent Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “ Leases (Topic 842) ” (“ASU 2016-02”). The new guidance requires the recording of assets and liabilities arising from leases on the balance sheet accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. The new guidance is expected to provide transparency of information and comparability among organizations. ASU 2016-02 is effective for fiscal years beginning after December 31, 2018 (our fiscal year 2019), including interim periods within that reporting period. Early adoption is permitted as of the beginning of an interim or annual period. We are currently in the process of evaluating the impact of ASU 2016-02 on our financial position and results of operations. In November 2015, the FASB issued ASU 2015-17, “ Balance Sheet Classification of Deferred Taxes (Topic 740) ” (“ASU 2015-17”) , which eliminates the current requirement for companies to present deferred tax liabilities and assets as current and non-current in a classified balance sheet. To simplify the presentation of deferred income taxes, ASU 2015-17 requires that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016 (our fiscal year 2018), including interim periods within that reporting period. Early adoption is permitted as of the beginning of an interim or annual period. We are currently in the process of evaluating the impact of ASU 2015-17 on our financial position and results of operations. In September 2015, the FASB issued ASU 2015-16, “ Simplifying the Accounting for Measurement-Period Adjustments (Topic 805)” (“ASU 2015-16”) . The new guidance requires an acquirer in a business combination to recognize a measurement-period adjustment during the period in which it determines the amount, and eliminates the requirement for an acquirer to account for measurement-period adjustments retrospectively. The acquirer must also disclose the amounts and reasons for adjustments to the provisional amounts. ASU 2015-16 is effective for fiscal years beginning after December 15, 2016 (our fiscal year 2018), including interim periods within that reporting period. We are currently in the process of evaluating the impact of ASU 2015-16 on our financial position and results of operations. In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330) Simplifying the Measurement of Inventory,” (“ASU 2015-11”). The new guidance more closely aligns the measurement of inventory in U.S. GAAP with the measurement of inventory in International Financial Reporting Standards by requiring companies using the first-in, first-out and average costs methods to measure inventory using the lower of cost and net realizable value, where net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016 (our fiscal year 2018), including interim periods within that reporting period. We are currently in the process of evaluating the impact of ASU 2015-11 on our financial position and results of operations. In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs (Topic 835),” (“ASU 2015-03”). Under the new guidance, debt issuance costs are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability and not recorded as a separate asset. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015 (our fiscal year 2017), including interim periods within that reporting period. We are currently in the process of evaluating the impact of ASU 2015-03 on our financial position and results of operations. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”), which will supersede the revenue recognition requirements in Accounting Standards Codification 605, “Revenue Recognition.” ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606),” which defers the effective date of ASU 2014-09 by one year to fiscal years beginning after December 15, 2017 (our fiscal year 2019), including interim periods within that reporting period. We are currently in the process of evaluating the impact of ASU 2014-09 on our financial position and results of operations. |
Inventories, Net
Inventories, Net | 6 Months Ended |
Jan. 31, 2016 | |
Inventories | |
Inventories, Net | Note 5. Inventories, Net A summary of inventories is as follows: January 31, July 31, 2016 2015 Raw materials and parts $ $ Work-in-process Finished goods Reserve for excess and obsolete inventory ) ) Total $ $ |
Derivatives
Derivatives | 6 Months Ended |
Jan. 31, 2016 | |
Derivatives | |
Derivatives | Note 6. Derivatives We recognize all derivatives on the balance sheet at fair value. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in the fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of the change in fair value of a derivative that is designated as a hedge will be recognized immediately in earnings. As of January 31, 2016, all of our derivatives were designated as hedges. We do not hold any derivative financial instruments for speculative or trading purposes. Changes in the value of the Euro, Canadian dollar, British Pound, Singapore dollar and the Chinese Renminbi against the United States dollar affect our results of operations because certain cash bank accounts, accounts receivable, and liabilities of Cantel and its subsidiaries are denominated and ultimately settled in United States dollars or these foreign currencies, but must be converted into each entity’s functional currency. In order to hedge against the impact of fluctuations in the value of the Euro, British Pound and Singapore dollar relative to the United States dollar on the conversion of such net assets into the functional currencies, we enter into short-term contracts to purchase Euros, British Pounds and Singapore dollars forward, which contracts are one-month in duration. These short-term contracts are designated as fair value hedge instruments. There were five foreign currency forward contracts with an aggregate value of $12,783,000 at January 31, 2016, which covered certain assets and liabilities that were denominated in currencies other than each entity’s functional currency. Such contracts expired on February 29, 2016. These foreign currency forward contracts are continually replaced with new one-month contracts as long as we have significant net assets that are denominated and ultimately settled in currencies other than each entity’s functional currency. Such forward contracts partially offset the impact on operations relating to certain assets and liabilities that were denominated in currencies other than each entity’s functional currency resulting in net currency conversion losses, net of tax, of $214,000 and $306,000, respectively, for the three and six months ended January 31, 2016 on the items hedged. For the prior year periods, our forward contracts substantially offset this foreign currency impact on operations resulting in a net currency conversion gain, net of tax, of $15,000 for the three months ended January 31, 2015 and a net currency conversion loss, net of tax, of $49,000 for the six months ended January 31, 2015 on the items hedged. Gains and losses related to hedging contracts to buy Euros, British Pounds and Singapore dollars forward are immediately realized within general and administrative expenses due to the short-term nature of such contracts. We do not currently hedge against the impact of fluctuations in the value of the Canadian dollar or Chinese Renminbi relative to the United States dollar because the overall foreign currency exposures relating to those currencies are currently not deemed significant. Additionally, we do not hedge transactions associated with the funding of international acquisitions due to the short-term nature of the foreign currency exposure. |
Fair Value Measurements
Fair Value Measurements | 6 Months Ended |
Jan. 31, 2016 | |
Fair Value Measurements | |
Fair Value Measurements | Note 7. Fair Value Measurements Fair Value Hierarchy We apply the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” (“ASC 820”), for our financial assets and liabilities that are re-measured and reported at fair value each reporting period and our nonfinancial assets and liabilities that are re-measured and reported at fair value on a non-recurring basis. We define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three level fair value hierarchy to prioritize the inputs used in valuations, as defined below: Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Unobservable inputs for the asset or liability. Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis Our financial assets that are re-measured at fair value on a recurring basis include money market funds that are classified as cash and cash equivalents in the Condensed Consolidated Balance Sheets. These money market funds are classified within Level 1 of the fair value hierarchy and are valued using quoted market prices for identical assets. In connection with our June 2014 acquisition of a UK endoscopy company (“Cantel Medical (UK)”) , we acquired a contingent guaranteed obligation to reimburse an endoscope service company for endoscope repair costs it incurs when servicing its customers’ endoscopes that are damaged by one of Cantel Medical (UK)’s discontinued endoscope reprocessing machine models. Although the terms of the guarantee provide for no limit to the maximum potential future payments, we estimated the fair value of the liability on the date of the acquisition to be approximately $1,414,000. This fair value measurement was based on significant inputs not observed in the market and thus represents a Level 3 measurement. The fair value of the contingent guaranteed obligation was based on the estimated cost to repair endoscopes that may be damaged by one of Cantel Medical (UK)’s discontinued endoscope reprocessing machine models that remain in the marketplace, the historical frequency of claims and the likely timeframe that each machine will continue to be used. As such, the determination of the fair value of this contingent guaranteed obligation is subjective in nature and can be impacted by significant changes in third party service repair rates, the frequency of claims and a change in the expected life of these discontinued machines. At the date of the acquisition, the cash flow projection relating to this contingent guaranteed obligation was discounted using a rate of 10.1%, which was based on the weighted average cost of capital of the acquired business plus a credit risk premium for non-performance risk. This liability will be adjusted periodically by recording changes in the fair value through our Condensed Consolidated Statements of Income driven by the time value of money and changes in the assumptions that were initially used in the valuation. Given the subjective nature of the assumptions used in the determination of fair value, we may potentially have significant earnings volatility in our future results of operations. On November 5, 2013, we recorded a $2,490,000 liability for the estimated fair value of contingent consideration and a $1,720,000 liability for the estimated fair value of an assumed contingent obligation payable to the Israeli Government relating to the acquisition of a private Israeli company that developed the Jet Prep ® Endoscopic Flushing Device, a novel single-use irrigation and aspiration catheter to improve visualization during colonoscopy procedures (“Jet Prep”). These fair value measurements were based on significant inputs not observed in the market and thus represent Level 3 measurements. The fair values of the contingent consideration liability and assumed contingent obligation were based on percentages of future sales projections of Jet Prep’s business, above a minimum threshold with respect to the contingent consideration, under various potential scenarios over a seven year period ending November 4, 2020 and weighting the probability of these outcomes. As such, the determinations of fair values of these contingent liabilities are subjective in nature and highly dependent on future sales projections. At the date of the acquisition, the cash flow projections relating to the contingent consideration and assumed contingent obligation were discounted using rates of 12.6% and 2.5%, respectively. The discount rate relating to the contingent consideration was based on the weighted average cost of capital of the acquired business plus a credit risk premium for non-performance risk. Since payment of the assumed contingent obligation to the Israeli Government is highly probable, the discount rate relating to this government obligation was based on a risk free rate plus a premium for non-performance risk. These two liabilities will be adjusted periodically by recording changes in the fair value through our Condensed Consolidated Statements of Income driven by the time value of money and changes in the assumptions that were initially used in the valuations. Due to the structure of the acquisition, any such adjustments through our Condensed Consolidated Statements of Income will not be tax effected, except for amounts in excess of $810,000 with respect to the assumed contingent obligation, therefore impacting our effective tax rate. The actual contingent consideration and assumed contingent obligation have the potential of being between zero and a percentage of unlimited sales that could occur until the completion of the seven year period with respect to the contingent consideration liability and until the assumed contingent obligation is satisfied in full, or until the sales of the Jet Prep products no longer exist. However, with respect to the contingent consideration, the different likely scenarios of future sales projections used in our fair value determination at January 31, 2016 resulted in total potential contingent consideration payments ranging between zero and approximately $452,000 and the weighted average present value of such scenarios plus the accretion of interest for the passing of time resulted in a fair value of $143,000 at January 31, 2016. The decrease in the initial fair value from $2,490,000 at November 5, 2013 to $143,000 at January 31, 2016 was primarily due to changes in probability factors and future sales projections based on the results of several market research analyses, product modification plans, updated pricing models and the remaining years in the seven year measurement period. With respect to the assumed contingent obligation, the different likely scenarios of future sales projections used in our fair value determination at January 31, 2016 along with the requirement to repay at least the original seed funding with interest to the Israeli Government resulted in a fair value of $1,138,000 at January 31, 2016. Given the subjective nature of the assumptions used in the determinations of fair value, we may potentially have further earnings volatility in our future results of operations related to these Jet Prep obligations. The fair values of the Company’s financial instruments measured on a recurring basis were categorized as follows: January 31, 2016 Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents: Money markets $ $ — $ — $ Total assets $ $ — $ — $ Liabilities: Accrued expenses: Assumed contingent obligation $ — $ — $ $ Contingent guaranteed obligation — — Total accrued expenses — — Other long-term liabilities: Contingent consideration — — Assumed contingent obligation — — Contingent guaranteed obligation — — Total other long-term liabilities — — Total liabilities $ — $ — $ $ July 31, 2015 Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents: Money markets $ $ — $ — $ Total assets $ $ — $ — $ Liabilities: Accrued expenses: Assumed contingent obligation $ — $ — $ $ Contingent guaranteed obligation — — Total accrued expenses — — Other long-term liabilities: Contingent consideration — — Assumed contingent obligation — — Contingent guaranteed obligation — — Total other long-term liabilities — — Total liabilities $ — $ — $ $ A reconciliation of our liabilities that are measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) for the last five quarters is as follows: Jet Prep Cantel Medical (UK) Jet Prep Assumed Contingent Contingent Contingent Guaranteed Consideration Obligation Obligation Total Balance, July 31, 2014 $ $ $ $ Total net unrealized losses included in general and administrative expense in earnings Settlements — — ) ) Foreign currency translation — — ) ) Balance, October 31, 2014 Total net unrealized losses included in general and administrative expense in earnings Settlements — — ) ) Foreign currency translation — — ) ) Balance, January 31, 2015 Total net unrealized (gains) losses included in general and administrative expense in earnings ) ) ) Settlements — — ) ) Foreign currency translation — — Balance, April 30, 2015 Total net unrealized losses included in general and administrative expense in earnings Settlements — — ) ) Foreign currency translation — — Balance, July 31, 2015 Total net unrealized (gains) losses included in general and administrative expense in earnings ) — ) Settlements — — ) ) Foreign currency translation — — ) ) Balance, October 31, 2015 Total net unrealized (gains) losses included in general and administrative expense in earnings — Settlements — — ) ) Foreign currency translation — — ) ) Balance, January 31, 2016 $ $ $ $ Assets Measured and Recorded at Fair Value on a Nonrecurring Basis We re-measure the fair value of certain assets, such as intangible assets, goodwill and long-lived assets, including property, equipment and other assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and goodwill and intangible assets with indefinite lives are reviewed for impairment at least annually. In performing a review for goodwill impairment, management first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount before proceeding to step one of the two-step quantitative goodwill impairment test, if necessary. For our quantitative test, we use a two-step process that begins with an estimation of the fair value of the related operating segments by using fair value results of the discounted cash flow methodology, as well as the market multiple and comparable transaction methodologies, where appropriate. The first step is a review for potential impairment, and the second step measures the amount of impairment, if any. In performing our annual review for indefinite lived intangibles, management performs a qualitative assessment, and if a quantitative assessment is necessary, we compare the current fair value of such assets to their carrying values. With respect to amortizable intangible assets when impairment indicators are present, management determines whether expected future non-discounted cash flows are sufficient to recover the carrying value of the assets; if not, the carrying value of the assets is adjusted to their fair value. With respect to long-lived assets, an assessment is made to determine if the sum of the expected future non-discounted cash flows from the use of the assets and eventual disposition is less than the carrying value. If the sum of the expected non-discounted cash flows is less than the carrying value, an impairment loss is recognized based on fair value. As the inputs utilized for our periodic impairment assessments are not based on observable market data, but are based on management’s assumptions and estimates, our goodwill, intangibles and long-lived assets are classified within Level 3 of the fair value hierarchy on a non-recurring basis. Management concluded on July 31, 2015 that none of our long-lived assets, including goodwill and intangibles with indefinite-lives, were impaired and no other events or changes in circumstances have occurred during the six months ended January 31, 2016 that would indicate that the carrying amount of our long-lived assets may not be recoverable. Disclosure of Fair Value of Financial Instruments As of January 31, 2016 and July 31, 2015, the carrying amounts for cash and cash equivalents (excluding money markets), accounts receivable and accounts payable approximated fair value due to the short maturity of these instruments. We believe that as of January 31, 2016 and July 31, 2015, the fair value of our outstanding borrowings under our credit facility approximated the carrying value of those obligations since the borrowing rates were at prevailing market interest rates. |
Intangible Assets and Goodwill
Intangible Assets and Goodwill | 6 Months Ended |
Jan. 31, 2016 | |
Intangible Assets and Goodwill | |
Intangible Assets and Goodwill | Note 8. Intangible Assets and Goodwill Our intangible assets with definite lives consist primarily of customer relationships, technology, brand names, non-compete agreements and patents. These intangible assets are being amortized on the straight-line method over the estimated useful lives of the assets ranging from 3-20 years and have a weighted average amortization period of 12 years. Amortization expense related to intangible assets was $3,297,000 and $6,391,000 for the three and six months ended January 31, 2016, respectively, and $3,232,000 and $6,188,000 for the three and six months ended January 31, 2015, respectively. Our intangible assets that have indefinite useful lives, and therefore are not amortized, consist of trademarks and trade names. The Company’s intangible assets consist of the following: January 31, 2016 Accumulated Gross Amortization Net Intangible assets with finite lives: Customer relationships $ $ ) $ Technology ) Brand names ) Non-compete agreements ) Patents and other registrations ) ) Trademarks and tradenames — Total intangible assets $ $ ) $ July 31, 2015 Accumulated Gross Amortization Net Intangible assets with finite lives: Customer relationships $ $ ) $ Technology ) Brand names ) Non-compete agreements ) Patents and other registrations ) ) Trademarks and tradenames — Total intangible assets $ $ ) $ Estimated annual amortization expense of our intangible assets for the remainder for fiscal 2016 and the next five years is as follows: Six month period ending July 31, 2016 $ 2017 2018 2019 2020 2021 Goodwill changed during fiscal 2015 and the six months ended January 31, 2016 as follows: Water Purification Healthcare Total Endoscopy and Filtration Disposables Dialysis Other Goodwill Balance, July 31, 2014 $ $ $ $ $ $ Acquisitions — — Foreign currency translation ) ) — — ) ) Sale of business — — — — ) ) Balance, July 31, 2015 — Acquisitions — — — Foreign currency translation ) ) — — — ) Balance, January 31, 2016 $ $ $ $ $ — $ On July 31, 2015, we performed impairment studies of the Company’s goodwill and indefinite lived trademarks and trade names and concluded that such assets were not impaired. While the results of these annual reviews have historically not indicated impairment, impairment reviews are highly dependent on management’s projections of our future operating results and cash flows (which management believes to be reasonable), discount rates based on the Company’s weighted average cost of capital and appropriate benchmark peer companies. Assumptions used in determining future operating results and cash flows include current and expected market conditions and future sales forecasts. Subsequent changes in these assumptions and estimates could result in future impairment. Although we consistently use the same methods in developing the assumptions and estimates underlying the fair value calculations, such estimates are uncertain by nature and can vary from actual results. At July 31, 2015, the fair value of all of our reporting units exceeded book value by substantial amounts, except our Dialysis segment, which had an estimated fair value that exceeded book value by approximately 17%. We believe the most significant assumptions impacting the impairment assessment of our Dialysis segment relate to the assumed projected annual sales and future operating efficiencies included in our projections of future operating results and cash flows of this segment. If future operating results and cash flows are substantially less than our projections, future impairment charges may be recorded. On January 31, 2016, management concluded that no events or changes in circumstances have occurred during the six months ended January 31, 2016 that would indicate that the carrying amount of our intangible assets and goodwill may not be recoverable. |
Warranties
Warranties | 6 Months Ended |
Jan. 31, 2016 | |
Warranties | |
Warranties | Note 9. Warranties A summary of activity in the warranty reserves follows: Three Months Ended Six Months Ended January 31, January 31, 2016 2015 2016 2015 Beginning balance $ $ $ $ Acquisitions — Provisions Settlements ) ) ) ) Foreign currency translation ) ) ) ) Ending balance $ $ $ $ The warranty provisions for the three and six months ended January 31, 2016 and 2015 relate principally to the Company’s endoscope reprocessing and water purification equipment. Warranty reserves are included in accrued expenses in the Condensed Consolidated Balance Sheets. |
Financing Arrangements
Financing Arrangements | 6 Months Ended |
Jan. 31, 2016 | |
Financing Arrangements | |
Financing Arrangements | Note 10. Financing Arrangements On March 4, 2014, we entered into a $250,000,000 Third Amended and Restated Credit Agreement (the “2014 Credit Agreement”). The 2014 Credit Agreement includes a five-year $250,000,000 senior secured revolving facility with sublimits of up to $100,000,000 for borrowings in foreign currencies, $30,000,000 for letters of credit and $10,000,000 for swing line loans (the “2014 Revolving Credit Facility”). Subject to the satisfaction of certain conditions precedent including the consent of the lenders, the Company may from time to time increase the 2014 Revolving Credit Facility by an aggregate amount not to exceed $100,000,000. The senior lenders include Bank of America N.A. (the lead bank and administrative agent), PNC Bank, National Association and Wells Fargo Bank, National Association. The 2014 Credit Agreement expires on March 4, 2019. Additionally, subject to certain restrictions and conditions (i) any of our domestic or foreign subsidiaries may become borrowers and (ii) borrowings may occur in multi-currencies. Furthermore, we incurred debt issuance costs of $1,318,000 relating to the 2014 Credit Agreement which was recorded in other assets along with the remaining unamortized debt issuance costs of $512,000 relating to our former revolving credit facility. The total of these two amounts is being amortized over the life of the 2014 Credit Agreement. At January 31, 2016, unamortized debt issuance costs recorded in other assets amounted to $1,129,000. Borrowings under the 2014 Credit Agreement bear interest at rates ranging from 0.25% to 1.25% above the lender’s base rate, or at rates ranging from 1.25% to 2.25% above the London Interbank Offered Rate (“LIBOR”), depending upon the Company’s “Consolidated Leverage Ratio,” which is defined as the consolidated ratio of total funded debt to earnings before interest, taxes, depreciation and amortization, and as further adjusted under the terms of the 2014 Credit Agreement (“Consolidated EBITDA”). At January 31, 2016, the lender’s base rate was 3.50% and the LIBOR rates ranged from 0.42% to 0.90%. The margins applicable to our outstanding borrowings were 0.50% above the lender’s base rate or 1.50% above LIBOR. All of our outstanding borrowings were under LIBOR contracts at January 31, 2016. The 2014 Credit Agreement also provides for fees on the unused portion of our facility at rates ranging from 0.20% to 0.40%, depending upon our Consolidated Leverage Ratio; such rate was 0.25% at January 31, 2016. The 2014 Credit Agreement contains affirmative and negative covenants reasonably customary for similar credit facilities and is secured by (i) substantially all assets of Cantel and its United States-based subsidiaries, (ii) a pledge by Cantel of all of the outstanding shares of its United States-based subsidiaries and 65% of the outstanding shares of certain of Cantel’s foreign-based subsidiaries and (iii) a guaranty by Cantel’s domestic subsidiaries. We are in compliance with all financial and other covenants under the 2014 Credit Agreement. On January 31, 2016, we had $133,500,000 of outstanding borrowings under the 2014 Credit Agreement. Subsequent to January 31, 2016, we borrowed $13,500,000 for the NAMSA Acquisition and repaid $8,000,000 resulting in total outstanding borrowings of $139,000,000 at March 10, 2016 , none of which is required to be repaid until March 2019. |
Earnings Per Common Share
Earnings Per Common Share | 6 Months Ended |
Jan. 31, 2016 | |
Earnings Per Common Share | |
Earnings Per Common Share | Note 11. Earnings Per Common Share Basic EPS is computed based upon the weighted average number of common shares outstanding during the year. Diluted EPS is computed based upon the weighted average number of common shares outstanding during the year plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the year. We include participating securities (unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents) in the computation of EPS pursuant to the two-class method. Our participating securities consist solely of unvested restricted stock awards, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. The following table sets forth the computation of basic and diluted EPS available to shareholders of common stock (excluding participating securities): Three Months Ended Six Months Ended January 31, January 31, 2016 2015 2016 2015 Numerator for basic and diluted earnings per share: Net income $ $ $ $ Less income allocated to participating securities ) ) ) ) Net income available to common shareholders $ $ $ $ Denominator for basic and diluted earnings per share, as adjusted for participating securities: Denominator for basic earnings per share - weighted average number of shares outstanding attributable to common stock Dilutive effect of stock options using the treasury stock method and the average market price for the year Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock Earnings per share attributable to common stock: Basic earnings per share $ $ $ $ Diluted earnings per share $ $ $ $ Stock options excluded from weighted average dilutive common shares outstanding because their inclusion would have been antidilutive — — — A reconciliation of weighted average number of shares and common stock equivalents attributable to common stock, as determined above, to the Company’s total weighted average number of shares and common stock equivalents, including participating securities, is set forth in the following table: Three Months Ended Six Months Ended January 31, January 31, 2016 2015 2016 2015 Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock Participating securities Total weighted average number of shares and common stock equivalents attributable to both common stock and participating securities |
Income Taxes
Income Taxes | 6 Months Ended |
Jan. 31, 2016 | |
Income Taxes | |
Income Taxes | Note 12. Income Taxes The consolidated effective tax rate was 36.3% and 38.3% for the six months ended January 31, 2016 and 2015, respectively. Almost all of our income before income taxes for both periods was generated from our United States operations, which had an overall effective tax rate of 36.3% and 36.4%, respectively. The decrease in the consolidated effective tax rate for the six months ended January 31, 2016, compared with the six months ended January 31, 2015, was principally due to less non-deductible acquisition related charges in the current year, the enactment of favorable tax legislation in the United States and internationally and improved operating results of our international operations, which are located in lower tax rate jurisdictions. A reconciliation of the consolidated effective income tax rate for the six months ended January 31, 2016 to the six months ended January 31, 2015 is as follows: Consolidated Effective Income Tax Rate January 31, 2015 % Differential attributable to: Acquisition related items, net -0.7 % New tax legislation -0.7 % International operations -0.4 % Other -0.2 % January 31, 2016 % We record liabilities for an unrecognized tax benefit when a tax benefit for an uncertain tax position is taken or expected to be taken on a tax return, but is not recognized in our Condensed Consolidated Financial Statements because it does not meet the more-likely-than-not recognition threshold that the uncertain tax position would be sustained upon examination by the applicable taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the tax authorities. Any adjustments upon resolution of income tax uncertainties are recognized in our results of operations. At January 31, 2016 and July 31, 2015, we do not have any uncertain tax positions in which a liability would be recorded. We concluded an audit by the Internal Revenue Service for fiscal years 2013 and 2012. With respect to state or foreign income tax examinations, we are generally no longer subject to examinations for fiscal years ended prior to July 31, 2007. Upon recording a liability relating to uncertain tax positions, our policy is to record potential interest and penalties related to income tax positions in interest expense and general and administrative expense, respectively, in our Condensed Consolidated Financial Statements. However, such amounts have historically been insignificant due to the minimal amount of our unrecognized tax benefits relating to uncertain tax positions. |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Jan. 31, 2016 | |
Commitments and Contingencies | |
Commitments and Contingencies | Note 13. Commitments and Contingencies Long-Term Contractual Obligations As of January 31, 2016, aggregate annual required payments over the remaining fiscal year, the next four years and thereafter under our contractual obligations that have long-term components are as follows: Six Months Year Ending July 31, Ending July 31, (Amounts in thousands) 2016 2017 2018 2019 2020 Thereafter Total Maturity of the credit facility $ — $ — $ — $ $ — $ — $ Expected interest payments under the credit facility (1) — — Minimum commitments under noncancelable operating leases Compensation agreements Contingent consideration (2) — — — Assumed contingent liability (3) Contingent guaranteed obligation (4) — — Other long-term obligations Total contractual obligations $ $ $ $ $ $ $ (1) The expected interest payments under our credit facility reflect an interest rate of 2.08%, which was our weighted average interest rate on outstanding borrowings at January 31, 2016. (2) These future potential payments of contingent consideration relate to the Jet Prep Acquisition, as further explained below, and are reflected in the January 31, 2016 Condensed Consolidated Balance Sheet at its net present value of $143,000 using a discount rate of 12.6%. (3) These future potential payments of an assumed contingent liability relate to the Jet Prep Acquisition, as further explained below, and are reflected in the January 31, 2016 Condensed Consolidated Balance Sheet at its net present value of $1,138,000 using a discount rate of 2.5%. (4) These future potential payments of a contingent guaranteed obligation relate to Cantel Medical (UK), as further explained below, and are reflected in the January 31, 2016 Condensed Consolidated Balance Sheet at its net present value of $637,000 using a discount rate of 10.1%. Operating Leases Minimum commitments under operating leases include minimum rental commitments for our leased manufacturing facilities, warehouses, office space and equipment. Contingent Consideration and Assumed Contingent Liability In relation to the acquisition of Jet Prep, we have recorded at January 31, 2016 a $143,000 liability for the estimated fair value of contingent consideration payable to the sellers and a $1,138,000 liability for the estimated fair value of an assumed contingent obligation payable to the Israeli Government, as further described in Note 7 to the Condensed Consolidated Financial Statements, which will be payable based on future sales of Jet Prep’s business (above a minimum threshold with respect to the contingent consideration liability). Additionally, i n connection with Cantel Medical (UK), we assumed a contingent guaranteed obligation to reimburse an endoscope service company for endoscope repair costs it incurs when servicing its customers’ endoscopes that are damaged by one of Cantel Medical (UK)’s discontinued endoscope reprocessing machine models, which has an estimated fair value of $637,000 at January 31, 2016, as further described in Note 7 to the Condensed Consolidated Financial Statements. As such, the estimates of the annual required payments, as well as the fair value of these contingent liabilities are subjective in nature and highly dependent on future sales projections. Additionally, since we will be continually re-measuring these liabilities at each balance sheet date and recording changes in the respective fair values through our Condensed Consolidated Statements of Income, we may potentially have earnings volatility in our future results of operations until the completion of the seven year period with respect to the contingent consideration liability and until the assumed contingent obligation and contingent guaranteed obligation are satisfied, or until the sales of the Jet Prep products no longer exist. Compensation Agreements We have previously entered into various severance contracts with executives of the Company, including our Corporate executive officers and our subsidiary Chief Executive Officers, which define certain compensation arrangements relating to various employment termination scenarios. Additionally, we have previously entered into multi-year employment agreements with certain executive officers of businesses we have acquired. Other Long-Term Obligations In relation to the IMS Acquisition on November 3, 2014, we assumed an $843,000 liability to the Bank of Italy as part of funding provided by an Italian government agency, of which $187,000 and $656,000 were recorded in accrued expenses and other long-term liabilities, respectively. Such amount was a portion of the financial support obtained from the Italian government’s Ministry of Education, Universities and Research to fund research and development activity relating to IMS’s automated endoscope reprocessors. The liability is payable in semi-annual installments, bears interest at 0.25% per annum and has a maturity date of January 1, 2019. At January 31, 2016, $479,000 is outstanding, of which $159,000 is recorded in accrued expense and $320,000 is recorded in other long-term liabilities. Additionally, other long-term obligations include deferred compensation arrangements for certain former Medivators directors and officers and is recorded in other long-term liabilities. |
Accumulated Other Comprehensive
Accumulated Other Comprehensive (Loss) Income | 6 Months Ended |
Jan. 31, 2016 | |
Accumulated Other Comprehensive (Loss) Income | |
Accumulated other comprehensive (loss) income | Note 14. Accumulated Other Comprehensive (Loss) Income The components and changes in accumulated other comprehensive (loss) income were as follows: Three Months Ended January 31, Six Months Ended January 31, 2016 2015 2016 2015 Foreign currency translation adjustments: Beginning balance $ $ $ $ Other comprehensive loss ) ) ) ) Ending balance $ ) $ $ ) $ |
Operating Segments
Operating Segments | 6 Months Ended |
Jan. 31, 2016 | |
Operating Segments | |
Operating Segments | Note 15. Operating Segments Cantel is a leading global company dedicated to delivering innovative infection prevention and control products and services for patients, caregivers, and other healthcare providers which improve outcomes, enhance safety and help save lives. Our products include specialized medical device reprocessing systems for endoscopy and renal dialysis, advanced water purification equipment, sterilants, disinfectants and cleaners, sterility assurance monitoring products for hospitals and dental clinics, disposable infection control products primarily for dental and GI endoscopy markets, dialysate concentrates and hollow fiber membrane filtration and separation products. Additionally, we provide technical service for our products. In accordance with FASB ASC Topic 280, “ Segment Reporting,” (“ASC 280”), we have determined our reportable business segments based upon an assessment of product types, organizational structure, customers and internally prepared financial statements. The primary factors used by us in analyzing segment performance are net sales and operating income. None of our customers accounted for 10% or more of our consolidated net sales for the six months ended January 31, 2016 and 2015. The Company’s segments are as follows: Endoscopy , which includes medical device reprocessing systems, disinfectants, detergents and other supplies used to high-level disinfect flexible endoscopes and disposable infection control products intended to reduce the challenges with proper cleaning and high-level disinfection of numerous reusable components used in GI endoscopy procedures. This segment recently commenced the sale of endoscope transport and storage systems, a comprehensive range of endoscopy consumable accessories, and OEM mobile medical carts. Additionally, this segment includes technical maintenance service on its products. Water Purification and Filtration , which includes water purification equipment and services, filtration and separation products and disinfectants, sterilization and decontamination products and services for the medical, pharmaceutical, biotech, beverage and commercial industrial markets. Two customers collectively accounted for approximately 43.2% of our Water Purification and Filtration segment net sales for the six months ended January 31, 2016. Healthcare Disposables , which includes single-use, infection prevention and control healthcare products including face masks, sterilization pouches, towels and bibs, tray covers, saliva ejectors, germicidal wipes, plastic cups and disinfectants, as well as a filter system for maintaining safe dental unit waterlines. This segment also manufactures and sells biological and chemical indicators for sterility assurance monitoring services in the acute-care, alternate-care and dental markets. Four customers collectively accounted for approximately 51.0% of our Healthcare Disposables segment net sales for the six months ended January 31, 2016. Dialysis , which includes medical device reprocessing systems, sterilants/disinfectants, dialysate concentrates and other supplies for renal dialysis. Additionally, this segment includes technical maintenance service on its products. Two customers accounted for approximately 42.9% of our Dialysis segment net sales for the six months ended January 31, 2016. Other, which included specialty packaging and thermal control products, as well as related compliance training, for the transport of infectious and biological specimens and thermally sensitive pharmaceutical, medical and other products. The Specialty Packaging operating segment, which comprised the Other reporting segment for financial reporting purposes, was divested on April 7, 2015 as further described in Note 16 to the Condensed Consolidated Financial Statements. The operating segments follow the same accounting policies used for our Condensed Consolidated Financial Statements as described in Note 2 to the 2015 Form 10-K. Information as to operating segments is summarized below: Three Months Ended Six Months Ended January 31, January 31, 2016 2015 2016 2015 Net sales: Endoscopy $ $ $ $ Water Purification and Filtration Healthcare Disposables Dialysis Other — — Total $ $ $ $ Operating income: Endoscopy $ $ $ $ Water Purification and Filtration Healthcare Disposables Dialysis Other — — General corporate expenses ) ) ) ) Income from operations Interest expense, net ) ) ) ) Income before income taxes $ $ $ $ |
Disposition of Business
Disposition of Business | 6 Months Ended |
Jan. 31, 2016 | |
Disposition of Business | |
Disposition of Business | Note 16. Disposition of Business In fiscal 2015, we conducted a strategic review of our Specialty Packaging business and evaluated its potential value in the marketplace relative to the business’s historic and expected returns and concluded that the business was not part of our core strategy and could return a higher value to stockholders by its divestiture. Accordingly, our Specialty Packaging business (reported in the Other reporting segment) was classified as held-for-sale within our Condensed Consolidated Balance Sheet beginning October 31, 2014. Since the operating results of the Specialty Packaging segment, as shown in Note 15 to the Condensed Consolidated Financial Statements, were not significant in relation to our overall consolidated operating results, the lack of operating results from this business due to its divestiture will not have a major effect on our operations and financial results, and accordingly, has not been classified as a discontinued operation for any of the periods presented. On April 7, 2015, we completed the sale of our Specialty Packaging business to a global packaging and service company by selling all the issued and outstanding stock of our Specialty Packaging subsidiary in exchange for $7,531,000 in cash proceeds, of which $660,000 is held in escrow for indemnity obligations, if any, until October 7, 2016 and is recorded in prepaid expenses and other current assets in our Condensed Consolidated Balance Sheet at January 31, 2016. Overall, this transaction, including costs associated with the disposition and the recognition of a foreign currency translation gain, resulted in a $2,206,000 loss, or $0.04 in diluted earnings per share, which was recorded in loss on sale of business in our Condensed Consolidated Statements of Income in our third quarter of fiscal 2015. Such amount is subject to further adjustments upon finalization of taxes or indemnity obligations, if any. |
Legal Proceedings
Legal Proceedings | 6 Months Ended |
Jan. 31, 2016 | |
Legal Proceedings | |
Legal Proceedings | Note 17. Legal Proceedings In the normal course of business, we are subject to pending and threatened legal actions. It is our policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount of anticipated exposure can be reasonably estimated. We do not believe that any of these pending claims or legal actions will have a material effect on our business, financial condition, results of operations or cash flows. |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 6 Months Ended |
Jan. 31, 2016 | |
Stock-Based Compensation | |
Schedule of the income statement components of stock-based compensation expense recognized in the Condensed Consolidated Statements of Income | Three Months Ended Six Months Ended January 31, January 31, 2016 2015 2016 2015 Cost of sales $ $ $ $ Operating expenses: Selling General and administrative Research and development Total operating expenses Stock-based compensation before income taxes Income tax benefits ) ) ) ) Total stock-based compensation expense, net of tax $ $ $ $ |
Summary of nonvested stock award activity | Weighted Number of Average Shares Fair Value Nonvested stock awards at July 31, 2015 $ Granted Canceled ) Vested ) Nonvested stock awards at January 31, 2016 $ |
Weighted-average assumptions used to estimate fair value of stock options granted using the Black-Scholes option valuation model | Weighted-Average Black-Scholes Option Six Months Ended Six Months Ended Valuation Assumptions January 31, 2016 January 31, 2015 Dividend yield % % Expected volatility (1) % % Risk-free interest rate (2) % % Expected lives (in years) (3) (1) Volatility was based on historical closing prices of our common stock. (2) The U.S. Treasury rate based on the expected life at the date of grant. (3) Based on historical exercise behavior. |
Summary of stock option activity | Weighted Number of Average Shares Exercise Price Outstanding at July 31, 2015 $ Granted Outstanding at January 31, 2016 $ Exercisable at July 31, 2015 $ Exercisable at January 31, 2016 $ |
Acquisitions (Tables)
Acquisitions (Tables) | 6 Months Ended |
Jan. 31, 2016 | |
Medical Innovations Group Holdings Limited | |
Acquisitions | |
Schedule of purchase price allocated to the assets acquired and assumed liabilities based on estimated fair values | Preliminary Net Assets Allocation Current assets $ Property, plant and equipment Amortizable intangible assets: Customer relationships (17 - year life) Technology (10 - year life) Brand names (12 - year life) Current liabilities ) Deferred income tax liabilities ) Net assets acquired $ |
DentaPure | |
Acquisitions | |
Schedule of purchase price allocated to the assets acquired and assumed liabilities based on estimated fair values | Final Net Assets Allocation Current assets $ Property, plant and equipment Amortizable intangible assets: Customer relationships (10- weighted average year life) Technology (10- year weighted average life) Brand names (10- year weighted average life) Current liabilities ) Deferred income tax liabilities ) Net assets acquired $ |
Pure Water Solutions, Inc. | |
Acquisitions | |
Schedule of purchase price allocated to the assets acquired and assumed liabilities based on estimated fair values | Final Net Assets Allocation Current assets $ Property, plant and equipment Amortizable intangible assets (12- year weighted average life): Customer relationships (12- year life) Brand names (1- year life) Other assets Current liabilities ) Net assets acquired $ |
International Medical Service S.r.l. | |
Acquisitions | |
Schedule of purchase price allocated to the assets acquired and assumed liabilities based on estimated fair values | Final Net Assets Allocation Current assets $ Property, plant and equipment Amortizable intangible assets (9- year weighted average life): Customer relationships (9- year life) Technology (9- year life) Other assets Current liabilities ) Deferred income tax liabilities ) Other long-term liabilities ) Net assets acquired $ |
Inventories, Net (Tables)
Inventories, Net (Tables) | 6 Months Ended |
Jan. 31, 2016 | |
Inventories | |
Summary of inventories | January 31, July 31, 2016 2015 Raw materials and parts $ $ Work-in-process Finished goods Reserve for excess and obsolete inventory ) ) Total $ $ |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 6 Months Ended |
Jan. 31, 2016 | |
Fair Value Measurements | |
Schedule of fair values of financial instruments measured on a recurring basis | January 31, 2016 Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents: Money markets $ $ — $ — $ Total assets $ $ — $ — $ Liabilities: Accrued expenses: Assumed contingent obligation $ — $ — $ $ Contingent guaranteed obligation — — Total accrued expenses — — Other long-term liabilities: Contingent consideration — — Assumed contingent obligation — — Contingent guaranteed obligation — — Total other long-term liabilities — — Total liabilities $ — $ — $ $ July 31, 2015 Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents: Money markets $ $ — $ — $ Total assets $ $ — $ — $ Liabilities: Accrued expenses: Assumed contingent obligation $ — $ — $ $ Contingent guaranteed obligation — — Total accrued expenses — — Other long-term liabilities: Contingent consideration — — Assumed contingent obligation — — Contingent guaranteed obligation — — Total other long-term liabilities — — Total liabilities $ — $ — $ $ |
Reconciliation of liabilities measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) | Jet Prep Cantel Medical (UK) Jet Prep Assumed Contingent Contingent Contingent Guaranteed Consideration Obligation Obligation Total Balance, July 31, 2014 $ $ $ $ Total net unrealized losses included in general and administrative expense in earnings Settlements — — ) ) Foreign currency translation — — ) ) Balance, October 31, 2014 Total net unrealized losses included in general and administrative expense in earnings Settlements — — ) ) Foreign currency translation — — ) ) Balance, January 31, 2015 Total net unrealized (gains) losses included in general and administrative expense in earnings ) ) ) Settlements — — ) ) Foreign currency translation — — Balance, April 30, 2015 Total net unrealized losses included in general and administrative expense in earnings Settlements — — ) ) Foreign currency translation — — Balance, July 31, 2015 Total net unrealized (gains) losses included in general and administrative expense in earnings ) — ) Settlements — — ) ) Foreign currency translation — — ) ) Balance, October 31, 2015 Total net unrealized (gains) losses included in general and administrative expense in earnings — Settlements — — ) ) Foreign currency translation — — ) ) Balance, January 31, 2016 $ $ $ $ |
Intangible Assets and Goodwill
Intangible Assets and Goodwill (Tables) | 6 Months Ended |
Jan. 31, 2016 | |
Intangible Assets and Goodwill | |
Schedule of intangible assets | January 31, 2016 Accumulated Gross Amortization Net Intangible assets with finite lives: Customer relationships $ $ ) $ Technology ) Brand names ) Non-compete agreements ) Patents and other registrations ) ) Trademarks and tradenames — Total intangible assets $ $ ) $ July 31, 2015 Accumulated Gross Amortization Net Intangible assets with finite lives: Customer relationships $ $ ) $ Technology ) Brand names ) Non-compete agreements ) Patents and other registrations ) ) Trademarks and tradenames — Total intangible assets $ $ ) $ |
Schedule of estimated amortization expense of intangible assets for the remainder for fiscal 2016 and the next five years | Six month period ending July 31, 2016 $ 2017 2018 2019 2020 2021 |
Schedule of changes in goodwill | Water Purification Healthcare Total Endoscopy and Filtration Disposables Dialysis Other Goodwill Balance, July 31, 2014 $ $ $ $ $ $ Acquisitions — — Foreign currency translation ) ) — — ) ) Sale of business — — — — ) ) Balance, July 31, 2015 — Acquisitions — — — Foreign currency translation ) ) — — — ) Balance, January 31, 2016 $ $ $ $ $ — $ |
Warranties (Tables)
Warranties (Tables) | 6 Months Ended |
Jan. 31, 2016 | |
Warranties | |
Summary of activity in warranty reserves | Three Months Ended Six Months Ended January 31, January 31, 2016 2015 2016 2015 Beginning balance $ $ $ $ Acquisitions — Provisions Settlements ) ) ) ) Foreign currency translation ) ) ) ) Ending balance $ $ $ $ |
Earnings Per Common Share (Tabl
Earnings Per Common Share (Tables) | 6 Months Ended |
Jan. 31, 2016 | |
Earnings Per Common Share | |
Schedule of computation of basic and diluted EPS available to stockholders of common stock (excluding participating securities) | Three Months Ended Six Months Ended January 31, January 31, 2016 2015 2016 2015 Numerator for basic and diluted earnings per share: Net income $ $ $ $ Less income allocated to participating securities ) ) ) ) Net income available to common shareholders $ $ $ $ Denominator for basic and diluted earnings per share, as adjusted for participating securities: Denominator for basic earnings per share - weighted average number of shares outstanding attributable to common stock Dilutive effect of stock options using the treasury stock method and the average market price for the year Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock Earnings per share attributable to common stock: Basic earnings per share $ $ $ $ Diluted earnings per share $ $ $ $ Stock options excluded from weighted average dilutive common shares outstanding because their inclusion would have been antidilutive — — — |
Schedule of reconciliation of weighted average number of shares and common stock equivalents attributable to common stock to the Company's total weighted average number of shares and common stock equivalents including participating securities | Three Months Ended Six Months Ended January 31, January 31, 2016 2015 2016 2015 Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock Participating securities Total weighted average number of shares and common stock equivalents attributable to both common stock and participating securities |
Income Taxes (Tables)
Income Taxes (Tables) | 6 Months Ended |
Jan. 31, 2016 | |
Income Taxes | |
Reconciliation of consolidated effective income tax rate | Consolidated Effective Income Tax Rate January 31, 2015 % Differential attributable to: Acquisition related items, net -0.7 % New tax legislation -0.7 % International operations -0.4 % Other -0.2 % January 31, 2016 % |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 6 Months Ended |
Jan. 31, 2016 | |
Commitments and Contingencies | |
Schedule of aggregate annual required payments over the remaining fiscal year, the next four years and thereafter under contractual obligations that have long-term components | Six Months Year Ending July 31, Ending July 31, (Amounts in thousands) 2016 2017 2018 2019 2020 Thereafter Total Maturity of the credit facility $ — $ — $ — $ $ — $ — $ Expected interest payments under the credit facility (1) — — Minimum commitments under noncancelable operating leases Compensation agreements Contingent consideration (2) — — — Assumed contingent liability (3) Contingent guaranteed obligation (4) — — Other long-term obligations Total contractual obligations $ $ $ $ $ $ $ (1) The expected interest payments under our credit facility reflect an interest rate of 2.08%, which was our weighted average interest rate on outstanding borrowings at January 31, 2016. (2) These future potential payments of contingent consideration relate to the Jet Prep Acquisition, as further explained below, and are reflected in the January 31, 2016 Condensed Consolidated Balance Sheet at its net present value of $143,000 using a discount rate of 12.6%. (3) These future potential payments of an assumed contingent liability relate to the Jet Prep Acquisition, as further explained below, and are reflected in the January 31, 2016 Condensed Consolidated Balance Sheet at its net present value of $1,138,000 using a discount rate of 2.5%. (4) These future potential payments of a contingent guaranteed obligation relate to Cantel Medical (UK), as further explained below, and are reflected in the January 31, 2016 Condensed Consolidated Balance Sheet at its net present value of $637,000 using a discount rate of 10.1%. |
Accumulated Other Comprehensi33
Accumulated Other Comprehensive (Loss) Income (Tables) | 6 Months Ended |
Jan. 31, 2016 | |
Accumulated Other Comprehensive (Loss) Income | |
Schedule of the components and changes in accumulated other comprehensive (loss) income | Three Months Ended January 31, Six Months Ended January 31, 2016 2015 2016 2015 Foreign currency translation adjustments: Beginning balance $ $ $ $ Other comprehensive loss ) ) ) ) Ending balance $ ) $ $ ) $ |
Operating Segments (Tables)
Operating Segments (Tables) | 6 Months Ended |
Jan. 31, 2016 | |
Operating Segments | |
Information as to operating segments | Three Months Ended Six Months Ended January 31, January 31, 2016 2015 2016 2015 Net sales: Endoscopy $ $ $ $ Water Purification and Filtration Healthcare Disposables Dialysis Other — — Total $ $ $ $ Operating income: Endoscopy $ $ $ $ Water Purification and Filtration Healthcare Disposables Dialysis Other — — General corporate expenses ) ) ) ) Income from operations Interest expense, net ) ) ) ) Income before income taxes $ $ $ $ |
Basis of Presentation (Details)
Basis of Presentation (Details) | 6 Months Ended |
Jan. 31, 2016segment | |
Basis of Presentation | |
Number of operating segments | 4 |
Stock-Based Compensation - Expe
Stock-Based Compensation - Expense (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jan. 31, 2016 | Jan. 31, 2015 | Jan. 31, 2016 | Jan. 31, 2015 | |
Income statement components of stock-based compensation expense recognized in Consolidated Statements of Income | ||||
Stock-based compensation before income taxes | $ 1,875,000 | $ 1,420,000 | $ 3,595,000 | $ 3,001,000 |
Income tax benefits | (661,000) | (507,000) | (1,274,000) | (1,046,000) |
Total stock-based compensation expense, net of tax | 1,214,000 | 913,000 | 2,321,000 | 1,955,000 |
Cost of sales | ||||
Income statement components of stock-based compensation expense recognized in Consolidated Statements of Income | ||||
Stock-based compensation before income taxes | 121,000 | 63,000 | 200,000 | 162,000 |
Operating expenses: Selling | ||||
Income statement components of stock-based compensation expense recognized in Consolidated Statements of Income | ||||
Stock-based compensation before income taxes | 248,000 | 120,000 | 438,000 | 306,000 |
Operating expenses: General and administrative | ||||
Income statement components of stock-based compensation expense recognized in Consolidated Statements of Income | ||||
Stock-based compensation before income taxes | 1,478,000 | 1,223,000 | 2,903,000 | 2,502,000 |
Operating expenses: Research and development | ||||
Income statement components of stock-based compensation expense recognized in Consolidated Statements of Income | ||||
Stock-based compensation before income taxes | 28,000 | 14,000 | 54,000 | 31,000 |
Total operating expenses | ||||
Income statement components of stock-based compensation expense recognized in Consolidated Statements of Income | ||||
Stock-based compensation before income taxes | $ 1,754,000 | $ 1,357,000 | $ 3,395,000 | $ 2,839,000 |
Stock-Based Compensation - Acti
Stock-Based Compensation - Activity (Details) - USD ($) | Jan. 31, 2016 | Jan. 31, 2016 | Jan. 31, 2016 | Jan. 31, 2015 | Jul. 31, 2015 |
Stock-Based Compensation | |||||
Total unrecognized stock-based compensation expense, before income taxes, related to total nonvested stock options and stock awards (in dollars) | $ 20,138,000 | $ 20,138,000 | $ 20,138,000 | ||
Remaining weighted average period over which unrecognized stock-based compensation expense is expected to be recognized | 23 months | ||||
Stock-based awards, additional disclosure | |||||
Deduction in income tax due to exercise of options and vesting of restricted stock (in dollars) | $ 3,169,000 | $ 4,271,000 | |||
Increase in additional paid-in capital due to excess tax benefit on stock-based compensation expense (in dollars) | $ 1,541,000 | $ 2,463,000 | |||
2006 Plan | |||||
Stock-based awards, additional disclosure | |||||
Shares available for grant | 0 | 0 | 0 | ||
2016 Plan | |||||
Stock-based awards, additional disclosure | |||||
Maximum number of shares authorized for issuance | 1,200,000 | 1,200,000 | 1,200,000 | ||
Awards Granted (in shares) | 0 | ||||
Percentage of awards that vest on each of the first three anniversaries of grant date subject to active employment | 33.30% | ||||
Restricted shares | |||||
Number of Shares | |||||
Nonvested stock awards at the beginning of the period (in shares) | 343,519 | ||||
Granted (in shares) | 162,265 | ||||
Cancelled (in shares) | (1,823) | ||||
Vested (in shares) | (163,297) | ||||
Nonvested stock awards at the end of the period (in shares) | 340,664 | 340,664 | 340,664 | ||
Weighted Average Fair Value | |||||
Nonvested stock awards at the beginning of the period (in dollars per share) | $ 32.77 | ||||
Granted (in dollars per share) | 54.25 | ||||
Cancelled (in dollars per share) | 37.57 | ||||
Vested (in dollars per share) | 27.99 | ||||
Nonvested stock awards at the end of the period (in dollars per share) | $ 45.27 | $ 45.27 | $ 45.27 | ||
Stock options | |||||
Weighted-Average Black-Scholes Option Valuation Assumptions | |||||
Dividend yield (as a percent) | 0.22% | 0.25% | |||
Expected volatility (as a percent) | 55.90% | 33.90% | |||
Risk-free interest rate (as a percent) | 1.41% | 1.55% | |||
Expected lives | 5 years | 5 years | |||
Stock options, additional disclosure | |||||
Weighted average fair value of all options granted (in dollars per share) | $ 26.49 | $ 11.54 | |||
Aggregate intrinsic value of all options exercised (in dollars) | $ 0 | $ 0 | $ 2,420,000 | ||
Number of Shares | |||||
Outstanding at the beginning of the period (in shares) | 107,500 | ||||
Granted (in shares) | 15,000 | ||||
Outstanding at the end of the period (in shares) | 122,500 | 122,500 | 122,500 | ||
Exercisable at the end of the period (in shares) | 80,834 | 80,834 | 80,834 | 45,000 | |
Weighted Average Exercise Price | |||||
Outstanding at the beginning of the period (in dollars per share) | $ 25.73 | ||||
Granted (in dollars per share) | 55.36 | ||||
Outstanding at the end of the period (in dollars per share) | $ 29.36 | $ 29.36 | 29.36 | ||
Exercisable at the end of the period (in dollars per share) | $ 22.72 | $ 22.72 | $ 22.72 | $ 20.32 |
Acquisitions - Fiscal 2016 (Det
Acquisitions - Fiscal 2016 (Details) | Mar. 01, 2016USD ($) | Sep. 14, 2015USD ($)employeeproject | Jan. 31, 2016USD ($) | Jul. 31, 2015USD ($) | Jul. 31, 2014USD ($) |
Net Assets | |||||
Goodwill | $ 277,847,000 | $ 241,951,000 | $ 231,647,000 | ||
North American Science Associates Inc | Subsequent Events | |||||
Net Assets | |||||
Pre-acquisition annual revenues | $ 5,700,000 | ||||
Total consideration for the transaction, excluding acquisition-related costs | $ 13,520,000 | ||||
Medical Innovations Group Holdings Limited | |||||
Net Assets | |||||
Current assets | $ 7,990,000 | ||||
Property, plant and equipment | 6,464,000 | ||||
Current liabilities | (2,730,000) | ||||
Deferred income tax liabilities | (8,530,000) | ||||
Net assets acquired | $ 40,583,000 | ||||
Number of in-process research and development projects acquired | project | 0 | ||||
Goodwill | $ 38,973,000 | ||||
Goodwill deductible for income tax purposes | 0 | ||||
Pre-acquisition annual revenues | $ 28,500,000 | ||||
Number of individuals in employee base | employee | 100 | ||||
Total consideration for the transaction, excluding acquisition-related costs | $ 79,556,000 | ||||
Estimated net asset value adjustment | 254,000 | ||||
Medical Innovations Group Holdings Limited | Customer relationships | |||||
Net Assets | |||||
Amortizable intangible assets | $ 24,430,000 | ||||
Amortizable intangible assets, useful life | 17 years | ||||
Medical Innovations Group Holdings Limited | Technology | |||||
Net Assets | |||||
Amortizable intangible assets | $ 10,930,000 | ||||
Amortizable intangible assets, useful life | 10 years | ||||
Medical Innovations Group Holdings Limited | Brand names | |||||
Net Assets | |||||
Amortizable intangible assets | $ 2,029,000 | ||||
Amortizable intangible assets, useful life | 12 years |
Acquisitions - DentaPure (Detai
Acquisitions - DentaPure (Details) | Feb. 20, 2015USD ($)project | Jan. 31, 2016USD ($) | Jul. 31, 2015USD ($) | Jul. 31, 2014USD ($) |
Net Assets | ||||
Goodwill | $ 277,847,000 | $ 241,951,000 | $ 231,647,000 | |
DentaPure | ||||
Acquisitions | ||||
Pre-acquisition annual revenues | $ 2,300,000 | |||
Total consideration for the transaction, excluding acquisition-related costs | 9,980,000 | |||
Net Assets | ||||
Current assets | 566,000 | |||
Property, plant and equipment | 50,000 | |||
Current liabilities | (248,000) | |||
Deferred income tax liabilities | (2,172,000) | |||
Net assets acquired | $ 3,876,000 | |||
Number of in-process research and development projects acquired | project | 0 | |||
Goodwill | $ 6,104,000 | |||
Goodwill deductible for income tax purposes | 0 | |||
DentaPure | Customer relationships | ||||
Net Assets | ||||
Amortizable intangible assets | $ 4,640,000 | |||
Amortizable intangible assets, useful life | 10 years | |||
DentaPure | Technology | ||||
Net Assets | ||||
Amortizable intangible assets | $ 780,000 | |||
Amortizable intangible assets, useful life | 10 years | |||
DentaPure | Brand names | ||||
Net Assets | ||||
Amortizable intangible assets | $ 260,000 | |||
Amortizable intangible assets, useful life | 10 years |
Acquisitions - Pure Water Solut
Acquisitions - Pure Water Solutions (Details) | Jan. 01, 2015USD ($)project | Jan. 31, 2016USD ($) | Jul. 31, 2015USD ($) | Jul. 31, 2014USD ($) |
Net Assets | ||||
Goodwill | $ 277,847,000 | $ 241,951,000 | $ 231,647,000 | |
Pure Water Solutions, Inc. | ||||
Acquisitions | ||||
Pre-acquisition annual revenues | $ 8,000,000 | |||
Total consideration for the transaction, excluding acquisition-related costs | 11,835,000 | |||
Net Assets | ||||
Current assets | 1,417,000 | |||
Property, plant and equipment | 1,966,000 | |||
Other assets | 20,000 | |||
Current liabilities | (503,000) | |||
Net assets acquired | $ 8,870,000 | |||
Amortizable intangible assets, useful life | 12 years | |||
Number of in-process research and development projects acquired | project | 0 | |||
Goodwill | $ 2,965,000 | |||
Goodwill deductible for income tax purposes | 2,965,000 | |||
Pure Water Solutions, Inc. | Customer relationships | ||||
Net Assets | ||||
Amortizable intangible assets | $ 5,940,000 | |||
Amortizable intangible assets, useful life | 12 years | |||
Pure Water Solutions, Inc. | Brand names | ||||
Net Assets | ||||
Amortizable intangible assets | $ 30,000 | |||
Amortizable intangible assets, useful life | 1 year |
Acquisitions - International Me
Acquisitions - International Medical Service (Details) | Nov. 03, 2014USD ($)project | Jan. 31, 2016USD ($) | Jul. 31, 2015USD ($) | Jul. 31, 2014USD ($) |
Net Assets | ||||
Goodwill | $ 277,847,000 | $ 241,951,000 | $ 231,647,000 | |
International Medical Service S.r.l. | ||||
Acquisitions | ||||
Pre-acquisition annual revenues | $ 13,500,000 | |||
Total consideration for the transaction, excluding acquisition-related costs | 24,610,000 | |||
Amount of assumed debt | 2,498,000 | |||
Net Assets | ||||
Current assets | 8,111,000 | |||
Property, plant and equipment | 7,922,000 | |||
Other assets | 177,000 | |||
Current liabilities | (5,735,000) | |||
Deferred income tax liabilities | (3,028,000) | |||
Other long-term liabilities | (1,020,000) | |||
Net assets acquired | $ 13,477,000 | |||
Amortizable intangible assets, useful life | 9 years | |||
Number of in-process research and development projects acquired | project | 0 | |||
Goodwill | $ 11,133,000 | |||
Goodwill deductible for income tax purposes | 0 | |||
International Medical Service S.r.l. | Customer relationships | ||||
Net Assets | ||||
Amortizable intangible assets | $ 5,669,000 | |||
Amortizable intangible assets, useful life | 9 years | |||
International Medical Service S.r.l. | Technology | ||||
Net Assets | ||||
Amortizable intangible assets | $ 1,381,000 | |||
Amortizable intangible assets, useful life | 9 years |
Inventories, Net (Details)
Inventories, Net (Details) - USD ($) | Jan. 31, 2016 | Jul. 31, 2015 |
Inventories | ||
Raw materials and parts | $ 40,369,000 | $ 36,585,000 |
Work-in-process | 11,188,000 | 10,017,000 |
Finished goods | 32,115,000 | 29,371,000 |
Reserve for excess and obsolete inventory | (4,243,000) | (3,895,000) |
Total inventories | $ 79,429,000 | $ 72,078,000 |
Derivatives (Details)
Derivatives (Details) - Foreign currency forward contracts - Designated as hedging instrument - Fair value hedge instruments | 3 Months Ended | 6 Months Ended | ||
Jan. 31, 2016USD ($)contract | Jan. 31, 2015USD ($) | Jan. 31, 2016USD ($)contract | Jan. 31, 2015USD ($) | |
Derivatives | ||||
Term of contracts | 1 month | |||
Number of contracts | contract | 5 | 5 | ||
Aggregate value of contracts | $ 12,783,000 | $ 12,783,000 | ||
Term of renewed contracts | 1 month | |||
Net currency conversion gains (losses), net of tax | $ (214,000) | $ 15,000 | $ (306,000) | $ (49,000) |
Fair Value Measurements - Recur
Fair Value Measurements - Recurring Basis (Details) - USD ($) | Jun. 30, 2014 | Nov. 05, 2013 | Jan. 31, 2016 |
Jet Prep Ltd. | |||
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis | |||
Contingent consideration | $ 143,000 | ||
Assumed contingent obligation | 1,138,000 | ||
Contingent consideration period | 7 years | ||
Level 3 | Jet Prep Ltd. | Minimum | |||
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis | |||
Assumed contingent obligation | $ 810,000 | ||
Level 3 | Recurring basis | Jet Prep Ltd. | |||
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis | |||
Contingent consideration | 2,490,000 | 143,000 | |
Assumed contingent obligation | $ 1,720,000 | 1,138,000 | |
Contingent consideration period | 7 years | ||
Level 3 | Recurring basis | Jet Prep Ltd. | Contingent Consideration | |||
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis | |||
Discount rate of cash flow projections (as a percent) | 12.60% | ||
Total potential contingent consideration payments, low end of range | 0 | ||
Total potential contingent consideration payments, high end of range | $ 452,000 | ||
Level 3 | Recurring basis | Jet Prep Ltd. | Assumed contingent liability | |||
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis | |||
Discount rate of cash flow projections (as a percent) | 2.50% | ||
Level 3 | Recurring basis | Cantel Medical UK | |||
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis | |||
Contingent guaranteed obligation | $ 1,414,000 | ||
Discount rate of cash flow projections (as a percent) | 10.10% |
Fair Value Measurements - Hiera
Fair Value Measurements - Hierarchy Levels (Details) - Recurring basis - USD ($) | Jan. 31, 2016 | Jul. 31, 2015 |
Assets: | ||
Total assets | $ 880,000 | $ 1,680,000 |
Liabilities: | ||
Total liabilities | 1,918,000 | 2,777,000 |
Accrued expenses | ||
Liabilities: | ||
Assumed contingent obligation | 12,000 | 12,000 |
Contingent guaranteed obligation | 461,000 | 566,000 |
Total accrued expenses | 473,000 | 578,000 |
Other long-term liabilities | ||
Liabilities: | ||
Contingent consideration | 143,000 | 751,000 |
Assumed contingent obligation | 1,126,000 | 1,126,000 |
Contingent guaranteed obligation | 176,000 | 322,000 |
Total other long-term liabilities | 1,445,000 | 2,199,000 |
Money markets | Cash and cash equivalents | ||
Assets: | ||
Money markets | 880,000 | 1,680,000 |
Level 1 | ||
Assets: | ||
Total assets | 880,000 | 1,680,000 |
Level 1 | Money markets | Cash and cash equivalents | ||
Assets: | ||
Money markets | 880,000 | 1,680,000 |
Level 3 | ||
Liabilities: | ||
Total liabilities | 1,918,000 | 2,777,000 |
Level 3 | Accrued expenses | ||
Liabilities: | ||
Assumed contingent obligation | 12,000 | 12,000 |
Contingent guaranteed obligation | 461,000 | 566,000 |
Total accrued expenses | 473,000 | 578,000 |
Level 3 | Other long-term liabilities | ||
Liabilities: | ||
Contingent consideration | 143,000 | 751,000 |
Assumed contingent obligation | 1,126,000 | 1,126,000 |
Contingent guaranteed obligation | 176,000 | 322,000 |
Total other long-term liabilities | $ 1,445,000 | $ 2,199,000 |
Fair Value Measurements - Level
Fair Value Measurements - Level 3 Liabilities (Details) - USD ($) | 3 Months Ended | |||||
Jan. 31, 2016 | Oct. 31, 2015 | Jul. 31, 2015 | Apr. 30, 2015 | Jan. 31, 2015 | Oct. 31, 2014 | |
Reconciliation of liability measured and recorded at fair value on a recurring basis using Level 3 | ||||||
Beginning balance | $ 2,050,000 | $ 2,777,000 | $ 2,774,000 | $ 5,701,000 | $ 5,807,000 | $ 5,869,000 |
Total net unrealized (gains) losses included in general and administrative expense in earnings | 21,000 | (592,000) | 52,000 | (2,790,000) | 127,000 | 147,000 |
Settlements | (100,000) | (120,000) | (109,000) | (161,000) | (164,000) | (132,000) |
Foreign currency translation | (53,000) | (15,000) | 60,000 | 24,000 | (69,000) | (77,000) |
Ending balance | 1,918,000 | 2,050,000 | 2,777,000 | 2,774,000 | 5,701,000 | 5,807,000 |
Contingent Consideration | Jet Prep Ltd. | ||||||
Reconciliation of liability measured and recorded at fair value on a recurring basis using Level 3 | ||||||
Beginning balance | 139,000 | 751,000 | 729,000 | 2,888,000 | 2,804,000 | 2,722,000 |
Total net unrealized (gains) losses included in general and administrative expense in earnings | 4,000 | (612,000) | 22,000 | (2,159,000) | 84,000 | 82,000 |
Ending balance | 143,000 | 139,000 | 751,000 | 729,000 | 2,888,000 | 2,804,000 |
Assumed contingent liability | Jet Prep Ltd. | ||||||
Reconciliation of liability measured and recorded at fair value on a recurring basis using Level 3 | ||||||
Beginning balance | 1,138,000 | 1,138,000 | 1,131,000 | 1,773,000 | 1,763,000 | 1,752,000 |
Total net unrealized (gains) losses included in general and administrative expense in earnings | 7,000 | (642,000) | 10,000 | 11,000 | ||
Ending balance | 1,138,000 | 1,138,000 | 1,138,000 | 1,131,000 | 1,773,000 | 1,763,000 |
Contingent guaranteed obligation | Cantel Medical UK | ||||||
Reconciliation of liability measured and recorded at fair value on a recurring basis using Level 3 | ||||||
Beginning balance | 773,000 | 888,000 | 914,000 | 1,040,000 | 1,240,000 | 1,395,000 |
Total net unrealized (gains) losses included in general and administrative expense in earnings | 17,000 | 20,000 | 23,000 | 11,000 | 33,000 | 54,000 |
Settlements | (100,000) | (120,000) | (109,000) | (161,000) | (164,000) | (132,000) |
Foreign currency translation | (53,000) | (15,000) | 60,000 | 24,000 | (69,000) | (77,000) |
Ending balance | $ 637,000 | $ 773,000 | $ 888,000 | $ 914,000 | $ 1,040,000 | $ 1,240,000 |
Intangible Assets and Goodwil47
Intangible Assets and Goodwill - Intangible Assets Summary (Details) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Jan. 31, 2016 | Jan. 31, 2015 | Jan. 31, 2016 | Jan. 31, 2015 | Jul. 31, 2015 | |
Intangible assets with finite lives: | |||||
Amortization expense | $ 3,297,000 | $ 3,232,000 | $ 6,391,000 | $ 6,188,000 | |
Gross | 146,112,000 | 146,112,000 | $ 142,539,000 | ||
Accumulated Amortization | (39,763,000) | (39,763,000) | (64,855,000) | ||
Net | 106,349,000 | 106,349,000 | 77,684,000 | ||
Intangible assets with indefinite lives: | |||||
Trademarks and tradenames | 7,456,000 | 7,456,000 | 8,152,000 | ||
Total intangible assets | |||||
Gross | 153,568,000 | 153,568,000 | 150,691,000 | ||
Accumulated Amortization | (39,763,000) | (39,763,000) | (64,855,000) | ||
Net | 113,805,000 | $ 113,805,000 | 85,836,000 | ||
Minimum | |||||
Intangible assets with finite lives: | |||||
Estimated useful lives | 3 years | ||||
Maximum | |||||
Intangible assets with finite lives: | |||||
Estimated useful lives | 20 years | ||||
Weighted average | |||||
Intangible assets with finite lives: | |||||
Estimated useful lives | 12 years | ||||
Customer relationships | |||||
Intangible assets with finite lives: | |||||
Gross | 101,519,000 | $ 101,519,000 | 97,697,000 | ||
Accumulated Amortization | (25,371,000) | (25,371,000) | (39,549,000) | ||
Net | 76,148,000 | 76,148,000 | 58,148,000 | ||
Total intangible assets | |||||
Accumulated Amortization | (25,371,000) | (25,371,000) | (39,549,000) | ||
Technology | |||||
Intangible assets with finite lives: | |||||
Gross | 32,408,000 | 32,408,000 | 26,508,000 | ||
Accumulated Amortization | (10,014,000) | (10,014,000) | (12,656,000) | ||
Net | 22,394,000 | 22,394,000 | 13,852,000 | ||
Total intangible assets | |||||
Accumulated Amortization | (10,014,000) | (10,014,000) | (12,656,000) | ||
Brand names | |||||
Intangible assets with finite lives: | |||||
Gross | 6,739,000 | 6,739,000 | 12,970,000 | ||
Accumulated Amortization | (2,457,000) | (2,457,000) | (10,865,000) | ||
Net | 4,282,000 | 4,282,000 | 2,105,000 | ||
Total intangible assets | |||||
Accumulated Amortization | (2,457,000) | (2,457,000) | (10,865,000) | ||
Non-compete agreements | |||||
Intangible assets with finite lives: | |||||
Gross | 3,091,000 | 3,091,000 | 3,129,000 | ||
Accumulated Amortization | (1,076,000) | (1,076,000) | (997,000) | ||
Net | 2,015,000 | 2,015,000 | 2,132,000 | ||
Total intangible assets | |||||
Accumulated Amortization | (1,076,000) | (1,076,000) | (997,000) | ||
Patents and other registrations | |||||
Intangible assets with finite lives: | |||||
Gross | 2,355,000 | 2,355,000 | 2,235,000 | ||
Accumulated Amortization | (845,000) | (845,000) | (788,000) | ||
Net | 1,510,000 | 1,510,000 | 1,447,000 | ||
Total intangible assets | |||||
Accumulated Amortization | $ (845,000) | $ (845,000) | $ (788,000) |
Intangible Assets and Goodwil48
Intangible Assets and Goodwill - Estimated Annual Amortization Expense (Details) | Jan. 31, 2016USD ($) |
Estimated annual amortization expense of intangible assets for next five years | |
Six month period ending July 31, 2016 | $ 6,448,000 |
2,017 | 12,572,000 |
2,018 | 12,272,000 |
2,019 | 11,948,000 |
2,020 | 10,192,000 |
2,021 | $ 9,839,000 |
Intangible Assets and Goodwil49
Intangible Assets and Goodwill - Goodwill Rollforward (Details) - USD ($) | 6 Months Ended | 12 Months Ended |
Jan. 31, 2016 | Jul. 31, 2015 | |
Changes in Goodwill | ||
Balance at the beginning of the period | $ 241,951,000 | $ 231,647,000 |
Acquisitions | 39,637,000 | 20,162,000 |
Foreign currency translation | (3,741,000) | (4,118,000) |
Sale of business | (5,740,000) | |
Balance at the end of the period | 277,847,000 | 241,951,000 |
Endoscopy | ||
Changes in Goodwill | ||
Balance at the beginning of the period | 87,007,000 | 78,274,000 |
Acquisitions | 38,973,000 | 11,093,000 |
Foreign currency translation | (3,431,000) | (2,360,000) |
Balance at the end of the period | 122,549,000 | 87,007,000 |
Water Purification and Filtration | ||
Changes in Goodwill | ||
Balance at the beginning of the period | 58,872,000 | 56,838,000 |
Acquisitions | 2,965,000 | |
Foreign currency translation | (310,000) | (931,000) |
Balance at the end of the period | 58,562,000 | 58,872,000 |
Healthcare Disposables | ||
Changes in Goodwill | ||
Balance at the beginning of the period | 87,939,000 | 81,835,000 |
Acquisitions | 664,000 | 6,104,000 |
Balance at the end of the period | 88,603,000 | 87,939,000 |
Dialysis | ||
Changes in Goodwill | ||
Balance at the beginning of the period | 8,133,000 | 8,133,000 |
Balance at the end of the period | $ 8,133,000 | $ 8,133,000 |
Percentage of estimated fair value exceeding book value | 17.00% | |
Other. | ||
Changes in Goodwill | ||
Balance at the beginning of the period | $ 6,567,000 | |
Foreign currency translation | (827,000) | |
Sale of business | $ (5,740,000) |
Warranties (Details)
Warranties (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jan. 31, 2016 | Jan. 31, 2015 | Jan. 31, 2016 | Jan. 31, 2015 | |
Summary of activity in warranty reserves | ||||
Beginning balance | $ 1,847,000 | $ 1,689,000 | $ 1,740,000 | $ 1,589,000 |
Acquisitions | 117,000 | 28,000 | 117,000 | |
Provisions | 854,000 | 593,000 | 1,759,000 | 1,306,000 |
Settlements | (655,000) | (681,000) | (1,478,000) | (1,281,000) |
Foreign currency translation | (79,000) | (21,000) | (82,000) | (34,000) |
Ending balance | $ 1,967,000 | $ 1,697,000 | $ 1,967,000 | $ 1,697,000 |
Financing Arrangements (Details
Financing Arrangements (Details) - USD ($) | Mar. 01, 2016 | Mar. 04, 2014 | Mar. 10, 2016 | Jan. 31, 2016 |
Financing Arrangements | ||||
Unamortized debt issuance costs | $ 1,129,000 | |||
Credit Agreement | ||||
Financing Arrangements | ||||
Maximum borrowing capacity | $ 250,000,000 | |||
Debt issuance costs | 1,318,000 | |||
Fees on unused portion of credit facilities (as a percent) | 0.25% | |||
Shares of foreign subsidiaries pledged as security (as a percent) | 65.00% | |||
Outstanding borrowings | $ 133,500,000 | |||
Credit Agreement | Subsequent Events | ||||
Financing Arrangements | ||||
Outstanding borrowings | $ 139,000,000 | |||
Repayment of borrowings | $ 8,000,000 | |||
Credit Agreement | North American Science Associates Inc | Subsequent Events | ||||
Financing Arrangements | ||||
Amount borrowed | $ 13,500,000 | |||
Credit Agreement | Minimum | ||||
Financing Arrangements | ||||
Fees on unused portion of credit facilities (as a percent) | 0.20% | |||
Credit Agreement | Maximum | ||||
Financing Arrangements | ||||
Fees on unused portion of credit facilities (as a percent) | 0.40% | |||
Credit Agreement | Lender's base rate | ||||
Financing Arrangements | ||||
Margin on reference rate (as a percent) | 0.50% | |||
Reference rate (as a percent) | 3.50% | |||
Credit Agreement | Lender's base rate | Minimum | ||||
Financing Arrangements | ||||
Margin on reference rate (as a percent) | 0.25% | |||
Credit Agreement | Lender's base rate | Maximum | ||||
Financing Arrangements | ||||
Margin on reference rate (as a percent) | 1.25% | |||
Credit Agreement | LIBOR | ||||
Financing Arrangements | ||||
Margin on reference rate (as a percent) | 1.50% | |||
Credit Agreement | LIBOR | Minimum | ||||
Financing Arrangements | ||||
Margin on reference rate (as a percent) | 1.25% | |||
Reference rate (as a percent) | 0.42% | |||
Credit Agreement | LIBOR | Maximum | ||||
Financing Arrangements | ||||
Margin on reference rate (as a percent) | 2.25% | |||
Reference rate (as a percent) | 0.90% | |||
Revolving Credit Facility | ||||
Financing Arrangements | ||||
Maximum borrowing capacity | $ 250,000,000 | |||
Term of line of credit facility | 5 years | |||
Maximum additional borrowing capacity available at the entity's option | $ 100,000,000 | |||
Unamortized debt issuance costs | 512,000 | |||
Borrowings of foreign currency | ||||
Financing Arrangements | ||||
Maximum borrowing capacity | 100,000,000 | |||
Letters of credit | ||||
Financing Arrangements | ||||
Maximum borrowing capacity | 30,000,000 | |||
Swing line loans | ||||
Financing Arrangements | ||||
Maximum borrowing capacity | $ 10,000,000 |
Earnings Per Common Share - Com
Earnings Per Common Share - Computation (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jan. 31, 2016 | Jan. 31, 2015 | Jan. 31, 2016 | Jan. 31, 2015 | |
Numerator for basic and diluted earnings per share: | ||||
Net income | $ 15,389,000 | $ 11,085,000 | $ 29,643,000 | $ 22,324,000 |
Less income allocated to participating securities, basic | (126,000) | (88,000) | (244,000) | (218,000) |
Net income available to common shareholders, basic | 15,263,000 | 10,997,000 | 29,399,000 | 22,106,000 |
Less income allocated to participating securities, diluted | (126,000) | (88,000) | (244,000) | (218,000) |
Net income available to common shareholders, diluted | $ 15,263,000 | $ 10,997,000 | $ 29,399,000 | $ 22,106,000 |
Denominator for basic and diluted earnings per share, as adjusted for participating securities: | ||||
Denominator for basic earnings per share - weighted average number of shares outstanding attributable to common stock | 41,360,279 | 41,176,804 | 41,321,762 | 41,079,573 |
Dilutive effect of stock options using the treasury stock method and the average market price for the period (in shares) | 44,096 | 60,043 | 42,727 | 75,823 |
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock | 41,404,375 | 41,236,847 | 41,364,489 | 41,155,396 |
Earnings per share attributable to common stock: | ||||
Basic earnings per share (in dollars per share) | $ 0.37 | $ 0.27 | $ 0.71 | $ 0.54 |
Diluted earnings per share (in dollars per share) | $ 0.37 | $ 0.27 | $ 0.71 | $ 0.54 |
Stock options excluded from weighted average dilutive common shares outstanding because their inclusion would have been antidilutive (in shares) | 15,000 |
Earnings Per Common Share - Wei
Earnings Per Common Share - Weighted Average Shares (Details) - shares | 3 Months Ended | 6 Months Ended | ||
Jan. 31, 2016 | Jan. 31, 2015 | Jan. 31, 2016 | Jan. 31, 2015 | |
Reconciliation of weighted average number of shares and common stock equivalents attributable to common stock, to the entity's total weighted average number of shares and common stock equivalents, including participating securities | ||||
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock | 41,404,375 | 41,236,847 | 41,364,489 | 41,155,396 |
Participating securities (in shares) | 343,346 | 346,684 | 344,004 | 413,472 |
Total weighted average number of shares and common stock equivalents attributable to both common stock and participating securities | 41,747,721 | 41,583,531 | 41,708,493 | 41,568,868 |
Income Taxes - Reconciliation o
Income Taxes - Reconciliation of Tax Rate (Details) | 6 Months Ended | |
Jan. 31, 2016 | Jan. 31, 2015 | |
Reconciliation of consolidated income tax rate | ||
Consolidated effective tax rate (as a percent) | 36.30% | 38.30% |
Differential attributable to: | ||
Acquisition related items, net | (0.70%) | |
New tax legislation | (0.70%) | |
International operations | (0.40%) | |
Other | (0.20%) | |
United States | ||
Reconciliation of consolidated income tax rate | ||
Consolidated effective tax rate (as a percent) | 36.30% | 36.40% |
Income Taxes - Unrecognized Tax
Income Taxes - Unrecognized Tax Benefits (Details) | Jan. 31, 2016USD ($) |
Reconciliation of the beginning and ending amounts of gross unrecognized tax benefits | |
Unrecognized tax benefits at the beginning of the period | $ 0 |
Unrecognized tax benefits at the end of the period | $ 0 |
Commitments and Contingencies -
Commitments and Contingencies - Annual Required Payments (Details) | 6 Months Ended |
Jan. 31, 2016USD ($) | |
Minimum commitments under noncancelable operating leases | |
Remaining fiscal year | $ 2,620,000 |
2,017 | 4,438,000 |
2,018 | 3,254,000 |
2,019 | 2,463,000 |
2,020 | 1,388,000 |
Thereafter | 2,637,000 |
Total | 16,800,000 |
Total contractual obligations | |
Remaining fiscal year | 6,602,000 |
2,017 | 12,578,000 |
2,018 | 7,004,000 |
2,019 | 138,237,000 |
2,020 | 1,984,000 |
Thereafter | 3,485,000 |
Total | 169,890,000 |
Jet Prep Ltd. | |
Total contractual obligations | |
Contingent consideration | 143,000 |
Assumed contingent obligation | 1,138,000 |
Compensation agreements | |
Other commitments | |
Remaining fiscal year | 2,308,000 |
2,017 | 4,821,000 |
2,018 | 541,000 |
2,019 | 206,000 |
2,020 | 206,000 |
Thereafter | 86,000 |
Total | 8,168,000 |
Contingent consideration | |
Other commitments | |
2,019 | 36,000 |
2,020 | 132,000 |
Thereafter | 40,000 |
Total | 208,000 |
Contingent consideration | Jet Prep Ltd. | |
Total contractual obligations | |
Contingent consideration | $ 143,000 |
Discount rate of potential payments (as a percent) | 12.60% |
Contingent consideration | Cantel Medical UK | |
Total contractual obligations | |
Assumed contingent obligation | $ 637,000 |
Assumed contingent liability | |
Other commitments | |
Remaining fiscal year | 1,000 |
2,017 | 19,000 |
2,018 | 93,000 |
2,019 | 188,000 |
2,020 | 246,000 |
Thereafter | 719,000 |
Total | $ 1,266,000 |
Assumed contingent liability | Jet Prep Ltd. | |
Total contractual obligations | |
Discount rate of potential payments (as a percent) | 2.50% |
Assumed contingent obligation | $ 1,138,000 |
Contingent guaranteed obligation | |
Other commitments | |
Remaining fiscal year | 176,000 |
2,017 | 193,000 |
2,018 | 144,000 |
2,019 | 132,000 |
Total | 645,000 |
Contingent guaranteed obligation | Cantel Medical UK | |
Total contractual obligations | |
Contingent consideration | $ 637,000 |
Discount rate of potential payments (as a percent) | 10.10% |
Other long-term obligations | |
Other commitments | |
Remaining fiscal year | $ 109,000 |
2,017 | 330,000 |
2,018 | 195,000 |
2,019 | 92,000 |
2,020 | 12,000 |
Thereafter | 3,000 |
Total | 741,000 |
Credit Agreement | |
Maturity of the credit facility | |
2,019 | 133,500,000 |
Total | 133,500,000 |
Expected interest payments under the credit facility | |
Remaining fiscal year | 1,388,000 |
2,017 | 2,777,000 |
2,018 | 2,777,000 |
2,019 | 1,620,000 |
Total | $ 8,562,000 |
Total contractual obligations | |
Weighted average interest rate on outstanding borrowings (as a percent) | 2.08% |
Commitments and Contingencies57
Commitments and Contingencies - Other Long-Term Obligations (Details) - USD ($) | Nov. 05, 2013 | Jan. 31, 2016 | Jul. 31, 2015 | Nov. 03, 2014 |
Commitments and Contingencies | ||||
Accrued expenses | $ 18,872,000 | $ 15,092,000 | ||
Jet Prep Ltd. | ||||
Commitments and Contingencies | ||||
Contingent consideration liability | 143,000 | |||
Assumed contingent obligation | 1,138,000 | |||
Period over which potential cash contingent consideration is payable | 7 years | |||
International Medical Service S.r.l. | ||||
Commitments and Contingencies | ||||
Other long-term liabilities | $ 1,020,000 | |||
International Medical Service S.r.l. | Central bank of Italy | ||||
Commitments and Contingencies | ||||
Liabilities assumed | 479,000 | $ 843,000 | ||
Interest rate per annum (as a percent) | 0.25% | |||
International Medical Service S.r.l. | Central bank of Italy | Accrued expenses | ||||
Commitments and Contingencies | ||||
Liabilities assumed | 159,000 | $ 187,000 | ||
International Medical Service S.r.l. | Central bank of Italy | Other long-term liabilities | ||||
Commitments and Contingencies | ||||
Liabilities assumed | $ 320,000 | $ 656,000 |
Accumulated Other Comprehensi58
Accumulated Other Comprehensive (Loss) Income (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jan. 31, 2016 | Jan. 31, 2015 | Jan. 31, 2016 | Jan. 31, 2015 | |
Components and changes in accumulated other comprehensive (loss) income | ||||
Balance | $ 406,633,000 | |||
Other comprehensive loss | $ (7,199,000) | $ (5,609,000) | (8,026,000) | $ (7,500,000) |
Balance | 427,452,000 | 427,452,000 | ||
Foreign Currency Translation Adjustments | ||||
Components and changes in accumulated other comprehensive (loss) income | ||||
Balance | 397,000 | 7,661,000 | 1,224,000 | 9,552,000 |
Other comprehensive loss | (7,199,000) | (5,609,000) | (8,026,000) | (7,500,000) |
Balance | $ (6,802,000) | $ 2,052,000 | $ (6,802,000) | $ 2,052,000 |
Operating Segments - Concentrat
Operating Segments - Concentration Risk (Details) - customer | 6 Months Ended | |
Jan. 31, 2016 | Jan. 31, 2015 | |
Concentration risk | ||
Number of customers that each account for 10% or more of the consolidated net sales of the company | 0 | 0 |
Segment sales | Customer concentration | Water Purification and Filtration | ||
Concentration risk | ||
Number of customers accounting for a percentage of segment net sales | 2 | |
Segment sales | Customer concentration | Water Purification and Filtration | Two customers | ||
Concentration risk | ||
Concentration risk within segment (as a percent) | 43.20% | |
Segment sales | Customer concentration | Healthcare Disposables | Four customers | ||
Concentration risk | ||
Number of customers accounting for a percentage of segment net sales | 4 | |
Concentration risk within segment (as a percent) | 51.00% | |
Net sales | Customer concentration | Dialysis | Two customers | ||
Concentration risk | ||
Number of customers accounting for a percentage of segment net sales | 2 | |
Concentration risk within segment (as a percent) | 42.90% |
Operating Segments - Results (D
Operating Segments - Results (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jan. 31, 2016 | Jan. 31, 2015 | Jan. 31, 2016 | Jan. 31, 2015 | |
Information as to operating segments | ||||
Net sales | $ 158,271,000 | $ 135,430,000 | $ 312,050,000 | $ 272,241,000 |
Operating income | 24,396,000 | 18,301,000 | 48,172,000 | 37,348,000 |
Interest expense, net | (871,000) | (646,000) | (1,616,000) | (1,180,000) |
Income before income taxes | 23,525,000 | 17,655,000 | 46,556,000 | 36,168,000 |
Operating Segment | ||||
Information as to operating segments | ||||
Operating income | 29,660,000 | 23,066,000 | 58,979,000 | 46,292,000 |
General corporate | ||||
Information as to operating segments | ||||
Operating income | (5,264,000) | (4,765,000) | (10,807,000) | (8,944,000) |
Endoscopy | ||||
Information as to operating segments | ||||
Net sales | 81,458,000 | 58,970,000 | 153,100,000 | 114,902,000 |
Endoscopy | Operating Segment | ||||
Information as to operating segments | ||||
Operating income | 14,664,000 | 8,396,000 | 27,123,000 | 15,854,000 |
Water Purification and Filtration | ||||
Information as to operating segments | ||||
Net sales | 43,252,000 | 42,356,000 | 87,964,000 | 84,724,000 |
Water Purification and Filtration | Operating Segment | ||||
Information as to operating segments | ||||
Operating income | 7,589,000 | 8,121,000 | 15,402,000 | 15,777,000 |
Healthcare Disposables | ||||
Information as to operating segments | ||||
Net sales | 26,026,000 | 25,197,000 | 53,378,000 | 54,534,000 |
Healthcare Disposables | Operating Segment | ||||
Information as to operating segments | ||||
Operating income | 5,673,000 | 4,469,000 | 12,033,000 | 10,823,000 |
Dialysis | ||||
Information as to operating segments | ||||
Net sales | 7,535,000 | 7,314,000 | 17,608,000 | 14,800,000 |
Dialysis | Operating Segment | ||||
Information as to operating segments | ||||
Operating income | $ 1,734,000 | 1,481,000 | $ 4,421,000 | 2,931,000 |
Other. | ||||
Information as to operating segments | ||||
Net sales | 1,593,000 | 3,281,000 | ||
Other. | Operating Segment | ||||
Information as to operating segments | ||||
Operating income | $ 599,000 | $ 907,000 |
Disposition of Business (Detail
Disposition of Business (Details) - USD ($) | Apr. 07, 2015 | Jan. 31, 2016 | Apr. 30, 2015 | Jan. 31, 2015 | Jan. 31, 2016 | Jan. 31, 2015 |
Disposition of Business | ||||||
Diluted earnings per share (in dollars per share) | $ 0.37 | $ 0.27 | $ 0.71 | $ 0.54 | ||
Specialty Packaging business | Other. | Disposal Group, Disposed of by Sale, Not Discontinued Operations | ||||||
Disposition of Business | ||||||
Proceeds from sale of business, net of cash retained and disposal costs | $ 7,531,000 | |||||
Amount held in escrow | $ 660,000 | |||||
Loss on sale of business | $ 2,206,000 | |||||
Diluted earnings per share (in dollars per share) | $ (0.04) |