-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DoLCjdaxiwYBSk4JwynEZdWk6TMkzfcgtVtY3ejsKDttzAiK41+JiO4/xRlrtHpq UoPSVCxHQvuzdOvFkKvZrw== 0001047469-98-043913.txt : 19981215 0001047469-98-043913.hdr.sgml : 19981215 ACCESSION NUMBER: 0001047469-98-043913 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANTEL INDUSTRIES INC CENTRAL INDEX KEY: 0000019446 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 221760285 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-06132 FILM NUMBER: 98769200 BUSINESS ADDRESS: STREET 1: 1135 BROAD STREET CITY: CLIFTON STATE: NJ ZIP: 07013 BUSINESS PHONE: 2014708700 MAIL ADDRESS: STREET 1: 1135 BROAD STREET STREET 2: 1135 BROAD STREET CITY: CLIFTON STATE: NJ ZIP: 07013 FORMER COMPANY: FORMER CONFORMED NAME: STENDIG INDUSTRIES INC DATE OF NAME CHANGE: 19890425 FORMER COMPANY: FORMER CONFORMED NAME: CHARVOZ CARSEN CORP DATE OF NAME CHANGE: 19861215 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q / X / Quarterly Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the quarterly period ended October 31, 1998. or / / Transition Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from _____ to _____. Commission file number: 0-6132 CANTEL INDUSTRIES, INC. ----------------------- (Exact name of registrant as specified in its charter) Delaware 22-1760285 - ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 1135 Broad Street, Clifton, New Jersey 07013-3346 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (973) 470-8700 -------------- Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes /X/ No / / Number of shares of Common Stock outstanding as of December 4, 1998: 4,376,200. PART I - FINANCIAL INFORMATION CANTEL INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollar Amounts in Thousands, Except Per Share Data) (Unaudited) October 31, July 31, 1998 1998 -------- -------- ASSETS Current assets: Cash $ 549 $ 493 Accounts receivable 8,439 8,446 Inventories 9,174 9,207 Insurance claim receivable 392 563 Prepaid expenses and other current assets 609 465 -------- -------- Total current assets 19,163 19,174 Property and equipment, net 830 841 Intangible assets, net 1,784 1,823 Other assets 700 640 -------- -------- $ 22,477 $ 22,478 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,623 $ 4,148 Compensation payable 430 989 Other accrued expenses 800 893 Income taxes payable 62 164 -------- -------- Total current liabilities 4,915 6,194 Long-term debt 4,028 3,004 Deferred income taxes 60 54 Stockholders' equity: Preferred Stock, par value $1.00 per share; authorized 1,000,000 shares; none issued - - Common Stock, $.10 par value; authorized 7,500,000 shares; issued and outstanding October 31 - 4,373,629 shares; July 31 - 4,367,201 shares 437 437 Additional capital 19,062 19,019 Accumulated deficit (3,545) (3,957) Accumulated other comprehensive income: Cumulative foreign currency translation adjustment (2,480) (2,273) -------- -------- Total stockholders' equity 13,474 13,226 -------- -------- $ 22,477 $ 22,478 ======== ======== See accompanying notes. 1 CANTEL INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollar Amounts in Thousands, Except Per Share Data) (Unaudited) Three Months Ended October 31, 1998 1997 -------- -------- Net sales: Product sales $ 9,816 $ 7,230 Product service 1,050 962 -------- -------- Total net sales 10,866 8,192 -------- -------- Cost of sales: Product sales 6,956 4,965 Product service 648 537 -------- -------- Total cost of sales 7,604 5,502 -------- -------- Gross profit 3,262 2,690 Expenses: Shipping and warehouse 162 143 Selling 1,282 951 General and administrative 917 832 Research and development 187 190 -------- -------- Total operating expenses 2,548 2,116 -------- -------- Income from operations before interest expense and income taxes 714 574 Interest expense 78 33 -------- -------- Income before income taxes 636 541 Income taxes 224 248 -------- -------- Net income $ 412 $ 293 ======== ======== Earnings per common share: Basic $ 0.09 $ 0.07 ======== ======== Diluted $ 0.09 $ 0.07 ======== ======== See accompanying notes. 2 CANTEL INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar Amounts in Thousands) (Unaudited) Three Months Ended October 31, 1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 412 $ 293 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 111 64 Deferred income taxes 7 (8) Changes in assets and liabilities: Accounts receivable (133) 1,917 Inventories (117) 53 Prepaid expenses and other current assets 13 (164) Accounts payable and accrued expenses (1,098) (1,944) Income taxes payable (99) (556) -------- -------- Net cash used in operating activities (904) (345) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (69) (121) Other, net (45) (206) -------- -------- Net cash used in investing activities (114) (327) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings under credit facilities 1,031 613 Proceeds from exercise of stock options 43 - -------- -------- Net cash provided by financing activities 1,074 613 -------- -------- Increase (decrease) in cash 56 (59) Cash at beginning of period 493 656 -------- -------- Cash at end of period $ 549 $ 597 ======== ======== See accompanying notes. 3 CANTEL INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. BASIS OF PRESENTATION The unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and the requirements of Form 10-Q and Rule 10.01 of Regulation S-X. Accordingly, they do not include certain information and note disclosures required by generally accepted accounting principles for annual financial reporting and should be read in conjunction with the consolidated financial statements and notes thereto included in the Annual Report of Cantel Industries, Inc. (the "Company" or "Cantel") on Form 10-K for the fiscal year ended July 31, 1998, and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein. Cantel has two wholly-owned subsidiaries, Carsen Group Inc. ("Carsen"), its Canadian subsidiary, and MediVators, Inc. ("MediVators"), its United States subsidiary. The unaudited interim financial statements reflect all adjustments which management considers necessary for a fair presentation of the results of operations for these periods. The results of operations for the interim periods are not necessarily indicative of the results for the full year. The condensed consolidated balance sheet at July 31, 1998 was derived from the audited consolidated balance sheet of the Company at that date. Note 2. NEW ACCOUNTING PRONOUNCEMENT The Company has adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, which establishes standards for the reporting and disclosure of comprehensive income and its components in the financial statements. The adoption of this Statement had no impact on the Company's net income or stockholders' equity. The Company's comprehensive income for the three months ended October 31, 1998 and 1997 are set forth in the following table: Three Months Ended October 31, ----------------------- 1998 1997 -------- -------- Net income $412,000 $293,000 Other comprehensive income (loss): Foreign currency translation adjustment (207,000) (215,000) -------- -------- Comprehensive income $205,000 $ 78,000 ======== ======== 4 Note 3. EARNINGS PER COMMON SHARE Basic earnings per common share are computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per common share are computed based upon the weighted average number of common shares outstanding during the period plus the dilutive effect of options and warrants using the treasury stock method and the average market price for the period. The following weighted average shares were used for the computation of basic and diluted earnings per common share: Three Months Ended October 31, ------------------------- 1998 1997 --------- --------- Numerator for basic and diluted earnings per share: Net income $ 412,000 $ 293,000 ========= ========= Denominator for basic and diluted earnings per share: Denominator for basic earnings per share - weighted average number of shares outstanding 4,371,952 4,166,322 Dilutive effect of options and warrants using the treasury stock method and the average market price for the period 269,604 216,523 --------- --------- Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents 4,641,556 4,382,845 ========= ========= Basic earnings per share $ 0.09 $ 0.07 ========= ========= Diluted earnings per share $ 0.09 $ 0.07 ========= ========= Note 4. FINANCING ARRANGEMENTS The Company has two credit facilities, a $5,000,000 revolving credit facility for Carsen expiring on December 31, 1999 and a $1,500,000 revolving credit facility for MediVators expiring on August 1, 2000. Borrowings under the Carsen revolving credit facility are in Canadian dollars and bear interest at rates ranging 5 from lender's prime rate to .75% above the prime rate, depending upon Carsen's debt to equity ratio. Borrowings under the MediVators revolving credit facility bear interest at the lender's prime rate plus 1%. Each of the credit facilities provides for restrictions on available borrowings based primarily upon percentages of eligible accounts receivable and inventories; requires the subsidiary to meet certain financial covenants; is secured by substantially all assets of the subsidiary; and is guaranteed by Cantel. Note 5. INCOME TAXES Income taxes consist primarily of taxes imposed on the Company's Canadian operations. The effective tax rate on Canadian operations was 47.9% and 45.0% for the three months ended October 31, 1998 and 1997, respectively. For the three months ended October 31, 1998, the consolidated effective tax rate is lower than the Canadian effective tax rate due to the fact that income generated by the United States operations is substantially offset by tax benefits resulting from the utilization of net operating loss carryforwards. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The results of operations reflect the results of Carsen and MediVators. Reference is made hereafter to the impact on the Company's results of operations of a weaker Canadian dollar against the United States dollar during the three months ended October 31, 1998 compared with the three months ended October 31, 1997 (decrease in value of approximately 10% based upon month-end exchange rates). The ensuing discussion should also be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1998. The following table gives information as to the net sales and the percentage to the total net sales accounted for by each operating segment of the Company. Three Months Ended October 31, ------------------------------------- 1998 1997 ----------------- ----------------- (Dollar amounts in thousands) $ % $ % ------- ------- ------- ------- Medical Products $ 3,106 28.6 $ 2,365 28.9 Infection Control Products 2,600 23.9 1,531 18.6 Scientific Products 893 8.2 1,472 18.0 Product Service 1,050 9.7 962 11.7 Consumer Products 3,350 30.8 1,923 23.5 Elimination of intercompany sales of Infection Control Products (133) (1.2) (61) (.7) ------- ------- ------- ------- $10,866 100.0 $ 8,192 100.0 ======= ======= ======= ======= Net sales increased by $2,674,000, or 32.6%, to $10,866,000 for the three months ended October 31, 1998, from $8,192,000 for the three months ended October 31, 1997. This increase was principally attributable to increased sales of Medical Products, Infection Control Products and Consumer Products, partially offset by decreased sales of Scientific Products. Net sales were adversely impacted for the three months ended October 31, 1998 compared with the three months ended October 31, 1997 by approximately $917,000 due to the translation of Carsen's net sales using a weaker Canadian dollar against the United States dollar. The increased sales of Medical Products in Canada was principally due to an increase in demand, as well as selling price increases. The increased sales of Infection Control Products was attributable to an increase in demand for infection control products in the United States; continued expansion and improvement of the international distribution of MediVators' infection control 7 products; and selling price increases. The increased sales of Consumer Products was due to stronger demand for certain 35 mm. camera models, as well as the strong demand for an expanded line of digital cameras. The decreased sales of Scientific Products was primarily attributable to a decrease in demand for microscopes. Gross profit increased by $572,000, or 21.3%, to $3,262,000 for the three months ended October 31, 1998, from $2,690,000 for the three months ended October 31, 1997. Gross profit was adversely impacted for the three months ended October 31, 1998 compared with the three months ended October 31, 1997 by approximately $239,000 due to the translation of Carsen's gross profit using a weaker Canadian dollar against the United States dollar. The gross profit margin for the three months ended October 31, 1998 was 30.0%, compared with 32.8% for the three months ended October 31, 1997. The lower gross profit margin for the three months ended October 31, 1998 was primarily attributable to the adverse impact of a weaker Canadian dollar relative to the United States dollar, since most of the Canadian subsidiary's purchases are denominated in United States dollars; increased sales of consumer products, which generally have lower profit margins; more competitive sales of medical products; and sales mix associated with consumer products and endoscope repairs. These margin decreases were partially offset by manufacturing efficiencies achieved through increased sales and production volume of infection control products. Shipping and warehouse expenses increased by $19,000 to $162,000 for the three months ended October 31, 1998, from $143,000 for the three months ended October 31, 1997. The increase was attributable to variable freight costs associated with the increase in sales volume. Selling expenses as a percentage of net sales increased to 11.8% for the three months ended October 31, 1998, from 11.6% for the three months ended October 31, 1997. This increase was principally attributable to an increase in advertising and sales promotion costs, and personnel costs, partially offset by the impact of the increased sales against the fixed portion of selling expenses. General and administrative expenses increased by $85,000 to $917,000 for the three months ended October 31, 1998, from $832,000 for the three months ended October 31, 1997. The increase was primarily attributable to increased personnel costs, including incentive compensation, amortization of intangible assets, and regulatory costs, including ISO 9000 certification. Research and development expenses decreased by $3,000 to $187,000 for the three months ended October 31, 1998, from $190,000 for the three months ended October 31, 1997. 8 Interest expense increased to $78,000 for the three months ended October 31, 1998, from $33,000 for the three months ended October 31, 1997. This increase was primarily attributable to an increase in average borrowings under the Carsen revolving credit facility during the three months ended October 31, 1998. Income before income taxes increased by $95,000 to $636,000 for the three months ended October 31, 1998, from $541,000 for the three months ended October 31, 1997. Income taxes consist primarily of taxes imposed on the Company's Canadian operations. The effective tax rate on Canadian operations was 47.9% and 45.0% for the three months ended October 31, 1998 and 1997, respectively. For the three months ended October 31, 1998, the consolidated effective tax rate is lower than the Canadian effective tax rate due to the fact that income generated by the United States operations is substantially offset by tax benefits resulting from the utilization of net operating loss carryforwards. LIQUIDITY AND CAPITAL RESOURCES At October 31, 1998, the Company's working capital was $14,248,000, compared with $12,980,000 at July 31, 1998. This increase primarily reflects decreases in accounts payable and compensation payable. Net cash used in operating activities was $904,000 for the three months ended October 31, 1998 and $345,000 for the three months ended October 31, 1997. The net cash used in operating activities for these periods was primarily due to decreases in accounts payable and accrued expenses and income taxes payable, partially offset by net income after adjusting for depreciation and amortization and, for the three months ended October 31, 1997, a decrease in accounts receivable. Net cash used in investing activities was $114,000 for the three months ended October 31, 1998 and $327,000 for the three months ended October 31, 1997. Net cash provided by financing activities was $1,074,000 for the three months ended October 31, 1998 and $613,000 for the three months ended October 31, 1997. These changes were principally due to the fluctuations in outstanding borrowings under the Company's revolving credit facilities. The Company has two credit facilities, a $5,000,000 revolving credit facility for Carsen expiring on December 31, 1999 and a $1,500,000 revolving credit facility for MediVators expiring on August 1, 2000. Borrowings under the Carsen revolving credit facility are in Canadian dollars and bear interest at rates ranging from lender's prime rate to .75% above the prime rate, depending 9 upon Carsen's debt to equity ratio. Borrowings under the MediVators revolving credit facility bear interest at the lender's prime rate plus 1%. Each of the credit facilities provides for restrictions on available borrowings based primarily upon percentages of eligible accounts receivable and inventories; requires the subsidiary to meet certain financial covenants; is secured by substantially all assets of the subsidiary; and is guaranteed by Cantel. During the three months ended October 31, 1998, the value of the Canadian dollar declined compared to the value of the United States dollar. A further decrease in the value of the Canadian dollar against the United States dollar would adversely affect the Company because the Company's Canadian subsidiary purchases substantially all of its products in United States dollars and sells its products in Canadian dollars. Such adverse currency fluctuations would also result in a corresponding adverse change in the United States dollar value of the Company's assets that are denominated in Canadian dollars. During the three months ended October 31, 1998, such adverse currency fluctuations reduced stockholders' equity by $207,000. Under the Carsen credit facility the Company's Canadian subsidiary has a $15,000,000 (U.S. dollars) foreign exchange hedging facility which is available to be used to minimize future adverse currency fluctuations as they relate to purchases of inventories. Carsen had foreign exchange forward contracts at December 4, 1998 aggregating $4,000,000 (United States dollars) to hedge against possible declines in the value of the Canadian dollar which would otherwise result in higher inventory costs. Such contracts represent the Canadian subsidiary's projected purchases of inventories through December 1998. The average exchange rate of the contracts open at December 4, 1998 was $1.5269 Canadian dollar per United States dollar, or $.6549 United States dollar per Canadian dollar. The exchange rate published by the Wall Street Journal on December 4, 1998 was $1.5345 Canadian dollar per United States dollar, or $.6517 United States dollar per Canadian dollar. The Company believes that its anticipated cash flow from operations and the funds available under the credit facilities will be sufficient to satisfy the Company's cash operating requirements for its existing operations for the foreseeable future. At December 4, 1998, $2,467,000 was available under the credit facilities. The Company has assessed the ability of its computerized information systems to process transactions relating to year 2000 and beyond. While certain modifications are required, the Company expects to achieve necessary modifications on a timely basis at a cost of approximately $50,000, the majority of which will be capital expenditures. There can be no assurance, however, that the systems of other companies on which the Company relies, including 10 major suppliers and customers, will be timely converted, or that a failure to successfully convert by another company, or a conversion that is incompatible with the Company's systems, would not have an adverse impact on the Company's operations. Management has requested a complete year 2000 assessment from all of its major suppliers and customers, but has not yet received indications from all of these parties as to whether or not they are year 2000 compliant. Inflation has not significantly impacted the Company's operations. Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. All forward-looking statements involve risks and uncertainties, including, without limitation, acceptance and demand of new products, the impact of competitive products and pricing, the Company's ability to successfully integrate and operate acquired and merged businesses and the risks associated with such businesses, the ability of the Company's vendors and distributors to complete the necessary actions to achieve a year 2000 conversion for its computer systems and applications, and the risks detailed in the Company's filings and reports with the Securities and Exchange Commission. Such statements are only predictions, and actual events or results may differ materially from those projected. 11 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There was no submission of matters to a vote during the three months ended October 31, 1998. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27, Financial Data Schedule (b) Reports on Form 8-K There were no reports on Form 8-K filed for the three months ended October 31, 1998. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CANTEL INDUSTRIES, INC. Date: December 11, 1998 By: /s/ James P. Reilly ------------------------------ James P. Reilly, President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) By: /s/ Craig A. Sheldon ------------------------------ Craig A. Sheldon, Vice President and Controller (Chief Accounting Officer) 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 1998 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 3-MOS JUL-31-1999 OCT-31-1998 549,000 0 8,439,000 0 9,174,000 19,163,000 2,611,000 1,781,000 22,477,000 4,915,000 4,028,000 437,000 0 0 13,037,000 22,477,000 9,816,000 10,866,000 6,956,000 7,604,000 2,548,000 0 78,000 636,000 224,000 412,000 0 0 0 412,000 0.09 0.09
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