Operating Segments

9 Months Ended

Apr. 30, 2013

Operating Segments

Operating Segments

Note 14. Operating Segments

We are a leading provider of infection prevention and control products and services in the healthcare market. Our products include water purification equipment, sterilants, disinfectants and cleaners, specialized medical device reprocessing systems for endoscopy and renal dialysis, disposable infection control products primarily for dental and GI endoscopy markets, dialysate concentrates and other dialysis supplies, hollow fiber membrane filtration and separation products for medical and non-medical applications, and specialty packaging for the transport and temperature regulation of infectious and biological specimens.

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 during the nine months ended April 30, 2013 and 2012, except for DaVita Inc. (“DaVita”) in the current nine month period, which accounted for approximately 10.5%, or approximately $32,785,000, of our consolidated net sales and approximately 26.8% and 36.6% of our net sales in our Water Purification and Filtration and Dialysis segments, respectively.

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 other approved devices. This segment also offers disposable infection control products intended to eliminate the challenges associated with proper cleaning and sterilization of numerous reusable components used in gastrointestinal (GI) endoscopy procedures. Additionally, this segment includes technical maintenance service on its products.

Water Purification and Filtration, which includes water purification equipment design and manufacturing, project management, installation, maintenance, deionization and mixing systems, as well as hollow fiber filter devices and ancillary products for high-purity fluid and separation applications for healthcare (with a large concentration in dialysis), pharmaceutical, biotechnology, research, beverage, semiconductor and other commercial industries. Additionally, this segment includes cold sterilant products used to disinfect high-purity water systems.

DaVita and another large dialysis provider accounted for approximately 26.8% and 26.3%, respectively, of our Water Purification and Filtration segment net sales for the nine months ended April 30, 2013. Combined, these two customers accounted for approximately 18.0% of our consolidated net sales for the nine months ended April 30, 2013.

Healthcare Disposables, which includes single-use infection prevention and control products used principally in the dental market such as face masks, sterilization pouches, patient towels and bibs, self-sealing sterilization pouches, tray covers, surface barriers including eyewear, aprons and gowns, disinfectants, germicidal wipes, hand care products, gloves, sponges, cotton products, cups, needles and syringes, scalpels and blades, and saliva evacuators and ejectors. This segment also offers a broad suite of biological and chemical indicators for purposes of sterility assurance monitoring.

Four customers collectively accounted for approximately 52.8% of our Healthcare Disposables segment net sales and approximately 11.4% of our consolidated net sales during the nine months ended April 30, 2013.

Dialysis, which includes disinfection/sterilization reprocessing equipment, sterilants, supplies and concentrates related to hemodialysis treatment of patients with acute kidney failure or chronic kidney failure associated with end-stage renal disease. Additionally, this segment includes technical maintenance service on its products. This segment does not include water purification products and services sold to dialysis clinics; such sales are reported as part of Water Purification and Filtration.

All Other

In accordance with quantitative thresholds established by ASC 280, we have combined the Therapeutic Filtration, Specialty Packaging and Chemistries operating segments into the All Other reporting segment.

Therapeutic Filtration, which includes hollow fiber filter devices and ancillary products for use in medical applications that are sold to biotech manufacturers and third-party distributors.

Specialty Packaging, which includes specialty packaging and thermal control products, as well as related compliance training, for the safe transport of infectious and biological specimens and thermally sensitive pharmaceutical, medical and other products.

Chemistries, which includes sterilants, disinfectants and decontamination services used in various applications for infection prevention and control.

The operating segments follow the same accounting policies used for our Condensed Consolidated Financial Statements as described in Note 2 to the 2012 Form 10-K.

Information as to operating segments is summarized below:

	Three Months Ended						Nine Months Ended
	April 30,						April 30,
	2013			2012			2013			2012
Net sales:
Endoscopy	$	39,694,000		$	38,606,000		$	115,795,000		$	115,037,000
Water Purification and Filtration	29,473,000			25,955,000			88,099,000			76,505,000
Healthcare Disposables	22,674,000			19,336,000			66,968,000			56,668,000
Dialysis	8,072,000			8,902,000			25,019,000			27,180,000
All Other	5,096,000			4,439,000			15,172,000			12,407,000
Total	$	105,009,000		$	97,238,000		$	311,053,000		$	287,797,000
Operating income:
Endoscopy	$	7,241,000		$	7,847,000		$	24,386,000		$	22,081,000
Water Purification and Filtration	2,846,000			2,818,000			10,243,000			8,380,000
Healthcare Disposables	3,991,000			3,529,000			12,791,000			9,138,000
Dialysis	1,990,000			2,217,000			6,478,000			6,578,000
All Other	1,109,000			132,000			2,396,000			(373,000		)
	17,177,000			16,543,000			56,294,000			45,804,000
General corporate expenses	(2,954,000		)	(2,769,000		)	(9,236,000		)	(8,089,000		)
Interest expense, net	(733,000		)	(884,000		)	(2,141,000		)	(2,861,000		)
Other expense	—			—			—			(605,000		)
Income before income taxes	$	13,490,000		$	12,890,000		$	44,917,000		$	34,249,000