Operating Segments

3 Months Ended

Oct. 31, 2013

Operating Segments

Operating Segments

Note 14. Operating Segments

Cantel Medical 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, hollow fiber membrane filtration and separation products, and specialty packaging for infectious and biological specimens. 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.

During the fourth quarter of fiscal 2013, we changed our internal reporting processes by combining our Therapeutic Filtration and Chemistries operating segments, previously reported in the Other reporting segment, with our Water Purification and Filtration reporting segment to reflect the way the Company, through its executive management, manages, allocates resources and measures the performance of its businesses. All periods presented have been recast to reflect these changes.

None of our customers accounted for 10% or more of our consolidated net sales for the three months ended October 31, 2013 and 2012, except for DaVita Inc. (“DaVita”), which accounted for approximately 10.1%, or approximately $11,988,000, for the three months ended October 31, 2013 and approximately 10.4%, or $10,360,000, for the three months ended October 31, 2012, of our consolidated net sales. For the three months ended October 31, 2013, DaVita accounted for approximately 23.1% and 38.5% 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. This segment also offers disposable infection control products intended to eliminate the challenges associated with proper cleaning and high-level disinfection 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 membrane filtration and separation technologies 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 sterilants, disinfectants and decontamination services used in various applications for infection prevention and control.

DaVita and another large customer accounted for approximately 23.1% and 23.8%, respectively, of our Water Purification and Filtration segment net sales for the three months ended October 31, 2013. Combined, these two customers accounted for approximately 18.1% of our consolidated net sales for the three months ended October 31, 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 manufactures and provides biological and chemical indicators for sterility assurance monitoring services in the acute-care, alternate-care and dental markets.

Four customers collectively accounted for approximately 55.6% of our Healthcare Disposables segment net sales and approximately 12.3% of our consolidated net sales for the three months ended October 31, 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.

Other

In accordance with quantitative thresholds established by ASC 280, the Specialty Packaging operating segment is reported in the Other reporting segment.

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.

The operating segments follow the same accounting policies used for our Condensed Consolidated Financial Statements as described in Note 2 to the 2013 Form 10-K.

Information as to operating segments is summarized below:

	Three Months Ended
	October 31,
	2013			2012
Net sales:
Endoscopy	$	43,613,000		$	36,679,000
Water Purification and Filtration	39,750,000			33,161,000
Healthcare Disposables	26,249,000			19,955,000
Dialysis	7,309,000			8,187,000
Other	1,351,000			1,699,000
Total	$	118,272,000		$	99,681,000
Operating income:
Endoscopy	$	8,184,000		$	7,676,000
Water Purification and Filtration	6,057,000			4,627,000
Healthcare Disposables	5,719,000			4,091,000
Dialysis	1,764,000			2,176,000
Other	5,000			213,000
	21,729,000			18,783,000
General corporate expenses	(3,417,000		)	(2,811,000		)
Interest expense, net	(644,000		)	(633,000		)
Income before income taxes	$	17,668,000		$	15,339,000