10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

xQuarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended January 31, 2015.

or

oTransition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from            to           .

Commission file number: 001-31337

CANTEL MEDICAL CORP.

(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.)
150 Clove Road, Little Falls, New Jersey	07424	(973) 890-7220
(Address of principal executive offices)	(Zip code)	(Registrant’s telephone number, including area code)

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 such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

Number of shares of common stock outstanding as of February 28, 2015: 41,527,185.

PART I - FINANCIAL INFORMATION

ITEM 1. - FINANCIAL STATEMENTS

CANTEL MEDICAL CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar Amounts in Thousands, Except Share Data)

(Unaudited)

	January 31,			July 31,
	2015			2014
Assets
Current assets:
Cash and cash equivalents	$	24,092		$	31,781
Accounts receivable, net of allowance for doubtful accounts of $1,908 at January 31 and $1,874 at July 31	65,217			62,225
Inventories:
Raw materials	28,974			27,365
Work-in-process	9,218			7,510
Finished goods	27,037			24,862
Total inventories	65,229			59,737
Deferred income taxes	4,283			3,551
Prepaid expenses and other current assets	9,767			6,615
Income taxes receivable	1,166			—
Business held-for-sale	8,207			—
Total current assets	177,961			163,909
Property and equipment, net	61,408			52,718
Intangible assets, net	86,926			82,952
Goodwill	235,818			231,647
Other assets	5,562			4,919
	$	567,675		$	536,145
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	18,181		$	19,529
Compensation payable	10,151			14,866
Accrued expenses	16,761			15,109
Deferred revenue	16,362			16,102
Income taxes payable	—			893
Business held-for-sale	852			—
Total current liabilities	62,307			66,499
Long-term debt	95,500			80,500
Deferred income taxes	22,134			17,805
Contingent consideration	2,888			2,722
Other long-term liabilities	4,489			3,373
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; January 31 - 45,817,397 shares issued and 41,517,595 shares outstanding; July 31 - 45,641,688 shares issued and 41,442,260 shares outstanding	4,582			4,564
Additional paid-in capital	152,061			146,048
Retained earnings	263,554			243,306
Accumulated other comprehensive income	2,052			9,552
Treasury Stock, at cost; January 31 - 4,299,802 shares; July 31 - 4,199,428 shares	(41,892		)	(38,224		)
Total stockholders’ equity	380,357			365,246
	$	567,675		$	536,145

See accompanying notes.

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CANTEL MEDICAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollar Amounts in Thousands, Except Per Share Data)

(Unaudited)

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2015			2014			2015			2014
Net sales
Product sales	$	118,350		$	105,948		$	238,149		$	211,125
Product service	17,080			13,094			34,092			26,189
Total net sales	135,430			119,042			272,241			237,314
Cost of sales
Product sales	63,073			57,407			127,169			114,810
Product service	11,766			9,300			23,967			18,670
Total cost of sales	74,839			66,707			151,136			133,480
Gross profit	60,591			52,335			121,105			103,834
Expenses:
Selling	19,257			16,077			38,668			31,841
General and administrative	19,822			15,557			38,329			30,721
Research and development	3,211			2,492			6,760			4,751
Total operating expenses	42,290			34,126			83,757			67,313
Income before interest and income taxes	18,301			18,209			37,348			36,521
Interest expense	661			645			1,211			1,302
Interest income	(15		)	(15		)	(31		)	(28		)
Income before income taxes	17,655			17,579			36,168			35,247
Income taxes	6,570			6,453			13,844			12,936
Net income	$	11,085		$	11,126		$	22,324		$	22,311
Earnings per common share:
Basic	$	0.27		$	0.27		$	0.54		$	0.54
Diluted	$	0.27		$	0.27		$	0.54		$	0.54
Dividends per common share	$	0.05		$	—		$	0.05		$	0.05

See accompanying notes.

3

CANTEL MEDICAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollar Amounts in Thousands)

(Unaudited)

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2015			2014			2015			2014
Net income	$	11,085		$	11,126		$	22,324		$	22,311
Other comprehensive loss:
Foreign currency translation, net of tax	(5,609		)	(1,401		)	(7,500		)	(1,674		)
Unrealized holding losses on interest rate swaps arising during the period, net of tax	—			(9		)	—			(30		)
Reclassification adjustments to interest expense for losses on interest rate swap included in net income during the period, net of tax	—			30			—			60
Reclassification adjustment to interest expense for ineffective hedge on interest rate swap included in net income during the period, net of tax	—			73			—			73
Total other comprehensive loss, net of tax	(5,609		)	(1,307		)	(7,500		)	(1,571		)
Comprehensive income	$	5,476		$	9,819		$	14,824		$	20,740

See accompanying notes.

4

CANTEL MEDICAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar Amounts in Thousands)

(Unaudited)

	Six Months Ended
	January 31,
	2015			2014
Cash flows from operating activities
Net income	$	22,324		$	22,311
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	4,853			3,967
Amortization	6,188			5,245
Stock-based compensation expense	3,001			2,556
Amortization of debt issuance costs	200			162
Loss on disposal of fixed assets	37			296
Deferred income taxes	676			575
Excess tax benefits from stock-based compensation	(2,463		)	(3,297		)
Changes in assets and liabilities, net of assets acquired and liabilities assumed:
Accounts receivable	319			(7,190		)
Inventories	(3,115		)	(1,812		)
Prepaid expenses and other current assets	(3,822		)	(1,225		)
Accounts payable and other current liabilities	(9,463		)	(1,807		)
Income taxes	103			1,768
Net cash provided by operating activities	18,838			21,549
Cash flows from investing activities
Capital expenditures	(5,272		)	(4,363		)
Proceeds from disposal of fixed assets	34			3
Net asset value adjustment for PuriCore Acquisition	337			—
Acquisition of IMS, net of cash acquired	(21,817		)	—
Acquisition of PWS	(11,879		)	—
Acquisition of Jet Prep, net of cash acquired	—			(5,332		)
Acquisition of Sterilator, net of cash acquired	—			(2,829		)
Other, net	746			(319		)
Net cash used in investing activities	(37,851		)	(12,840		)
Cash flows from financing activities
Borrowings under revolving credit facility	37,000			—
Repayments under term loan facility	—			(5,000		)
Repayments under revolving credit facility	(22,000		)	(15,500		)
Proceeds from exercises of stock options	323			207
Dividends paid	(2,076		)	(1,858		)
Excess tax benefits from stock-based compensation	2,463			3,297
Purchases of treasury stock	(3,424		)	(4,057		)
Net cash provided by (used in) financing activities	12,286			(22,911		)
Effect of exchange rate changes on cash and cash equivalents	(962		)	(168		)
Decrease in cash and cash equivalents	(7,689		)	(14,370		)
Cash and cash equivalents at beginning of period	31,781			34,076
Cash and cash equivalents at end of period	$	24,092		$	19,706

See accompanying notes.

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CANTEL MEDICAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2014 (the “2014 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, 2014 was derived from the audited Consolidated Balance Sheet of Cantel at that date.

As more fully described in Note 14 to the Condensed Consolidated Financial Statements, we operate our business through the following five operating segments: Endoscopy, Water Purification and Filtration, Healthcare Disposables, Dialysis and Specialty Packaging. The Specialty Packaging operating segment comprises the Other reporting segment for financial reporting purposes.

We operate our five 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., Biolab Equipment Ltd., Saf-T-Pak Inc., Medivators B.V. and effective November 3, 2014, Cantel Medical (Italy) S.r.l., formerly known as International Medical Service S.r.l.

In our current fiscal year, we acquired certain net assets of Pure Water Solutions, Inc. (“PWS”) on January 1, 2015 (the “PWS Acquisition”) and 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. With the exception of acquisition related costs primarily related to the IMS Acquisition, the acquisitions of PWS and IMS did not have a significant effect on our consolidated results of operations for the three and six months ended January 31, 2015 due to the size of the acquisitions in relation to our overall consolidated results of operations and are not reflected in our consolidated results of operations for the three and six months ended January 31, 2014. The PWS Acquisition is included in our Water Purification and Filtration segment and the IMS Acquisition 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.

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In our prior fiscal year, we acquired all the issued and outstanding capital stock of PuriCore International Limited (“PuriCore”) on June 30, 2014 (the “PuriCore Acquisition”), Sterilator Company, Inc. (“Sterilator”) on January 7, 2014 (the “Sterilator Acquisition”) and Jet Prep Ltd. (“Jet Prep”) on November 5, 2013 (the “Jet Prep Acquisition”), as more fully described in Note 3 to the Condensed Consolidated Financial Statements.  Accordingly, the businesses of Sterilator (the “Sterilator Business”) and Jet Prep (the “Jet Prep Business”) are reflected in our consolidated results of operations for the three and six months ended January 31, 2015 and the portion of the three and six months ended January 31, 2014 subsequent to their acquisition dates. The business of PuriCore (the “PuriCore Business”) is reflected in our consolidated results of operations for the three and six months ended January 31, 2015 and is not included in the three and six months ended January 31, 2014. With the exception of acquisition related costs primarily related to the PuriCore Acquisition, these acquisitions did not have a significant effect on our consolidated results of operations for the three and six months ended January 31, 2015 and 2014 due to the size of the acquisitions in relation to our overall consolidated results of operations. The PuriCore and Jet Prep Businesses are included in our Endoscopy segment and the Sterilator Business is included in our Healthcare Disposables segment. Subsequent to its acquisition, we changed the name of PuriCore to Cantel Medical (UK) Limited.

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 February 20, 2015, we acquired all of the issued and outstanding stock of MRLB International, Inc. (“MRLB”) to obtain the DentaPure® dental waterline disinfection product line (the “DentaPure Acquisition”), as more fully described in Note 3 to the Condensed Consolidated Financial Statements. Since this acquisition occurred after January 31, 2015, its results of operations are not included in any periods presented. We do not expect the DentaPure Acquisition to have a significant effect on our consolidated results of operations for the remainder of fiscal 2015 due to the size of the acquisition in relation to our overall consolidated results of operations. The DentaPure Acquisition will be included in our Healthcare Disposables segment.

We performed a review of events subsequent to January 31, 2015. Based upon that review, no other subsequent events occurred that required updating to our Condensed Consolidated Financial Statements or disclosures.

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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,
	2015			2014			2015			2014
Cost of sales	$	63,000		$	109,000		$	162,000		$	171,000
Operating expenses:
Selling	120,000			191,000			306,000			301,000
General and administrative	1,223,000			1,090,000			2,502,000			2,054,000
Research and development	14,000			18,000			31,000			30,000
Total operating expenses	1,357,000			1,299,000			2,839,000			2,385,000
Stock-based compensation before income taxes	1,420,000			1,408,000			3,001,000			2,556,000
Income tax benefits	(507,000		)	(493,000		)	(1,046,000		)	(905,000		)
Total stock-based compensation expense, net of tax	$	913,000		$	915,000		$	1,955,000		$	1,651,000

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 an increase to 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 options and 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 award 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, 2015, total unrecognized stock-based compensation expense, before income taxes, related to total nonvested stock options and stock awards was $8,645,000 with a remaining weighted average period of 21 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.

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A summary of nonvested stock award activity follows:

			Weighted
	Number of		Average
	Shares		Fair Value
Nonvested stock awards at July 31, 2014	525,842		$	22.25
Granted	107,933		36.83
Canceled	(11,466	)	25.55
Vested	(283,793	)	17.60
Nonvested stock awards at January 31, 2015	338,516		$	30.68

For the six months ended January 31, 2015 and 2014, the Company granted 25,000 and 30,000 options, respectively.

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, 2015 and 2014:

Weighted-Average
Black-Scholes Option	Six Months Ended		Six Months Ended
Valuation Assumptions	January 31, 2015		January 31, 2014
Dividend yield	0.25	%	0.28	%
Expected volatility (1)	33.90	%	42.70	%
Risk-free interest rate (2)	1.55	%	1.44	%
Expected lives (in years) (3)	5.00		5.00

(1) Volatility was based on historical closing prices of our common stock.

(2) The U.S. Treasury rate on the expected life at the date of grant.

(3) Based on historical exercise behavior.

For the six months ended January 31, 2015 and 2014, these non-qualified options had a weighted average fair value of $11.54 and $12.08, respectively.

The aggregate intrinsic value (i.e., the excess market price over the exercise price) of all options exercised was $2,420,000 for the six months ended January 31, 2015, all of which occurred during our first quarter, and $1,748,000 and $2,419,000 for the three and six months ended January 31, 2014, respectively.

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A summary of stock option activity follows:

			Weighted
	Number of		Average
	Shares		Exercise Price
Outstanding at July 31, 2014	222,492		$	12.78
Granted	25,000		36.70
Exercised	(79,242	)	7.16
Outstanding at January 31, 2015	168,250		$	18.99
Exercisable at July 31, 2014	157,492		$	8.21
Exercisable at January 31, 2015	105,750		$	12.70

If certain criteria are met when options are exercised or restricted stock becomes vested, the Company is allowed a deduction on its United States income tax return. Accordingly, we account for the income tax effect on such income tax deductions as a reduction of previously recorded long-term deferred income tax assets (which are netted with long-term deferred income tax liabilities) and as a reduction of income taxes payable in the year of the deduction. 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 long-term deferred income tax assets are recorded as additional paid-in capital. For the six months ended January 31, 2015 and 2014, income tax deductions of $4,271,000 and $4,516,000, respectively, were generated and increased additional paid-in capital by $2,463,000 and $3,297,000, respectively. We classify the cash flows resulting from excess tax benefits as financing cash flows in our Condensed Consolidated Statements of Cash Flows.

Note 3.Acquisitions

DentaPure

On February 20, 2015, we purchased all of the issued and outstanding stock of MRLB International, Inc., 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. The DentaPure product line will be integrated into the Crosstex product portfolio and reported in the Healthcare Disposables segment. The total consideration for the transaction was $9,980,000, excluding acquisition-related costs.

The principal reasons for the acquisition were to (i) leverage the sales and marketing infrastructure of Crosstex 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 earnings per share (“EPS”) in fiscal 2016 and beyond. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill.

10

Since this acquisition occurred after January 31, 2015, its results of operations are not included in any periods presented. Additionally, we do not expect the DentaPure Acquisition to have a significant effect on our consolidated results of operations for the remainder of fiscal 2015 due to the size of the acquisition 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 with pre-acquisition annual revenues (unaudited) of approximately $8,000,000.  PWS is based out of Ridgeland, Mississippi and provides water treatment services for commercial and industrial, laboratory, and medical customers (the “PWS Business”). The PWS Business is included in our Water Purification and Filtration segment. The total consideration for the transaction, excluding acquisition-related costs, was $11,830,000 net of a preliminary $49,000 net asset value adjustment to be paid by the seller.

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	$	1,420,000
Property, plant and equipment	1,966,000
Amortizable intangible assets (12- year weighted average life):
Customer relationships (12- year life)	6,040,000
Brand names (1- year life)	30,000
Other assets	20,000
Current liabilities	(503,000		)
Net assets acquired	$	8,973,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $2,857,000 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 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, 2015 subsequent to its acquisition date and is not reflected in the three and six months ended January 31, 2014. This acquisition did not have a significant effect on our consolidated results of operations for the three and six months ended January 31, 2015 due to the size of the acquisition 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

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control chemistries used in healthcare and dental markets, as well as technical service (the “IMS Business”). 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 portion of which was subsequently repaid, and a preliminary reconciling adjustment payable to the seller of $295,000 relating to the debt assumed.

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	$	8,628,000
Property, plant and equipment	7,774,000
Amortizable intangible assets (9- year weighted average life):
Customer relationships (9- year life)	5,650,000
Technology (9- year life)	1,381,000
Other assets	198,000
Current liabilities	(5,843,000		)
Deferred income tax liabilities	(3,475,000		)
Other long-term liabilities	(1,002,000		)
Net assets acquired	$	13,311,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $11,299,000 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 acquisition were as follows: (i) the addition of a high quality manufacturing facility in Europe eliminating freight and logistics expenses related to shipping chemistries overseas, (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 product portfolio, (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.

PuriCore International Limited

On June 30, 2014, we acquired from PuriCore plc, a publicly traded company in the United Kingdom (“UK”), all the issued and outstanding stock of its subsidiary PuriCore International Limited, a company located in the UK with pre-acquisition annual revenues (unaudited) of approximately $25,000,000 that sells automated endoscope reprocessors, endoscope drying and storage cabinets, chemistry and consumables, as well as comprehensive maintenance and validation services, primarily in the UK (the “PuriCore Business”). The total consideration for the transaction, excluding acquisition-related costs of $703,000, was $27,675,000, net of a $337,000 net asset value adjustment paid by the seller in August 2014. The PuriCore Business is included in our Endoscopy segment.

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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	$	8,982,000
Property, plant and equipment	972,000
Amortizable intangible assets (9- year weighted average life):
Customer relationships (10- year life)	11,340,000
Technology (6- year life)	1,760,000
Other (3- year life)	93,000
Non-current deferred income tax assets, net	1,924,000
Current liabilities	(10,085,000		)
Other long-term liabilities	(753,000		)
Net assets acquired	$	14,233,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $13,442,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, has been included in our Endoscopy segment. Following the acquisition, we changed the name of PuriCore to Cantel Medical (UK) Limited.

In connection with the acquisition, we acquired certain ordinary course business assets and liabilities which included 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 PuriCore’s discontinued endoscope reprocessing machine models. Although the terms of the guarantee provide for no limit to the maximum potential future payments, we have estimated the fair value of the liability on the date of the acquisition to be approximately $1,414,000, of which $693,000 was recorded in current liabilities and $721,000 was recorded in other long-term liabilities at July 31, 2014. This contingent guaranteed obligation increased goodwill on the date of the acquisition and is continually re-measured at each balance sheet date by recording changes in the fair value of the liability to general and administrative expenses in our Condensed Consolidated Statements of Income, as further explained in Note 6 of the Condensed Consolidated Financial Statements. At January 31, 2015, such liability was $1,040,000 of which $562,000 was recorded in current liabilities and $478,000 was recorded in other long-term liabilities.

Since we will be continually re-measuring the contingent guaranteed obligation at each balance sheet date and recording changes in the fair value through our Condensed Consolidated Statements of Income, we may potentially have significant earnings volatility in our future results of operations until the discontinued endoscope reprocessing machine model is no longer used in the marketplace.

The principal reasons for the acquisition were as follows: (i) the expansion of our product offerings with a broader range of advanced endoscope reprocessing equipment suitable for various international markets, (ii) the opportunity to sell our chemistries and other products to PuriCore’s installed base through a direct sales force, (iii) the opportunity to transition our existing UK business from a distribution model to a direct sales model, (iv) the ability to expand our footprint and infrastructure in Europe and (v) the expectation that the acquisition will be accretive to our earnings per share in fiscal 2015 and beyond.

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The PuriCore Business is included in our results of operations for the three and six months ended January 31, 2015 and is not reflected in the three and six months ended January 31, 2014. This acquisition did not have a significant effect on our consolidated results of operations for the three and six months ended January 31, 2015 due to the size of the acquisition in relation to our overall consolidated results of operations.

Sterilator Company, Inc.

On January 7, 2014, we acquired all the issued and outstanding stock of Sterilator, a private company based in Cuba, New York that manufactures biological indicators and supplies for sterility assurance products, which are used to accurately monitor the effectiveness of sterilization processes. The total consideration for the transaction was $3,349,000.

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	$	1,058,000
Property, plant and equipment	521,000
Amortizable intangible assets (9- year weighted average life):
Customer relationships (11- year life)	130,000
Technology (8- year life)	510,000
Current liabilities	(321,000		)
Deferred income tax liabilities	(276,000		)
Net assets acquired	$	1,622,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $1,727,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, has been included in our Healthcare Disposables segment.

The principal reasons for this vertical acquisition were to (i) add one of our key long-standing suppliers of biological indicators to our portfolio providing a strategic benefit and cost savings to our overall sterility assurance monitoring business and (ii) strengthen our new product development and overall research and development capabilities. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill.

The Sterilator Business is included in our results of operations for the three and six months ended January 31, 2015 and the portion of the three and six months ended January 31, 2014 subsequent to its acquisition date. This acquisition had an insignificant impact on our results of operations due to the small size of this business.

Jet Prep Ltd.

On November 5, 2013, we acquired all the issued and outstanding capital stock of Jet Prep, a private Israeli company that developed the Jet PrepTM Endoscopic Flushing Device, a novel single-use irrigation and aspiration catheter to improve visualization during colonoscopy procedures. The device has FDA 510(k) and CE Mark clearances and is in the beginning phase of commercialization by our global endoscopy sales force. Total consideration for the transaction, excluding transaction costs of $200,000, was $5,350,000 plus preliminarily estimated contingent

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consideration of $2,490,000 based on a percentage of sales above a minimum threshold over a seven year period, as further explained below. The Jet Prep Business is included in our Endoscopy segment.

We account for contingent consideration by recording the fair value of contingent consideration as a liability and an increase in goodwill on the date of the acquisition and continually re-measure the liability at each balance sheet date by recording changes in the fair value through our Condensed Consolidated Statements of Income. Accordingly, on November 5, 2013 we increased contingent consideration and goodwill by $2,490,000 to record our initial estimated fair value of the contingent consideration that would be earned over the seven year period ending November 4, 2020. On a quarterly basis subsequent to November 5, 2013, we re-measured the fair value of the contingent consideration and recorded the changes in fair value by increasing both contingent consideration and general and administrative expenses, as further explained in Note 6 of the Condensed Consolidated Financial Statements. At January 31, 2015, the estimated fair value was $2,888,000 and was recorded in contingent consideration in the Condensed Consolidated Balance Sheets.

In connection with the acquisition, we acquired certain ordinary course business assets and liabilities as well as an obligation to repay the Israeli Government for $810,000 of seed funding that was previously granted to Jet Prep. In accordance with the seed funding agreement, the Israeli Government is entitled to a return on their investment that can range from one to nine times their total grant based upon specific conditions set forth in the seed funding agreement and applicable Israeli law, including the acceleration of payments if we transfer certain operations of the company or intellectual property outside of Israel. We account for this assumed contingent obligation to the Israeli Government by recording the fair value as a liability and an increase in goodwill on the date of the acquisition and continually re-measure the liability at each balance sheet date by recording changes in the fair value through our Condensed Consolidated Statements of Income. Accordingly, on November 5, 2013 we increased accrued expenses by $4,000, other long-term liabilities by $1,716,000 and goodwill by $1,720,000 to record our initial estimated fair value of the assumed contingent obligation to the Israeli Government that would be earned on a percentage of sales over a forecasted period. On a quarterly basis subsequent to November 5, 2013, we re-measured the fair value of the assumed contingent liability and recorded the changes in fair value by increasing both liabilities and general and administrative expenses, as further explained in Note 6 of the Condensed Consolidated Financial Statements. At January 31, 2015, the estimated fair value was $1,773,000, of which $11,000 was recorded in accrued expenses and $1,762,000 was recorded in other long-term liabilities.

Since we will be continually re-measuring the contingent consideration liability and the assumed contingent obligation at each balance sheet date and recording changes in the respective fair values through our Condensed Consolidated Statements of Income, we may potentially have significant earnings volatility in our future results of operations until the completion of the seven year period with respect to the contingent consideration and until the assumed contingent obligation is satisfied or until sales of the Jet Prep Ltd. products no longer exist.

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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	$	82,000
Property, plant and equipment	65,000
Amortizable intangible asset:
Technology (7- year life)	3,730,000
Current liabilities	(104,000		)
Other long-term liabilities	(1,716,000		)
Net assets acquired	$	2,057,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $5,783,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, has been included in our Endoscopy segment.

The principal reasons for the acquisition were (i) to address a market need for an effective technology that improves colonoscopy visualization through the use of irrigation and suction, (ii) to expand our endoscopy product portfolio further bolstering the Medivators brand in the gastrointestinal (“GI”) suite, (iii) to further expand our research and development capability by adding accomplished engineers to our existing research and development team and (iv) the expectation that the acquisition will be accretive to our earnings per share in fiscal 2015 and beyond.

The Jet Prep Business is included in our results of operations for the three and six months ended January 31, 2015 and the portion of the three and six months ended January 31, 2014 subsequent to its acquisition date. Since the commercialization of the Jet Prep Endoscopic Flushing Device is in the beginning phase, this acquisition has not yet generated any significant sales and did not have a significant impact on our results of operations.

Note 4.Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“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. ASU 2014-09 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 2014-09 on our financial position and results of operations.

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” (“ASU 2014-08”). Under the new guidance, only disposals representing a strategic shift in operations should be presented as

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discontinued operations. Those strategic shifts should have a major effect on an organization’s operations and financial results. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. ASU 2014-08 is effective for fiscal years beginning after December 15, 2014, with early adoption allowed. On October 31, 2014, we early adopted ASU 2014-08 and applied the new accounting guidance to our planned divestiture of our Specialty Packaging business, instead of recording it as a discontinued operation under the prior accounting guidance, by recording this business as held-for-sale on the Condensed Consolidated Balance Sheet and providing additional disclosures, as further explained in Note 15 of the Condensed Consolidated Financial Statements.

Note 5.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, 2015, all of our derivatives were designated as hedges, except for our remaining interest rate swap agreement, as further explained below. We do not hold any derivative financial instruments for speculative or trading purposes.

Changes in the value of (i) the Euro against the United States dollar, (ii) the Canadian dollar against the United States dollar, (iii) the Singapore dollar against the United States dollar and (iv) the British Pound 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, Canadian dollars, Euros, Singapore dollars or British Pounds, but must be converted into each entity’s functional currency.

In order to hedge against the impact of fluctuations in the value of (i) the Euro relative to the United States dollar, (ii) the Singapore dollar relative to the United States dollar and (iii) the British Pound 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, Singapore dollars and British Pounds forward, which contracts are one month in duration. These short-term contracts are designated as fair value hedge instruments. There were four foreign currency forward contracts with an aggregate value of $9,563,000 at January 31, 2015, which covered certain assets and liabilities that were denominated in currencies other than each entity’s functional currency. Such contracts expired on February 28, 2015. 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 substantially 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 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.  For the three and six months ended January 31, 2014, such forward contracts substantially offset the impact on operations relating to certain assets and liabilities that were denominated in currencies other than each entity’s functional

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currency resulting in net currency conversion losses, net of tax, of $34,000 and $96,000, respectively, on the items hedged. Gains and losses related to hedging contracts to buy Euros, Singapore dollars and British Pounds 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 relative to the United States dollar because the currency impact on our Canadian and United States assets typically offset the currency impact on our Canadian and United States liabilities effectively minimizing significant realized gains and losses. Additionally, we do not hedge transactions associated with the funding of international acquisitions due to the short-term nature of the foreign currency exposure.

The interest rate on our outstanding borrowings under our credit facilities is variable and is affected by the general level of interest rates in the United States as well as LIBOR interest rates, as more fully described in Note 9 to the Condensed Consolidated Financial Statements. In order to protect our interest rate exposure, we entered into forward starting interest rate swap agreements in February 2012 in which we agreed to exchange our variable interest cash flows with fixed interest cash flows provided by one of our existing senior lenders. Such interest rate swap agreements were designated as cash flow hedge instruments and were designed to be effective in offsetting changes in the cash flows related to the hedged borrowings. With respect to our former term loan facility, the interest rate swap is for the period that began August 8, 2012 and ends July 31, 2015, initially covering $40,000,000 of borrowings based on one-month LIBOR and thereafter reducing in quarterly $2,500,000 increments consistent with the mandatory repayment schedule, and the fixed interest cash flow is at a one month LIBOR rate of 0.664%. With respect to our revolving credit facility, the interest rate swap was for the period that began August 8, 2012 and ended January 31, 2014, initially covering $25,000,000 of borrowings based on one-month LIBOR and thereafter reduced semi-annually by increments of $5,000,000, and the fixed interest cash flow was at a one month LIBOR rate of 0.496%. As more fully described in Note 6 to the Condensed Consolidated Financial Statements, we account for the interest rate swap agreements by initially recording the fair value of the derivative instrument on the balance sheet as either an asset or liability, with a corresponding amount recorded in accumulated other comprehensive income. Amounts are reclassified from accumulated other comprehensive income to interest expense in the Condensed Consolidated Statements of Income in the period the hedged transaction affects earnings. At the hedge’s inception and on a regular basis thereafter, a formal assessment is performed to determine whether changes in the fair value or cash flows of the derivative instruments have been highly effective in offsetting changes in cash flows of the hedged items and whether they are expected to be highly effective in the future. This formal assessment includes a comparison of the terms of the interest rate swap agreements and hedged borrowings to ensure they coincide as well as an evaluation of the continued ability of the counterparty to the interest rate swap agreements and the Company to honor their obligations under such agreements. At January 31, 2014, our formal assessment concluded that the changes in the fair value of both derivative instruments that began on August 8, 2012 had been highly effective. However, the remaining derivative instrument, which relates solely to our former term loan facility, was determined to be ineffective beginning as of January 31, 2014 due to the modifications to our credit facilities in March 2014, as more fully described in Note 9 to the Condensed Consolidated Financial Statements. Accordingly, the fair value of the interest rate swap agreement of $113,000 relating to our former term loan facility was recognized in interest expense in January 2014. Changes in the fair value of the derivative instrument subsequent to January 31, 2014 are recognized immediately in interest expense.

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Note 6.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. As there are no withdrawal restrictions, they are classified within Level 1 of the fair value hierarchy and are valued using quoted market prices for identical assets.

In order to protect our interest rate exposure, we entered into forward starting interest rate swap agreements in February 2012 in which we agreed to exchange our variable interest cash flows with fixed interest cash flows provided by one of our existing senior lenders, as further described in Notes 5 and 9 to the Condensed Consolidated Financial Statements. Our interest rate swap agreements are classified within Level 2 and are valued using discounted cash flow analyses based on the terms of the contracts and interest rate curves. Changes in fair value of the interest rate swap agreement relating to our revolving credit facility were recorded in accumulated other comprehensive income in the Condensed Consolidated Statements of Comprehensive Income until the expiration of this interest rate swap on January 31, 2014. Amounts were reclassified from accumulated other comprehensive income in the period the hedged transaction affected earnings. Similarly, changes in fair value of the interest rate swap agreement relating to our former term loan facility were recorded in accumulated other comprehensive income in the Condensed Consolidated Statements of Comprehensive Income until January 31, 2014, at which time the interest rate swap agreement was determined to be ineffective and the remaining fair value of the derivative instrument was recognized in interest expense, as further explained in Note 5 to the Condensed Consolidated Financial Statements.

On June 30, 2014, we recorded a $1,414,000 liability for the estimated fair value of a contingent guaranteed obligation relating to the PuriCore Acquisition, as further described in Note 3 to the Condensed Consolidated Financial Statements. This fair value measurement was based on significant inputs not observed in the market and thus represents a Level 3 measurement. The fair

19

value of the contingent guaranteed obligation was based on the estimated cost to repair endoscopes that may be damaged by one of PuriCore’s discontinued endoscope reprocessing machine models that remains 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 guarantee 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 earnings volatility in our future results of operations related to this contingent guaranteed obligation.

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 Jet Prep Acquisition, as further described in Note 3 to the Condensed Consolidated Financial Statements. Both of these liabilities were estimated on the date of the acquisition using preliminary information and subsequently revised in July 2014. 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 the Jet Prep 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 Ltd. 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 resulted in total potential contingent consideration payments ranging between zero and approximately $7,000,000 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 $2,888,000 at January 31, 2015. With respect to the assumed contingent

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obligation, the different likely scenarios of future sales projections used in our fair value determination resulted in total potential future payments ranging between zero and approximately $2,430,000 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 $1,773,000 at January 31, 2015. Such fair value amounts would have been higher or lower if we had used different probability factors, future sales projections or discount factors. Given the subjective nature of the assumptions used in the determinations of fair value, we may potentially have earnings volatility in our future results of operations related to these Jet Prep obligations.

On August 1, 2011 (the first day of our fiscal 2012), we recorded a $3,000,000 liability for the estimated fair value of a three year price floor relating to the August 1, 2011 acquisition of the endoscopy procedural product business of Byrne Medical, Inc. (the “Byrne Medical Business” or the “Byrne Acquisition”). This fair value measurement was based on significant inputs not observed in the market and thus represented a Level 3 measurement.

After giving effect for the Company’s three-for-two stock splits, the stock portion of the consideration paid for the Byrne Acquisition consisted of 902,528 shares of Cantel common stock and was based on the closing price of Cantel common stock on the NYSE on July 29, 2011 ($11.08). Subject to certain conditions and limitations, under a three year price floor, we agreed that if the aggregate value of the stock consideration is less than $10,000,000 on July 31, 2014, we would pay to the seller in cash or stock (at our option) an amount equal to the difference between $10,000,000 and the then value of the shares (based on the closing price of Cantel common stock on the NYSE on July 31, 2014). This three-year price floor was a free standing financial instrument that we recorded as a liability at fair value on the date of acquisition.

The fair value of the three year price floor liability was determined using the Black-Scholes option valuation model, which was affected by our stock price and risk free interest rate as well as assumptions regarding a number of subjective variables, including, but not limited to, the expected stock price volatility of our common stock over the expected life of the instrument and the expected dividend yield. This liability was adjusted periodically by recording changes in the fair value through our Condensed Consolidated Statements of Income, as shown below in the reconciliation of our liabilities that are measured and recorded at fair value on a recurring basis, driven by the time value of money and changes in the assumptions that were initially used in the valuation. The decrease to the fair value of the price floor (as determined by the Black-Scholes option valuation model) was recorded as a decrease to accrued expenses and general and administrative expenses in the Condensed Consolidated Financial Statements and was primarily due to the impact of our stock price being higher than at the time of the acquisition, the life of the price floor being less than three years and changes in the expected stock price volatility. Based on the closing price of Cantel common stock on the NYSE of $33.53 on July 31, 2014, payment to the seller was not required.

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The fair values of the Company’s financial instruments measured on a recurring basis were categorized as follows:

	January 31, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Money markets	$	1,680,000	$	—	$	—	$	1,680,000
Total assets	$	1,680,000	$	—	$	—	$	1,680,000
Liabilities:
Accrued expenses:
Interest rate swap agreements	$	—	$	30,000	$	—	$	30,000
Assumed contingent obligation	—		—		11,000		11,000
Contingent guaranteed obligation	—		—		562,000		562,000
Total accrued expenses	—		30,000		573,000		603,000
Contingent consideration	—		—		2,888,000		2,888,000
Other long-term liabilities:
Assumed contingent obligation	—		—		1,762,000		1,762,000
Contingent guaranteed obligation	—		—		478,000		478,000
Total other long-term liabilities	—		—		2,240,000		2,240,000
Total liabilities	$	—	$	30,000	$	5,701,000	$	5,731,000

	July 31, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Money markets	$	1,702,000	$	—	$	—	$	1,702,000
Total assets	$	1,702,000	$	—	$	—	$	1,702,000
Liabilities:
Accrued expenses:
Interest rate swap agreements	$	—	$	69,000	$	—	$	69,000
Contingent guaranteed obligation	—		—		684,000		684,000
Total accrued expenses	—		69,000		684,000		753,000
Contingent consideration	—		—		2,722,000		2,722,000
Other long-term liabilities:
Assumed contingent obligation	—		—		1,752,000		1,752,000
Contingent guaranteed obligation	—		—		711,000		711,000
Total other long-term liabilities	—		—		2,463,000		2,463,000
Total liabilities	$	—	$	69,000	$	5,869,000	$	5,938,000

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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 six quarters is as follows:

							Jet Prep			PuriCore
	Byrne			Jet Prep			Assumed			Contingent
	Price			Contingent			Contingent			Guaranteed
	floor			Consideration			Consideration			Obligation			Total
Balance, July 31, 2013	$	45,000		$	—		$	—		$	—		$	45,000
Total net unrealized gains included in general and administrative expense in earnings	(44,000		)	—			—			—			(44,000		)
Balance, October 31, 2013	1,000			—			—			—			1,000
Total net unrealized gains included in general and administrative expense in earnings	(1,000		)	—			—			—			(1,000		)
Consideration issued and obligation assumed (1)	—			4,760,000			990,000			—			5,750,000
Balance, January 31, 2014	—			4,760,000			990,000			—			5,750,000
Total net unrealized losses included in general and administrative expense in earnings	—			266,000			55,000			—			321,000
Balance, April 30, 2014	—			5,026,000			1,045,000			—			6,071,000
Total net unrealized gains included in general and administrative expense in earnings	—			(34,000		)	(23,000		)	—			(57,000		)
Consideration issued and obligation assumed (1)	—			(2,270,000		)	730,000			1,414,000			(126,000		)
Settlements	—			—			—			(19,000		)	(19,000		)
Balance, July 31, 2014	—			2,722,000			1,752,000			1,395,000			5,869,000
Total net unrealized losses included in general and administrative expense in earnings	—			82,000			11,000			54,000			147,000
Settlements	—			—			—			(132,000		)	(132,000		)
Foreign currency translation	—			—			—			(77,000		)	(77,000		)
Balance, October 31, 2014	—			2,804,000			1,763,000			1,240,000			5,807,000
Total net unrealized losses included in general and administrative expense in earnings	—			84,000			10,000			33,000			127,000
Settlements	—			—			—			(164,000		)	(164,000		)
Foreign currency translation	—			—			—			(69,000		)	(69,000		)
Balance, January 31, 2015	$	—		$	2,888,000		$	1,773,000		$	1,040,000		$	5,701,000

(1) Both of the Jet Prep liabilities were estimated on the date of the acquisition using preliminary information and subsequently revised in July 2014.

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

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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. On July 31, 2014, management concluded 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, 2015 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, 2015 and July 31, 2014, 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, 2015 and July 31, 2014, 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.

Note 7.Intangible Assets and Goodwill

Our intangible assets with definite lives consist of customer relationships, technology, brand names, non-compete agreements and patents. These intangible assets are being amortized using the straight-line method over the estimated useful lives of the assets ranging from 1-20 years and have a weighted average amortization period of 11 years. Amortization expense related to definite lived intangible assets was $3,232,000 and $6,188,000 for the three and six months ended January 31, 2015, respectively, and $2,619,000 and $5,245,000 for the three and six months ended January 31, 2014, respectively. Our intangible assets that have indefinite useful lives, and therefore are not amortized, consist of trademarks and trade names.

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The Company’s intangible assets consist of the following:

	January 31, 2015
			Accumulated
	Gross		Amortization			Net
Intangible assets with finite lives:
Customer relationships	$	92,892,000	$	(35,105,000	)	$	57,787,000
Technology	25,695,000		(11,047,000		)	14,648,000
Brand names	12,710,000		(10,129,000		)	2,581,000
Non-compete agreements	3,129,000		(876,000		)	2,253,000
Patents and other registrations	2,066,000		(714,000		)	1,352,000
	136,492,000		(57,871,000		)	78,621,000
Trademarks and trade names	8,305,000		—			8,305,000
Total intangible assets	$	144,797,000	$	(57,871,000	)	$	86,926,000
	July 31, 2014
			Accumulated
	Gross		Amortization			Net
Intangible assets with finite lives:
Customer relationships	$	83,145,000	$	(31,336,000	)	$	51,809,000
Technology	26,405,000		(11,444,000		)	14,961,000
Brand names	12,680,000		(9,431,000		)	3,249,000
Non-compete agreements	3,129,000		(754,000		)	2,375,000
Patents and other registrations	2,073,000		(792,000		)	1,281,000
	127,432,000		(53,757,000		)	73,675,000
Trademarks and trade names	9,277,000		—			9,277,000
Total intangible assets	$	136,709,000	$	(53,757,000	)	$	82,952,000

Estimated amortization expense of our intangible assets for the remainder of fiscal 2015 and the next five years is as follows:

Six month period ending July 31, 2015	$	6,665,000
Fiscal 2016	9,843,000
Fiscal 2017	9,265,000
Fiscal 2018	8,963,000
Fiscal 2019	8,640,000
Fiscal 2020	6,883,000

Goodwill changed during fiscal 2014 and the six months ended January 31, 2015 as follows:

				Water
				Purification			Healthcare							Total
	Endoscopy			and Filtration			Disposables		Dialysis		Other			Goodwill
Balance, July 31, 2013	$	59,230,000		$	57,179,000		$	80,108,000	$	8,133,000	$	6,968,000		$	211,618,000
Acquisitions	19,225,000			—			1,727,000		—		—			20,952,000
Foreign currency translation	(181,000		)	(341,000		)	—		—		(401,000		)	(923,000		)
Balance, July 31, 2014	78,274,000			56,838,000			81,835,000		8,133,000		6,567,000			231,647,000
Acquisitions	11,299,000			2,857,000			—		—		—			14,156,000
Foreign currency translation	(2,623,000		)	(795,000		)	—		—		(932,000		)	(4,350,000		)
Business held-for-sale	—			—			—		—		(5,635,000		)	(5,635,000		)
Balance, January 31, 2015	$	86,950,000		$	58,900,000		$	81,835,000	$	8,133,000	$	—		$	235,818,000

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On July 31, 2014, 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, 2014, the average fair value of all of our reporting units exceeded book value by substantial amounts, except our Specialty Packaging segment, which had an average estimated fair value that exceeded book value by a nominal amount. Goodwill relating to our Specialty Packaging reporting unit was $5,635,000 at January 31, 2015 and was reclassified from goodwill to business held-for-sale, as further described in Note 15 to the Condensed Consolidated Financial Statements. We believe the most significant assumptions impacting the impairment assessment of Specialty Packaging relate to the assumed compounded annual sales growth and future operating efficiencies included in our projections of future operating results and cash flows of this segment, which projections are in excess of historical run rates. If future operating results and cash flows are substantially less than our projections and the expected sale of the Specialty Packaging business does not occur or is completed at a sales price that is less than book value, future impairment charges may be recorded. For instance, if our future fair value calculation or the sales price of the business is 10% less than its book value, a future charge of approximately $850,000, net of tax, would be recorded. On January 31, 2015, management concluded that no events or changes in circumstances have occurred during the six months ended January 31, 2015 that would indicate that the carrying amount of our intangible assets and goodwill may not be recoverable.

Note 8.Warranties

A summary of activity in the Company’s warranty reserves follows:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2015			2014			2015			2014
Beginning balance	$	1,689,000		$	1,261,000		$	1,589,000		$	1,261,000
Provisions	593,000			546,000			1,306,000			1,237,000
Settlements	(681,000		)	(605,000		)	(1,281,000		)	(1,296,000		)
Foreign currency translation	(21,000		)	(1,000		)	(34,000		)	(1,000		)
Acquisitions	117,000			—			117,000			—
Ending balance	$	1,697,000		$	1,201,000		$	1,697,000		$	1,201,000

The warranty provisions and settlements for the three and six months ended January 31, 2015 and 2014 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.

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Note 9.Financing Arrangements

In March 2014, we modified our existing $100,000,000 senior secured revolving credit facility (the “Existing Revolving Credit Facility”) and $50,000,000 senior secured term loan facility (the “Existing Term Loan Facility”) by entering into a $250,000,000 Third Amended and Restated Credit Agreement dated as of March 4, 2014 (the “New Credit Agreement”). The New 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 “New Revolving Credit Facility”).  The Existing Term Loan Facility was terminated after the outstanding balance was reassigned to the New 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 New 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 New 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 New Credit Agreement which was recorded in other assets along with the remaining unamortized debt issuance costs of $512,000 relating to the Existing Revolving Credit Facility. The total of these two amounts is being amortized over the life of the New Credit Agreement. The remaining unamortized debt issuance costs of $84,000 relating to the Existing Term Loan Facility was charged to interest expense on March 4, 2014 when the Existing Term Loan Facility was terminated. At January 31, 2015, unamortized debt issuance costs recorded in other assets amounted to $1,495,000.

Borrowings under the New 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 New Credit Agreement (“Consolidated EBITDA”). At January 31, 2015, the lender’s base rate was 3.50% and the LIBOR rates ranged from 0.17% to 0.56%. The margins applicable to our outstanding borrowings were 0.25% above the lender’s base rate or 1.25% above LIBOR. Substantially all of our outstanding borrowings were under LIBOR contracts at January 31, 2015. The New Credit Agreement also provides for fees on the unused portion of our facilities at rates ranging from 0.20% to 0.40%, depending upon our Consolidated Leverage Ratio; such rate was 0.20% at January 31, 2015.

In order to protect our interest rate exposure in future years, we entered into forward starting interest rate swap agreements in February 2012 in which we agreed to exchange our variable interest cash flows with fixed interest cash flows provided by one of our existing senior lenders. With respect to our Existing Term Loan Facility, the interest rate swap is for the period that began August 8, 2012 and ends July 31, 2015, initially covering $40,000,000 of borrowings based on one-month LIBOR and thereafter reducing in quarterly $2,500,000 increments consistent with the mandatory repayment schedule, and the fixed interest cash flow is at a one month LIBOR rate of 0.664%. As a result of the termination of our Existing Term Loan Facility, this interest rate swap is no longer considered effective in mitigating the adverse impact on interest expense of increases in LIBOR. With respect to our Existing Revolving Credit Facility, the interest rate swap was for the period that began August 8, 2012 and ended January 31, 2014, initially covering $25,000,000 of borrowings based on one-month LIBOR and thereafter reducing semi-annually by increments of $5,000,000, and the fixed interest cash flow was at a one month LIBOR rate of 0.496%.

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The New 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 New Credit Agreement.

On January 31, 2015, we had $95,500,000 of outstanding borrowings under the New Credit Agreement. Subsequent to January 31, 2015, we borrowed $10,000,000 under the New Credit Agreement to fund the DentaPure Acquisition but repaid $3,000,000 resulting in total outstanding borrowings of $102,500,000 at February 28, 2015.

Note 10.Earnings Per Common Share

Basic EPS is computed based upon the weighted average number of common shares outstanding during the period. Diluted EPS is computed based upon the weighted average number of common shares outstanding during the period plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the period.

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.

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The following table sets forth the 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,
	2015			2014			2015			2014
Numerator for basic and diluted earnings per share:
Net income	$	11,085,000		$	11,126,000		$	22,324,000		$	22,311,000
Less income allocated to participating securities	(88,000		)	(149,000		)	(218,000		)	(309,000		)
Net income available to common stockholders	$	10,997,000		$	10,977,000		$	22,106,000		$	22,002,000
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	41,176,804			40,754,707			41,079,573			40,668,731
Dilutive effect of stock options using the treasury stock method and the average market price for the period	60,043			183,995			75,823			188,201
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock	41,236,847			40,938,702			41,155,396			40,856,932
Earnings per share attributable to common stock:
Basic earnings per share	$	0.27		$	0.27		$	0.54		$	0.54
Diluted earnings per share	$	0.27		$	0.27		$	0.54		$	0.54
Stock options excluded from weighted average dilutive common shares outstanding because their inclusion would have been antidilutive	—			30,000			—			—

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, are set forth in the following table:

	Three Months Ended		Six Months Ended
	January 31,		January 31,
	2015	2014	2015	2014
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock	41,236,847	40,938,702	41,155,396	40,856,932
Participating securities	346,684	554,029	413,472	576,119
Total weighted average number of shares and common stock equivalents attributable to both common stock and participating securities	41,583,531	41,492,731	41,568,868	41,433,051

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Note 11.Income Taxes

The consolidated effective tax rate was 38.3% and 36.7% for the six months ended January 31, 2015 and 2014, respectively. The increase in the consolidated effective tax rate was principally due to certain non-deductible acquisition related charges and initial operating losses recorded in our international operations during the six months ended January 31, 2015 and the geographic mix of pre-tax income, partially offset by the re-enactment of Federal tax legislation.

For the six months ended January 31, 2015, our international operations, which included Canada, China, the Netherlands, Israel, Italy, Singapore and the United Kingdom, generated a combined loss primarily due to (i) the recording of certain acquisition related costs, the majority of which are not tax deductible, (ii) initial operating losses in our acquired Jet Prep entity for which no corresponding tax benefit was recorded since the commercialization of the product is in the beginning phase, (iii) initial operating losses in our acquired UK and Italy entities due primarily to acquisition related charges for which corresponding tax benefits were recorded using lower effective tax rates and (iv) operating losses relating to our China location due to significant investments made in the current fiscal year, thereby increasing our overall effective tax rate. For the six months ended January 31, 2014, our international operations, which consisted primarily of Canada, Singapore and the Netherlands, were profitable and had a combined effective tax rate of 22.1%, thereby reducing our overall effective tax rate.

For the six months ended January 31, 2015 and 2014, almost all of our income before income taxes was generated from our United States operations, which had an overall effective tax rate of 36.4% and 37.4%, respectively. The lower overall effective tax rate for the six months ended January 31, 2015 was principally caused by Federal tax legislation that had expired in December 2013, but was re-enacted retroactively in December 2014, that enabled us to record the research and experimentation tax credit relating to the entire calendar 2014 in the six months ended January 31, 2015. The legislation for this research and experimentation tax credit was not extended for calendar 2015.

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.

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A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:

	Unrecognized
	Tax Benefits
Unrecognized tax benefits on July 31, 2013	$	124,000
Lapse of statute of limitations in fiscal 2014	(124,000		)
Unrecognized tax benefits on January 31, 2015 and July 31, 2014	$	—

Generally, the Company is no longer subject to federal, state or foreign income tax examinations for fiscal years ended prior to July 31, 2006. The Company is currently being audited by the Internal Revenue Service for fiscal year 2013.

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 been insignificant due to the amount of our unrecognized tax benefits relating to uncertain tax positions.

Note 12.Commitments and Contingencies

Long-Term Contractual Obligations

As of January 31, 2015, aggregate annual required payments over the remaining fiscal year, the next four years and thereafter under our contractual obligations that have long-term components were as follows:

	Six Months
	Ending
	July 31,		Year Ending July 31,
	2015		2016		2017		2018		2019		Thereafter		Total
	(Amounts in thousands)
Maturity of the credit facility	$	—	$	—	$	—	$	—	$	95,500	$	—	$	95,500
Expected interest payments under the credit facility (1)	868		1,671		1,671		1,671		975		—		6,856
Minimum commitments under noncancelable operating leases	2,429		4,296		3,526		2,586		1,831		3,742		18,410
Compensation agreements	2,067		4,958		951		350		350		496		9,172
Contingent consideration (2)	—		70		554		947		1,124		1,522		4,217
Assumed contingent liability (3)	—		51		226		428		574		622		1,901
Contingent guaranteed obligation (4)	323		403		208		152		152		—		1,238
Other long-term obligations	150		286		228		204		96		15		979
Total contractual obligations	$	5,837	$	11,735	$	7,364	$	6,338	$	100,602	$	6,397	$	138,273

(1)The expected interest payments under our credit facility reflect an interest rate of 1.75%, which was our weighted average interest rate on outstanding borrowings at January 31, 2015.

(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, 2015 Condensed Consolidated Balance Sheet at its net present value of $2,888,000 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, 2015 Condensed Consolidated Balance Sheet at its net present value of $1,773,000 using a discount rate of 2.5%.

(4)These future potential payments of a contingent guaranteed obligation relate to the PuriCore Acquisition, as further explained below, and are reflected in the January 31, 2015 Condensed Consolidated Balance Sheet at its net present value of $1,040,000 using a discount rate of 10.1%.

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Operating Leases

Minimum commitments under operating leases include minimum rental commitments for our leased manufacturing facilities, warehouses, office space and equipment.

Contingent Liabilities

In relation to the Jet Prep Acquisition on November 5, 2013, we have recorded a $2,490,000 liability for the estimated fair value of contingent consideration payable to the sellers and a $1,720,000 liability for the estimated fair value of an assumed contingent obligation payable to the Israeli Government, as further described in Notes 3 and 6 to the Condensed Consolidated Financial Statements, which will be payable based on future sales of the Jet Prep Business (above a minimum threshold with respect to the contingent consideration liability). Additionally, in connection with the PuriCore Acquisition, we assumed a $1,414,000 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 PuriCore’s discontinued endoscope reprocessing machine models, as further described in Notes 3 and 6 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 significant 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 the Chief Executive Officer of two of our subsidiaries, 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 central 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, 2015, $675,000 is outstanding, of which $168,000 is recorded in accrued expense and $507,000 is recorded in other long-term liabilities.

Additionally, other long-term obligations includes deferred compensation arrangements for certain former Medivators directors and officers and is recorded in other long-term liabilities.

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Note 13.Accumulated Other Comprehensive Income (Loss)

The components and changes in accumulated other comprehensive income (loss) for the three and six months ended January 31, 2015 and 2014 were as follows:

	Three Months Ended								Six Months Ended
	January 31, 2015								January 31, 2015
	Foreign								Foreign
	Currency			Interest Rate					Currency			Interest Rate
	Translation			Swap					Translation			Swap
	Adjustments			Agreements		Total			Adjustments			Agreements		Total
Beginning balance	$	7,661,000		$	—	$	7,661,000		$	9,552,000		$	—	$	9,552,000
Other comprehensive loss	(5,609,000		)	—		(5,609,000		)	(7,500,000		)	—		(7,500,000		)
Ending balance	$	2,052,000		$	—	$	2,052,000		$	2,052,000		$	—	$	2,052,000

	Three Months Ended									Six Months Ended
	January 31, 2014									January 31, 2014
	Foreign									Foreign
	Currency			Interest Rate						Currency			Interest Rate
	Translation			Swap						Translation			Swap
	Adjustments			Agreements			Total			Adjustments			Agreements			Total
Beginning balance	$	10,807,000		$	(94,000	)	$	10,713,000		$	11,080,000		$	(103,000	)	$	10,977,000
Other comprehensive loss before reclassifications	(1,401,000		)	(14,000		)	(1,415,000		)	(1,674,000		)	(47,000		)	(1,721,000		)
Income tax effect on other comprehensive loss before reclassification	—			5,000			5,000			—			17,000			17,000
Reclassification adjustments to interest expense for losses on interest rate swaps included in net income during the period	—			48,000			48,000			—			96,000			96,000
Reclassification adjustment for ineffective hedge on interest rate swap included in net income during the period	—			113,000			113,000			—			113,000			113,000
Income tax effect on reclassification adjustments	—			(58,000		)	(58,000		)	—			(76,000		)	(76,000		)
Ending balance	$	9,406,000		$	—		$	9,406,000		$	9,406,000		$	—		$	9,406,000

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.

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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, 2015.  For the six months ended January 31, 2014, DaVita Inc. (“DaVita”), accounted for approximately 10.9%, or approximately $25,948,000, of our consolidated net sales. DaVita sales are included in our Water Purification and Filtration and Dialysis segments.

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 eliminate the challenges associated with proper cleaning and high-level disinfection of numerous reusable components used in GI endoscopy procedures. 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 disinfectant, sterilization and decontamination products and services for the medical, pharmaceutical, biotech, beverage and commercial industrial markets.

Two customers collectively accounted for approximately 48% of our Water Purification and Filtration segment net sales and approximately 16.4% of our consolidated net sales for the six months ended January 31, 2015.

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. 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 48.9% of our Healthcare Disposables segment net sales and approximately 9.8% of our consolidated net sales for the six months ended January 31, 2015.

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.

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. At January 31, 2015, this business is held for sale as further described in Note 15 to the Condensed Consolidated Financial Statements.

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The operating segments follow the same accounting policies used for our Condensed Consolidated Financial Statements as described in Note 2 to the 2014 Form 10-K.

Information as to operating segments is summarized below:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2015			2014			2015			2014
Net sales:
Endoscopy	$	58,970,000		$	44,587,000		$	114,902,000		$	88,200,000
Water Purification and Filtration	42,356,000			40,719,000			84,724,000			80,469,000
Healthcare Disposables	25,197,000			24,716,000			54,534,000			50,965,000
Dialysis	7,314,000			7,611,000			14,800,000			14,920,000
Other	1,593,000			1,409,000			3,281,000			2,760,000
Total	$	135,430,000		$	119,042,000		$	272,241,000		$	237,314,000
Operating income:
Endoscopy	$	8,396,000		$	8,218,000		$	15,854,000		$	16,402,000
Water Purification and Filtration	8,121,000			7,108,000			15,777,000			13,165,000
Healthcare Disposables	4,469,000			4,563,000			10,823,000			10,282,000
Dialysis	1,481,000			1,996,000			2,931,000			3,760,000
Other	599,000			231,000			907,000			236,000
	23,066,000			22,116,000			46,292,000			43,845,000
General corporate expenses	(4,765,000		)	(3,907,000		)	(8,944,000		)	(7,324,000		)
Interest expense, net	(646,000		)	(630,000		)	(1,180,000		)	(1,274,000		)
Income before income taxes	$	17,655,000		$	17,579,000		$	36,168,000		$	35,247,000

Note 15.Business Held-For-Sale

We conducted a strategic review of our Specialty Packaging business and evaluated its potential value in the marketplace relative to the business’s current and expected returns concluding that the business is not part of our core strategy and may return a higher value to stockholders by its divestiture. Accordingly, our Specialty Packaging business (reported in the Other reporting segment) is classified as held-for-sale within our Condensed Consolidated Balance Sheet at January 31, 2015. Since the operating results of the Specialty Packaging segment, as shown in Note 14 to the Condensed Consolidated Financial Statements, are 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. We have now completed several aspects of the selling process and expect its divestiture to be completed during our fiscal 2015.

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The carrying amounts of assets and liabilities that are included in business held-for-sale in our Condensed Consolidated Balance Sheet at January 31, 2015 are as follows:

	January 31,
	2015
	(Amounts in thousands)
Accounts receivable, net of allowance for doubtful accounts	$	717
Inventories	614
Prepaid expenses and other assets	34
Property and equipment, net	334
Intangible assets, net	714
Goodwill	5,635
Other assets	159
Total assets held-for-sale	$	8,207
Accounts payable	$	178
Compensation payable	139
Accrued expenses	79
Deferred revenue	31
Income taxes payable	141
Deferred income taxes	217
Other liabilities	67
Total liabilities held-for-sale	$	852

Additionally, a foreign currency translation gain of $1,084,000 was recorded in stockholders’ equity at January 31, 2015 as a result of the monthly translation of the Specialty Packaging segment’s balance sheets beginning in 2004, when the business was acquired.

Note 16.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.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand Cantel Medical Corp. (“Cantel”). The MD&A is provided as a supplement to and should be read in conjunction with our financial statements and the accompanying notes. Our MD&A includes the following sections:

Overview provides a brief description of our business and a summary of significant activity that has affected or may affect our results of operations and financial condition.

Results of Operations provides a discussion of the consolidated results of operations for the three and six months ended January 31, 2015 compared with the three and six months ended January 31, 2014.

Liquidity and Capital Resources provides an overview of our working capital, cash flows, contractual obligations, financing and foreign currency activities.

Critical Accounting Policies provides a discussion of our accounting policies that require critical judgments, assumptions and estimates.

Forward-Looking Statements provides a discussion of cautionary factors that may affect future results.

Overview

Cantel is a leading provider of infection prevention and control products and services in the healthcare market, specializing in the following operating segments:

·Endoscopy: Medical device reprocessing systems, disinfectants, detergents and other supplies used to high-level disinfect flexible endoscopes and 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: Water purification equipment and services, filtration and separation products and disinfectant, sterilization and decontamination products and services for the medical, pharmaceutical, biotech, beverage and commercial industrial markets.

·Healthcare Disposables: 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. This segment also manufactures and sells biological and chemical indicators for sterility assurance monitoring services in the acute-care, alternate-care and dental markets.

·Dialysis: Medical device reprocessing systems, sterilants/disinfectants, dialysate concentrates and other supplies for renal dialysis.

·Specialty Packaging: 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 is reported in the Other reporting segment.)

Most of our equipment, consumables and supplies are used to help prevent or control the occurrence or spread of infections.

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See our Annual Report on Form 10-K for the fiscal year ended July 31, 2014 (the “2014 Form 10-K”) and our Condensed Consolidated Financial Statements for additional financial information regarding our reporting segments.

Significant Activity

(i)For the three and six months ended January 31, 2015 compared with the three and six months ended January 31, 2014, net sales increased by 13.8% and 14.7%, respectively, and United States GAAP net income was comparable for such periods. However, after adjusting net income for amortization expense and acquisition related items, non-GAAP adjusted net income increased by 18.2% and 14.3%, respectively, as further described elsewhere in this MD&A. (See Non-GAAP Financial Measures section below for a further discussion and reconciliation of net income to adjusted net income). We continue to benefit from having a broad portfolio of infection prevention and control products sold into diverse business segments, where approximately 73% of our net sales are attributable to consumable products and service. The primary factors that contributed to this financial performance, as further described elsewhere in this MD&A, were as follows:

·higher sales in our Endoscopy segment principally due to (i) increases in sales volume of endoscope reprocessing disinfectant, service, equipment accessories and filter products as a result of the increased field population of equipment, as well as disposable infection control products used in GI endoscopy procedures due to marketing efforts, (ii) increased demand for our endoscope reprocessing equipment and (iii) the inclusion of sales of our recent acquisitions,

·higher sales and improved gross profit percentage in our Water Purification and Filtration segment due to a shift of mix to higher margin products, such as the increase in sales volume of our consumables, and an increase in service sales volume and profitability as a result of our expanding service network and improved operating leverage, and

·higher sales and improved profitability in our Healthcare Disposables segment for the six months ended January 31, 2015 mainly due to increased demand for our face masks and sterility assurance products as a result of (i) customers buying products during our first quarter of fiscal 2015 in advance of certain sales price increases, (ii) our overall marketing efforts and (iii) customer response to the Ebola virus.

The above factors were partially offset by:

·our strategic decision to invest in selling initiatives designed to expand into new markets and gain or maintain market share,

·the recording of $2,256,000 and $3,512,000, respectively, in acquisition related charges recorded in cost of sales and general and administrative expenses primarily in our Endoscopy segment relating to recent acquisitions,

·an increase in R&D expense due to additional product development initiatives, and

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·an increase in our effective tax rate due to certain non-deductible acquisition related charges recorded during the three and six months ended January 31, 2015 and the geographic mix of pre-tax income, partially offset by Federal tax legislation re-enacted in December 2014.

(ii)We sell our dialysis products to a concentrated number of customers. Sales in our Dialysis segment have been adversely impacted in recent years by the decrease in demand for our sterilants, RENATRON® reprocessing equipment and dialysate concentrate products. This reduction in dialysis sales has reduced overall profitability in this segment as compared with profitability in prior periods. Our market for dialysis reprocessing products is limited to dialysis centers that reuse dialyzers, which market has been decreasing in the United States despite the environmental advantages and our belief that the per-procedure cost of reuse dialyzers is more economical than single-use dialyzers. A material decrease in the market for reprocessing products is likely to result in a significant loss of net sales and a lower level of profitability in this segment in the future. See “Risk Factors” in the 2014 Form 10-K.

(iii)On February 20, 2015, we acquired all the issued and outstanding capital stock of MRLB International, Inc. (“DentaPure”), as more fully described in Note 3 to the Condensed Consolidated Financial Statements (the “DentaPure Acquisition”).

(iv)On January 1, 2015, we acquired certain net assets of Pure Water Solutions, Inc. (“PWS”), as more fully described in Note 3 to the Condensed Consolidated Financial Statements (the “PWS Acquisition”).

(v)On November 3, 2014, we acquired all of the issued and outstanding stock of International Medical Service S.r.l. (“IMS”), as more fully described in Note 3 to the Condensed Consolidated Financial Statements (the “IMS Acquisition”). Following the acquisition, we changed the name of IMS to Cantel Medical (Italy) S.r.l.

(vi)On June 30, 2014, we acquired all the issued and outstanding capital stock of PuriCore International Limited (“PuriCore”), as more fully described in Note 3 to the Condensed Consolidated Financial Statements (the “PuriCore Acquisition”). Following the acquisition, we changed the name of PuriCore to Cantel Medical (UK) Limited.

(vii)On January 7, 2014, we acquired all the issued and outstanding stock of Sterilator Company, Inc. (“Sterilator”), as more fully described in Note 3 to the Condensed Consolidated Financial Statements (the “Sterilator Acquisition”).

(viii)On November 5, 2013, we acquired all the issued and outstanding stock of Jet Prep Ltd. (“Jet Prep”), as more fully described in Note 3 to the Condensed Consolidated Financial Statements (the “Jet Prep Acquisition”). Certain components of the acquisition’s purchase price were recorded at fair value and will be continually remeasured at each balance sheet date, which has the potential for creating earnings volatility in the future as further described elsewhere in this MD&A and in Notes 3 and 6 to the Condensed Consolidated Financial Statements.

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(ix)On March 4, 2014, we entered into a $250,000,000 Third Amended and Restated Credit Agreement with our senior lenders to refinance our working capital credit facilities, as more fully described in Note 9 to the Condensed Consolidated Financial Statements.

(x)On November 6, 2014, our Board of Directors approved an increase in its semi-annual cash dividend from $0.045 to $0.05 per outstanding share of our common stock, which was paid on January 30, 2015 to shareholders of record on January 16, 2015, as more fully described elsewhere in this MD&A.

Results of Operations

The results of operations described below reflect the operating results of Cantel and its wholly-owned subsidiaries.

Since the DentaPure Acquisition was consummated after the second quarter of our fiscal 2015, its results of operations are not included in our results of operations for any periods presented.

Since the acquisitions of PWS and IMS were consummated on January 1, 2015 and November 3, 2014, respectively, their results of operations are included in our consolidated results of operations for the portion of the three and six months ended January 31, 2015 subsequent to their acquisition dates and are not included in our results of operations for the three and six months ended January 31, 2014. However, with the exception of acquisition related costs as more fully described in the Non-GAAP Financial Measures section below, their results of operations did not have a significant effect on our consolidated results of operations for the three and six months ended January 31, 2015 due to the size of the acquisitions in relation to our overall consolidated results of operations. The PWS Acquisition is included in our Water Purification and Filtration segment and the IMS Acquisition is included in our Endoscopy segment.

Since the acquisitions of PuriCore, Sterilator and Jet Prep were consummated on June 30, 2014, January 7, 2014 and November 5, 2013, respectively, their results of operations are included in our consolidated results of operations for the three and six months ended January 31, 2015. With respect to the three and six months ended January 31, 2014, the Sterilator and Jet Prep Acquisitions are included in our results of operations subsequent to their respective acquisition dates and the PuriCore Acquisition is not included in our results of operations. These acquisitions did not have a significant effect on our consolidated results of operations due to the size of the acquisitions in relation to our overall consolidated results of operations. The PuriCore and Jet Prep businesses are included in our Endoscopy segment and the Sterilator business is included in our Healthcare Disposables segment.

The following discussion should also be read in conjunction with our 2014 Form 10-K.

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The following tables give information as to the net sales by reporting segment and geography (which represent the geographic area from which the Company derives its net sales from external customers), as well as the related percentage of such sales to the total net sales.

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2015			2014			2015			2014
	(Dollar amounts in thousands)						(Dollar amounts in thousands)
	$		%	$		%	$		%	$		%
Net Sales by Segment
Endoscopy	$	58,970	43.5	$	44,587	37.4	$	114,902	42.2	$	88,200	37.2
Water Purification and Filtration	42,356		31.3	40,719		34.2	84,724		31.1	80,469		33.9
Healthcare Disposables	25,197		18.6	24,716		20.8	54,534		20.1	50,965		21.4
Dialysis	7,314		5.4	7,611		6.4	14,800		5.4	14,920		6.3
Other	1,593		1.2	1,409		1.2	3,281		1.2	2,760		1.2
	$	135,430	100.0	$	119,042	100.0	$	272,241	100.0	$	237,314	100.0
Net Sales by Geography
United States	$	107,694	79.5	$	99,996	84.0	$	218,573	80.3	$	199,564	84.1
International	27,736		20.5	19,046		16.0	53,668		19.7	37,750		15.9
	$	135,430	100.0	$	119,042	100.0	$	272,241	100.0	$	237,314	100.0

Net Sales

Net sales increased by $16,388,000, or 13.8%, to $135,430,000 for the three months ended January 31, 2015 from $119,042,000 for the three months ended January 31, 2014. Excluding the impact of recent acquisitions, organic sales increased by $7,689,000, or 6.5%.

Net sales increased by $34,927,000, or 14.7%, to $272,241,000 for the six months ended January 31, 2015 from $237,314,000 for the six months ended January 31, 2014. Excluding the impact of recent acquisitions, organic sales increased by $19,660,000, or 8.3%.

The increase in net sales for the three and six months ended January 31, 2015 was primarily attributable to increases in net sales of our three largest segments, Endoscopy, Water Purification and Filtration and Healthcare Disposables. The increase in international net sales was primarily due to increases in net sales of endoscopy products and services in the United Kingdom and Italy as a result of the acquisitions of PuriCore and IMS.

Net sales of endoscopy products and services increased by $14,383,000, or 32.3%, and $26,702,000, or 30.3%, for the three and six months ended January 31, 2015, respectively, compared with the three and six months ended January 31, 2014, primarily due to increases in demand in the United States and internationally for our (i) disinfectants, service, equipment accessories and filters due to the increase in the installed base of endoscope reprocessing equipment, (ii) procedure room products (disposable infection control products used in GI endoscopy procedures) and (iii) endoscope reprocessing equipment. We expect sales of disinfectants, service, equipment accessories and filters, most of which carry higher margins, to continue to benefit as we increase the installed base of endoscope reprocessing equipment. Additionally, the increase for the three and six months ended January 31, 2015 was attributable to the inclusion of net sales of $8,142,000 and $14,650,000, respectively, generated in the United Kingdom and Italy as a result of acquiring PuriCore on June 30, 2014 and IMS on November 3, 2014. These increases were partially offset by overall lower selling prices in most endoscopy product offerings totaling approximately $850,000 and $1,690,000, respectively, as a result of our strategic growth plan and increased competition.

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Net sales of water purification and filtration products and services increased by $1,637,000, or 4.0%, and $4,255,000, or 5.3%, for the three and six months ended January 31, 2015, respectively, compared with the three and six months ended January 31, 2014, primarily attributable to (i) higher sales of our consumables and service principally in the dialysis industry due to our expanding service network and the increased overall demand driven by the growing number of dialysis patients and clinics in the United States, (ii) price increases of approximately $323,000 and $1,753,000, respectively, on certain water purification and filtration products, which were implemented to partially offset increasing costs and (iii) the inclusion of net sales of $538,000 generated by the PWS Acquisition in the month of January. For the three and six months ended January 31, 2015, these increases were partially offset by a decrease in demand for our water purification equipment.

Net sales of healthcare disposables products increased by $481,000, or 1.9%, and $3,569,000, or 7.0%, for the three and six months ended January 31, 2015, respectively, compared with the three and six months ended January 31, 2014, principally due to increased demand in the United States for our face masks and sterility assurance products as a result of (i) customers buying products during our first quarter of fiscal 2015 in advance of certain sales price increases, (ii) our overall marketing efforts and (iii) customer response to the Ebola virus.

Gross profit

Gross profit increased by $8,256,000, or 15.8%, to $60,591,000 for the three months ended January 31, 2015 from $52,335,000 for the three months ended January 31, 2014. Gross profit as a percentage of net sales for the three months ended January 31, 2015 and 2014 was 44.7% and 44.0%, respectively.

Gross profit increased by $17,271,000, or 16.6%, to $121,105,000 for the six months ended January 31, 2015 from $103,834,000 for the six months ended January 31, 2014. Gross profit as a percentage of net sales for the six months ended January 31, 2015 and 2014 was 44.5% and 43.8%, respectively.

The higher gross profit as a percentage of net sales for the three and six months ended January 31, 2015, compared with the three and six months ended January 31, 2014, was primarily attributable to more favorable sales mix due to increases in sales volume of certain products that carry higher gross margin percentages such as our sterilants, filters and certain equipment products in our Water Purification and Filtration segment and face masks and sterility assurance products in our Healthcare Disposables segment. These items were partially offset by (i) acquisition accounting charges for the three and six months ended January 31, 2015 of $876,000 and $1,543,000, respectively, relating to fair value adjustments of inventory and deferred revenue acquired in the acquisitions of IMS and PuriCore, (ii) the inclusion in our Endoscopy segment of IMS and PuriCore, which had lower gross profits as a percentage of net sales, (iii) increased manufacturing costs primarily in our Healthcare Disposables segment and (iv) unfavorable sales mix in our Dialysis segment.

We cannot provide assurances that our gross profit percentage will not be adversely affected in the future (i) by uncertainties associated with our product mix, (ii) by further price competition in certain of our segments such as Healthcare Disposables (due to a more competitive environment as well as competition from products manufactured in lower cost locations, as explained below), Endoscopy (primarily due to our growth strategy and increased competition)

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and Dialysis (relating to the market shift from reusable to single-use dialyzers as further explained elsewhere in this MD&A), or (iii) if raw materials and distribution costs increase and we are unable to implement further price increases. Some of our competitors manufacture certain healthcare disposable products in lower cost locations such as China, Southeast Asia and certain locations within North America due to lower overall costs despite more expensive shipping costs, quality concerns, sustainability issues and other matters. Although we believe the quality of our healthcare disposable products, which are generally produced in the United States, are superior, we may experience significant pricing pressure that would adversely affect our gross profit or level of sales in the future in our Healthcare Disposables segment as a result of lower cost competition from products produced in other geographic locations.

Operating Expenses

Selling expenses increased by $3,180,000, or 19.8%, to $19,257,000 for the three months ended January 31, 2015 from $16,077,000 for the three months ended January 31, 2014. For the six months ended January 31, 2015, selling expenses increased by $6,827,000, or 21.4%, to $38,668,000 from $31,841,000 for the six months ended January 31, 2014. For the three and six months ended January 31, 2015, selling expenses increased primarily due to (i) increased sales and marketing initiatives to expand into new markets, including international markets, and gain or maintain market share by hiring and training additional sales and marketing personnel and increasing travel budgets in our Endoscopy and Water Purification and Filtration segments and to a lesser extent, our Healthcare Disposables segment, (ii) the inclusion of selling and marketing expenses of PWS, IMS, PuriCore and Sterilator in the three and six months ended January 31, 2015, (iii) higher commission expense principally in our Endoscopy segment as a result of higher sales and modified plan incentives and (iv) increases in annual salaries and incentive compensation.

Selling expenses as a percentage of net sales were 14.2% and 13.5% for the three months ended January 31, 2015 and 2014, respectively, and 14.2% and 13.4% for the six months ended January 31, 2015 and 2014, respectively.

General and administrative expenses increased by $4,265,000, or 27.4%, to $19,822,000 for the three months ended January 31, 2015, from $15,557,000 for the three months ended January 31, 2014. For the six months ended January 31, 2015, general and administrative expenses increased by $7,608,000, or 24.8%, to $38,329,000 from $30,721,000 for the six months ended January 31, 2014. For the three and six months ended January 31, 2015, these increases were primarily due to (i) the inclusion of general and administrative expenses of PWS, IMS, PuriCore and Sterilator in the three and six months ended January 31, 2015, (ii) $1,380,000 and $1,969,000, respectively, in acquisition related charges primarily in our Endoscopy segment as further described within Non-GAAP Financial Measures elsewhere in this MD&A, (iii) increases in annual salaries and incentive compensation including stock-based compensation and (iv) an increase of $613,000 and $943,000, respectively, in intangible amortization as a result of acquisitions. These items were partially offset by a decrease in bad debt expense.

General and administrative expenses as a percentage of net sales were 14.6% and 13.1% for the three months ended January 31, 2015 and 2014, respectively, and 14.1% and 12.9% for the six months ended January 31, 2015 and 2014, respectively.

Research and development expenses (which include continuing engineering costs) increased by $719,000 to $3,211,000 for the three months ended January 31, 2015 from $2,492,000 for the three months ended January 31, 2014. For the six months ended January 31, 2015, research and

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development expenses increased by $2,009,000 to $6,760,000, from $4,751,000 for the six months ended January 31, 2014. The increase for the three and six months ended January 31, 2015 was primarily due to additional product development initiatives primarily in our Endoscopy segment. Since the additional product development initiatives are on-going, we expect future research and development expenses to continue to exceed amounts reported in prior year periods.

Research and development expense as a percentage of net sales were 2.4% and 2.1% for the three months ended January 31, 2015 and 2014, respectively, and 2.5% and 2.0% for the six months ended January 31, 2015 and 2014, respectively.

Operating Income by Segment

The following table gives information as to the amount of operating income, as well as operating income as a percentage of net sales, for each of our reporting segments.

	Three Months Ended										Six Months Ended
	January 31,										January 31,
	2015					2014					2015					2014
	(Dollar amounts in thousands)										(Dollar amounts in thousands)
	Operating			% of		Operating			% of		Operating			% of		Operating			% of
	Income			Net sales		Income			Net sales		Income			Net sales		Income			Net sales
Endoscopy	$	8,396		14.2	%	$	8,218		18.4	%	$	15,854		13.8	%	$	16,402		18.6	%
Water Purification and Filtration	8,121			19.2	%	7,108			17.5	%	15,777			18.6	%	13,165			16.4	%
Healthcare Disposables	4,469			17.7	%	4,563			18.5	%	10,823			19.8	%	10,282			20.2	%
Dialysis	1,481			20.2	%	1,996			26.2	%	2,931			19.8	%	3,760			25.2	%
Other	599			37.6	%	231			16.4	%	907			27.6	%	236			8.6	%
Operating income	23,066			17.0	%	22,116			18.6	%	46,292			17.0	%	43,845			18.5	%
General corporate expenses	(4,765		)			(3,907		)			(8,944		)			(7,324		)
Income before interest and income taxes	$	18,301		13.5	%	$	18,209		15.3	%	$	37,348		13.7	%	$	36,521		15.4	%

The Endoscopy segment’s operating income was similar for the three months ended January 31, 2015, compared with the three months ended January 31, 2014, and decreased by $548,000, or 3.3%, for the six months ended January 31, 2015, compared with the six months ended January 31, 2014, as increases in demand in the United States and internationally for our endoscopy products and services, as further explained above, were offset by (i) recording acquisition related items in the three and six months ended January 31, 2015 of $1,792,000 and $3,048,000, respectively, as further described within Non-GAAP Financial Measures elsewhere in this MD&A, (ii) increased research and development expenses due to additional product development initiatives, (iii) lower selling prices of certain endoscopy products, (iv) increased investment in our sales team and other selling initiatives, (v) higher commission expense as a percent of sales due to modified plan incentives, (vi) increases in annual salaries and incentive compensation and (vii) increased intangible amortization as a result of acquisitions. Excluding acquisition related items stated above and further described within Non-GAAP Financial Measures elsewhere in this MD&A, the Endoscopy segment’s operating income increased by $1,970,000, or 24.0%, and $2,500,000, or 15.2%, for the three and six months ended January 31, 2015, respectively, compared with the three and six months ended January 31, 2014.

The Water Purification and Filtration segment’s operating income increased by $1,013,000, or 14.3%, and $2,612,000, or 19.8%, for the three and six months ended January 31, 2015, respectively, compared with the three and six months ended January 31, 2014, primarily as a result of higher sales and improved gross profit percentage due to consumables and service sales, as further explained above, partially offset by a decrease in demand for our water purification equipment, increases in annual salaries and the hiring of additional sales personnel, which is expected to continue to increase through fiscal 2015.

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The Healthcare Disposables segment’s operating income was similar for the three months ended January 31, 2015, compared with the three months ended January 31, 2014, and increased by $541,000, or 5.3%, for the six months ended January 31, 2015, compared with the six months ended January 31, 2014, primarily due to increased demand in the United States and internationally for our face masks and sterility assurance products as a result of (i) customers buying products during our first quarter of fiscal 2015 in advance of certain sales price increases, (ii) our overall marketing efforts and (iii) customer response to the Ebola virus, which had a stronger impact on our fiscal 2015 first quarter than our second quarter, partially offset by the inclusion of general and administrative expenses of the Sterilator business, increased marketing expenses, the hiring of additional sales personnel and annual salary raises.

The Dialysis segment’s operating income decreased by $515,000, or 25.8%, and $829,000, or 22.0%, for the three and six months ended January 31, 2015, respectively, compared with the three and six months ended January 31, 2014, primarily due to a decrease in demand for our high margin sterilant product, as more fully described elsewhere in this MD&A, partially offset by an increase in demand for our low margin concentrate product.

The operating income of our Specialty Packaging business (reported in the Other reporting segment) increased by $368,000 and $671,000 for the three and six months ended January 31, 2015, respectively, compared with the three and six months ended January 31, 2014, primarily due to an increase in demand for our specialty packaging products resulting from the Ebola virus as well as recording foreign exchange gains associated with translating certain United States dollar denominated assets into our subsidiary’s functional currency, the Canadian dollar.

General corporate expenses relate to unallocated corporate costs primarily related to executive management personnel, costs associated with certain facets of our acquisition program and being a publicly traded company. Such expenses increased by $858,000, or 22.0%, and $1,620,000, or 22.1%, for the three and six months ended January 31, 2015, respectively, compared with the three and six months ended January 31, 2014, primarily due to increases in costs associated with our acquisition program, increases in annual salaries and stock-based compensation, charges associated with the upcoming retirement of our Chief Financial Officer and the addition of internal and external resources to address various growth initiatives and  compliance requirements.

Interest

Interest expense was similar for the three months ended January 31, 2015, compared with the three months ended January 31, 2014. For the six months ended January 31, 2015, interest expense decreased by $91,000 to $1,211,000, from $1,302,000 for the six months ended January 31, 2014, due to the recording of a $113,000 charge in January 2014 for the ineffective hedge on our term credit facility, as further explained in Note 5 to the Condensed Consolidated Financial Statements.

Interest income was $15,000 for both the three months ended January 31, 2015 and 2014 and $31,000 and $28,000 for the six months ended January 31, 2015 and 2014, respectively.

Income taxes

The consolidated effective tax rate was 38.3% and 36.7% for the six months ended January 31, 2015 and 2014, respectively. The increase in the consolidated effective tax rate was

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principally due to certain non-deductible acquisition related charges and initial operating losses recorded in our international operations during the six months ended January 31, 2015 and the geographic mix of pre-tax income, partially offset by the re-enactment of Federal tax legislation.

For the six months ended January 31, 2015, our international operations, which included Canada, China, the Netherlands, Israel, Italy, Singapore and the United Kingdom, generated a combined loss primarily due to (i) the recording of certain acquisition related costs, the majority of which are not tax deductible, (ii) initial operating losses in our acquired Jet Prep entity for which no corresponding tax benefit was recorded since the commercialization of the product is in the beginning phase, (iii) initial operating losses in our acquired United Kingdom (“UK”) and Italy entities due primarily to acquisition related charges for which corresponding tax benefits were recorded using lower effective tax rates and (iv) operating losses relating to our China location due to significant investments made in the current fiscal year, thereby increasing our overall effective tax rate. For the six months ended January 31, 2014, our international operations, which primarily consisted of Canada, Singapore and the Netherlands, were profitable and had a combined effective tax rate of 22.1%, thereby reducing our overall effective tax rate.

For the six months ended January 31, 2015 and 2014, almost all of our income before income taxes was generated from our United States operations, which had an overall effective tax rate of 36.4% and 37.4%, respectively. The lower overall effective tax rate for the six months ended January 31, 2015 was principally caused by Federal tax legislation that had expired in December 2013, but was re-enacted retroactively in December 2014, that enabled us to record the research and experimentation tax credit relating to the entire calendar 2014 in the six months ended January 31, 2015. The legislation for this research and experimentation tax credit was not extended for calendar 2015.

Generally, the Company is no longer subject to federal, state or foreign income tax examinations for fiscal years ended prior to July 31, 2006. The Company is currently being audited by the Internal Revenue Service for fiscal year 2013.

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,
	2015			2014			2015			2014
Cost of sales	$	63,000		$	109,000		$	162,000		$	171,000
Operating expenses:
Selling	120,000			191,000			306,000			301,000
General and administrative	1,223,000			1,090,000			2,502,000			2,054,000
Research and development	14,000			18,000			31,000			30,000
Total operating expenses	1,357,000			1,299,000			2,839,000			2,385,000
Stock-based compensation before income taxes	1,420,000			1,408,000			3,001,000			2,556,000
Income tax benefits	(507,000		)	(493,000		)	(1,046,000		)	(905,000		)
Total stock-based compensation expense, net of tax	$	913,000		$	915,000		$	1,955,000		$	1,651,000

The above stock-based compensation expense before income taxes was recorded in the

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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 an increase to 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 options and 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.

The stock-based compensation expense recorded in the Condensed Consolidated Financial Statements may not be representative of the effect of stock-based compensation expense in future periods due to the level of awards issued in past years (which level may not be similar in the future), modifications of existing awards, accelerated vesting related to certain employment terminations and assumptions used in determining expected lives and estimated forfeitures. The fair value of each option grant is determined on the date of grant using the Black-Scholes option valuation model. We determine the fair value of each stock award using the closing market price of our common stock on the date of grant. If the market price of our common stock increases or factors change and we employ different assumptions in the application of Accounting Standards Codification (“ASC”) Topic 718, “Compensation — Stock Compensation,” (“ASC 718”), the compensation expense that we would record for future stock awards may differ significantly from what we have recorded in the current period.

All of our stock options and stock awards are subject to graded vesting in which portions of the award 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, 2015, total unrecognized stock-based compensation expense, before income taxes, related to total nonvested stock options and stock awards was $8,645,000 with a remaining weighted average period of 21 months over which such expense is expected to be recognized. Most of our nonvested awards relate to stock awards.

If certain criteria are met when options are exercised or restricted stock becomes vested, the Company is allowed a deduction on its United States income tax return. Accordingly, we account for the income tax effect on such income tax deductions as a reduction of previously recorded long-term deferred income tax assets (which are netted with long-term deferred income tax liabilities) and as a reduction of income taxes payable in the year of the deduction. 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 long-term deferred income tax assets are recorded as additional paid-in capital. For the six months ended January 31, 2015 and 2014, income tax deductions of $4,271,000 and $4,516,000, respectively, were generated and increased additional paid-in capital by $2,463,000 and $3,297,000, respectively. We classify the cash flows resulting from excess tax benefits as financing cash flows in our Condensed Consolidated Statements of Cash Flows.

Non-GAAP Financial Measures

In evaluating our operating performance, we supplement the reporting of our financial information determined under accounting principles generally accepted in the United States (“GAAP”) with certain internally derived non-GAAP financial measures, namely adjusted net income and adjusted diluted earnings per share (“EPS”). These non-GAAP financial measures are indicators of the Company’s performance that is not required by, or presented in accordance with,

47

GAAP. They are presented with the intent of providing greater transparency to financial information used by us in our financial analysis and operational decision-making. We believe that these non-GAAP measures provide meaningful information to assist investors, shareholders and other readers of our Condensed Consolidated Financial Statements in making comparisons to our historical operating results and analyzing the underlying performance of our results of operations. These non-GAAP financial measures are not intended to be, and should not be, considered separately from, or as an alternative to, the most directly comparable GAAP financial measures.

We define adjusted net income and adjusted diluted EPS as net income and diluted EPS, respectively, adjusted to exclude amortization, acquisition related items, significant reorganization and restructuring charges, major tax events and other significant items management deems atypical or non-operating in nature.

For the three and six months ended January 31, 2015, we made adjustments to net income and diluted EPS to exclude amortization expense and significant acquisition related items impacting current operating performance including transaction and integration charges and ongoing fair value adjustments to arrive at our non-GAAP financial measures, adjusted net income and adjusted EPS. For the three and six months ended January 31, 2014, we made adjustments to net income and diluted EPS to exclude amortization expense to arrive at our non-GAAP financial measures. Significant acquisition related items were not incurred for the three and six months ended January 31, 2014.

Amortization expense is a non-cash expense related to intangibles that were primarily the result of business acquisitions. Our history of acquiring businesses has resulted in significant increases in amortization of intangible assets that reduced the Company’s net income. The removal of amortization from our overall operating performance helps in assessing our cash generated from operations including our return on invested capital, which we believe is an important analysis for measuring our ability to generate cash and invest in our continued growth.

Acquisition related items consist of (i) fair value adjustments to contingent consideration and other contingent liabilities resulting from acquisitions, (ii) due diligence, integration, legal fees and other transaction costs associated with specific acquisitions, (iii) acquisition accounting charges for the amortization of the initial fair value adjustments of acquired inventory and deferred revenue and (iv) foreign currency losses relating to the funding of an international acquisition. The adjustments of contingent consideration and other contingent liabilities are periodic adjustments to record such amounts at fair value at each balance sheet date. Given the subjective nature of the assumptions used in the determination of fair value calculations, fair value adjustments may potentially cause significant earnings volatility that are not representative of our operating results. Similarly, due diligence, integration, legal and other acquisition costs associated with specific acquisitions, including acquisition accounting charges relating to recording acquired inventory and deferred revenue at fair market value, can be significant and also adversely impact our effective tax rate as certain costs are often not tax-deductible. Since all of these acquisition related items are atypical and often mask underlying operating performance, we excluded these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to past operating performance.

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For the three months ended January 31, 2015 and 2014, the reconciliations of net income and diluted EPS with adjusted net income and adjusted diluted EPS were calculated as follows:

	As Reported,					Acquisition			Non-GAAP
	Three Months Ended		Intangible			Related			Three Months Ended
(Amount in thousands, except EPS)	January 31, 2015		Amortization			Items			January 31, 2015
Net Sales	$	135,430	$	—		$	—		$	135,430
Cost of Sales	74,839		—			(876		)	73,963
Gross Profit	60,591		—			876			61,467
Expenses:
Selling	19,257		—			—			19,257
General and administrative	19,822		(3,232		)	(1,380		)	15,210
Research and development	3,211		—			—			3,211
Total operating expenses	42,290		(3,232		)	(1,380		)	37,678
Income before interest and income taxes	18,301		3,232			2,256			23,789
Interest expense, net	646		—			—			646
Income before income taxes	17,655		3,232			2,256			23,143
Income taxes	6,570		969			507			8,046
Net Income / Adjusted net income	$	11,085	$	2,263		$	1,749		$	15,097
Diluted EPS / Adjusted diluted EPS	$	0.27	$	0.05		$	0.04		$	0.36

	As Reported,					Acquisition		Non-GAAP
	Three Months Ended		Intangible			Related		Three Months Ended
(Amount in thousands, except EPS)	January 31, 2014		Amortization			Items		January 31, 2014
Net Sales	$	119,042	$	—		$	—	$	119,042
Cost of Sales	66,707		—			—		66,707
Gross Profit	52,335		—			—		52,335
Expenses:
Selling	16,077		—			—		16,077
General and administrative	15,557		(2,619		)	—		12,938
Research and development	2,492		—			—		2,492
Total operating expenses	34,126		(2,619		)	—		31,507
Income before interest and income taxes	18,209		2,619			—		20,828
Interest expense, net	630		—			—		630
Income before income taxes	17,579		2,619			—		20,198
Income taxes	6,453		968			—		7,421
Net Income / Adjusted net income	$	11,126	$	1,651		$	—	$	12,777
Diluted EPS / Adjusted diluted EPS	$	0.27	$	0.04		$	—	$	0.31

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For the six months ended January 31, 2015 and 2014, the reconciliations of net income and diluted EPS with adjusted net income and adjusted diluted EPS were calculated as follows:

	As Reported,					Acquisition			Non-GAAP
	Six Months Ended		Intangible			Related			Six Months Ended
(Amount in thousands, except EPS)	January 31, 2015		Amortization			Items			January 31, 2015
Net Sales	$	272,241	$	—		$	—		$	272,241
Cost of Sales	151,136		—			(1,543		)	149,593
Gross profit	121,105		—			1,543			122,648
Expenses:
Selling	38,668		—			—			38,668
General and administrative	38,329		(6,188		)	(1,969		)	30,172
Research and development	6,760		—			—			6,760
Total operating expenses	83,757		(6,188		)	(1,969		)	75,600
Income before interest and income taxes	37,348		6,188			3,512			47,048
Interest expense, net	1,180		—			—			1,180
Income before income taxes	36,168		6,188			3,512			45,868
Income taxes	13,844		2,071			671			16,586
Net income /Adjusted net income	$	22,324	$	4,117		$	2,841		$	29,282
Diluted EPS /Adjusted diluted EPS (1)	$	0.54	$	0.10		$	0.07		$	0.70

	As Reported,					Acquisition		Non-GAAP
	Six Months Ended		Intangible			Related		Six Months Ended
(Amount in thousands, except EPS)	January 31, 2014		Amortization			Items		January 31, 2014
Net Sales	$	237,314	$	—		$	—	$	237,314
Cost of Sales	133,480		—			—		133,480
Gross profit	103,834		—			—		103,834
Expenses:
Selling	31,841		—			—		31,841
General and administrative	30,721		(5,245		)	—		25,476
Research and development	4,751		—			—		4,751
Total operating expenses	67,313		(5,245		)	—		62,068
Income before interest and income taxes	36,521		5,245			—		41,766
Interest expense, net	1,274		—			—		1,274
Income before income taxes	35,247		5,245			—		40,492
Income taxes	12,936		1,945			—		14,881
Net income /Adjusted net income	$	22,311	$	3,300		$	—	$	25,611
Diluted EPS /Adjusted diluted EPS	$	0.54	$	0.08		$	—	$	0.62

(1)The summation of each diluted EPS does not equal the adjusted diluted EPS due to rounding.

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Liquidity and Capital Resources

Working Capital

At January 31, 2015, our working capital was $115,654,000, compared with $97,410,000 at July 31, 2014. The increase was primarily due to the classification of our Specialty Packaging segment as a business held-for-sale, as further explained elsewhere in this MD&A and in Note 15 to the Condensed Consolidated Financial Statements, as well as the impact of the acquisitions of IMS and PWS.

Cash Flows from Operating Activities

Net cash provided by operating activities was $18,838,000 and $21,549,000 for the six months ended January 31, 2015 and 2014, respectively. For the six months ended January 31, 2015, the net cash provided by operating activities was primarily due to net income (after adjusting for depreciation, amortization, stock-based compensation expense and deferred taxes), partially offset by increases in inventories (due to planned strategic increases in stock levels of certain products primarily in our Endoscopy and Healthcare Disposables segments) and prepaids and other current assets (due primarily to the timing associated with the payment of insurance premiums) and a decrease in accounts payable and other current liabilities (due primarily to the timing associated with the payment of incentive compensation and the repayment of liabilities acquired in conjunction with the IMS Acquisition).

For the six months ended January 31, 2014, the net cash provided by operating activities was primarily due to net income (after adjusting for depreciation, amortization, stock-based compensation expense and deferred taxes), partially offset by an increase in accounts receivable (due to strong sales in the three months ended January 31, 2014 and the timing of sales transactions and payments by certain large customers in our Healthcare Disposables and Water Purification and Filtration segments).

Cash Flows from Investing Activities

Net cash used in investing activities was $37,851,000 and $12,840,000 for the six months ended January 31, 2015 and 2014, respectively. For the six months ended January 31, 2015 and 2014, the net cash used in investing activities was primarily for acquisitions and to a lesser extent, capital expenditures.

Cash Flows from Financing Activities

Net cash provided by financing activities was $12,286,000 for the six months ended January 31, 2015 compared with $22,911,000 used in financing activities for the six months ended January 31, 2014. For the six months ended January 31, 2015, the net cash provided by financing activities was primarily due to borrowings under our revolving credit facility to fund the acquisitions of IMS and PWS, partially offset by repayments under the revolving credit facility. For the six months ended January 31, 2014, the net cash provided by financing activities was primarily due to repayments under our credit facilities.

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Cash Dividends

On November 6, 2014, our Board of Directors approved an 11% increase in the semiannual cash dividend to $0.05 per share of outstanding common stock, which was paid on January 30, 2015 to shareholders of record at the close of business on January 16, 2015. Future declaration of dividends and the establishment of future record and payment dates are subject to the final determination of the Company’s Board of Directors.

Long-Term Contractual Obligations

As of January 31, 2015, aggregate annual required payments over the remaining fiscal year, the next four years and thereafter under our contractual obligations that have long-term components were as follows:

	Six Months
	Ending
	July 31,		Year Ending July 31,
	2015		2016		2017		2018		2019		Thereafter		Total
	(Amounts in thousands)
Maturity of the credit facility	$	—	$	—	$	—	$	—	$	95,500	$	—	$	95,500
Expected interest payments under the credit facility (1)	868		1,671		1,671		1,671		975		—		6,856
Minimum commitments under noncancelable operating leases	2,429		4,296		3,526		2,586		1,831		3,742		18,410
Compensation agreements	2,067		4,958		951		350		350		496		9,172
Contingent consideration (2)	—		70		554		947		1,124		1,522		4,217
Assumed contingent liability (3)	—		51		226		428		574		622		1,901
Contingent guaranteed obligation (4)	323		403		208		152		152		—		1,238
Other long-term obligations	150		286		228		204		96		15		979
Total contractual obligations	$	5,837	$	11,735	$	7,364	$	6,338	$	100,602	$	6,397	$	138,273

(1)The expected interest payments under our credit facility reflect an interest rate of 1.75%, which was our weighted average interest rate on outstanding borrowings at January 31, 2015.

(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, 2015 Condensed Consolidated Balance Sheet at its net present value of $2,888,000 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, 2015 Condensed Consolidated Balance Sheet at its net present value of $1,773,000 using a discount rate of 2.5%.

(4)These future potential payments of a contingent guaranteed obligation relate to the PuriCore Acquisition, as further explained below, and are reflected in the January 31, 2015 Condensed Consolidated Balance Sheet at its net present value of $1,040,000 using a discount rate of 10.1%.

Credit Facility

In March 2014, we modified our existing $100,000,000 senior secured revolving credit facility (the “Existing Revolving Credit Facility”) and $50,000,000 senior secured term loan

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facility (the “Existing Term Loan Facility”) by entering into a $250,000,000 Third Amended and Restated Credit Agreement dated as of March 4, 2014 (the “New Credit Agreement”). The New 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 “New Revolving Credit Facility”).  The Existing Term Loan Facility was terminated after the outstanding balance was reassigned to the New 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 New 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 New 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 New Credit Agreement which was recorded in other assets along with the remaining unamortized debt issuance costs of $512,000 relating to the Existing Revolving Credit Facility. The total of these two amounts is being amortized over the life of the New Credit Agreement. The remaining unamortized debt issuance costs of $84,000 relating to the Existing Term Loan Facility was charged to interest expense on March 4, 2014 when the Existing Term Loan Facility was terminated. At January 31, 2015, unamortized debt issuance costs recorded in other assets amounted to $1,495,000.

Borrowings under the New 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 New Credit Agreement (“Consolidated EBITDA”). At February 28, 2015, the lender’s base rate was 3.50% and the LIBOR rates ranged from 0.17% to 0.56%. The margins applicable to our outstanding borrowings were 0.25% above the lender’s base rate or 1.25% above LIBOR. Substantially all of our outstanding borrowings were under LIBOR contracts at February 28, 2015. The New Credit Agreement also provides for fees on the unused portion of our facilities at rates ranging from 0.20% to 0.40%, depending upon our Consolidated Leverage Ratio; such rate was 0.20% at February 28, 2015.

In order to protect our interest rate exposure in future years, we entered into forward starting interest rate swap agreements in February 2012 in which we agreed to exchange our variable interest cash flows with fixed interest cash flows provided by one of our existing senior lenders. With respect to our Existing Term Loan Facility, the interest rate swap is for the period that began August 8, 2012 and ends July 31, 2015, initially covering $40,000,000 of borrowings based on one-month LIBOR and thereafter reducing in quarterly $2,500,000 increments consistent with the mandatory repayment schedule, and the fixed interest cash flow is at a one month LIBOR rate of 0.664%. As a result of the termination of our Existing Term Loan Facility, this interest rate swap is no longer considered effective in mitigating the adverse impact on interest expense of increases in LIBOR. With respect to our Existing Revolving Credit Facility, the interest rate swap was for the period that began August 8, 2012 and ended January 31, 2014, initially covering $25,000,000 of borrowings based on one-month LIBOR and thereafter reducing semi-annually by increments of $5,000,000, and the fixed interest cash flow was at a one month LIBOR rate of 0.496%.

The New 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

53

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 New Credit Agreement.

On January 31, 2015, we had $95,500,000 of outstanding borrowings under the New Credit Agreement. Subsequent to January 31, 2015, we borrowed $10,000,000 under the New Credit Agreement to fund the DentaPure Acquisition but repaid $3,000,000 resulting in total outstanding borrowings of $102,500,000 at February 28, 2015.

Operating Leases

Minimum commitments under operating leases include minimum rental commitments for our leased manufacturing facilities, warehouses, office space and equipment.

Contingent Liabilities

In relation to the Jet Prep Acquisition on November 5, 2013, we have recorded a $2,490,000 liability for the estimated fair value of contingent consideration payable to the sellers and a $1,720,000 liability for the estimated fair value of an assumed contingent obligation payable to the Israeli Government, as further described in Notes 3 and 6 to the Condensed Consolidated Financial Statements, which will be payable based on future sales of the Jet Prep Business (above a minimum threshold with respect to the contingent consideration liability). Additionally, in connection with the PuriCore Acquisition, we assumed a $1,414,000 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 PuriCore’s discontinued endoscope reprocessing machine models, as further described in Notes 3 and 6 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 significant 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 the Chief Executive Officer of two of our subsidiaries, 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 central bank of Italy as part of funding provided by an Italian government agency, of which $187,000 and $656,000 was recorded in accrued expenses and other long-term liabilities, respectively. Such amount was a portion of the financial support obtained from the

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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, 2015, $675,000 is outstanding, of which $168,000 is recorded in accrued expense and $507,000 is recorded in other long-term liabilities.

Additionally, other long-term obligations includes deferred compensation arrangements for certain former Medivators directors and officers and is recorded in other long-term liabilities.

Financing Needs

Our four largest operating segments generate significant cash from operations. At January 31, 2015, we had a cash balance of $24,092,000, of which $7,705,000 was held by foreign subsidiaries. Our foreign cash is needed by our foreign subsidiaries for working capital purposes as well as for current international growth initiatives. In addition to the IMS Acquisition, such international growth initiatives have included the funding of $5,332,000 from one of our foreign subsidiaries for the November 5, 2013 Jet Prep Acquisition as further described in Note 3 to the Condensed Consolidated Financial Statements. Accordingly, our foreign unremitted earnings are considered permanently reinvested and unavailable for repatriation.

We believe that our current cash position, anticipated cash flows from operations and the funds available under our New Credit Agreement will be sufficient to satisfy our worldwide cash operating requirements for the foreseeable future based upon our existing operations, particularly given that we historically have not needed to borrow for working capital purposes. At February 28, 2015, $147,500,000 was available under our New Credit Agreement.

Business Held-For-Sale

We conducted a strategic review of our Specialty Packaging business and evaluated its potential value in the marketplace relative to the business’s current and expected returns concluding that the business is not part of our core strategy and may return a higher value to stockholders by its divestiture. Accordingly, our Specialty Packaging business (reported in the Other reporting segment) is classified as held-for-sale within our Condensed Consolidated Balance Sheet at January 31, 2015. Since the operating results of the Specialty Packaging segment, as shown in Note 14 to the Condensed Consolidated Financial Statements, are 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. We have now completed several aspects of the selling process and expect its divestiture to be completed during our fiscal 2015.

Foreign Currency

The financial statements of our Canadian subsidiaries are translated using the accounting policies described in Note 2 to the 2014 Form 10-K and therefore are impacted by changes in the Canadian dollar exchange rate. Additionally, changes in the value of the Canadian dollar against the United States dollar affect our results of operations because a portion of our Canadian subsidiaries’ inventories and operating costs (which are reported in the Water Purification and Filtration and Specialty Packaging segments) are purchased in the United States and a significant amount of their sales are to customers in the United States. Furthermore, certain cash bank accounts, accounts receivable and liabilities of our Canadian and United States subsidiaries are denominated and ultimately settled in United States dollars or Canadian dollars, respectively, but must be converted into their functional currency.

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Changes in the value of the Euro, Singapore dollar and British Pound 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, Euros, Singapore dollars or British Pounds but must be converted into each entity’s functional currency. Furthermore, the financial statements of our Italy, Netherlands and United Kingdom subsidiaries are translated using the accounting policies described in Note 2 to the 2014 Form 10-K and therefore are impacted by changes in the Euro and British Pound exchange rates relative to the United States dollar.

In order to hedge against the impact of fluctuations in the value of (i) the Euro relative to the United States dollar, (ii) the Singapore dollar relative to the United States dollar and (iii) the British Pound 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, Singapore dollars and British Pounds 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 $13,125,000 at February 28, 2015, which covered certain assets and liabilities that were denominated in currencies other than each entity’s functional currency. Such contracts expire on March 31, 2015. 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. Gains and losses related to these hedging contracts to buy Euros, Singapore dollars and British Pounds forward are immediately realized within general and administrative expenses due to the short-term nature of such contracts. For the three and six months ended January 31, 2015, such forward contracts substantially offset the impact on operations related to certain assets and liabilities that are denominated in currencies other than each entity’s functional currency. We do not currently hedge against the impact of fluctuations in the value of the Canadian dollar relative to the United States dollar because the currency impact on our Canadian or United States assets typically offset the currency impact on our Canadian or United States liabilities effectively minimizing significant realized gains and losses. Additionally, we do not hedge transactions associated with the funding of international acquisitions due to the short-term nature of the foreign currency exposure.

Overall, fluctuations in the rates of currency exchange had an insignificant impact upon net income for the three and six months ended January 31, 2015, compared with the three and six months ended January 31, 2014.

For purposes of translating the balance sheet at January 31, 2015 compared with July 31, 2014, the total of the foreign currency movements resulted in a foreign currency translation loss of $5,609,000 and $7,500,000 for the three and six months ended January 31, 2015, respectively, primarily due to the increase in the value of the United States dollar relative to the Euro and Canadian dollar, thereby decreasing stockholders’ equity.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts

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of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we continually evaluate our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our Condensed Consolidated Financial Statements.

Revenue Recognition

Revenue on product sales is recognized as products are shipped to customers and title passes. The passing of title is determined based upon the FOB terms specified for each shipment. With respect to endoscopy, dialysis and specialty packaging products, shipment terms are generally FOB origin for common carrier and when our distribution fleet is utilized (except for one large customer in dialysis whereby all products are shipped FOB destination). With respect to water purification and filtration and healthcare disposable products, shipment terms may be either FOB origin or destination. Customer acceptance for the majority of our product sales occurs at the time of delivery. With respect to a portion of water purification and filtration and endoscopy product sales, equipment is sold as part of a system for which the equipment is functionally interdependent or the customer’s purchase order specifies “ship-complete” as a condition of delivery; revenue recognition on such sales is deferred until all equipment has been delivered, or post-delivery obligations such as installation have been substantially fulfilled such that the products are deemed functional by the end-user. All shipping and handling fees invoiced to customers, such as freight, are recorded as revenue (and related costs are included within cost of sales) at the time the sale is recognized.

A portion of our endoscopy, water purification and filtration and dialysis sales are recognized as multiple element arrangements, whereby revenue is allocated to the equipment, installation and consumable components based upon vendor specific objective evidence, which includes comparable historical transactions of similar equipment, installation and consumables sold as stand-alone components. If vendor-specific objective evidence of selling price is not available, we allocate revenue to the elements of the bundled arrangement using the estimated selling price method in order to qualify the components as separate units of accounting. Revenue on the equipment and consumables components are recognized as the equipment or consumable is shipped to customers and title passes. Revenue on the installation component is recognized when the installation is complete.

A portion of our healthcare disposables sales relating to the mail-in spore test kit is recorded as deferred revenue when initially sold. We recognize the revenue on these test kits using an estimate based on historical experience of the amount of time that elapses from the point of sale to when the kit is returned to us and we communicate to the customer the results of the required laboratory test. The related cost of the kits is recorded in inventory and recognized in cost of sales as the revenue is earned.

Revenue on service sales is recognized when repairs are completed at the customer’s location or when repairs are completed at our facilities and the products are shipped to customers. With respect to certain service contracts in our Endoscopy and Water Purification and Filtration operating segments, service revenue is recognized on a straight-line basis over the contractual term of the arrangement.

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None of our sales contain right-of-return provisions. Customer claims for credit or return due to damage, defect, shortage or other reason must be pre-approved by us before credit is issued or such product is accepted for return. No cash discounts for early payment are offered except with respect to a small portion of our sales of dialysis, healthcare disposable, endoscopy and water purification and filtration products. We do not offer price protection, although advance pricing contracts or required notice periods prior to implementation of price increases exist for certain customers with respect to many of our products. With respect to certain of our dialysis, healthcare disposables, water purification and filtration and endoscopy customers, rebates are provided; such rebates, which consist primarily of volume rebates, are provided for as a reduction of sales at the time of revenue recognition and amounted to $1,190,000 and $2,769,000 for the three and six months ended January 31, 2015, respectively, and $1,181,000 and $2,126,000 for the three and six months ended January 31, 2014, respectively. The increase in rebates in the six months ended January 31, 2015 is primarily due to increased sales volume of products sold to certain customers in our Endoscopy, Water Purification and Filtration and Healthcare Disposables segments as well as new volume rebate agreements in our Dialysis and Endoscopy segments. Such allowances are determined based on estimated projections of sales volume for the entire rebate periods. If it becomes known that sales volume to customers will deviate from original projections, the rebate provisions originally established would be adjusted accordingly.

Our endoscopy products and services are sold directly to hospitals and other end-users in the United States and primarily to distributors internationally except for the United Kingdom, Italy, Netherlands, Singapore and China where we sell directly to hospitals and other end-users; water purification and filtration products and services are sold directly to hospitals, dialysis clinics, pharmaceutical and biotechnology companies, laboratories, medical products and service companies and other end-users as well as through third-party distributors; the majority of our healthcare disposable products are sold to third party distributors and with respect to some of our sterility assurance products, to hospitals, surgery centers, physician and dental offices, dental schools, medical research companies, laboratories and other end-users; the majority of our dialysis products are sold to dialysis clinics and hospitals; and specialty packaging products are sold to third-party distributors, medical research companies, laboratories, pharmaceutical companies, hospitals, government agencies and other end-users. Sales to all of these customers follow our revenue recognition policies.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable consist of amounts due to us from normal business activities. Allowances for doubtful accounts are reserves for the estimated loss from the inability of customers to make required payments. We use historical experience as well as current market information in determining the estimate. While actual losses have historically been within management’s expectations and provisions established, if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Alternatively, if certain customers paid their delinquent receivables, reductions in allowances may be required.

Inventories

Inventories consist of raw materials, work-in-process and finished products which are sold in the ordinary course of our business and are stated at the lower of cost (first-in, first-out) or market. In assessing the value of inventories, we must make estimates and judgments regarding

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reserves required for product obsolescence, aging of inventories and other issues potentially affecting the saleable condition of products. In performing such evaluations, we use historical experience as well as current market information. With few exceptions, the saleable value of our inventories has historically been within management’s expectation and provisions established, however, rapid changes in the market due to competition, technology and various other factors could have an adverse effect on the saleable value of our inventories, resulting in the need for additional reserves.

Goodwill and Intangible Assets

Certain of our identifiable intangible assets, including customer relationships, technology, brand names, non-compete agreements and patents, are amortized using the straight-line method over their estimated useful lives which range from 1 to 20 years. Additionally, we have recorded goodwill and trademarks and trade names, all of which have indefinite useful lives and are therefore not amortized. All of our intangible assets and goodwill are reviewed for impairment 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. Our management is responsible for determining if impairment exists and considers a number of factors, including third-party valuations, when making these determinations.

We first assess 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. Such qualitative factors that are assessed include evaluating a segment’s financial performance, industry and market conditions, macroeconomic conditions and specific issues that can directly affect the segment such as changes in business strategies, competition, supplier relationships, operating costs, regulatory matters, litigation and the composition of the segment’s assets due to acquisitions or other events. At July 31, 2014, because we determined through qualitative factors that the fair values of our Endoscopy, Water Purification and Filtration and Healthcare Disposables segments were unlikely to be less than the carrying value, we did not proceed to step one of the two-step quantitative goodwill impairment test for those three segments. We performed step one of the two-step quantitative goodwill impairment test for Dialysis (due to the decreasing operating results) and Specialty Packaging (due to fair value exceeding book value by a nominal amount in the prior year). In performing a detailed quantitative review for goodwill impairment, management uses a two-step process that begins with an estimation of the fair value of the related operating segments by using weighted fair value results of the discounted cash flow methodology, as well as the market multiple and comparable transaction methodologies, where applicable. The first step is a review for potential impairment, and the second step measures the amount of impairment, if any.

We perform our annual impairment review for indefinite lived intangibles by first assessing qualitative factors, such as those described above, to determine whether it is more likely than not that the fair value of such assets is less than the carrying values, and if necessary, we perform a quantitative analysis comparing the current fair value of our indefinite lived intangibles assets to their carrying values. At July 31, 2014, because we determined through qualitative factors that the fair values of our indefinite lived intangible assets in our Endoscopy, Water Purification and Filtration and Healthcare Disposables segments were unlikely to be less than the carrying value, we did not perform a quantitative analysis for those assets. We performed a quantitative analysis for indefinite lived intangible assets in our Dialysis and Specialty Packaging segments, for the same reasons stated above for our goodwill impairment test. With respect to amortizable intangible assets when impairment indicators are present, management would

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determine whether expected future non-discounted cash flows would be sufficient to recover the carrying value of the assets; if not, the carrying value of the assets would be adjusted to their fair value.

Management concluded that none of our intangible assets or goodwill was impaired as of July 31, 2014.

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 and earnings 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, 2014, the average fair value of all of our reporting units exceeded book value by substantial amounts, except our Specialty Packaging segment, which had an average estimated fair value that exceeded book value by a nominal amount. Goodwill relating to our Specialty Packaging reporting unit was $5,635,000 at January 31, 2015 and was reclassified from goodwill to business held-for-sale as a current asset at October 31, 2014, as further described elsewhere in this MD&A and in Note 15 to the Condensed Consolidated Financial Statements. We believe the most significant assumptions impacting the impairment assessment of Specialty Packaging relate to the assumed compounded annual sales growth and future operating efficiencies included in our projections of future operating results and cash flows of this segment, which projections are in excess of historical run rates. If future operating results and cash flows are substantially less than our projections and the expected sale of the Specialty Packaging business does not occur or is completed at a sales price that is less than book value, future impairment charges may be recorded. For instance, if our future fair value calculation or the sales price of the business is 10% less than its book value, a future charge of approximately $850,000, net of tax, would be recorded. On January 31, 2015, management concluded that no events or changes in circumstances have occurred during the six months ended January 31, 2015 that would indicate that the carrying amount of our intangible assets and goodwill may not be recoverable.

Long-Lived Assets

We evaluate the carrying value of long-lived assets including property, equipment and other assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. 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. Our historical assessments of our long-lived assets have not differed significantly from the actual amounts realized. However, the determination of fair value requires us to make certain assumptions and estimates and is highly subjective. On January 31, 2015, management concluded that no events or changes in circumstances have occurred that would indicate that the carrying amount of our long-lived assets may not be recoverable.

Warranties

We provide for estimated costs that may be incurred to remedy deficiencies of quality or performance of our products at the time of revenue recognition. Most of our products have a one year warranty, although certain Endoscopy and Water Purification and Filtration products that

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require installation may carry a warranty period of up to fifteen months. Additionally, many of our consumables, accessories and parts have a 90 day warranty. We record provisions for product warranties as a component of cost of sales based upon an estimate of the amounts necessary to settle existing and future claims on products sold. The historical relationship of warranty costs to products sold is the primary basis for the estimate. A significant increase in third party service repair rates, the cost and availability of parts or the frequency of claims could have a material adverse impact on our results for the period or periods in which such claims or additional costs materialize. Management reviews its warranty exposure periodically and believes that the warranty reserves are adequate; however, actual claims incurred could differ from original estimates, requiring adjustments to the reserves.

Stock-Based Compensation

Stock compensation expense is recognized for any option or stock award grant based upon the award’s fair value. All of our stock options and stock awards (which consist only of restricted stock) are subject to graded vesting in which portions of the award 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, reduced by estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on historical experience.

The stock-based compensation expense recorded in our Condensed Consolidated Financial Statements may not be representative of the effect of stock-based compensation expense in future periods due to the level of awards issued in past years (which level may not be similar in the future), modifications to existing awards, accelerated vesting related to certain employment terminations and assumptions used in determining fair value, expected lives and estimated forfeitures. We determine the fair value of each stock award using the closing market price of our common stock on the date of grant. We estimate the fair value of each option grant on the date of grant using the Black-Scholes option valuation model. The determination of fair value using an option-pricing model is affected by our stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the expected option life (which is determined by using the historical closing prices of our common stock), the expected dividend yield (which is approximately 0.2%), and the expected option life (which is based on historical exercise behavior).

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 adverse effect on our business, financial condition, results of operations or cash flows.

Income Taxes

Our provision for income taxes is based on our current period income, changes in deferred income tax assets and liabilities, statutory income tax rates, changes in uncertain tax benefits and the deductibility of expenses or availability of tax credits in various taxing jurisdictions. Tax laws are complex, subject to different interpretations by the taxpayer and the respective governmental taxing authorities and are subject to future modification, expiration or repeal by government legislative bodies. We use significant judgment on a quarterly basis in determining our annual effective income tax rate and evaluating our tax positions.

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We recognize deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities also include items recorded in conjunction with the purchase accounting for business acquisitions as well as net operating loss carryforwards. We regularly review our deferred tax assets for recoverability and establish a valuation allowance, if necessary, based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, as adjusted for valuation allowances, will be realized. Additionally, deferred tax liabilities are regularly reviewed to confirm that such amounts are appropriately stated. A review of our deferred tax items considers known future changes in various income tax rates, principally in the United States. If income tax rates were to change in the future, particularly in the United States and to a lesser extent Canada, the UK and Italy, our items of deferred tax could be materially affected. All of such evaluations require significant management judgments.

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. Any adjustments upon resolution of income tax uncertainties are recognized in our results of operations. Unrecognized tax benefits are analyzed periodically and adjustments are made as events occur to warrant adjustment to the related liability. Historically, we have not had significant unrecognized tax benefits.

Medical Device Taxes

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 imposes significant taxes on medical device makers in the form of an excise tax on certain U.S. medical device sales that began in January 2013. A significant portion of our sales are considered medical device sales under this new legislation. We calculate medical device excise taxes based on the latest available regulations and IRS notices and recognize the excise taxes in cost of sales at the time the medical device revenue is recognized in our Condensed Consolidated Statements of Income. For the three and six months ended January 31, 2015, we recorded excise taxes of $1,019,000 and $2,105,000 in cost of sales. For the three and six months ended January 31, 2014, we recorded excise taxes of $936,000 and $1,892,000 in cost of sales. The regulations regarding the calculations of the medical device taxes are complex and certain aspects can be subject to interpretation causing the IRS to issue notices clarifying various aspects of these taxes. Although we have made all reasonable efforts to record accurate excise taxes, the determination of the tax requires us to make certain assumptions and estimates. Actual taxes for the period could differ from original estimates requiring adjustments to our Condensed Consolidated Financial Statements.

Business Combinations

Acquisitions require significant estimates and judgments related to the fair value of assets acquired and liabilities assumed. We determine fair value based on the estimated 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. Such initial fair value amounts as well as other acquired assets and liabilities, including deferred tax assets and liabilities, are sometimes refined requiring subsequent adjustments.

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Certain liabilities and reserves are subjective in nature. We reflect such liabilities and reserves based upon the most recent information available. In conjunction with our acquisitions, such subjective liabilities and reserves principally include contingent consideration, certain deferred income tax liabilities, income tax and sales and use tax exposures, including tax liabilities related to our foreign subsidiaries, as well as reserves for accounts receivable, inventories,  warranties and contingent obligations. We account for contingent consideration relating to business combinations as a liability and an increase to goodwill at the date of the acquisition and continually re-measure the liability at each balance sheet date by recording changes in the fair value through our Condensed Consolidated Statements of Income. We determine the fair value of contingent consideration based on future operating projections under various potential scenarios and weight the probability of these outcomes. Similarly, other acquisition related liabilities can be required to be recorded at fair value at the date of the acquisition and continually re-measured at each balance sheet date, such as the assumed contingent obligation relating to the Jet Prep Acquisition and the contingent guaranteed obligation relating to the PuriCore Acquisition, as further described in Note 6 to the Condensed Consolidated Financial Statements.  The ultimate settlement of liabilities relating to business combinations may be for amounts which are materially different from the amounts initially recorded and may cause volatility in our results of operations.

Other Matters

We do not have any off balance sheet financial arrangements, other than future commitments under operating leases and executive severance and license agreements.

Forward Looking Statements

This quarterly report on Form 10-Q contains “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates, or forecasts about our businesses, the industries in which we operate, and the current beliefs and assumptions of management; they do not relate strictly to historical or current facts.  Without limiting the foregoing, words or phrases such as “expect,” “anticipate,” “goal,” “will continue,” “project,” “intend,” “plan,” “believe,” “seek,”  “may,” “could,” and variations of such words and similar expressions generally identify forward-looking statements.   In addition, any statements that refer to predictions or projections of our future financial performance, anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions about future events, activities or developments and are subject to numerous risks, uncertainties, and assumptions that are difficult to predict.  We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made.  Some of the factors which could cause results to differ from those expressed in any forward-looking statement are set forth under Item 1A of the 2014 Form 10-K, entitled Risk Factors. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

For these statements, we claim the protection of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Foreign Currency Market Risk

A portion of our products in all of our business segments are exported to and imported from a variety of geographic locations, and our business could be materially and adversely affected by the imposition of trade barriers, fluctuations in the rates of exchange of various currencies, tariff increases and import and export restrictions, affecting all of such geographies including but not limited to the United States, Canada, the European Union, the United Kingdom and the Far East.

A portion of our Canadian subsidiaries’ inventories and operating costs (which are reported in the Water Purification and Filtration and Specialty Packaging segments) are purchased in the United States and a significant amount of their sales are to customers in the United States. The businesses of our Canadian subsidiaries could be materially and adversely affected by the imposition of trade barriers, fluctuations in the rate of currency exchange, tariff increases and import and export restrictions between the United States and Canada. Changes in the value of the Canadian dollar against the United States dollar also affect our results of operations because certain cash bank accounts, accounts receivable and liabilities of our Canadian and United States subsidiaries are denominated and ultimately settled in United States dollars or Canadian dollars, respectively, but must be converted into their functional currency. Additionally, the financial statements of our Canadian subsidiaries are translated using the accounting policies described in Note 2 to the 2014 Form 10-K.

Changes in the value of the Euro, Singapore dollar and British Pound 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, Euros,  Singapore dollars or British Pounds but must be converted into each entity’s functional currency. Furthermore, the financial statements of our Italy, the Netherlands and United Kingdom subsidiaries are translated using the accounting policies described in Note 2 to the 2014 Form 10-K and therefore are impacted by changes in the Euro and British Pound exchange rates relative to the United States dollar.

In order to hedge against the impact of fluctuations in the value of (i) the Euro relative to the United States dollar, (ii) the Singapore dollar relative to the United States dollar and (iii) the British Pound 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, Singapore dollars and British Pounds forward, which contracts are one month in duration. These short-term contracts are designated as fair value hedge instruments. There were four foreign currency forward contracts with an aggregate value of $9,563,000 at January 31, 2015, which covered certain assets and liabilities that were denominated in currencies other than each entity’s functional currency. Such contracts expired on February 28, 2015. 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. For the three and six months ended January 31, 2015, such forward contracts substantially offset the impact on operations relating to certain assets and liabilities that were denominated in currencies

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other than each entity’s functional currencies. We do not currently hedge against the impact of fluctuations in the value of the Canadian dollar relative to the United States dollar because the currency impact on our Canadian and United States assets typically offset the currency impact on our Canadian and United States liabilities effectively minimizing significant realized gains and losses. Additionally, we do not hedge transactions associated with the funding of international acquisitions due to the short-term nature of the foreign currency exposure.

Overall, fluctuations in the rates of currency exchange had an insignificant impact upon net income for the three and six months ended January 31, 2015, compared with the three and six months ended January 31, 2014.

For purposes of translating the balance sheet at January 31, 2015 compared with July 31, 2014, the total of the foreign currency movements resulted in a foreign currency translation loss of $5,609,000 and $7,500,000 for the three and six months ended January 31, 2015, respectively, primarily due to the increase in the value of the United States dollar relative to the Euro and Canadian dollar, thereby decreasing stockholders’ equity.

Interest Rate Market Risk

Effective March 4, 2014, we have modified our credit facilities, as described elsewhere in Liquidity and Capital Resources. The modification of our credit facilities increased our borrowing capacity and decreased our margins applied to the lender’s base rate and LIBOR. The interest rate on outstanding borrowings is variable and substantially all of our outstanding borrowings are under LIBOR contracts. Therefore, interest expense is affected by the general level of interest rates in the United States as well as LIBOR interest rates.

Market Risk Sensitive Transactions

Additional information related to market risk sensitive transactions is contained in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our 2014 Form 10-K.

ITEM 4.CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that the design and operation of these disclosure controls and procedures were effective and designed to ensure that material information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is (i) recorded, processed, summarized and reported within the time periods specified by the SEC and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

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We have evaluated our internal controls over financial reporting and determined that no changes occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting, except as described below.

On June 30, 2014, we acquired PuriCore, as more fully described in Note 3 to the Condensed Consolidated Financial Statements. During the initial transition period following the acquisition, we enhanced our internal control process to ensure that all financial information related to this acquisition was properly reflected in our Condensed Consolidated Financial Statements. We expect that all aspects of the PuriCore business will be fully integrated into our existing overall internal control structure in late fiscal 2015.

On November 3, 2014, we acquired IMS, as more fully described in Note 3 to the Condensed Consolidated Financial Statements. During the initial transition period following the acquisition, we enhanced our internal control process to ensure that all financial information related to this acquisition was properly reflected in our Condensed Consolidated Financial Statements. We expect that all aspects of the IMS business will be fully integrated into our existing overall internal control structure in fiscal 2016.

66

PART II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

None.

ITEM 1A.RISK FACTORS

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our 2014 Form 10-K. The risk factors disclosed in Part I, Item 1A to our 2014 Form 10-K, in addition to the other information set forth in this report, could materially affect our business, financial condition, or results of operations.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table represents information with respect to purchases of common stock made by the Company during the current quarter:

				Total number of shares	Maximum number of
Month		Average		purchased as part of	shares that may yet
of	Total number of	price paid		publicly announced	be purchased under
Purchase	shares purchased	per share		plans or programs	the program
November	3,400	$	41.47	—	—
December	205	44.15		—	—
January	—	—		—	—
Total	3,605	$	41.62	—	—

The Company does not currently have a repurchase program. All of the shares purchased during the current quarter represent shares surrendered to the Company relating to cashless exercises of stock options and to pay employee withholding taxes due upon the vesting of restricted stock or the exercise of stock options.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURES

None.

ITEM 5.OTHER INFORMATION

None.

67

ITEM 6.EXHIBITS

31.1  - Certification of Principal Executive Officer.

31.2  - Certification of Principal Financial Officer.

32     - Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS  -   XBRL Instance Document

101.SCH -  XBRL Extension Schema Document

101.CAL -  XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF -   XBRL Taxonomy Definition Linkbase Document

101.LAB -  XBRL Taxonomy Extension Label Linkbase Document

101.PRE -   XBRL Taxonomy Extension Presentation Linkbase Document

68

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 MEDICAL CORP.
Date: March 12, 2015
	By:	/s/ Andrew A. Krakauer
		Andrew A. Krakauer,
		Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Craig A. Sheldon
		Craig A. Sheldon,
		Executive Vice President, Chief Financial Officer
		and Treasurer (Principal Financial Officer)
	By:	/s/ Steven C. Anaya
		Steven C. Anaya,
		Senior Vice President and Chief Accounting Officer
		(Principal Accounting Officer)

69

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Andrew A. Krakauer, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Cantel Medical Corp.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date:  March 12, 2015

By:	/s/ Andrew A. Krakauer
Andrew A. Krakauer, Chief Executive Officer
(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Craig A. Sheldon, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Cantel Medical Corp.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date:  March 12, 2015

By:	/s/ Craig A. Sheldon
Craig A. Sheldon, Executive Vice President, Chief Financial Officer
and Treasurer (Principal Financial Officer)

EX-32

Exhibit 32

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF

TITLE 18, UNITED STATES CODE)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officers of Cantel Medical Corp. (the “Company”), do hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended January 31, 2015 as filed with the Securities and Exchange Commission  (the “Form 10-Q”) that, to the best of their knowledge:

1.The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company, as of the date and for the period referred to in this report.

Date:  March 12, 2015

/s/ Andrew A. Krakauer

Andrew A. Krakauer

Chief Executive Officer

(Principal Executive Officer)

/s/ Craig A. Sheldon

Craig A. Sheldon

Executive Vice President, Chief Financial Officer

and Treasurer

(Principal Financial Officer)

XML

Acquisitions (Details 3) (USD $)	0 Months Ended
	Nov. 03, 2014 project	Jan. 31, 2015	Jul. 31, 2014	Jul. 31, 2013
Net Assets
Goodwill		$ 235,818,000	$ 231,647,000	$ 211,618,000
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
Preliminary reconciling adjustment payable	295,000
Net Assets
Current assets	8,628,000
Property, plant and equipment	7,774,000
Other assets	198,000
Current liabilities	(5,843,000)
Deferred income tax liabilities	(3,475,000)
Other long-term liabilities	(1,002,000)
Net assets acquired	13,311,000
Amortizable intangible assets, useful life	9 years
Number of in Process Research and Development Projects Acquired	0
Goodwill	11,299,000
Goodwill deductible for income tax purposes	0
International Medical Service S.r.l. | Customer relationships
Net Assets
Amortizable intangible assets	5,650,000
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

XML

Earnings Per Common Share (Details 2)	3 Months Ended		6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014
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	41,236,847	40,938,702	41,155,396	40,856,932
Participating securities (in shares)	346,684	554,029	413,472	576,119
Total weighted average number of shares and common stock equivalents attributable to both common stock and participating securities	41,583,531	41,492,731	41,568,868	41,433,051

XML

Intangible Assets and Goodwill (Details) (USD $)	3 Months Ended		6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014	Jul. 31, 2014
Intangible assets with finite lives:
Amortization expense	$ 3,232,000	$ 2,619,000	$ 6,188,000	$ 5,245,000
Gross	136,492,000		136,492,000		127,432,000
Accumulated Amortization	(57,871,000)		(57,871,000)		(53,757,000)
Net	78,621,000		78,621,000		73,675,000
Intangible assets with indefinite lives:
Trademarks and trade names	8,305,000		8,305,000		9,277,000
Total intangible assets
Gross	144,797,000		144,797,000		136,709,000
Accumulated Amortization	(57,871,000)		(57,871,000)		(53,757,000)
Net	86,926,000		86,926,000		82,952,000
Minimum
Intangible assets with finite lives:
Estimated useful lives			1 year
Maximum
Intangible assets with finite lives:
Estimated useful lives			20 years
Weighted average
Intangible assets with finite lives:
Estimated useful lives			11 years
Customer relationships
Intangible assets with finite lives:
Gross	92,892,000		92,892,000		83,145,000
Accumulated Amortization	(35,105,000)		(35,105,000)		(31,336,000)
Net	57,787,000		57,787,000		51,809,000
Total intangible assets
Accumulated Amortization	(35,105,000)		(35,105,000)		(31,336,000)
Technology
Intangible assets with finite lives:
Gross	25,695,000		25,695,000		26,405,000
Accumulated Amortization	(11,047,000)		(11,047,000)		(11,444,000)
Net	14,648,000		14,648,000		14,961,000
Total intangible assets
Accumulated Amortization	(11,047,000)		(11,047,000)		(11,444,000)
Brand names
Intangible assets with finite lives:
Gross	12,710,000		12,710,000		12,680,000
Accumulated Amortization	(10,129,000)		(10,129,000)		(9,431,000)
Net	2,581,000		2,581,000		3,249,000
Total intangible assets
Accumulated Amortization	(10,129,000)		(10,129,000)		(9,431,000)
Non-compete agreements
Intangible assets with finite lives:
Gross	3,129,000		3,129,000		3,129,000
Accumulated Amortization	(876,000)		(876,000)		(754,000)
Net	2,253,000		2,253,000		2,375,000
Total intangible assets
Accumulated Amortization	(876,000)		(876,000)		(754,000)
Patents and other registrations
Intangible assets with finite lives:
Gross	2,066,000		2,066,000		2,073,000
Accumulated Amortization	(714,000)		(714,000)		(792,000)
Net	1,352,000		1,352,000		1,281,000
Total intangible assets
Accumulated Amortization	$ (714,000)		$ (714,000)		$ (792,000)

XML

Income Taxes (Details) (USD $)	6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014
Income Taxes
Consolidated effective tax rate (as a percent)	38.30%	36.70%
Income tax benefit corresponding to initial operating losses from acquired Jet Prep entity	$ 0
Canada, Singapore and Netherlands
Income Taxes
Consolidated effective tax rate (as a percent)		22.10%
United States
Income Taxes
Consolidated effective tax rate (as a percent)	36.40%	37.40%

XML

Fair Value Measurements (Details 3) (USD $)	3 Months Ended
	Jan. 31, 2015	Oct. 31, 2014	Jul. 31, 2014	Apr. 30, 2014	Jan. 31, 2014	Oct. 31, 2013
Reconciliation of liability measured and recorded at fair value on a recurring basis using Level 3
Beginning balance	$ 5,807,000	$ 5,869,000	$ 6,071,000	$ 5,750,000	$ 1,000	$ 45,000
Total net unrealized losses (gains) included in general and administrative expense in earnings	127,000	147,000	(57,000)	321,000	(1,000)	(44,000)
Consideration issued and obligation assumed (1)			(126,000)		5,750,000
Settlements	(164,000)	(132,000)	(19,000)
Foreign currency translation	(69,000)	(77,000)
Ending balance	5,701,000	5,807,000	5,869,000	6,071,000	5,750,000	1,000
Byrne Medical Business | Price floor
Reconciliation of liability measured and recorded at fair value on a recurring basis using Level 3
Beginning balance					1,000	45,000
Total net unrealized losses (gains) included in general and administrative expense in earnings					(1,000)	(44,000)
Ending balance						1,000
Contingent Consideration | Jet Prep Ltd.
Reconciliation of liability measured and recorded at fair value on a recurring basis using Level 3
Beginning balance	2,804,000	2,722,000	5,026,000	4,760,000
Total net unrealized losses (gains) included in general and administrative expense in earnings	84,000	82,000	(34,000)	266,000
Consideration issued and obligation assumed (1)			(2,270,000)		4,760,000
Ending balance	2,888,000	2,804,000	2,722,000	5,026,000	4,760,000
Assumed contingent liability | Jet Prep Ltd.
Reconciliation of liability measured and recorded at fair value on a recurring basis using Level 3
Beginning balance	1,763,000	1,752,000	1,045,000	990,000
Total net unrealized losses (gains) included in general and administrative expense in earnings	10,000	11,000	(23,000)	55,000
Consideration issued and obligation assumed (1)			730,000		990,000
Ending balance	1,773,000	1,763,000	1,752,000	1,045,000	990,000
Contingent guaranteed obligation | Puri Core International Limited
Reconciliation of liability measured and recorded at fair value on a recurring basis using Level 3
Beginning balance	1,240,000	1,395,000
Total net unrealized losses (gains) included in general and administrative expense in earnings	33,000	54,000
Consideration issued and obligation assumed (1)			1,414,000
Settlements	(164,000)	(132,000)	(19,000)
Foreign currency translation	(69,000)	(77,000)
Ending balance	$ 1,040,000	$ 1,240,000	$ 1,395,000

XML

Business Held -For-Sale (Tables)

6 Months Ended

Jan. 31, 2015

Business Held-For-Sale

Schedule of carrying amounts of assets and liabilities included in business held-for-sale

	January 31,
	2015
	(Amounts in thousands)
Accounts receivable, net of allowance for doubtful accounts	$	717
Inventories	614
Prepaid expenses and other assets	34
Property and equipment, net	334
Intangible assets, net	714
Goodwill	5,635
Other assets	159
Total assets held-for-sale	$	8,207
Accounts payable	$	178
Compensation payable	139
Accrued expenses	79
Deferred revenue	31
Income taxes payable	141
Deferred income taxes	217
Other liabilities	67
Total liabilities held-for-sale	$	852

XML

Commitments and Contingencies (Details) (USD $)	0 Months Ended	6 Months Ended
	Nov. 05, 2013	Jan. 31, 2015	Jun. 30, 2014	Feb. 28, 2015
Minimum commitments under noncancelable operating leases
Remaining fiscal year		$ 2,429,000
2016		4,296,000
2017		3,526,000
2018		2,586,000
2019		1,831,000
Thereafter		3,742,000
Total		18,410,000
Total contractual obligations
Remaining fiscal year		5,837,000
2016		11,735,000
2017		7,364,000
2018		6,338,000
2019		100,602,000
Thereafter		6,397,000
Total		138,273,000
Jet Prep Ltd.
Total contractual obligations
Contingent consideration	2,490,000	2,888,000
Assumed contingent obligation	1,720,000	1,773,000
Period over which potential cash contingent consideration is payable	7 years
Puri Core International Limited
Total contractual obligations
Contingent consideration		1,040,000	1,414,000
Compensation agreements
Other commitments
Remaining fiscal year		2,067,000
2016		4,958,000
2017		951,000
2018		350,000
2019		350,000
Thereafter		496,000
Total		9,172,000
Contingent consideration
Other commitments
2016		70,000
2017		554,000
2018		947,000
2019		1,124,000
Thereafter		1,522,000
Total		4,217,000
Contingent consideration | Jet Prep Ltd.
Total contractual obligations
Contingent consideration		2,888,000
Discount rate of potential payments (as a percent)		12.60%
Assumed contingent liability
Other commitments
2016		51,000
2017		226,000
2018		428,000
2019		574,000
Thereafter		622,000
Total		1,901,000
Assumed contingent liability | Jet Prep Ltd.
Total contractual obligations
Discount rate of potential payments (as a percent)		2.50%
Assumed contingent obligation		1,773,000
Contingent guaranteed obligation
Other commitments
Remaining fiscal year		323,000
2016		403,000
2017		208,000
2018		152,000
2019		152,000
Total		1,238,000
Contingent guaranteed obligation | Puri Core International Limited
Total contractual obligations
Contingent consideration		1,040,000
Discount rate of potential payments (as a percent)		10.10%
Other long-term obligations
Other commitments
Remaining fiscal year		150,000
2016		286,000
2017		228,000
2018		204,000
2019		96,000
Thereafter		15,000
Total		979,000
Expected interest payments under the credit facility
Other commitments
Remaining fiscal year		868,000
2016		1,671,000
2017		1,671,000
2018		1,671,000
2019		975,000
Total		6,856,000
Credit Agreement
Long term debt
2019		95,500,000
Total		$ 95,500,000		$ 102,500,000
Credit Agreement | Weighted average
Total contractual obligations
Interest rate (as a percent)		1.75%

XML

Fair Value Measurements (Tables)

6 Months Ended

Jan. 31, 2015

Fair Value Measurements

Schedule of fair values of financial instruments measured on a recurring basis

	January 31, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Money markets	$	1,680,000	$	—	$	—	$	1,680,000
Total assets	$	1,680,000	$	—	$	—	$	1,680,000
Liabilities:
Accrued expenses:
Interest rate swap agreements	$	—	$	30,000	$	—	$	30,000
Assumed contingent obligation	—		—		11,000		11,000
Contingent guaranteed obligation	—		—		562,000		562,000
Total accrued expenses	—		30,000		573,000		603,000
Contingent consideration	—		—		2,888,000		2,888,000
Other long-term liabilities:
Assumed contingent obligation	—		—		1,762,000		1,762,000
Contingent guaranteed obligation	—		—		478,000		478,000
Total other long-term liabilities	—		—		2,240,000		2,240,000
Total liabilities	$	—	$	30,000	$	5,701,000	$	5,731,000

	July 31, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Money markets	$	1,702,000	$	—	$	—	$	1,702,000
Total assets	$	1,702,000	$	—	$	—	$	1,702,000
Liabilities:
Accrued expenses:
Interest rate swap agreements	$	—	$	69,000	$	—	$	69,000
Contingent guaranteed obligation	—		—		684,000		684,000
Total accrued expenses	—		69,000		684,000		753,000
Contingent consideration	—		—		2,722,000		2,722,000
Other long-term liabilities:
Assumed contingent obligation	—		—		1,752,000		1,752,000
Contingent guaranteed obligation	—		—		711,000		711,000
Total other long-term liabilities	—		—		2,463,000		2,463,000
Total liabilities	$	—	$	69,000	$	5,869,000	$	5,938,000

Reconciliation of liabilities measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3)

							Jet Prep			PuriCore
	Byrne			Jet Prep			Assumed			Contingent
	Price			Contingent			Contingent			Guaranteed
	floor			Consideration			Consideration			Obligation			Total
Balance, July 31, 2013	$	45,000		$	—		$	—		$	—		$	45,000
Total net unrealized gains included in general and administrative expense in earnings	(44,000		)	—			—			—			(44,000		)
Balance, October 31, 2013	1,000			—			—			—			1,000
Total net unrealized gains included in general and administrative expense in earnings	(1,000		)	—			—			—			(1,000		)
Consideration issued and obligation assumed (1)	—			4,760,000			990,000			—			5,750,000
Balance, January 31, 2014	—			4,760,000			990,000			—			5,750,000
Total net unrealized losses included in general and administrative expense in earnings	—			266,000			55,000			—			321,000
Balance, April 30, 2014	—			5,026,000			1,045,000			—			6,071,000
Total net unrealized gains included in general and administrative expense in earnings	—			(34,000		)	(23,000		)	—			(57,000		)
Consideration issued and obligation assumed (1)	—			(2,270,000		)	730,000			1,414,000			(126,000		)
Settlements	—			—			—			(19,000		)	(19,000		)
Balance, July 31, 2014	—			2,722,000			1,752,000			1,395,000			5,869,000
Total net unrealized losses included in general and administrative expense in earnings	—			82,000			11,000			54,000			147,000
Settlements	—			—			—			(132,000		)	(132,000		)
Foreign currency translation	—			—			—			(77,000		)	(77,000		)
Balance, October 31, 2014	—			2,804,000			1,763,000			1,240,000			5,807,000
Total net unrealized losses included in general and administrative expense in earnings	—			84,000			10,000			33,000			127,000
Settlements	—			—			—			(164,000		)	(164,000		)
Foreign currency translation	—			—			—			(69,000		)	(69,000		)
Balance, January 31, 2015	$	—		$	2,888,000		$	1,773,000		$	1,040,000		$	5,701,000

(1) Both of the Jet Prep liabilities were estimated on the date of the acquisition using preliminary information and subsequently revised in July 2014.

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Intangible Assets and Goodwill (Details 3) (USD $)	6 Months Ended	12 Months Ended	0 Months Ended
	Jan. 31, 2015	Jul. 31, 2014	Jan. 31, 2015	Jul. 31, 2013
Changes in Goodwill
Balance at the beginning of the period	$ 231,647,000	$ 211,618,000
Acquisitions	14,156,000	20,952,000
Foreign currency translation	(4,350,000)	(923,000)
Business held-for-sale	(5,635,000)
Balance at the end of the period	235,818,000	231,647,000	235,818,000
Endoscopy
Changes in Goodwill
Balance at the beginning of the period	78,274,000	59,230,000
Acquisitions	11,299,000	19,225,000
Foreign currency translation	(2,623,000)	(181,000)
Balance at the end of the period	86,950,000	78,274,000	86,950,000
Water Purification and Filtration
Changes in Goodwill
Balance at the beginning of the period	56,838,000	57,179,000
Acquisitions	2,857,000
Foreign currency translation	(795,000)	(341,000)
Balance at the end of the period	58,900,000	56,838,000	58,900,000
Healthcare Disposables
Changes in Goodwill
Balance at the beginning of the period		80,108,000	81,835,000
Acquisitions		1,727,000
Balance at the end of the period	81,835,000	81,835,000	81,835,000
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	8,133,000	8,133,000
Other.
Changes in Goodwill
Balance at the beginning of the period	6,567,000	6,968,000
Foreign currency translation	(932,000)	(401,000)
Business held-for-sale	(5,635,000)
Balance at the end of the period		6,567,000
Specialty Packaging segment | Disposal Group, Not Discontinued Operations
Changes in Goodwill
Goodwill	5,635,000		5,635,000
Future impairment charges if 10% adverse change in fair value calculation or sales price of business			$ 850,000

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Acquisitions (Details 6) (USD $)	0 Months Ended
	Nov. 05, 2013	Nov. 05, 2013 project	Jan. 31, 2015	Jul. 31, 2014	Jul. 31, 2013
Net Assets
Goodwill			$ 235,818,000	$ 231,647,000	$ 211,618,000
Jet Prep Ltd.
Acquisitions
Transaction costs	200,000	200,000
Total consideration for the transaction, excluding transaction costs	5,350,000	5,350,000
Contingent consideration liability	2,490,000	2,490,000	2,888,000
Period over which potential cash contingent consideration is payable	7 years
Assumed contingent obligation	1,720,000	1,720,000	1,773,000
Net Assets
Current assets	82,000	82,000
Property, plant and equipment	65,000	65,000
Current liabilities	(104,000)	(104,000)
Other long-term liabilities	(1,716,000)	(1,716,000)
Net assets acquired	2,057,000	2,057,000
Number of in-process research and development projects acquired		0
Goodwill	5,783,000	5,783,000
Goodwill deductible for income tax purposes	0	0
Jet Prep Ltd. | Contingent consideration
Acquisitions
Contingent consideration liability			2,888,000
Jet Prep Ltd. | Accrued expenses
Acquisitions
Assumed contingent obligation			11,000
Jet Prep Ltd. | Other long-term liabilities
Acquisitions
Assumed contingent obligation			1,762,000
Jet Prep Ltd. | Technology
Net Assets
Amortizable intangible assets	3,730,000	3,730,000
Amortizable intangible assets, useful life	7 years
Jet Prep Ltd. | Contingent consideration, payable to sellers
Acquisitions
Contingent consideration liability	2,490,000	2,490,000
Increase in goodwill	2,490,000
Jet Prep Ltd. | Contingent consideration, payable to Israeli Government
Acquisitions
Increase in goodwill		1,720,000
Liabilities assumed	810,000	810,000
Increase in accrued expenses		4,000
Increase in other long-term liabilities		$ 1,716,000
Jet Prep Ltd. | Contingent consideration, payable to Israeli Government | Minimum
Acquisitions
Israeli Government's rate of return on investment		1
Jet Prep Ltd. | Contingent consideration, payable to Israeli Government | Maximum
Acquisitions
Israeli Government's rate of return on investment		9

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Acquisitions (Details) (DentaPure, USD $)	0 Months Ended
	Feb. 20, 2015	Feb. 20, 2015
DentaPure
Acquisitions
Pre-acquisition annual revenues	$ 2,300,000
Total consideration for the transaction, excluding acquisition-related costs	$ 9,980,000	$ 9,980,000

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Financing Arrangements (Details) (USD $)	1 Months Ended	6 Months Ended	0 Months Ended	1 Months Ended	6 Months Ended	0 Months Ended
	Feb. 29, 2012 Lender	Jan. 31, 2014	Mar. 04, 2014	Feb. 28, 2015	Jan. 31, 2015	Aug. 08, 2012	Feb. 20, 2015
Financing Arrangements
Unamortized debt issuance costs					$ 1,495,000
Number of existing senior lenders of debt, whose variable interest cash flows will be exchanged by the entity with fixed interest cash flows	1
Repayment of borrowings		5,000,000
Credit Agreement
Financing Arrangements
Maximum borrowing capacity			250,000,000
Borrowings							10,000,000
Debt issuance costs			1,318,000
Fees on unused portion of credit facilities (as a percent)					0.20%
Shares of foreign subsidiaries pledged as security (as a percent)					65.00%
Outstanding borrowings				102,500,000	95,500,000
Repayment of borrowings				3,000,000
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)					0.25%
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)					1.25%
Credit Agreement | LIBOR | Minimum
Financing Arrangements
Margin on reference rate (as a percent)					1.25%
Reference rate (as a percent)					0.17%
Credit Agreement | LIBOR | Maximum
Financing Arrangements
Margin on reference rate (as a percent)					2.25%
Reference rate (as a percent)					0.56%
Revolving Credit Facility
Financing Arrangements
Maximum borrowing capacity		100,000,000	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
Revolving Credit Facility | Interest rate swap agreements | Cash flow hedge instruments
Financing Arrangements
Borrowing initially hedged						25,000,000
Semi-annual reduction in borrowings hedged						5,000,000
Revolving Credit Facility | One month LIBOR | Interest rate swap agreements | Cash flow hedge instruments
Financing Arrangements
Interest rate (as a percent)						0.496%
Term Loan Facility
Financing Arrangements
Borrowings		50,000,000
Unamortized debt issuance costs charged to interest expense			84,000
Term Loan Facility | Interest rate swap agreements | Cash flow hedge instruments
Financing Arrangements
Borrowing initially hedged						40,000,000
Quarterly reduction in borrowings hedged						2,500,000
Term Loan Facility | One month LIBOR | Interest rate swap agreements | Cash flow hedge instruments
Financing Arrangements
Interest rate (as a percent)						0.664%
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

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Operating Segments (Details 2) (USD $)	3 Months Ended		6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014
Information as to operating segments
Net sales	$ 135,430,000	$ 119,042,000	$ 272,241,000	$ 237,314,000
Operating income	18,301,000	18,209,000	37,348,000	36,521,000
Interest expense, net	(646,000)	(630,000)	(1,180,000)	(1,274,000)
Income before income taxes	17,655,000	17,579,000	36,168,000	35,247,000
Operating Segment
Information as to operating segments
Operating income	23,066,000	22,116,000	46,292,000	43,845,000
General corporate expenses
Information as to operating segments
Operating income	(4,765,000)	(3,907,000)	(8,944,000)	(7,324,000)
Endoscopy
Information as to operating segments
Net sales	58,970,000	44,587,000	114,902,000	88,200,000
Endoscopy | Operating Segment
Information as to operating segments
Operating income	8,396,000	8,218,000	15,854,000	16,402,000
Water Purification and Filtration
Information as to operating segments
Net sales	42,356,000	40,719,000	84,724,000	80,469,000
Water Purification and Filtration | Operating Segment
Information as to operating segments
Operating income	8,121,000	7,108,000	15,777,000	13,165,000
Healthcare Disposables
Information as to operating segments
Net sales	25,197,000	24,716,000	54,534,000	50,965,000
Healthcare Disposables | Operating Segment
Information as to operating segments
Operating income	4,469,000	4,563,000	10,823,000	10,282,000
Dialysis
Information as to operating segments
Net sales	7,314,000	7,611,000	14,800,000	14,920,000
Dialysis | Operating Segment
Information as to operating segments
Operating income	1,481,000	1,996,000	2,931,000	3,760,000
Other.
Information as to operating segments
Net sales	1,593,000	1,409,000	3,281,000	2,760,000
Other. | Operating Segment
Information as to operating segments
Operating income	$ 599,000	$ 231,000	$ 907,000	$ 236,000

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Fair Value Measurements (Details 4) (USD $)	12 Months Ended
	Jul. 31, 2014
Fair Value Measurements
Impairment of long-lived assets, including goodwill and intangibles with indefinite lives	$ 0

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Acquisitions

6 Months Ended

Jan. 31, 2015

Acquisitions

Acquisitions

Note 3.Acquisitions

DentaPure

On February 20, 2015, we purchased all of the issued and outstanding stock of MRLB International, Inc., 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. The DentaPure product line will be integrated into the Crosstex product portfolio and reported in the Healthcare Disposables segment. The total consideration for the transaction was $9,980,000, excluding acquisition-related costs.

The principal reasons for the acquisition were to (i) leverage the sales and marketing infrastructure of Crosstex 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 earnings per share (“EPS”) in fiscal 2016 and beyond. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill.

Since this acquisition occurred after January 31, 2015, its results of operations are not included in any periods presented. Additionally, we do not expect the DentaPure Acquisition to have a significant effect on our consolidated results of operations for the remainder of fiscal 2015 due to the size of the acquisition 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 with pre-acquisition annual revenues (unaudited) of approximately $8,000,000.  PWS is based out of Ridgeland, Mississippi and provides water treatment services for commercial and industrial, laboratory, and medical customers (the “PWS Business”). The PWS Business is included in our Water Purification and Filtration segment. The total consideration for the transaction, excluding acquisition-related costs, was $11,830,000 net of a preliminary $49,000 net asset value adjustment to be paid by the seller.

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	$	1,420,000
Property, plant and equipment	1,966,000
Amortizable intangible assets (12- year weighted average life):
Customer relationships (12- year life)	6,040,000
Brand names (1- year life)	30,000
Other assets	20,000
Current liabilities	(503,000		)
Net assets acquired	$	8,973,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $2,857,000 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 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, 2015 subsequent to its acquisition date and is not reflected in the three and six months ended January 31, 2014. This acquisition did not have a significant effect on our consolidated results of operations for the three and six months ended January 31, 2015 due to the size of the acquisition 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”). 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 portion of which was subsequently repaid, and a preliminary reconciling adjustment payable to the seller of $295,000 relating to the debt assumed.

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	$	8,628,000
Property, plant and equipment	7,774,000
Amortizable intangible assets (9- year weighted average life):
Customer relationships (9- year life)	5,650,000
Technology (9- year life)	1,381,000
Other assets	198,000
Current liabilities	(5,843,000		)
Deferred income tax liabilities	(3,475,000		)
Other long-term liabilities	(1,002,000		)
Net assets acquired	$	13,311,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $11,299,000 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 acquisition were as follows: (i) the addition of a high quality manufacturing facility in Europe eliminating freight and logistics expenses related to shipping chemistries overseas, (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 product portfolio, (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.

PuriCore International Limited

On June 30, 2014, we acquired from PuriCore plc, a publicly traded company in the United Kingdom (“UK”), all the issued and outstanding stock of its subsidiary PuriCore International Limited, a company located in the UK with pre-acquisition annual revenues (unaudited) of approximately $25,000,000 that sells automated endoscope reprocessors, endoscope drying and storage cabinets, chemistry and consumables, as well as comprehensive maintenance and validation services, primarily in the UK (the “PuriCore Business”). The total consideration for the transaction, excluding acquisition-related costs of $703,000, was $27,675,000, net of a $337,000 net asset value adjustment paid by the seller in August 2014. The PuriCore Business is included in our Endoscopy segment.

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	$	8,982,000
Property, plant and equipment	972,000
Amortizable intangible assets (9- year weighted average life):
Customer relationships (10- year life)	11,340,000
Technology (6- year life)	1,760,000
Other (3- year life)	93,000
Non-current deferred income tax assets, net	1,924,000
Current liabilities	(10,085,000		)
Other long-term liabilities	(753,000		)
Net assets acquired	$	14,233,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $13,442,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, has been included in our Endoscopy segment. Following the acquisition, we changed the name of PuriCore to Cantel Medical (UK) Limited.

In connection with the acquisition, we acquired certain ordinary course business assets and liabilities which included 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 PuriCore’s discontinued endoscope reprocessing machine models. Although the terms of the guarantee provide for no limit to the maximum potential future payments, we have estimated the fair value of the liability on the date of the acquisition to be approximately $1,414,000, of which $693,000 was recorded in current liabilities and $721,000 was recorded in other long-term liabilities at July 31, 2014. This contingent guaranteed obligation increased goodwill on the date of the acquisition and is continually re-measured at each balance sheet date by recording changes in the fair value of the liability to general and administrative expenses in our Condensed Consolidated Statements of Income, as further explained in Note 6 of the Condensed Consolidated Financial Statements. At January 31, 2015, such liability was $1,040,000 of which $562,000 was recorded in current liabilities and $478,000 was recorded in other long-term liabilities.

Since we will be continually re-measuring the contingent guaranteed obligation at each balance sheet date and recording changes in the fair value through our Condensed Consolidated Statements of Income, we may potentially have significant earnings volatility in our future results of operations until the discontinued endoscope reprocessing machine model is no longer used in the marketplace.

The principal reasons for the acquisition were as follows: (i) the expansion of our product offerings with a broader range of advanced endoscope reprocessing equipment suitable for various international markets, (ii) the opportunity to sell our chemistries and other products to PuriCore’s installed base through a direct sales force, (iii) the opportunity to transition our existing UK business from a distribution model to a direct sales model, (iv) the ability to expand our footprint and infrastructure in Europe and (v) the expectation that the acquisition will be accretive to our earnings per share in fiscal 2015 and beyond.

The PuriCore Business is included in our results of operations for the three and six months ended January 31, 2015 and is not reflected in the three and six months ended January 31, 2014. This acquisition did not have a significant effect on our consolidated results of operations for the three and six months ended January 31, 2015 due to the size of the acquisition in relation to our overall consolidated results of operations.

Sterilator Company, Inc.

On January 7, 2014, we acquired all the issued and outstanding stock of Sterilator, a private company based in Cuba, New York that manufactures biological indicators and supplies for sterility assurance products, which are used to accurately monitor the effectiveness of sterilization processes. The total consideration for the transaction was $3,349,000.

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	$	1,058,000
Property, plant and equipment	521,000
Amortizable intangible assets (9- year weighted average life):
Customer relationships (11- year life)	130,000
Technology (8- year life)	510,000
Current liabilities	(321,000		)
Deferred income tax liabilities	(276,000		)
Net assets acquired	$	1,622,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $1,727,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, has been included in our Healthcare Disposables segment.

The principal reasons for this vertical acquisition were to (i) add one of our key long-standing suppliers of biological indicators to our portfolio providing a strategic benefit and cost savings to our overall sterility assurance monitoring business and (ii) strengthen our new product development and overall research and development capabilities. Such reasons constitute the significant factors that contributed to a purchase price that resulted in recognition of goodwill.

The Sterilator Business is included in our results of operations for the three and six months ended January 31, 2015 and the portion of the three and six months ended January 31, 2014 subsequent to its acquisition date. This acquisition had an insignificant impact on our results of operations due to the small size of this business.

Jet Prep Ltd.

On November 5, 2013, we acquired all the issued and outstanding capital stock of Jet Prep, a private Israeli company that developed the Jet PrepTM Endoscopic Flushing Device, a novel single-use irrigation and aspiration catheter to improve visualization during colonoscopy procedures. The device has FDA 510(k) and CE Mark clearances and is in the beginning phase of commercialization by our global endoscopy sales force. Total consideration for the transaction, excluding transaction costs of $200,000, was $5,350,000 plus preliminarily estimated contingent consideration of $2,490,000 based on a percentage of sales above a minimum threshold over a seven year period, as further explained below. The Jet Prep Business is included in our Endoscopy segment.

We account for contingent consideration by recording the fair value of contingent consideration as a liability and an increase in goodwill on the date of the acquisition and continually re-measure the liability at each balance sheet date by recording changes in the fair value through our Condensed Consolidated Statements of Income. Accordingly, on November 5, 2013 we increased contingent consideration and goodwill by $2,490,000 to record our initial estimated fair value of the contingent consideration that would be earned over the seven year period ending November 4, 2020. On a quarterly basis subsequent to November 5, 2013, we re-measured the fair value of the contingent consideration and recorded the changes in fair value by increasing both contingent consideration and general and administrative expenses, as further explained in Note 6 of the Condensed Consolidated Financial Statements. At January 31, 2015, the estimated fair value was $2,888,000 and was recorded in contingent consideration in the Condensed Consolidated Balance Sheets.

In connection with the acquisition, we acquired certain ordinary course business assets and liabilities as well as an obligation to repay the Israeli Government for $810,000 of seed funding that was previously granted to Jet Prep. In accordance with the seed funding agreement, the Israeli Government is entitled to a return on their investment that can range from one to nine times their total grant based upon specific conditions set forth in the seed funding agreement and applicable Israeli law, including the acceleration of payments if we transfer certain operations of the company or intellectual property outside of Israel. We account for this assumed contingent obligation to the Israeli Government by recording the fair value as a liability and an increase in goodwill on the date of the acquisition and continually re-measure the liability at each balance sheet date by recording changes in the fair value through our Condensed Consolidated Statements of Income. Accordingly, on November 5, 2013 we increased accrued expenses by $4,000, other long-term liabilities by $1,716,000 and goodwill by $1,720,000 to record our initial estimated fair value of the assumed contingent obligation to the Israeli Government that would be earned on a percentage of sales over a forecasted period. On a quarterly basis subsequent to November 5, 2013, we re-measured the fair value of the assumed contingent liability and recorded the changes in fair value by increasing both liabilities and general and administrative expenses, as further explained in Note 6 of the Condensed Consolidated Financial Statements. At January 31, 2015, the estimated fair value was $1,773,000, of which $11,000 was recorded in accrued expenses and $1,762,000 was recorded in other long-term liabilities.

Since we will be continually re-measuring the contingent consideration liability and the assumed contingent obligation at each balance sheet date and recording changes in the respective fair values through our Condensed Consolidated Statements of Income, we may potentially have significant earnings volatility in our future results of operations until the completion of the seven year period with respect to the contingent consideration and until the assumed contingent obligation is satisfied or until sales of the Jet Prep Ltd. products no longer exist.

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	$	82,000
Property, plant and equipment	65,000
Amortizable intangible asset:
Technology (7- year life)	3,730,000
Current liabilities	(104,000		)
Other long-term liabilities	(1,716,000		)
Net assets acquired	$	2,057,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $5,783,000 was assigned to goodwill. Such goodwill, none of which is deductible for income tax purposes, has been included in our Endoscopy segment.

The principal reasons for the acquisition were (i) to address a market need for an effective technology that improves colonoscopy visualization through the use of irrigation and suction, (ii) to expand our endoscopy product portfolio further bolstering the Medivators brand in the gastrointestinal (“GI”) suite, (iii) to further expand our research and development capability by adding accomplished engineers to our existing research and development team and (iv) the expectation that the acquisition will be accretive to our earnings per share in fiscal 2015 and beyond.

The Jet Prep Business is included in our results of operations for the three and six months ended January 31, 2015 and the portion of the three and six months ended January 31, 2014 subsequent to its acquisition date. Since the commercialization of the Jet Prep Endoscopic Flushing Device is in the beginning phase, this acquisition has not yet generated any significant sales and did not have a significant impact on our results of operations.

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Business Held - for- Sale (Details) (USD $)	0 Months Ended
	Jan. 31, 2015	Jan. 31, 2015
Current assets
Total assets held -for-sale	$ 8,207,000	$ 8,207,000
Current Liabilities
Total liabilities held -for-sale	852,000	852,000
Specialty Packaging business | Disposal Group, Not Discontinued Operations
Current assets
Accounts receivable, net of allowance for doubtful accounts	717,000	717,000
Inventories	614,000	614,000
Prepaid expenses and other assets	34,000	34,000
Property and equipment, net	334,000	334,000
Intangible assets, net	714,000	714,000
Goodwill	5,635,000	5,635,000
Other assets	159,000	159,000
Total assets held -for-sale	8,207,000	8,207,000
Current Liabilities
Accounts payable	178,000	178,000
Compensation payable	139,000	139,000
Accrued expenses	79,000	79,000
Deferred revenue	31,000	31,000
Income taxes payable	141,000	141,000
Deferred income taxes	217,000	217,000
Other long term liabilities	67,000	67,000
Total liabilities held -for-sale	852,000	852,000
Foreign currency translation gain	$ 1,084,000

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Derivatives (Details) (USD $)	1 Months Ended	3 Months Ended	6 Months Ended	3 Months Ended	6 Months Ended	1 Months Ended	0 Months Ended
	Feb. 29, 2012 Lender	Jan. 31, 2014	Jan. 31, 2014	Jan. 31, 2015 contract	Jan. 31, 2015 contract	Jan. 31, 2014	Aug. 08, 2012
Derivatives
Net currency conversion gains (losses), net of tax		$ 34,000	$ 96,000
Number of existing senior lenders of debt, whose variable interest cash flows will be exchanged by the entity with fixed interest cash flows	1
Foreign currency forward contracts | Fair value hedge instruments
Derivatives
Term of contracts					1 month
Number of contracts				4	4
Aggregate value of contracts				9,563,000	9,563,000
Term of renewed contracts					1 month
Net currency conversion gains (losses), net of tax				15,000	(49,000)
Interest rate swap agreements | Term Loan Facility
Derivatives
Fair value of interest rate swap recognized in interest expense						113,000
Interest rate swap agreements | Cash flow hedge instruments | Term Loan Facility
Derivatives
Borrowing initially hedged							40,000,000
Quarterly reduction in borrowings hedged							2,500,000
Interest rate swap agreements | Cash flow hedge instruments | Term Loan Facility | One month LIBOR
Derivatives
Interest rate (as a percent)							0.664%
Interest rate swap agreements | Cash flow hedge instruments | Revolving Credit Facility
Derivatives
Borrowing initially hedged							25,000,000
Semi-annual reduction in borrowings hedged							$ 5,000,000
Interest rate swap agreements | Cash flow hedge instruments | Revolving Credit Facility | One month LIBOR
Derivatives
Interest rate (as a percent)							0.496%

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Income Taxes (Tables)

6 Months Ended

Jan. 31, 2015

Income Taxes

Schedule of reconciliation of the beginning and ending amounts of gross unrecognized tax benefits

	Unrecognized
	Tax Benefits
Unrecognized tax benefits on July 31, 2013	$	124,000
Lapse of statute of limitations in fiscal 2014	(124,000		)
Unrecognized tax benefits on January 31, 2015 and July 31, 2014	$	—

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Earnings Per Common Share (Tables)

6 Months Ended

Jan. 31, 2015

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,
	2015			2014			2015			2014
Numerator for basic and diluted earnings per share:
Net income	$	11,085,000		$	11,126,000		$	22,324,000		$	22,311,000
Less income allocated to participating securities	(88,000		)	(149,000		)	(218,000		)	(309,000		)
Net income available to common stockholders	$	10,997,000		$	10,977,000		$	22,106,000		$	22,002,000
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	41,176,804			40,754,707			41,079,573			40,668,731
Dilutive effect of stock options using the treasury stock method and the average market price for the period	60,043			183,995			75,823			188,201
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock	41,236,847			40,938,702			41,155,396			40,856,932
Earnings per share attributable to common stock:
Basic earnings per share	$	0.27		$	0.27		$	0.54		$	0.54
Diluted earnings per share	$	0.27		$	0.27		$	0.54		$	0.54
Stock options excluded from weighted average dilutive common shares outstanding because their inclusion would have been antidilutive	—			30,000			—			—

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,
	2015	2014	2015	2014
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock	41,236,847	40,938,702	41,155,396	40,856,932
Participating securities	346,684	554,029	413,472	576,119
Total weighted average number of shares and common stock equivalents attributable to both common stock and participating securities	41,583,531	41,492,731	41,568,868	41,433,051

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Income Taxes (Details 2) (USD $)	12 Months Ended
	Jul. 31, 2014
Reconciliation of the beginning and ending amounts of gross unrecognized tax benefits
Unrecognized tax benefits at the beginning of the period	$ 124,000
Lapse of statute of limitations in fiscal 2014	$ (124,000)

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Fair Value Measurements (Details) (USD $)	1 Months Ended	0 Months Ended
	Feb. 29, 2012 Lender	Nov. 05, 2013	Jun. 30, 2014	Aug. 02, 2011	Jul. 31, 2014	Jul. 29, 2011	Jan. 31, 2015
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Number of existing senior lenders of debt, whose variable interest cash flows will be exchanged by the entity with fixed interest cash flows	1
Stock price (in dollars per share)					$ 33.53	$ 11.08
Puri Core International Limited
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Contingent consideration liability			$ 1,414,000				$ 1,040,000
Jet Prep Ltd.
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Contingent consideration liability		2,490,000					2,888,000
Contingent consideration period		7 years
Assumed contingent obligation		1,720,000					1,773,000
Jet Prep Ltd. | Contingent Consideration
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Total potential contingent consideration payments, low end of range							0
Total potential contingent consideration payments, high end of range							7,000,000
Jet Prep Ltd. | Assumed contingent liability
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Total potential contingent consideration payments, low end of range							0
Total potential contingent consideration payments, high end of range							2,430,000
Level 3 | Puri Core International Limited
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Contingent consideration liability			1,414,000
Discount rate of cash flow projections (as a percent)			10.10%
Level 3 | Jet Prep Ltd.
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Contingent consideration liability		2,490,000
Contingent consideration period		7 years
Assumed contingent obligation		1,720,000
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 | 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%
Level 3 | 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%
Recurring basis | Level 3 | Byrne Medical Business
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
Total potential contingent consideration payments, high end of range				10,000,000
Initial price floor				$ 3,000,000
Price floor period				3 years
Stock split ratio				1.5
Stock consideration (in shares)				902,528

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Commitments and Contingencies (Tables)

6 Months Ended

Jan. 31, 2015

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
	Ending
	July 31,		Year Ending July 31,
	2015		2016		2017		2018		2019		Thereafter		Total
	(Amounts in thousands)
Maturity of the credit facility	$	—	$	—	$	—	$	—	$	95,500	$	—	$	95,500
Expected interest payments under the credit facility (1)	868		1,671		1,671		1,671		975		—		6,856
Minimum commitments under noncancelable operating leases	2,429		4,296		3,526		2,586		1,831		3,742		18,410
Compensation agreements	2,067		4,958		951		350		350		496		9,172
Contingent consideration (2)	—		70		554		947		1,124		1,522		4,217
Assumed contingent liability (3)	—		51		226		428		574		622		1,901
Contingent guaranteed obligation (4)	323		403		208		152		152		—		1,238
Other long-term obligations	150		286		228		204		96		15		979
Total contractual obligations	$	5,837	$	11,735	$	7,364	$	6,338	$	100,602	$	6,397	$	138,273

(1) The expected interest payments under our credit facility reflect an interest rate of 1.75%, which was our weighted average interest rate on outstanding borrowings at January 31, 2015.

(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, 2015 Condensed Consolidated Balance Sheet at its net present value of $2,888,000 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, 2015 Condensed Consolidated Balance Sheet at its net present value of $1,773,000 using a discount rate of 2.5%.

(4) These future potential payments of a contingent guaranteed obligation relate to the PuriCore Acquisition, as further explained below, and are reflected in the January 31, 2015 Condensed Consolidated Balance Sheet at its net present value of $1,040,000 using a discount rate of 10.1%.

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Accumulated Other Comprehensive Income (Loss) (Tables)

6 Months Ended

Jan. 31, 2015

Accumulated Other Comprehensive Income (Loss)

Schedule of the components and changes in accumulated other comprehensive income (loss)

	Three Months Ended								Six Months Ended
	January 31, 2015								January 31, 2015
	Foreign								Foreign
	Currency			Interest Rate					Currency			Interest Rate
	Translation			Swap					Translation			Swap
	Adjustments			Agreements		Total			Adjustments			Agreements		Total
Beginning balance	$	7,661,000		$	—	$	7,661,000		$	9,552,000		$	—	$	9,552,000
Other comprehensive loss	(5,609,000		)	—		(5,609,000		)	(7,500,000		)	—		(7,500,000		)
Ending balance	$	2,052,000		$	—	$	2,052,000		$	2,052,000		$	—	$	2,052,000

	Three Months Ended									Six Months Ended
	January 31, 2014									January 31, 2014
	Foreign									Foreign
	Currency			Interest Rate						Currency			Interest Rate
	Translation			Swap						Translation			Swap
	Adjustments			Agreements			Total			Adjustments			Agreements			Total
Beginning balance	$	10,807,000		$	(94,000	)	$	10,713,000		$	11,080,000		$	(103,000	)	$	10,977,000
Other comprehensive loss before reclassifications	(1,401,000		)	(14,000		)	(1,415,000		)	(1,674,000		)	(47,000		)	(1,721,000		)
Income tax effect on other comprehensive loss before reclassification	—			5,000			5,000			—			17,000			17,000
Reclassification adjustments to interest expense for losses on interest rate swaps included in net income during the period	—			48,000			48,000			—			96,000			96,000
Reclassification adjustment for ineffective hedge on interest rate swap included in net income during the period	—			113,000			113,000			—			113,000			113,000
Income tax effect on reclassification adjustments	—			(58,000		)	(58,000		)	—			(76,000		)	(76,000		)
Ending balance	$	9,406,000		$	—		$	9,406,000		$	9,406,000		$	—		$	9,406,000

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Stock-Based Compensation

6 Months Ended

Jan. 31, 2015

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,
	2015			2014			2015			2014
Cost of sales	$	63,000		$	109,000		$	162,000		$	171,000
Operating expenses:
Selling	120,000			191,000			306,000			301,000
General and administrative	1,223,000			1,090,000			2,502,000			2,054,000
Research and development	14,000			18,000			31,000			30,000
Total operating expenses	1,357,000			1,299,000			2,839,000			2,385,000
Stock-based compensation before income taxes	1,420,000			1,408,000			3,001,000			2,556,000
Income tax benefits	(507,000		)	(493,000		)	(1,046,000		)	(905,000		)
Total stock-based compensation expense, net of tax	$	913,000		$	915,000		$	1,955,000		$	1,651,000

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 an increase to 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 options and 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 award 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, 2015, total unrecognized stock-based compensation expense, before income taxes, related to total nonvested stock options and stock awards was $8,645,000 with a remaining weighted average period of 21 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, 2014	525,842		$	22.25
Granted	107,933		36.83
Canceled	(11,466	)	25.55
Vested	(283,793	)	17.60
Nonvested stock awards at January 31, 2015	338,516		$	30.68

For the six months ended January 31, 2015 and 2014, the Company granted 25,000 and 30,000 options, respectively.

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, 2015 and 2014:

Weighted-Average
Black-Scholes Option	Six Months Ended		Six Months Ended
Valuation Assumptions	January 31, 2015		January 31, 2014
Dividend yield	0.25	%	0.28	%
Expected volatility (1)	33.90	%	42.70	%
Risk-free interest rate (2)	1.55	%	1.44	%
Expected lives (in years) (3)	5.00		5.00

(1) Volatility was based on historical closing prices of our common stock.

(2) The U.S. Treasury rate on the expected life at the date of grant.

(3) Based on historical exercise behavior.

For the six months ended January 31, 2015 and 2014, these non-qualified options had a weighted average fair value of $11.54 and $12.08, respectively.

The aggregate intrinsic value (i.e., the excess market price over the exercise price) of all options exercised was $2,420,000 for the six months ended January 31, 2015, all of which occurred during our first quarter, and $1,748,000 and $2,419,000 for the three and six months ended January 31, 2014, respectively.

A summary of stock option activity follows:

			Weighted
	Number of		Average
	Shares		Exercise Price
Outstanding at July 31, 2014	222,492		$	12.78
Granted	25,000		36.70
Exercised	(79,242	)	7.16
Outstanding at January 31, 2015	168,250		$	18.99
Exercisable at July 31, 2014	157,492		$	8.21
Exercisable at January 31, 2015	105,750		$	12.70

If certain criteria are met when options are exercised or restricted stock becomes vested, the Company is allowed a deduction on its United States income tax return. Accordingly, we account for the income tax effect on such income tax deductions as a reduction of previously recorded long-term deferred income tax assets (which are netted with long-term deferred income tax liabilities) and as a reduction of income taxes payable in the year of the deduction. 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 long-term deferred income tax assets are recorded as additional paid-in capital. For the six months ended January 31, 2015 and 2014, income tax deductions of $4,271,000 and $4,516,000, respectively, were generated and increased additional paid-in capital by $2,463,000 and $3,297,000, respectively. We classify the cash flows resulting from excess tax benefits as financing cash flows in our Condensed Consolidated Statements of Cash Flows.

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Operating Segments (Tables)

6 Months Ended

Jan. 31, 2015

Operating Segments

Information as to operating segments

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2015			2014			2015			2014
Net sales:
Endoscopy	$	58,970,000		$	44,587,000		$	114,902,000		$	88,200,000
Water Purification and Filtration	42,356,000			40,719,000			84,724,000			80,469,000
Healthcare Disposables	25,197,000			24,716,000			54,534,000			50,965,000
Dialysis	7,314,000			7,611,000			14,800,000			14,920,000
Other	1,593,000			1,409,000			3,281,000			2,760,000
Total	$	135,430,000		$	119,042,000		$	272,241,000		$	237,314,000
Operating income:
Endoscopy	$	8,396,000		$	8,218,000		$	15,854,000		$	16,402,000
Water Purification and Filtration	8,121,000			7,108,000			15,777,000			13,165,000
Healthcare Disposables	4,469,000			4,563,000			10,823,000			10,282,000
Dialysis	1,481,000			1,996,000			2,931,000			3,760,000
Other	599,000			231,000			907,000			236,000
	23,066,000			22,116,000			46,292,000			43,845,000
General corporate expenses	(4,765,000		)	(3,907,000		)	(8,944,000		)	(7,324,000		)
Interest expense, net	(646,000		)	(630,000		)	(1,180,000		)	(1,274,000		)
Income before income taxes	$	17,655,000		$	17,579,000		$	36,168,000		$	35,247,000

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Acquisitions (Details 4) (USD $)	0 Months Ended	1 Months Ended
	Jun. 30, 2014 project	Aug. 31, 2014	Jan. 31, 2015	Jul. 31, 2014	Jul. 31, 2013
Net Assets
Goodwill			$ 235,818,000	$ 231,647,000	$ 211,618,000
Puri Core International Limited
Acquisitions
Pre-acquisition annual revenues	25,000,000
Acquisition-related costs	703,000
Total consideration for the transaction, excluding acquisition-related costs	27,675,000
Net asset value adjustment		337,000
Net Assets
Current assets	8,982,000
Property, plant and equipment	972,000
Non-current deferred income tax assets, net	1,924,000
Current liabilities	(10,085,000)
Other long-term liabilities	(753,000)
Net assets acquired	14,233,000
Amortizable intangible assets, useful life	9 years
Number of in-process research and development projects acquired	0
Goodwill	13,442,000
Goodwill deductible for income tax purposes	0
Contingent consideration liability	1,414,000		1,040,000
Puri Core International Limited | Current liabilities
Net Assets
Contingent consideration liability	693,000		562,000
Puri Core International Limited | Other long-term liabilities
Net Assets
Contingent consideration liability	721,000		478,000
Puri Core International Limited | Customer relationships
Net Assets
Amortizable intangible assets	11,340,000
Amortizable intangible assets, useful life	10 years
Puri Core International Limited | Technology
Net Assets
Amortizable intangible assets	1,760,000
Amortizable intangible assets, useful life	6 years
Puri Core International Limited | Other
Net Assets
Amortizable intangible assets	$ 93,000
Amortizable intangible assets, useful life	3 years

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Earnings Per Common Share (Details) (USD $)	3 Months Ended		6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014
Numerator for basic and diluted earnings per share:
Net income	$ 11,085,000	$ 11,126,000	$ 22,324,000	$ 22,311,000
Less income allocated to participating securities	(88,000)	(149,000)	(218,000)	(309,000)
Net income available to common shareholders	$ 10,997,000	$ 10,977,000	$ 22,106,000	$ 22,002,000
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	41,176,804	40,754,707	41,079,573	40,668,731
Dilutive effect of stock options using the treasury stock method and the average market price for the period (in shares)	60,043	183,995	75,823	188,201
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock	41,236,847	40,938,702	41,155,396	40,856,932
Basic earnings per share attributable to common stock (in dollars per share)	$ 0.27	$ 0.27	$ 0.54	$ 0.54
Diluted earnings per share attributable to common stock (in dollars per share)	$ 0.27	$ 0.27	$ 0.54	$ 0.54
Stock options excluded from weighted average dilutive common shares outstanding because their inclusion would have been antidilutive (in shares)		30,000

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Jan. 31, 2015	Jul. 31, 2014
Current assets:
Cash and cash equivalents	$ 24,092,000	$ 31,781,000
Accounts receivable, net of allowance for doubtful accounts of $1,908 at January 31 and $1,874 at July 31	65,217,000	62,225,000
Inventories:
Raw materials	28,974,000	27,365,000
Work-in-process	9,218,000	7,510,000
Finished goods	27,037,000	24,862,000
Total inventories	65,229,000	59,737,000
Deferred income taxes	4,283,000	3,551,000
Prepaid expenses and other current assets	9,767,000	6,615,000
Income taxes receivable	1,166,000
Business held-for-sale	8,207,000
Total current assets	177,961,000	163,909,000
Property and equipment, net	61,408,000	52,718,000
Intangible assets, net	86,926,000	82,952,000
Goodwill	235,818,000	231,647,000
Other assets	5,562,000	4,919,000
Total assets	567,675,000	536,145,000
Current liabilities:
Accounts payable	18,181,000	19,529,000
Compensation payable	10,151,000	14,866,000
Accrued expenses	16,761,000	15,109,000
Deferred revenue	16,362,000	16,102,000
Income taxes payable		893,000
Business held-for-sale	852,000
Total current liabilities	62,307,000	66,499,000
Long-term debt	95,500,000	80,500,000
Deferred income taxes	22,134,000	17,805,000
Contingent consideration	2,888,000	2,722,000
Other long-term liabilities	4,489,000	3,373,000
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; January 31 - 45,817,397 shares issued and 41,517,595 shares outstanding; July 31 - 45,641,688 shares issued and 41,442,260 shares outstanding	4,582,000	4,564,000
Additional paid-in capital	152,061,000	146,048,000
Retained earnings	263,554,000	243,306,000
Accumulated other comprehensive income	2,052,000	9,552,000
Treasury Stock, at cost; January 31 - 4,299,802 shares; July 31 - 4,199,428 shares	(41,892,000)	(38,224,000)
Total stockholders' equity	380,357,000	365,246,000
Total liabilities and stockholders' equity	$ 567,675,000	$ 536,145,000

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Fair Value Measurements (Details 2) (Recurring basis, USD $)	Jan. 31, 2015	Jul. 31, 2014
Level 1
Assets:
Total assets	$ 1,680,000	$ 1,702,000
Level 1 | Money markets | Cash and cash equivalents
Assets:
Money markets	1,680,000	1,702,000
Level 2
Liabilities:
Total accrued expenses	30,000	69,000
Total liabilities	30,000	69,000
Level 2 | Interest rate swap agreements | Accrued expenses
Liabilities:
Interest rate swap agreement	30,000	69,000
Level 3
Liabilities:
Total accrued expenses	573,000	684,000
Total other long-term liabilities	2,240,000	2,463,000
Total liabilities	5,701,000	5,869,000
Level 3 | Accrued expenses
Liabilities:
Assumed contingent obligation	11,000
Contingent consideration	562,000	684,000
Level 3 | Contingent consideration
Liabilities:
Contingent consideration	2,888,000	2,722,000
Level 3 | Other long-term liabilities
Liabilities:
Assumed contingent obligation	1,762,000	1,752,000
Contingent consideration	478,000	711,000
Total
Assets:
Total assets	1,680,000	1,702,000
Liabilities:
Total accrued expenses	603,000	753,000
Total other long-term liabilities	2,240,000	2,463,000
Total liabilities	5,731,000	5,938,000
Total | Accrued expenses
Liabilities:
Assumed contingent obligation	11,000
Contingent consideration	562,000	684,000
Total | Contingent consideration
Liabilities:
Contingent consideration	2,888,000	2,722,000
Total | Other long-term liabilities
Liabilities:
Assumed contingent obligation	1,762,000	1,752,000
Contingent consideration	478,000	711,000
Total | Interest rate swap agreements | Accrued expenses
Liabilities:
Interest rate swap agreement	30,000	69,000
Total | Money markets | Cash and cash equivalents
Assets:
Money markets	$ 1,680,000	$ 1,702,000

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014
Cash flows from operating activities
Net income	$ 22,324,000	$ 22,311,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	4,853,000	3,967,000
Amortization	6,188,000	5,245,000
Stock-based compensation expense	3,001,000	2,556,000
Amortization of debt issuance costs	200,000	162,000
Loss on disposal of fixed assets	37,000	296,000
Deferred income taxes	676,000	575,000
Excess tax benefits from stock-based compensation	(2,463,000)	(3,297,000)
Changes in assets and liabilities, net of assets acquired and liabilities assumed:
Accounts receivable	319,000	(7,190,000)
Inventories	(3,115,000)	(1,812,000)
Prepaid expenses and other current assets	(3,822,000)	(1,225,000)
Accounts payable and other current liabilities	(9,463,000)	(1,807,000)
Income taxes	103,000	1,768,000
Net cash provided by operating activities	18,838,000	21,549,000
Cash flows from investing activities
Capital expenditures	(5,272,000)	(4,363,000)
Proceeds from disposal of fixed assets	34,000	3,000
Net asset value adjustment for PuriCore Acquisition	337,000
Acquisition of IMS, net of cash acquired	(21,817,000)
Acquisition of PWS	(11,879,000)
Acquisition of Jet Prep, net of cash acquired		(5,332,000)
Acquisition of Sterilator, net of cash acquired		(2,829,000)
Other, net	746,000	(319,000)
Net cash used in investing activities	(37,851,000)	(12,840,000)
Cash flows from financing activities
Borrowings under revolving credit facility	37,000,000
Repayments under term loan facility		(5,000,000)
Repayments under revolving credit facility	(22,000,000)	(15,500,000)
Proceeds from exercises of stock options	323,000	207,000
Dividends paid	(2,076,000)	(1,858,000)
Excess tax benefits from stock-based compensation	2,463,000	3,297,000
Purchases of treasury stock	(3,424,000)	(4,057,000)
Net cash provided by (used in) financing activities	12,286,000	(22,911,000)
Effect of exchange rate changes on cash and cash equivalents	(962,000)	(168,000)
Decrease in cash and cash equivalents	(7,689,000)	(14,370,000)
Cash and cash equivalents at beginning of period	31,781,000	34,076,000
Cash and cash equivalents at end of period	$ 24,092,000	$ 19,706,000

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Accumulated Other Comprehensive Income (Loss) (Details) (USD $)	3 Months Ended		6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014
Components and changes in accumulated other comprehensive income (loss)
Beginning balance	$ 7,661,000	$ 10,713,000	$ 9,552,000	$ 10,977,000
Other comprehensive loss before reclassifications		(1,415,000)		(1,721,000)
Income tax effect on other comprehensive loss before reclassification		5,000		17,000
Reclassification adjustments to interest expense for losses on interest rate swaps included in net income during the period		48,000		96,000
Reclassification adjustment for ineffective hedge on interest rate swap included in net income during the period		113,000		113,000
Income tax effect on reclassification adjustments		(58,000)		(76,000)
Other comprehensive loss	(5,609,000)		(7,500,000)
Ending balance	2,052,000	9,406,000	2,052,000	9,406,000
Foreign Currency Translation Adjustments
Components and changes in accumulated other comprehensive income (loss)
Beginning balance	7,661,000	10,807,000	9,552,000	11,080,000
Other comprehensive loss before reclassifications		(1,401,000)		(1,674,000)
Other comprehensive loss	(5,609,000)		(7,500,000)
Ending balance	2,052,000	9,406,000	2,052,000	9,406,000
Interest Rate Swap Agreements.
Components and changes in accumulated other comprehensive income (loss)
Beginning balance		(94,000)		(103,000)
Other comprehensive loss before reclassifications		(14,000)		(47,000)
Income tax effect on other comprehensive loss before reclassification		5,000		17,000
Reclassification adjustments to interest expense for losses on interest rate swaps included in net income during the period		48,000		96,000
Reclassification adjustment for ineffective hedge on interest rate swap included in net income during the period		113,000		113,000
Income tax effect on reclassification adjustments		$ (58,000)		$ (76,000)

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Stock-Based Compensation (Details) (USD $)	3 Months Ended		6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014
Income statement components of stock-based compensation expense recognized in Consolidated Statements of Income
Stock-based compensation before income taxes	$ 1,420,000	$ 1,408,000	$ 3,001,000	$ 2,556,000
Income tax benefits	(507,000)	(493,000)	(1,046,000)	(905,000)
Total stock-based compensation expense, net of tax	913,000	915,000	1,955,000	1,651,000
Cost of sales
Income statement components of stock-based compensation expense recognized in Consolidated Statements of Income
Stock-based compensation before income taxes	63,000	109,000	162,000	171,000
Operating expenses: Selling
Income statement components of stock-based compensation expense recognized in Consolidated Statements of Income
Stock-based compensation before income taxes	120,000	191,000	306,000	301,000
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	1,223,000	1,090,000	2,502,000	2,054,000
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	14,000	18,000	31,000	30,000
Total operating expenses
Income statement components of stock-based compensation expense recognized in Consolidated Statements of Income
Stock-based compensation before income taxes	$ 1,357,000	$ 1,299,000	$ 2,839,000	$ 2,385,000

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Legal Proceedings

6 Months Ended

Jan. 31, 2015

Legal Proceedings

Legal Proceedings

Note 16.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.

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Stock-Based Compensation (Details 2) (USD $)	3 Months Ended		6 Months Ended
	Oct. 31, 2014	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014	Jul. 31, 2014
Stock-Based Compensation
Total unrecognized stock-based compensation expense, before income taxes, related to total nonvested stock options and stock awards (in dollars)			$ 8,645,000
Remaining weighted average period over which unrecognized stock-based compensation expense is expected to be recognized			21 months
Stock-based awards, additional disclosure
Deduction in income tax due to exercise of options and vesting of restricted stock (in dollars)			4,271,000	4,516,000
Increase in additional paid-in capital due to excess tax benefit on stock-based compensation expense (in dollars)			2,463,000	3,297,000
Restricted shares
Number of Shares
Nonvested stock awards at the beginning of the period (in shares)	525,842		525,842
Granted (in shares)			107,933
Cancelled (in shares)			(11,466)
Vested (in shares)			(283,793)
Nonvested stock awards at the end of the period (in shares)			338,516
Weighted Average Fair Value
Nonvested stock awards at the beginning of the period (in dollars per share)	$ 22.25		$ 22.25
Granted (in dollars per share)			$ 36.83
Cancelled (in dollars per share)			$ 25.55
Vested (in dollars per share)			$ 17.60
Nonvested stock awards at the end of the period (in dollars per share)			$ 30.68
Stock options
Weighted-Average Black-Scholes Option Valuation Assumptions
Dividend yield (as a percent)			0.25%	0.28%
Expected volatility (as a percent)			33.90%	42.70%
Risk-free interest rate (as a percent)			1.55%	1.44%
Expected lives			5 years	5 years
Stock options, additional disclosure
Weighted average fair value of all options granted (in dollars per share)			$ 11.54	$ 12.08
Aggregate intrinsic value of all options exercised (in dollars)	$ 2,420,000	$ 1,748,000	$ 2,420,000	$ 2,419,000
Number of Shares
Outstanding at the beginning of the period (in shares)	222,492		222,492
Granted (in shares)			25,000	30,000
Exercised (in shares)			(79,242)
Outstanding at the end of the period (in shares)			168,250
Exercisable at the end of the period (in shares)			105,750		157,492
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 12.78		$ 12.78
Granted (in dollars per share)			$ 36.70
Exercised (in dollars per share)			$ 7.16
Outstanding at the end of the period (in dollars per share)			$ 18.99
Exercisable at the end of the period (in dollars per share)			$ 12.70		$ 8.21

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Acquisitions (Tables)

6 Months Ended

Jan. 31, 2015

Pure Water Solutions, Inc.

Acquisitions

Schedule of purchase price allocated to the assets acquired and assumed liabilities based on estimated fair values

	Preliminary
Net Assets	Allocation
Current assets	$	1,420,000
Property, plant and equipment	1,966,000
Amortizable intangible assets (12- year weighted average life):
Customer relationships (12- year life)	6,040,000
Brand names (1- year life)	30,000
Other assets	20,000
Current liabilities	(503,000		)
Net assets acquired	$	8,973,000

International Medical Service S.r.l.

Acquisitions

Schedule of purchase price allocated to the assets acquired and assumed liabilities based on estimated fair values

	Preliminary
Net Assets	Allocation
Current assets	$	8,628,000
Property, plant and equipment	7,774,000
Amortizable intangible assets (9- year weighted average life):
Customer relationships (9- year life)	5,650,000
Technology (9- year life)	1,381,000
Other assets	198,000
Current liabilities	(5,843,000		)
Deferred income tax liabilities	(3,475,000		)
Other long-term liabilities	(1,002,000		)
Net assets acquired	$	13,311,000

Puri Core International 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	$	8,982,000
Property, plant and equipment	972,000
Amortizable intangible assets (9- year weighted average life):
Customer relationships (10- year life)	11,340,000
Technology (6- year life)	1,760,000
Other (3- year life)	93,000
Non-current deferred income tax assets, net	1,924,000
Current liabilities	(10,085,000		)
Other long-term liabilities	(753,000		)
Net assets acquired	$	14,233,000

Sterilator Company, 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	$	1,058,000
Property, plant and equipment	521,000
Amortizable intangible assets (9- year weighted average life):
Customer relationships (11- year life)	130,000
Technology (8- year life)	510,000
Current liabilities	(321,000		)
Deferred income tax liabilities	(276,000		)
Net assets acquired	$	1,622,000

Jet Prep Ltd.

Acquisitions

Schedule of purchase price allocated to the assets acquired and assumed liabilities based on estimated fair values

	Final
Net Assets	Allocation
Current assets	$	82,000
Property, plant and equipment	65,000
Amortizable intangible asset:
Technology (7- year life)	3,730,000
Current liabilities	(104,000		)
Other long-term liabilities	(1,716,000		)
Net assets acquired	$	2,057,000

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Basis of Presentation

6 Months Ended

Jan. 31, 2015

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, 2014 (the “2014 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, 2014 was derived from the audited Consolidated Balance Sheet of Cantel at that date.

As more fully described in Note 14 to the Condensed Consolidated Financial Statements, we operate our business through the following five operating segments: Endoscopy, Water Purification and Filtration, Healthcare Disposables, Dialysis and Specialty Packaging. The Specialty Packaging operating segment comprises the Other reporting segment for financial reporting purposes.

We operate our five 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., Biolab Equipment Ltd., Saf-T-Pak Inc., Medivators B.V. and effective November 3, 2014, Cantel Medical (Italy) S.r.l., formerly known as International Medical Service S.r.l.

In our current fiscal year, we acquired certain net assets of Pure Water Solutions, Inc. (“PWS”) on January 1, 2015 (the “PWS Acquisition”) and 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. With the exception of acquisition related costs primarily related to the IMS Acquisition, the acquisitions of PWS and IMS did not have a significant effect on our consolidated results of operations for the three and six months ended January 31, 2015 due to the size of the acquisitions in relation to our overall consolidated results of operations and are not reflected in our consolidated results of operations for the three and six months ended January 31, 2014. The PWS Acquisition is included in our Water Purification and Filtration segment and the IMS Acquisition 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.

In our prior fiscal year, we acquired all the issued and outstanding capital stock of PuriCore International Limited (“PuriCore”) on June 30, 2014 (the “PuriCore Acquisition”), Sterilator Company, Inc. (“Sterilator”) on January 7, 2014 (the “Sterilator Acquisition”) and Jet Prep Ltd. (“Jet Prep”) on November 5, 2013 (the “Jet Prep Acquisition”), as more fully described in Note 3 to the Condensed Consolidated Financial Statements.  Accordingly, the businesses of Sterilator (the “Sterilator Business”) and Jet Prep (the “Jet Prep Business”) are reflected in our consolidated results of operations for the three and six months ended January 31, 2015 and the portion of the three and six months ended January 31, 2014 subsequent to their acquisition dates. The business of PuriCore (the “PuriCore Business”) is reflected in our consolidated results of operations for the three and six months ended January 31, 2015 and is not included in the three and six months ended January 31, 2014. With the exception of acquisition related costs primarily related to the PuriCore Acquisition, these acquisitions did not have a significant effect on our consolidated results of operations for the three and six months ended January 31, 2015 and 2014 due to the size of the acquisitions in relation to our overall consolidated results of operations. The PuriCore and Jet Prep Businesses are included in our Endoscopy segment and the Sterilator Business is included in our Healthcare Disposables segment. Subsequent to its acquisition, we changed the name of PuriCore to Cantel Medical (UK) Limited.

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 February 20, 2015, we acquired all of the issued and outstanding stock of MRLB International, Inc. (“MRLB”) to obtain the DentaPure® dental waterline disinfection product line (the “DentaPure Acquisition”), as more fully described in Note 3 to the Condensed Consolidated Financial Statements. Since this acquisition occurred after January 31, 2015, its results of operations are not included in any periods presented. We do not expect the DentaPure Acquisition to have a significant effect on our consolidated results of operations for the remainder of fiscal 2015 due to the size of the acquisition in relation to our overall consolidated results of operations. The DentaPure Acquisition will be included in our Healthcare Disposables segment.

We performed a review of events subsequent to January 31, 2015. Based upon that review, no other subsequent events occurred that required updating to our Condensed Consolidated Financial Statements or disclosures.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jan. 31, 2015	Jul. 31, 2014
CONDENSED CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 1,908	$ 1,874
Preferred Stock, par value (in dollars per share)	$ 1.00	$ 1.00
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	45,817,397	45,641,688
Common Stock, shares outstanding	41,517,595	41,442,260
Treasury Stock, shares	4,299,802	4,199,428

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Income Taxes

6 Months Ended

Jan. 31, 2015

Income Taxes

Income Taxes

Note 11.Income Taxes

The consolidated effective tax rate was 38.3% and 36.7% for the six months ended January 31, 2015 and 2014, respectively. The increase in the consolidated effective tax rate was principally due to certain non-deductible acquisition related charges and initial operating losses recorded in our international operations during the six months ended January 31, 2015 and the geographic mix of pre-tax income, partially offset by the re-enactment of Federal tax legislation.

For the six months ended January 31, 2015, our international operations, which included Canada, China, the Netherlands, Israel, Italy, Singapore and the United Kingdom, generated a combined loss primarily due to (i) the recording of certain acquisition related costs, the majority of which are not tax deductible, (ii) initial operating losses in our acquired Jet Prep entity for which no corresponding tax benefit was recorded since the commercialization of the product is in the beginning phase, (iii) initial operating losses in our acquired UK and Italy entities due primarily to acquisition related charges for which corresponding tax benefits were recorded using lower effective tax rates and (iv) operating losses relating to our China location due to significant investments made in the current fiscal year, thereby increasing our overall effective tax rate. For the six months ended January 31, 2014, our international operations, which consisted primarily of Canada, Singapore and the Netherlands, were profitable and had a combined effective tax rate of 22.1%, thereby reducing our overall effective tax rate.

For the six months ended January 31, 2015 and 2014, almost all of our income before income taxes was generated from our United States operations, which had an overall effective tax rate of 36.4% and 37.4%, respectively. The lower overall effective tax rate for the six months ended January 31, 2015 was principally caused by Federal tax legislation that had expired in December 2013, but was re-enacted retroactively in December 2014, that enabled us to record the research and experimentation tax credit relating to the entire calendar 2014 in the six months ended January 31, 2015. The legislation for this research and experimentation tax credit was not extended for calendar 2015.

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.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits is as follows:

	Unrecognized
	Tax Benefits
Unrecognized tax benefits on July 31, 2013	$	124,000
Lapse of statute of limitations in fiscal 2014	(124,000		)
Unrecognized tax benefits on January 31, 2015 and July 31, 2014	$	—

Generally, the Company is no longer subject to federal, state or foreign income tax examinations for fiscal years ended prior to July 31, 2006. The Company is currently being audited by the Internal Revenue Service for fiscal year 2013.

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 been insignificant due to the amount of our unrecognized tax benefits relating to uncertain tax positions.

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Document and Entity Information	6 Months Ended
	Jan. 31, 2015	Feb. 28, 2015
Document and Entity Information
Entity Registrant Name	CANTEL MEDICAL CORP
Entity Central Index Key	0000019446
Document Type	10-Q
Document Period End Date	Jan. 31, 2015
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		41,527,185
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2

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Commitments and Contingencies

6 Months Ended

Jan. 31, 2015

Commitments and Contingencies

Commitments and Contingencies

Note 12.Commitments and Contingencies

Long-Term Contractual Obligations

As of January 31, 2015, aggregate annual required payments over the remaining fiscal year, the next four years and thereafter under our contractual obligations that have long-term components were as follows:

	Six Months
	Ending
	July 31,		Year Ending July 31,
	2015		2016		2017		2018		2019		Thereafter		Total
	(Amounts in thousands)
Maturity of the credit facility	$	—	$	—	$	—	$	—	$	95,500	$	—	$	95,500
Expected interest payments under the credit facility (1)	868		1,671		1,671		1,671		975		—		6,856
Minimum commitments under noncancelable operating leases	2,429		4,296		3,526		2,586		1,831		3,742		18,410
Compensation agreements	2,067		4,958		951		350		350		496		9,172
Contingent consideration (2)	—		70		554		947		1,124		1,522		4,217
Assumed contingent liability (3)	—		51		226		428		574		622		1,901
Contingent guaranteed obligation (4)	323		403		208		152		152		—		1,238
Other long-term obligations	150		286		228		204		96		15		979
Total contractual obligations	$	5,837	$	11,735	$	7,364	$	6,338	$	100,602	$	6,397	$	138,273

(1) The expected interest payments under our credit facility reflect an interest rate of 1.75%, which was our weighted average interest rate on outstanding borrowings at January 31, 2015.

(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, 2015 Condensed Consolidated Balance Sheet at its net present value of $2,888,000 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, 2015 Condensed Consolidated Balance Sheet at its net present value of $1,773,000 using a discount rate of 2.5%.

(4) These future potential payments of a contingent guaranteed obligation relate to the PuriCore Acquisition, as further explained below, and are reflected in the January 31, 2015 Condensed Consolidated Balance Sheet at its net present value of $1,040,000 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 Liabilities

In relation to the Jet Prep Acquisition on November 5, 2013, we have recorded a $2,490,000 liability for the estimated fair value of contingent consideration payable to the sellers and a $1,720,000 liability for the estimated fair value of an assumed contingent obligation payable to the Israeli Government, as further described in Notes 3 and 6 to the Condensed Consolidated Financial Statements, which will be payable based on future sales of the Jet Prep Business (above a minimum threshold with respect to the contingent consideration liability). Additionally, in connection with the PuriCore Acquisition, we assumed a $1,414,000 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 PuriCore’s discontinued endoscope reprocessing machine models, as further described in Notes 3 and 6 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 significant 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 the Chief Executive Officer of two of our subsidiaries, 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 central 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, 2015, $675,000 is outstanding, of which $168,000 is recorded in accrued expense and $507,000 is recorded in other long-term liabilities.

Additionally, other long-term obligations includes deferred compensation arrangements for certain former Medivators directors and officers and is recorded in other long-term liabilities.

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014
Net sales
Product sales	$ 118,350	$ 105,948	$ 238,149	$ 211,125
Product service	17,080	13,094	34,092	26,189
Total net sales	135,430	119,042	272,241	237,314
Cost of sales
Product sales	63,073	57,407	127,169	114,810
Product service	11,766	9,300	23,967	18,670
Total cost of sales	74,839	66,707	151,136	133,480
Gross profit	60,591	52,335	121,105	103,834
Expenses:
Selling	19,257	16,077	38,668	31,841
General and administrative	19,822	15,557	38,329	30,721
Research and development	3,211	2,492	6,760	4,751
Total operating expenses	42,290	34,126	83,757	67,313
Income before interest and income taxes	18,301	18,209	37,348	36,521
Interest expense	661	645	1,211	1,302
Interest income	(15)	(15)	(31)	(28)
Income before income taxes	17,655	17,579	36,168	35,247
Income taxes	6,570	6,453	13,844	12,936
Net income	$ 11,085	$ 11,126	$ 22,324	$ 22,311
Earnings per common share:
Basic (in dollars per share)	$ 0.27	$ 0.27	$ 0.54	$ 0.54
Diluted (in dollars per share)	$ 0.27	$ 0.27	$ 0.54	$ 0.54
Dividends per common share (in dollars per share)	$ 0.05		$ 0.05	$ 0.05

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Fair Value Measurements

6 Months Ended

Jan. 31, 2015

Fair Value Measurements

Fair Value Measurements

Note 6.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. As there are no withdrawal restrictions, they are classified within Level 1 of the fair value hierarchy and are valued using quoted market prices for identical assets.

In order to protect our interest rate exposure, we entered into forward starting interest rate swap agreements in February 2012 in which we agreed to exchange our variable interest cash flows with fixed interest cash flows provided by one of our existing senior lenders, as further described in Notes 5 and 9 to the Condensed Consolidated Financial Statements. Our interest rate swap agreements are classified within Level 2 and are valued using discounted cash flow analyses based on the terms of the contracts and interest rate curves. Changes in fair value of the interest rate swap agreement relating to our revolving credit facility were recorded in accumulated other comprehensive income in the Condensed Consolidated Statements of Comprehensive Income until the expiration of this interest rate swap on January 31, 2014. Amounts were reclassified from accumulated other comprehensive income in the period the hedged transaction affected earnings. Similarly, changes in fair value of the interest rate swap agreement relating to our former term loan facility were recorded in accumulated other comprehensive income in the Condensed Consolidated Statements of Comprehensive Income until January 31, 2014, at which time the interest rate swap agreement was determined to be ineffective and the remaining fair value of the derivative instrument was recognized in interest expense, as further explained in Note 5 to the Condensed Consolidated Financial Statements.

On June 30, 2014, we recorded a $1,414,000 liability for the estimated fair value of a contingent guaranteed obligation relating to the PuriCore Acquisition, as further described in Note 3 to the Condensed Consolidated Financial Statements. 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 PuriCore’s discontinued endoscope reprocessing machine models that remains 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 guarantee 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 earnings volatility in our future results of operations related to this contingent guaranteed obligation.

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 Jet Prep Acquisition, as further described in Note 3 to the Condensed Consolidated Financial Statements. Both of these liabilities were estimated on the date of the acquisition using preliminary information and subsequently revised in July 2014. 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 the Jet Prep 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 Ltd. 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 resulted in total potential contingent consideration payments ranging between zero and approximately $7,000,000 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 $2,888,000 at January 31, 2015. With respect to the assumed contingent obligation, the different likely scenarios of future sales projections used in our fair value determination resulted in total potential future payments ranging between zero and approximately $2,430,000 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 $1,773,000 at January 31, 2015. Such fair value amounts would have been higher or lower if we had used different probability factors, future sales projections or discount factors. Given the subjective nature of the assumptions used in the determinations of fair value, we may potentially have earnings volatility in our future results of operations related to these Jet Prep obligations.

On August 1, 2011 (the first day of our fiscal 2012), we recorded a $3,000,000 liability for the estimated fair value of a three year price floor relating to the August 1, 2011 acquisition of the endoscopy procedural product business of Byrne Medical, Inc. (the “Byrne Medical Business” or the “Byrne Acquisition”). This fair value measurement was based on significant inputs not observed in the market and thus represented a Level 3 measurement.

After giving effect for the Company’s three-for-two stock splits, the stock portion of the consideration paid for the Byrne Acquisition consisted of 902,528 shares of Cantel common stock and was based on the closing price of Cantel common stock on the NYSE on July 29, 2011 ($11.08). Subject to certain conditions and limitations, under a three year price floor, we agreed that if the aggregate value of the stock consideration is less than $10,000,000 on July 31, 2014, we would pay to the seller in cash or stock (at our option) an amount equal to the difference between $10,000,000 and the then value of the shares (based on the closing price of Cantel common stock on the NYSE on July 31, 2014). This three-year price floor was a free standing financial instrument that we recorded as a liability at fair value on the date of acquisition.

The fair value of the three year price floor liability was determined using the Black-Scholes option valuation model, which was affected by our stock price and risk free interest rate as well as assumptions regarding a number of subjective variables, including, but not limited to, the expected stock price volatility of our common stock over the expected life of the instrument and the expected dividend yield. This liability was adjusted periodically by recording changes in the fair value through our Condensed Consolidated Statements of Income, as shown below in the reconciliation of our liabilities that are measured and recorded at fair value on a recurring basis, driven by the time value of money and changes in the assumptions that were initially used in the valuation. The decrease to the fair value of the price floor (as determined by the Black-Scholes option valuation model) was recorded as a decrease to accrued expenses and general and administrative expenses in the Condensed Consolidated Financial Statements and was primarily due to the impact of our stock price being higher than at the time of the acquisition, the life of the price floor being less than three years and changes in the expected stock price volatility. Based on the closing price of Cantel common stock on the NYSE of $33.53 on July 31, 2014, payment to the seller was not required.

The fair values of the Company’s financial instruments measured on a recurring basis were categorized as follows:

	January 31, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Money markets	$	1,680,000	$	—	$	—	$	1,680,000
Total assets	$	1,680,000	$	—	$	—	$	1,680,000
Liabilities:
Accrued expenses:
Interest rate swap agreements	$	—	$	30,000	$	—	$	30,000
Assumed contingent obligation	—		—		11,000		11,000
Contingent guaranteed obligation	—		—		562,000		562,000
Total accrued expenses	—		30,000		573,000		603,000
Contingent consideration	—		—		2,888,000		2,888,000
Other long-term liabilities:
Assumed contingent obligation	—		—		1,762,000		1,762,000
Contingent guaranteed obligation	—		—		478,000		478,000
Total other long-term liabilities	—		—		2,240,000		2,240,000
Total liabilities	$	—	$	30,000	$	5,701,000	$	5,731,000

	July 31, 2014
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Money markets	$	1,702,000	$	—	$	—	$	1,702,000
Total assets	$	1,702,000	$	—	$	—	$	1,702,000
Liabilities:
Accrued expenses:
Interest rate swap agreements	$	—	$	69,000	$	—	$	69,000
Contingent guaranteed obligation	—		—		684,000		684,000
Total accrued expenses	—		69,000		684,000		753,000
Contingent consideration	—		—		2,722,000		2,722,000
Other long-term liabilities:
Assumed contingent obligation	—		—		1,752,000		1,752,000
Contingent guaranteed obligation	—		—		711,000		711,000
Total other long-term liabilities	—		—		2,463,000		2,463,000
Total liabilities	$	—	$	69,000	$	5,869,000	$	5,938,000

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 six quarters is as follows:

							Jet Prep			PuriCore
	Byrne			Jet Prep			Assumed			Contingent
	Price			Contingent			Contingent			Guaranteed
	floor			Consideration			Consideration			Obligation			Total
Balance, July 31, 2013	$	45,000		$	—		$	—		$	—		$	45,000
Total net unrealized gains included in general and administrative expense in earnings	(44,000		)	—			—			—			(44,000		)
Balance, October 31, 2013	1,000			—			—			—			1,000
Total net unrealized gains included in general and administrative expense in earnings	(1,000		)	—			—			—			(1,000		)
Consideration issued and obligation assumed (1)	—			4,760,000			990,000			—			5,750,000
Balance, January 31, 2014	—			4,760,000			990,000			—			5,750,000
Total net unrealized losses included in general and administrative expense in earnings	—			266,000			55,000			—			321,000
Balance, April 30, 2014	—			5,026,000			1,045,000			—			6,071,000
Total net unrealized gains included in general and administrative expense in earnings	—			(34,000		)	(23,000		)	—			(57,000		)
Consideration issued and obligation assumed (1)	—			(2,270,000		)	730,000			1,414,000			(126,000		)
Settlements	—			—			—			(19,000		)	(19,000		)
Balance, July 31, 2014	—			2,722,000			1,752,000			1,395,000			5,869,000
Total net unrealized losses included in general and administrative expense in earnings	—			82,000			11,000			54,000			147,000
Settlements	—			—			—			(132,000		)	(132,000		)
Foreign currency translation	—			—			—			(77,000		)	(77,000		)
Balance, October 31, 2014	—			2,804,000			1,763,000			1,240,000			5,807,000
Total net unrealized losses included in general and administrative expense in earnings	—			84,000			10,000			33,000			127,000
Settlements	—			—			—			(164,000		)	(164,000		)
Foreign currency translation	—			—			—			(69,000		)	(69,000		)
Balance, January 31, 2015	$	—		$	2,888,000		$	1,773,000		$	1,040,000		$	5,701,000

(1) Both of the Jet Prep liabilities were estimated on the date of the acquisition using preliminary information and subsequently revised in July 2014.

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. On July 31, 2014, management concluded 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, 2015 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, 2015 and July 31, 2014, 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, 2015 and July 31, 2014, 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.

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Derivatives

6 Months Ended

Jan. 31, 2015

Derivatives

Derivatives

Note 5.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, 2015, all of our derivatives were designated as hedges, except for our remaining interest rate swap agreement, as further explained below. We do not hold any derivative financial instruments for speculative or trading purposes.

Changes in the value of (i) the Euro against the United States dollar, (ii) the Canadian dollar against the United States dollar, (iii) the Singapore dollar against the United States dollar and (iv) the British Pound 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, Canadian dollars, Euros, Singapore dollars or British Pounds, but must be converted into each entity’s functional currency.

In order to hedge against the impact of fluctuations in the value of (i) the Euro relative to the United States dollar, (ii) the Singapore dollar relative to the United States dollar and (iii) the British Pound 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, Singapore dollars and British Pounds forward, which contracts are one month in duration. These short-term contracts are designated as fair value hedge instruments. There were four foreign currency forward contracts with an aggregate value of $9,563,000 at January 31, 2015, which covered certain assets and liabilities that were denominated in currencies other than each entity’s functional currency. Such contracts expired on February 28, 2015. 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 substantially 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 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.  For the three and six months ended January 31, 2014, such forward contracts substantially 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 $34,000 and $96,000, respectively, on the items hedged. Gains and losses related to hedging contracts to buy Euros, Singapore dollars and British Pounds 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 relative to the United States dollar because the currency impact on our Canadian and United States assets typically offset the currency impact on our Canadian and United States liabilities effectively minimizing significant realized gains and losses. Additionally, we do not hedge transactions associated with the funding of international acquisitions due to the short-term nature of the foreign currency exposure.

The interest rate on our outstanding borrowings under our credit facilities is variable and is affected by the general level of interest rates in the United States as well as LIBOR interest rates, as more fully described in Note 9 to the Condensed Consolidated Financial Statements. In order to protect our interest rate exposure, we entered into forward starting interest rate swap agreements in February 2012 in which we agreed to exchange our variable interest cash flows with fixed interest cash flows provided by one of our existing senior lenders. Such interest rate swap agreements were designated as cash flow hedge instruments and were designed to be effective in offsetting changes in the cash flows related to the hedged borrowings. With respect to our former term loan facility, the interest rate swap is for the period that began August 8, 2012 and ends July 31, 2015, initially covering $40,000,000 of borrowings based on one-month LIBOR and thereafter reducing in quarterly $2,500,000 increments consistent with the mandatory repayment schedule, and the fixed interest cash flow is at a one month LIBOR rate of 0.664%. With respect to our revolving credit facility, the interest rate swap was for the period that began August 8, 2012 and ended January 31, 2014, initially covering $25,000,000 of borrowings based on one-month LIBOR and thereafter reduced semi-annually by increments of $5,000,000, and the fixed interest cash flow was at a one month LIBOR rate of 0.496%. As more fully described in Note 6 to the Condensed Consolidated Financial Statements, we account for the interest rate swap agreements by initially recording the fair value of the derivative instrument on the balance sheet as either an asset or liability, with a corresponding amount recorded in accumulated other comprehensive income. Amounts are reclassified from accumulated other comprehensive income to interest expense in the Condensed Consolidated Statements of Income in the period the hedged transaction affects earnings. At the hedge’s inception and on a regular basis thereafter, a formal assessment is performed to determine whether changes in the fair value or cash flows of the derivative instruments have been highly effective in offsetting changes in cash flows of the hedged items and whether they are expected to be highly effective in the future. This formal assessment includes a comparison of the terms of the interest rate swap agreements and hedged borrowings to ensure they coincide as well as an evaluation of the continued ability of the counterparty to the interest rate swap agreements and the Company to honor their obligations under such agreements. At January 31, 2014, our formal assessment concluded that the changes in the fair value of both derivative instruments that began on August 8, 2012 had been highly effective. However, the remaining derivative instrument, which relates solely to our former term loan facility, was determined to be ineffective beginning as of January 31, 2014 due to the modifications to our credit facilities in March 2014, as more fully described in Note 9 to the Condensed Consolidated Financial Statements. Accordingly, the fair value of the interest rate swap agreement of $113,000 relating to our former term loan facility was recognized in interest expense in January 2014. Changes in the fair value of the derivative instrument subsequent to January 31, 2014 are recognized immediately in interest expense.

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Stock-Based Compensation (Tables)

6 Months Ended

Jan. 31, 2015

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,
	2015			2014			2015			2014
Cost of sales	$	63,000		$	109,000		$	162,000		$	171,000
Operating expenses:
Selling	120,000			191,000			306,000			301,000
General and administrative	1,223,000			1,090,000			2,502,000			2,054,000
Research and development	14,000			18,000			31,000			30,000
Total operating expenses	1,357,000			1,299,000			2,839,000			2,385,000
Stock-based compensation before income taxes	1,420,000			1,408,000			3,001,000			2,556,000
Income tax benefits	(507,000		)	(493,000		)	(1,046,000		)	(905,000		)
Total stock-based compensation expense, net of tax	$	913,000		$	915,000		$	1,955,000		$	1,651,000

Summary of nonvested stock award activity

			Weighted
	Number of		Average
	Shares		Fair Value
Nonvested stock awards at July 31, 2014	525,842		$	22.25
Granted	107,933		36.83
Canceled	(11,466	)	25.55
Vested	(283,793	)	17.60
Nonvested stock awards at January 31, 2015	338,516		$	30.68

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, 2015		January 31, 2014
Dividend yield	0.25	%	0.28	%
Expected volatility (1)	33.90	%	42.70	%
Risk-free interest rate (2)	1.55	%	1.44	%
Expected lives (in years) (3)	5.00		5.00

(1) Volatility was based on historical closing prices of our common stock.

(2) The U.S. Treasury rate 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, 2014	222,492		$	12.78
Granted	25,000		36.70
Exercised	(79,242	)	7.16
Outstanding at January 31, 2015	168,250		$	18.99
Exercisable at July 31, 2014	157,492		$	8.21
Exercisable at January 31, 2015	105,750		$	12.70

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Accumulated Other Comprehensive Income (Loss)

6 Months Ended

Jan. 31, 2015

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss)

Note 13.Accumulated Other Comprehensive Income (Loss)

The components and changes in accumulated other comprehensive income (loss) for the three and six months ended January 31, 2015 and 2014 were as follows:

	Three Months Ended								Six Months Ended
	January 31, 2015								January 31, 2015
	Foreign								Foreign
	Currency			Interest Rate					Currency			Interest Rate
	Translation			Swap					Translation			Swap
	Adjustments			Agreements		Total			Adjustments			Agreements		Total
Beginning balance	$	7,661,000		$	—	$	7,661,000		$	9,552,000		$	—	$	9,552,000
Other comprehensive loss	(5,609,000		)	—		(5,609,000		)	(7,500,000		)	—		(7,500,000		)
Ending balance	$	2,052,000		$	—	$	2,052,000		$	2,052,000		$	—	$	2,052,000

	Three Months Ended									Six Months Ended
	January 31, 2014									January 31, 2014
	Foreign									Foreign
	Currency			Interest Rate						Currency			Interest Rate
	Translation			Swap						Translation			Swap
	Adjustments			Agreements			Total			Adjustments			Agreements			Total
Beginning balance	$	10,807,000		$	(94,000	)	$	10,713,000		$	11,080,000		$	(103,000	)	$	10,977,000
Other comprehensive loss before reclassifications	(1,401,000		)	(14,000		)	(1,415,000		)	(1,674,000		)	(47,000		)	(1,721,000		)
Income tax effect on other comprehensive loss before reclassification	—			5,000			5,000			—			17,000			17,000
Reclassification adjustments to interest expense for losses on interest rate swaps included in net income during the period	—			48,000			48,000			—			96,000			96,000
Reclassification adjustment for ineffective hedge on interest rate swap included in net income during the period	—			113,000			113,000			—			113,000			113,000
Income tax effect on reclassification adjustments	—			(58,000		)	(58,000		)	—			(76,000		)	(76,000		)
Ending balance	$	9,406,000		$	—		$	9,406,000		$	9,406,000		$	—		$	9,406,000

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Financing Arrangements

6 Months Ended

Jan. 31, 2015

Financing Arrangements

Financing Arrangements

Note 9.Financing Arrangements

In March 2014, we modified our existing $100,000,000 senior secured revolving credit facility (the “Existing Revolving Credit Facility”) and $50,000,000 senior secured term loan facility (the “Existing Term Loan Facility”) by entering into a $250,000,000 Third Amended and Restated Credit Agreement dated as of March 4, 2014 (the “New Credit Agreement”). The New 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 “New Revolving Credit Facility”).  The Existing Term Loan Facility was terminated after the outstanding balance was reassigned to the New 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 New 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 New 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 New Credit Agreement which was recorded in other assets along with the remaining unamortized debt issuance costs of $512,000 relating to the Existing Revolving Credit Facility. The total of these two amounts is being amortized over the life of the New Credit Agreement. The remaining unamortized debt issuance costs of $84,000 relating to the Existing Term Loan Facility was charged to interest expense on March 4, 2014 when the Existing Term Loan Facility was terminated. At January 31, 2015, unamortized debt issuance costs recorded in other assets amounted to $1,495,000.

Borrowings under the New 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 New Credit Agreement (“Consolidated EBITDA”). At January 31, 2015, the lender’s base rate was 3.50% and the LIBOR rates ranged from 0.17% to 0.56%. The margins applicable to our outstanding borrowings were 0.25% above the lender’s base rate or 1.25% above LIBOR. Substantially all of our outstanding borrowings were under LIBOR contracts at January 31, 2015. The New Credit Agreement also provides for fees on the unused portion of our facilities at rates ranging from 0.20% to 0.40%, depending upon our Consolidated Leverage Ratio; such rate was 0.20% at January 31, 2015.

In order to protect our interest rate exposure in future years, we entered into forward starting interest rate swap agreements in February 2012 in which we agreed to exchange our variable interest cash flows with fixed interest cash flows provided by one of our existing senior lenders. With respect to our Existing Term Loan Facility, the interest rate swap is for the period that began August 8, 2012 and ends July 31, 2015, initially covering $40,000,000 of borrowings based on one-month LIBOR and thereafter reducing in quarterly $2,500,000 increments consistent with the mandatory repayment schedule, and the fixed interest cash flow is at a one month LIBOR rate of 0.664%. As a result of the termination of our Existing Term Loan Facility, this interest rate swap is no longer considered effective in mitigating the adverse impact on interest expense of increases in LIBOR. With respect to our Existing Revolving Credit Facility, the interest rate swap was for the period that began August 8, 2012 and ended January 31, 2014, initially covering $25,000,000 of borrowings based on one-month LIBOR and thereafter reducing semi-annually by increments of $5,000,000, and the fixed interest cash flow was at a one month LIBOR rate of 0.496%.

The New 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 New Credit Agreement.

On January 31, 2015, we had $95,500,000 of outstanding borrowings under the New Credit Agreement. Subsequent to January 31, 2015, we borrowed $10,000,000 under the New Credit Agreement to fund the DentaPure Acquisition but repaid $3,000,000 resulting in total outstanding borrowings of $102,500,000 at February 28, 2015.

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Operating Segments (Details) (USD $)	3 Months Ended		6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014
Concentration risk
Consolidated net sales	$ 135,430,000	$ 119,042,000	$ 272,241,000	$ 237,314,000
Water Purification and Filtration
Concentration risk
Consolidated net sales	42,356,000	40,719,000	84,724,000	80,469,000
Dialysis
Concentration risk
Consolidated net sales	7,314,000	7,611,000	14,800,000	14,920,000
Healthcare Disposables
Concentration risk
Consolidated net sales	25,197,000	24,716,000	54,534,000	50,965,000
Segment sales | Customer concentration | Water Purification and Filtration
Concentration risk
Number of customers concentration risk			2
Segment sales | Customer concentration | Water Purification and Filtration | Two customers
Concentration risk
Concentration risk (as a percent)			48.00%
Segment sales | Customer concentration | Healthcare Disposables | Four customers
Concentration risk
Concentration risk (as a percent)			48.90%
Number of customers concentration risk			4
Net sales | Customer concentration | Da Vita Inc
Concentration risk
Concentration risk (as a percent)			10.90%
Consolidated net sales			$ 25,948,000
Net sales | Customer concentration | Two customers
Concentration risk
Concentration risk (as a percent)			16.40%
Net sales | Customer concentration | Four customers
Concentration risk
Concentration risk (as a percent)			9.80%

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Intangible Assets and Goodwill

6 Months Ended

Jan. 31, 2015

Intangible Assets and Goodwill

Intangible Assets and Goodwill

Note 7.Intangible Assets and Goodwill

Our intangible assets with definite lives consist of customer relationships, technology, brand names, non-compete agreements and patents. These intangible assets are being amortized using the straight-line method over the estimated useful lives of the assets ranging from 1-20 years and have a weighted average amortization period of 11 years. Amortization expense related to definite lived intangible assets was $3,232,000 and $6,188,000 for the three and six months ended January 31, 2015, respectively, and $2,619,000 and $5,245,000 for the three and six months ended January 31, 2014, 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, 2015
			Accumulated
	Gross		Amortization			Net
Intangible assets with finite lives:
Customer relationships	$	92,892,000	$	(35,105,000	)	$	57,787,000
Technology	25,695,000		(11,047,000		)	14,648,000
Brand names	12,710,000		(10,129,000		)	2,581,000
Non-compete agreements	3,129,000		(876,000		)	2,253,000
Patents and other registrations	2,066,000		(714,000		)	1,352,000
	136,492,000		(57,871,000		)	78,621,000
Trademarks and trade names	8,305,000		—			8,305,000
Total intangible assets	$	144,797,000	$	(57,871,000	)	$	86,926,000
	July 31, 2014
			Accumulated
	Gross		Amortization			Net
Intangible assets with finite lives:
Customer relationships	$	83,145,000	$	(31,336,000	)	$	51,809,000
Technology	26,405,000		(11,444,000		)	14,961,000
Brand names	12,680,000		(9,431,000		)	3,249,000
Non-compete agreements	3,129,000		(754,000		)	2,375,000
Patents and other registrations	2,073,000		(792,000		)	1,281,000
	127,432,000		(53,757,000		)	73,675,000
Trademarks and trade names	9,277,000		—			9,277,000
Total intangible assets	$	136,709,000	$	(53,757,000	)	$	82,952,000

Estimated amortization expense of our intangible assets for the remainder of fiscal 2015 and the next five years is as follows:

Six month period ending July 31, 2015	$	6,665,000
Fiscal 2016	9,843,000
Fiscal 2017	9,265,000
Fiscal 2018	8,963,000
Fiscal 2019	8,640,000
Fiscal 2020	6,883,000

Goodwill changed during fiscal 2014 and the six months ended January 31, 2015 as follows:

				Water
				Purification			Healthcare							Total
	Endoscopy			and Filtration			Disposables		Dialysis		Other			Goodwill
Balance, July 31, 2013	$	59,230,000		$	57,179,000		$	80,108,000	$	8,133,000	$	6,968,000		$	211,618,000
Acquisitions	19,225,000			—			1,727,000		—		—			20,952,000
Foreign currency translation	(181,000		)	(341,000		)	—		—		(401,000		)	(923,000		)
Balance, July 31, 2014	78,274,000			56,838,000			81,835,000		8,133,000		6,567,000			231,647,000
Acquisitions	11,299,000			2,857,000			—		—		—			14,156,000
Foreign currency translation	(2,623,000		)	(795,000		)	—		—		(932,000		)	(4,350,000		)
Business held-for-sale	—			—			—		—		(5,635,000		)	(5,635,000		)
Balance, January 31, 2015	$	86,950,000		$	58,900,000		$	81,835,000	$	8,133,000	$	—		$	235,818,000

On July 31, 2014, 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, 2014, the average fair value of all of our reporting units exceeded book value by substantial amounts, except our Specialty Packaging segment, which had an average estimated fair value that exceeded book value by a nominal amount. Goodwill relating to our Specialty Packaging reporting unit was $5,635,000 at January 31, 2015 and was reclassified from goodwill to business held-for-sale, as further described in Note 15 to the Condensed Consolidated Financial Statements. We believe the most significant assumptions impacting the impairment assessment of Specialty Packaging relate to the assumed compounded annual sales growth and future operating efficiencies included in our projections of future operating results and cash flows of this segment, which projections are in excess of historical run rates. If future operating results and cash flows are substantially less than our projections and the expected sale of the Specialty Packaging business does not occur or is completed at a sales price that is less than book value, future impairment charges may be recorded. For instance, if our future fair value calculation or the sales price of the business is 10% less than its book value, a future charge of approximately $850,000, net of tax, would be recorded. On January 31, 2015, management concluded that no events or changes in circumstances have occurred during the six months ended January 31, 2015 that would indicate that the carrying amount of our intangible assets and goodwill may not be recoverable.

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Warranties

6 Months Ended

Jan. 31, 2015

Warranties

Warranties

Note 8.Warranties

A summary of activity in the Company’s warranty reserves follows:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2015			2014			2015			2014
Beginning balance	$	1,689,000		$	1,261,000		$	1,589,000		$	1,261,000
Provisions	593,000			546,000			1,306,000			1,237,000
Settlements	(681,000		)	(605,000		)	(1,281,000		)	(1,296,000		)
Foreign currency translation	(21,000		)	(1,000		)	(34,000		)	(1,000		)
Acquisitions	117,000			—			117,000			—
Ending balance	$	1,697,000		$	1,201,000		$	1,697,000		$	1,201,000

The warranty provisions and settlements for the three and six months ended January 31, 2015 and 2014 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.

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Earnings Per Common Share

6 Months Ended

Jan. 31, 2015

Earnings Per Common Share

Earnings Per Common Share

Note 10.Earnings Per Common Share

Basic EPS is computed based upon the weighted average number of common shares outstanding during the period. Diluted EPS is computed based upon the weighted average number of common shares outstanding during the period plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the period.

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 stockholders of common stock (excluding participating securities):

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2015			2014			2015			2014
Numerator for basic and diluted earnings per share:
Net income	$	11,085,000		$	11,126,000		$	22,324,000		$	22,311,000
Less income allocated to participating securities	(88,000		)	(149,000		)	(218,000		)	(309,000		)
Net income available to common stockholders	$	10,997,000		$	10,977,000		$	22,106,000		$	22,002,000
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	41,176,804			40,754,707			41,079,573			40,668,731
Dilutive effect of stock options using the treasury stock method and the average market price for the period	60,043			183,995			75,823			188,201
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock	41,236,847			40,938,702			41,155,396			40,856,932
Earnings per share attributable to common stock:
Basic earnings per share	$	0.27		$	0.27		$	0.54		$	0.54
Diluted earnings per share	$	0.27		$	0.27		$	0.54		$	0.54
Stock options excluded from weighted average dilutive common shares outstanding because their inclusion would have been antidilutive	—			30,000			—			—

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, are set forth in the following table:

	Three Months Ended		Six Months Ended
	January 31,		January 31,
	2015	2014	2015	2014
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock	41,236,847	40,938,702	41,155,396	40,856,932
Participating securities	346,684	554,029	413,472	576,119
Total weighted average number of shares and common stock equivalents attributable to both common stock and participating securities	41,583,531	41,492,731	41,568,868	41,433,051

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Basis of Presentation (Details)	6 Months Ended
	Jan. 31, 2015 segment
Basis of Presentation
Number of operating segments	5

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Warranties (Details) (USD $)	3 Months Ended		6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014
Summary of activity in warranty reserves
Beginning balance	$ 1,689,000	$ 1,261,000	$ 1,589,000	$ 1,261,000
Provisions	593,000	546,000	1,306,000	1,237,000
Settlements	(681,000)	(605,000)	(1,281,000)	(1,296,000)
Foreign currency translation	(21,000)	(1,000)	(34,000)	(1,000)
Acquisitions	117,000		117,000
Ending balance	$ 1,697,000	$ 1,201,000	$ 1,697,000	$ 1,201,000

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Business Held-for-Sale

6 Months Ended

Jan. 31, 2015

Business Held-For-Sale

Business Held-For-Sale

Note 15.Business Held-For-Sale

We conducted a strategic review of our Specialty Packaging business and evaluated its potential value in the marketplace relative to the business’s current and expected returns concluding that the business is not part of our core strategy and may return a higher value to stockholders by its divestiture. Accordingly, our Specialty Packaging business (reported in the Other reporting segment) is classified as held-for-sale within our Condensed Consolidated Balance Sheet at January 31, 2015. Since the operating results of the Specialty Packaging segment, as shown in Note 14 to the Condensed Consolidated Financial Statements, are 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. We have now completed several aspects of the selling process and expect its divestiture to be completed during our fiscal 2015.

The carrying amounts of assets and liabilities that are included in business held-for-sale in our Condensed Consolidated Balance Sheet at January 31, 2015 are as follows:

	January 31,
	2015
	(Amounts in thousands)
Accounts receivable, net of allowance for doubtful accounts	$	717
Inventories	614
Prepaid expenses and other assets	34
Property and equipment, net	334
Intangible assets, net	714
Goodwill	5,635
Other assets	159
Total assets held-for-sale	$	8,207
Accounts payable	$	178
Compensation payable	139
Accrued expenses	79
Deferred revenue	31
Income taxes payable	141
Deferred income taxes	217
Other liabilities	67
Total liabilities held-for-sale	$	852

Additionally, a foreign currency translation gain of $1,084,000 was recorded in stockholders’ equity at January 31, 2015 as a result of the monthly translation of the Specialty Packaging segment’s balance sheets beginning in 2004, when the business was acquired.

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Intangible Assets and Goodwill (Tables)

6 Months Ended

Jan. 31, 2015

Intangible Assets and Goodwill

Schedule of intangible assets

	January 31, 2015
			Accumulated
	Gross		Amortization			Net
Intangible assets with finite lives:
Customer relationships	$	92,892,000	$	(35,105,000	)	$	57,787,000
Technology	25,695,000		(11,047,000		)	14,648,000
Brand names	12,710,000		(10,129,000		)	2,581,000
Non-compete agreements	3,129,000		(876,000		)	2,253,000
Patents and other registrations	2,066,000		(714,000		)	1,352,000
	136,492,000		(57,871,000		)	78,621,000
Trademarks and trade names	8,305,000		—			8,305,000
Total intangible assets	$	144,797,000	$	(57,871,000	)	$	86,926,000
	July 31, 2014
			Accumulated
	Gross		Amortization			Net
Intangible assets with finite lives:
Customer relationships	$	83,145,000	$	(31,336,000	)	$	51,809,000
Technology	26,405,000		(11,444,000		)	14,961,000
Brand names	12,680,000		(9,431,000		)	3,249,000
Non-compete agreements	3,129,000		(754,000		)	2,375,000
Patents and other registrations	2,073,000		(792,000		)	1,281,000
	127,432,000		(53,757,000		)	73,675,000
Trademarks and trade names	9,277,000		—			9,277,000
Total intangible assets	$	136,709,000	$	(53,757,000	)	$	82,952,000

Schedule of estimated amortization expense of intangible assets for remainder of fiscal 2015 and the next five years

Six month period ending July 31, 2015	$	6,665,000
Fiscal 2016	9,843,000
Fiscal 2017	9,265,000
Fiscal 2018	8,963,000
Fiscal 2019	8,640,000
Fiscal 2020	6,883,000

Schedule of changes in goodwill

				Water
				Purification			Healthcare							Total
	Endoscopy			and Filtration			Disposables		Dialysis		Other			Goodwill
Balance, July 31, 2013	$	59,230,000		$	57,179,000		$	80,108,000	$	8,133,000	$	6,968,000		$	211,618,000
Acquisitions	19,225,000			—			1,727,000		—		—			20,952,000
Foreign currency translation	(181,000		)	(341,000		)	—		—		(401,000		)	(923,000		)
Balance, July 31, 2014	78,274,000			56,838,000			81,835,000		8,133,000		6,567,000			231,647,000
Acquisitions	11,299,000			2,857,000			—		—		—			14,156,000
Foreign currency translation	(2,623,000		)	(795,000		)	—		—		(932,000		)	(4,350,000		)
Business held-for-sale	—			—			—		—		(5,635,000		)	(5,635,000		)
Balance, January 31, 2015	$	86,950,000		$	58,900,000		$	81,835,000	$	8,133,000	$	—		$	235,818,000

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Intangible Assets and Goodwill (Details 2) (USD $)	Jan. 31, 2015
Estimated annual amortization expense of intangible assets for next five years
Six month period ending July 31, 2015	$ 6,665,000
Fiscal 2016	9,843,000
Fiscal 2017	9,265,000
Fiscal 2018	8,963,000
Fiscal 2019	8,640,000
Fiscal 2020	$ 6,883,000

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Acquisitions (Details 5) (USD $)	0 Months Ended
	Jan. 07, 2014 project	Jan. 31, 2015	Jul. 31, 2014	Jul. 31, 2013
Net Assets
Goodwill		$ 235,818,000	$ 231,647,000	$ 211,618,000
Sterilator Company, Inc.
Acquisitions
Total consideration for the transaction	3,349,000
Net Assets
Current assets	1,058,000
Property, plant and equipment	521,000
Current liabilities	(321,000)
Deferred income tax liabilities	(276,000)
Net assets acquired	1,622,000
Amortizable intangible assets, useful life	9 years
Number of in-process research and development projects acquired	0
Goodwill	1,727,000
Goodwill deductible for income tax purposes	0
Sterilator Company, Inc. | Customer relationships
Net Assets
Amortizable intangible assets	130,000
Amortizable intangible assets, useful life	11 years
Sterilator Company, Inc. | Technology
Net Assets
Amortizable intangible assets	$ 510,000
Amortizable intangible assets, useful life	8 years

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jan. 31, 2015	Jan. 31, 2014	Jan. 31, 2015	Jan. 31, 2014
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 11,085	$ 11,126	$ 22,324	$ 22,311
Other comprehensive loss:
Foreign currency translation, net of tax	(5,609)	(1,401)	(7,500)	(1,674)
Unrealized holding losses on interest rate swaps arising during the period, net of tax		(9)		(30)
Reclassification adjustments to interest expense for losses on interest rate swap included in net income during the period, net of tax		30		60
Reclassification adjustment to interest expense for ineffective hedge on interest rate swap included in net income during the period, net of tax		73		73
Total other comprehensive loss, net of tax	(5,609)	(1,307)	(7,500)	(1,571)
Comprehensive income	$ 5,476	$ 9,819	$ 14,824	$ 20,740

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Recent Accounting Pronouncements

6 Months Ended

Jan. 31, 2015

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Note 4.Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“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. ASU 2014-09 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 2014-09 on our financial position and results of operations.

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” (“ASU 2014-08”). Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on an organization’s operations and financial results. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. ASU 2014-08 is effective for fiscal years beginning after December 15, 2014, with early adoption allowed. On October 31, 2014, we early adopted ASU 2014-08 and applied the new accounting guidance to our planned divestiture of our Specialty Packaging business, instead of recording it as a discontinued operation under the prior accounting guidance, by recording this business as held-for-sale on the Condensed Consolidated Balance Sheet and providing additional disclosures, as further explained in Note 15 of the Condensed Consolidated Financial Statements.

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Commitments and Contingencies (Details 2) (USD $)	Jan. 31, 2015	Jul. 31, 2014	Nov. 03, 2014
Commitments and Contingencies
Accrued expenses	$ 16,761,000	$ 15,109,000
Other long-term liabilities	4,489,000	3,373,000
International Medical Service S.r.l.
Commitments and Contingencies
Other long-term liabilities			1,002,000
International Medical Service S.r.l. | Central bank of Italy
Commitments and Contingencies
Liabilities assumed			843,000
Accrued expenses			187,000
Other long-term liabilities			656,000
Interest rate per annum (as a percent)			0.25%
Outstanding liabilities assumed	675,000
Accrued expenses	168,000
Other long-term liabilities	$ 507,000

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Warranties (Tables)

6 Months Ended

Jan. 31, 2015

Warranties

Summary of activity in warranty reserves

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2015			2014			2015			2014
Beginning balance	$	1,689,000		$	1,261,000		$	1,589,000		$	1,261,000
Provisions	593,000			546,000			1,306,000			1,237,000
Settlements	(681,000		)	(605,000		)	(1,281,000		)	(1,296,000		)
Foreign currency translation	(21,000		)	(1,000		)	(34,000		)	(1,000		)
Acquisitions	117,000			—			117,000			—
Ending balance	$	1,697,000		$	1,201,000		$	1,697,000		$	1,201,000

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Acquisitions (Details 2) (USD $)	0 Months Ended
	Jan. 01, 2015 project	Jan. 31, 2015	Jul. 31, 2014	Jul. 31, 2013
Net Assets
Goodwill		$ 235,818,000	$ 231,647,000	$ 211,618,000
Pure Water Solutions, Inc.
Acquisitions
Pre-acquisition annual revenues	8,000,000
Total consideration for the transaction, excluding acquisition-related costs	11,830,000
Net asset value adjustment to be paid by seller	49,000
Net Assets
Current assets	1,420,000
Property, plant and equipment	1,966,000
Other assets	20,000
Current liabilities	(503,000)
Net assets acquired	8,973,000
Amortizable intangible assets, useful life	12 years
Number of in-process research and development projects acquired	0
Goodwill	2,857,000
Pure Water Solutions, Inc. | Customer relationships
Net Assets
Amortizable intangible assets	6,040,000
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

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Operating Segments

6 Months Ended

Jan. 31, 2015

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.

None of our customers accounted for 10% or more of our consolidated net sales for the six months ended January 31, 2015.  For the six months ended January 31, 2014, DaVita Inc. (“DaVita”), accounted for approximately 10.9%, or approximately $25,948,000, of our consolidated net sales. DaVita sales are included in our Water Purification and Filtration and Dialysis segments.

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 eliminate the challenges associated with proper cleaning and high-level disinfection of numerous reusable components used in GI endoscopy procedures. 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 disinfectant, sterilization and decontamination products and services for the medical, pharmaceutical, biotech, beverage and commercial industrial markets.

Two customers collectively accounted for approximately 48% of our Water Purification and Filtration segment net sales and approximately 16.4% of our consolidated net sales for the six months ended January 31, 2015.

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. 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 48.9% of our Healthcare Disposables segment net sales and approximately 9.8% of our consolidated net sales for the six months ended January 31, 2015.

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.

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. At January 31, 2015, this business is held for sale as further described in Note 15 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 2014 Form 10-K.

Information as to operating segments is summarized below:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2015			2014			2015			2014
Net sales:
Endoscopy	$	58,970,000		$	44,587,000		$	114,902,000		$	88,200,000
Water Purification and Filtration	42,356,000			40,719,000			84,724,000			80,469,000
Healthcare Disposables	25,197,000			24,716,000			54,534,000			50,965,000
Dialysis	7,314,000			7,611,000			14,800,000			14,920,000
Other	1,593,000			1,409,000			3,281,000			2,760,000
Total	$	135,430,000		$	119,042,000		$	272,241,000		$	237,314,000
Operating income:
Endoscopy	$	8,396,000		$	8,218,000		$	15,854,000		$	16,402,000
Water Purification and Filtration	8,121,000			7,108,000			15,777,000			13,165,000
Healthcare Disposables	4,469,000			4,563,000			10,823,000			10,282,000
Dialysis	1,481,000			1,996,000			2,931,000			3,760,000
Other	599,000			231,000			907,000			236,000
	23,066,000			22,116,000			46,292,000			43,845,000
General corporate expenses	(4,765,000		)	(3,907,000		)	(8,944,000		)	(7,324,000		)
Interest expense, net	(646,000		)	(630,000		)	(1,180,000		)	(1,274,000		)
Income before income taxes	$	17,655,000		$	17,579,000		$	36,168,000		$	35,247,000