11.Commitments and Contingencies

Long-Term Contractual Obligations

As of July 31, 2016, aggregate annual required payments over the next five years and thereafter under our contractual obligations that have long-term components are as follows:


	Year Ended July 31,
	(Amounts in thousands)
	2017		2018		2019		2020		2021		Thereafter		Total

Maturity of the credit facility	$	—	$	—	$	116,000	$	—	$	—	$	—	$	116,000
Expected interest payments under the credit facility (1)		2,598		2,599		1,516		—		—		—		6,713
Minimum commitments under noncancelable operating leases		6,139		5,241		4,211		2,989		2,180		3,408		24,168
Compensation agreements (2)		10,470		2,519		498		498		377		583		14,945
Assumed contingent liability (3)		19		93		188		246		280		439		1,265
Contingent guaranteed obligation (4)		186		133		122		—		—		—		441
Other long-term obligations		228		200		96		12		3		—		539
Total contractual obligations	$	19,640	$	10,785	$	122,631	$	3,745	$	2,840	$	4,430	$	164,071

(1)

Primarily to fund the cash consideration paid and the costs associated with the Accutron and Vantage acquisitions, we borrowed $55,000,000 in August 2016 and $6,000,000 in September 2016, respectively, under our revolving credit facility, and repaid $6,000,000, therefore increasing the 2019 maturities of the credit facility from $116,000,000 at July 31, 2016 to $171,000,000 at September 29, 2016. Accordingly, the expected interest payments under the credit facility will be approximately $1,232,000 higher on an annualized basis as of September 29, 2016 than the amounts shown herein. The expected interest payments under our credit facility reflect an interest rate of 2.24%, which was our weighted average interest rate on outstanding borrowings at July 31, 2016.

(2)

Amounts include $4,500,000, of which $3,823,000 is payable in fiscal 2017, due to the planned retirement of our former CEO. Effective August 1, 2016 in conjunction with the Accutron Acquisition, we entered into additional compensation agreements which would increase fiscal years 2017 and 2018 by $400,000 each compared to amounts shown herein.

(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 July 31, 2016 Consolidated Balance Sheet at its net present value of $1,138,000 using a discount rate of 2.5%.

(4)

These future potential payments of a contingent guaranteed obligation relate to Cantel Medical (UK), as further explained below and Note 6 to the Consolidated Financial Statements.

Operating Leases

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

Four of the more significant leases that contain escalation clauses are two building leases for our Water Purification and Filtration business and two building leases for our Healthcare Disposables business. The two Water Purification and Filtration building leases are for the United States headquarters in suburban Philadelphia, Pennsylvania and the Canadian headquarters in suburban Toronto, Ontario. The lease for the Philadelphia building provides for monthly base rent of approximately $17,200 during fiscal 2017 and escalates annually to approximately $20,100 in fiscal 2025 when it expires. The Toronto building lease provides for monthly base rent of approximately $12,800 in fiscal 2017 and escalates annually to approximately $13,300 in fiscal 2020 when it expires. Both the Philadelphia and Toronto building leases are guaranteed by Cantel. The Healthcare Disposables segment has two significant building leases with escalation clauses that are used for manufacturing and warehousing. One building lease in Sharon, Pennsylvania provides for monthly base rent of approximately $19,300 during fiscal 2017 and escalates annually to approximately $20,700 in fiscal 2024 when it expires. The second building lease in Santa Fe Springs, California provides for monthly base rent of approximately $18,600 in fiscal 2017 and escalates annually to approximately $20,100 in fiscal 2020 when it expires.

Our Healthcare Disposables business also leases a building in Cuba, New York for manufacturing and warehousing with monthly base rent of approximately $8,000 until it expires in fiscal 2019. This facility is owned by an entity controlled by two former owners of Sterilator who are now also employees in our Healthcare Disposable segment.

Our Endoscopy business leases a building in Conroe Park, Texas for manufacturing and warehousing with monthly base rent of approximately $31,800 in fiscal 2017 and it escalates annually to $33,000 in fiscal 2021.

Rent expense related to operating leases for fiscal 2016 was recorded on a straight-line basis and aggregated $6,675,000, compared with $6,025,000 and $4,409,000 for fiscals 2015 and 2014, respectively. The increase in rent expense in fiscal 2015 was primarily due to the acquisitions of PuriCore and IMS on June 30, 2014 and November 3, 2014, respectively.

Contingent Consideration and Assumed Contingent Liability

In relation to the Jet Prep Acquisition, we have recorded at July 31, 2016 a $1,138,000 liability for the estimated fair value of an assumed contingent obligation payable to the Israeli Government, as further described in Note 6 to the Consolidated Financial Statements, which will be payable based on future sales of the Jet Prep Business. Additionally, in connection with the PuriCore Acquisition, we assumed a contingent guaranteed obligation to reimburse an endoscope service company for endoscope repair costs it incurs when servicing its customers’ endoscopes that are damaged by one of PuriCore’s discontinued endoscope reprocessing machine models, as further described in Note 6 to the 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 Consolidated Statements of Income, we may potentially have earnings volatility in our future results of operations 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 certain of our subsidiary Chief Executive Officers, which define certain compensation arrangements relating to various employment termination scenarios, and multi-year employment agreements with certain executive officers of businesses we have acquired. Additionally, in March 2016 we entered into a succession plan agreement due to the planned retirement of our Chief Executive Officer who was succeeded on July 31, 2016, but remains employed as a Senior Advisor until October 15, 2016. This succession plan agreement requires future payments to our former Chief Executive Officer beginning in fiscal 2017 for transition-related services. The majority of those future payments are being recorded in general and administrative expenses from March 17, 2016 through his October 15, 2016 retirement date.

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 July 31, 2016, $415,000 is outstanding, of which $165,000 is recorded in accrued expense and $250,000 is recorded in other long-term liabilities.

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