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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
/ X / Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended July 31, 1995
or
/ / Transition Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 [No Fee Required]
For the transition period from ________________ to ________________
Commission File No. 0-6132
CANTEL INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-1760285
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1135 Broad Street, Clifton, New Jersey 07013
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(201) 470-8700
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
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(Title of Class)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
Aggregate market value of registrant's capital stock held by non-affiliates
(based on shares held and the closing price quoted by NASDAQ on October 6,
1995): $10,004,347
Number of shares of common stock outstanding as of the close of the period
covered by this report: 2,768,193
Documents incorporated by reference: None
PART I
ITEM 1. BUSINESS.
GENERAL
The Company, through Carsen Group Inc., its wholly-owned Canadian
subsidiary ("Carsen" or "Canadian subsidiary"), is engaged in the marketing and
distribution of scientific products and consumer products in Canada, and
commencing in fiscal 1996 will be engaged in the marketing and distribution of
industrial technology equipment and medical equipment in the United States. The
Company also provides servicing of the products it distributes. Unless the
context otherwise requires, references herein to the "Company" include Cantel
Industries, Inc. ("Cantel") and Carsen.
The scientific products distributed by the Company consist of medical
instruments, including flexible and rigid endoscopes, endoscope
washers/disinfectors, and air cleaning equipment; surgical equipment and related
accessories; precision instruments, including microscopes and related
accessories; and industrial technology equipment, including borescopes,
fiberscopes, video image scopes, laser distance measurement and thermal imaging
products and on-line optical inspection and quality assurance systems. The
consumer products distributed by the Company consist of photographic and optical
equipment, including cameras, dark room equipment, and office equipment
including hand-held dictation equipment, paper shredders, and related
accessories.
The Company distributes the majority of its scientific products and
consumer products pursuant to an agreement with Olympus America Inc. (the
"Olympus Agreement"), a United States subsidiary of Olympus Optical Co. Ltd., a
Japanese corporation ("Olympus Optical"), under which the Company has been
granted exclusive distribution rights for certain Olympus products in Canada.
Most of such products are manufactured by Olympus Optical and its affiliates in
Japan and other foreign countries. Unless the context otherwise requires,
references herein to "Olympus" include Olympus America Inc. and Olympus Optical,
and their affiliates. The Company, or its predecessor, has been distributing
various Olympus products in Canada since 1949.
During fiscal year 1994, the Company entered into a long-term
agreement with Jenoptik Technologie GmbH of Jena, Germany ("Jenoptik"), for
exclusive distribution of Jenoptik's laser distance measurement and thermal
imaging products and on-line optical inspection and quality assurance systems in
the United States, Canada and Mexico.
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The Company also distributes other products under separate
distribution agreements, including endoscope washers/disinfectors, scientific
equipment accessories, shredders and accessory camera products.
The following table gives information as to the percentage of
consolidated net sales from continuing operations accounted for by each
operating segment during the indicated periods.
Fiscal Year Ended July 31,
--------------------------
1995 1994 1993
---- ---- ----
Scientific Products:
Medical Instruments ........ 51.2% 46.9% 45.9%
Precision Instruments ...... 9.9 8.6 8.2
Industrial Technology
Equipment................. 6.2 6.0 5.6
Product Service............. 13.0 13.8 13.4
Consumer Products............. 19.7 24.7 26.9
----- ----- -----
100.0% 100.0% 100.0%
----- ----- -----
----- ----- -----
SCIENTIFIC PRODUCTS
The Scientific Products segment is the Company's major source of
revenue and profitability. This segment is comprised of the medical
instruments, precision instruments, industrial technology equipment and product
service divisions.
MEDICAL INSTRUMENTS. The Company's principal source of revenue is
from the distribution of specialized endoscopes, surgical equipment and related
accessories and instruments to hospitals, the majority of which are manufactured
by Olympus. Olympus is one of the world's leading manufacturers of endoscopes
and related products.
An endoscope is a device comprised of an optical system incorporated
in a flexible or rigid tube that can be inserted inside a patient's body through
a natural opening or through a small incision. Endoscopy, the use of endoscopes
in medical procedures, is a valuable aid in the diagnosis of various disorders.
Endoscopy enables physicians to study and photograph certain organs and body
tissue and, if necessary, to perform a biopsy (removal of a small piece of
tissue for microscopic analysis). Many surgical procedures that formerly
required a major operation are now performed much more simply by endoscopy,
which can often be performed without general anesthesia.
A flexible endoscope generally consists of fiberoptic image and light
carrying bundles contained in a flexible tube, which can be inserted into
irregularly shaped organs of a patient's body, such as the large intestine. The
viewing end of a
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flexible fiberoptic endoscope contains an eyepiece and a steering mechanism and
is connected to an external light source, which permits a surgeon to view inside
a patient's body. The tip of a flexible endoscope inserted into a patient's
body contains a lens and, in most cases, depending on the application, an outlet
for air and water. Most flexible endoscopes also have internal working channels
which enable accessories such as biopsy forceps to be passed to the tip. In an
advanced version of the flexible endoscope, known as a flexible video
endoscope, the fiberoptic image and light carrying bundles have been replaced by
a charged coupling device (CCD) (which functions like a video camera) that
enables a picture to be transmitted electronically to a monitor, which picture
can be viewed by a physician as a medical procedure is being performed.
A rigid endoscope is a straight, narrow viewing insertion tube
consisting of a series of relay lenses and light transmitting fibers that
connect to an external light source, which permits a surgeon to view inside a
patient's body.
A technology known as minimally invasive surgery requires the use of a
rigid endoscope. With the addition of a tiny telescopic lens, a light source
and a palm-size video camera, a rigid endoscope utilized for minimally invasive
surgery can transmit images of the patient's organs, as well as the instrument
being used by the surgeon, to a viewing monitor. Minimally invasive surgery
enables a surgeon using an endoscope to operate on a patient through small
keyhole type incisions, avoiding, in many cases, the need for open surgery. For
example, one type of rigid endoscope known as a laproscope, enables a surgeon to
remove a gall bladder by making four or five small incisions in the abdomen,
rather than one larger incision. In this procedure, the surgeon inserts the
laproscope through one of the incisions to view the gall bladder while operating
with surgical instruments inserted in other incisions. This procedure can
significantly reduce surgical trauma and post-operative pain, with reduced
recovery time. Minimally invasive surgery has applications for a growing number
of surgical procedures in addition to gall bladder removal, including hernia
repair, small bowel resection, lung biopsy and advanced gynecological
procedures.
Flexible endoscopes are commonly used for visualization of, and
diagnosing disorders in, the esophagus, stomach, duodenum, and large intestine
(gastroenterology); upper airways and lungs (pneumology); nose and throat (ENT);
bladder, kidney and urinary tract (urology); and uterus (gynecology). Rigid
endoscopes are commonly used for urology, gynecology, orthopedics, and general
surgery, including minimally invasive surgery.
The Company also distributes various specialized medical instruments
and accessories utilized in both rigid and flexible
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endoscopy including scissors, needle holders, forceps and other surgical
accessories, ambulatory PH and motility monitoring equipment (which is used for
diagnosis of various gastrointestinal and respiratory disorders), endoscope
washers/disinfectors, carts, trolleys and cleaners, insufflators (which deliver
and monitor gas to expand abdominal and other cavities), video monitors and
recorders, mavigraphs (which print "hard" copies of video images) and "cold"
light supplies (which provide light for endoscopy procedures).
The Company believes it has achieved a considerable market share in
Canada for flexible endoscopes in certain segments, particularly
gastrointestinal endoscopy. The Company believes that growth in sales of
medical instruments will be achieved principally from rigid endoscopes and other
products used in surgical procedures, as well as from endoscope
washers/disinfectors, air cleaners, and related equipment used in the care and
maintenance of endoscopes. No assurance can be given that such growth will be
attained.
All of the endoscopes and certain of the other medical instruments and
accessories distributed by the Company are manufactured by Olympus. Other
medical products distributed by the Company are manufactured by Synectics
Medical AB (ambulatory PH and motility monitoring equipment), F.M. Wiest GmbH &
Co. (insufflators), Sony of Canada Ltd. (monitors, mavigraphs and video
recorders), and MediVators Inc. (automated endoscope washers/disinfectors).
PRECISION INSTRUMENTS. The Company distributes Olympus microscopes
and complementary scientific equipment and accessories. Other precision
instruments distributed by the Company include Narishige U.S.A., Inc.
micromanipulators (which enable a viewer to manipulate objects being viewed
under a microscope), Empix Imaging Inc. high resolution imagers (which transmit
images of objects being viewed to a monitor), and optical accessories such as
high contrast optics, objectives (magnifying lenses) and reticules and video
calipers (both of which measure objects being viewed under a microscope). The
products are used in numerous disciplines for the microscopic study of objects
and are sold directly to the end user.
The precision instruments distributed by the Company are sold to
hospitals for cytology, pathology and histology purposes; government
laboratories for research and forensics; universities and other educational
institutions for research and teaching purposes; and private and industrial
laboratories, for bio-technology, geology, pharmacology, metallography, quality
control and manufacturing applications.
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INDUSTRIAL TECHNOLOGY EQUIPMENT. The Company distributes three types
of industrial technology equipment that are similar to endoscopes, but are
designed for an emerging market known as remote visual inspection ("RVI"). RVI
is the application of medical endoscopic technology for industrial uses. These
products distributed by the Company, most of which are manufactured by Olympus,
consist of rigid borescopes (devices that are similar to rigid endoscopes),
which use a series of relay lenses to transmit an image through a stainless
steel insertion tube; fiberscopes (devices that are similar to flexible
endoscopes), which use fiberoptic image carrying bundles to transmit images
through a flexible insertion tube; and video image scopes, which utilize a
small, high resolution solid state image sensor, similar to the charged coupling
device used in advanced flexible endoscopes, that enable a picture to be
transmitted electronically to a monitor.
Other industrial technology equipment distributed by the Company, most
of which is manufactured by Jenoptik, consists of laser meters (devices that use
the travel time of laser pulses as a means of measurement) designed for
determining distances, vertical angles, target and station heights, as well as
speed; thermographic systems (devices that use infrared cameras to measure
thermal radiation) which are used as a basis for the analysis and diagnosis of
heat and temperature distribution; and on-line optical inspection and quality
assurance systems (optical image-processing systems operating on the principle
of coherent structural-zonal analysis) designed for inspection, identification
and classification, such as establishing object classes, detecting defects and
monitoring quality.
The Company has recently introduced a number of products under its own
trademark, Optiscan. These products have been sourced from outside suppliers or
designed by the Company. Most Optiscan products currently available complement
or enhance our Olympus RVI business. Optiscan products include IVS video
documentation products which integrate video camera, monitor and VCR in one
portable unit; and very long (10'-30') ultra-thin quartz glass fiberscopes for
specialized applications, particularly in the nuclear power industry. Unrelated
to our Olympus business is a software application, Optiscan PVM, developed by
the Company, and designed to run in conjunction with Jenoptik laser rangefinders
for the measurement of stock pile volumes, such as wood chips and coal.
The industrial technology equipment distributed by the Company is
generally purchased by large industrial companies engaged in the oil and gas,
aerospace, chemicals, power generation, mining, forestry, semiconductor and
automotive industries, that require inspections of their machinery or processes
for research and development, measurement, maintenance or quality control. The
Company also develops new applications
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for its products, which are then customized by the Company for such
applications, based upon the nature of a company's business. For example, the
Company has sold borescopes to an automobile manufacturer to examine the inside
of automobile engines, fiberscopes and laser measurement equipment to the
Canadian customs agency for inspecting vehicles for drugs and other illegal
paraphernalia, and video image scopes to a mining company to inspect rock
formations for cracks and shifting.
PRODUCT SERVICE - SCIENTIFIC. The Company operates a service
organization at its Markham, Ontario facility that provides warranty and
out-of-warranty service and repairs for scientific products distributed by the
Company. Scientific products distributed by the Company bear a product warranty
that entitles the purchaser to warranty repairs and service at a nominal or no
charge during the warranty period. The Company, and not the manufacturer of the
product, is responsible for the cost of warranty repairs. The warranty period
for scientific products is generally one year for medical instruments and
industrial technology equipment and five years for precision instruments.
The Company also provides out-of-warranty service of scientific
products for which the customer pays the Company on a time and materials basis.
Revenues from the Product Service Division consist principally of out-of-
warranty servicing of endoscopes and other medical products, and comprise a
significant percentage of the Company's total net sales.
CONSUMER PRODUCTS
The Company distributes consumer products in Canada, comprised
principally of photographic and optical equipment. This equipment, most of
which is manufactured by Olympus, includes 35 mm. lens shutter cameras (also
known as "point and shoot" cameras) and 35 mm. single lens reflex cameras,
binoculars, slide projectors and screens, light meters, darkroom equipment and
supplies, camera luggage and other photographic products and accessories. The
Company distributes 25 models of the 35 mm. lens shutter cameras, 5 models of
the 35 mm. single lens reflex cameras and 6 models of binoculars. Cameras and
accessories manufactured by Olympus account for substantially all sales in the
Consumer Products Division. The Company also distributes Olympus Pearlcorder-
Registered Trademark- hand-held dictation equipment and two lines of paper
shredders.
The Company distributes its consumer products mostly to major
department stores, large retail store chains, independent retailers and
cooperative buying groups. The Company also distributes such products to
government agencies, school boards,
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the military, promotional sales organizations and catalog houses and other end-
users.
PRODUCT SERVICE - CONSUMER. The Company operates a service
organization at its Markham, Ontario facility, as well as contracts with
independent service centers throughout Canada to provide warranty service for
the consumer products distributed by the Company. Pursuant to the Olympus
Agreement, the Company is required to provide warranty service for all Olympus
cameras presented to the Company for service, whether or not such cameras were
sold by the Company. This obligation has not had a material adverse effect on
the Company. The Company generally provides a two year warranty for cameras and
a one year warranty for other consumer products. Beginning in fiscal year 1995,
the Company now provides out-of-warranty services for its consumer products.
DISTRIBUTION AGREEMENTS
OLYMPUS AGREEMENT. The majority of the Company's sales of scientific
products and consumer products have been made pursuant to the Olympus Agreement,
under which Olympus has granted the Company the exclusive right to distribute
the covered Olympus products in Canada. All products sold by the Company
pursuant to the agreement bear the "Olympus" trademark. The Olympus Agreement
expires on March 31, 1998.
During the term of the Olympus Agreement, the Company has agreed that
it will not manufacture, distribute, sell or represent for sale in Canada any
products which are competitive with the Olympus products covered by the Olympus
Agreement.
The Olympus Agreement imposes minimum purchase obligations on the
Company with respect to each of medical instruments, precision instruments,
industrial technology equipment and consumer products. The aggregate annual
minimum purchase obligations for all such products are approximately $16.7
million, $17.2 million and $18.5 million during the contract years ending March
31, 1996, 1997, and 1998, respectively.
Subject to an allowance of a 10% shortfall from the minimum purchase
requirements in certain situations, Olympus has the right to terminate the
Olympus Agreement with respect to each product group for which the Company has
failed to meet the minimum purchase requirements. If the Company fails to meet
such requirements for both precision instruments and industrial technology
equipment, or for medical instruments, then Olympus has the right to terminate
the entire Olympus Agreement. Olympus may also terminate the Olympus Agreement
if the Company breaches its other obligations under the Olympus Agreement, or if
the Company fails to meet any Olympus credit requirement for sale on open
account and does not provide Olympus with a letter of credit to
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secure the Company's payment obligations after demand by Olympus. The Company
has delivered to Olympus a letter of credit to secure payment of the Company's
first $500,000 of monthly purchases.
JENOPTIK AGREEMENT. On May 1, 1994, the Company entered into a long-
term agreement with Jenoptik, under which the Company was granted the exclusive
right to distribute the covered Jenoptik products in the United States, Canada
and Mexico. The agreement expires December 31, 2003.
During the term of the Jenoptik agreement, the Company has agreed that
it will not manufacture, distribute, sell or represent for sale in the territory
any products which are competitive with the products covered unless expressly
agreed in writing by Jenoptik.
The Jenoptik agreement imposes minimum purchase obligations commencing
with the calendar year 1996 in the amount of DM 1,500,000. The minimum purchase
requirement for calendar 1997 will be the average of the purchases during
calendar years 1994, 1995 and 1996, and for each year thereafter, 110% of the
preceding year's minimum purchase requirement. Failure to achieve the minimum
purchase requirement in any year would give Jenoptik the right to terminate the
agreement.
The agreement will be automatically extended for a subsequent five
year term commencing January 1, 2004 and every five years thereafter, as long as
the Company continues to achieve the minimum purchase requirements.
DISCONTINUED OPERATIONS
On October 29, 1993, the Company consummated the sale of all of the
assets and transferred certain liabilities of its Seating Division to the German
manufacturer of the seating products for $2,809,000. The Company received
$2,659,000 in cash and a $150,000 promissory note of the purchaser of the
Seating Division which was paid in October 1994. An additional contingent
payment of up to $150,000 could become due on the 90th day following the end of
calendar year 1995, dependent upon the operating results of the Seating
Division.
The sale of the Seating Division has been reflected as a discontinued
operation and is presented separately in the consolidated statements of
operations.
MARKETING
The Company markets its products through a sales organization
comprised of employees and independent sales representatives. Each industry
segment has a separate, dedicated
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sales force. Sales persons, who are paid on a salary and/or commission basis,
are, among other things, responsible for identifying customers and demonstrating
products in their respective geographic markets.
EFFECT OF CURRENCY FLUCTUATIONS AND TRADE BARRIERS
Substantially all of the Company's products have been imported from
the Far East and Western Europe, and the Company's 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 both the United States and Canada.
COMPETITION
The Company distributes substantially all of its products in highly
competitive markets, which contain many products available from nationally and
internationally recognized competitors of the Company. Many of such competitors
have greater financial and technical resources than the Company and are
well-established, with reputations for success in the sale and service of their
products. In addition, certain companies have developed or may be expected to
develop technologies or products that could directly or indirectly compete with
the products distributed by the Company. In some areas, the Company competes
with manufacturers who distribute and service their own products and have
greater financial and technical resources than the Company and, as
manufacturers, may have certain other competitive advantages over the Company.
The Company believes that the world-wide reputation for the quality and
innovation of its products among consumers, the Company's reputation for
providing quality product service, particularly with respect to medical
products, and the numerous customer contacts developed during its lengthy
service as a distributor of Olympus products, gives the Company a competitive
advantage with respect to certain of its product segments.
BACKLOG
On October 6, 1995, the Company's consolidated backlog was
approximately $1.2 million compared with approximately $1.0 million on October
21, 1994.
EMPLOYEES
As of October 6, 1995, the Company employed 111 persons. Of the
Company's employees, 107 are located in Canada and 4 are located in the United
States; 10 are executives and/or division managers, 43 are engaged in sales, 7
are engaged in customer service, 17 are engaged in product service, 9 are
engaged in
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shipping and warehouse functions, and 25 perform various administrative
functions.
None of the Company's employees is represented by labor unions. The
Company considers its relations with its employees to be satisfactory.
ITEM 2. PROPERTIES.
The Company leases a building, containing approximately 41,000 square
feet, located in Markham, Ontario. This facility is used for warehouse,
service, showroom and office space for the Company's Canadian operations. The
lease, as amended, expires in July 2000, subject to the Company's option to
renew for five years. The lease provides for monthly base rent of approximately
$9,400 for the next two years and approximately $10,000 for the last three
years.
The Company leases approximately 2,000 square feet of office space in
Clifton, New Jersey, for its executive offices. The lease, which expires in
January 1997, provides for monthly base rent of approximately $3,000.
The Company believes that its facilities are adequate for its current
needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1995.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
Since March 18, 1994, the Company's Common Stock has been traded on
the NASDAQ National Market under the symbol "CNTL." From August 17, 1992
through March 17, 1994, the Common Stock traded on the NASDAQ Small Cap Market.
The following table sets forth, for the periods indicated, the high and low bid
prices for the Common Stock as reported by NASDAQ.
The Company has not paid any cash dividends on the Common Stock, and a
change in this policy is not presently under consideration by the Board of
Directors.
HIGH LOW
---- ---
FISCAL YEAR ENDED JULY 31, 1994
First Quarter 4 1/2 3
Second Quarter 5 1/2 3 3/4
Third Quarter 5 1/2 4
Fourth Quarter 6 1/4 4 3/4
FISCAL YEAR ENDED JULY 31, 1995
First Quarter 7 4 5/16
Second Quarter 6 3/4 3 1/4
Third Quarter 6 1/2 4 1/2
Fourth Quarter 7 3/4 5 1/2
On October 6, 1995, the closing price of the Company's Common Stock
was $8.75 and the Company had 249 record holders of Common Stock. A number of
such holders of record are brokers and other institutions holding shares of
Common Stock in "street name" for more than one beneficial owner.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
(Amounts in thousands, except per share data)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Fiscal Year Ended July 31,
-----------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Net sales. . . . . . . . . $31,079 $29,349 $28,633 $28,245 $24,672
Cost of sales. . . . . . . 21,056 19,790 19,557 18,558 15,967
Gross profit . . . . . . . 10,023 9,559 9,076 9,687 8,705
Income from continuing
operations (1) . . . . . 2,481 2,601 1,432 2,242 2,041
Interest expense . . . . . 479 301 184 112 1,197
Income from continuing
operations before
income taxes . . . . . . 2,002 2,300 1,248 2,130 844
Income taxes . . . . . . . 1,001 1,054 1,160 1,051 880
Income (loss) from con-
tinuing operations . . . 1,001 1,246 88 1,079 (36)
Income (loss) from
discontinued operations. - 562 (24) 763 639
Extraordinary gain on
extinguishment of debt. . - 1,211 - - -
Net income . . . . . . . . 1,001 3,019 64 1,842 603
Dividends on preferred
stocks . . . . . . . . . - 314 1,185 890 419
Net income (loss) attri-
butable to common stock. 1,001 2,705 (1,121) 952 184
Earnings (loss) per
common and common
equivalent shares:
Primary:
Continuing operations. . $ .32 $ .31 $ (.54) $ .09 $ (.20)
Discontinued operations. . - .19 (.01) .33 .31
Extraordinary gain . . . . - .40 - - -
------- ------- ------- ------- -------
Net income (loss). . . . $ .32 $ .90 $ (.55) $ .42 $ .11
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Fully diluted:
Continuing operations. . $ .32 $ .31 $ (.34) $ .22 $ (.20)
Discontinued operations. - .18 (.01) .15 .30
Extraordinary gain . . . - .40 - - -
------- ------- ------- ------- -------
Net income (loss). . . . $ .32 $ .89 $ (.35) $ .37 $ .10
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average number
of common and common
equivalent shares:
Primary . . . . . . . . . 3,142 3,011 2,033 2,293 2,078
Fully diluted . . . . . . 3,146 3,055 2,465 4,960 2,078
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CONSOLIDATED BALANCE SHEET DATA:
July 31,
-----------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total assets . . . . . . . $17,399 $14,115 $17,480 $19,508 $19,977
Current assets . . . . . . 16,016 12,777 16,119 18,039 18,243
Working capital. . . . . . 11,163 8,347 9,440 11,816 11,052
Current liabilities(2) . . 4,853 4,430 6,679 6,223 7,191
Long-term debt, less
current portion(2) . . . 6,087 4,327 7,989 9,761 10,901
Stockholders' equity . . . 6,368 5,188 2,521 3,150 1,458
Book value per
outstanding common
share. . . . . . . . . . $2.30 $1.90 $1.02 $1.69 $ .78
Common shares
outstanding. . . . . . . 2,768 2,735 2,466 1,864 1,864
- ---------------
(l) Includes for fiscal 1993 a write-off of $135,000 in costs related to the
termination of a proposed private placement of securities. Includes for
fiscal 1992 a write-off of $175,000 in expenses related to the termination
of a proposed public offering of securities. Includes for fiscal 1991 a
restructuring gain of $50,000.
(2) Current liabilities and long-term debt as of July 31, 1993, 1992 and 1991
include an aggregate of $1,388,000, $1,972,000 and $2,587,000,
respectively, of deferred interest benefit arising out of the Company's
debt restructuring which was consummated in January 1991 (the "1991 Debt
Restructuring"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 5 of Notes to Consolidated
Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF CONTINUING OPERATIONS
Reference is made to the sale of the Company's Seating Division (see
Item 1. Business-Discontinued Operations). The results of continuing operations
described hereafter reflect, for the most part, those results of the Company's
Canadian subsidiary. Reference is also made hereafter to the effects of a
weaker Canadian dollar against the United States dollar during fiscal 1995 and
1994, as compared with fiscal 1994 and 1993 (decreases in value of approximately
2% and 5%, respectively). In order to more accurately analyze the results of
operations, some comparisons will be presented in Canadian dollars as well as
United States dollars.
FISCAL 1995 COMPARED WITH FISCAL 1994
Net sales in Canadian dollars increased by $3,211,000, or 8.1%, to
$42,721,000 in fiscal 1995, from $39,510,000 in fiscal 1994; however, when
translated into United States dollars, the net sales increased by $1,730,000, or
5.9%, to $31,079,000 in fiscal 1995 from $29,349,000 in fiscal 1994. This
increase was principally attributable to the increased sales of the Medical
Instruments, Precision Instruments and Industrial Technology Divisions,
resulting from increased demand for existing products; the introduction of new
products such as the MediVators endoscope disinfector and the Olympus B-Max
microscope; and increases in selling prices for certain products, which
increases were partially offset by decreased sales in the Consumer Products
Division, resulting from lower demand for consumer products.
Gross profit in Canadian dollars increased by $955,000, or 7.4%, to
$13,791,000 in fiscal 1995 from $12,836,000 in fiscal 1994; however, when
translated into United States dollars, the gross profit increased by $464,000,
or 4.9%, to $10,023,000 in fiscal 1995 from $9,559,000 in fiscal 1994. The
gross profit decreased as a percentage of net sales to 32.3% in fiscal 1995,
from 32.6% in fiscal 1994. The lower gross profit margins for fiscal 1995
reflect the reduction in the selling prices of certain camera models in the
Consumer Products Division to meet competition; supplier price increases, of
which only a portion was passed along to customers; and changes in product mix.
Shipping and warehouse expenses as a percentage of net sales were 2.5%
for fiscal 1995, as compared with 2.4% for fiscal 1994. This percentage
increase was principally attributable to higher occupancy costs, including
insurance, utilities and
-15-
property tax, and increased costs of packing and shipping supplies.
Selling expenses as a percentage of net sales were 13.7% for fiscal
1995 and 1994. Although selling expenses as a percentage of net sales were
increased as a result of additional personnel costs in the sales and product
management functions and related travel expenses, this increase was offset due
to higher levels of sales as compared to the fixed portion of selling expenses,
which decreased selling expenses as a percentage of net sales.
General and administrative expenses increased by $268,000 to
$2,491,000 for fiscal 1995 from $2,223,000 for fiscal 1994. This increase was
principally attributable to higher personnel costs, including termination pay
for several employees, and an increase in professional fees, which increases
were partially offset by a decrease in foreign exchange losses which resulted
from translating the Company's Canadian subsidiary's United States dollar
denominated loans into Canadian dollars at the period-end exchange rates during
the first quarter of fiscal 1994. In October 1993, the Company began borrowing
in Canadian dollars which eliminated such foreign exchange losses.
Interest expense increased to $479,000 in fiscal 1995 as compared with
$301,000 in fiscal 1994. This increase principally reflects interest at market
rates on borrowings outstanding under the Company's revolving credit facility,
which was consummated on October 29, 1993 and an increase in average Canadian
interest rates. Prior to October 29, 1993, the Company reported substantially
reduced interest expense on its outstanding borrowings as a result of the 1991
Debt Restructuring.
Income from continuing operations before income taxes and
extraordinary gain decreased by $298,000 to $2,002,000 for fiscal 1995 from
$2,300,000 for fiscal 1994.
The provision for income taxes in fiscal 1995 and 1994 represent taxes
imposed on the Company's Canadian operations and, in 1995, Canadian withholding
taxes on dividends remitted by Carsen to Cantel in the United States.
No tax benefits have been recognized on the Company's United States
operations as a result of the losses generated in fiscal 1995 and prior years.
Income from discontinued operations of $562,000 in fiscal 1994
principally reflects the gain on the sale of all of the assets and the transfer
of certain liabilities of the Seating Division to the German manufacturer of the
seating products.
-16-
During fiscal 1994, the Company paid in full its outstanding United
States bank debt and refinanced its Canadian bank debt with a Canadian bank and
recognized $1,211,000, which represents the remaining deferred interest benefit
from the Company's 1991 Debt Restructuring with its lending banks and
subordinated debenture holders, as an extraordinary gain on the extinguishment
of debt.
Dividends on preferred stocks of $314,000 for fiscal 1994, represent
non-cash imputed dividends of approximately $205,000 and cash dividends payable
of $109,000 on the Series A Preferred Stock.
FISCAL 1994 COMPARED WITH FISCAL 1993
Net sales in Canadian dollars increased by $3,487,000, or 9.7%, to
$39,510,000 in fiscal 1994, from $36,023,000 in fiscal 1993; however, when
translated into United States dollars, the net sales increased by $716,000, or
2.5%, to $29,349,000 in fiscal 1994 from $28,633,000 in fiscal 1993. This
increase was principally attributable to the increased sales of the Medical
Instruments, Precision Instruments and Industrial Technology Divisions,
resulting from the introduction of new products and/or increased demand for
existing products, which increases were partially offset by decreased sales in
the Consumer Products Division, resulting from lower demand for consumer
products.
Gross profit in Canadian dollars increased by $1,423,000, or 12.5%, to
$12,836,000 in fiscal 1994 from $11,413,000 in fiscal 1993; however, when
translated into United States dollars, the gross profit increased by $483,000,
or 5.3%, to $9,559,000 in fiscal 1994 from $9,076,000 in fiscal 1993. The gross
profit increased as a percentage of net sales to 32.6% in fiscal 1994, from
31.7% in fiscal 1993. The higher gross profit margins for fiscal 1994 reflect
the benefits of increased selling prices which were implemented during the
second quarter of fiscal 1993 and the foreign exchange hedging program initiated
in November 1993, partially offset by increased discounting in the Medical
Instruments and Precision Instruments Divisions to meet competitive pricing.
Shipping and warehouse expenses as a percentage of net sales were 2.4%
for fiscal 1994, as compared with 2.6% for fiscal 1993. This percentage
decrease was principally attributable to the reorganization of the warehouse
operations which resulted in lower labor and freight costs.
Selling expenses as a percentage of net sales were 13.7% for fiscal
1994, as compared with 14.0% for fiscal 1993. This percentage decrease was
principally attributable to the
-17-
increased sales as well as the cost savings resulting from the restructuring of
certain sales representatives' remuneration packages.
General and administrative expenses decreased by $652,000 to
$2,223,000 for fiscal 1994 from $2,875,000 for fiscal 1993. The decrease
reflects certain reductions in the Company's corporate overhead, resulting from
the sale of the Seating Division on October 29, 1993, and a reduction in foreign
exchange losses resulting principally from translating the Company's Canadian
subsidiary's United States dollar denominated loans into Canadian dollars at the
period-end exchange rates during the first quarter of fiscal 1994. On October
29, 1993, the Company began borrowing in Canadian dollars under the revolving
credit facility, which eliminated future foreign exchange gains or losses
related to bank borrowings.
Interest expense increased to $301,000 in fiscal 1994 as compared with
$184,000 in fiscal 1993. This increase principally reflects interest at market
rates on borrowings outstanding under the Company's revolving credit facility,
which was consummated on October 29, 1993. Prior to such date, the Company
reported substantially reduced interest expense on its outstanding borrowings as
a result of the 1991 Debt Restructuring.
Income from continuing operations before income taxes and
extraordinary gain increased by $1,052,000 to $2,300,000 for fiscal 1994 from
$1,248,000 for fiscal 1993.
The provision for income taxes in fiscal 1994 and 1993 represent taxes
imposed on the Company's Canadian operations and, in 1993, Canadian withholding
taxes on dividends remitted or deemed to have been remitted by Carsen to Cantel
in the United States.
During fiscal 1994, Carsen received notice of reassessment for federal
and provincial income taxes and withholding taxes from Revenue Canada for the
taxable years 1990 through 1992. This notice was based upon the disallowance as
a deduction for income tax purposes and treatment as a taxable dividend, of all
of the payments made to Cantel by Carsen during this period with respect to a
purchasing fee charged by Cantel for negotiating certain distribution agreements
on behalf of Carsen. The Company disagrees with the position of Revenue
Canada and is pursuing its available remedies. However, the Company recorded a
charge of $413,000 in its income tax provision for the year ended July 31, 1993,
which represents management's estimated cost to settle this matter as well as
related provincial income taxes for the period. In addition, the Company
provided interest charges of approximately $34,000
-18-
and $120,000 in fiscal 1994 and 1993, respectively, which represent interest on
the federal and provincial income taxes and withholding taxes. Such provisions
approximated the full amount of the reassessment for the federal and provincial
income taxes and withholding taxes and the related interest thereon. The
federal and provincial income taxes and the withholding taxes and related
interest thereon have been paid under protest.
No tax benefits have been recognized on the Company's United States
operations as a result of the losses generated in fiscal 1994 and prior years.
Income from discontinued operations of $562,000 principally reflects
the gain on the sale of all of the assets and the transfer of certain
liabilities of the Seating Division to the German manufacturer of the seating
products.
The Company paid in full its outstanding United States bank debt and
refinanced its Canadian bank debt with a Canadian bank and recognized
$1,211,000, which represents the remaining deferred interest benefit from the
Company's 1991 Debt Restructuring with its lending banks and subordinated
debenture holders, as an extraordinary gain on the extinguishment of debt.
Dividends on preferred stocks of $314,000 for fiscal 1994, represent
non-cash imputed dividends of approximately
$205,000 and cash dividends payable of $109,000 on the Series A Preferred Stock,
as compared with $867,000 of non-cash imputed dividends on the Series A and B
Preferred Stocks and cash dividends of $218,000 on the Series A Preferred Stock
for fiscal 1993. Fiscal 1993 also reflects a stock dividend on the Series B
Preferred Stock of $100,000.
The non-cash dividends were imputed at rates which would increase the
value of such preferred stocks from the value recorded at the date of issuance
to the stated liquidation preference at the time each series of preferred stock
became convertible into the Company's Common Stock. During April 1993, all
outstanding shares of the Series B Preferred Stock were converted into shares of
Common Stock of the Company; therefore, there were no dividends on the Series B
Preferred Stock for fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1995, the Company's working capital was $11,163,000 as
compared with $8,347,000 at July 31, 1994. This increase primarily reflects an
increase in accounts receivable and a decrease in income taxes payable,
partially offset by an
-19-
increase in accounts payable, principally resulting from increased sales in the
fourth quarter of fiscal 1995. The significant increase in accounts receivable
at July 31, 1995 was partially due to customer "buy ins" of products prior to
price increases from the Company's principal supplier, which were being passed
along to customers in August 1995. The increase in working capital was
partially achieved through an increase in long-term debt, which increased from
$4,327,000 at July 31, 1994 to $6,087,000 at July 31, 1995.
Net cash used in operating activities was $1,628,000 for fiscal 1995,
as compared with net cash provided by operating activities of $1,404,000 for
fiscal 1994. This change was primarily due to an increase in accounts
receivable and decreases in income from continuing operations and income taxes
payable, partially offset by an increase in accounts payable. Net cash used in
investing activities was $59,000 for fiscal 1995, as compared with net cash
provided by investing activities of $2,130,000 in fiscal 1994. This change
principally reflects proceeds from the sale of the Seating Division in fiscal
1994. Net cash provided by financing activities was $1,686,000 in fiscal 1995,
as compared with net cash used in financing activities of $4,368,000 in fiscal
1994. This change was principally due to refinancing and reduction of long-term
debt in fiscal 1994, and an increase in borrowings under the revolving credit
facility in fiscal 1995.
The revolving credit facility, as amended, entered into during fiscal
1994 is comprised of a $7,500,000 revolving credit facility to the Company's
Canadian subsidiary. The maximum borrowing availability under this facility
will decrease annually over a three year period commencing January 1, 1996 and
must be paid in full no later than December 31, 1998. The Company is permitted
to borrow an amount up to (i) 75%-85% of certain eligible accounts receivable,
depending on the customer, and (ii) 50% of qualifying inventory, depending on
the type of goods in inventory; however, any trade letters of credit issued
under the Canadian revolver will reduce the maximum available borrowings by 50%
of the amount of such trade letters of credit, while any standby letters of
credit, including the $500,000 letter of credit issued to Olympus America Inc.
during November 1993, reduces the maximum available borrowings by the full
amount of such standby letters of credit. The Company has the right to borrow
funds under this facility in either United States dollars or Canadian dollars, a
portion of which may be drawn in the form of bankers acceptances. United States
dollar borrowings will bear interest at .5% above the lender's United States
base rate, and Canadian dollar borrowings will bear interest at .75% above the
lender's Canadian prime rate. A commitment fee on the unused portion of this
facility is payable in arrears at a rate of .25% per annum, with interest on
borrowings payable monthly. Borrowings under
-20-
this facility are guaranteed by Cantel and secured by substantially all assets
of the Company's Canadian subsidiary and require the Canadian subsidiary to meet
certain financial covenants, including a minimum working capital ratio, a
minimum interest coverage ratio, a maximum debt to tangible net worth ratio, and
an annual limitation on capital expenditures.
A further decrease in the value of the Canadian dollar against the
United States dollar could adversely affect the Company because the Company's
Canadian subsidiary purchases substantially all of its products in United States
dollars and sells its products in Canadian dollars. Such adverse currency
fluctuations could also result in a corresponding adverse change in the United
States dollar value of the Company's assets that are denominated in Canadian
dollars. Under the credit facility, as amended, the Company's Canadian
subsidiary has a foreign exchange hedging arrangement of up to $15,000,000 (U.S.
dollars) which could be used to minimize future adverse currency fluctuations as
they relate to purchases of inventories.
The Company's Canadian subsidiary had forward exchange contracts at
October 6, 1995 aggregating $9,000,000 (United States dollars) to hedge against
possible declines in the value of the Canadian dollar which would otherwise
result in higher inventory costs. Such contracts represent the Canadian
subsidiary's projected purchases of inventories through February 29, 1996.
The average exchange rate of the contracts open at October 6, 1995 is
$1.3686 Canadian dollar per United States dollar, or $.7307 United States dollar
per Canadian dollar. The exchange rate published by the Wall Street Journal on
October 24, 1995, was $1.3704 Canadian dollar per United States dollar, or
$.7297 United States dollar per Canadian dollar.
The Company believes that its anticipated cash flow from operations
and the funds available under the revolving credit facility will be sufficient
to satisfy the Company's cash operating requirements for the foreseeable future
based upon the current level of operations.
As of July 31, 1995, the Company had net operating loss carryforwards
for United States income tax purposes ("NOLs") of approximately $10,789,000
which will expire through July 31, 2010.
In addition, the Company and its Canadian subsidiary cannot file
consolidated tax returns, for Canadian or United States income tax purposes.
Therefore, neither net losses sustained by the Company in the United States nor
the NOLs can be used to reduce Canadian federal or provincial income taxes
payable by the Canadian subsidiary on its taxable income nor can losses
sustained by the Canadian subsidiary, if any, be used to offset taxable
-21-
income earned by the Company in the United States. This has resulted in the
payment of income taxes by the Company in Canada, notwithstanding net losses
sustained by the Company in the United States.
Inflation has not significantly impacted the Company's operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated Financial Statements, which is Item 14(a),
and the Consolidated Financial Statements and schedule attached to this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company has not had any disagreements with its accountants on
accounting or financial disclosure.
-22-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The current directors and executive officers of the Company are as
follows:
Name Age Position
- ---- --- --------
Charles M. Diker 60 Chairman of the Board and
Director
Alan J. Hirschfield 60 Vice Chairman of the Board,
Director and a member of the
Compensation Committee
James P. Reilly 55 President, Chief Executive
Officer and Director
Edward E. Meltz 62 Vice President
Darwin C. Dornbush 65 Secretary, Director and a member
of both the Audit Committee
and the Compensation Committee
Richard L. Bloch 66 Director
Robert L. Barbanell 65 Director and a member of the
Audit Committee
Morris W. Offit 58 Director
Bruce Slovin 59 Director and a member of both the
Audit Committee and the
Compensation Committee
Craig A. Sheldon 33 Vice President
Mr. Diker, who became Chairman of the Board of the Company in April 1986,
is a private investor and a non-managing principal of Weiss, Peck & Greer, an
investment management company. Mr. Diker is also a director of BeautiControl
Cosmetics, Inc. (OTC), a manufacturer of cosmetics marketed by direct sales,
International Specialty Products (NYSE), a specialty chemical company, Data
Broadcasting Corp. (OTC), a communication services and technology company, and
Chyron Corporation (NYSE), a supplier of graphics for the television industry.
Mr. Hirschfield has served as Vice Chairman of the Board of the Company
since January 1988. Since July 1992, he has served as Co-Chairman and Co-Chief
Executive Officer of Data Broadcasting Corp. (OTC), a communication services and
technology company. From October 1990 to July 1992, he served as Co-Chief
Executive Officer of FNN, Inc., the predecessor of Data Broadcasting Corp. From
April 1990 to December 1992, he served as a managing director of Wertheim
Schroder, Inc., an investment banking firm. Mr. Hirschfield is also a director
of Chyron Corporation (NYSE), a supplier of graphics for the television
industry.
-23-
Mr. Reilly has served as President and Chief Executive Officer of the
Company since June 1989. Mr. Reilly is a certified public accountant.
Mr. Dornbush, Secretary of the Company since July 1990, has been a partner
in the law firm of Dornbush Mensch Mandelstam & Schaeffer LLP, general counsel
to the Company, for more than the past five years.
Mr. Barbanell has served as President of Robert L. Barbanell Associates,
Inc., a financial consulting company, since July 1994. From September 1981 to
June 1994, Mr. Barbanell was employed in various capacities by Bankers Trust New
York Corporation, most recently as Managing Director of European Merchant Bank
of Bankers Trust International PLC. Mr. Barbanell is also a director of Marine
Drilling Companies, Inc. (NASDAQ), a drilling contractor, and Kaye Group Inc.
(NASDAQ), an insurance brokerage and insurance underwriting company.
Mr. Bloch has served as President of Pinon Farm, Inc., a horse training and
breeding farm, since its inception in 1982. From 1968 to October 1987, Mr.
Bloch served as President of the Phoenix Suns Basketball Club, a member of the
National Basketball Association. Mr. Bloch was Chairman of the Board of
Governors of the National Basketball Association from 1985 to June 1987. He is
a director of City National Bank of Beverly Hills, California (NYSE), a bank
holding company, and serves as Chairman of the Board of Columbus Realty Trust
(NYSE), a real estate investment trust.
Mr. Offit has served as Chief Executive Officer of OFFITBANK, a limited
purpose trust company chartered by the New York State Banking Department, since
July 1990. Prior thereto, Mr. Offit served as President of Offit Associates,
Inc., an investment counselling firm. Mr. Offit is Chairman of the Board of
Trustees of Johns Hopkins University and a former partner of Salomon Brothers,
Inc. He serves as a director of Mercantile Bankshares Corp. (OTC), a bank
holding company, and Hasbro Inc. (AMEX), a toy manufacturer.
Mr. Slovin has served as President and a director of MacAndrews & Forbes
Holdings Inc. and Revlon Group, Inc., privately held industrial holding
companies, since 1985. Mr. Slovin is also a director of Continental Health
Affiliates, Inc. (OTC), a health care services company; Oak Hill Sportswear
Corp. (OTC), a sportswear manufacturer; The Coleman Company, Inc. (NYSE), a
manufacturer of outdoor recreation products; Meridian Sports Incorporated (OTC),
a watersports company; Infu-Tech, Inc. (NASDAQ), a home health care company;
Mafco Consolidated Group, Inc. (NYSE), a manufacturer of cigars and licorice
extract and flavorings; and Power Control Technologies, Inc. (NYSE), a
-24-
manufacturer of machinery and hydraulics for the aerospace industry.
Mr. Meltz has been employed by the Company in various capacities since
1981, most recently as a Vice President. From 1982 to January 1988, he served
as Vice President-Finance, Treasurer and Chief Financial Officer of the Company.
Mr. Meltz currently serves as President of Carsen, where he has served as an
executive officer since 1982. Mr. Meltz is a chartered accountant.
Mr. Sheldon has been employed by the Company as Vice President and
Controller since November 1994. From November 1993 until October 1994, Mr.
Sheldon was Vice President and Controller of Imaging Technologies, Inc., a
private software development company. From January 1992 until October 1993, Mr.
Sheldon was Corporate Accounting Manager of Toys "R" Us, Inc. From September
1984 until December 1991, Mr. Sheldon was employed as an audit manager by the
accounting firm of Ernst & Young LLP. Mr. Sheldon is a certified public
accountant.
Mr. William J. Vella (age 39) has been employed by Carsen in various
capacities since October 1981. He has served as Executive Vice President of
Carsen since December 1994.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth, for the fiscal years ended July 31, 1995,
1994 and 1993, compensation, including salary, bonuses, stock options and
certain other compensation, paid by the Company to the Chief Executive Officer
and to the other executive officers of the Company who received more than
$100,000 in salary and bonus during fiscal year 1995:
Summary Compensation Table
Long Term
Compensation
Annual Compensation (1) Awards (2)
- --------------------------------------------------------------------------------
Name and Salary Bonus Options (#)
Principal Position Year ($) ($)
- --------------------------------------------------------------------------------
James P. Reilly 1995 250,000 0 1,000
President and Chief 1994 250,000 84,900 1,000
Executive Officer of 1993 250,000 0 1,000
the Company
Edward E. Meltz 1995 157,242 (3) 0 2,000
Vice President of the 1994 146,518 (3) 23,100 2,500
Company and President 1993 167,284 (3) 0 4,000
of Carsen
-25-
William J. Vella 1995 110,670 (4) 0 2,000
Executive Vice President 1994 101,951 (4) 24,316 5,000
of Carsen 1993 106,927 (4) 10,906 5,000
- ---------------
(1) The Company did not pay or provide other forms of annual compensation
(such as perquisites) to the above-named executive officers having a
value exceeding the lesser of $50,000 or 10% of the total annual
salary and bonus reported for such officers.
(2) The Company has no long term incentive compensation plan other than
its Employee Stock Option Plan and Directors' Stock Option Plan
described herein and various individually granted options. The Company
does not award stock appreciation rights, restricted stock awards or
long term incentive plan pay-outs.
(3) Mr. Meltz received a salary of $210,000 Canadian dollars in each of
the last three fiscal years and a bonus of $33,102 Canadian dollars in
fiscal 1994.
(4) Mr. Vella received a salary of $152,620 Canadian dollars in fiscal
1995, a salary of $137,215 and a bonus of $32,726 Canadian dollars in
fiscal 1994, and a salary of $134,420 and a bonus of $13,710 Canadian
dollars in fiscal 1993.
OPTIONS GRANTED IN FISCAL 1995
The following information is furnished for the fiscal year ended July 31,
1995 with respect to the Company's Chief Executive Officer and the other
executive officers of the Company named in the Compensation Table above, for
stock options granted during such fiscal year. Stock options were granted
without tandem stock appreciation rights.
Potential
Realizable
Value at
% of Total Assumed Annual
Options Rates of Stock
Granted to Exercise Price
Employees Price Appreciation
Options During the Per Expiration for Option
Name Granted(#) Fiscal Year Share($) Date Term ($)(1)
- ---- ---------- ----------- -------- ---------- ---------------
5% 10%
------ ------
James P. Reilly 1,000(2) 3.7 5.50 7/30/05 8,890 14,200
Edward E. Meltz 2,000(3) 7.4 4.25 12/4/99 10,800 13,640
William J. Vella 2,000(3) 7.4 4.25 12/4/99 10,800 13,640
- ---------------
-26-
(1) Represents the potential value of the options granted at assumed 5% and 10%
rates of compounded annual stock price appreciation from the date of grant
of such options.
(2) The options were granted under the Company's 1991 Directors' Stock Option
Plan. The exercise price per share of the options was the market value per
share on the date of grant. The options are subject to vesting as follows:
50% of the total shares covered by the options vest on the first
anniversary of the date of grant and the remaining 50% vest from and after
the second anniversary of such date of grant.
(3) The options were granted under the Company's 1991 Employee Stock Option
Plan. The exercise price per share of the options was the market value per
share on the date of grant. The options are subject to vesting as follows:
25% of the total shares covered by the options vest on each of the first
four anniversaries of the date of the grant.
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND FISCAL YEAR END OPTION VALUES
The following information is furnished for the fiscal year ended July 31,
1995 with respect to the Company's Chief Executive Officer and the other
executive officers of the Company named in the Compensation Table above, for
stock option exercises during such fiscal year.
Value of
Number of Unexercised Unexercised in the Money
Shares Options at 7/31/95 (#) Options at 7/31/95 ($)
Acquired Value ----------------------------- -----------------------------
Name On Exercise(#) Realized($) Exercisable Non-Exercisable Exercisable Non-Exercisable
- ---- -------------- ----------- ----------------------------- -----------------------------
James P. Reilly 0 0 192,315 1,500 711,216 250
Edward E. Meltz 9,000 52,062 0 7,750 0 11,411
William J. Vella 10,000 52,500 5,500 9,500 8,525 13,575
STOCK OPTIONS
An aggregate of 250,000 shares of Common Stock are reserved for issuance or
available for grant under the Company's 1991 Employee Stock Option Plan (the
"Employee Plan"). Options granted under the Employee Plan are intended to
qualify as incentive stock options within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"). The Employee Plan is
administered in all respects by a committee composed of at least two non-
employee members of the Company's Board of Directors who are designated by the
Board (the "Stock Option Committee"). The Stock Option Committee may determine
the employees to whom options are to be granted and the number of shares subject
to each option.
-27-
Under the terms of the Employee Plan, all employees of the Company or
subsidiaries of the Company are eligible for option grants. The option exercise
price of options granted under the Employee Plan is fixed by the Stock Option
Committee but must be no less than 100% of the fair market value of the shares
of Common Stock subject to the option at the time of grant, except that in the
case of an employee who possesses more than 10% of the total combined voting
power of all classes of stock of the Company (a "10% Holder"), the exercise
price must be no less than 110% of said fair market value. Options may be
exercised by the payment in full in cash or by the tendering or cashless
exchange of shares of Common Stock or of options to acquire shares of Common
Stock having a fair market value, as determined by the Stock Option Committee,
equal to the option exercise price. Options granted under the Employee Plan may
not be exercised more than ten years after the date of grant, five years in the
case of an incentive stock option granted to a 10% Holder. All currently
outstanding options have a term of five years. At July 31, 1995, options to
purchase 64,250 shares of Common Stock at prices between $2.50 and $4.38 per
share were outstanding under the Employee Plan, and 164,125 shares were
available for grant under the Employee Plan.
An aggregate of 200,000 shares of Common Stock are reserved for issuance or
available for grant under the Company's 1991 Directors' Stock Option Plan (the
"Directors' Plan"). Options granted under the Directors' Plan do not qualify as
incentive stock options within the meaning of Section 422A of the Code. The
Directors' Plan provides for the automatic grant to each of the Company's
directors of options to purchase 1,000 shares of Common Stock on the last
business day of the Company's fiscal year. In addition, an option to purchase
500 shares of Common Stock is granted automatically on the last business day of
each fiscal quarter to each director (exclusive of Messrs. Diker, Reilly and
Dornbush and any other director who serves as an officer or employee of the
Company) provided that the director attended any regularly scheduled meeting of
the Board, if any, held during such quarter. Each such option grant is at an
exercise price equal to the fair market value of the Common Stock on the date of
grant and has a ten year term (but in no event more than three months following
the optionee's ceasing to serve as a director of the Company). The fiscal year
options are exercisable in two equal annual installments commencing on the first
anniversary of the grant thereof and the quarterly options are exercisable in
full immediately. At July 31, 1995, options to purchase 144,000 shares of
Common Stock at prices between $2.00 and $6.00 per share were outstanding under
the Directors' Plan, and 56,000 shares were available for grant under the
Directors' Plan.
In June 1991, the Company adopted the Employee Plan and terminated its 1981
Incentive Stock Option Plan (the "1981 Plan"), in order to have stock option
plans which comply with Rule 16b-3,
-28-
as amended, under the Securities Exchange Act of 1934. The termination of the
prior plan did not affect the options then outstanding under such plan.
At July 31, 1995, options to purchase up to an aggregate of 2,375 shares of
Common Stock at $1.25 per share were outstanding under the 1981 Plan.
In June 1990, Mr. Reilly was granted a ten-year non-plan option to purchase
139,815 shares of Common Stock at an exercise price of $1.75 per share. This
option is exercisable in full. In addition, in July 1990, Mr. Reilly was
granted a ten-year non-plan option to purchase 50,000 shares at an exercise
price of $1.875 per share. This option is exercisable in full.
In February 1994, Mr. Dornbush was granted a non-plan option to purchase
25,000 shares of Common Stock at an exercise price of $5.00 per share. This
option is currently exercisable in full and expires in February 1997.
In December 1994, Mr. Barbanell was granted a five-year non-plan option to
purchase 25,000 shares of Common Stock at an exercise price of $3.75 per share.
This option is exercisable in four equal quarterly installments commencing March
1995 through December 1995 when the option will be fully exercisable. The
option expires December 1999.
COMPENSATION POLICY
The Compensation Committee of the Company's Board of Directors (the
"Compensation Committee") is responsible for setting and administering the
policies which govern annual executive salaries, raises and bonuses. The
Compensation Committee is currently comprised of three members, all of whom are
non-employee directors.
Executive compensation for the fiscal year ended July 31, 1995 consisted of
base salary for the Chief Executive Officer and the other executive officers of
the Company named in the Compensation Table. None of these individuals received
a bonus in fiscal 1995. The policy of the Compensation Committee, in
consultation with the Chief Executive Officer, is to provide compensation to the
Chief Executive Officer and the Company's other executive officers reflecting
the contribution of such executives to the Company's growth in sales and
earnings, the implementation of strategic plans consistent with the Company's
long term objectives, and the enhancement of shareholder value.
Mr. Reilly, the President and Chief Executive Officer of the Company,
served the Company pursuant to a written employment agreement from June 1989
through July 1992 and was compensated
-29-
pursuant to the express terms of such agreement. Although the agreement expired
in accordance with its terms, the Compensation Committee has agreed to
compensate Mr. Reilly at the same base salary and bonus formula as was in effect
during the last year of the agreement.
Long term incentive compensation policy consists exclusively of the award
of stock options under the Company's Employee Option Plan and, in the case of
officers who serve as directors of the Company, non-discretionary annual option
grants of 1,000 shares under the Company's 1991 Directors' Stock Option Plan.
The Stock Option Committee is responsible for the award of stock options.
Two non-employee directors, Alan J. Hirschfield and Bruce Slovin, currently
serve on the Stock Option Committee, which administers the granting of options
under the Employee Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No officer of the Company served on the Company's Compensation Committee
during its last fiscal year. James P. Reilly, however, participated in
deliberations concerning executive compensation, except with respect to his own
compensation.
ITEM 12. SECURITY OWNERSHIP OF
BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth stock ownership information as of October 6,
1995 concerning (i) each director and persons nominated to become directors of
Cantel, (ii) each person (including any "group" as defined in Section 13(d)(3)
of the Securities Exchange Act of 1934) who is known by Cantel to beneficially
own more than five (5%) percent of the outstanding
shares of Cantel's Common Stock, (iii) the Chief Executive Officer and the other
executive officers named in the Compensation Table, and (iv) Cantel's executive
officers and directors as a group:
Amount and
Nature of
Names and Addresses of Position with Beneficial Percentage
Beneficial Owners Company Ownership(1) of Class
- ---------------------- ---------------- ------------ ----------
Charles M. Diker Chairman of the 720,833 (2) 25.5
One New York Plaza Board and Director
New York, New York
Alan J. Hirschfield Vice Chairman of the 213,833 (3) 7.7
P.O. Box 7443 Board and Director
Jackson, Wyoming
-30-
Richard L. Bloch Director 358,500 (4) 12.5
123 E. Marcy Street
Santa Fe, New Mexico
James P. Reilly President (CEO) and 215,648 (5) 7.3
1135 Broad Street Director
Clifton, New Jersey
Bruce Slovin Director 156,000 (6) 5.6
35 East 62nd Street
New York, New York
Morris W. Offit Director 48,000 (7) 1.7
Darwin C. Dornbush Secretary and 31,680 (8) 1.1
Director
Robert L. Barbanell Director 46,750 (9) 1.7
Edward E. Meltz Vice President 38,743 (10) 1.4
William J. Vella Executive Vice 13,885 (11) .5
President of Carsen
All officers and directors
as a group of 11 persons 1,847,622 (12) 56.6
- ---------------
(1) Unless otherwise noted, Cantel believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from October 6, 1995 upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from October 6, 1995 have been exercised.
(2) Includes 55,500 shares which Mr. Diker may acquire pursuant to stock
options and warrants. Does not include an aggregate of 279,750 shares and
warrants to purchase 34,998 shares owned by (i) Mr. Diker's wife, (ii)
certain trusts for the benefit of Mr. Diker's children, (iii) certain
accounts with Weiss, Peck and Greer, an investment firm of which Mr. Diker
is a non-managing principal, over which accounts Mr. Diker exercises
investment discretion, (iv) the DicoGroup, Inc., a corporation of which Mr.
Diker serves as Chairman of the Board, and (v) a non-profit corporation of
which Mr. Diker and his wife are the principal officers and
-31-
directors. Mr. Diker disclaims beneficial ownership as to all of the
foregoing shares.
(3) Includes 25,833 shares which Mr. Hirschfield may acquire pursuant to stock
options and warrants.
(4) Includes 102,500 shares which Mr. Bloch may acquire pursuant to stock
options and warrants.
(5) Includes 192,315 shares which Mr. Reilly may acquire pursuant to stock
options. Does not include 2,000 shares owned by Mr. Reilly's son as to
which Mr. Reilly disclaims beneficial ownership.
(6) Includes 42,000 shares which Mr. Slovin may acquire pursuant to stock
options and warrants. Does not include an aggregate of 5,000 shares owned
by certain trusts for the benefit of Mr. Slovin's children as to which Mr.
Slovin disclaims beneficial ownership.
(7) Includes 16,000 shares which Mr. Offit may acquire pursuant to stock
options.
(8) Includes 30,500 shares which Mr. Dornbush may acquire pursuant to stock
options.
(9) Includes 21,750 shares which Mr. Barbanell may acquire pursuant to stock
options. Does not include 2,500 shares owned by Mr. Barbanell's wife as to
which Mr. Barbanell disclaims beneficial ownership.
(10) Includes 500 shares which Mr. Meltz may acquire pursuant to stock options.
(11) Includes 6,000 shares which Mr. Vella may acquire pursuant to stock
options.
(12) Includes 496,648 shares which may be acquired pursuant to stock options and
warrants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
-32-
PART IV
ITEM 14. FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Annual Report
on Form 10-K for the fiscal year ended July 31, 1995.
1. CONSOLIDATED FINANCIAL STATEMENTS:
(i) Report of Independent Auditors. (At page 40 of
sequentially numbered copy.)
(ii) Consolidated Balance Sheets as of July 31, 1995 and
1994. (At page 41 of sequentially numbered copy.)
(iii) Consolidated Statements of Operations for the years
ended July 31, 1995, 1994, and 1993. (At page 42 of sequentially
numbered copy.)
(iv) Consolidated Statements of Changes in Stockholders'
Equity for the years ended July 31, 1995, 1994, and 1993. (At
pages 43 and 44 of sequentially numbered copy.)
(v) Consolidated Statements of Cash Flows for the years
ended July 31, 1995, 1994, and 1993. (At page 45 of sequentially
numbered copy.)
(vi) Notes to Consolidated Financial Statements. (At pages
46 to 58 of sequentially numbered copy.)
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
(i) Schedule II - Valuation and Qualifying Accounts for the
years ended July 31, 1995, 1994, and 1993. (At page 59 of
sequentially numbered copy.)
All other financial statement schedules are omitted since they
are not required, not applicable, or the information has been included in the
Consolidated Financial Statements or Notes thereto.
-33-
3. EXHIBITS:
3(a) - Registrant's Restated Certificate of Incorporation dated
July 20, 1978. (Incorporated herein by reference to Exhibit 3(a) to
Registrant's 1981 Annual Report on Form 10-K.)
3(b) - Certificate of Amendment of Certificate of Incorporation
of Registrant, filed on February 16, 1982. (Incorporated herein by reference to
Exhibit 3(b) to Registrant's 1982 Annual Report on Form 10-K.)
3(c) - Certificate of Amendment of Certificate of Incorporation
of Registrant, filed on May 4, 1984. (Incorporated herein by reference to
Exhibit 3(c) to Registrant's Quarterly Report on Form 10-Q for the quarter ended
April 30, 1984.)
3(d) - Certificate of Amendment of Certificate of Incorporation
of Registrant, filed on August 19, 1986. (Incorporated herein by reference to
Exhibit 3(d) of Registrant's 1986 Annual Report on Form 10-K.)
3(e) - Certificate of Amendment of Certificate of Incorporation
of Registrant, filed on December 12, 1986. (Incorporated herein by reference to
Exhibit 3(e) of Registrant's 1987 Annual Report on Form 10-K [the "1987 10-K"].)
3(f) - Certificate of Amendment of Certificate of Incorporation
of Registrant, filed on April 3, 1987. (Incorporated herein by reference to
Exhibit 3(f) of Registrant's 1987 10-K).
3(g) - Certificate of Change of Registrant, filed on July 12,
1988. (Incorporated herein by reference to Exhibit 3(g) of Registrant's 1988
Annual Report on Form 10-K.)
3(h) - Certificate of Amendment of Certificate of Incorporation
of Registrant filed on April 17, 1989. (Incorporated herein by reference to
Exhibit 3(h) to Registrant's 1989 Annual Report on Form 10-K [the "1989 10-K"].)
3(i) - Registrant's By-Laws adopted June 1, 1976, as amended
through the date of this Report. (Incorporated herein by reference to Exhibit
3(d) to Registrant's 1985 Annual Report on Form 10-K.)
10(a) - Registrant's 1991 Employee Stock Option Plan, as amended.
(Incorporated herein by reference to Exhibit 10(a) to Registrant's 1991 Annual
Report on Form 10-K (the "1991 10-K".)
10(b) - Form of Stock Option Agreement under Registrant's 1991
Employee Stock Option Plan. (Incorporated herein by reference to Exhibit 10(b)
to Registrant's 1991 10-K.)
-34-
10(c) - Registrant's 1991 Directors' Stock Option Plan.
(Incorporated herein by reference to Exhibit 10(c) to Registrant's 1991 10-K.)
10(d) - Form of Stock Option Agreement under the Registrant's
1991 Directors Stock Option Plan. (Incorporated herein by reference to Exhibit
10(d) to Registrant's 1991 10-K.)
10(e) - Stock Option Agreement, dated as of June 20, 1990,
between the Registrant and James P. Reilly. (Incorporated by reference to
Exhibit 10(g) to Registrant's 1990 Annual Report on Form 10-K (the "1990 10-K".)
10(f) - Stock Option Agreement, dated as of July 25, 1990 between
the Registrant and James P. Reilly. (Incorporated by reference to Exhibit 10(q)
to Registrant's 1990 10-K.)
10(g) - Agreement between Carsen Group Inc. and Olympus America,
Inc., dated April 1, 1994. (Incorporated by reference to Exhibit 10(g) to
Registrant's 1994 Annual Report on Form 10-K (the "1994 10-K".)
10(h) - Form of Registrant's Common Stock Purchase Warrants dated
December 27, 1988. (Incorporated herein by reference to Exhibit 10(t) to
Registrant's 1989 10-K.)
10(i) - Form of Registrant's Common Stock Purchase Warrants dated
July 14, 1989. (Incorporated herein by reference to Exhibit 10(w) to
Registrant's 1989 10-K.)
10(j) - Loan Agreement dated as of October 29, 1993 among
Registrant, Carsen Group Inc. and National Bank of Canada. (Incorporated herein
by reference to Exhibit 10(v) of Registrant's 1993 10-K.)
10(k) - Agreement between Cantel Industries, Inc. and Jenoptik
Technologie GmbH, dated May 1, 1994. (Incorporated herein by reference to
Exhibit 10(q) of Registrant's 1994 10-K.)
10(l) - Stock Option Agreement, dated as of February 3, 1994,
between the Registrant and Darwin C. Dornbush. (At page 60 of sequentially
numbered copy.)
-35-
10(m) - Stock Option Agreement, dated as of December 15, 1994,
between the Registrant and Robert L. Barbanell. (At page 66 of sequentially
numbered copy.)
10(n) - Amendment to Loan Agreement, dated as of August 28, 1995,
among Registrant, Carsen Group Inc. and National Bank of Canada. (At page 72 of
sequentially numbered copy.)
11 - Computation of Earnings per Share Data. (At page 88 of
sequentially numbered copy.)
22 - Subsidiaries of Registrant. (At page 90 of sequentially
numbered copy.)
24 - Consent of Ernst & Young LLP. (At page 91 of sequentially
numbered copy.)
27 - Financial Data Schedule. (At page 92 of sequentially
numbered copy.)
(b) REPORTS ON FORM 8-K: None
-36-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CANTEL INDUSTRIES, INC.
Date: October 17, 1995 By: /s/ James P. Reilly
--------------------------
James P. Reilly, President
and Chief Executive Officer
(Principal Executive Officer
and Principal Financial
Officer)
By: /s/ Craig A. Sheldon
--------------------------
Craig A. Sheldon, Vice
President and Controller
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ Charles M. Diker Date: October 17, 1995
- -------------------------------
Charles M. Diker, a Director
and Chairman of the Board
/s/ James P. Reilly Date: October 17, 1995
- -------------------------------
James P. Reilly, a Director
and President
/s/ Robert L. Barbanell Date: October 17, 1995
- -------------------------------
Robert L. Barbanell, a Director
/s/ Richard L. Bloch Date: October 17, 1995
- -------------------------------
Richard L. Bloch, a Director
/s/ Darwin C. Dornbush Date: October 17, 1995
- -------------------------------
Darwin C. Dornbush, a Director
/s/ Alan J. Hirschfield Date: October 17, 1995
- -------------------------------
Alan J. Hirschfield, a Director
/s/ Morris W. Offit Date: October 17, 1995
- -------------------------------
Morris W. Offit, a Director
/s/ Bruce Slovin Date: October 17, 1995
- -------------------------------
Bruce Slovin, a Director
-37-
C A N T E L I N D U S T R I E S, I N C.
CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1995
CANTEL INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995, 1994 and 1993
CONTENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . 1
Financial Statements
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations. . . . . . . . . . . . . . . . . 3
Consolidated Statements of Changes in Stockholders' Equity . . . . . . 4
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 7
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cantel Industries, Inc.
We have audited the accompanying consolidated balance sheets of Cantel
Industries, Inc. as of July 31, 1995 and 1994, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended July 31, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cantel Industries,
Inc. at July 31, 1995 and 1994, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended July 31, 1995
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Princeton, New Jersey
September 20, 1995
CANTEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar Amounts in Thousands, Except Share Data)
July 31,
1995 1994
-----------------------
ASSETS
Current assets:
Cash $ 520 $ 521
Accounts receivable, net of allowance for
doubtful accounts of $34 in 1995 and
$52 in 1994 7,961 4,710
Inventories (Notes 2 and 3) 7,232 7,122
Prepaid expenses and other current assets 303 424
------- -------
Total current assets 16,016 12,777
Property and equipment, at cost (Note 2):
Furniture and equipment 1,135 1,069
Leasehold improvements 634 593
------- -------
1,769 1,662
Less accumulated depreciation and amortization 1,289 1,152
------- -------
480 510
Other assets, including goodwill of $167 in
1995 and $166 in 1994 (Note 2) 903 828
------- -------
$17,399 $14,115
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,147 $ 2,458
Compensation payable 849 690
Other accrued expenses 493 458
Income taxes payable (Note 6) 364 824
------- -------
Total current liabilities 4,853 4,430
Long-term debt (Note 5) 6,087 4,327
Deferred income taxes (Note 6) 91 63
Deferred compensation (Note 7) - 107
Commitments and contingencies (Note 7)
Stockholders' equity (Note 8):
Preferred Stock, par value $1.00 per share;
authorized 1,000,000 shares; none issued - -
Common Stock, $.10 par value per share;
authorized 7,500,000 shares; issued and
outstanding, 1995 - 2,768,193 shares;
1994 - 2,735,128 shares 277 274
Additional capital 8,539 8,477
Accumulated deficit (1,187) (2,188)
Cumulative foreign currency translation
adjustment (Note 2) (1,261) (1,375)
------- -------
Total stockholders' equity 6,368 5,188
------- -------
$17,399 $14,115
------- -------
------- -------
See accompanying notes.
2
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar Amounts in Thousands, Except Per Share Data)
Year Ended July 31,
1995 1994 1993
---------------------------
Net sales $31,079 $29,349 $28,633
Cost of sales 21,056 19,790 19,557
------- ------- -------
Gross profit 10,023 9,559 9,076
Expenses:
Shipping and warehouse 786 719 755
Selling 4,265 4,016 4,014
General and administrative 2,491 2,223 2,875
------- ------- -------
Total operating expenses 7,542 6,958 7,644
------- ------- -------
Income from continuing operations
before interest expense, income
taxes and extraordinary gain 2,481 2,601 1,432
Interest expense (Notes 5 and 6) 479 301 184
------- ------- -------
Income from continuing operations
before income taxes and
extraordinary gain 2,002 2,300 1,248
Income taxes (Note 6):
Current 975 1,044 1,135
Deferred 26 10 25
------- ------- -------
Total income taxes 1,001 1,054 1,160
------- ------- -------
Income from continuing operations
before extraordinary gain 1,001 1,246 88
Loss from discontinued operations (Note 4) - (94) (24)
Income on disposal of discontinued
operations (Note 4) - 656 -
------- ------- -------
Net income before extraordinary gain 1,001 1,808 64
Extraordinary gain on extinguishment
of debt (Note 5) - 1,211 -
------- ------- -------
Net income 1,001 3,019 64
Dividends on preferred stocks (Notes 2 and 8) - 314 1,185
------- ------- -------
Net income (loss) attributable to
common stock $ 1,001 $ 2,705 $(1,121)
------- ------- -------
------- ------- -------
Earnings per common share (Note 2):
Primary:
Continuing operations $ 0.32 $ 0.31 $ (0.54)
Discontinued operations - 0.19 (0.01)
Extraordinary gain on
extinguishment of debt - 0.40 -
------- ------- -------
Net income (loss) $ 0.32 $ 0.90 $ (0.55)
------- ------- -------
------- ------- -------
Fully diluted:
Continuing operations $ 0.32 $ 0.31 $ (0.34)
Discontinued operations - 0.18 (0.01)
Extraordinary gain on
extinguishment of debt - 0.40 -
------- ------- -------
Net income (loss) $ 0.32 $ 0.89 $ (0.35)
------- ------- -------
------- ------- -------
See accompanying notes.
3
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollar Amounts in Thousands, except share data)
Years Ended July 31, 1995, 1994 and 1993
Preferred Stock
------------------------------ Common
Series A Series B Stock
-------------- -------------- --------------
Number Number Number
of of of
Shares Amount Shares Amount Shares Amount
------------------------------------------------
Balance, July 31, 1992 1,000 $1 200,000 $200 1,864,199 $186
Issuance of stock dividend of
Series B Preferred Stock (Note 8) 10,000 10
Conversion of Series B Preferred Stock
into Common Stock (Note 8) (210,000) (210) 600,000 60
Exercise of options into Common Stock 1,702 1
Translation loss
Net income
Cash dividends payable (Note 8)
Imputed dividends on Series A and
Series B Preferred Stocks (Note 8)
------------------------------------------------
Balance, July 31, 1993 1,000 1 - - 2,465,901 247
Repurchase and redemption of Series A
Preferred Stock (Note 8) (1,000) (1) 133,950 13
Exercise of options and warrants into
Common Stock 135,277 14
Translation loss
Net income
Cash dividends payable (Note 8)
Imputed dividends on Series A Preferred
Stock (Note 8)
------------------------------------------------
Balance, July 31, 1994 - - - - 2,735,128 274
Exercise of options into
Common Stock 33,065 3
Expense related to grant of
non-employee options
Translation gain
Net income
------------------------------------------------
Balance, July 31, 1995 - - - - 2,768,193 $277
------------------------------------------------
------------------------------------------------
See accompanying notes.
Continued......
4
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollar Amounts in Thousands, except share data)
Years Ended July 31, 1995, 1994 and 1993
Cumulative
Foreign
Currency Total
Additional Accumulated Translation Stockholders'
Capital Deficit Adjustment Equity
--------------------------------------------------
Balance, July 31, 1992 $10,212 $(6,989) $ (460) $3,150
Issuance of stock dividend of
Series B Preferred Stock (Note 8) 90 (100) -
Conversion of Series B Preferred Stock
into Common Stock (Note 8) 150 -
Exercise of options into Common Stock 1
Translation loss (476) (476)
Net income 64 64
Cash dividends payable (Note 8) (218) (218)
Imputed dividends on Series A and
Series B Preferred Stocks (Note 8) 867 (867) -
--------------------------------------------------
Balance, July 31, 1993 11,319 (8,110) (936) 2,521
Repurchase and redemption of Series A
Preferred Stock (Note 8) (3,256) 3,217 (27)
Exercise of options and warrants into
Common Stock 209 223
Translation loss (439) (439)
Net income 3,019 3,019
Cash dividends payable (Note 8) (109) (109)
Imputed dividends on Series A Preferred
Stock (Note 8) 205 (205) -
--------------------------------------------------
Balance, July 31, 1994 8,477 (2,188) (1,375) 5,188
Exercise of options into
Common Stock 56 59
Expense related to grant of
non-employee options 6 6
Translation gain 114 114
Net income 1,001 1,001
--------------------------------------------------
Balance, July 31, 1995 $ 8,539 $(1,187) $(1,261) $6,368
--------------------------------------------------
--------------------------------------------------
See accompanying notes.
5
CANTEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands, except per share data)
YEAR ENDED JULY 31,
1995 1994 1993
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 1,001 $ 1,246 $ 88
Adjustments to reconcile income from continuing
operations to net cash (used in) provided by
operating activities:
Discontinued operations - (94) (24)
Depreciation and amortization of continuing
operations 136 124 133
Depreciation and amortization of discontinued
operations - 13 39
Deferred income taxes 26 10 23
Imputed interest 21 37 47
Changes in assets and liabilities:
Accounts receivable (3,251) 615 811
Inventories (110) (53) (13)
Prepaid expenses and other current assets 121 (99) 48
Accounts payable and accrued expenses 888 (545) (590)
Income taxes payable (460) 150 377
--------------------------
Net cash (used in) provided by operating
activities (1,628) 1,404 939
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions of property and equipment of continuing
operations (79) (58) (72)
Additions of property and equipment of discontinued
operations - (4) (10)
Cash provided by discontinued operations - 88 1,475
Proceeds from sale of discontinued operations - 2,613 -
Other, net 20 (509) (457)
--------------------------
Net cash (used in) provided by investing
activities (59) 2,130 936
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 15,079 14,103 -
Repayment of long-term debt (13,319) (18,320) (1,339)
Repurchase of Series A Preferred Stock - (207) -
Expenses associated with extinguishment of debt - (33) -
Deferred compensation payments (133) (134) (135)
Proceeds from exercise of stock options
and warrants 59 223 -
--------------------------
Net cash provided by (used in) financing
activities 1,686 (4,368) (1,474)
--------------------------
(Decrease) increase in cash (1) (834) 401
Cash at beginning of year 521 1,355 954
--------------------------
Cash at end of year $ 520 $ 521 $ 1,355
--------------------------
--------------------------
See accompanying notes.
6
CANTEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended July 31, 1995, 1994 and 1993
1. BUSINESS DESCRIPTION
Cantel Industries, Inc. ("Cantel") and its wholly-owned Canadian subsidiary,
Carsen Group Inc. ("Carsen" or "Canadian subsidiary") (collectively known as the
"Company") are engaged in the marketing, distribution and service of scientific
products and consumer products in Canada. On October 29, 1993, the Company
consummated the sale of all of the assets and transferred certain liabilities of
its Charvoz Seating Division ("Seating Division"), and the results of the
Seating Division have been presented as a discontinued operation, as described
in Note 4.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cantel Industries,
Inc. and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS
Assets and liabilities of Carsen are translated into United States dollars at
year-end exchange rates; income and expenses are translated using average
exchange rates during the year. The cumulative effect of the translation of the
subsidiary's financial statements is presented as a separate component of
stockholders' equity. Foreign exchange gains and losses related to the purchase
of inventories are included in cost of sales. Non-cash foreign exchange losses
resulting from translating Carsen's United States dollar denominated loans into
Canadian dollars at the period-end exchange rate through October 29, 1993 are
included in general and administrative expenses ($103,000 and $499,000 for the
years ended July 31, 1994 and 1993, respectively).
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
7
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Additions and improvements are
capitalized, while maintenance and repair costs are expensed. When assets are
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the respective accounts and any resulting gain or loss is
included in income. Depreciation and amortization are provided on either the
declining-balance or straight-line methods over the estimated useful lives of
the assets.
OTHER ASSETS
Inventories of sales samples and medical loaners available for customers, which
have not turned over within one year, are included in other assets and are
carried at the lower of cost or net realizable value.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109) "ACCOUNTING FOR INCOME TAXES". SFAS
No. 109 requires an asset and liability approach to accounting for income taxes
and establishes less restrictive criteria for recognizing deferred tax assets.
Deferred income tax assets and liabilities arise from differences between the
tax basis of an asset or liability and its reported amount in the consolidated
financial statements. Deferred tax balances are determined by using the tax
rates expected to be in effect when the taxes will actually be paid or refunds
received. Deferred income taxes are provided with respect to items of income
and expense which enter into the determination of taxable income in years other
than those in which they are recognized for financial reporting purposes.
No income taxes have been provided on the undistributed earnings ($8,433,000 at
July 31, 1995) of Carsen since the Company does not intend to repatriate such
earnings unless no additional United States taxes would result upon such
repatriation.
GOODWILL
Goodwill with respect to Carsen is not being amortized since, in the opinion of
management, there has been no diminution of value since acquisition prior to
l970. The carrying value of the goodwill is reviewed if the facts and
circumstances suggest that it may be permanently impaired. Such review is based
upon the undiscounted expected future operating profit
8
derived from such business. In the event such result is less than the carrying
value of the goodwill, the carrying value of the goodwill is reduced to an
amount that reflects the expected future benefit.
EARNINGS PER COMMON SHARE
Primary earnings per common share are computed based upon the weighted average
number of common shares outstanding during the year plus common stock
equivalents where dilutive. Primary earnings per common share for fiscal 1994
and 1993 have been calculated reflecting imputed dividends on the Series A and B
Preferred Stocks aggregating $205,000 and $867,000, respectively. Fiscal 1994
and 1993 also reflect cash dividends of $109,000 and $218,000, respectively, on
the Series A Preferred Stock and fiscal 1993 includes a Series B Preferred Stock
Dividend of $100,000.
Fully diluted earnings per common share are computed on the assumption that the
weighted average number of common shares outstanding during the year was further
increased by the exercise of those stock options and warrants for which the
year-end market price of Common Stock exceeded the average market price. Fully
diluted earnings per share for fiscal 1993 was computed reflecting imputed
dividends of $715,000 and cash dividends of $218,000 on the Series A Preferred
Stock and the assumed conversion, as of August 1, 1992, of the Series B
Preferred Stock into an aggregate of 600,000 shares of Common Stock. Fully
diluted earnings per share for 1994 was computed reflecting imputed dividends of
$205,000 and cash dividends of $109,000 on the Series A Preferred Stock.
The following average shares were used for the computation of primary and fully
diluted earnings per share:
Year Ended July 31,
1995 1994 1993
---------------------------------
Primary 3,142,339 3,011,226 2,033,080
---------------------------------
---------------------------------
Fully Diluted 3,145,536 3,054,858 2,465,400
---------------------------------
---------------------------------
RECLASSIFICATIONS
Certain reclassifications have been made in the accompanying financial
statements for the years ended July 31, 1994 and 1993 to conform to the
presentation for the year ended July 31, 1995.
9
3. INVENTORIES
A summary of inventories is as follows:
July 31,
1995 1994
------------------------
Parts $1,148,000 $1,298,000
Samples 1,685,000 1,713,000
Finished Goods 4,399,000 4,111,000
------------------------
Total $7,232,000 $7,122,000
------------------------
------------------------
4. DISCONTINUED OPERATIONS
On October 29, 1993, the Company consummated the sale of all of the assets and
transferred certain liabilities of its Seating Division to the German
manufacturer of the seating products for $2,809,000. The Company received
$2,659,000 in cash and a $150,000 promissory note of the purchaser of the
Seating Division (included in accounts receivable). The promissory note was
paid in October 1994. An additional contingent payment of up to $150,000 could
become due on the 90th day following the end of the calendar year 1995,
dependent upon the operating results of the Seating Division.
5. FINANCING ARRANGEMENTS
Simultaneous with the sale of its Seating Division, the Company paid in full its
then outstanding United States bank debt of $1,300,000 plus accrued interest and
refinanced the Company's Canadian credit facility with a Canadian bank. The
remaining deferred interest benefit of $1,211,000 arising from the Company's
1991 Debt Restructuring with its lending banks and subordinated debenture
holders was recognized as an extraordinary gain on extinguishment of debt.
Since October 29, 1993, the Company's interest expense reflects a market rate of
interest on its borrowings.
A summary of the Company's long-term debt is as follows:
July 31,
1995 1994
-----------------------
Revolving credit facility $6,087,000 $4,327,000
-----------------------
-----------------------
The revolving credit facility entered into during fiscal 1994, as amended, is
comprised of a $7,500,000 revolving credit facility to the Company's Canadian
subsidiary. The maximum
10
borrowing availability under this facility decreases annually over a three year
period commencing January 1, 1996 and must be paid in full no later than
December 31, 1998. The Company is permitted to borrow an amount up to (i) 75%-
85% of certain eligible accounts receivable, depending on the customer, and (ii)
50% of qualifying inventory, depending on the type of goods in inventory;
however, any trade letters of credit issued under this facility will reduce the
maximum available borrowings by 50% of the amount of such trade letters of
credit, while any standby letters of credit, including the $500,000 letter of
credit issued to Olympus America Inc. during November 1993, reduces the maximum
available borrowings by the full amount of such standby letters of credit. The
Company has the right to borrow funds under this facility in either United
States dollars or Canadian dollars, a portion of which may be in the form of
bankers acceptances. The borrowings outstanding at July 31, 1995 and 1994 are
in Canadian dollars. United States dollar borrowings bear interest at .5% above
the lender's United States base rate, and Canadian dollar borrowings bear
interest at .75% above the lender's Canadian prime rate. The lender's Canadian
prime rate was 8.25% at July 31, 1995. A commitment fee on the unused portion
of this facility is payable in arrears at a rate of .25% per annum, with
interest on borrowings payable monthly. Borrowings under this facility are
guaranteed by Cantel and are secured by substantially all assets of the
Company's Canadian subsidiary and require the subsidiary to meet certain
financial covenants, including a minimum working capital ratio, a minimum
interest coverage ratio, a maximum debt to tangible net worth ratio, and an
annual limitation on capital expenditures.
6. INCOME TAXES
During fiscal 1994, Carsen received notice of reassessment for federal and
provincial income taxes and withholding taxes from Revenue Canada for the
taxable years 1990 through 1992. This notice was based upon the disallowance as
a deduction for income tax purposes and treatment as a taxable dividend, of all
of the payments made to Cantel by Carsen during this period with respect to a
purchasing fee charged by Cantel for negotiating certain distribution agreements
on behalf of Carsen.
The Company disagrees with the position of Revenue Canada and is pursuing its
available remedies. However, the Company recorded a charge of $413,000 in its
income tax provision for the year ended July 31, 1993, which represents
management's estimated cost to settle this matter as well as related provincial
income taxes for the period. In addition, the Company provided interest charges
of approximately $34,000 and $120,000 in fiscal 1994 and 1993, respectively,
which represents interest on the federal and provincial income taxes
11
and withholding taxes. Such provisions approximated the full amount of the
reassessment for the federal and provincial income and withholding taxes and the
related interest thereon. The federal and provincial income taxes and the
withholding taxes and related interest thereon have been paid under protest.
Deferred income taxes recorded in the consolidated balance sheet at July 31,
1995 and 1994 include deferred tax assets related to net operating loss
carryforwards of $3,668,000 and $3,545,000, respectively, which have been fully
offset by valuation allowances, and deferred tax liabilities related to the use
of accelerated methods of depreciation for income tax purposes of $91,000 and
$63,000, respectively. The valuation allowances have been established equal to
the full amount of the deferred tax assets, as the Company was not assured at
July 31, 1995 and 1994, that it is more likely than not that a benefit will be
realized.
For financial statement and domestic tax reporting purposes, the Company has net
operating loss carryforwards of approximately $10,789,000 at July 31, 1995,
which expire through July 31, 2010. The net operating loss carryforwards
presented are based upon the tax returns as filed and are subject to examination
by the Internal Revenue Service.
The provision for income taxes consists of the following:
Year Ended July 31,
1995 1994 1993
---------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
---------------------------------------------------------------
United
States $ 14,000 $ - $ 2,000 $ - $ 63,000 $ -
Canada 961,000 26,000 1,042,000 10,000 1,072,000 25,000
---------------------------------------------------------------
Total $975,000 $26,000 $1,044,000 $10,000 $1,135,000 $25,000
---------------------------------------------------------------
---------------------------------------------------------------
The components of income (loss) from continuing operations before income taxes
are as follows:
Year Ended July 31,
1995 1994 1993
---------------------------------------
United States $ (278,000) $ (52,000) $ (149,000)
Canada 2,280,000 2,352,000 1,397,000
---------------------------------------
Total $2,002,000 $2,300,000 $1,248,000
---------------------------------------
---------------------------------------
12
The effective rate on continuing operations differs from the U.S. statutory rate
(34%) due to the following:
Year Ended July 31,
1995 1994 1993
-----------------------------------
Expected statutory tax expense $ 680,000 $ 782,000 $ 424,000
Canadian dividend withholding taxes 12,000 - 57,000
Canadian tax reassessment - - 413,000
Differential attributable to
Canadian operations 212,000 252,000 199,000
Benefit not recognized on domestic
operating losses 95,000 18,000 61,000
U.S. state and local taxes 2,000 2,000 6,000
-----------------------------------
Total $1,001,000 $1,054,000 $1,160,000
-----------------------------------
-----------------------------------
7. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
Aggregate future minimum rental commitments at July 31, l995 under operating
leases for warehouse and office space are approximately $645,000 through the
year ended July 31, 2000.
Rent expense aggregated $210,000, $187,000 and $160,000 for the years ended July
31, 1995, 1994 and 1993, respectively.
FOREIGN EXCHANGE CONTRACTS
The Company's Canadian subsidiary enters into foreign exchange forward contracts
to purchase United States dollars to hedge against currency fluctuations
affecting purchases of inventory. Total commitments for such forward contracts
amounted to $9,000,000 at July 31, 1995, and cover projected purchases of
inventory through December 1995. The fair value of such contracts at July 31,
1995, based upon current market quotes for contracts with similar terms,
approximated the carrying value of such contracts.
DISTRIBUTION AGREEMENT
The majority of the Company's sales of scientific products and consumer products
are made under a distribution agreement with Olympus America Inc. ("Olympus").
The distribution agreement, which expires in March 1998, imposes minimum
purchase and service obligations upon the Company and restricts the Company from
selling products competitive with those covered by the agreement and gives the
Company the exclusive right to distribute the covered Olympus products in
Canada.
Subject to an allowance of a 10% shortfall from the minimum purchase
requirements in certain situations, Olympus has the right to terminate the
agreement with respect to each product
13
group (defined in the agreement as medical instruments, precision instruments,
industrial technology equipment and consumer products) for which the Company has
failed to meet the minimum purchase requirements. If the Company fails to meet
such requirements for both precision instruments and industrial technology
equipment, or for medical instruments, then Olympus has the right to terminate
the entire agreement. Olympus may also terminate the agreement if the Company
breaches certain other obligations and requirements under the agreement, or if
the Company fails to meet any Olympus credit requirements for sale on open
account and does not provide Olympus with a letter of credit to secure the
Company's payment obligations after demand by Olympus. The Company has
delivered to Olympus a letter of credit to secure payment of the Company's first
$500,000 of monthly purchases.
DEFERRED COMPENSATION
Under an agreement with a former officer and director, the Company is obligated
to make payments on a monthly basis through April 1996, subject to cost of
living increases. The individual will receive approximately $105,000 in fiscal
1996. The Company has recorded a liability for the present value of these
obligations.
8. STOCKHOLDERS' EQUITY
In connection with the Company's 1991 Debt Restructuring with its lending banks
and Subordinated Debenture holders, the Company issued shares of Series A and
Series B Preferred Stocks.
The Series A Preferred Stock, which was redeemed on October 29, 1993, had a
$6,000 per share liquidation preference and was senior to the Company's Common
Stock with respect to dividend and liquidation preference. Quarterly dividends
of $90 per share were due for the period from February 1, 1993 through the date
the stock was redeemed. Dividends were imputed at a rate of approximately 23%
on the Series A Preferred Stock from the date of issuance to the date of
redemption.
On October 29, 1993, the Company redeemed all 1,000 issued and outstanding
shares of the Series A Preferred Stock which were owned by the Company's lending
banks, including any rights the banks may have had to receive warrants and/or
dividends thereunder, for a cash payment of $200,000, the assignment of the
$150,000 note of the purchaser of the Seating Division, which was paid in
October 1994, and the assignment of 50% of the contingent payment of up to
$150,000 which could become due on the 90th day following the end of the
calendar year 1995, dependent upon the operating results of the Seating
14
Division. The banks also received 133,950 shares of the Company's Common Stock.
Series B Preferred Stock had a $10 per share liquidation preference and was
senior to the Company's Common Stock with respect to dividend and liquidation
preference. The holders of the Series B Preferred Stock had the option to
convert such stock into the Company's Common Stock at a rate of exchange
determined by dividing the liquidation value of the Series B Preferred Stock by
the market price of the Common Stock. Dividends were imputed at a rate of
approximately 19% on the Series B Preferred Stock from the date of issuance
through the date of conversion.
During January 1993, the Company issued 10,000 shares of Series B Preferred
Stock valued at $100,000, which shares represented 5% of the liquidation
preference of the outstanding Series B Preferred Stock, as a dividend to the
holders of such stock. During April 1993, all 210,000 outstanding shares of the
Series B Preferred Stock were converted into an aggregate of 600,000 shares of
Common Stock at a conversion rate of $3.50 per share.
At July 31, 1995 and 1994, respectively, there was an aggregate of 239,164
warrants outstanding to purchase shares of Common Stock at $1.50 per share.
The Company's 1991 Employee Stock Option Plan provides for the granting of
options to employees to purchase up to 250,000 shares of the Company's Common
Stock through January 2, 2001. Options under this plan are granted at no less
than 100% of the market price at the time of the grant, and become exercisable
in four equal annual installments and expire up to a maximum of ten years from
the date of the grant. At July 31, 1995, 164,125 shares were available for
grant under this plan.
The Company's 1991 Directors' Stock Option Plan provides for the granting of
options to directors to purchase up to 200,000 shares of its Common Stock.
Options under this plan may be granted to directors only. Under the plan,
options to purchase 1,000 shares are granted annually on the last business day
of the Company's fiscal year to each member of the Company's Board of Directors.
The annual options are exercisable, as to 50% of the number of shares, on the
first anniversary of the grant of such options and are exercisable for the
balance of such shares on the second anniversary of the grant of such options.
On a quarterly basis, options to purchase 500 shares are granted to each member
of the Company's Board, except for employees or officers of the Company, in
attendance at that quarter's Board of Directors meeting. The quarterly options
are exercisable immediately.
15
The exercise price of each option is the fair market value on the date the
option is granted. At July 31, 1995, 56,000 shares were available for grant
under this plan.
A summary of stock option activity follows:
July 31,
1995 1994 1993
---------------------------------
Outstanding at beginning of year 428,940 458,940 456,165
Granted 83,500 60,000 45,500
Cancelled (12,000) (43,750) (36,600)
Exercised (40,000) (46,250) (6,125)
---------------------------------
Outstanding at end of year 460,440 428,940 458,940
---------------------------------
---------------------------------
Exercisable at end of year 385,065 375,690 369,440
---------------------------------
---------------------------------
Average price of options outstanding $2.98 $2.65 $2.34
---------------------------------
---------------------------------
9. PROFIT SHARING PLAN
Carsen has a profit-sharing plan for the benefit of eligible employees.
Contributions by Carsen are discretionary and aggregate contributions are
limited in any year to the amount allowable as a deduction in computing taxable
income.
Operations were charged for contributions under the Carsen plan aggregating
$53,000, $40,000 and $39,000 for the years ended July 31, 1995, 1994 and 1993,
respectively.
10. SUPPLEMENTAL INCOME STATEMENT AND CASH FLOW INFORMATION
Advertising costs charged to expenses were $340,000, $441,000 and $530,000 for
the years ended July 31, 1995, 1994 and 1993, respectively.
Interest paid was $460,000, $434,000 and $43,000 for the years ended July 31,
1995, 1994 and 1993, respectively.
Federal, state and foreign income tax payments were $949,000, $835,000 and
$772,000 for the years ended July 31, 1995, 1994 and 1993, respectively.
11. INFORMATION AS TO OPERATIONS IN DIFFERENT INDUSTRIES AND
FOREIGN AND DOMESTIC OPERATIONS
The Company is engaged in the marketing, distribution and service of scientific
products and consumer products in Canada.
The scientific products distributed by the Company consist of medical
instruments, including flexible and rigid endoscopes,
16
endoscope washers/disinfectors and air cleaning equipment, surgical equipment
and related accessories that are sold to hospitals; precision instruments,
including microscopes and related accessories that are sold to educational
institutions, hospitals and government and industrial laboratories; and
industrial technology equipment, including borescopes, fiberscopes, video image
scopes, laser distance measurement and thermal imaging products and on-line
optical inspection and quality assurance systems, that are sold primarily to
large industrial companies.
The consumer products distributed by the Company consist of photographic and
optical equipment, including cameras, binoculars, slide projectors and screens,
light meters, darkroom equipment and supplies, camera luggage, and other
photographic products and accessories. The Company also distributes hand-held
dictation equipment and two lines of paper shredders. The consumer products are
distributed mostly to major department stores, large retail store chains,
independent retailers and cooperative buying groups.
(a) Information as to continuing operations in different industries is
summarized below:
Year Ended July 31,
1995 1994 1993
---------------------------------------
Net sales from continuing
operations:
Scientific products:
Medical instruments $15,912,000 $13,754,000 $13,147,000
Precision instruments 3,086,000 2,512,000 2,345,000
Industrial technology
equipment 1,925,000 1,765,000 1,597,000
Product service 4,030,000 4,059,000 3,827,000
Consumer products 6,126,000 7,259,000 7,717,000
---------------------------------------
Total $31,079,000 $29,349,000 $28,633,000
---------------------------------------
---------------------------------------
Operating income (loss) from
continuing operations:
Scientific products:
Medical instruments $ 2,595,000 $ 2,289,000 $ 1,981,000
Precision instruments 122,000 116,000 129,000
Industrial technology
equipment (15,000) 85,000 177,000
Product service 1,247,000 1,210,000 1,186,000
Consumer products (662,000) (309,000) (571,000)
---------------------------------------
Total 3,287,000 3,391,000 2,902,000
General corporate expenses (806,000) (790,000) (1,470,000)
Interest expense (479,000) (301,000) (184,000)
---------------------------------------
Income from continuing
operations before income
taxes and extraordinary
gain $ 2,002,000 $ 2,300,000 $ 1,248,000
---------------------------------------
---------------------------------------
17
Year Ended July 31,
1995 1994 1993
---------------------------------------
Identifiable assets:
Scientific products:
Medical instruments $ 8,706,000 $ 5,718,000 $ 6,303,000
Precision instruments 2,412,000 2,346,000 2,248,000
Industrial technology
equipment 1,390,000 797,000 604,000
Product service 1,500,000 1,564,000 1,486,000
Consumer products 2,664,000 2,722,000 2,955,000
---------------------------------------
16,672,000 13,147,000 13,596,000
General corporate 727,000 968,000 1,680,000
Discontinued operations - - 2,204,000
---------------------------------------
Total $17,399,000 $14,115,000 $17,480,000
---------------------------------------
---------------------------------------
Capital expenditures:
Scientific products:
Medical instruments $ 38,000 $ 22,000 $ 30,000
Precision instruments 7,000 4,000 5,000
Industrial technology
equipment 4,000 3,000 4,000
Product service 10,000 7,000 9,000
Consumer products 14,000 12,000 17,000
General corporate 6,000 10,000 7,000
---------------------------------------
Total from continuing operations 79,000 58,000 72,000
Discontinued operations - 4,000 10,000
---------------------------------------
Total $ 79,000 $ 62,000 $ 82,000
---------------------------------------
---------------------------------------
Depreciation and amortization:
Scientific products:
Medical instruments $ 68,000 $ 57,000 $ 56,000
Precision instruments 13,000 10,000 10,000
Industrial technology
equipment 8,000 7,000 6,000
Product service 17,000 17,000 26,000
Consumer products 26,000 29,000 34,000
General corporate 4,000 4,000 1,000
---------------------------------------
Total from continuing operations 136,000 124,000 133,000
Discontinued operations - 13,000 39,000
---------------------------------------
Total $ 136,000 $ 137,000 $ 172,000
---------------------------------------
---------------------------------------
18
(b) Information as to geographic area is summarized below:
Year Ended July 31,
1995 1994 1993
---------------------------------------
Net sales from continuing
operations:
United States $ 52,000 $ - $ -
Canada 31,027,000 29,349,000 28,633,000
---------------------------------------
Total $31,079,000 $29,349,000 $28,633,000
---------------------------------------
---------------------------------------
Operating income from
continuing operations:
United States $ 30,000 $ 32,000 $ -
Canada 3,257,000 3,359,000 2,902,000
---------------------------------------
Total $ 3,287,000 $ 3,391,000 $ 2,902,000
---------------------------------------
---------------------------------------
Total assets:
United States $ 152,000 $ 349,000 $ 2,458,000
Canada 17,247,000 13,766,000 15,022,000
---------------------------------------
Total $17,399,000 $14,115,000 $17,480,000
---------------------------------------
---------------------------------------
19
CANTEL INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended July 31, 1995, 1994 and 1993
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------
BALANCE AT BALANCE
BEGINNING AT END
OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
---------------------------------------------------
Allowance for
doubtful accounts:
Year ended
July 31, 1995 $ 52,000 $ 8,000 $ 26,000 $34,000
---------------------------------------------------
---------------------------------------------------
Year ended
July 31, 1994 $ 54,000 $26,000 $ 28,000 $52,000
---------------------------------------------------
---------------------------------------------------
Year ended
July 31, 1993 $124,000 $41,000 $111,000 $54,000
---------------------------------------------------
---------------------------------------------------