UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

	For the quarterly period ended January 31, 2009.

	or

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

	For the transition period from to .

Commission file number: 001-31337

CANTEL MEDICAL CORP.

(Exact name of registrant as specified in its charter)

Delaware		22-1760285
(State or other jurisdiction of		(I.R.S. employer
incorporation or organization)		identification no.)

150 Clove Road, Little Falls, New Jersey		07424
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code

(973) 890-7220

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

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

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

Number of shares of Common Stock outstanding as of February 28, 2009: 16,593,791.

PART I - FINANCIAL INFORMATION

ITEM 1. - FINANCIAL STATEMENTS

CANTEL MEDICAL CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar Amounts in Thousands, Except Share Data)

(Unaudited)

	January 31,			July 31,
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	20,052		$	18,318
Accounts receivable, net of allowance for doubtful accounts of $1,105 at January 31 and $1,021 at July 31	28,249			30,316
Inventories:
Raw materials	13,381			12,615
Work-in-process	3,842			3,544
Finished goods	15,502			15,643
Total inventories	32,725			31,802
Deferred income taxes	1,402			1,565
Prepaid expenses and other current assets	3,300			2,560
Total current assets	85,728			84,561
Property and equipment, net	36,248			37,920
Intangible assets, net	37,972			41,254
Goodwill	111,860			113,958
Other assets	1,084			1,497
	$	272,892		$	279,190
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt	$	9,000		$	8,000
Accounts payable	10,283			9,723
Compensation payable	6,083			7,175
Earnouts payable	—			4,295
Accrued expenses	7,052			6,739
Deferred revenue	3,130			2,920
Income taxes payable	890			70
Total current liabilities	36,438			38,922

Long-term debt	45,300			50,300
Deferred income taxes	16,667			18,503
Other long-term liabilities	2,649			2,753

Stockholders’ equity:
Preferred Stock, par value $1.00 per share; authorized 1,000,000 shares; none issued	—			—
Common Stock, par value $.10 per share; authorized 30,000,000 shares; January 31 - 17,727,819 shares issued and 16,492,791 shares outstanding; July 31 - 17,519,581 shares issued and 16,370,844 shares outstanding	1,773			1,752
Additional paid-in capital	84,101			81,475
Retained earnings	93,641			86,534
Accumulated other comprehensive income	4,468			10,291
Treasury Stock, at cost; January 31 - 1,235,028 shares; July 31 - 1,148,737 shares	(12,145		)	(11,340		)
Total stockholders’ equity	171,838			168,712
	$	272,892		$	279,190

See accompanying notes.

CANTEL MEDICAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollar Amounts in Thousands, Except Per Share Data)

(Unaudited)

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2009			2008			2009			2008

Net sales	$	62,420		$	60,910		$	126,826		$	120,915

Cost of sales	38,809			39,424			79,592			78,223

Gross profit	23,611			21,486			47,234			42,692

Expenses:
Selling	6,992			6,836			14,342			13,625
General and administrative	9,037			8,967			18,061			17,924
Research and development	983			961			2,048			1,951
Total operating expenses	17,012			16,764			34,451			33,500

Income before interest and income taxes	6,599			4,722			12,783			9,192

Interest expense	674			1,255			1,425			2,477
Interest income	(38		)	(150		)	(108		)	(297		)

Income before income taxes	5,963			3,617			11,466			7,012

Income taxes	2,189			1,460			4,359			2,916

Net income	$	3,774		$	2,157		$	7,107		$	4,096

Earnings per common share:
Basic	$	0.23		$	0.13		$	0.44		$	0.26

Diluted	$	0.23		$	0.13		$	0.43		$	0.25

See accompanying notes.

CANTEL MEDICAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar Amounts in Thousands)

(Unaudited)

	Six Months Ended
	January 31,
	2009			2008
Cash flows from operating activities
Net income	$	7,107		$	4,096
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	3,075			2,975
Amortization	2,606			2,859
Stock-based compensation expense	1,045			994
Amortization of debt issuance costs	197			186
Loss on disposal of fixed assets	22			49
Deferred income taxes	(965		)	(467		)
Excess tax benefits from stock-based compensation	(197		)	(554		)
Changes in assets and liabilities:
Accounts receivable	1,353			(1,729		)
Inventories	(1,705		)	(3,644		)
Prepaid expenses and other current assets	(793		)	(784		)
Accounts payable, deferred revenue and accrued expenses	332			(1,800		)
Income taxes payable	1,131			706
Net cash provided by operating activities	13,208			2,887

Cash flows from investing activities
Capital expenditures	(2,062		)	(2,507		)
Proceeds from disposal of fixed assets	3			4
Earnout paid to Crosstex sellers	(3,666		)	(3,667		)
Earnout paid to Twist seller	(629		)	—
Acquisition of DSI	—			(1,250		)
Acquisition of Strong Dental, net of cash acquired	—			(3,711		)
Acquisition of Verimetrix	—			(4,956		)
Other, net	48			(24		)
Net cash used in investing activities	(6,306		)	(16,111		)

Cash flows from financing activities
Borrowings under revolving credit facility	3,500			15,050
Repayments under term loan facility	(4,000		)	(3,000		)
Repayments under revolving credit facility	(3,500		)	(2,250		)
Proceeds from exercises of stock options	874			630
Excess tax benefits from stock-based compensation	197			554
Purchases of treasury stock	(404		)	—
Net cash (used in) provided by financing activities	(3,333		)	10,984

Effect of exchange rate changes on cash and cash equivalents	(1,835		)	588

Increase (decrease) in cash and cash equivalents	1,734			(1,652		)
Cash and cash equivalents at beginning of period	18,318			15,860
Cash and cash equivalents at end of period	$	20,052		$	14,208

See accompanying notes.

CANTEL MEDICAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. �� Basis of Presentation

The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and the requirements of Form 10-Q and Rule 10.01 of Regulation S-X. Accordingly, they do not include certain information and note disclosures required by generally accepted accounting principles for annual financial reporting and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Annual Report of Cantel Medical Corp. (“Cantel”) on Form 10-K for the fiscal year ended July 31, 2008 (the “2008 Form 10-K”), and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.

The unaudited interim financial statements reflect all adjustments (of a normal and recurring nature) which management considers necessary for a fair presentation of the results of operations for these periods. The results of operations for the interim periods are not necessarily indicative of the results for the full year.

The Condensed Consolidated Balance Sheet at July 31, 2008 was derived from the audited Consolidated Balance Sheet of Cantel at that date.

Certain items in previously presented financial statements have been reclassified to conform to the presentation of the January 31, 2009 financial statements. These reclassifications relate to income taxes payable and accrued expenses in the Condensed Consolidated Balance Sheets.

Cantel had five principal operating companies at each of January 31, 2009 and July 31, 2008, Minntech Corporation (“Minntech”), Crosstex International Inc. (“Crosstex”), Mar Cor Purification, Inc. (“Mar Cor”), Biolab Equipment Ltd. (“Biolab”) and Saf-T-Pak Inc. (“Saf-T-Pak”), all of which are wholly-owned operating subsidiaries. In addition, Minntech has three foreign subsidiaries, Minntech B.V., Minntech Asia/Pacific Ltd. and Minntech Japan K.K., which serve as Minntech’s bases in Europe, Asia/Pacific and Japan, respectively.

We currently operate our business through six operating segments: Water Purification and Filtration (through Mar Cor, Biolab and Minntech), Dialysis (through Minntech), Healthcare Disposables (through Crosstex), Endoscope Reprocessing (through Minntech), Therapeutic Filtration (through Minntech) and Specialty Packaging (through Saf-T-Pak). The Therapeutic Filtration and Specialty Packaging operating segments are combined in the All Other reporting segment for financial reporting purposes.

We acquired certain net assets of Dialysis Services, Inc. (“DSI”) on August 1, 2007, and Verimetrix, LLC (“Verimetrix”) on September 17, 2007, and all of the issued and outstanding stock of Strong Dental Products, Inc. (“Strong Dental”) on September 26, 2007, as more fully described in Note 3 to the Condensed Consolidated Financial Statements. The acquisitions of DSI, Verimetrix and Strong Dental had an insignificant effect on our results of operations for the three and six months ended January 31, 2009, and the three and six months ended January 31, 2008 subsequent to their respective acquisition dates, due to the small size of these businesses. DSI, Verimetrix and Strong Dental are included in the Water Purification

and Filtration, Endoscope Reprocessing and Healthcare Disposables segments, respectively.

Throughout this document, references to “Cantel,” “us,” “we,” “our,” and the “Company” are references to Cantel Medical Corp. and its subsidiaries, except where the context makes it clear the reference is to Cantel itself and not its subsidiaries.

Note 2. Stock-Based Compensation

The following table shows the income statement components of stock-based compensation expense recognized in the Condensed Consolidated Statements of Income:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2009			2008			2009			2008

Cost of sales	$	18,000		$	8,000		$	36,000		$	21,000
Operating expenses:
Selling	53,000			23,000			106,000			52,000
General and administrative	453,000			428,000			896,000			913,000
Research and development	1,000			3,000			7,000			8,000
Total operating expenses	507,000			454,000			1,009,000			973,000
Stock-based compensation before income taxes	525,000			462,000			1,045,000			994,000
Income tax benefits	(199,000		)	(184,000		)	(446,000		)	(388,000		)
Total stock-based compensation expense, net of tax	$	326,000		$	278,000		$	599,000		$	606,000

For the three and six months ended January 31, 2009 and 2008, the above stock-based compensation expense before income taxes was recorded in the Condensed Consolidated Financial Statements as stock-based compensation expense and an increase to additional paid-in capital. The related income tax benefits (which pertain only to stock awards and options that do not qualify as incentive stock options) were recorded as an increase to long-term deferred income tax assets (which are netted with long-term deferred income tax liabilities) or a reduction to income taxes payable, depending on the timing of the deduction, and a reduction to income tax expense. Stock-based compensation expense, net of tax, decreased both basic and diluted earnings per share by $0.02 and $0.04 for both the three and six months ended January 31, 2009 and 2008, respectively.

Most of our stock options and stock awards (which consist only of restricted shares) are subject to graded vesting in which portions of the award vest at different times during the vesting period, as opposed to awards that vest at the end of the vesting period. We recognize compensation expense for awards subject to graded vesting using the straight-line basis, reduced by estimated forfeitures. At January 31, 2009, total unrecognized stock-based compensation expense, net of tax, related to total nonvested stock options and stock awards was $1,804,000 with a remaining weighted average period of 22 months over which such expense is expected to be recognized.

On February 3, 2009, the Company granted 64,500 stock options and 101,000 shares of restricted stock to certain employees. As a result of these grants, total unrecognized stock-based compensation expense, net of tax, at February 28, 2009 related to total nonvested stock options and stock awards increased to approximately $2,634,000 with a remaining weighted average period of 24 months over which such expense is expected to be recognized.

We determine the fair value of each stock award using the closing market price of our Common Stock on the date of grant. Stock awards were not granted prior to February 1, 2007. Such stock awards are deductible for tax purposes and were tax-effected using the Company’s estimated U.S. effective tax rate at the time of grant. At July 31, 2008, there were 207,165 nonvested stock awards with a weighted average fair value of $12.81. Such stock awards remain nonvested and outstanding at January 31, 2009.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model with the following weighted average assumptions for options granted during the three and six months ended January 31, 2009 and 2008:

Weighted-Average	Three Months Ended				Six Months Ended
Black-Scholes Option	January 31,				January 31,
Valuation Assumptions	2009		2008		2009		2008

Dividend yield	0.0	%	0.0	%	0.0	%	0.0	%
Expected volatility (1)	0.432		0.351		0.395		0.353
Risk-free interest rate (2)	1.52	%	3.49	%	2.29	%	4.11	%
Expected lives (in years) (3)	5.00		5.00		4.80		4.57

(1) Volatility was based on historical closing prices of our Common Stock.

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

(3) Based on historical exercise behavior.

Additionally, all options were considered to be deductible for tax purposes in the valuation model, except for certain options granted under the 1997 Employee Plan. Such non-qualified options were tax-effected using the Company’s estimated U.S. effective tax rate at the time of grant. For the three and six months ended January 31, 2009, the weighted average fair value of all options granted was approximately $5.92 and $4.37, respectively. For the three and six months ended January 31, 2008, the weighted average fair value of all options granted was approximately $4.24 and $5.73, respectively. The aggregate intrinsic value (i.e. the excess market price over the exercise price) of all options exercised was approximately $84,000 and $899,000 for the three and six months ended January 31, 2009, respectively, and $215,000 and $2,089,000 for the three and six months ended January 31, 2008, respectively.

A summary of stock option activity follows:

			Weighted
	Number of		Average
	Shares		Exercise Price

Outstanding at July 31, 2008	1,754,417		$	14.94
Granted	14,750		11.61
Canceled	(41,278	)	12.17
Exercised	(208,238	)	6.12
Outstanding at January 31, 2009	1,519,651		$	16.19

Exercisable at July 31, 2008	1,137,624		$	16.28

Exercisable at January 31, 2009	992,524		$	18.37

Upon exercise of stock options or grant of stock awards, we typically issue new shares of our Common Stock (as opposed to using treasury shares).

If certain criteria are met when options are exercised or restricted stock becomes vested, the Company is allowed a deduction on its income tax return. Accordingly, we account for the income tax effect on such income tax deductions as additional paid-in capital and as a reduction of income taxes payable. For the six months ended January 31, 2009 and 2008, options exercised and the vesting of restricted stock resulted in income tax deductions that reduced income taxes payable by $379,000 and $836,000, respectively.

We classify the cash flows resulting from excess tax benefits as financing cash flows on our Condensed Consolidated Statements of Cash Flows. Excess tax benefits arise when the ultimate tax effect of the deduction for tax purposes is greater than the tax benefit on stock compensation expense (including tax benefits on stock compensation expense that has only been reflected in past pro forma disclosures relating to fiscal years prior to August 1, 2005) which was determined based upon the award’s fair value.

Note 3. Acquisitions

Strong Dental Products, Inc.

On September 26, 2007, we expanded our product offerings in our Healthcare Disposables segment by purchasing all of the issued and outstanding stock of Strong Dental, a private company with pre-acquisition annual revenues of approximately $1,000,000 that designs, markets and sells comfort cushioning and infection control covers for x-ray film and digital x-ray sensors. The total consideration for the transaction, including transactions costs and assumption of debt, was $4,017,000. Under the terms of the purchase agreement, we agreed to pay additional purchase price up to $700,000 contingent upon the achievement of a specified revenue target over a three year period. As of January 31, 2009, none of the additional consideration had been earned.

The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows:

	Final
Net Assets	Allocation
Cash and cash equivalents	$	306,000
Other current assets	140,000
Amortizable intangible assets:
Patents (17-year life)	144,000
Customer relationships (10-year life)	650,000
Branded products (5-year life)	69,000
Non-compete agreements (6-year life)	30,000
Current liabilities	(147,000		)
Noncurrent deferred income tax liabilities	(342,000		)
Net assets acquired	$	850,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $3,167,000 was assigned to goodwill. Such goodwill, all of which is non-deductible for income tax purposes, has been included in our Healthcare Disposables reporting segment.

The principal reasons for the acquisition were to (i) leverage the sales and marketing infrastructure of Crosstex by adding a branded, technologically differentiated, and patent-protected product line, (ii) expand into the rapidly growing area of digital radiography as dentists convert from film to digital x-rays, and (iii) add a new product line that focuses on the dental hygienist community, which product will aid in cross-selling the recently launched Patient’s Choice™ line of Crosstex products.

Verimetrix, LLC

On September 17, 2007, we expanded our product offerings in our Endoscope Reprocessing (Medivators®) segment by purchasing certain net assets from Verimetrix, a private company with pre-acquisition annual revenues of $2,000,000 that designs, markets and sells the Veriscan™ System, an endoscope leak and fluid detection device. The total consideration for the transaction, including transaction costs, was $4,906,000. Under the terms of the purchase agreement, we agreed to pay additional purchase price up to $4,025,000 contingent upon the achievement of a specified cumulative revenue target over a six year period. As of January 31, 2009, none of the additional consideration had been earned.

The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows:

	Final
Net Assets	Allocation
Current assets	$	948,000
Property and equipment	146,000
Amortizable intangible assets:
Customer relationships (1-year life)	165,000
Branded products (3-year life)	281,000
Technology (17-year life)	532,000
Other assets	166,000
Current liabilities	(415,000		)
Noncurrent liabilities	(65,000		)
Net assets acquired	$	1,758,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $3,148,000 was assigned to goodwill. Such goodwill, all of which is deductible for income tax purposes, has been included in our Endoscope Reprocessing reporting segment.

The principal reasons for the acquisition were to (i) add a technologically advanced product that fits squarely in our existing customer call pattern for Medivators products, (ii) leverage our national, direct hospital field sales force and their in-depth knowledge of the endoscopy market, and (iii) equip our sales force with a broad and comprehensive product line ranging from pre-cleaning detergents, flushing aids and leak testing equipment, to automated disinfection equipment and chemistries.

Dialysis Services, Inc.

On August 1, 2007, we purchased the water-related assets of DSI, a company with pre-acquisition annual revenues of approximately $1,200,000 based in Springfield, Tennessee that designs, installs and services high quality water and bicarbonate systems for use in dialysis clinics, hospitals and university settings. The total consideration for the transaction, including transaction costs, was $1,250,000.

The purchase price was allocated to the assets acquired and assumed liabilities based on estimated fair values as follows:

	Final
Net Assets	Allocation
Current assets	$	122,000
Amortizable intangible assets:
Customer relationships (4-year life)	182,000
Non-compete agreements (5-year life)	34,000
Property and equipment	73,000
Current liabilities	(18,000		)
Net assets acquired	$	393,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $857,000 was assigned to goodwill. Such goodwill, all of which is deductible for income tax purposes, has been included in our Water Purification and Filtration reporting segment.

The principal reason for the acquisition was the strengthening of our sales and service presence and base of business in a region with a significant concentration of dialysis clinics and healthcare institutions.

The acquisitions of DSI, Verimetrix and Strong Dental are included in our results of operations for the three and six months ended January 31, 2009 and the portion of the three and six months ended January 31, 2008 subsequent to the respective acquisition dates, and had an insignificant effect on our results of operations due to the small size of these businesses.

We have not made any acquisitions subsequent to the acquisition of Strong Dental on September 26, 2007.

Note 4. Recent Accounting Pronouncements

In May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”), which identifies a consistent framework, or hierarchy, for selecting accounting principles. SFAS 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” We are currently in the process of evaluating the effect of SFAS 162.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS 161”), which requires enhanced disclosures about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended (“SFAS 133”) and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 also requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation and requires cross-referencing within the footnotes. This statement also suggests disclosing the fair values of derivative instruments and their gains and losses in a tabular format. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 and therefore is effective for our third quarter in fiscal 2009. We are currently in the process of evaluating the effect of SFAS 161.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141R”), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements that will enable users to evaluate the nature and financial effects of the business combinations. SFAS 141R is effective for business combinations that occur during or after fiscal years beginning after December 15, 2008 and therefore is effective for our fiscal year 2010. We are currently in the process of evaluating the effect of SFAS 141R.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 establishes a definition of fair value, provides a framework for measuring fair value and expands the disclosure requirements about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and therefore was adopted on August 1, 2008 with respect to recorded financial assets and financial liabilities. The adoption of SFAS No. 157 did not have a material impact on our fair value measurements of financial assets and financial liabilities. In February 2008, FASB Staff Position No. 157-2, “Effective Date of Statement 157,” was issued which delays the effective date to fiscal years beginning after November 15, 2008 for certain nonfinancial assets and liabilities. We will adopt the provisions of SFAS No. 157 for nonfinancial assets and liabilities in fiscal 2010 and are currently in the process of evaluating the effect of SFAS 157 for nonfinancial assets and nonfinancial liabilities.

Note 5. Accumulated Other Comprehensive Income

The Company’s comprehensive income for the three and six months ended January 31, 2009 and 2008 is set forth in the following table:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2009			2008			2009			2008

Net income	$	3,774,000		$	2,157,000		$	7,107,000		$	4,096,000
Other comprehensive (loss) income:
Unrealized loss on interest cap, net of tax	(27,000		)	—			(94,000		)	—
Foreign currency translation, net of tax	(623,000		)	(1,663,000		)	(5,729,000		)	2,172,000
Comprehensive income	$	3,124,000		$	494,000		$	1,284,000		$	6,268,000

Note 6. Financial Instruments

We account for derivative instruments and hedging activities in accordance with SFAS 133, which requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in the fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of the change in fair value of a derivative that is designated as a hedge will be recognized immediately in earnings. As of January 31, 2009, all of our derivatives were designated as hedges.

three and six months ended January 31, 2009, such forward contracts were partially effective in offsetting a portion of the impact on operations relating to certain assets and liabilities of Minntech and its Netherlands subsidiary that were denominated in currencies other than their functional currencies. Despite the use of these forward contracts, the functional currency conversion loss recognized in net income was approximately $131,000 and $173,000, net of tax, during the three and six months ended January 31, 2009, respectively, primarily due to the weakening of the euro and British pound relative to the United States dollar as well as the timing of our cash repatriation from the Netherlands. Gains and losses related to the hedging contracts to buy euros and British pounds forward were immediately realized within general and administrative expenses due to the short-term nature of such contracts. We do not hold any derivative financial instruments for speculative or trading purposes.

The interest rate on outstanding borrowings under our credit facilities is variable and is affected by the general level of interest rates in the United States as well as LIBOR interest rates, as more fully described in Note 9 to the Condensed Consolidated Financial Statements. In order to protect our interest rate exposure in future years, we entered into an interest rate cap agreement on July 21, 2008 for the two-year period beginning June 30, 2009 and ending June 30, 2011 initially covering $20,000,000 of borrowings under the term loan facility (and thereafter reducing in quarterly $2,500,000 increments consistent with the mandatory repayment schedule of our term loan facility), which caps three-month LIBOR on this portion of outstanding borrowings at 4.25%. This interest rate cap agreement has been designated as a cash flow hedge instrument. The cost of the interest rate cap, which is included in other assets, was approximately $149,000 and will be amortized to interest expense over the two-year life of the agreement. The difference between its amortized cost and its fair value was recorded as an unrealized loss and included in accumulated other comprehensive loss.

On August 1, 2008, we adopted SFAS No. 157 for our financial assets and liabilities. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 establishes a three level fair value hierarchy to prioritize the inputs used in valuations, as defined below:

Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability.

As of January 31, 2009, the fair values of the Company’s assets measured on a recurring basis were categorized as follows:

	Level 1		Level 2		Level 3		Total

Interest Rate Cap Agreement	$	—	$	4,000	$	—	$	4,000

The interest rate cap agreement was valued based on an observable market price applied to the specific terms of the interest rate cap agreement as calculated by a banking institution, and is classified within Level 2 of the fair value hierarchy.

Note 7. Intangibles and Goodwill

Our intangible assets with definite lives consist primarily of customer relationships, technology, brand names, non-compete agreements and patents. These intangible assets are being amortized using the straight-line method over the estimated useful lives of the assets ranging from 3-20 years and have a weighted average amortization period of 10 years. Amortization expense related to intangible assets was $1,268,000 and $2,606,000 for the three and six months ended January 31, 2009, respectively, and $1,460,000 and $2,859,000 for the three and six months ended January 31, 2008, respectively. Our intangible assets that have indefinite useful lives and therefore are not amortized consist of trademarks and trade names.

The Company’s intangible assets consist of the following:

	January 31, 2009
			Accumulated
	Gross		Amortization			Net
Intangible assets with finite lives:
Customer relationships	$	25,807,000	$	(9,034,000	)	$	16,773,000
Technology	8,972,000		(4,649,000		)	4,323,000
Brand names	9,546,000		(3,283,000		)	6,263,000
Non-compete agreements	2,032,000		(1,236,000		)	796,000
Patents and other registrations	1,135,000		(187,000		)	948,000
	47,492,000		(18,389,000		)	29,103,000
Trademarks and tradenames	8,869,000		—			8,869,000
Total intangible assets	$	56,361,000	$	(18,389,000	)	$	37,972,000

	July 31, 2008
			Accumulated
	Gross		Amortization			Net
Intangible assets with finite lives:
Customer relationships	$	28,669,000	$	(10,341,000	)	$	18,328,000
Technology	9,622,000		(4,602,000		)	5,020,000
Brand names	9,546,000		(2,768,000		)	6,778,000
Non-compete agreements	2,032,000		(1,080,000		)	952,000
Patents and other registrations	1,134,000		(148,000		)	986,000
	51,003,000		(18,939,000		)	32,064,000
Trademarks and tradenames	9,190,000		—			9,190,000
Total intangible assets	$	60,193,000	$	(18,939,000	)	$	41,254,000

Estimated amortization expense of our intangible assets for the remainder of fiscal 2009 and the next five years is as follows:

Six month period ending July 31, 2009	$	2,533,000
Fiscal 2010	4,884,000
Fiscal 2011	4,593,000
Fiscal 2012	4,130,000
Fiscal 2013	4,056,000
Fiscal 2014	3,887,000

Goodwill changed during fiscal 2008 and the six months ended January 31, 2009 as follows:

								Water
				Healthcare		Endoscope		Purification						Total
	Dialysis			Disposables		Reprocessing		and Filtration			All Other			Goodwill

Balance, July 31, 2007	$	8,155,000		$	43,011,000	$	6,500,000	$	36,641,000		$	7,766,000		$	102,073,000
Acquisitions	—			3,167,000		3,148,000		857,000			—			7,172,000
Earnouts on acquisition	—			4,295,000		—		—			—			4,295,000
Adjustments primarily relating to income tax exposure of acquired businesses	(22,000		)	—		—		(61,000		)	(3,000		)	(86,000		)
Foreign curreny translation	—			—		—		225,000			279,000			504,000
Balance, July 31, 2008	8,133,000			50,473,000		9,648,000		37,662,000			8,042,000			113,958,000
Foreign curreny translation	—			—		—		(934,000		)	(1,164,000		)	(2,098,000		)
Balance, January 31, 2009	$	8,133,000		$	50,473,000	$	9,648,000	$	36,728,000		$	6,878,000		$	111,860,000

On July 31, 2008, we performed impairment studies of the Company’s goodwill and trademarks and trade names and concluded that such assets were not impaired.

Note 8. Warranty

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

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2009			2008			2009			2008

Beginning balance	$	882,000		$	1,058,000		$	916,000		$	1,033,000
Acquisitions	—			—			—			28,000
Provisions	297,000			348,000			599,000			629,000
Charges	(267,000		)	(397,000		)	(555,000		)	(705,000		)
Foreign currency translation	—			4,000			(48,000		)	28,000
Ending balance	$	912,000		$	1,013,000		$	912,000		$	1,013,000

The warranty provisions and charges during the three and six months ended January 31, 2009 and 2008 relate principally to the Company’s endoscope reprocessing and water purification products. Warranty reserves are included in accrued expenses in the Condensed Consolidated Balance Sheets.

Note 9. Financing Arrangements

In conjunction with the acquisition of Crosstex, we entered into amended and restated credit facilities dated as of August 1, 2005 (the “2005 U.S. Credit Facilities”) with a consortium of lenders to fund the cash consideration paid in the acquisition and costs associated with the acquisition, as well as to modify our existing United States credit facilities. The 2005 U.S. Credit Facilities, as amended, include (i) a six-year $40.0 million senior secured amortizing term loan facility and (ii) a five-year $50.0 million senior secured revolving credit facility. Amounts we repay under the term loan facility may not be re-borrowed. Debt issuance costs relating to the 2005 U.S. Credit Facilities were recorded in other assets and are being amortized over the life of the credit facilities. Such unamortized debt issuance costs amounted to approximately $776,000 at January 31, 2009.

At January 31, 2009, borrowings under the 2005 U.S. Credit Facilities bear interest at rates ranging from 0% to 0.50% above the lender’s base rate, or at rates ranging from 0.625% to 1.75% above the London Interbank Offered Rate (“LIBOR”), depending upon our consolidated ratio of debt to earnings before interest, taxes, depreciation and amortization, and as further adjusted under the terms of the 2005 U.S. Credit Facilities (“EBITDA”). At January 31, 2009, the lender’s base rate was 3.25% and the LIBOR rates ranged from 0.33% to 3.35%. The margins applicable to our outstanding borrowings at January 31, 2009 were 0.00% above the lender’s base rate and 1.00% above LIBOR. All of our outstanding borrowings were under LIBOR contracts at January 31, 2009. The majority of such contracts were twelve month LIBOR contracts; therefore, we are substantially protected throughout most of fiscal 2009 from any exposure associated with increasing LIBOR rates. In order to protect our interest rate exposure in future years, we entered into an interest rate cap agreement in July 2008 for the two year period beginning June 30, 2009 and ending June 30, 2011 initially covering $20,000,000 of borrowings under the term loan facility (and thereafter reducing in quarterly $2,500,000 increments consistent with the mandatory repayment schedule of our term loan facility), which caps three-month LIBOR on this portion of outstanding borrowings at 4.25%. The 2005 U.S. Credit Facilities also provide for fees on the unused portion of our facilities at rates ranging from 0.15% to 0.30%, depending upon our consolidated ratio of debt to EBITDA; such rate was 0.25% at January 31, 2009.

The 2005 U.S. Credit Facilities require us to meet certain financial covenants and are secured by (i) substantially all of our U.S.-based assets (including assets of Cantel, Minntech, Mar Cor, Crosstex, and Strong Dental) and (ii) our pledge of all of the outstanding shares of Minntech, Mar Cor, Crosstex and Strong Dental and 65% of the outstanding shares of our foreign-based subsidiaries. Additionally, we are not permitted to pay cash dividends on our Common Stock without the consent of our United States lenders. As of January 31, 2009, we were in compliance with all financial and other covenants under the 2005 U.S. Credit Facilities.

On January 31, 2009, we had $54,300,000 of outstanding borrowings under the 2005 U.S. Credit Facilities, which consisted of $24,000,000 and $30,300,000 under the term loan facility and the revolving credit facility, respectively. The maturities of our credit facilities are described in Note 12 to the Condensed Consolidated Financial Statements.

Note 10. Earnings Per Common Share

Basic earnings per common share are computed based upon the weighted average number of common shares outstanding during the period.

Diluted earnings per common share are computed based upon the weighted average number of common shares outstanding during the period plus the dilutive effect of Common Stock equivalents using the treasury stock method and the average market price of our Common Stock for the period.

The following table sets forth the computation of basic and diluted earnings per common share:

	Three Months Ended				Six Months Ended
	January 31,				January 31,
	2009		2008		2009		2008
Numerator for basic and diluted earnings per share:
Net income	$	3,774,000	$	2,157,000	$	7,107,000	$	4,096,000

Denominator for basic and diluted earnings per share:
Denominator for basic earnings per share - weighted average number of shares outstanding	16,263,703		16,103,015		16,227,013		16,042,600

Dilutive effect of equity awards using the treasury stock method and the average market price for the period	151,696		283,332		154,578		316,242

Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents	16,415,399		16,386,347		16,381,591		16,358,842

Basic earnings per share	$	0.23	$	0.13	$	0.44	$	0.26

Diluted earnings per share	$	0.23	$	0.13	$	0.43	$	0.25

Note 11. Income Taxes

The consolidated effective tax rate was 38.0% and 41.6% for the six months ended January 31, 2009 and 2008, respectively. The decrease in the consolidated effective tax rate was affected principally by the geographic mix of pre-tax income and the impact of various tax rate reductions, as described below.

The majority of our income before income taxes was generated from our United States operations, which had an overall effective tax rate for each of the six months ended January 31, 2009 and 2008 of 38.5%. Our United States effective tax rate for the six months ended January 31, 2009 was favorably impacted by New York state tax rate reductions enacted in 2008, which primarily relate to our Healthcare Disposables segment, and recently enacted Federal tax legislation that enabled us to claim the research and experimentation tax credit, offset by additional taxes related to the repatriation of earnings from our Netherlands subsidiary.

Approximately 5% of our income before income taxes was generated from our Canadian operations, which had an overall effective tax rate for the six months ended January 31, 2009 of 10.5%. This low overall effective tax rate was attributable to the impact of a lower overall

effective rate in our Specialty Packaging segment as applied to existing deferred income tax liabilities.

Due to the uncertainty of our Netherlands subsidiary utilizing tax benefits in the future, a tax benefit was not recorded on the losses from operations at our Netherlands subsidiary for the six months ended January 31, 2009 and 2008, thereby adversely affecting our overall consolidated effective tax rate. The overall loss from our Netherlands operation for the six months ended January 31, 2009 decreased compared with the six months ended January 31, 2008.

The results of operations for our subsidiaries in Japan and Singapore did not have a significant impact on our overall effective tax rate for the six months ended January 31, 2009 and 2008 due to the size of these operations relative to our United States, Canada and Netherlands operations.

We record liabilities for an unrecognized tax benefit when a tax benefit for an uncertain tax position is taken or expected to be taken on a tax return, but is not recognized in our Condensed Consolidated Financial Statements because it does not meet the more-likely-than-not recognition threshold that the uncertain tax position would be sustained upon examination by the applicable taxing authority. The majority of our unrecognized tax benefits originated from acquisitions. Accordingly, any adjustments upon resolution of income tax uncertainties that predate or result from acquisitions are recorded as an increase or decrease to goodwill. Therefore, if the unrecognized tax benefits are recognized in our financial statements in future periods, there would not be a significant impact to our effective tax rate. We do not expect such unrecognized tax benefits to significantly decrease or increase in the next twelve months.

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

	Unrecognized
	Tax Benefits

Unrecognized tax benefits on August 1, 2007	$	484,000
Lapse of statute of limitations	(57,000		)
Unrecognized tax benefits on July 31, 2008	427,000
Activity during the six months ended January 31, 2009	—
Unrecognized tax benefits on January 31, 2009	$	427,000

Generally, the Company is no longer subject to federal, state or foreign income tax examinations for fiscal years ended prior to July 31, 2002.

Our policy is to record potential interest and penalties related to income tax positions in interest expense and general and administrative expense, respectively, in our Condensed Consolidated Financial Statements. However, such amounts have been relatively insignificant due to the amount of our unrecognized tax benefits relating to uncertain tax positions.

12. Commitments and Contingencies

Long-term contractual obligations

As of January 31, 2009, aggregate annual required payments over the remaining fiscal year, the next four years and thereafter under our contractual obligations that have long-term components were as follows:

	Six Months
	Ending
	July 31,		Year Ending July 31,
	2009		2010		2011		2012		2013		Thereafter		Total
	(Amounts in thousands)
Maturities of the credit facilities	$	4,000	$	10,000	$	40,300	$	—	$	—	$	—	$	54,300
Expected interest payments under the credit facilities (1)	1,009		1,732		226		—		—		—		2,967
Minimum commitments under noncancelable operating leases	1,725		2,836		1,873		1,058		629		1,174		9,295
Minimum commitments under noncancelable capital leases	25		52		14		—		—		—		91
Minimum commitments under license agreement	36		94		141		163		163		2,182		2,779
Deferred compensation and other	227		494		424		281		32		199		1,657
Employment agreements	1,785		3,340		148		138		—		—		5,411
Total contractual obligations	$	8,807	$	18,548	$	43,126	$	1,640	$	824	$	3,555	$	76,500

(1) The expected interest payments under the term and revolving credit facilities reflect interest rates of 4.12% and 3.62%, respectively, which were our weighted average interest rates on outstanding borrowings at January 31, 2009.

Operating leases

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

License agreement

On January 1, 2007, we entered into a license agreement with a third-party which allows us to manufacture, use, import, sell and distribute certain thermal control products relating to our Specialty Packaging segment. In consideration, we agreed to pay a minimum annual royalty payable in Canadian dollars each calendar year over the license agreement term of 20 years. At January 31, 2009, we had minimum future royalty obligations related to this license agreement of approximately $2,779,000 through December 31, 2026 using the exchange rate on January 31, 2009.

Deferred compensation

Included in other long-term liabilities are deferred compensation arrangements for certain former Minntech directors and officers.

Employment agreements

We have previously entered into various employment agreements with several executives of the Company, including the former President and Chief Executive Officer. Effective April 22, 2008, our former President and Chief Executive Officer resigned and our Chief Operating Officer and Executive Vice President was promoted to President. As a result of this resignation, estimated separation benefits and other related costs of approximately $720,000 were recorded in general and administrative expenses during fiscal 2008. Approximately $156,000 of such amount remains payable as of January 31, 2009, and accordingly, has been reflected in the table above as a required payment during fiscal 2009.

Note 13. Operating Segments

We are a leading provider of infection prevention and control products in the healthcare market. Our products include specialized medical device reprocessing systems for renal dialysis and endoscopy, dialysate concentrates and other dialysis supplies, water purification equipment, sterilants, disinfectants and cleaners, hollow fiber membrane filtration and separation products for medical and non-medical applications, and specialty packaging for infectious and biological specimens. We also provide technical maintenance for our products and offer compliance training services for the transport of infectious and biological specimens.

In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”), we have determined our reportable business segments based upon an assessment of product types, organizational structure, customers and internally prepared financial statements. The primary factors used by us in analyzing segment performance are net sales and operating income.

The Company’s segments are as follows:

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

One customer accounted for approximately 23% of our Water Purification and Filtration segment net sales and approximately 8% of our consolidated net sales during the six months ended January 31, 2009.

Dialysis, which includes disinfection/sterilization reprocessing equipment, sterilants, supplies and concentrates related to hemodialysis treatment of patients with acute kidney failure or chronic kidney failure associated with end-stage renal disease. Additionally, this segment includes technical maintenance service on its products.

Three customers collectively accounted for approximately 52% of our Dialysis segment net sales and approximately 20% of our consolidated net sales, including one customer that accounted for approximately 30% of our Dialysis segment net sales and approximately 9% of our consolidated net sales, during the six months ended January 31, 2009.

Healthcare Disposables, which includes single-use infection prevention and control products used principally in the dental market such as face masks, patient towels and bibs, self-sealing sterilization pouches, tray covers, sterilization packaging accessories, surface barriers including eyewear, aprons and gowns, disinfectants, germicidal wipes, hand care products, gloves, sponges, cotton products, cups, needles and syringes, scalpels and blades, and saliva evacuators and ejectors.

Four customers collectively accounted for approximately 55% of our Healthcare Disposables segment net sales and approximately 13% of our consolidated net sales during the six months ended January 31, 2009.

Endoscope Reprocessing, which includes endoscope disinfection equipment and related accessories, disinfectants and supplies that are sold to hospitals, clinics and physicians. Additionally, this segment includes technical maintenance service on its products.

All Other

In accordance with quantitative thresholds established by SFAS 131, we have combined the Therapeutic Filtration and Specialty Packaging operating segments into the All Other reporting segment.

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

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

The operating segments follow the same accounting policies used for our Condensed Consolidated Financial Statements as described in Note 2 to the 2008 Form 10-K.

Information as to operating segments is summarized below:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2009			2008			2009			2008

Net sales:
Water Purification and Filtration	$	16,799,000		$	18,069,000		$	35,269,000		$	34,022,000
Dialysis	15,250,000			14,692,000			29,480,000			30,147,000
Healthcare Disposables	14,371,000			13,985,000			30,120,000			27,951,000
Endoscope Reprocessing	11,941,000			10,799,000			24,364,000			21,944,000
All Other	4,059,000			3,365,000			7,593,000			6,851,000
Total	$	62,420,000		$	60,910,000		$	126,826,000		$	120,915,000

Operating Income:
Water Purification and Filtration	$	1,448,000		$	1,516,000		$	3,200,000		$	2,805,000
Dialysis	2,896,000			2,189,000			5,135,000			4,461,000
Healthcare Disposables	1,546,000			1,975,000			3,523,000			3,810,000
Endoscope Reprocessing	1,568,000			240,000			3,103,000			589,000
All Other	1,021,000			756,000			1,686,000			1,356,000
	8,479,000			6,676,000			16,647,000			13,021,000
General corporate expenses	(1,880,000		)	(1,954,000		)	(3,864,000		)	(3,829,000		)
Interest expense, net	(636,000		)	(1,105,000		)	(1,317,000		)	(2,180,000		)

Income before income taxes	$	5,963,000		$	3,617,000		$	11,466,000		$	7,012,000

Note 14. Legal Proceedings

In the normal course of business, we are subject to pending and threatened legal actions. It is our policy to accrue for amounts related to these legal matters if it is probable that a liability has been incurred and an amount of anticipated exposure can be reasonably estimated. We do not believe that any of these pending claims or legal actions will have a material effect on our business, financial condition, results of operations or cash flows.

Note 15. Repurchase of Shares

In May 2008, our Board of Directors approved the repurchase of up to 500,000 shares of our outstanding Common Stock under a repurchase program commencing on June 9, 2008. Under the repurchase program we repurchase shares from time-to-time at prevailing prices and as permitted by applicable securities laws (including SEC Rule 10b-18) and New York Stock Exchange requirements, and subject to market conditions. The repurchase program has a one-year term ending on June 8, 2009.

The first repurchase under our repurchase program occurred on July 11, 2008. Through July 31, 2008, we completed the repurchase of 90,700 shares under the program at a total average price per share of $9.42. We repurchased an additional 43,847 shares through October 31, 2008 at a total average price per share of $9.17. No additional repurchases have been made since our first quarter ended October 31, 2008. Therefore, at January 31, 2009, we had repurchased 134,547 shares under the repurchase program at a total average price per share of $9.34 and the maximum number of remaining shares that may be repurchased under the program is 365,453 shares.

Note 16. Restructuring Activities

During the fourth quarter of fiscal 2008, our management approved and initiated plans to restructure our Netherlands subsidiary by relocating all of our manufacturing operations from the Netherlands to the United States. This action is part of our continuing effort to reduce operating costs and improve efficiencies by leveraging the existing infrastructure of our Minntech operations in Minnesota. The elimination of manufacturing operations in the Netherlands has led to the end of onsite material management, quality assurance, finance and accounting, human resources and some customer service functions. However, we continue to maintain a strong marketing, sales, service and technical support presence based in the Netherlands to serve customers throughout Europe, the Middle East and Africa.

During the three and six months ended January 31, 2009, we recorded $74,000 and $345,000, respectively, in restructuring expenses, which decreased both basic and diluted earnings per share from operations by approximately $0.02 for the six months ended January 31, 2009. Including restructuring costs incurred during the three months ended July 31, 2008, the cumulative amount of such costs incurred as of January 31, 2009 was $710,000. We expect to incur approximately $25,000 in additional restructuring costs in the three months ending April 30, 2009. The decrease in the total expected restructuring expense estimated at July 31, 2008 compared to actual costs incurred during the six months ended January 31, 2009 was primarily due to the significant decrease in the value of the euro in relation to the United States dollar. The majority of the restructuring costs are included in our Endoscope Reprocessing segment.

The restructuring costs recorded and expected to be recorded are as follows:

	Cost of Sales									General and Administrative Expenses
	Unsalable																		Aggregate
	Inventory			Severance			Total			Severance			Other			Total			Total

Three months ended July 31, 2008:
Expense	$	211,000		$	64,000		$	275,000		$	90,000		$	—		$	90,000		$	365,000
Inventory disposal	(96,000		)	—			(96,000		)	—			—			—			(96,000		)
Accrued balance at July 31, 2008	115,000			64,000			179,000			90,000			—			90,000			269,000

Three months ended October 31, 2008:
Expense	10,000			129,000			139,000			132,000			—			132,000			271,000
Paid	—			—			—			(88,000		)	—			(88,000		)	(88,000		)
Foreign currency translation	(35,000		)	(16,000		)	(51,000		)	(12,000		)	—			(12,000		)	(63,000		)
Accrued balance at October 31, 2008	90,000			177,000			267,000			122,000			—			122,000			389,000

Three months ended January 31, 2009:
Expense	—			37,000			37,000			25,000			12,000			37,000			74,000
Paid	—			(226,000		)	(226,000		)	(150,000		)	(12,000		)	(162,000		)	(388,000		)
Foreign currency translation	5,000			12,000			17,000			3,000			—			3,000			20,000
Accrued balance at January 31, 2009	95,000			—			95,000			—			—			—			95,000

Three months ending April 30, 2009:
Expected expense	—			—			—			—			25,000			25,000			25,000
Expected to be paid	—			—			—			—			(25,000		)	(25,000		)	(25,000		)
Accrued balance at April 30, 2009	$	95,000		$	—		$	95,000		$	—		$	—		$	—		$	95,000

Total restructuring expenses incurred and expected to be incurred	$	221,000		$	230,000		$	451,000		$	247,000		$	37,000		$	284,000		$	735,000

Since the above costs were recorded in our Netherlands subsidiary, which has been experiencing losses from its operations, tax benefits on the above costs were not recorded. The unsalable inventory was recorded in inventories as part of our inventory reserve and the accrued severance was recorded in compensation payable in our Condensed Consolidated Balance Sheets.

As part of the restructuring plan, we intend to sell our Netherlands building and land. Based on a recent offer currently being discussed, we will likely sell the property and lease it back from the new owner so that we can continue to use the facility as our European sales and service headquarters as well as for warehouse and distribution activity. At January 31, 2009, these assets had a book value of $1,388,000, net of accumulated depreciation, and were included in property and equipment in our Condensed Consolidated Balance Sheets. The primary reason for the decrease in the book value of the Netherlands building and land since July 31, 2008 was the decrease in the value of the euro relative to the United States dollar. Based on the recent price offered to us, a gain of approximately $200,000 may be generated when the building and land are sold. However, due to the deteriorating real estate and credit markets and other factors, no assurances can be given as to the timing of the sale and whether a gain or loss on the sale of the facility will ultimately be realized.

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

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

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

Results of Operations provides a discussion of the consolidated results of operations for the three and six months ended January 31, 2009 compared with the three and six months ended January 31, 2008.

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

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

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

Overview

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

· Water Purification and Filtration: Water purification equipment and services, filtration and separation products, and disinfectants for the medical, pharmaceutical, biotech, beverage and commercial industrial markets.

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

· Healthcare Disposables: Single-use, infection prevention and control products used principally in the dental market including face masks, towels and bibs, tray covers, saliva ejectors, germicidal wipes, plastic cups, sterilization pouches and disinfectants.

· Endoscope Reprocessing: Medical device reprocessing systems and sterilants/disinfectants for endoscopy.

· Therapeutic Filtration: Hollow fiber membrane filtration and separation technologies for medical applications. (Included in All Other reporting segment.)

· Specialty Packaging: Specialty packaging and thermal control products, as well as related compliance training, for the transport of infectious and biological specimens and thermally sensitive pharmaceutical, medical and other products. (Included in All Other reporting segment.)

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

See our Annual Report on Form 10-K for the fiscal year ended July 31, 2008 (the “2008 Form 10-K”) and our Condensed Consolidated Financial Statements for additional financial information regarding our reporting segments.

Significant Activity

(i) The deterioration in the economy and credit markets adversely impacted our results of operations for the three and six months ended January 31, 2009, compared with the three and six months ended January 31, 2008, by causing some of our customers to delay spending on certain products, especially capital equipment in our Water Purification and Filtration segment, as more fully described elsewhere in this MD&A. Sales of capital equipment represent approximately 30% of our overall consolidated net sales and are primarily included in our Water Purification and Filtration, Dialysis and Endoscope Reprocessing segments.

(ii) We sell our dialysis products to a concentrated number of customers. Sales in our Dialysis segment were favorably impacted by large shipments of low margin dialysate concentrate to an international customer during the three months ended January 31, 2009, partially offset by the continuing adverse impact of losing some low margin dialysate concentrate business from domestic customers as a result of the highly competitive and price sensitive market for such product, as more fully described elsewhere in this MD&A.

(iii) In June 2008, we announced and began executing our plan to restructure our Netherlands manufacturing operations as part of our continuing effort to reduce operating costs and leverage our existing United States infrastructure. As a result of this restructuring, approximately $74,000 and $345,000 of restructuring costs were recorded in the three and six months ended January 31, 2009, respectively, which decreased both basic and diluted earnings per share by $0.02 during the six months ended January 31, 2009, as more fully described in Note 16 to the Condensed Consolidated Financial Statements and elsewhere in this MD&A.

(iv) Fluctuations in the rates of currency exchange had an overall favorable impact on our results of operations for the three and six months ended January 31, 2009, compared with the three and six months ended January 31, 2008, as more fully described elsewhere in this MD&A.

(v) Fiscal 2008 acquisitions: We acquired the businesses of Dialysis Services, Inc. (“DSI”) on August 1, 2007, Verimetrix, LLC (“Verimetrix”) on September 17, 2007, and Strong Dental Products, Inc. (“Strong Dental”) on September 26, 2007, as more fully described in Note 3 to the Condensed Consolidated Financial Statements.

Results of Operations

The results of operations described below reflect the operating results of Cantel and its wholly-owned subsidiaries and includes the results of operations of DSI, Verimetrix and Strong Dental for the three and six months ended January 31, 2009 and the portion of the three and six months ended January 31, 2008 subsequent to their respective acquisition dates.

The following discussion should also be read in conjunction with our 2008 Form 10-K.

The following table gives information as to the net sales and the percentage to the total net sales for each of our reporting segments:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2009			2008			2009			2008
	(Dollar amounts in thousands)
	$		%	$		%	$		%	$		%

Water Purification and Filtration	$	16,799	26.9	$	18,069	29.7	$	35,269	27.8	$	34,022	28.1
Dialysis	15,250		24.5	14,692		24.1	29,480		23.3	30,147		24.9
Healthcare Disposables	14,371		23.0	13,985		23.0	30,120		23.7	27,951		23.1
Endoscope Reprocessing	11,941		19.1	10,799		17.7	24,364		19.2	21,944		18.2
All Other	4,059		6.5	3,365		5.5	7,593		6.0	6,851		5.7
	$	62,420	100.0	$	60,910	100.0	$	126,826	100.0	$	120,915	100.0

Net Sales

Net sales increased by $1,510,000, or 2.5%, to $62,420,000 for the three months ended January 31, 2009 from $60,910,000 for the three months ended January 31, 2008.

Net sales increased by $5,911,000, or 4.9%, to $126,826,000 for the six months ended January 31, 2009 from $120,915,000 for the six months ended January 31, 2008.

Net sales were adversely impacted for the three and six months ended January 31, 2009 compared with the three and six months ended January 31, 2008 by approximately $278,000 and $380,000, respectively, due to the translation of Canadian dollar net sales primarily of our Water Purification and Filtration operating segment using a weaker Canadian dollar against the United States dollar.

The increase in net sales for the three and six months ended January 31, 2009 was principally attributable to increases in sales of endoscope reprocessing products and services, therapeutic filtration products (included in All Other) and healthcare disposables products. Additionally, with respect to the three months ended January 31, 2009, net sales was impacted by an increase in dialysis products partially offset by a decrease in water purification and filtration products.

Net sales of endoscope reprocessing products and services increased by 10.6% and 11.0% for the three and six months ended January 31, 2009, respectively, compared with the three and six months ended January 31, 2008, primarily due to the increase in demand in the United States for our disinfectants and product service due to the increased field population of equipment as well as our ability to gradually convert the sale of such items from our former equipment distributor (who continues to purchase high-level disinfectants, cleaners, and consumables from

us and provide product service to our customers) to our direct sales and service force at higher selling prices. Higher selling prices, most of which relates to the direct sale of disinfectants, consumables and product service, resulted in approximately $720,000 and $1,480,000 in incremental net sales for the three and six months ended January 31, 2009, respectively, compared with the three and six months ended January 31, 2008. The increase in net sales was also due to approximately $184,000 in incremental net sales in the first quarter of our fiscal 2009 due to the acquisition of Verimetrix on September 17, 2007. Although endoscope reprocessing equipment sales were comparable during the three and six months ended January 31, 2009 and January 31, 2008, future sales may be adversely affected by the recent deterioration in the general economy and credit markets by potentially causing our customers to delay spending on such capital equipment.

Net sales contributed by the Therapeutic Filtration operating segment were $2,626,000 and $4,752,000 for the three and six months ended January 31, 2009, an increase of 66.9% and 35.5% compared with three and six months ended January 31, 2008, respectively. The increase in sales was primarily due to an increase in domestic demand for our hemoconcentrator products (filtration devices used to concentrate red blood cells and remove excess fluid from the bloodstream during open-heart surgery) and other specialty blood filter devices manufactured by us on an OEM basis for a customer’s hydration system and another customer’s new external artificial liver machine. Increases in selling prices of our therapeutic filtration products did not have a significant effect on net sales for the three and six months ended January 31, 2009 compared with the three and six months ended January 31, 2008.

Net sales of healthcare disposable products increased by 2.8% and 7.8% for the three and six months ended January 31, 2009, compared with the three and six months ended January 31, 2008, primarily due to (i) the adverse impact on the first quarter of our fiscal 2008 due to the consolidation of certain distributors of our dental products during 2007 resulting in the rationalization of duplicate inventories of the consolidated companies, (ii) approximately $194,000 in incremental net sales in the first quarter of our fiscal 2009 due to the acquisition of Strong Dental on September 26, 2007 and (iii) approximately $690,000 and $1,090,000, respectively, in higher net sales due to an increase in selling prices. Such selling price increases were implemented to offset corresponding supplier cost increases.

Net sales of dialysis products and services increased by 3.8% for the three months ended January 31, 2009 and decreased by 2.2%, for the six months ended January 31, 2009, compared with the three and six months ended January 31, 2008. The increase for the three months ended January 31, 2009 was primarily due to a large amount of low margin dialysate concentrate orders (a concentrated acid or bicarbonate used to prepare dialysate, a chemical solution that draws waste products from a patient’s blood through a dialyzer membrane during hemodialysis treatment) from an international customer, partially offset by the continuing adverse impact of previously losing some dialysate concentrate business from domestic customers as a result of the highly competitive and price sensitive market for this low margin commodity product. Due to sales price decreases by some of our competitors, we expect a decrease in net sales of our low margin dialysate concentrate product to domestic customers throughout fiscal 2009 as we elect not to pursue unprofitable concentrate sales. Additionally, we can not provide assurances that the level of concentrate sales to this international customer will be sustained. Higher selling prices to partially offset higher manufacturing and shipping costs, including freight invoiced to customers (related costs of a similar amount are included within cost of sales), favorably impacted net sales for the three and six months ended January 31, 2009 and 2008 by approximately $220,000 and $520,000, respectively.

Net sales of water purification and filtration products and services decreased by 7.0% for the three months ended January 31, 2009 and increased by 3.7% for the six months ended January 31, 2009, compared with the three and six months ended January 31, 2008, respectively. The decrease for the three months ended January 31, 2009 was primarily due to (i) delayed investments by our customers in our water purification equipment used for dialysis as well as for commercial and industrial (large capital) applications as a result of the continuing deterioration in the general economy and credit markets, which may continue to adversely effect such sales during the remainder of fiscal 2009, and (ii) the favorable impact on the second quarter of fiscal 2008 due to some unusually large commercial and industrial equipment sales as well as the sales fulfillment delays of capital equipment that occurred during the first quarter of fiscal 2008 as a result of the integration of the acquired GE Water & Process Technologies’ water dialysis business into our facilities. Partially offsetting these decreases for the three months ended January 31, 2009 was an increase in demand during fiscal 2009 for our sterilants and filters by pharmaceutical companies and within our installed equipment base of business, including one of our largest customers who standardized on our consumables products in their ordering system utilized by their dialysis clinics. Higher selling prices, which offset increased manufacturing costs, favorably impacted net sales for the three and six months ended January 31, 2009 and 2008 by approximately $655,000 and $940,000, respectively.

Gross profit

Gross profit increased by $2,125,000, or 9.9%, to $23,611,000 for the three months ended January 31, 2009 from $21,486,000 for the three months ended January 31, 2008. Gross profit as a percentage of net sales for the three months ended January 31, 2009 and 2008 was 37.8% and 35.3%, respectively.

Gross profit increased by $4,542,000, or 10.6%, to $47,234,000 for the six months ended January 31, 2009 from $42,692,000 for the six months ended January 31, 2008. Gross profit as a percentage of net sales for the six months ended January 31, 2009 and 2008 was 37.2% and 35.3%, respectively.

The gross profit percentage for the three and six months ended January 31, 2009 increased compared with the three and six months ended January 31, 2008 primarily due to (i) favorable sales mix due to the increased sales volume of certain high margin products such as disinfectants and consumables in our Endoscope Reprocessing segment, sterilants and filters in our Water Purification and Filtration segment and hemoconcentrators and other specialty filters in our Therapeutic Filtration segment, (ii) higher selling prices including those attributable to our ability to gradually convert the sale of high-level disinfectants, cleaners, and consumables in our Endoscope Reprocessing segment from our former equipment distributor (who continues to purchase such items from us) to our direct sales and service force at higher selling prices, (iii) improved efficiencies in our manufacturing, transportation and service functions and (iv) inefficiencies in our Water Purification and Filtration segment during the three months ended October 31, 2007 as a result of the integration of the acquired GE Water & Process Technologies’ water dialysis business into our facilities. Partially offsetting this increase was a decrease in gross profit percentage attributable to restructuring charges of approximately $37,000 and $176,000 recorded primarily in our Endoscope Reprocessing segment during the three and six months ended January 31, 2009, respectively, relating to the relocation of our Netherlands manufacturing operations, as more fully described elsewhere in this MD&A.

Operating Expenses

Selling expenses increased by $156,000, or 2.3%, to $6,992,000 for the three months ended January 31, 2009, from $6,836,000 for the three months ended January 31, 2008, primarily due to higher compensation expense of approximately $250,000 relating to annual salary increases in all of our reporting segments and incentive compensation, and an increase of approximately $90,000 in advertising and marketing expense primarily related to our Healthcare Disposables segment. This increase was partially offset by a decrease of approximately $90,000 as a result of translating selling expenses of our international subsidiaries using a weaker Canadian dollar and euro against the United States dollar.

Selling expenses increased by $717,000, or 5.3%, to $14,342,000 for the six months ended January 31, 2009, from $13,625,000 for the six months ended January 31, 2008, primarily due to (i) higher compensation expense of approximately $680,000 relating to annual salary increases in all of our reporting segments, additional sales personnel primarily in our Water Purification and Filtration and Healthcare Disposables segments and incentive compensation and (ii) an increase of approximately $190,000 in advertising and marketing expense primarily related to our Healthcare Disposables segment. This increase was partially offset by a decrease of approximately $110,000 as a result of translating selling expenses of our international subsidiaries using a weaker Canadian dollar and euro against the United States dollar.

Selling expenses as a percentage of net sales were 11.2% for the three months ended January 31, 2009 and 2008, and 11.3% for the six months ended January 31, 2009 and 2008.

General and administrative expenses increased by $70,000, or 0.8%, to $9,037,000 for the three months ended January 31, 2009, from $8,967,000 for the three months ended January 31, 2008, primarily due to higher compensation expense relating to annual salary increases in all our reporting segments and approximately $37,000 of restructuring expense related to the relocation of our Medivators’ manufacturing operations from the Netherlands to the United States, partially offset by a decrease in overhead at our Netherlands operation due to the completion of restructuring activities, as more fully described elsewhere in this MD&A, and a decrease of $192,000 in amortization expense of intangible assets.

General and administrative expenses increased by $137,000, or 0.8%, to $18,061,000 for the six months ended January 31, 2009, from $17,924,000 for the six months ended January 31, 2008, principally due to increases in compensation expense primarily related to incentive compensation and annual salary increases and approximately $169,000 of restructuring expense related to the relocation of our Medivators’ manufacturing operations from the Netherlands to the United States. These increases were partially offset by (i) a decrease of approximately $465,000 as a result of foreign exchange gains associated with translating certain foreign denominated assets into functional currencies and the translation of general and administrative expenses of our international subsidiaries using a significantly weaker Canadian dollar and euro against the United States dollar, (ii) a decrease in overhead at our Netherlands operation due to the completion of restructuring activities, as more fully described elsewhere in this MD&A, and (iii) a decrease of $253,000 in amortization expense of intangible assets.

General and administrative expenses as a percentage of net sales were 14.5% and 14.7% for the three months ended January 31, 2009 and 2008, respectively, and 14.2% and 14.8% for the six months ended January 31, 2009 and 2008, respectively.

Research and development expenses (which include continuing engineering costs) were $983,000 and $961,000 for the three months ended January 31, 2009 and 2008, respectively. For the six months ended January 31, 2009 and 2008, research and development expenses were $2,048,000, from $1,951,000, respectively. The majority of our research and development expenses related to our endoscope reprocessing and filtration products.

Interest

Interest expense decreased by $581,000 to $674,000 for the three months ended January 31, 2009, from $1,255,000 for the three months ended January 31, 2008. For the six months ended January 31, 2009, interest expense decreased by $1,052,000 to $1,425,000, from $2,477,000 for the six months ended January 31, 2008. For the three and six months ended January 31, 2009, interest expense decreased primarily due to decreases in average outstanding borrowings and average interest rates.

Interest income decreased by $112,000 to $38,000 for the three months ended January 31, 2009, from $150,000 for the three months ended January 31, 2008. For the six months ended January 31, 2009, interest income decreased by $189,000 to $108,000, from $297,000 for the six months ended January 31, 2008. For the three and six months ended January 31, 2009, interest income decreased primarily due to a decrease in average interest rates.

Income taxes

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

	Unrecognized
	Tax Benefits

Unrecognized tax benefits on August 1, 2007	$	484,000
Lapse of statute of limitations	(57,000		)
Unrecognized tax benefits on July 31, 2008	427,000
Activity during the six months ended January 31, 2009	—
Unrecognized tax benefits on January 31, 2009	$	427,000

Generally, the Company is no longer subject to federal, state or foreign income tax examinations for fiscal years ended prior to July 31, 2002.

Stock-Based Compensation

The following table shows the income statement components of stock-based compensation expense recognized in the Condensed Consolidated Statements of Income:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2009			2008			2009			2008

Cost of sales	$	18,000		$	8,000		$	36,000		$	21,000
Operating expenses:
Selling	53,000			23,000			106,000			52,000
General and administrative	453,000			428,000			896,000			913,000
Research and development	1,000			3,000			7,000			8,000
Total operating expenses	507,000			454,000			1,009,000			973,000
Stock-based compensation before income taxes	525,000			462,000			1,045,000			994,000
Income tax benefits	(199,000		)	(184,000		)	(446,000		)	(388,000		)
Total stock-based compensation expense, net of tax	$	326,000		$	278,000		$	599,000		$	606,000

The stock-based compensation expense recorded in the Condensed Consolidated Financial Statements may not be representative of the effect of stock-based compensation expense in future periods due to the level of awards issued in past years (which level may not be similar in the future), assumptions used in determining fair value, and estimated forfeitures. We determine the fair value of each stock award using the closing market price of our Common Stock on the date of grant. We estimate the fair value of each option grant on the date of grant using the Black-Scholes option valuation model. The determination of fair value using an option-pricing model is affected by our stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the expected option life (which is determined by using the historical closing prices of our Common Stock), the expected dividend yield (which is expected to be 0%), and the expected option life (which is based on historical exercise behavior). If factors change and we employ different assumptions in the application of SFAS 123R in future periods, the compensation expense that we would record under SFAS 123R may differ significantly from what we have recorded in the current period.

by estimated forfeitures. At January 31, 2009, total unrecognized stock-based compensation expense, net of tax, related to total nonvested stock options and stock awards was $1,804,000 with a remaining weighted average period of 22 months over which such expense is expected to be recognized.

Liquidity and Capital Resources

Working capital

At January 31, 2009, the Company’s working capital was $49,290,000, compared with $45,639,000 at July 31, 2008.

Cash flows from operating activities

Net cash provided by operating activities was $13,208,000 and $2,887,000 for the six months ended January 31, 2009 and 2008, respectively. For the six months ended January 31, 2009, the net cash provided by operating activities was primarily due to net income after adjusting for depreciation, amortization, stock-based compensation expense and deferred income taxes, a decrease in accounts receivable (due to improved collections) and an increase in income taxes payable (due to the timing associated with tax payments). These items were partially offset by increases in inventories (due to planned increases in stock levels of certain products primarily in our Healthcare Disposables segment) and prepaid expenses (due to the prepayment of certain operating expenses).

For the six months ended January 31, 2008, the net cash provided by operating activities was primarily due to net income after adjusting for depreciation, amortization, stock-based compensation expense and deferred income taxes, partially offset by increases in accounts receivable (due to an increase in sales) and inventories (due to planned increases in stock levels of certain products primarily in our Endoscope Reprocessing segment) and a decrease in compensation payable (due to the payment of prior year incentive compensation).

Cash flows from investing activities

Net cash used in investing activities was $6,306,000 and $16,111,000 for the six months ended January 31, 2009 and 2008, respectively. For the six months ended January 31, 2009, the net cash used in investing activities was primarily for acquisition earnout payments to the former owners of Crosstex and Twist and capital expenditures. For the six months ended January 31, 2008, the net cash used in investing activities was primarily for the acquisitions of DSI, Verimetrix and Strong Dental, a payment for an acquisition earnout to the former owners of Crosstex and capital expenditures.

Cash flows from financing activities

Net cash used in financing activities was $3,333,000 for the six months ended January 31, 2009, compared with net cash provided by financing activities of $10,984,000 for the six months ended January 31, 2008. For the six months ended January 31, 2009, the net cash used in financing activities was primarily attributable to repayments under our credit facilities and purchases of treasury stock, partially offset by a borrowing under our revolving credit facility and proceeds from the exercises of stock options. For the six months ended January 31, 2008, the net cash provided by financing activities was primarily attributable to borrowings under our revolving credit facility primarily related to the acquisitions of DSI, Verimetrix and Strong Dental, partially offset by repayments under the credit facilities.

Repurchase of shares

shares.

Restructuring activities

marketing, sales, service and technical support presence based in the Netherlands to serve customers throughout Europe, the Middle East and Africa.

The restructuring costs recorded and expected to be recorded are as follows:

	Cost of Sales									General and Administrative Expenses
	Unsalable																		Aggregate
	Inventory			Severance			Total			Severance			Other			Total			Total

Three months ended July 31, 2008:
Expense	$	211,000		$	64,000		$	275,000		$	90,000		$	—		$	90,000		$	365,000
Inventory disposal	(96,000		)	—			(96,000		)	—			—			—			(96,000		)
Accrued balance at July 31, 2008	115,000			64,000			179,000			90,000			—			90,000			269,000

Three months ended October 31, 2008:
Expense	10,000			129,000			139,000			132,000			—			132,000			271,000
Paid	—			—			—			(88,000		)	—			(88,000		)	(88,000		)
Foreign currency translation	(35,000		)	(16,000		)	(51,000		)	(12,000		)	—			(12,000		)	(63,000		)
Accrued balance at October 31, 2008	90,000			177,000			267,000			122,000			—			122,000			389,000

Three months ended January 31, 2009:
Expense	—			37,000			37,000			25,000			12,000			37,000			74,000
Paid	—			(226,000		)	(226,000		)	(150,000		)	(12,000		)	(162,000		)	(388,000		)
Foreign currency translation	5,000			12,000			17,000			3,000			—			3,000			20,000
Accrued balance at January 31, 2009	95,000			—			95,000			—			—			—			95,000

Three months ending April 30, 2009:
Expected expense	—			—			—			—			25,000			25,000			25,000
Expected to be paid	—			—			—			—			(25,000		)	(25,000		)	(25,000		)
Accrued balance at April 30, 2009	$	95,000		$	—		$	95,000		$	—		$	—		$	—		$	95,000

Total restructuring expenses incurred and expected to be incurred	$	221,000		$	230,000		$	451,000		$	247,000		$	37,000		$	284,000		$	735,000

As part of the restructuring plan, we intend to sell our Netherlands building and land. Based on a recent offer currently being discussed, we will likely sell the property and lease it

back from the new owner so that we can continue to use the facility as our European sales and service headquarters as well as for warehouse and distribution activity. At January 31, 2009, these assets had a book value of $1,388,000, net of accumulated depreciation, and were included in property and equipment in our Condensed Consolidated Balance Sheets. The primary reason for the decrease in the book value of the Netherlands building and land since July 31, 2008 was the decrease in the value of the euro relative to the United States dollar. Based on the recent price offered to us, a gain of approximately $200,000 may be generated when the building and land are sold. However, due to the deteriorating real estate and credit markets and other factors, no assurances can be given as to the timing of the sale and whether a gain or loss on the sale of the facility will ultimately be realized.

Long-term contractual obligations

	Six Months
	Ending
	July 31,		Year Ending July 31,
	2009		2010		2011		2012		2013		Thereafter		Total
	(Amounts in thousands)
Maturities of the credit facilities	$	4,000	$	10,000	$	40,300	$	—	$	—	$	—	$	54,300
Expected interest payments under the credit facilities (1)	1,009		1,732		226		—		—		—		2,967
Minimum commitments under noncancelable operating leases	1,725		2,836		1,873		1,058		629		1,174		9,295
Minimum commitments under noncancelable capital leases	25		52		14		—		—		—		91
Minimum commitments under license agreement	36		94		141		163		163		2,182		2,779
Deferred compensation and other	227		494		424		281		32		199		1,657
Employment agreements	1,785		3,340		148		138		—		—		5,411
Total contractual obligations	$	8,807	$	18,548	$	43,126	$	1,640	$	824	$	3,555	$	76,500

Credit facilities

At February 28, 2009, borrowings under the 2005 U.S. Credit Facilities bear interest at rates ranging from 0% to 0.50% above the lender’s base rate, or at rates ranging from 0.625% to 1.75% above the London Interbank Offered Rate (“LIBOR”), depending upon our consolidated ratio of debt to earnings before interest, taxes, depreciation and amortization, and as further adjusted under the terms of the 2005 U.S. Credit Facilities (“EBITDA”). At February 28, 2009, the lender’s base rate was 3.25% and the LIBOR rates ranged from 0.47% to 3.35%. The margins applicable to our outstanding borrowings at February 28, 2009 were 0.00% above the lender’s base rate and 1.00% above LIBOR. All of our outstanding borrowings were under LIBOR contracts at February 28, 2009. The majority of such contracts were twelve month LIBOR contracts; therefore, we are substantially protected throughout most of fiscal 2009 from any exposure associated with increasing LIBOR rates. In order to protect our interest rate exposure in future years, we entered into an interest rate cap agreement in July 2008 for the two-year period beginning June 30, 2009 and ending June 30, 2011 initially covering $20,000,000 of borrowings under the term loan facility (and thereafter reducing in quarterly $2,500,000 increments consistent with the mandatory repayment schedule of our term loan facility), which caps three-month LIBOR on this portion of outstanding borrowings at 4.25%. The 2005 U.S. Credit Facilities also provide for fees on the unused portion of our facilities at rates ranging from 0.15% to 0.30%, depending upon our consolidated ratio of debt to EBITDA; such rate was 0.25% at February 28, 2009.

The 2005 U.S. Credit Facilities require us to meet certain financial covenants and are secured by (i) substantially all of our U.S.-based assets (including assets of Cantel, Minntech, Mar Cor, Crosstex and Strong Dental) and (ii) our pledge of all of the outstanding shares of Minntech, Mar Cor, Crosstex and Strong Dental and 65% of the outstanding shares of our foreign-based subsidiaries. Additionally, we are not permitted to pay cash dividends on our Common Stock without the consent of our United States lenders. As of January 31, 2009, we were in compliance with all financial and other covenants under the 2005 U.S. Credit Facilities.

On January 31, 2009, we had $54,300,000 of outstanding borrowings under the 2005 U.S. Credit Facilities, which consisted of $24,000,000 and $30,300,000 under the term loan facility and the revolving credit facility, respectively. Subsequent to January 31, 2009, we repaid $2,000,000 under the revolving credit facility reducing our total outstanding borrowings to $52,300,000.

Operating leases

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

License agreement

On January 1, 2007, we entered into a license agreement with a third-party which allows us to manufacture, use, import, sell and distribute certain thermal control products relating to our Specialty Packaging segment. In consideration, we agreed to pay a minimum annual royalty payable in Canadian dollars each calendar year over the license agreement term of 20 years. At January 31, 2009, we had minimum future royalty obligations relating to this license agreement of approximately $2,779,000 through December 31, 2026 using the exchange rate on January 31, 2009.

Deferred compensation

Included in other long-term liabilities are deferred compensation arrangements for certain former Minntech directors and officers.

Employment agreements

We have previously entered into various employment agreements with several executives of the Company, including the former President and Chief Executive Officer. Effective April 22, 2008, our former President and Chief Executive Officer resigned and our Chief Operating Officer and Executive Vice President was promoted to President. As a result of this resignation, estimated separations benefits and other related costs of approximately $720,000 were recorded in general and administrative expenses during fiscal 2008. Approximately $156,000 of such amount remains payable as of January 31, 2009, and accordingly, has been reflected in the table above as a required payment during fiscal 2009.

Financing needs

At January 31, 2009, we had a cash balance of $20,052,000, of which $10,234,000 was held by foreign subsidiaries. We believe that our current cash position, anticipated cash flows from operations, and the funds available under our revolving credit facility will be sufficient to satisfy our cash operating requirements for the foreseeable future based upon our existing operations, particularly given that we historically have not needed to borrow for working capital purposes. At February 28, 2009, $21,700,000 was available under our United States revolving credit facility, as amended.

Foreign currency

During the three and six months ended January 31, 2009, compared with the three and six months ended January 31, 2008, the average value of the Canadian dollar decreased by approximately 19.1% and 12.5%, respectively, relative to the value of the United States dollar. Additionally, at January 31, 2009 compared with July 31, 2008, the value of the Canadian dollar relative to the value of the United States dollar decreased by approximately 16.7%. The financial statements of our Canadian subsidiaries are translated using the accounting policies described in Note 2 to the 2008 Form 10-K and therefore are impacted by changes in the Canadian dollar exchange rate. Additionally, changes in the value of the Canadian dollar against the United States dollar affected our results of operations because a portion of our Canadian subsidiaries’ inventories and operating costs (which are reported in the Water Purification and Filtration and Specialty Packaging segments) are purchased in the United States and a significant amount of their sales are to customers in the United States.

For the three and six months ended January 31, 2009, compared with the three and six months ended January 31, 2008, the average value of the euro decreased by approximately 10.4% and 4.3%, respectively, relative to the value of the United States dollar. Additionally, at January 31, 2009 compared with July 31, 2008, the value of the euro relative to the United States dollar decreased by approximately 17.7% and the value of the British pound relative to the euro decreased by approximately 14.4%. The financial statements of our Netherlands subsidiary are translated using the accounting policies described in Note 2 to the 2008 Form 10-K and therefore are impacted by changes in the euro exchange rate relative to the United States dollar.

Additionally, changes in the value of the euro against the United States dollar and British pound affect our results of operations because a portion of the net assets of our Netherlands subsidiary (which are reported in our Dialysis, Endoscope Reprocessing and Water Purification and Filtration segments) are denominated and ultimately settled in United States dollars or British pounds but must be converted into its functional euro currency. Furthermore, as part of the restructuring of our Netherlands subsidiary, as described in Note 16 to the Condensed Consolidated Financials and elsewhere in this MD&A, a portion of the net assets of our United States subsidiaries, Minntech and Mar Cor, are now denominated and ultimately settled in euros or British pounds but must be converted into our functional United States currency.

In order to hedge against the impact of fluctuations in the value of the euro relative to the United States dollar and British pound and the value of the British pound relative to the United States dollar on the conversion of such net assets into the functional currencies, we enter into short-term contracts to purchase euros and British pounds forward, which contracts are generally one month in duration. These short-term contracts are designated as fair value hedges. There were three foreign currency forward contracts with an aggregate value of $1,250,000 at February 28, 2009, which cover certain assets and liabilities of Minntech and its Netherlands subsidiary that were denominated in currencies other than their functional currencies. Such contracts expire on March 31, 2009. These foreign currency forward contracts are continually replaced with new one-month contracts as long as we have significant net assets at Minntech and its Netherlands subsidiary that are denominated and ultimately settled in currencies other than their functional currencies. Under our credit facilities, such contracts to purchase euros and British pounds may not exceed $12,000,000 in an aggregate notional amount at any time. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, as amended, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), such foreign currency forward contracts are designated as hedges. Gains and losses related to these hedging contracts to buy euros and British pounds forward are immediately realized within general and administrative expenses due to the short-term nature of such contracts. For the three and six months ended January 31, 2009, such forward contracts were partially effective in offsetting the impact on operations related to certain assets and liabilities of Minntech and its Netherlands subsidiary that are denominated in currencies other than their functional currencies.

Changes in the value of the Japanese yen relative to the United States dollar during the three and six months ended January 31, 2009, compared with the three and six months ended January 31, 2008, did not have a significant impact upon either our results of operations or the translation of our balance sheet, primarily due to the fact that our Japanese subsidiary accounts for a relatively small portion of consolidated net sales, net income and net assets.

Overall, fluctuations in the rates of currency exchange had a favorable impact for the three and six months ended January 31, 2009, compared with the three and six months ended January 31, 2008, upon our results of operations of approximately $178,000 and $470,000, net of tax, primarily due to the decrease in the value of the Canadian dollar relative to the United States dollar.

For purposes of translating the balance sheet at January 31, 2009 compared with July 31, 2008, the total of the foreign currency movements resulted in a foreign currency translation loss of $5,729,000 for the six months ended January 31, 2009, thereby decreasing stockholders’ equity.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we continually evaluate our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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

Revenue Recognition

Revenue on product sales is recognized as products are shipped to customers and title passes. The passing of title is determined based upon the FOB terms specified for each shipment. With respect to dialysis, therapeutic, specialty packaging and endoscope reprocessing products, shipment terms are generally FOB origin for common carrier and FOB destination when our distribution fleet is utilized (except for one large customer in dialysis whereby all products are shipped FOB destination). With respect to water purification and filtration and healthcare disposable products, shipment terms may be either FOB origin or destination. Customer acceptance for the majority of our product sales occurs at the time of delivery. In certain instances, primarily with respect to some of our water purification and filtration equipment, endoscope reprocessing equipment and an insignificant amount of our sales of dialysis equipment, post-delivery obligations such as installation, in-servicing or training are contractually specified; in such instances, revenue recognition is deferred until all of such conditions have been substantially fulfilled such that the products are deemed functional by the end-user. With respect to a portion of water purification and filtration product sales, equipment is sold as part of a system for which the equipment is functionally interdependent or the customer’s purchase order specifies “ship-complete” as a condition of delivery; revenue recognition on such sales is deferred until all equipment has been delivered.

A portion of our water purification and filtration and endoscope reprocessing sales are recognized as multiple element arrangements, whereby revenue is allocated to the equipment, installation and service components based upon vendor specific objective evidence, which principally includes comparable historical transactions of similar equipment and installation sold as stand alone components, as well as an evaluation of unrelated third party competitor pricing of similar installation.

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

customers, such as freight, are recorded as revenue (and related costs are included within cost of sales) at the time the sale is recognized.

None of our sales contain right-of-return provisions. Customer claims for credit or return due to damage, defect, shortage or other reason must be pre-approved by us before credit is issued or such product is accepted for return. No cash discounts for early payment are offered except with respect to a small portion of our sales of dialysis, healthcare disposable and water purification and filtration products and certain prepaid packaging products. We do not offer price protection, although advance pricing contracts or required notice periods prior to implementation of price increases exist for certain customers with respect to many of our products. With respect to certain of our dialysis, dental, water purification and filtration and endoscope reprocessing customers, volume rebates are provided; such volume rebates are provided for as a reduction of sales at the time of revenue recognition and amounted to $441,000 and $1,166,000 for the three and six months ended January 31, 2009, respectively, and $595,000 and $854,000 for the three and six months ended January 31, 2008, respectively. The increase in volume rebates for the six months ended January 31, 2009 compared with the six months ended January 31, 2008 is primarily due to new terms in a recently renewed rebate agreement with a major dental distributor in our Healthcare Disposables segment. Such allowances are determined based on estimated projections of sales volume for the entire rebate agreement periods. If it becomes known that sales volume to customers will deviate from original projections, the volume rebate provisions originally established would be adjusted accordingly.

The majority of our dialysis products are sold to end-users; the majority of therapeutic filtration products and healthcare disposable products are sold to third party distributors; water purification and filtration products and services are sold directly and through third-party distributors to hospitals, dialysis clinics, pharmaceutical and biotechnology companies and other end-users; our endoscope reprocessing products and services are sold primarily to distributors internationally and directly to hospitals and other end-users in the United States; and specialty packaging products are sold to third-party distributors, medical research companies, laboratories, pharmaceutical companies, hospitals, government agencies and other end-users. Sales to all of these customers follow our revenue recognition policies.

Accounts Receivable and Allowance for Doubtful Accounts

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

Inventories

Inventories consist of products which are sold in the ordinary course of our business and are stated at the lower of cost (first-in, first-out) or market. In assessing the value of inventories, we must make estimates and judgments regarding reserves required for product obsolescence, aging of inventories and other issues potentially affecting the saleable condition of products. In performing such evaluations, we use historical experience as well as current market information. With few exceptions, the saleable value of our inventories has historically been within management’s expectation and provisions established, however, rapid changes in the market due to competition, technology and various other factors could have an adverse effect on the saleable value of our inventories, resulting in the need for additional reserves.

Goodwill and Intangible Assets

Certain of our identifiable intangible assets, including customer relationships, technology, brand names, non-compete agreements and patents, are amortized using the straight-line method over their estimated useful lives which range from 3 to 20 years. Additionally, we have recorded goodwill and trademarks and trade names, all of which have indefinite useful lives and are therefore not amortized. All of our intangible assets and goodwill are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and goodwill and intangible assets with indefinite lives are reviewed for impairment at least annually. Our management is primarily responsible for determining if impairment exists and considers a number of factors, including third-party valuations, when making these determinations. In performing a review for goodwill impairment, management uses a two-step process that begins with an estimation of the fair value of the related operating segments by using the average fair value results of the market multiple and discounted cash flow methodologies. The first step is a review for potential impairment, and the second step measures the amount of impairment, if any. In performing our annual review for indefinite lived intangibles, management compares the current fair value of such assets to their carrying values. With respect to amortizable intangible assets when impairment indicators are present, management would determine whether expected future non-discounted cash flows would be sufficient to recover the carrying value of the assets; if not, the carrying value of the assets would be adjusted to their fair value. On July 31, 2008, management concluded that none of our intangible assets or goodwill was impaired. On January 31, 2009, management concluded that no events or changes in circumstances have occurred during the six months ended January 31, 2009 that would indicate that the carrying amount of our intangible assets and goodwill may not be recoverable.

While the results of these annual reviews have historically not indicated impairment, impairment reviews are highly dependent on management’s projections of our future operating results and cash flows (which management believes to be reasonable), discount rates based on the Company’s weighted-average cost of capital and appropriate benchmark peer companies. Assumptions used in determining future operating results and cash flows include current and expected market conditions and future sales forecasts. Subsequent changes in these assumptions and estimates could result in future impairment. Although we consistently use the same methods in developing the assumptions and estimates underlying the fair value calculations, such estimates are uncertain by nature and can vary from actual results. At July 31, 2008, our reporting units that were potentially at risk for impairment were Healthcare Disposables and Specialty Packaging, which had average fair values that exceeded book value by modest amounts. For all of our remaining reporting units, average fair value exceeded book value by substantial amounts.

Long-Lived Assets

We evaluate the carrying value of long-lived assets including property, equipment and other assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An assessment is made to determine if the sum of the expected future non-discounted cash flows from the use of the assets and eventual disposition is less than the carrying value. If the sum of the expected non-discounted cash flows is less than the carrying value, an impairment loss is recognized based on fair value. With few exceptions, our historical assessments of our long-lived assets have not differed significantly from the actual amounts realized. However, the determination of fair value requires us to make certain assumptions and estimates and is highly subjective, and accordingly, actual amounts realized may differ significantly from our estimates.

Warranties

We provide for estimated costs that may be incurred to remedy deficiencies of quality or performance of our products at the time of revenue recognition. Most of our products have a one year warranty, although a majority of our endoscope reprocessing equipment in the United States carries a warranty period of up to fifteen months. We record provisions for product warranties as a component of cost of sales based upon an estimate of the amounts necessary to settle existing and future claims on products sold. The historical relationship of warranty costs to products sold is the primary basis for the estimate. A significant increase in third party service repair rates, the cost and availability of parts or the frequency of claims could have a material adverse impact on our results for the period or periods in which such claims or additional costs materialize. Management reviews its warranty exposure periodically and believes that the warranty reserves are adequate; however, actual claims incurred could differ from original estimates, requiring adjustments to the reserves.

Stock-Based Compensation

On August 1, 2005, we adopted SFAS No. 123R, “Share-Based Payment (Revised 2004)” (“SFAS 123R”) using the modified prospective method for the transition. Under the modified prospective method, stock compensation expense is recognized for any option grant or stock award granted on or after August 1, 2005, as well as the unvested portion of stock options granted prior to August 1, 2005, based upon the award’s fair value. For fiscal 2005 and earlier periods, we accounted for stock options using the intrinsic value method under which stock compensation expense is not recognized because we granted stock options with exercise prices equal to the market value of the shares at the date of grant.

Most of our stock option and stock awards (which consist only of restricted stock) are subject to graded vesting in which portions of the award vest at different times during the vesting period, as opposed to awards that vest at the end of the vesting period. We recognize compensation expense for awards subject to graded vesting using the straight-line basis, reduced by estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on historical experience.

The stock-based compensation expense recorded in our Condensed Consolidated Financial Statements may not be representative of the effect of stock-based compensation

expense in future periods due to the level of awards issued in past years (which level may not be similar in the future), assumptions used in determining fair value, and estimated forfeitures. We determine the fair value of each stock award using the closing market price of our Common Stock on the date of grant. We estimate the fair value of each option grant on the date of grant using the Black-Scholes option valuation model. The determination of fair value using an option-pricing model is affected by our stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the expected option life (which is determined by using the historical closing prices of our Common Stock), the expected dividend yield (which is expected to be 0%), and the expected option life (which is based on historical exercise behavior). If factors change and we employ different assumptions in the application of SFAS 123R in future periods, the compensation expense that we would record under SFAS 123R may differ significantly from what we have recorded in the current period.

Legal Proceedings

Income Taxes

We recognize deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities also include items recorded in conjunction with the purchase accounting for business acquisitions. We regularly review our deferred tax assets for recoverability and establish a valuation allowance, if necessary, based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, as adjusted for valuation allowances, will be realized. Additionally, deferred tax liabilities are regularly reviewed to confirm that such amounts are appropriately stated. Such a review considers known future changes in various effective tax rates, principally in the United States. If the effective tax rate were to change in the future, particularly in the United States and to a lesser extent Canada, our items of deferred tax could be materially affected. All of such evaluations require significant management judgments. In fiscal 2009 and 2008, recently enacted Canadian federal and New York state statutory tax rate reductions were applied to existing deferred income tax liabilities which decreased our overall effective tax rates.

We record liabilities for an unrecognized tax benefit when a tax benefit for an uncertain tax position is taken or expected to be taken on a tax return, but is not recognized in our Condensed Consolidated Financial Statements because it does not meet the more-likely-than-not recognition threshold that the uncertain tax position would be sustained upon examination by the applicable taxing authority. The majority of such unrecognized tax benefits originated from acquisitions and are based primarily upon management’s assessment of exposure associated with acquired companies. Accordingly, any adjustments upon resolution of income tax uncertainties that predate or result from acquisitions are recorded as an increase or decrease to goodwill. Unrecognized tax benefits are analyzed periodically and adjustments are made, as events occur to warrant adjustment to the related liability.

Business Combinations

Acquisitions require significant estimates and judgments related to the fair value of assets acquired and liabilities assumed.

Certain liabilities and reserves are subjective in nature. We reflect such liabilities and reserves based upon the most recent information available. In conjunction with our acquisitions, such subjective liabilities and reserves principally include certain income tax and sales and use tax exposures, including tax liabilities related to our foreign subsidiaries, as well as reserves for accounts receivable, inventories and warranties. The ultimate settlement of such liabilities may be for amounts which are different from the amounts recorded.

Costs Associated with Exit or Disposal Activities

We recognize costs associated with exit or disposal activities, such as costs to terminate a contract, the exit or disposal of a business, or the early termination of a leased property, by recognizing the liability at fair value when incurred, except for certain one-time termination benefits, such as severance costs, for which the period of recognition begins when a severance plan is communicated to employees.

Inherent in the calculation of liabilities relating to exit and disposal activities are significant management judgments and estimates, including estimates of termination costs, employee attrition, and the interest rate used to discount certain expected net cash payments. Such judgments and estimates are reviewed by us on a regular basis. The cumulative effect of a change to a liability resulting from a revision to either timing or the amount of estimated cash flows is recognized by us as an adjustment to the liability in the period of the change.

Although we have historically recorded minimal charges associated with exit or disposal activities, we recorded approximately $365,000 and $345,000 in charges associated with exit or disposal activities in fiscal 2008 and the six months ended January 31, 2009, respectively, and expect additional charges of approximately $25,000 during the three months ended April 30, 2009, relating to our restructuring plan for our Netherlands manufacturing operations.

Other Matters

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

Forward Looking Statements

This quarterly report on Form 10-Q contains “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 and releases issued by the Securities and Exchange Commission (the “SEC”) and within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based on current expectations, estimates, or forecasts about our businesses, the industries in which we operate, and the beliefs and assumptions of management; they do not relate strictly to historical or current facts. We have tried, wherever possible, to identify such statements by using words such as “expect,” “anticipate,” “goal,” “project,” “intend,” “plan,” “believe,” “seek,” “may,” “could,” and variations of such words and similar expressions. In addition, any statements that refer to

predictions or projections of our future financial performance, anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions about future events, activities or developments and are subject to numerous risks, uncertainties, and assumptions that are difficult to predict including, among other things, the following:

· the continuing deterioration in the economy and credit markets may continue to adversely affect our results of operations, particularly with respect to capital equipment. The magnitude of such adverse impact may grow based on the length and severity of the economic decline.

· the adverse impact of consolidation of dialysis providers and our dependence on a concentrated number of dialysis customers

· the adverse impact of consolidation of dental product distributors and our dependence on a concentrated number of such distributors

· the adverse impact of rising fuel and oil prices on our raw materials and transportation costs

· the acquisition of new businesses and successfully integrating and operating such businesses

· the increasing market share of single-use dialyzers relative to reuse dialyzers in the United States

· the adverse impact of increased competition on selling prices and our ability to compete effectively

· foreign currency exchange rate and interest rate fluctuations

· the impact of significant government regulation on our businesses

You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the foregoing items to be a complete list of all potential risks or uncertainties. See “Risk Factors” in our 2008 Form 10-K for a discussion of the above risk factors and certain additional risk factors that you should consider before investing in the shares of our Common Stock.

All forward-looking statements herein speak only as of the date of this Report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Foreign Currency and Market Risk

A portion of our products are imported from the Far East and Western Europe. All of our operating segments sell a portion of their products outside of the United States. Consequently, our business could be materially affected by the imposition of trade barriers, fluctuations in the rates of exchange of various currencies, tariff increases and import and export restrictions, affecting the United States, Canada and the Netherlands.

A portion of our Canadian subsidiaries’ inventories and operating costs (which are reported in the Water Purification and Filtration and Specialty Packaging segments) are purchased in the United States and a significant amount of their sales are to customers in the United States. The businesses of our Canadian subsidiaries could be materially and adversely affected by the imposition of trade barriers, fluctuations in the rate of currency exchange, tariff increases and import and export restrictions between the United States and Canada. Additionally, the financial statements of our Canadian subsidiaries are translated using the accounting policies described in Note 2 to the 2008 Form 10-K. Fluctuations in the rates of currency exchange between the United States and Canada had an overall favorable impact for the three and six months ended January 31, 2009, compared with the three and six months ended January 31, 2008, upon our results of operations and an adverse impact upon stockholders’ equity, as described in our MD&A.

Changes in the value of the euro against the United States dollar and British pound affect our results of operations because a portion of the net assets of our Netherlands subsidiary (which are reported in our Dialysis, Endoscope Reprocessing and Water Purification and Filtration segments) are denominated and ultimately settled in United States dollars or British pounds but must be converted into its functional euro currency. Furthermore, as part of the restructuring of our Netherlands subsidiary, as described in Note 16 to the Condensed Consolidated Financials and elsewhere in this MD&A, a portion of the net assets of our United States subsidiaries, Minntech and Mar Cor, are now denominated and ultimately settled in euros or British pounds but must be converted into our functional United States currency. Additionally, the financial statements of our Netherlands subsidiary are translated using the accounting policies described in Note 2 to the 2008 Form 10-K. Fluctuations in the rates of currency exchange between the euro, the United States dollar and British pound had an overall adverse impact for the three and six months ended January 31, 2009, compared with the three and six months ended January 31, 2008, upon our results of operations, and had an adverse impact upon stockholders’ equity, as described in our MD&A.

In order to hedge against the impact of fluctuations in the value of the euro relative to the United States dollar and British pound and the value of the British pound relative to the United States dollar on the conversion of such net assets into functional currencies, we enter into short-term contracts to purchase euros and British pounds forward, which contracts are generally one month in duration. These short-term contracts are designated as fair value hedges. There were four foreign currency forward contracts with an aggregate value of $1,425,000 at January 31, 2009, which covered certain assets and liabilities of Minntech and its Netherlands subsidiary that were denominated in currencies other than their functional currencies. Such contracts expired on February 28, 2009. These foreign currency forward contracts are continually replaced with new one-month contracts as long as we have significant net assets at Minntech and its Netherlands subsidiary that are denominated and ultimately settled in currencies other than their functional currencies. Under our credit facilities, such contracts to purchase euros and British pounds may not exceed $12,000,000 in an aggregate notional amount at any time. For the three and six months ended January 31, 2009, such forward contracts were partially effective in offsetting a portion of the impact on operations related to certain assets and liabilities of Minntech and its Netherlands subsidiary that are denominated in currencies other than their functional currencies.

The functional currency of Minntech’s Japan subsidiary is the Japanese yen. Changes in the value of the Japanese yen relative to the United States dollar during the three and six months ended January 31, 2009, compared with the three and six months ended January 31, 2008, did not

have a significant impact upon either our results of operations or the translation of the balance sheet, primarily due to the fact that our Japanese subsidiary accounts for a relatively small portion of consolidated net sales, net income and net assets.

Interest Rate Market Risk

We have a United States credit facility for which the interest rate on outstanding borrowings is variable. Substantially all of our outstanding borrowings are under LIBOR contracts. Therefore, interest expense is affected by the general level of interest rates in the United States as well as LIBOR interest rates.

Market Risk Sensitive Transactions

Additional information related to market risk sensitive transactions is contained in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our 2008 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES.

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

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

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

PART II - - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our 2008 Form 10-K. The risk factors disclosed in Part I, Item 1A to our 2008 Form 10-K, in addition to the other information set forth in this report, could materially affect our business, financial condition, or results of operations.

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

Repurchase program

The following table summarizes the repurchase of Common Stock under the repurchase program by quarter during fiscal years 2009 and 2008:

				Purchased as part of	Shares that may yet
	Total number of	Average price		publicly announced	be purchased under
Period	shares purchased	paid per share		plans or programs	the program

7/11/2008 through 7/31/08	90,700	$	9.42	90,700	409,300

8/1/2008 through 10/31/08	43,847	$	9.17	134,547	365,453

11/1/2008 through 1/31/09	—	—		134,547	365,453

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On January 8, 2009, the Company held its Annual Meeting of Stockholders for the fiscal year ended July 31, 2008. At the meeting, stockholders voted for (i) the election of nine members of the Company’s Board of Directors to serve until the next annual meeting and until their successors are duly elected and qualified, (ii) the approval of an amendment to the Company’s 2006 Equity Incentive Plan that increased by 700,000 the number of shares of Common stock available for issuance under the Plan and (iii) the ratification of Ernst & Young LLP to serve as the Company’s independent registered public accounting firm for the fiscal year ending July 31, 2009.

A tabulation of the number of votes cast for, against and withhold, as well as the number of abstentions as to each matter voted on, is set forth below. There were no broker non-votes.

1. Election of Directors	Votes For	Votes Withheld

Robert L. Barbanell	16,070,055	152,122
Alan R. Batkin	15,842,343	379,834
Joseph M. Cohen	16,054,913	167,264
Charles M. Diker	16,068,356	153,821
Mark N. Diker	16,120,212	101,965
Alan J. Hirschfield	16,101,370	120,807
George L. Fotiades	16,149,963	72,214
Elizabeth McCaughey	15,877,215	344,962
Bruce Slovin	16,138,983	83,194

2. Approval of the 2006 Equity Incentive Plan Amendment	For	Against	Abstain

	11,839,456	694,417	99,064

3. Ratification of Independent Registered Public Accounting Firm	For	Against	Abstain

	16,175,777	26,805	19,593

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.	EXHIBITS

	31.1	-	Certification of Principal Executive Officer.

	31.2	-	Certification of Principal Financial Officer.

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CANTEL MEDICAL CORP.

Date: March 12, 2009


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


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


	By:	/s/ Steven C. Anaya
		Steven C. Anaya,
		Vice President and Controller

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Cantel Medical (CMD) 10-Q2009 Q2 Quarterly report

Content analysis

Significant Activity

Critical Accounting Policies

Revenue Recognition

Inventories

Warranties

Business Combinations

Other Matters