Cantel Medical (CMD) 10-Q 2010 Q2 Quarterly report

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, 2010.
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	(973) 890-7220
(Address of principal executive offices)	(Zip code)	(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o   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, 2010: 16,825,792.

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,
	2010			2009
Assets
Current assets:
Cash and cash equivalents	$	18,131		$	23,368
Accounts receivable, net of allowance for doubtful accounts of $906 at January 31 and $1,080 at July 31	32,198			30,450
Inventories:
Raw materials	12,963			10,980
Work-in-process	4,638			3,074
Finished goods	16,008			15,146
Total inventories	33,609			29,200
Deferred income taxes	1,919			1,898
Prepaid expenses and other current assets	4,161			3,994
Total current assets	90,018			88,910
Property and equipment, net	35,679			35,968
Intangible assets, net	34,591			37,042
Goodwill	115,032			114,995
Other assets	1,259			956
	$	276,579		$	277,871
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt	$	25,500		$	10,000
Accounts payable	9,920			8,948
Compensation payable	7,523			10,431
Earnout payable	—			157
Accrued expenses	6,727			6,583
Deferred revenue	3,218			2,819
Income taxes payable	184			175
Total current liabilities	53,072			39,113
Long-term debt	5,000			33,300
Deferred income taxes	16,840			16,378
Other long-term liabilities	1,767			1,964
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 - 18,061,604 shares issued and 16,821,458 shares outstanding; July 31 - 17,883,873 shares issued and 16,643,727 shares outstanding	1,806			1,788
Additional paid-in capital	89,680			87,169
Retained earnings	112,308			102,103
Accumulated other comprehensive income	8,331			8,281
Treasury Stock, at cost; January 31 and July 31 - 1,240,146 shares	(12,225		)	(12,225		)
Total stockholders’ equity	199,900			187,116
	$	276,579		$	277,871

See accompanying notes.

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CANTEL MEDICAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollar Amounts in Thousands, Except Per Share Data)

(Unaudited)

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2010			2009			2010			2009
Net sales	$	66,587		$	62,420		$	137,582		$	126,826
Cost of sales	39,463			38,809			81,000			79,592
Gross profit	27,124			23,611			56,582			47,234
Expenses:
Selling	8,711			6,992			17,235			14,342
General and administrative	9,272			9,037			18,577			18,061
Research and development	1,157			983			2,422			2,048
Total operating expenses	19,140			17,012			38,234			34,451
Income before interest and income taxes	7,984			6,599			18,348			12,783
Interest expense	339			674			726			1,425
Interest income	(8		)	(38		)	(16		)	(108		)
Income before income taxes	7,653			5,963			17,638			11,466
Income taxes	2,777			2,189			6,594			4,359
Net income	$	4,876		$	3,774		$	11,044		$	7,107
Earnings per common share:
Basic	$	0.29		$	0.23		$	0.66		$	0.43
Diluted	$	0.29		$	0.23		$	0.65		$	0.43
Dividends per common share	$	0.05		$	—		$	0.05		$	—

See accompanying notes.

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CANTEL MEDICAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar Amounts in Thousands)

(Unaudited)

	Six Months Ended
	January 31,
	2010			2009
Cash flows from operating activities
Net income	$	11,044		$	7,107
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	3,138			3,075
Amortization	2,572			2,606
Stock-based compensation expense	1,600			1,045
Amortization of debt issuance costs	215			197
Loss on disposal of fixed assets	227			22
Deferred income taxes	(588		)	(965		)
Excess tax benefits from stock-based compensation	(81		)	(197		)
Changes in assets and liabilities:
Accounts receivable	(1,743		)	1,353
Inventories	(4,402		)	(1,705		)
Prepaid expenses and other current assets	(345		)	(793		)
Accounts payable, deferred revenue and accrued expenses	(1,599		)	332
Income taxes payable	277			1,131
Net cash provided by operating activities	10,315			13,208
Cash flows from investing activities
Capital expenditures	(3,072		)	(2,062		)
Proceeds from disposal of fixed assets	—			3
Earnout paid to Crosstex sellers	—			(3,666		)
Earnout paid to Twist seller	(157		)	(629		)
Purchase of convertible note receivable	(300		)	—
Other, net	(173		)	48
Net cash used in investing activities	(3,702		)	(6,306		)
Cash flows from financing activities
Borrowings under revolving credit facility	—			3,500
Repayments under term loan facility	(5,000		)	(4,000		)
Repayments under revolving credit facility	(7,800		)	(3,500		)
Proceeds from exercises of stock options	1,692			874
Dividends paid	(840		)	—
Excess tax benefits from stock-based compensation	81			197
Purchases of treasury stock	—			(404		)
Net cash used in financing activities	(11,867		)	(3,333		)
Effect of exchange rate changes on cash and cash equivalents	17			(1,835		)
(Decrease) increase in cash and cash equivalents	(5,237		)	1,734
Cash and cash equivalents at beginning of period	23,368			18,318
Cash and cash equivalents at end of period	$	18,131		$	20,052

See accompanying notes.

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CANTEL MEDICAL CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.                   Basis of Presentation

The unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles for interim financial reporting and the requirements of Form 10-Q and Rule 10.01 of Regulation S-X. Accordingly, they do not include certain information and note disclosures required by generally accepted accounting principles for annual financial reporting and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Annual Report of Cantel Medical Corp. (“Cantel”) on Form 10-K for the fiscal year ended July 31, 2009 (the “2009 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, 2009 was derived from the audited Consolidated Balance Sheet of Cantel at that date.

In June 2008, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 260-10-45, “Earnings Per Share — Other Presentation Matters,” (“ASC 260-10-45”). ASC 260-10-45 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share (“EPS”) pursuant to the two-class method. ASC 260-10-45 is effective for fiscal years beginning after December 15, 2008 and therefore was adopted on August 1, 2009 as further described in Note 10 to the Condensed Consolidated Financial Statements. All prior period EPS data have been adjusted retrospectively to conform to the provisions of ASC 260-10-45. For the three and six months ended January 31, 2009, such retrospective application caused an insignificant increase in the denominator of our weighted average shares calculation, which decreased previously reported basic EPS for the six months ended January 31, 2009 from $0.44 to $0.43 but had no impact on basic EPS for the three months ended January 31, 2009 and previously reported diluted EPS.

Cantel had five principal operating companies at each of January 31, 2010 and July 31, 2009, 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), Healthcare Disposables (through Crosstex), Endoscope Reprocessing (through Minntech), Dialysis (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

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Other reporting segment for financial reporting purposes.

On July 31, 2009, we acquired certain net assets of G.E.M. Water Systems Int’l, LLC (“G.E.M.”), as more fully described in Note 3 to the Condensed Consolidated Financial Statements. The G.E.M. acquisition had an insignificant effect on our results of operations for the three and six months ended January 31, 2010 due to the small size of this business and is not included in our results of operations for the three and six months ended January 31, 2009. G.E.M. is included in the Water Purification and Filtration segment.

We performed a review of events subsequent to January 31, 2010. Based upon that review, no subsequent events occurred that required updating to our Condensed Consolidated Financial Statements or disclosures.

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,
	2010			2009			2010			2009
Cost of sales	$	41,000		$	18,000		$	59,000		$	36,000
Operating expenses:
Selling	110,000			53,000			179,000			106,000
General and administrative	650,000			453,000			1,348,000			896,000
Research and development	10,000			1,000			14,000			7,000
Total operating expenses	770,000			507,000			1,541,000			1,009,000
Stock-based compensation before income taxes	811,000			525,000			1,600,000			1,045,000
Income tax benefits	(293,000		)	(199,000		)	(583,000		)	(446,000		)
Total stock-based compensation expense, net of tax	$	518,000		$	326,000		$	1,017,000		$	599,000
Decrease in earnings per common share due to stock-based compensation:
Basic	$	0.03		$	0.02		$	0.06		$	0.04
Diluted	$	0.03		$	0.02		$	0.06		$	0.04

For the three and six months ended January 31, 2010 and 2009, 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) and a reduction to income tax expense.

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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, 2010, total unrecognized stock-based compensation expense before income taxes related to total nonvested stock options and stock awards was $4,603,000 with a remaining weighted average period of 23 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. 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.

A summary of nonvested stock award activity follows:

		Weighted
	Number of	Average
	Shares	Fair Value
Nonvested stock awards at July 31, 2009	226,328	$	13.38
Granted	47,825	15.97
Nonvested stock awards at January 31, 2010	274,153	$	13.83

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions for options granted during the three and six months ended January 31, 2010 and 2009:

Weighted-Average	Three Months Ended				Six Months Ended
Black-Scholes Option	January 31,				January 31,
Valuation Assumptions	2010		2009		2010		2009
Dividend yield (1)	0.08	%	0.00	%	0.00	%	0.00	%
Expected volatility (2)	0.437		0.432		0.454		0.395
Risk-free interest rate (3)	2.17	%	1.52	%	1.96	%	2.29	%
Expected lives (in years) (4)	4.75		5.00		3.58		4.80

(1) Expected annual dividend yield of 0.50% for options granted after our dividend announcement on December 17, 2009.

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

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

(4) Based on historical exercise behavior.

Additionally, all options were considered to be deductible for tax purposes in the valuation model, except for certain incentive options granted under the 1997 Employee Plan and to employees residing outside of the United States. 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, 2010, the weighted average fair value of all options granted was approximately $6.92 and $5.67, respectively. 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.  The aggregate intrinsic value (i.e. the excess market price over the exercise price)

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of all options exercised was approximately $706,000 and $807,000 for the three and six months ended January 31, 2010, respectively, and $84,000 and $899,000 for the three and six months ended January 31, 2009, respectively.

A summary of stock option activity follows:

			Weighted
	Number of		Average
	Shares		Exercise Price
Outstanding at July 31, 2009	1,505,722		$	16.32
Granted	414,750		15.95
Canceled	(166,400	)	21.21
Exercised	(129,906	)	13.02
Outstanding at January 31, 2010	1,624,166		$	15.99
Exercisable at July 31, 2009	1,049,657		$	17.86
Exercisable at January 31, 2010	848,940		$	17.53

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 or a reduction of deferred income tax assets (which are netted with long-term deferred income tax liabilities) and as a reduction of income taxes payable. For the six months ended January 31, 2010 and 2009, such income tax deductions reduced income taxes payable by $268,000 and $379,000, 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.

A summary of our stock award plans follows:

2006 Equity Incentive Plan

On January 10, 2007, the Company terminated its existing stock option plans and adopted the Cantel Medical Corp. 2006 Equity Incentive Plan (the “2006 Plan”). The 2006 Plan provides for the granting of stock options (including incentive stock options), restricted stock awards, stock appreciation rights and performance-based awards (collectively “equity awards”) to our employees and non-employee Directors. The 2006 Plan does not permit the granting of discounted options or discounted stock appreciation rights. On December 17, 2009, our stockholders approved an amendment to the 2006 Plan that increased the number of shares of Common Stock available for issuance under the 2006 Plan by 385,000.  The maximum number of shares as to which stock options and stock awards may be granted under the 2006 Plan is 2,085,000 shares, of which 1,200,000 shares are authorized for issuance pursuant to stock options and stock appreciation rights and 885,000 shares are authorized for issuance pursuant to

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restricted stock and other stock awards.  Stock options outstanding under this plan:

· were granted at the closing market price on the day of the grant,

· were granted as options that do not qualify as incentive stock options,

· as to options granted to employees, are exercisable in three or four equal annual installments commencing on the first anniversary of the grant date,

· include option grants of 750 shares on the last day of each of our fiscal quarters to each non-employee director who attended that quarter’s regularly scheduled Board of Directors meeting (exercisable on the first anniversary of the grant date),

· include option grants of 1,500 shares on the last day of our fiscal year to each member of our Board of Directors (50% are exercisable on the first anniversary of the grant date and 50% are exercisable on the second anniversary of the grant date),

· include option grants of 15,000 shares to each newly appointed or elected director (exercisable in three equal annual installments commencing on the first anniversary of the grant date),

· generally terminate three months following termination of employment or service as a non-employee director, and

· expire five years from the date of the grant.

Commencing November 1, 2009, quarterly options are no longer granted to non-employee directors and, commencing July 31, 2010, the annual grants of 1,500 options to non-employee directors will be changed to grants of 4,500 options that are exercisable in full on the first anniversary of the grant date.

Restricted stock shares outstanding under this plan are subject to risk of forfeiture solely due to an employment length-of-service restriction, with such restriction lapsing as to one-third of the shares on each of the first three anniversaries of the grant date subject to being employed by the Company through such vesting date. At January 31, 2010, options to purchase 901,915 shares of Common Stock were outstanding, and 274,153 unvested restricted stock shares were outstanding, under the 2006 Plan. At January 31, 2010, 233,750 shares are available for issuance pursuant to stock options and stock appreciation rights and 462,096 shares are available for issuance pursuant to restricted stock and other stock awards. The 2006 Plan expires on November 13, 2016.

1997 Employee Plan

A total of 3,750,000 shares of Common Stock was originally reserved for issuance or available for grant under our 1997 Employee Stock Option Plan, as amended, which was terminated on January 10, 2007 in conjunction with the adoption of the 2006 Plan. Options outstanding under this plan:

· were granted at the closing market price on the day of the grant,

· were granted either as incentive stock options or stock options that do not qualify as incentive stock options,

· are exercisable in three or four equal annual installments commencing on the first anniversary of the grant date,

· generally terminate three months following termination of employment, and

· expire five years from the date of the grant.

At January 31, 2010, options to purchase 675,751 shares of Common Stock were

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outstanding under the 1997 Employee Stock Option Plan. No additional options will be granted under this plan.

1998 Directors’ Plan

A total of 450,000 shares of Common Stock was originally reserved for issuance or available for grant under our 1998 Directors’ Stock Option Plan, as amended, which was terminated on January 10, 2007 in conjunction with the adoption of the 2006 Plan. Options outstanding under this plan:

· were granted to directors at the closing market price on the day of grant,

· include option grants of 15,000 shares to each newly appointed or elected director (exercisable in three equal annual installments commencing on the first anniversary of the grant date),

· include option grants of 750 shares on the last day of each of our fiscal quarters to each non-employee director who attended that quarter’s regularly scheduled Board of Directors meeting (exercisable on the grant date),

· include option grants of 1,500 shares on the last day of our fiscal year to each member of our Board of Directors (50% are exercisable on the first anniversary of the grant date and 50% are exercisable on the second anniversary of the grant date),

· have a term of ten years if granted prior to July 31, 2000 or five years if granted on or after July 31, 2000, and

· do not qualify as incentive stock options.

At January 31, 2010, options to purchase 46,500 shares of Common Stock were outstanding under the 1998 Directors’ Stock Option Plan. No additional options will be granted under this plan.

Note 3.                   Acquisitions

G.E.M. Water Systems Int’l, LLC

On July 31, 2009, we purchased substantially all of the assets, including the building housing its operations, of G.E.M., a private company with pre-acquisition annual revenues of approximately $3,500,000 based in Buena Park, California that designs, installs and services high quality water and bicarbonate systems for use in dialysis clinics, hospitals and other healthcare facilities. The total consideration for the transaction, including transaction costs, was $4,468,000.

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	$	681,000
Property, plant and equipment	1,975,000
Amortizable intangible assets - customer relationships (9-year life)	951,000
Non-amortizable intangible assets - trade names (indefinite life)	203,000
Current liabilities	(808,000		)
Net assets acquired	$	3,002,000

There were no in-process research and development projects acquired in connection with the acquisition. The excess purchase price of $1,466,000 was assigned to goodwill. Such

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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 California with a significant concentration of dialysis clinics and healthcare institutions.

The acquisition of G.E.M. is included in our results of operations for the three and six months ended January 31, 2010. Since the acquisition of G.E.M. occurred on the last day of our fiscal 2009, its results of operations are excluded from the three and six months ended January 31, 2009, but its net assets are included in our Condensed Consolidated Balance Sheet at July 31, 2009. Pro forma consolidated statements of income data have not been presented due to the insignificant impact of this acquisition.

Note 4.                   Recent Accounting Pronouncements

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162,” (codified as “ASC 105”). ASC 105 establishes the Accounting Standards Codification as the source of authoritative accounting literature recognized by the FASB to be applied by nongovernmental entities in addition to rules and interpretive releases of the Securities and Exchange Commission (“SEC”), which are sources of authoritative generally accepted accounting principles (“GAAP”) for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the codification will become non-authoritative. ASC 105 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of the financial statements. Following this statement, the FASB will issue new standards in the form of Accounting Standards Updates (“ASU”). This standard became effective for financial statements for interim and annual reporting periods ending after September 15, 2009 and therefore was adopted by us on August 1, 2009. As the codification was not intended to change or alter existing GAAP, it did not have any impact on our Condensed Consolidated Financial Statements.

In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements,” (“ASU 2010-09”). ASU 2010-09 addresses practical issues for SEC registrants with respect to management’s review of subsequent events by no longer requiring SEC registrants to disclose the date through which management evaluated subsequent events in financial statements. This change alleviates potential conflicts with SEC guidance. ASU 2010-09 is effective immediately for all financial statements that have not been issued or have not become available to be issued. As ASU 2010-09 was not intended to change our subsequent events procedures, it did not have any impact on our Condensed Consolidated Financial Statements other than excluding the disclosure of the date through which management evaluated subsequent events in these financial statements.

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” (“ASU 2010-06”). Reporting entities will have to provide information about movements of assets among Levels 1 and 2, and a reconciliation of purchases, sales, issuance, and settlements of activity valued with a Level 3 method, of the three-tier fair value hierarchy established by ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”). ASU 2010-06 also clarifies the existing guidance to require fair value measurement disclosures for each class of assets and

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liabilities. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009 for Level 1 and 2 disclosure requirements, which we will adopt in our third quarter of fiscal 2010, and after December 15, 2010 for Level 3 disclosure requirements, which we will adopt in our third quarter of fiscal 2011. The adoption of ASU 2010-06 is not expected to have any impact upon our financial position, results of operations and financial statement disclosures due to the nature of our Level 1 assets and the lack of any assets valued with a Level 2 or Level 3 method.

In October 2009, the FASB issued ASU 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Arrangements, a consensus of the FASB Emerging Issues Task Force,” (“ASU 2009-13”), which amends ASC 605-25, “Revenue Recognition-Multiple-Element Arrangements.” ASU 2009-13 provides principles for the allocation of consideration among multiple-element arrangements, allowing more flexibility in identifying and accounting for separate deliverables. ASU 2009-13 introduces an estimated selling price method for allocating revenue to the elements of a bundled arrangement if vendor-specific objective evidence or third-party evidence of selling price is not available, and significantly expands related disclosure requirements. This standard is effective on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We are currently in the process of evaluating the impact of ASU 2009-13 on our financial position and results of operations.

In December 2007, the FASB issued ASC 805, “Business Combinations,” (“ASC 805”), 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. Some of the revised guidance of ASC 805 includes initial capitalization of acquired in-process research and development, expensing transaction and restructuring costs and recording contingent consideration payments at fair value, with subsequent adjustments recorded to net earnings. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. ASC 805 was effective for business combinations that occur during or after fiscal years beginning after December 15, 2008 and therefore was adopted by us on August 1, 2009. Any acquisitions we make in fiscal 2010 and future periods will be subject to this new accounting guidance.

In September 2006, the FASB issued ASC 820.  ASC 820 establishes a framework for measuring fair value, clarifies the definition of fair value, and requires additional disclosures about fair value measurements that are already required or permitted by other accounting standards (except for measurements of share-based payments) and is expected to increase the consistency of those measurements. ASC 820, as issued, was 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. In February 2008, the effective date of ASC 820 was deferred for certain nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008 and therefore this portion of ASC 820 was adopted on August 1, 2009. The implementation of ASC 820 did not have a material impact on our financial position or results of operations at either date.

In August 2009, the FASB issued ASU 2009-05, which amends ASC 820. ASU 2009-05 provides amendments for fair value measurements of liabilities. It provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more alternate

12

techniques. ASU 2009-05 also clarifies that when estimating fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. ASU 2009-05 was effective for the first reporting period (including interim periods) beginning after issuance and was adopted by us during our first quarter of fiscal 2010. The adoption of ASU 2009-05 did not have a material impact on our financial position or results of operations.

Note 5.                   Accumulated Other Comprehensive Income

The Company’s comprehensive income for the three and six months ended January 31, 2010 and 2009 is set forth in the following table:

	Three Months Ended					Six Months Ended
	January 31,					January 31,
	2010		2009			2010		2009
Net income	$	4,876,000	$	3,774,000		$	11,044,000	$	7,107,000
Other comprehensive income (loss):
Unrealized loss on interest cap, net of tax	—		(27,000		)	—		(94,000		)
Foreign currency translation, net of tax	198,000		(623,000		)	50,000		(5,729,000		)
Comprehensive income	$	5,074,000	$	3,124,000		$	11,094,000	$	1,284,000

Note 6.                   Financial Instruments

We account for derivative instruments and hedging activities in accordance with ASC 815, “Derivatives and Hedging,” (“ASC 815”), 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, 2010, all of our derivatives were designated as hedges.

Changes in the value of (i) the Canadian dollar against the United States dollar, (ii) the euro against the United States dollar and (iii) the British pound against the United States dollar affect our results of operations because a portion of the net assets of our Canadian subsidiaries (which are reported in our Specialty Packaging and Water Purification and Filtration segments) and Minntech’s Netherlands subsidiary (which are reported in our Dialysis and Endoscope Reprocessing segments) are denominated and ultimately settled in United States dollars but must be converted into its functional Canadian dollar or euro currency. Furthermore, as part of the restructuring of our Netherlands subsidiary, as further described in Note 15 to the Condensed Consolidated Financial Statements, 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 (i) the Canadian dollar relative to the United States dollar, (ii) the euro relative to the United States dollar and (iii) the British pound relative to the United States dollar on the conversion of such net assets into the functional currencies, we enter into short-term contracts to purchase Canadian dollars, euros and British pounds forward, which contracts are generally one month in duration. These short-term

13

contracts are designated as fair value hedge instruments. There were three foreign currency forward contracts with an aggregate value of $4,651,000 at January 31, 2010, which covered certain assets and liabilities that were denominated in currencies other than our subsidiaries’ functional currencies. Such contracts expired on February 28, 2010. These foreign currency forward contracts are continually replaced with new one-month contracts as long as we have significant net assets at our subsidiaries that are denominated and ultimately settled in currencies other than their functional currencies. Under our credit facilities, such contracts to purchase Canadian dollars, 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, 2010, such forward contracts partially offset the impact on operations relating to certain assets and liabilities that were denominated in currencies other than our subsidiaries’ functional currencies and resulted in a net currency conversion loss, net of tax, of $21,000 and $23,000, respectively, on the items hedged. Gains and losses related to the hedging contracts to buy Canadian dollars, 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.

On August 1, 2008, we adopted ASC 820 for our financial assets and liabilities. ASC 820 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. ASC 820 establishes a three level fair value hierarchy to prioritize the inputs used in valuations, as defined below:

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

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

Level 3: Unobservable inputs for the asset or liability.

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

	January 31, 2010
	Level 1		Level 2		Level 3		Total
Cash and cash equilavents:
Bank deposits and certificates of deposit	$	7,082,000	$	—	$	—	$	7,082,000
Money markets and treasury obligations	11,049,000		—		—		11,049,000
Total cash and cash equilavents	$	18,131,000	$	—	$	—	$	18,131,000

	July 31, 2009
	Level 1		Level 2		Level 3		Total
Cash and cash equilavents:
Bank deposits and certificates of deposit	$	11,821,000	$	—	$	—	$	11,821,000
Money markets	11,547,000		—		—		11,547,000
Total cash and cash equilavents	$	23,368,000	$	—	$	—	$	23,368,000

As of January 31, 2010 and July 31, 2009, the carrying amounts for cash and cash equivalents, accounts receivable and accounts payable approximated fair value due to the short maturity of these instruments. We believe that as of January 31, 2010 and July 31, 2009, the fair

14

value of our outstanding borrowings under our credit facilities approximated the carrying value of those obligations since the borrowing rates were comparable to market interest rates.

Note 7.                   Intangible Assets 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 $1,294,000 and $2,572,000 for the three and six months ended January 31, 2010, respectively, and $1,268,000 and $2,606,000 for the three and six months ended January 31, 2009, 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, 2010
			Accumulated
	Gross		Amortization			Net
Intangible assets with finite lives:
Customer relationships	$	25,953,000	$	(10,942,000	)	$	15,011,000
Technology	9,353,000		(5,765,000		)	3,588,000
Brand names	9,546,000		(4,313,000		)	5,233,000
Non-compete agreements	1,863,000		(1,379,000		)	484,000
Patents and other registrations	1,224,000		(264,000		)	960,000
	47,939,000		(22,663,000		)	25,276,000
Trademarks and tradenames	9,315,000		—			9,315,000
Total intangible assets	$	57,254,000	$	(22,663,000	)	$	34,591,000

	July 31, 2009
			Accumulated
	Gross		Amortization			Net
Intangible assets with finite lives:
Customer relationships	$	26,977,000	$	(10,592,000	)	$	16,385,000
Technology	9,345,000		(5,304,000		)	4,041,000
Brand names	9,546,000		(3,798,000		)	5,748,000
Non-compete agreements	1,863,000		(1,223,000		)	640,000
Patents and other registrations	1,140,000		(221,000		)	919,000
	48,871,000		(21,138,000		)	27,733,000
Trademarks and tradenames	9,309,000		—			9,309,000
Total intangible assets	$	58,180,000	$	(21,138,000	)	$	37,042,000

Estimated amortization expense of our intangible assets for the remainder of fiscal 2010 and the next five years is as follows:

Six month period ending July 31, 2010	$	2,505,000
Fiscal 2011	4,745,000
Fiscal 2012	4,281,000
Fiscal 2013	4,207,000
Fiscal 2014	4,021,000
Fiscal 2015	3,855,000

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Goodwill changed during fiscal 2009 and the six months ended January 31, 2010 as follows:

	Water
	Purification			Healthcare		Endoscope							Total
	and Filtration			Disposables		Reprocessing		Dialysis		All Other			Goodwill
Balance, July 31, 2008	$	37,662,000		$	50,473,000	$	9,648,000	$	8,133,000	$	8,042,000		$	113,958,000
Acquisitions	1,466,000			—		—		—		—			1,466,000
Earnout on acquisition	—			157,000		—		—		—			157,000
Adjustments primarily relating to income tax exposure of acquired businesses	(38,000		)	—		—		—		—			(38,000		)
Foreign curreny translation	(244,000		)	—		—		—		(304,000		)	(548,000		)
Balance, July 31, 2009	38,846,000			50,630,000		9,648,000		8,133,000		7,738,000			114,995,000
Foreign curreny translation	17,000			—		—		—		20,000			37,000
Balance, January 31, 2010	$	38,863,000		$	50,630,000	$	9,648,000	$	8,133,000	$	7,758,000		$	115,032,000

On July 31, 2009, 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,
	2010			2009			2010			2009
Beginning balance	$	975,000		$	882,000		$	949,000		$	916,000
Provisions	523,000			297,000			950,000			599,000
Charges	(357,000		)	(267,000		)	(758,000		)	(555,000		)
Foreign currency translation	—			—			—			(48,000		)
Ending balance	$	1,141,000		$	912,000		$	1,141,000		$	912,000

The warranty provisions and charges during the three and six months ended January 31, 2010 and 2009 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 “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 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 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 $426,000 at January 31, 2010.

At January 31, 2010, borrowings under the 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

16

adjusted under the terms of the U.S. Credit Facilities (“EBITDA”). At January 31, 2010, the lender’s base rate was 3.25% and the LIBOR rates ranged from 1.41% to 2.09%. The margins applicable to our outstanding borrowings at January 31, 2010 were 0.00% above the lender’s base rate and 0.625% above LIBOR. All of our outstanding borrowings were under LIBOR contracts at January 31, 2010. The majority of such contracts were twelve month LIBOR contracts; therefore, we are substantially protected for the remainder of fiscal 2010 from any exposure associated with increasing LIBOR rates. The 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 0.15% at January 31, 2010.

The 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 Products, Inc.) and (ii) our pledge of all of the outstanding shares of Minntech, Mar Cor, Crosstex and Strong Dental Products, Inc. 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. Such consent was obtained with respect to annual cash dividends of up to $1,800,000, commencing with the dividend paid on January 29, 2010. As of January 31, 2010, we were in compliance with all financial and other covenants under the U.S. Credit Facilities.

On January 31, 2010, we had $30,500,000 of outstanding borrowings under the U.S. Credit Facilities, which consisted of $15,000,000 and $15,500,000 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.

The revolving portion of our credit facilities has a termination date of August 1, 2010. Although we may repay a portion of our outstanding borrowings under the revolver throughout fiscal 2010, we do not presently anticipate paying off the revolver in full by its termination date. We are in discussions with our bank syndicate regarding modifications to such facility, including an extension of the termination date, and expect to formally modify the facility before the expiration date. However, since any modification will not be completed until later in fiscal 2010, subsequent to July 31, 2009 the entire outstanding balance of the revolver was reclassified from long-term to current.

Note 10.                 Earnings Per Common Share

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

In June 2008, the FASB issued ASC 260-10-45, which provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method, a change that reduces both basic and diluted EPS. Our participating securities consist solely of unvested restricted

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stock awards, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities. Previously, we excluded unvested restricted stock awards in the calculation of basic EPS and included such awards in diluted EPS under the treasury stock method. ASC 260-10-45 was effective for fiscal years beginning after December 15, 2008 and therefore was adopted on August 1, 2009. All prior period EPS data presented have been adjusted retrospectively to conform to the provisions of ASC 260-10-45. For the three and six months ended January 31, 2009, such retrospective application caused an insignificant increase in the denominator of our weighted average shares calculation, which decreased previously reported basic EPS for the six months ended January 31, 2009 from $0.44 to $0.43 but had no impact on basic EPS for the three months ended January 31, 2009 and previously reported diluted EPS.

The following table sets forth the computation of basic and diluted EPS available to shareholders of common stock:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2010			2009			2010			2009
Numerator for basic and diluted earnings per share:
Net income	$	4,876,000		$	3,774,000		$	11,044,000		$	7,107,000
Less income allocated to participating securities	(78,000		)	(47,000		)	(167,000		)	(90,000		)
Net income available to common shareholders	$	4,798,000		$	3,727,000		$	10,877,000		$	7,017,000
Denominator for basic and diluted earnings per share, as adjusted for participating securities:
Denominator for basic earnings per share - weighted average number of shares outstanding	16,486,818			16,263,703			16,454,918			16,227,013
Dilutive effect of stock options using the treasury stock method and the average market price for the period	222,240			32,378			174,429			44,139
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents	16,709,058			16,296,081			16,629,347			16,271,152
Earnings per share attributable to common stock:
Basic earnings per share	$	0.29		$	0.23		$	0.66		$	0.43
Diluted earnings per share	$	0.29		$	0.23		$	0.65		$	0.43
Stock options excluded from weighted average dilutive common shares outstanding because their inclusion would have been antidulitive	601,401			1,183,651			708,276			1,499,601

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The Company’s total weighted average number of shares, including participating securities, for the three and six months ended January 31, 2010 and 2009 are set forth in the following table:

	Three Months Ended		Six Months Ended
	January 31,		January 31,
	2010	2009	2010	2009
Weighted average number of shares outstanding attributable to:
Common stock	16,486,818	16,263,703	16,454,918	16,227,013
Participating securities	273,866	207,165	255,606	207,165
Total weighted average number of shares outstanding	16,760,684	16,470,868	16,710,524	16,434,178
Dilutive effect of stock options using the treasury stock method and the average market price for the period	222,240	32,378	174,429	44,139
Total weighted average number of shares and common stock equivalents	16,982,924	16,503,246	16,884,953	16,478,317

Note 11.                 Income Taxes

The consolidated effective tax rate was 37.4% and 38.0% for the six months ended January 31, 2010 and 2009, respectively. The decrease in the consolidated effective tax rate was principally due to the geographic mix of pre-tax income, as described below, as well as additional United States taxes in the prior year period related to the repatriation of earnings from our Netherlands subsidiary.

The majority of our income before income taxes was generated from our United States operations, which had an overall effective tax rate of 37.9% and 38.5% for the six months ended January 31, 2010 and 2009, respectively.

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, thereby adversely affecting our overall consolidated effective tax rate in the prior year period. For the six months ended January 31, 2010, our Netherlands operation became slightly profitable as a result of the prior year restructuring of its operations, as more fully described elsewhere in this MD&A and Note 15 to the Condensed Consolidated Financial Statements.

Approximately 2% of our income before income taxes was generated from our operations in Singapore, a country with a low corporate tax structure. The overall effective tax rate for our Singapore operation was 11.4% for the six months ended January 31, 2010. For the prior year period, our Singapore operation was slightly profitable and did not have a significant impact on our overall effective tax rate.

Partially offsetting the favorable impact of our United States, Netherlands and Singapore operations on our overall effective tax rate for the six months ended January 31, 2010, compared with our overall effective tax rate for the six months ended January 31, 2009, was our Canadian operations, which had an overall effective tax rate of 27.6% and 10.5% for the six months ended January 31, 2010 and 2009, respectively. The low overall effective tax rate in the prior year period was attributable to the impact of a lower overall effective tax rate in our Specialty

19

Packaging segment as applied to existing deferred income tax liabilities. Approximately 3% and 5% of our income before income taxes was generated from our Canadian operations for the six months ended January 31, 2010 and 2009, respectively.

The results of operations for our subsidiary in Japan did not have a significant impact on our overall effective tax rate for the six months ended January 31, 2010 and 2009 due to the size of income before income taxes generated from this operation.

We record liabilities for an unrecognized tax benefit when a tax benefit for an uncertain tax position is taken or expected to be taken on a tax return, but is not recognized in our Condensed Consolidated Financial Statements because it does not meet the more-likely-than-not recognition threshold that the uncertain tax position would be sustained upon examination by the applicable taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the tax authorities. 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 were recorded as an increase or decrease to goodwill. On August 1, 2009, we adopted ASC 805, which requires the resolution of income tax uncertainties that predate or result from acquisitions to be recognized in our results of operations beginning with fiscal 2010. However, if our unrecognized tax benefits are recognized in our financial statements in future periods, there would not be a significant impact to our effective tax rate due to the size of the unrecognized tax benefits in relation to our income before income taxes. 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 July 31, 2008	$	427,000
Lapse of statute of limitations	(47,000		)
Unrecognized tax benefits on July 31, 2009	380,000
Activity during the six months ended January 31, 2010	—
Unrecognized tax benefits on January 31, 2010	$	380,000

Generally, the Company is no longer subject to federal, state or foreign income tax examinations for fiscal years ended prior to July 31, 2003.

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.

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12.          Commitments and Contingencies

Long-term contractual obligations

As of January 31, 2010, 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,
	2010		2011		2012		2013		2014		Thereafter		Total
	(Amounts in thousands)
Maturities of the credit facilities	$	5,000	$	25,500	$	—	$	—	$	—	$	—	$	30,500
Expected interest payments under the credit facilities (1)	344		120		—		—		—		—		464
Minimum commitments under noncancelable operating leases	1,591		2,480		1,583		1,071		895		3,086		10,706
Minimum commitments under noncancelable capital leases	26		14		—		—		—		—		40
Deferred compensation and other	203		408		253		32		33		166		1,095
Employment agreements	1,613		1,541		131		—		—		—		3,285
Total contractual obligations	$	8,777	$	30,063	$	1,967	$	1,103	$	928	$	3,252	$	46,090

(1) The expected interest payments under the term and revolving credit facilities reflect interest rates of 2.19% and 2.62%, respectively, which were our weighted average interest rates on outstanding borrowings at January 31, 2010.

Operating leases

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

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 executives of the Company, including our Corporate executive officers and our subsidiary Chief Executive Officers. The majority of such contracts expired and were replaced effective January 1, 2010 with severance contracts that defined certain compensation arrangements relating to various employment termination scenarios.

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,

21

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 FASB ASC Topic 280, “Segment Reporting” (“ASC 280”), we have determined our reportable business segments based upon an assessment of product types, organizational structure, customers and internally prepared financial statements. The primary factors used by us in analyzing segment performance are net sales and operating income.

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 24% of our Water Purification and Filtration segment net sales and approximately 8% of our consolidated net sales during the six months ended January 31, 2010.

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 53% of our Healthcare Disposables segment net sales and approximately 14% of our consolidated net sales during the six months ended January 31, 2010.

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.

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 43% of our Dialysis segment net sales and approximately 16% of our consolidated net sales, including one customer that accounted for approximately 32% of our Dialysis segment net sales and approximately 8% of our consolidated net sales, during the six months ended January 31, 2010.

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All Other

In accordance with quantitative thresholds established by ASC 280, 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 2009 Form 10-K.

Information as to operating segments is summarized below:

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2010			2009			2010			2009
Net sales:
Water Purification and Filtration	$	18,870,000		$	16,799,000		$	37,702,000		$	35,269,000
Healthcare Disposables	16,160,000			14,371,000			36,742,000			30,120,000
Endoscope Reprocessing	15,987,000			11,941,000			30,777,000			24,364,000
Dialysis	11,465,000			15,250,000			24,294,000			29,480,000
All Other	4,105,000			4,059,000			8,067,000			7,593,000
Total	$	66,587,000		$	62,420,000		$	137,582,000		$	126,826,000
Operating Income:
Water Purification and Filtration	$	1,918,000		$	1,448,000		$	4,076,000		$	3,200,000
Healthcare Disposables	2,439,000			1,546,000			7,287,000			3,523,000
Endoscope Reprocessing	1,933,000			1,568,000			3,650,000			3,103,000
Dialysis	2,748,000			2,896,000			5,692,000			5,135,000
All Other	1,180,000			1,021,000			2,225,000			1,686,000
	10,218,000			8,479,000			22,930,000			16,647,000
General corporate expenses	(2,234,000		)	(1,880,000		)	(4,582,000		)	(3,864,000		)
Interest expense, net	(331,000		)	(636,000		)	(710,000		)	(1,317,000		)
Income before income taxes	$	7,653,000		$	5,963,000		$	17,638,000		$	11,466,000

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.

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Note 15.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.

For the three months ended January 31, 2009, we recorded $74,000 in restructuring costs, of which $37,000 was recorded in each of cost of sales and general and administrative expenses. For the six months ended January 31, 2009, we recorded $345,000 in restructuring costs, of which $176,000 was recorded in cost of sales and $169,000 was recorded in general and administrative expenses. The total cost of the restructuring plan was $710,000 and was recorded beginning in our fourth quarter of fiscal 2008 until the restructuring plan completion date of July 31, 2009. We do not expect to incur any additional restructuring costs. The majority of the restructuring costs were included in our Endoscope Reprocessing segment.  Since the above costs were recorded in our Netherlands subsidiary, which had been experiencing losses from its operations, tax benefits on the above costs were not recorded.

As part of the restructuring plan, we sold our Netherlands building and land on May 19, 2009 and entered into a lease for 2.5 years with the new owner so we can continue to use the facility as our European sales and service headquarters as well as for warehouse and distribution activity. The sale of the building and land resulted in a gain of $146,000, which is being amortized over the life of the lease and is recorded in deferred revenue and other long-term liabilities. The rent for the full 2.5 year lease of $325,000 was paid from the sale proceeds and recorded in prepaid expenses and other assets.

Note 16.                 Convertible Note Receivable

In February 2009, we invested an initial $200,000 in a senior subordinated convertible promissory note issued by BIOSAFE, Inc. (“BIOSAFE”), in connection with BIOSAFE’s grant to us of certain exclusive and non-exclusive license rights to BIOSAFE’s antimicrobial additive. BIOSAFE is the owner of a patented and proprietary antimicrobial agent that is built into the manufacturing of end-products to achieve long-lasting microbial protection on such end-products’ surface. As a result of BIOSAFE’s successful raising of a minimum incremental amount of cash following our investment, we invested an additional $300,000 in notes of BIOSAFE during the three months ending January 31, 2010 bringing the aggregate investment in BIOSAFE notes to $500,000, as obligated under our agreement with BIOSAFE. We are not obligated to invest any additional funds.

The notes are convertible into a newly-created series of preferred stock of BIOSAFE. The notes accrue interest at a per annum rate of 8% until the maturity date of June 30, 2011 or earlier exercise. Interest is payable in shares of BIOSAFE stock or in cash. If not paid by the maturity date, interest will accrue thereafter at a rate of 12% per annum. In connection with our investment, we entered into a license agreement with BIOSAFE under which we will pay BIOSAFE a fixed royalty percentage of sales of our products containing BIOSAFE’s

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antimicrobial formulation. This investment, together with the accrued interest of $16,000, is included within other assets in our Condensed Consolidated Balance Sheets. The carrying value of this investment approximates fair value due to the short maturity of the notes and the relatively consistent underlying value of BIOSAFE.

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

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

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

Results of Operations provides a discussion of the consolidated results of operations for the three and six months ended January 31, 2010 compared with the three and six months ended January 31, 2009.

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

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

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

Overview

Cantel is a leading provider of infection prevention and control products 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.

·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, disinfectants, enzymatic detergents and other supplies used to high-level disinfect flexible endoscopes.

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

·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.

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See our Annual Report on Form 10-K for the fiscal year ended July 31, 2009 (the “2009 Form 10-K”) and our Condensed Consolidated Financial Statements for additional financial information regarding our reporting segments.

Significant Activity

(i)Net income increased by 29% and 55% for the three and six months ended January 31, 2010, respectively, compared with the three and six months ended January 31, 2009. We continue to benefit from having a broad portfolio of infection prevention and control products sold into diverse business segments and we have proactively developed our overall business to where approximately 75% of our net sales are attributable to consumable products and service. While all of our business segments performed well, the Healthcare Disposables segment contributed a significant portion of the increase to net income for the three and six months ended January 31, 2010. The primary factors that contributed to this financial performance, as further described elsewhere in this MD&A, were as follows:

·an increase in demand during the first four months of the six months ended January 31, 2010 for healthcare disposables products as a result of the outbreak of the novel H1N1 (swine flu),

·improved gross margins as a result of numerous profit improvement and sales and marketing initiatives and the continued shift in sales mix to higher margin disposables,

·higher selling prices including those attributable to converting the sale of high-level disinfectants in our Endoscope Reprocessing segment from our former equipment distributor to our direct sales and service force at higher selling prices,

·reductions in manufacturing, raw material and distribution costs,

·general company-wide efforts to control operating expenses while still investing in sales, marketing and research and development activities, and

·favorable interest costs due to both reduced average interest rates as well as lower outstanding borrowings.

However, we do not expect this level of growth will continue to be achieved, especially given the economic conditions, the decrease in the severity of the novel H1N1 flu outbreak and other potential risks or uncertainties. See “Risk Factors” in our 2009 Form 10-K for a discussion of the Company’s risk factors.

(ii)We sell our dialysis products to a concentrated number of customers. Sales in our Dialysis segment were adversely impacted by the continued loss of some lower margin dialysate concentrate business from both domestic and

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international customers as a result of the highly competitive and price sensitive market for such product, as more fully described elsewhere in this MD&A. Although operating income has not been significantly affected by the loss of such sales, a further loss in sales is likely to result in a lower level of operating income in this segment.

(iii)While overall sales and operating income have increased in our Water Purification and Filtration segment for the three and six months ended January 31, 2010 compared with the three and six months ended January 31, 2009, the deterioration in the economy and credit markets adversely impacted our sales of capital equipment used for dialysis by causing some of our customers to delay spending on such products, as more fully described elsewhere in this MD&A.

(iv)We declared our first cash semiannual dividend of $0.05 per share of outstanding common stock, which was paid on January 29, 2010, as more fully described elsewhere in this MD&A.

(v)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 15 to the Condensed Consolidated Financial Statements and elsewhere in this MD&A.

(vi)Fluctuations in the rates of currency exchange had an overall adverse impact on our net income for the three and six months ended January 31, 2010, compared with the three and six months ended January 31, 2009, as more fully described elsewhere in this MD&A.

(vii)We acquired the business of G.E.M. Water Systems Int’l, LLC (“G.E.M.”) on July 31, 2009, 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. Since the G.E.M. acquisition was completed on July 31, 2009, its results of operations are included in our results of operations for the three and six months ended January 31, 2010, but are not reflected in our results of operations for the three and six months ended January 31, 2009.

The following discussion should also be read in conjunction with our 2009 Form 10-K.

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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,
	2010			2009			2010			2009
	(Dollar amounts in thousands)						(Dollar amounts in thousands)
	$		%	$		%	$		%	$		%
Water Purification and Filtration	$	18,870	28.3	$	16,799	26.9	$	37,702	27.4	$	35,269	27.8
Healthcare Disposables	16,160		24.3	14,371		23.0	36,742		26.7	30,120		23.7
Endoscope Reprocessing	15,987		24.0	11,941		19.1	30,777		22.4	24,364		19.2
Dialysis	11,465		17.2	15,250		24.5	24,294		17.7	29,480		23.3
All Other	4,105		6.2	4,059		6.5	8,067		5.8	7,593		6.0
	$	66,587	100.0	$	62,420	100.0	$	137,582	100.0	$	126,826	100.0

Net Sales

Net sales increased by $4,167,000, or 6.7%, to $66,587,000 for the three months ended January 31, 2010 from $62,420,000 for the three months ended January 31, 2009.

Net sales increased by $10,756,000, or 8.5%, to $137,582,000 for the six months ended January 31, 2010 from $126,826,000 for the six months ended January 31, 2009.

The increase in net sales for the three and six months ended January 31, 2010 was principally attributable to increases in sales of endoscope reprocessing products and services, healthcare disposables products and water purification and filtration products and services, partially offset by a decrease in dialysis products.

Net sales of endoscope reprocessing products and services increased by 33.9% and 26.3% for the three and six months ended January 31, 2010, respectively, compared with the three and six months ended January 31, 2009, primarily due to increases in both domestic and international demand for (i) our endoscope reprocessing equipment and (ii) our disinfectants, equipment accessories and product service due to the increased field population of equipment. Additionally, the increase was due to higher selling prices of our disinfectants in the United States as a result of converting such prior period sales from our former equipment distributor to our direct sales and service force.

Net sales of healthcare disposables products increased by 12.4% and 22.0% for the three and six months ended January 31, 2010, respectively, compared with the three and six months ended January 31, 2009, despite nominal growth in the overall dental market, primarily due to (i) increased sales volume of high margin face masks, disinfectants and other healthcare disposables products due to the outbreak of the novel H1N1 flu (swine flu) in April 2009, which resulted in increased demand during the first four months of the six months ended January 31, 2010, (ii) approximately $400,000 in higher net sales in the first half of the six months ended January 31, 2010 due to a prior year increase in selling prices, which were implemented to offset corresponding supplier cost increases, and (iii) favorable results from sales and marketing initiatives. Although the outbreak of the novel H1N1 flu resulted in strong sales volume of high margin face masks and other healthcare disposables products during the first four months of the six months ended January 31, 2010, such increased sales levels will not be sustained throughout the last half of fiscal 2010 due to the low level of reported cases of influenza viruses in recent

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months which has already decreased demand. Overall demand for face masks is highly dependent upon the severity and timing of the novel H1N1 flu, the ability of our Company to educate existing customers and potential new customers on the benefits of our face masks, disinfectants and other products and the level of urgency our customers and the general public develop and maintain with respect to epidemic and pandemic preparedness.

Net sales of water purification and filtration products and services increased by 12.3% and 6.9% for the three and six months ended January 31, 2010, respectively, compared with the three and six months ended January 31, 2009, primarily due to (i) approximately $715,000 and $1,490,000, respectively, of net sales due to the acquisition of G.E.M. on July 31, 2009, (ii) an increase in demand for our sterilants and filters within our installed equipment base of business and (iii) higher selling prices, which favorably impacted net sales for the three and six months ended January 31, 2010 by approximately $185,000 and $465,000, respectively. Partially offsetting these increases were delayed investments by customers of our water purification equipment used for dialysis primarily as a result of the deterioration in the general economy and credit markets, which may continue to adversely affect capital equipment sales.

Net sales of dialysis products and services decreased by 24.8% and 17.6% for the three and six months ended January 31, 2010, respectively, compared with the three and six months ended January 31, 2009, primarily due to the continuing adverse impact of losing some dialysate concentrate business (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 domestic and international customers as a result of the highly competitive and price sensitive market for this lower margin commodity product, as well as various global economic factors with respect to international demand. Due to sales price decreases by some of our competitors, we expect a continued decrease in net sales of our lower margin dialysate concentrate product during the remainder of fiscal 2010 as we elect not to pursue unprofitable concentrate sales. Furthermore, Fresenius Medical Care (“Fresenius”), the largest dialysis provider chain in the United States, manufactures dialysate concentrate themselves and has been gradually decreasing their purchases of that product from us and may continue to do so in the future. Partially offsetting these decreases were higher selling prices, which favorably impacted net sales for the three and six months ended January 31, 2010 by approximately $225,000 and $475,000, respectively. Although operating income has not been significantly affected by the loss of sales of dialysate concentrate, a further loss in sales is likely to result in a lower level of operating income in this segment.

Gross profit

Gross profit increased by $3,513,000, or 14.9%, to $27,124,000 for the three months ended January 31, 2010 from $23,611,000 for the three months ended January 31, 2009. Gross profit as a percentage of net sales for the three months ended January 31, 2010 and 2009 was 40.7% and 37.8%, respectively.

Gross profit increased by $9,348,000, or 19.8%, to $56,582,000 for the six months ended January 31, 2010 from $47,234,000 for the six months ended January 31, 2009. Gross profit as a percentage of net sales for the six months ended January 31, 2010 and 2009 was 41.1% and 37.2%, respectively.

The gross profit percentage for the three and six months ended January 31, 2010 increased compared with the three and six months ended January 31, 2009 primarily due to (i)

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favorable sales mix due to the increased sales volume of certain higher margin products such as face masks and disinfectants in our Healthcare Disposables segment, disinfectants and equipment accessories in our Endoscope Reprocessing segment, and sterilants and filters in our Water Purification and Filtration segment, as well as decreased sales of our lower margin dialysate concentrate product in our Dialysis segment, (ii) higher selling prices including those attributable to converting the sale of high-level disinfectants in our Endoscope Reprocessing segment from our former equipment distributor to our direct sales and service force at higher selling prices, (iii) a decrease in raw material costs due to the lower price of oil, (iv) improved efficiencies in our manufacturing, distribution and service functions and (v) approximately $37,000 and $176,000 in restructuring charges recorded primarily in our Endoscope Reprocessing segment during the three and six months ended January 31, 2009 relating to the relocation of our Netherlands manufacturing operations, as more fully described elsewhere in this MD&A. However, we cannot provide assurances that this gross profit percentage will be sustained, particularly since we anticipate a reduction in sales of our higher margin Healthcare Disposables products due to the low level of reported cases of the novel H1N1 flu in recent months which has already decreased demand. Additionally, we cannot provide assurances that our gross profit percentage will not be adversely affected if raw materials and distribution costs increase and we are unable to implement price increases.

Operating Expenses

Selling expenses increased by $1,719,000, or 24.6%, to $8,711,000 for the three months ended January 31, 2010, from $6,992,000 for the three months ended January 31, 2009. For the six months ended January 31, 2010, selling expenses increased by $2,893,000, or 20.2%, to $17,235,000 from $14,342,000 for the six months ended January 31, 2009. These increases are primarily due to (i) additional sales personnel and higher compensation expense principally in our Endoscope Reprocessing segment relating to incentive compensation, including commissions expense from a more aggressive commission plan designed to gain market share, (ii) an increase in advertising and marketing expense primarily related to our Healthcare Disposables segment and (iii) increased sales support services principally in our Water Purification and Filtration and Endoscope Reprocessing segments.

Selling expenses as a percentage of net sales were 13.1% and 11.2% for the three months ended January 31, 2010 and 2009, respectively, and 12.5% and 11.3% for the six months ended January 31, 2010 and 2009, respectively.

General and administrative expenses increased by $235,000, or 2.6%, to $9,272,000 for the three months ended January 31, 2010, from $9,037,000 for the three months ended January 31, 2009, primarily due to (i) higher compensation expense of approximately $205,000 relating to additional personnel primarily in our Water Purification and Filtration segment and incentive compensation and (ii) an increase of $197,000 in stock-based compensation expense, partially offset by a decrease of approximately $175,000 in outside professional fees.

General and administrative expenses increased by $516,000, or 2.9%, to $18,577,000 for the six months ended January 31, 2010, from $18,061,000 for the six months ended January 31, 2009, primarily due to (i) an increase of $452,000 in stock-based compensation expense, (ii) higher compensation expense of approximately $380,000 relating to incentive compensation and (iii) an increase of approximately $210,000 relating to foreign currency primarily as a result of the inclusion of foreign exchange gains during the prior year period associated with translating certain foreign denominated assets into functional currencies. These increases were partially

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offset by a decrease in overhead and restructuring costs at our Netherlands operation due to the completion of restructuring activities, as more fully described elsewhere in this MD&A, and approximately $172,000 in lower bad debt expense primarily in our Water Purification and Filtration segment.

General and administrative expenses as a percentage of net sales were 13.9% and 14.5% for the three months ended January 31, 2010 and 2009, respectively, and 13.5% and 14.2% for the six months ended January 31, 2010 and 2009, respectively.

Research and development expenses (which include continuing engineering costs) increased by $174,000 to $1,157,000 for the three months ended January 31, 2010, from $983,000 for the three months ended January 31, 2009.  For the six months ended January 31, 2010, research and development expenses increased by $374,000 to $2,422,000, from $2,048,000 for the six months ended January 31, 2009. These increases are primarily due to increased development work on certain new products as well as continuing engineering on existing products primarily in our Water Purification and Filtration, Endoscope Reprocessing and Therapeutic Filtration segments.

Interest

Interest expense decreased by $335,000 to $339,000 for the three months ended January 31, 2010, from $674,000 for the three months ended January 31, 2009.  For the six months ended January 31, 2010, interest expense decreased by $699,000 to $726,000, from $1,425,000 for the six months ended January 31, 2009, primarily due to decreases in average outstanding borrowings and average interest rates.

Interest income decreased by $30,000 to $8,000 for the three months ended January 31, 2010, from $38,000 for the three months ended January 31, 2009.  For the six months ended January 31, 2010, interest income decreased by $92,000 to $16,000, from $108,000 for the six months ended January 31, 2009, primarily due to a decrease in average interest rates and a more conservative investment philosophy.

Income taxes

The consolidated effective tax rate was 37.4% and 38.0% for the six months ended January 31, 2010 and 2009, respectively. The decrease in the consolidated effective tax rate was principally due to the geographic mix of pre-tax income, as described below, as well as additional United States taxes in the prior year period related to the repatriation of earnings from our Netherlands subsidiary.

The majority of our income before income taxes was generated from our United States operations, which had an overall effective tax rate of 37.9% and 38.5% for the six months ended January 31, 2010 and 2009, respectively.

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, thereby adversely affecting our overall consolidated effective tax rate in the prior year period. For the six months ended January 31, 2010, our Netherlands operation became slightly profitable as a result of the prior year restructuring of its operations, as more fully described elsewhere in this MD&A and Note 15 to the Condensed Consolidated Financial Statements.

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Approximately 2% of our income before income taxes was generated from our operations in Singapore, a country with a low corporate tax structure. The overall effective tax rate for our Singapore operation was 11.4% for the six months ended January 31, 2010. For the prior year period, our Singapore operation was slightly profitable and did not have a significant impact on our overall effective tax rate.

Partially offsetting the favorable impact of our United States, Netherlands and Singapore operations on our overall effective tax rate for the six months ended January 31, 2010, compared with our overall effective tax rate for the six months ended January 31, 2009, was our Canadian operations, which had an overall effective tax rate of 27.6% and 10.5% for the six months ended January 31, 2010 and 2009, respectively. The low overall effective tax rate in the prior year period was attributable to the impact of a lower overall effective tax rate in our Specialty Packaging segment as applied to existing deferred income tax liabilities. Approximately 3% and 5% of our income before income taxes was generated from our Canadian operations for the six months ended January 31, 2010 and 2009, respectively.

The results of operations for our subsidiary in Japan did not have a significant impact on our overall effective tax rate for the six months ended January 31, 2010 and 2009 due to the size of income before income taxes generated from this operation.

We record liabilities for an unrecognized tax benefit when a tax benefit for an uncertain tax position is taken or expected to be taken on a tax return, but is not recognized in our Condensed Consolidated Financial Statements because it does not meet the more-likely-than-not recognition threshold that the uncertain tax position would be sustained upon examination by the applicable taxing authority. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the tax authorities.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 were recorded as an increase or decrease to goodwill. On August 1, 2009, we adopted Accounting Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”), which requires the resolution of income tax uncertainties that predate or result from acquisitions to be recognized in our results of operations beginning with fiscal 2010. However, if our unrecognized tax benefits are recognized in our financial statements in future periods, there would not be a significant impact to our effective tax rate due to the size of the unrecognized tax benefits in relation to our income before income taxes. 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 July 31, 2008	$	427,000
Lapse of statute of limitations	(47,000		)
Unrecognized tax benefits on July 31, 2009	380,000
Activity during the six months ended January 31, 2010	—
Unrecognized tax benefits on January 31, 2010	$	380,000

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Generally, the Company is no longer subject to federal, state or foreign income tax examinations for fiscal years ended prior to July 31, 2003.

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.

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,
	2010			2009			2010			2009
Cost of sales	$	41,000		$	18,000		$	59,000		$	36,000
Operating expenses:
Selling	110,000			53,000			179,000			106,000
General and administrative	650,000			453,000			1,348,000			896,000
Research and development	10,000			1,000			14,000			7,000
Total operating expenses	770,000			507,000			1,541,000			1,009,000
Stock-based compensation before income taxes	811,000			525,000			1,600,000			1,045,000
Income tax benefits	(293,000		)	(199,000		)	(583,000		)	(446,000		)
Total stock-based compensation expense, net of tax	$	518,000		$	326,000		$	1,017,000		$	599,000
Decrease in earnings per common share due to stock-based compensation:
Basic	$	0.03		$	0.02		$	0.06		$	0.04
Diluted	$	0.03		$	0.02		$	0.06		$	0.04

For the three and six months ended January 31, 2010 and 2009, 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) and a reduction to income tax expense.

The stock-based compensation expense recorded in the Condensed Consolidated Financial Statements may not be representative of the effect of stock-based compensation expense in future periods due to the level of awards issued in past years (which level may not be similar in the future), modifications of existing awards and assumptions used in determining fair value, expected lives and estimated forfeitures. We determine the fair value of each stock award using the closing market price of our Common Stock on the date of grant. We estimate the fair value of each option grant on the date of grant using the Black-Scholes option valuation model. The determination of fair value using an option-pricing model is affected by our stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not

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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 historically was 0% and is now expected to be 0.5% as we began paying dividends in January 2010), and the expected option life (which is based on historical exercise behavior). If factors change and we employ different assumptions in the application of ASC Topic 718, “Compensation — Stock Compensation,” (“ASC 718”), in future periods, the compensation expense that we would record may differ significantly from what we have recorded in the current period.

Most of our stock options and stock awards (which consist only of restricted stock) are subject to graded vesting in which portions of the award vest at different times during the vesting period, as opposed to awards that vest at the end of the vesting period. We recognize compensation expense for awards subject to graded vesting using the straight-line basis, reduced by estimated forfeitures. At January 31, 2010, total unrecognized stock-based compensation expense before income taxes related to total nonvested stock options and stock awards was $4,603,000 with a remaining weighted average period of 23 months over which such expense is expected to be recognized.

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 or a reduction of deferred income tax assets (which are netted with long-term deferred income tax liabilities) and as a reduction of income taxes payable. For the six months ended January 31, 2010 and 2009, such income tax deductions reduced income taxes payable by $268,000 and $379,000, 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.

Liquidity and Capital Resources

Working capital

At January 31, 2010, the Company’s working capital was $36,946,000, compared with $49,797,000 at July 31, 2009. This decrease in working capital was primarily due to reclassifying the entire outstanding balance of our revolving credit facility from long-term to current as a result of the revolving credit facility’s expiration occurring in less than one year on August 1, 2010.

Cash flows from operating activities

Net cash provided by operating activities was $10,315,000 and $13,208,000 for the six months ended January 31, 2010 and 2009, respectively. For the six months ended January 31, 2010, the net cash provided by operating activities was primarily due to net income (after adjusting for depreciation, amortization, stock-based compensation expense and deferred taxes), partially offset by increases in inventories (due to planned strategic increases in stock levels of certain products primarily in our Healthcare Disposables and Endoscope Reprocessing segments) and accounts receivable (due to strong sales primarily in our Water Purification and Filtration and Endoscope

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Reprocessing segments) and a decrease in accounts payable, deferred revenue and accrued expenses (due primarily to the timing associated with incentive compensation payments).

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).

Cash flows from investing activities

Net cash used in investing activities was $3,702,000 and $6,306,000 for the six months ended January 31, 2010 and 2009, respectively. For the six months ended January 31, 2010, the net cash used in investing activities was primarily for capital expenditures and the purchase of a convertible note. 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 2 It Inc. and capital expenditures.

Cash flows from financing activities

Net cash used in financing activities was $11,867,000 and $3,333,000 for the six months ended January 31, 2010 and 2009, respectively. For the six months ended January 31, 2010, the net cash used in financing activities was primarily attributable to repayments under our credit facilities and the payment of a dividend to our shareholders, partially offset by proceeds from the exercises of stock options. 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.

Dividends

In December 2009, we announced that we intend to pay, for the first time, a semiannual cash dividend of $0.05 per outstanding share, or $0.10 per share annually, of the Company’s Common Stock. The first cash dividend of $0.05 per share of outstanding Common Stock, which totaled $840,000, was paid on January 29, 2010 to shareholders of record at the close of business on January 15, 2010. Future declaration of semiannual dividends and the establishment of future record and payment dates are subject to the final determination of the Company’s Board of Directors.

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

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

For the three months ended January 31, 2009, we recorded $74,000 in restructuring costs, of which $37,000 was recorded in each of cost of sales and general and administrative expenses. For the six months ended January 31, 2009, we recorded $345,000 in restructuring costs, of which $176,000 was recorded in cost of sales and $169,000 was recorded in general and administrative expenses. The total cost of the restructuring plan was $710,000 and was recorded beginning in our fourth quarter of fiscal 2008 until the restructuring plan completion date of July 31, 2009. We do not expect to incur any additional restructuring costs. The majority of the restructuring costs were included in our Endoscope Reprocessing segment.  Since the above costs were recorded in our Netherlands subsidiary, which had been experiencing losses from its operations, tax benefits on the above costs were not recorded.

As part of the restructuring plan, we sold our Netherlands building and land on May 19, 2009 and entered into a lease for 2.5 years with the new owner so we can continue to use the facility as our European sales and service headquarters as well as for warehouse and distribution activity. The sale of the building and land resulted in a gain of $146,000, which is being amortized over the life of the lease and is recorded in deferred revenue and other long-term liabilities. The rent for the full 2.5 year lease of $325,000 was paid from the sale proceeds and recorded in prepaid expenses and other assets.

Long-term contractual obligations

As of January 31, 2010, 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,
	2010		2011		2012		2013		2014		Thereafter		Total
	(Amounts in thousands)
Maturities of the credit facilities	$	5,000	$	25,500	$	—	$	—	$	—	$	—	$	30,500
Expected interest payments under the credit facilities (1)	344		120		—		—		—		—		464
Minimum commitments under noncancelable operating leases	1,591		2,480		1,583		1,071		895		3,086		10,706
Minimum commitments under noncancelable capital leases	26		14		—		—		—		—		40
Deferred compensation and other	203		408		253		32		33		166		1,095
Employment agreements	1,613		1,541		131		—		—		—		3,285
Total contractual obligations	$	8,777	$	30,063	$	1,967	$	1,103	$	928	$	3,252	$	46,090

(1) The expected interest payments under the term and revolving credit facilities reflect interest rates of 2.19% and 2.62%, respectively, which were our weighted average interest rates on outstanding borrowings at January 31, 2010.

Credit facilities

In conjunction with the acquisition of Crosstex, we entered into amended and restated credit facilities dated as of August 1, 2005 (the “U.S. Credit Facilities”) with a consortium of

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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 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 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 $426,000 at January 31, 2010.

At February 28, 2010, borrowings under the 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 U.S. Credit Facilities (“EBITDA”). At February 28, 2010, the lender’s base rate was 3.25% and the LIBOR rates ranged from 0.23% to 1.97%. The margins applicable to our outstanding borrowings at February 28, 2010 were 0.00% above the lender’s base rate and 0.625% above LIBOR. All of our outstanding borrowings were under LIBOR contracts at February 28, 2010. The majority of such contracts were twelve month LIBOR contracts; therefore, we are substantially protected for the remainder of fiscal 2010 from any exposure associated with increasing LIBOR rates. The 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 0.15% at February 28, 2010.

The 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 Products, Inc.) and (ii) our pledge of all of the outstanding shares of Minntech, Mar Cor, Crosstex and Strong Dental Products, Inc. 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. Such consent was obtained with respect to annual cash dividends of up to $1,800,000, commencing with the dividend paid on January 29, 2010. As of January 31, 2010, we were in compliance with all financial and other covenants under the U.S. Credit Facilities.

On both January 31, 2010 and February 28, 2010, we had $30,500,000 of outstanding borrowings under the U.S. Credit Facilities, which consisted of $15,000,000 and $15,500,000 under the term loan facility and the revolving credit facility, respectively.

The revolving portion of our credit facilities has a termination date of August 1, 2010. Although we may repay a portion of our outstanding borrowings under the revolver throughout fiscal 2010, we do not presently anticipate paying off the revolver in full by its termination date. We are in discussions with our bank syndicate regarding modifications to such facility, including an extension of the termination date, and expect to formally modify the facility before the expiration date. However, since any modification will not be completed until later in fiscal 2010, subsequent to July 31, 2009 the entire outstanding balance of the revolver was reclassified from long-term to current.

Operating leases

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

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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 executives of the Company, including our Corporate executive officers and our subsidiary Chief Executive Officers. The majority of such contracts expired and were replaced effective January 1, 2010 with severance contracts that defined certain compensation arrangements relating to various employment termination scenarios.

Convertible Note Receivable

In February 2009, we invested an initial $200,000 in a senior subordinated convertible promissory note issued by BIOSAFE, Inc. (“BIOSAFE”), in connection with BIOSAFE’s grant to us of certain exclusive and non-exclusive license rights to BIOSAFE’s antimicrobial additive. BIOSAFE is the owner of a patented and proprietary antimicrobial agent that is built into the manufacturing of end-products to achieve long-lasting microbial protection on such end-products’ surface. As a result of BIOSAFE’s successful raising of a minimum incremental amount of cash following our investment, we invested an additional $300,000 in notes of BIOSAFE during the three months ending January 31, 2010 bringing the aggregate investment in BIOSAFE notes to $500,000, as obligated under our agreement with BIOSAFE. We are not obligated to invest any additional funds.

The notes are convertible into a newly-created series of preferred stock of BIOSAFE. Interest is payable in shares of BIOSAFE stock or in cash. The notes accrue interest at a per annum rate of 8% until the maturity date of June 30, 2011 or earlier exercise. If not paid by the maturity date, interest will accrue thereafter at a rate of 12% per annum. In connection with our investment, we entered into a license agreement with BIOSAFE under which we will pay BIOSAFE a fixed royalty percentage of sales of our products containing BIOSAFE’s antimicrobial formulation. This investment, together with the accrued interest of $16,000, is included within other assets in our Condensed Consolidated Balance Sheets. The carrying value of this investment approximates fair value due to the short maturity of the notes and the relatively consistent underlying value of BIOSAFE.

Financing needs

At January 31, 2010, we had a cash balance of $18,131,000, of which $8,431,000 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, 2010, $34,500,000 was available under our United States revolving credit facility, which expires on August 1, 2010.

Notwithstanding our cash position and revolving credit borrowing availability, under the terms of our credit facilities we are limited to the amount of aggregate purchase price we pay for

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acquisitions during the duration of the credit agreement without obtaining prior bank approval. As of February 28, 2010, the remaining purchase price available for future acquisitions without obtaining prior bank approval is approximately $2,500,000.

Foreign currency

During the three and six months ended January 31, 2010, compared with the three and six months ended January 31, 2009, the average value of the Canadian dollar increased by approximately 15.5% and 7.1%, respectively, relative to the value of the United States dollar. Additionally, at January 31, 2010 compared with July 31, 2009, the value of the Canadian dollar relative to the value of the United States dollar increased by approximately 0.3%. The financial statements of our Canadian subsidiaries are translated using the accounting policies described in Note 2 to the 2009 Form 10-K and therefore are impacted by changes in the Canadian dollar exchange rate. Additionally, changes in the value of the Canadian dollar against the United States dollar affect our results of operations because a portion of our Canadian subsidiaries’ inventories and operating costs (which are reported in the Water Purification and Filtration and Specialty Packaging segments) are purchased in the United States and a significant amount of their sales are to customers in the United States.

For the three and six months ended January 31, 2010, compared with the three and six months ended January 31, 2009, the average value of the euro increased by approximately 11.1% and 6.5%, respectively, relative to the value of the United States dollar. Additionally, at January 31, 2010 compared with July 31, 2009, the value of the euro relative to the United States dollar decreased by approximately 1.9%. The financial statements of our Netherlands subsidiary are translated using the accounting policies described in Note 2 to the 2009 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 affect our results of operations because a portion of the net assets of our Netherlands subsidiary (which are reported in our Dialysis and Endoscope Reprocessing segments) are denominated and ultimately settled in United States dollars but must be converted into its functional euro currency. Furthermore, as part of the restructuring of our Netherlands subsidiary, as described in Note 15 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 (i) the Canadian dollar relative to the United States dollar, (ii) the euro relative to the United States dollar and (iii) the British pound relative to the United States dollar on the conversion of such net assets into the functional currencies, we enter into short-term contracts to purchase Canadian dollars, 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 $3,922,000 at February 28, 2010, which cover certain assets and liabilities that were denominated in currencies other than our subsidiaries’ functional currencies. Such contracts expire on March 31, 2010. These foreign currency forward contracts are continually replaced with new one-month contracts as long as we have significant net assets at our subsidiaries that are denominated and ultimately settled in currencies other than their functional currencies. Under our credit facilities, such contracts to purchase Canadian dollars, euros and British pounds may not exceed $12,000,000 in an aggregate notional amount at any time. In accordance with ASC 815, “Derivatives and Hedging” (“ASC 815”), such foreign currency forward contracts are designated as hedges. Gains and losses related to these hedging

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contracts to buy Canadian dollars, 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, 2010, such forward contracts partially offset the impact on operations related to certain assets and liabilities that are denominated in currencies other than our subsidiaries’ 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, 2010, compared with the three and six months ended January 31, 2009, 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 an adverse impact for the three and six months ended January 31, 2010, compared with the three and six months ended January 31, 2009, upon our net income of approximately $90,000 and $200,000 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, 2010 compared with July 31, 2009, the total of the foreign currency movements resulted in a foreign currency translation gain of $50,000 for the six months ended January 31, 2010, thereby increasing 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

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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 contains 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 $793,000 and $1,557,000 for the three and six months ended January 31, 2010, respectively, and $441,000 and $1,166,000 for the three and six months ended January 31, 2009, respectively. The increase in volume rebates for the three and six months ended January 31, 2010, compared with the three and six months ended January 31, 2009, is primarily due to increased sales volume primarily in our Healthcare Disposables and Endoscope Reprocessing segments. 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

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these customers follow our revenue recognition policies.

Accounts Receivable and Allowance for Doubtful Accounts

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

Inventories

Inventories consist of raw materials and finished products which are sold in the ordinary course of our business and are stated at the lower of cost (first-in, first-out) or market. In assessing the value of inventories, we must make estimates and judgments regarding 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, 2009, management concluded that none of our intangible assets or goodwill was impaired. On January 31, 2010, management concluded that no events or changes in circumstances have occurred during the six months ended January 31, 2010 that would indicate that the carrying amount of our intangible assets and goodwill may not be

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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, 2009, 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 approximately 6% and 11%, respectively. With respect to Healthcare Disposables, such average fair value was determined using future operating and cash flow assumptions that management believes to be conservative, especially in light of more recent market conditions such as the outbreak of the novel H1N1 flu (swine flu), which has had a positive impact on operating results of this segment. 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.

Warranty Reserve

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.

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Stock-Based Compensation

For fiscal 2005 and earlier periods, we accounted for stock options using the intrinsic value method under which stock compensation expense was not recognized because we granted stock options with exercise prices equal to the market value of the shares at the date of grant. Beginning August 1, 2005, we accounted for stock options under ASC 718 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.

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), modifications to existing awards and assumptions used in determining fair value, expected lives and estimated forfeitures. We determine the fair value of each stock award using the closing market price of our Common Stock on the date of grant. We estimate the fair value of each option grant on the date of grant using the Black-Scholes option valuation model. The determination of fair value using an option-pricing model is affected by our stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the expected option life (which is determined by using the historical closing prices of our Common Stock), the expected dividend yield (which historically has been 0% and is now expected to be 0.5% as we began paying dividends in January 2010), and the expected option life (which is based on historical exercise behavior). If factors change and we employ different assumptions in future periods, the compensation expense that we would record may differ significantly from what we have recorded in the current period.

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.

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

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a valuation allowance, if necessary, based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, as adjusted for valuation allowances, will be realized. Additionally, deferred tax liabilities are regularly reviewed to confirm that such amounts are appropriately stated. A review of our deferred tax items considers known future changes in various 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.

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 were recorded as an increase or decrease to goodwill. On August 1, 2009, we adopted ASC 805, which requires the resolution of income tax uncertainties that predate or result from acquisitions to be recognized in our results of operations beginning with fiscal 2010. 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.

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Although we have historically recorded minimal charges associated with exit or disposal activities, we recorded charges associated with exit or disposal activities in fiscals 2009 and 2008 relating to our restructuring plan for our Netherlands manufacturing operations, as further described in our MD&A and Note 15 to the Condensed Consolidated Financial Statements.

Other Matters

We do not have any off balance sheet financial arrangements, other than future commitments under operating leases and employment 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 increasing market share of single-use dialyzers relative to reuse dialyzers in the United States

·further industry consolidation resulting in greater buying power by some of our customers

·our dependence on a concentrated number of customers in three of our largest segments

·novel H1N1 flu severity and level of urgency developed by customers with respect to pandemic preparedness

·the volatility of oil and fuel prices on our raw materials and distribution costs

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

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

·foreign currency exchange rate fluctuations and trade barriers

·the impact of significant government regulation on our businesses

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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 2009 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 in all of our business segments are exported to and imported from a variety of geographic locations, and our business could be materially and adversely affected by the imposition of trade barriers, fluctuations in the rates of exchange of various currencies, tariff increases and import and export restrictions, affecting all of such geographies including but not limited to the United States, Canada, the European Union, the United Kingdom and the Far East.

A portion of our Canadian subsidiaries’ inventories and operating costs (which are reported in the Water Purification and Filtration and Specialty Packaging segments) are purchased in the United States and a significant amount of their sales are to customers in the United States. The businesses of our Canadian subsidiaries could be materially and adversely affected by the imposition of trade barriers, fluctuations in the rate of currency exchange, tariff increases and import and export restrictions between the United States and Canada. Changes in the value of the Canadian dollar against the United States dollar also affect our results of operations because certain net assets of our Canadian subsidiaries are denominated and ultimately settled in United States dollars but must be converted into their functional currency. Additionally, the financial statements of our Canadian subsidiaries are translated using the accounting policies described in Note 2 to the 2009 Form 10-K. Fluctuations in the rates of currency exchange between the United States and Canada had an overall adverse impact for the three and six months ended January 31, 2010, compared with the three and six months ended January 31, 2009, upon our net income and did not have a material impact upon stockholders’ equity, as described in our MD&A.

Changes in the value of the euro against the United States dollar affect our results of operations because a portion of the net assets of our Netherlands subsidiary (which are reported in our Dialysis and Endoscope Reprocessing segments) are denominated and ultimately settled in United States dollars but must be converted into its functional euro currency. Furthermore, as part of the restructuring of our Netherlands subsidiary, as described in Note 15 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

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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 2009 Form 10-K. Fluctuations in the rates of currency exchange between the United States dollar and the euro or British pound had an overall favorable impact for the three and six months ended January 31, 2010, compared with the three and six months ended January 31, 2009, upon our net income, and did not have a material impact upon stockholders’ equity, as described in our MD&A.

In order to hedge against the impact of fluctuations in the value of (i) the Canadian dollar relative to the United States dollar, (ii) the euro relative to the United States dollar and (iii) the British pound relative to the United States dollar on the conversion of such net assets into functional currencies, we enter into short-term contracts to purchase Canadian dollars, 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 $4,651,000 at January 31, 2010, which covered certain assets and liabilities that were denominated in currencies other than our subsidiaries’ functional currencies. Such contracts expired on February 28, 2010. These foreign currency forward contracts are continually replaced with new one-month contracts as long as we have significant net assets at our subsidiaries that are denominated and ultimately settled in currencies other than their functional currencies. Under our credit facilities, such contracts to purchase Canadian dollars, 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, 2010, such forward contracts partially offset the impact on operations related to certain assets and liabilities that are denominated in currencies other than our subsidiaries’ 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, 2010, compared with the three and six months ended January 31, 2009, 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.

Overall, fluctuations in the rates of currency exchange had an adverse impact on our net income for the three and six months ended January 31, 2010, compared with the three and six months ended January 31, 2009, primarily due to the decrease in the value of the Canadian dollar relative to the United States dollar, and did not have a material impact upon stockholders’ equity.

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.

Additionally, we are in discussions with our bank syndicate regarding modifications to our revolving credit facility, including an extension of the termination date, and expect to formally modify the facility before its August 1, 2010 expiration. Due to current market conditions, a modification of our credit facilities will likely result in an increase of our margins above the lender’s base rate and LIBOR, which may adversely affect our results of operations. In addition, depending upon the structure of the modification, we may be required to write-off

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certain deferred financing costs that are recorded in other assets and are currently being amortized over the life of the credit facilities.

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 2009 Form 10-K.

ITEM 4.          CONTROLS AND PROCEDURES.

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

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

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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 2009 Form 10-K. The risk factors disclosed in Part I, Item 1A to our 2009 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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. RESERVED

ITEM 5. OTHER INFORMATION

On December 17, 2009, the Company held its Annual Meeting of Stockholders for the fiscal year ended July 31, 2009. 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 385,000 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, 2010.

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

1.	Election of Directors	Votes For	Votes Withheld
	Robert L. Barbanell	15,632,598	336,404
	Alan R. Batkin	15,592,928	376,074
	Joseph M. Cohen	15,592,278	376,724
	Charles M. Diker	15,639,539	329,463
	Mark N. Diker	15,636,585	332,417
	George L. Fotiades	15,665,894	303,108
	Alan J. Hirschfield	15,584,159	384,843
	Andrew A. Krakauer	15,653,257	315,745
	Bruce Slovin	15,644,624	324,378

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2.	Approval of the 2006 Equity Incentive Plan Amendment	For	Against	Abstain	Broker Non-votes
		12,652,985	774,731	18,514	2,522,722

3.	Ratification of Independent Registered Public Accounting Firm	For	Against	Abstain	Broker Non-votes
		15,849,960	38,529	80,513	0

ITEM 6. EXHIBITS

10(a) - Fifth Amendment to Credit Agreement and Consent dated December 17, 2009 among Registrant, Bank of America N.A., PNC Bank, National Association, and Wells Fargo Bank, National Association (and Banc of America Securities LLC, as sole lead arranger and sole book manager.)

31.1   - Certification of Principal Executive Officer.

31.2   - Certification of Principal Financial Officer.

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

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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 10, 2010
	By:	/s/ Andrew A. Krakauer
		Andrew A. Krakauer,
		President and Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Craig A. Sheldon
		Craig A. Sheldon,
		Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
	By:	/s/ Steven C. Anaya
		Steven C. Anaya,
		Vice President and Controller

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