Company Quick10K Filing
Quick10K
Cantel Medical
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$69.78 42 $2,910
10-Q 2019-04-30 Quarter: 2019-04-30
10-Q 2019-01-31 Quarter: 2019-01-31
10-Q 2018-10-31 Quarter: 2018-10-31
10-K 2018-07-31 Annual: 2018-07-31
10-Q 2018-04-30 Quarter: 2018-04-30
10-Q 2018-01-31 Quarter: 2018-01-31
10-Q 2017-10-31 Quarter: 2017-10-31
10-K 2017-07-31 Annual: 2017-07-31
10-Q 2017-04-30 Quarter: 2017-04-30
10-Q 2017-01-31 Quarter: 2017-01-31
10-Q 2016-10-31 Quarter: 2016-10-31
10-K 2016-07-31 Annual: 2016-07-31
10-Q 2016-04-30 Quarter: 2016-04-30
10-Q 2016-01-31 Quarter: 2016-01-31
10-Q 2015-10-31 Quarter: 2015-10-31
10-K 2015-07-31 Annual: 2015-07-31
10-Q 2015-04-30 Quarter: 2015-04-30
10-Q 2015-01-31 Quarter: 2015-01-31
10-Q 2014-10-31 Quarter: 2014-10-31
10-K 2014-07-31 Annual: 2014-07-31
10-Q 2014-04-30 Quarter: 2014-04-30
10-Q 2014-01-31 Quarter: 2014-01-31
8-K 2019-07-09 Officers, Exhibits
8-K 2019-06-04 Exhibits
8-K 2019-05-13 Officers, Other Events, Exhibits
8-K 2019-03-29 Officers
8-K 2019-03-22 Regulation FD, Exhibits
8-K 2019-03-08 Enter Agreement, Officers, Other Events, Exhibits
8-K 2018-12-19 Shareholder Vote
8-K 2018-11-29 Earnings, Exhibits
8-K 2018-09-27 Earnings, Exhibits
8-K 2018-06-28 Enter Agreement, Exhibits
8-K 2018-05-31 Earnings, Exhibits
8-K 2018-01-03 Shareholder Vote, Exhibits
GLW Corning 24,040
BCH Bank of Chile 14,480
SY So-Young International 1,900
HCC Warrior Met Coal 1,440
TREC Trecora Resources 242
MFIN Medallion Financial 187
PPIH Perma-Pipe 71
LXRP Lexaria Bioscience 0
CSBB CSB Bancorp 0
CHCR Advanzeon 0
CMD 2019-04-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 cmd4302019ex101.htm
EX-31.1 cmd4302019ex311.htm
EX-31.2 cmd4302019ex312.htm
EX-32 cmd4302019ex32.htm

Cantel Medical Earnings 2019-04-30

CMD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 cmd430201910q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.   20549
 
Form 10-Q

☒Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended April 30, 2019.

or

☐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 incorporation or organization)
 
(I.R.S. employer 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)

Securities registered pursuant to Section 12(b) of the Act:
Common Stock
CMD
New York Stock Exchange
(Title of each class)
(Trading Symbol)
(Name of each exchange on which registered)

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 ☒  No ☐
 
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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 such files).  Yes ☒  No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐ 
Emerging growth company ☐ 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No 
 
Number of shares of common stock outstanding as of May 31, 2019: 41,766,952.




Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q

TABLE OF CONTENTS

 
 
Page No.
 
PART I – FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
 
 
Item 2.
Item 3.
Item 4.
 
PART II – OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Signatures
 




Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q

PART I – FINANCIAL INFORMATION
Item 1.    Financial Statements
Condensed Consolidated Balance Sheets
(Unaudited)
 
April 30, 2019
 
July 31, 2018
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
51,348

 
$
94,097

Accounts receivable, net of allowance for doubtful accounts of $1,609 and $1,149
142,504

 
118,642

Inventories, net
134,193

 
107,592

Prepaid expenses and other current assets
23,018

 
17,912

Income taxes receivable
1,483

 

Total current assets
352,546

 
338,243

 
 
 
 
Property and equipment, net
173,070

 
111,417

Intangible assets, net
148,075

 
137,361

Goodwill
378,144

 
368,027

Other assets
7,337

 
5,749

Deferred income taxes
3,621

 
2,911

Total assets
$
1,062,793

 
$
963,708

 
 
 
 
Liabilities and stockholders’ equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
50,537

 
$
34,258

Compensation payable
29,665

 
30,595

Accrued expenses
33,412

 
28,525

Deferred revenue
26,635

 
28,614

Current portion of long-term debt
10,000

 
10,000

Income taxes payable
819

 
2,791

Total current liabilities
151,068

 
134,783

 
 
 
 
Long-term debt
223,214

 
187,302

Deferred income taxes
25,663

 
27,624

Other long-term liabilities
6,983

 
5,132

Total liabilities
406,928

 
354,841

Commitments and contingencies (Note 11)


 


 
 
 
 
Stockholders’ equity:
 

 
 

Preferred Stock, par value $1.00 per share; authorized 1,000,000 shares; none issued
$

 
$

Common Stock, par value $0.10 per share; authorized 75,000,000 shares; issued 46,356,251 shares and outstanding 41,765,917 shares as of April 30, 2019; issued 46,243,582 shares and outstanding 41,706,084 shares as of July 31, 2018
4,636

 
4,624

Additional paid-in capital
201,116

 
184,212

Retained earnings
534,449

 
491,540

Accumulated other comprehensive loss
(19,655
)
 
(11,456
)
Treasury Stock, at cost; 4,590,334 shares as of April 30, 2019; 4,537,498 shares as of July 31, 2018
(64,681
)
 
(60,053
)
Total stockholders’ equity
655,865

 
608,867

Total liabilities and stockholders’ equity
$
1,062,793

 
$
963,708

See accompanying notes to Condensed Consolidated Financial Statements.


(dollar amounts in thousands except share and per share data or as otherwise noted) 1
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q


Condensed Consolidated Statements of Income
(Unaudited) 
 
Three Months Ended April 30,
 
Nine Months Ended April 30,
 
2019
 
2018
 
2019
 
2018
Net sales
 

 
 

 
 

 
 

Product sales
$
197,478

 
$
189,861

 
$
587,251

 
$
564,310

Product service
31,074

 
27,407

 
91,428

 
78,758

Total net sales
228,552

 
217,268

 
678,679

 
643,068

 
 
 
 
 
 
 
 
Cost of sales
 

 
 

 
 

 
 

Product sales
99,867

 
93,762

 
299,595

 
283,005

Product service
21,808

 
18,832

 
62,283

 
53,495

Total cost of sales
121,675

 
112,594

 
361,878

 
336,500

 
 
 
 
 
 
 
 
Gross profit
106,877

 
104,674

 
316,801

 
306,568

 
 
 
 
 
 
 
 
Expenses:
 

 
 

 
 
 
 
Selling
36,077

 
33,252

 
103,233

 
95,774

General and administrative
48,634

 
37,784

 
122,527

 
102,068

Research and development
7,354

 
6,571

 
22,355

 
17,543

Total operating expenses
92,065

 
77,607

 
248,115

 
215,385

 
 
 
 
 
 
 
 
Income from operations
14,812

 
27,067

 
68,686

 
91,183

 
 
 
 
 
 
 
 
Interest expense, net
2,509

 
1,498

 
6,742

 
3,822

Other income, net

 

 
(1,313
)
 
(1,138
)
 
 
 
 
 
 
 
 
Income before income taxes
12,303

 
25,569

 
63,257

 
88,499

 
 
 
 
 
 
 
 
Income taxes
4,128

 
6,833

 
17,040

 
14,346

 
 
 
 
 
 
 
 
Net income
$
8,175

 
$
18,736

 
$
46,217

 
$
74,153

 
 
 
 
 
 
 
 
Earnings per common share:
 

 
 

 
 

 
 

Basic
$
0.20

 
$
0.45

 
$
1.11

 
$
1.78

Diluted
$
0.20

 
$
0.45

 
$
1.11

 
$
1.77

Dividends per common share
$

 
$

 
$
0.10

 
$
0.09

 
See accompanying notes to Condensed Consolidated Financial Statements.


(dollar amounts in thousands except share and per share data or as otherwise noted) 2
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q


Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended April 30,
 
Nine Months Ended April 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
8,175

 
$
18,736

 
$
46,217

 
$
74,153

 
 
 
 
 
 
 
 
Other comprehensive (loss) income:
 

 
 

 
 

 
 

Foreign currency translation
(3,168
)
 
(6,538
)
 
(8,808
)
 
4,608

Interest rate swap
609

 

 
609

 

Total other comprehensive (loss) income:
(2,559
)
 
(6,538
)
 
(8,199
)
 
4,608

 
 
 
 
 
 
 
 
Comprehensive income
$
5,616

 
$
12,198

 
$
38,018

 
$
78,761

See accompanying notes to Condensed Consolidated Financial Statements.




(dollar amounts in thousands except share and per share data or as otherwise noted) 3
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q


Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Treasury stock,
at cost
 
Total Stockholders’ Equity
 
Number of Shares Outstanding
 
 
 
 
 
 
 
 
 
Amount
 
 
 
 
 
Balance, July 31, 2018
41,706,084

 
$
4,624

 
$
184,212

 
$
491,540

 
$
(11,456
)
 
$
(60,053
)
 
$
608,867

Repurchases of shares
(37,802
)
 

 

 

 

 
(4,288
)
 
(4,288
)
Stock-based compensation

 

 
2,576

 

 

 

 
2,576

Equity vestings/option exercises
53,320

 
7

 
948

 

 

 

 
955

Cancellations of restricted stock
(286
)
 

 

 

 

 

 

Dividends on common stock

 

 

 

 

 

 

Net income

 

 

 
19,242

 

 

 
19,242

Cumulative impact of 606 adoption

 

 

 
865

 

 

 
865

Other

 

 
(634
)
 

 

 

 
(634
)
Other comprehensive loss

 

 

 

 
(5,223
)
 

 
(5,223
)
Balance, October 31, 2018
41,721,316

 
$
4,631

 
$
187,102

 
$
511,647

 
$
(16,679
)
 
$
(64,341
)
 
$
622,360

Repurchases of shares
(880
)
 

 

 

 

 
(67
)
 
(67
)
Stock-based compensation

 

 
3,587

 

 

 

 
3,587

Equity vestings/option exercises
1,857

 

 

 

 

 

 

Cancellations of restricted stock
(1,107
)
 

 

 

 

 

 

Dividends on common stock

 

 

 
(4,173
)
 

 

 
(4,173
)
Net income

 

 

 
18,800

 

 

 
18,800

Other

 

 
1,513

 

 

 

 
1,513

Other comprehensive loss

 

 

 

 
(417
)
 

 
(417
)
Balance, January 31, 2019
41,721,186

 
$
4,631

 
$
192,202

 
$
526,274

 
$
(17,096
)
 
$
(64,408
)
 
$
641,603

Issuance of shares
42,705

 
4

 
3,193

 

 

 

 
3,197

Repurchases of shares
(3,712
)
 

 

 

 

 
(273
)
 
(273
)
Stock-based compensation

 

 
5,722

 

 

 

 
5,722

Equity vestings/option exercises
5,875

 
1

 
(1
)
 

 

 

 

Cancellations of restricted stock
(137
)
 

 

 

 

 

 

Dividends on common stock

 

 

 

 

 

 

Net income

 

 

 
8,175

 

 

 
8,175

Other comprehensive income

 

 

 

 
(2,559
)
 

 
(2,559
)
Balance, April 30, 2019
41,765,917

 
$
4,636

 
$
201,116

 
$
534,449

 
$
(19,655
)
 
$
(64,681
)
 
$
655,865

See accompanying notes to Condensed Consolidated Financial Statements.


(dollar amounts in thousands except share and per share data or as otherwise noted) 4
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q


Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Treasury stock,
at cost
 
Total Stockholders’ Equity
 
Number of Shares Outstanding
 
 
 
 
 
 
 
 
 
Amount
 
 
 
 
 
Balance, July 31, 2017
41,728,934

 
$
4,619

 
$
174,602

 
$
407,590

 
$
(9,900
)
 
$
(52,979
)
 
$
523,932

Repurchases of shares
(52,008
)
 

 

 

 

 
(5,822
)
 
(5,822
)
Stock-based compensation

 

 
1,851

 

 

 

 
1,851

Equity vestings/option exercises
42,168

 
5

 
874

 

 

 

 
879

Cancellations of restricted stock
(1,315
)
 

 

 

 

 

 

Dividends on common stock

 

 

 

 

 

 

Net income

 

 

 
22,929

 

 

 
22,929

Other
88,100

 
10

 
32

 

 

 

 
42

Other comprehensive loss

 

 

 

 
(1,233
)
 

 
(1,233
)
Balance, October 31, 2017
41,805,879

 
$
4,634

 
$
177,359

 
$
430,519

 
$
(11,133
)
 
$
(58,801
)
 
$
542,578

Repurchases of shares
(1,272
)
 

 

 

 

 
(131
)
 
(131
)
Stock-based compensation

 

 
2,739

 

 

 

 
2,739

Equity vestings/option exercises

 

 

 

 

 

 

Cancellations of restricted stock
(1,604
)
 

 

 

 

 

 

Dividends on common stock

 

 

 
(3,545
)
 

 

 
(3,545
)
Net income

 

 

 
32,488

 

 

 
32,488

Other
(88,100
)
 
(10
)
 
(15
)
 

 

 

 
(25
)
Other comprehensive loss

 

 

 

 
12,379

 

 
12,379

Balance, January 31, 2018
41,714,903

 
4,624

 
180,083

 
459,462

 
1,246

 
(58,932
)
 
586,483

Repurchases of shares
(2,336
)
 

 

 

 

 
(264
)
 
(264
)
Stock-based compensation

 

 
2,443

 

 

 

 
2,443

Equity vestings/option exercises
620

 

 

 

 

 

 

Cancellations of restricted stock
(3,482
)
 

 

 

 

 

 

Net income

 

 

 
18,736

 

 

 
18,736

Other
(370
)
 
(578
)
 
1,025

 
(1
)
 

 

 
446

Other comprehensive income

 

 

 

 
(6,538
)
 

 
(6,538
)
Balance, April 30, 2018
41,709,335

 
$
4,046

 
$
183,551

 
$
478,197

 
$
(5,292
)
 
$
(59,196
)
 
$
601,306

See accompanying notes to Condensed Consolidated Financial Statements.





(dollar amounts in thousands except share and per share data or as otherwise noted) 5
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q


Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended April 30,
 
2019
 
2018
Cash flows from operating activities
 

 
 

Net income
$
46,217

 
$
74,153

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation
15,455

 
12,816

Amortization
15,508

 
12,892

Stock-based compensation expense
11,885

 
7,033

Deferred income taxes
(2,671
)
 
(7,499
)
Other non-cash items, net
263

 
586

Changes in assets and liabilities, net of effects of acquisitions/dispositions:
 

 
 

Accounts receivable
(18,642
)
 
892

Inventories
(24,671
)
 
(9,791
)
Prepaid expenses and other assets
(4,929
)
 
(7,256
)
Accounts payable and other liabilities
13,608

 
13,859

Income taxes
(3,537
)
 
(7,682
)
Net cash provided by operating activities
48,486

 
90,003

 
 
 
 
Cash flows from investing activities
 

 
 

Capital expenditures
(75,387
)
 
(23,772
)
Proceeds from sale of business
3,053

 

Acquisitions, net of cash acquired
(40,644
)
 
(84,595
)
Net cash used in investing activities
(112,978
)
 
(108,367
)
 
 
 
 
Cash flows from financing activities
 

 
 

Repayments of long-term debt
(12,707
)
 

Borrowings under revolving credit facility
50,000

 
82,300

Repayments under revolving credit facility
(7,000
)
 
(39,300
)
Dividends paid
(4,173
)
 
(3,546
)
Purchases of treasury stock
(4,628
)
 
(6,216
)
Net cash provided by financing activities
21,492

 
33,238

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
251

 
458

 
 
 
 
(Decrease) increase in cash and cash equivalents
(42,749
)
 
15,332

Cash and cash equivalents at beginning of period
94,097

 
36,584

Cash and cash equivalents at end of period
$
51,348

 
$
51,916

 
See accompanying notes to Condensed Consolidated Financial Statements.



(dollar amounts in thousands except share and per share data or as otherwise noted) 6
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q

Notes to Condensed Consolidated Financial Statements (unaudited).
 
1.    Basis of Presentation
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.
During the first quarter of fiscal 2019, we changed the names of our reportable segments to better align with our key customers and the markets we serve. This decision resulted in a change from a financial reporting perspective as the industrial biological and chemical indicator business has moved from the Dental segment to the Life Sciences segment. Prior year segment disclosures have been recast to conform to the current year presentation. See Note 15, “Reportable Segments.”
Cantel is a leading provider of infection prevention products and services in the healthcare market, specializing in the following reportable segments: Medical, Life Sciences, Dental and Dialysis. Most of our equipment, consumables and supplies are used to help prevent the occurrence or spread of infections.
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. on Form 10-K for the fiscal year ended July 31, 2018 (the “2018 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, 2018 was derived from the audited Consolidated Balance Sheet of Cantel at that date. Certain prior year amounts have been reclassified to conform to the current year presentation.
Subsequent Events
We performed a review of events subsequent to April 30, 2019 through the date of issuance of the accompanying unaudited consolidated interim financial statements.
2.           Accounting Pronouncements
Newly Adopted Accounting Standards
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities,” (“ASU 2017-12”) to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 (our fiscal year 2020), including interim periods within that reporting period. We early adopted ASU 2017-12 effective August 1, 2018. The adoption of ASU 2017-12 did not have a material impact on our financial position, results of operations or cash flows.

In May 2017, the FASB issued ASU 2017-09, “(Topic 718) Scope of Modification Accounting,” (“ASU 2017-09”) to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 (our fiscal year 2019), including interim periods within that reporting period. Accordingly, we adopted ASU 2017-09 on August 1, 2018. The adoption of ASU 2017-09 did not have a material impact on our financial position, results of operations or cash flows.

In August 2016, the FASB issued ASU 2016-15, “(Topic 230) Classification of Certain Cash Receipts and Cash Payments,(“ASU 2016-15”). This guidance makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 (our fiscal year 2019). Accordingly, we adopted ASU 2016-15 on August 1, 2018. The adoption of ASU 2016-15 did not have a material impact on our financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606), (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, “Revenue Recognition” (“ASC 605”). ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract.


(dollar amounts in thousands except share and per share data or as otherwise noted) 7
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q

In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2015-14”), which defers the effective date of ASU 2014-09 by one year to fiscal years beginning after December 15, 2017 (our fiscal year 2019), including interim periods within that reporting period. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2016-12”), which provided narrow scope improvements and practical expedients relating to ASU 2014-09. We adopted the collective standard (“ASC 606”) on August 1, 2018. See Note 5, “Revenue Recognition” for a discussion of the impact and required disclosures.

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”) to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 (our fiscal year 2021), including interim periods within that reporting period. The adoption of ASU 2018-15 is not expected to have a material impact on our financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”) to modify the disclosure requirements on fair value measurements in ASC 820, “Fair Value Measurement”. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 (our fiscal year 2021), including interim periods within that reporting period. The adoption of ASU 2018-13 is not expected to have a material impact on our financial position, results of operations or cash flows.

In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”) to allow for the reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects resulting from the Tax Cuts and Jobs Act enacted in December 2017. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018 (our fiscal year 2020), including interim periods within that reporting period. The adoption of ASU 2018-02 is not expected to have a material impact on our financial position, results of operations or cash flows.

In January 2017, the FASB issued ASU 2017-04, “(Topic 350) Simplifying the Test for Goodwill Impairment,” (“ASU 2017-04”) to simplify the test for goodwill impairment. The revised guidance eliminates the existing Step 2 of the goodwill impairment test which required an entity to compute the implied fair value of its goodwill at the testing date in order to measure the amount of the impairment charge when the fair value of the reporting unit failed Step 1 of the goodwill impairment test. The guidance will be applied on a prospective basis on or after the effective date. ASU 2017-04 is effective for fiscal years beginning after December 31, 2019 (our fiscal year 2021) and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of ASU 2017-04 is not expected to have a material impact on our financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, “(Topic 842) Leases,” (“ASU 2016-02”). The new guidance requires the recording of assets and liabilities arising from leases on the balance sheet accompanied by enhanced qualitative and quantitative disclosures in the notes to the financial statements. ASU 2016-02 is effective for fiscal years beginning after December 31, 2018 (our fiscal year 2020), including interim periods within that reporting period. Early adoption is permitted as of the beginning of an interim or annual period. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” and ASU 2018-11, “Leases (Topic 842) Targeted Improvements,” in December 2018, the FASB issued ASU 2018-20, “Narrow-Scope Improvements for Lessors” and in March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842): Codification Improvements.” These ASUs provide adjustments relating to ASU 2016-02 and improvements to comparative reporting requirements for initial adoption and for separating components of a contract for lessors. We are currently in the process of evaluating the impact of the collective standard (“ASC 842”) on our financial position, results of operations and cash flows.

3.
Acquisitions
 
Fiscal 2019

Omnia: On February 1, 2019, we purchased all of the issued and outstanding stock of Omnia S.p.A. (“Omnia”), an Italian-based market leader in dental surgical consumables solutions, for total consideration (net of cash acquired), excluding acquisition-related costs, of $19,808, consisting of $16,597 of cash and $3,211 of stock consideration, plus additional earn-outs ranging from zero to a maximum of $5,800, which is payable upon the achievement of certain performance-based financial targets. Omnia’s business consists of a wide-ranging portfolio of sutures, irrigation tubing and customized dental surgical procedure kits, with a focus on procedure room set-up and cross-contamination prevention, and is included in our Dental segment.



(dollar amounts in thousands except share and per share data or as otherwise noted) 8
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q

CES business: On August 1, 2018, we acquired certain net assets of Stericycle Inc. related to its controlled environmental solutions business (“CES business”) for total cash consideration, excluding acquisition-related costs, of $17,047. The CES business is a leading provider of testing and certification, environmental monitoring and decontamination services for clean rooms and other controlled environments to ensure safety, regulatory compliance and quality control, and is included in our Life Sciences segment.

Fiscal 2018

Aexis: On March 21, 2018, we purchased all of the issued and outstanding stock of Aexis Medical BVBA (“Aexis”) for total consideration, excluding acquisition-related costs, of $21,600, consisting of $20,308 of cash consideration (net of cash acquired), plus contingent consideration ranging from zero to a maximum of $1,850, which is payable upon the achievement of certain purchase order targets through March 21, 2020. Aexis specializes in advanced software solutions focused on the tracking and monitoring of instrument reprocessing for hospitals and healthcare professionals, and is included in our Medical segment.

BHT Group: On August 23, 2017, we purchased all of the issued and outstanding stock of BHT Hygienetechnik Holding GmbH (“BHT Group”), a leader in the German market in automated endoscope reprocessing and related equipment and services for total consideration (net of cash acquired), excluding acquisition related costs, of $60,216. BHT Group consists of a portfolio of high-quality automatic endoscope reprocessors, advanced endoscope storage and drying cabinets (products globally distributed by our Company prior to the acquisition under an agreement with BHT Group), washer-disinfectors for central sterile applications, associated technical service and parts as well as flexible endoscope repair services. BHT Group is included in our Medical segment.

The following table presents our purchase price allocations of our material acquisitions:
 
 
2019
 
2018
Purchase Price Allocation
 
Omnia
 
CES Business(1)
 
Aexis
 
BHT Group
 
 
(Preliminary)
 
(Preliminary)
 
(Final)
 
(Final)
Purchase Price:
 
 
 
 
 
 
 
 
Cash paid
 
$
16,597

 
$
17,047

 
$
20,308

 
$
60,216

Fair value of contingent consideration
 

 

 
1,292

 

Common stock issued
 
3,211

 

 

 

Total
 
$
19,808

 
$
17,047

 
$
21,600

 
$
60,216

 
 
 
 
 
 
 
 
 
Allocation:
 
 
 
 
 
 
 
 
Property and equipment
 
1,285

 
539

 
130

 
835

Amortizable intangible assets:
 
 
 
 
 
 
 
 
Customer relationships
 
9,259

 
8,100

 
1,800

 
12,500

Technology
 
1,600

 

 
4,600

 
6,200

Brand names
 
1,600

 

 

 

Goodwill
 
9,101

 
6,137

 
17,092

 
40,934

Deferred income taxes
 

 

 
(1,639
)
 
(5,881
)
Other working capital
 
2,170

 
2,271

 
909

 
5,628

Contingent consideration
 

 

 
(1,292
)
 

Long-term debt
 
(5,207
)
 

 

 

Total
 
$
19,808

 
$
17,047

 
$
21,600

 
$
60,216

_______________________________________________
(1)
The excess purchase price over net assets acquired was assigned to goodwill, all of which is deductible for income tax purposes.

Unaudited Pro Forma Summary of Operations

The acquisitions above, both individually and in the aggregate, were not material to our consolidated results of operations or financial position and, therefore, pro forma financial information is not presented.



(dollar amounts in thousands except share and per share data or as otherwise noted) 9
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q

4.      Stock-Based Compensation
2016 Equity Incentive Plan
 
At April 30, 2019, 281,044 nonvested restricted stock awards were outstanding under the 2016 plan. No options were outstanding under the 2016 plan. At April 30, 2019, 793,110 shares were collectively available for issuance pursuant to restricted stock and other stock awards, stock options and stock appreciation rights.
 
2006 Equity Incentive Plan
 
The 2006 Plan was terminated on January 7, 2016 in conjunction with the adoption of the 2016 Plan. At April 30, 2019, options to purchase 40,000 shares of common stock were outstanding under the 2006 Plan. No additional awards will be granted under this plan.

The following table shows the components of stock-based compensation expense recognized in the condensed consolidated statements of income:
 
Three Months Ended April 30,
 
Nine Months Ended April 30,
 
2019
 
2018
 
2019
 
2018
Cost of sales
$
245

 
$
167

 
$
769

 
$
463

Operating expenses:
 

 
 

 
 

 
 

Selling
538

 
559

 
1,684

 
1,188

General and administrative(1)
4,874

 
1,641

 
9,249

 
5,231

Research and development
65

 
76

 
183

 
151

Total operating expenses
5,477

 
2,276

 
11,116

 
6,570

Stock-based compensation expense
$
5,722

 
$
2,443

 
$
11,885

 
$
7,033

_______________________________________________
(1)
The increase in stock-based compensation expense primarily relates to the accelerated vesting of awards resulting from organizational leadership changes. 

At April 30, 2019, total unrecognized stock-based compensation expense related to total nonvested stock options and restricted stock awards was $15,427 with a remaining weighted average period of 14 months over which such expense is expected to be recognized.

We determined the fair value of our market-based restricted stock awards using a Monte Carlo simulation on the date of grant using the following assumptions:
 
Nine Months Ended April 30,
 
2019
 
2018
Volatility of common stock
27.54
%
 
26.60
%
Average volatility of peer companies
36.55
%
 
33.72
%
Average correlation coefficient of peer companies
27.18
%
 
32.26
%
Risk-free interest rate
2.93
%
 
1.62
%

A summary of nonvested stock award activity for the nine months ended April 30, 2019 follows:
 
 
Number of
Time-based Awards
 
Number of Performance-based Awards
 
Number of Market-based Awards
 
Number of
Total
Awards
 
Weighted Average
Fair Value
July 31, 2018
 
168,320

 
26,076

 
17,710

 
212,106

 
$
88.87

Granted
 
143,144

 
35,981

 
25,320

 
204,445

 
$
88.48

Vested(1)
 
(95,459
)
 
(12,742
)
 
(4,335
)
 
(112,536
)
 
$
79.53

Forfeited
 
(10,251
)
 
(7,034
)
 
(5,686
)
 
(22,971
)
 
$
98.73

April 30, 2019
 
205,754

 
42,281

 
33,009

 
281,044

 
$
91.86

_______________________________________________
(1)
The aggregate fair value of all nonvested stock awards which vested was approximately $8,952.


(dollar amounts in thousands except share and per share data or as otherwise noted) 10
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q

A summary of stock option activity for the nine months ended April 30, 2019 follows:
 
Number of shares
 
Weighted Average Exercise Price
 
Weighted Average Contractual Life Remaining (Years)
 
Aggregate Intrinsic Value
Outstanding at July 31, 2018
70,000

 
$
38.60

 
 
 
 
Exercised
(30,000
)
 
$
31.81

 
 
 
 
Outstanding at April 30, 2019
40,000

 
$
43.70

 
0.82
 
$
1,010

Exercisable at April 30, 2019
40,000

 
$
43.70

 
0.82
 
$
1,010

 
During the nine months ended April 30, 2019, 5,000 options vested, with an aggregate fair value of approximately $277. During the nine months ended April 30, 2019, 30,000 options were exercised, with an aggregate fair value of approximately $1,787. At April 30, 2019, all outstanding options were vested.

Excess tax benefits arise when the ultimate tax effect of the deduction for tax purposes is greater than the income tax benefit on stock-based compensation. For the nine months ended April 30, 2019, income tax deductions of $2,465 were generated, of which $1,902 were recorded as a reduction in income tax expense over the equity awards’ vesting period and the remaining excess tax benefit of $563 was recorded as a reduction in income tax expense. For the nine months ended April 30, 2018, income tax deductions of $3,406 were generated, of which $1,394 were recorded as a reduction in income tax expense over the equity awards’ vesting period and the remaining excess tax benefit of $2,012 was recorded as a reduction in income tax expense.

5.    Revenue Recognition

Adoption of “Revenue from Contracts with Customers (ASC 606)”

We adopted ASC 606, effective August 1, 2018, using the modified retrospective method applied to those contracts which were not completed as of August 1, 2018. Results for reporting beginning after August 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and will continue to be reported in accordance with our historic accounting under ASC 605.

Due to the cumulative impact of adopting ASC 606, we recorded a net increase of $865 to opening retained earnings, net of tax, as of August 1, 2018. The impact is primarily related to the timing of revenue recognition for the shipment of products in both our Medical and Life Sciences segments where risk of loss provisions are present (“synthetic FOB destination”). The new standard does not require us to defer revenue for these products and allows us to recognize revenue at the time of shipment. The cumulative adjustment to retained earnings also includes the impact of the change in timing of revenue recognition associated with software licensing arrangements in our Medical segment. Additionally, revenue related to software renewals was historically recognized on a ratable basis over the license period. Under ASC 606, the license is considered functional intellectual property, and is considered to be transferred to the customer at a point in time, specifically, at the start of each annual renewal period. As a result, revenue related to our annual software license renewals has been accelerated.

Revenue Recognition

A portion of our medical, life sciences and dialysis sales include multiple performance obligations, whereby revenue is allocated to the equipment, installation and consumable components based upon their relative standalone selling prices, which includes comparable historical transactions of similar equipment, installation and consumables sold as stand-alone components. Revenue on capital equipment and consumables is recognized when control of the equipment or consumable transfers to the customer, which is generally driven by the underlying shipping terms of the transaction. Revenue on the installation component is recognized when the installation is complete. The most significant judgments related to these arrangements include identifying the various performance obligations of these arrangements and determining the relative standalone selling price of each performance obligation.

With respect to certain of our customers, rebates are provided. Such rebates, which consist primarily of volume rebates, are provided for as a reduction of sales at the time of revenue recognition. Such allowances are determined based on estimated projections of sales volume for the entire rebate periods. If it becomes known that sales volume to customers will deviate from original projections, the rebate provisions originally established would be adjusted accordingly. We also offer certain volume-based rebates to our distribution customers, which we record as variable consideration when calculating the transaction price. We use information available at the time and our historical experience with each customer to estimate the rebate amount by applying the expected value method.


(dollar amounts in thousands except share and per share data or as otherwise noted) 11
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q

The following table gives information as to the net sales disaggregated by geography and product line:
 
Three Months Ended April 30,
 
Nine Months Ended April 30,
Net sales by geography
2019
 
  2018(1)
 
2019
 
  2018(1)
United States
$
163,367

 
$
159,375

 
$
497,469

 
$
478,024

Europe/Africa/Middle East
39,949

 
33,702

 
106,278

 
94,254

Asia/Pacific
15,140

 
14,341

 
46,476

 
41,190

Canada
8,555

 
7,842

 
24,064

 
24,638

Latin America/South America
1,541

 
2,008

 
4,392

 
4,962

Total
$
228,552

 
$
217,268

 
$
678,679

 
$
643,068

Net sales by product line
 
 
 
 
 
 
 
Capital equipment
$
51,351

 
$
58,935

 
$
166,870

 
$
177,175

Consumables
144,515

 
130,155

 
417,067

 
385,963

Product service
31,074

 
27,407

 
91,428

 
78,758

All other(2)
1,612

 
771

 
3,314

 
1,172

Total
$
228,552

 
$
217,268

 
$
678,679

 
$
643,068

_______________________________________________
(1)
As noted above, prior year amounts have not been adjusted under the modified retrospective method.
(2)
Primarily includes software licensing revenues.

Remaining Performance Obligations

At April 30, 2019, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) was approximately $66,534, primarily within the Medical segment. We expect to recognize revenue on approximately 60% of these remaining performance obligations over the remainder of fiscal 2019 and fiscal 2020. These performance obligations primarily reflect the future product service revenues for multi-period service arrangements.

Contract Liabilities

Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. Our contract liabilities arise primarily in the Medical and Life Sciences segments when payment is received upfront for various multi-period extended service arrangements. We expect to recognize substantially all of this revenue over the next twelve months.

A summary of contract liabilities activity for the nine months ended April 30, 2019 follows:
 
Contract Liabilities
Balance, August 1, 2018
$
29,015

Revenue deferred in current year
48,589

Deferred revenue recognized
(49,710
)
Foreign currency translation
(435
)
Balance, April 30, 2019
27,459

Contract liabilities included in Other long-term liabilities
(824
)
Deferred revenue
$
26,635


Practical Expedients and Policy Elections

As part of the cost to obtain a contract, we may pay incremental commissions to sales employees upon entering into a sales contract. Under ASC 606, we have elected to expense these costs as incurred when the period of benefit is less than one year. For certain multi-period contracts, we capitalize these amounts as contract costs, and amortize them based on the contract duration to which the assets relate, which ranges from two to five years. The amounts at April 30, 2019, were not material. For certain international contracts with distributors, we recognize a receivable at the point in time in which we have an unconditional right to payment. Most customers are required to pay a portion of the transaction price in advance and the remaining balance within 30 days of


(dollar amounts in thousands except share and per share data or as otherwise noted) 12
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q

receiving the related products. Accordingly, we have elected to use the practical expedient which allows us to ignore the possible existence of a significant financing component within these contracts.

As a policy, for shipping and handling costs incurred after the customer has obtained control of a good, we will continue to treat these costs as a fulfillment cost rather than as an additional promised service. Additionally, in certain U.S. states, we are required to collect sales taxes from our customers, and in certain international jurisdictions, we are required to collect value added taxes. The tax collected is recorded as a liability until remitted to the taxing authority.

6.    Inventories, Net
 
A summary of inventories is as follows:
 
April 30, 2019
 
July 31, 2018
Raw materials and parts
$
68,557

 
$
49,054

Work-in-process
4,816

 
13,189

Finished goods
70,887

 
53,948

Reserve for excess and obsolete inventory
(10,067
)
 
(8,599
)
Total
$
134,193

 
$
107,592

 
7.    Derivatives
Foreign Currency

In order to hedge against the impact of fluctuations in the value of the Euro, British Pound, Canadian dollar, Australian dollar and Singapore dollar relative to the U.S. dollar on the conversion of such net assets into the functional currencies, we enter into short-term forward contracts to purchase Euros, British Pounds, Canadian dollars, Australian dollars and Singapore dollars, which contracts are one-month in duration. These short-term contracts are designated as fair value hedge instruments. These foreign currency forward contracts are continually replaced with new one-month contracts as long as we have significant net assets that are denominated and ultimately settled in currencies other than each entity’s functional currency. Gains and losses related to hedging contracts to buy Euros, British Pounds, Canadian dollars, Australian dollars and Singapore dollars forward are immediately realized within general and administrative expenses due to the short-term nature of such contracts. We do not currently hedge against the impact of fluctuations in the value of the Chinese Renminbi and Sri Lankan Rupee relative to the U.S. dollar because the overall foreign currency exposure relating to these currencies is not material.

There were six foreign currency forward contracts with an aggregate notional value of $61,447 and $30,159 at April 30, 2019 and July 31, 2018, respectively, which covered certain assets and liabilities that were denominated in currencies other than each entity’s functional currency. For the nine months ended April 30, 2019 and 2018, the settlements of our forward contracts resulted in immaterial amounts of currency conversion gains and losses on the hedged items in the aggregate.

Variable Rate Borrowings

In order to hedge against the impact of fluctuations in the interest rate associated with our variable rate borrowings, on April 9, 2019, we entered into two interest rate swaps with a combined notional value of $150,000, expiring on June 28, 2023. The swaps fixed interest rates at 2.45%. At April 30, 2019, we had an asset of $751 recorded in other assets, and a liability of $142 recorded in accrued expenses, which represent the fair value of the interest rate swaps. The fair value of these interest rate swaps is subject to movements in LIBOR and will fluctuate in future periods.

8.    Fair Value Measurements
Fair Value Hierarchy
 
We apply the provisions of ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”), for our financial assets and liabilities that are re-measured and reported at fair value each reporting period and our nonfinancial assets and liabilities that are re-measured and reported at fair value on a non-recurring basis. We define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.



(dollar amounts in thousands except share and per share data or as otherwise noted) 13
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
 
Our financial assets that are re-measured at fair value on a recurring basis include money market funds that are classified as cash and cash equivalents in the consolidated balance sheets. These money market funds are classified within Level 1 of the fair value hierarchy and are valued using quoted market prices for identical assets.

For the Aexis acquisition, additional purchase price payments ranging from zero to $1,850 are contingent upon the achievement of certain purchase order targets through March 21, 2020. We estimated the original fair value of the contingent consideration using the weighted probabilities of the possible contingent payments. At the date of acquisition, we estimated the original fair value of the contingent consideration to be $1,292. We are required to reassess the fair value of contingent payments on a periodic basis. The significant inputs used in these estimates include numerous possible scenarios for the payments based on the contractual terms of the contingent consideration, for which probabilities are assigned to each scenario. Given the short term nature of the financial instrument, the contingent consideration is not discounted to present value. Although we believe our assumptions are reasonable, different assumptions or changes in the future may result in different estimated amounts.

In connection with the Jet Prep Ltd. (“Jet Prep”) acquisition in fiscal 2014, we assumed a contingent obligation payable to the Israeli Government based on future sales. This fair value measurement was based on significant inputs not observed in the market and thus represent Level 3 measurements. In November 2017, the Israeli Government formally notified us that they would forgive any future amounts payable due to our decision to exit the Jet Prep business. During the first quarter of fiscal 2018, we reduced the fair value of this obligation to zero. See Note 11, “Commitments and Contingencies.”

The fair values of our financial instruments measured on a recurring basis were categorized as follows:
 
April 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 

 
 

 
 

 
 

Cash and cash equivalents:
 

 
 

 
 

 
 

Money markets
$
104

 
$

 
$

 
$
104

Other Assets:
 
 
 
 
 
 
 
Interest rate swap

 
751

 

 
751

Total assets
$
104

 
$
751

 
$

 
$
855

Liabilities:
 

 
 

 
 

 
 

Accrued expenses:
 

 
 

 
 

 
 

Interest rate swap

 
142

 

 
142

Other long-term liabilities:
 

 
 

 
 

 
 

Contingent consideration

 

 
1,374

 
1,374

Total liabilities
$

 
$
142

 
$
1,374

 
$
1,516

 
July 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 

 
 

 
 

 
 

Cash and cash equivalents:
 

 
 

 
 

 
 

Money markets
$
104

 
$

 
$

 
$
104

Total assets
$
104

 
$

 
$

 
$
104

Liabilities:
 

 
 

 
 

 
 

Other long-term liabilities:
 

 
 

 
 

 
 

Contingent consideration

 

 
1,298

 
1,298

Total liabilities
$

 
$

 
$
1,298

 
$
1,298




(dollar amounts in thousands except share and per share data or as otherwise noted) 14
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q

A reconciliation of our liabilities that are measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows:
 
Aexis Contingent Consideration
Balance, July 31, 2018
$
1,298

Net activity
76

Balance, April 30, 2019
$
1,374

 
Disclosure of Fair Value of Financial Instruments
 
At April 30, 2019 and July 31, 2018, the carrying amounts for cash and cash equivalents (excluding money markets), accounts receivable and accounts payable approximated fair value due to the short maturity of these instruments. At April 30, 2019 and July 31, 2018, the carrying value of our outstanding borrowings under our credit facility approximated the fair value of these obligations as the respective borrowing rates reflect prevailing market interest rates.

9.
Intangibles and Goodwill
 
Our intangible assets consist of the following:
 
April 30, 2019
 
July 31, 2018
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Intangible assets with finite lives:
 

 
 

 
 

 
 
 
 
 
 
Customer relationships(1)
$
144,003

 
$
(49,042
)
 
$
94,961

 
$
133,347

 
$
(45,618
)
 
$
87,729

Technology(1)
59,652

 
(21,722
)
 
37,930

 
54,585

 
(19,836
)
 
34,749

Brand names(1)
8,462

 
(3,116
)
 
5,346

 
8,141

 
(3,857
)
 
4,284

Non-compete agreements(1)
2,880

 
(1,604
)
 
1,276

 
3,060

 
(1,628
)
 
1,432

Patents and other registrations
3,103

 
(1,236
)
 
1,867

 
2,826

 
(1,179
)
 
1,647

 
218,100

 
(76,720
)
 
141,380

 
201,959

 
(72,118
)
 
129,841

Trademarks and tradenames
6,695

 

 
6,695

 
7,520

 

 
7,520

Total intangible assets
$
224,795

 
$
(76,720
)
 
$
148,075

 
$
209,479

 
$
(72,118
)
 
$
137,361

_______________________________________________
(1)
During the nine months ended April 30, 2019, we wrote off $10,127 of fully amortized intangible assets.

Amortization expense related to intangible assets was $15,508 and $12,892 for the nine months ended April 30, 2019 and 2018, respectively. We expect to recognize an additional $5,547 of amortization expense related to intangible assets for the remainder of fiscal 2019, and thereafter $18,382, $18,051, $17,252, $16,222 and $15,352 of amortization expense for fiscal years 2020, 2021, 2022, 2023 and 2024, respectively.

Goodwill changed during the nine months ended April 30, 2019 as follows:
 
Medical
 
Life Sciences
 
Dental
 
Dialysis
 
Total
Goodwill
Balance, July 31, 2018
$
186,690

 
$
58,925

 
$
114,279

 
$
8,133

 
$
368,027

Acquisitions

 
6,137

 
9,101

 

 
15,238

Divestitures

 
(491
)
 

 

 
(491
)
Foreign currency translation
(4,244
)
 
(176
)
 
(210
)
 

 
(4,630
)
Balance, April 30, 2019
$
182,446

 
$
64,395

 
$
123,170

 
$
8,133

 
$
378,144




(dollar amounts in thousands except share and per share data or as otherwise noted) 15
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q

10.    Financing Arrangements
Our long-term debt consists of the following:

 
April 30, 2019
 
July 31, 2018
Revolving credit loans outstanding
$
43,000

 
$

Tranche A term loan outstanding
192,500

 
200,000

Unamortized debt issuance costs
(2,286
)
 
(2,698
)
Total long-term debt, net of unamortized debt issuance costs
233,214

 
197,302

Current portion of long-term debt
(10,000
)
 
(10,000
)
Long-term debt, net of unamortized debt issuance costs and excluding current portion
$
223,214

 
$
187,302


On June 28, 2018, we entered into a Fourth Amended and Restated Credit Agreement (the “2018 Credit Agreement”). The 2018 Agreement refinances our credit facility under the Third Amended and Restated Credit Agreement (the “Existing Credit Agreement”) dated March 4, 2014, to include a $200,000 tranche A term loan and a $400,000 revolving credit facility. Subject to the satisfaction of certain conditions precedent, including the consent of the lenders, we may from time to time increase our borrowing capacity under the revolving credit facility or tranche A term loan by an aggregate amount not to exceed $300,000. The 2018 Credit Agreement expires on June 28, 2023. Additionally, subject to certain restrictions and conditions (i) any of our domestic or foreign subsidiaries may become borrowers and (ii) borrowings may occur in multi-currencies.

At April 30, 2019, we had $192,500 of term loan A borrowings outstanding and $43,000 revolver borrowings under the 2018 Credit Agreement. The tranche A term loan is subject to principal amortization, with $10,000 due and payable in each of fiscal 2019, 2020, 2021 and 2022, with the remaining $160,000 due and payable at maturity on June 28, 2023. During the nine months ended April 30, 2019, we made principal payments of $7,500.

Borrowings under the 2018 Credit Agreement bear interest at rates ranging from 0.00% to 1.00% above prime rate for base rate borrowings, or at rates ranging from 1.00% to 2.00% above the London Interbank Offered Rate (“LIBOR”), depending upon our “Consolidated Leverage Ratio,” which is defined as the consolidated ratio of total funded debt to earnings before interest, taxes, depreciation and amortization, and as further adjusted under the terms of the 2018 Credit Agreement (“Consolidated EBITDA”). At April 30, 2019, the lender’s base rate was 5.75% and the LIBOR rate was 3.73%. The margins applicable to our outstanding borrowings were 0.25% above the lender’s base rate or 1.25% above LIBOR. All of our outstanding borrowings were under LIBOR contracts at April 30, 2019. The 2018 Credit Agreement also provides for fees on the unused portion of our facility at rates ranging from 0.20% to 0.35%, depending upon our Consolidated Leverage Ratio, which was 0.20% at April 30, 2019. At April 30, 2019, the interest rate on our outstanding borrowings was approximately 3.74%.
 
The 2018 Credit Agreement contains affirmative and negative covenants reasonably customary for similar credit facilities and is secured by (i) substantially all assets of Cantel and its U.S.-based subsidiaries, (ii) a pledge by Cantel of all of the outstanding shares of its U.S.-based subsidiaries and 65% of the outstanding shares of certain of Cantel’s foreign-based subsidiaries and (iii) a guaranty by Cantel’s domestic subsidiaries. We are in compliance with all financial covenants under the 2018 Credit Agreement.
 
11.    Commitments and Contingencies

Contingent Consideration and Assumed Contingent Liability

At April 30, 2019, $1,374 was recorded related to the Aexis acquisition, which is for the estimated fair value of contingent consideration payable upon the achievement of certain purchase order targets through March 21, 2020. During fiscal 2017, we decided to exit the Jet Prep business that was acquired in fiscal 2014. At the time of the acquisition, we assumed a contingent obligation payable to the Israeli Government based on future sales. In November 2017, the Israeli Government formally notified us that they would forgive any future amounts payable due to our decision to exit the Jet Prep business. As a result of this formal notification, we reduced the $1,138 contingent obligation to zero during the first quarter of fiscal 2018, resulting in a benefit through other income for the nine months ended April 30, 2018.



(dollar amounts in thousands except share and per share data or as otherwise noted) 16
   


Cantel Medical Corp.                                 2019 Third Quarter Form 10-Q

Legal Matters

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.

12.    Earnings Per Common Share

Basic EPS is computed based upon the weighted average number of common shares outstanding for the year. Diluted EPS is computed based upon the weighted average number of common shares outstanding for the year plus the dilutive effect of common stock equivalents using the treasury stock method and the average market price of our common stock for the year. We include participating securities (nonvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents) in the computation of EPS pursuant to the two-class method. Our participating securities consist solely of nonvested restricted stock awards, which have contractual participation rights equivalent to those of stockholders of unrestricted common stock. The two-class method of computing earnings per share is an allocation method that calculates earnings per share for common stock and participating securities.

The following table sets forth the computation of basic and diluted EPS available to stockholders of common stock (excluding participating securities):
 
Three Months Ended April 30,
 
Nine Months Ended April 30,
 
2019
 
2018
 
2019
 
2018
Numerator for basic and diluted earnings per share:
 

 
 

 
 

 
 
Net income
$
8,175

 
$
18,736

 
$
46,217

 
$
74,153

Less income allocated to participating securities
(5
)
 
(59
)
 
(51
)
 
(281
)
Net income available to common shareholders
$
8,170

 
$
18,677

 
$
46,166

 
$
73,872

Denominator for basic and diluted earnings per share, adjusted for participating securities:
 

 
 

 
 

 
 
Denominator for basic earnings per share - weighted average number of shares outstanding attributable to common stock
41,720,733

 
41,580,387

 
41,685,623

 
41,559,312

Dilutive effect of stock awards using the treasury stock method and the average market price for the year
38,705

 
69,134

 
40,608

 
63,642

Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents&#