CANTEL MEDICAL CORP (Form: 10-K, Received: 09/25/2019 14:53:32)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K



☒	Annual Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended July 31, 2019



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

For the transition period from to

Commission File No. 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
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number: (973) 890-7220

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol	Name of exchange on which registered
Common Stock, $0.10 par value	CMD	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the 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”, “small 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 ☒

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, as quoted by the New York Stock Exchange on that date: $3,396,948,246.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the close of business on August 31, 2019: 41,771,036

Documents incorporated by reference: Portions of the definitive proxy statement to be filed pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 in connection with the 2019 Annual Meeting of Stockholders of Registrant are hereby incorporated by reference into Part III of this Form 10-K and certain documents are incorporated by reference into Part IV.

Cantel Medical Corp. 2019 Annual Report on Form 10-K

TABLE OF CONTENTS



		Page No.
	PART I
Item 1.	Business	3
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	16
Item 2.	Properties	16
Item 3.	Legal Proceedings	17
Item 4.	Mine Safety Disclosures	17
	PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Consolidated Financial Data	19
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 8.	Financial Statements and Supplementary Data	33
	Reports of Independent Registered Public Accounting Firm	33
	Consolidated Balance Sheets	37
	Consolidated Statements of Income	38
	Consolidated Statements of Comprehensive Income	39
	Consolidated Statements of Changes in Stockholders' Equity	40
	Consolidated Statements of Cash Flows	41
	Notes to Consolidated Financial Statements	42
	Schedule II - Schedule of Valuation and Qualifying Accounts	66
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	66
Item 9A.	Controls and Procedures	66
Item 9B.	Other Information	68
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	68
Item 11.	Executive Compensation	68
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	68
Item 13.	Certain Relationships and Related Transactions, and Director Independence	68
Item 14.	Principal Accountant Fees and Services	68
	PART IV
Item 15.	Exhibits, Financial Statement Schedules	69
Item 16.	Form 10-K Summary	71
Signatures.		72

Cantel Medical Corp. 2019 Annual Report on Form 10-K

PART I

Item 1. Business.

Overview:

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 Medical Corp. itself and not its subsidiaries. Unless otherwise indicated, references in this Form 10-K to 2019, 2018, 2017 or “fiscal” 2019, 2018, 2017 or other years refer to our fiscal year ended July 31, of that respective year, and references to “fiscal” 2020 refer to our fiscal year ending July 31, 2020.

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.

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. We operate our four segments through wholly-owned subsidiaries in the United States and internationally.

Information Related to Reportable Segments:

Medical

General. Our Medical segment designs, develops, manufactures, sells and installs a comprehensive offering of products and services comprising a complete circle of infection prevention solutions. Our products include endoscope reprocessing and endoscopy procedure products. Our endoscope reprocessing products and services include:


•	a full range of automated endoscope reprocessing systems,


•	high-level disinfectants and sterilants,


•	detergents,


•	leak testing and manual cleaning products,


•	storage cabinets and transport systems,


•	manual cleaning products,


•	endoscope process tracking products, including software,


•	other consumables, accessories and supplies used to high-level disinfect rigid endoscopes, flexible endoscopes and other instrumentation, and


•	technical maintenance service on our products.

Our endoscopy procedure products are designed to eliminate the challenges associated with proper cleaning and high-level disinfection of numerous reusable components used in gastrointestinal (GI) endoscopy procedures. Our procedure products include:


•	CO2 and water irrigation pumps and disposable procedure kits,


•	sterile irrigation tubing, and


•	single-use valves.

Our endoscopy products, most of which are proprietary medical devices subject to rigorous standards and regulations, contribute to the safe and effective use of endoscopes in healthcare facilities throughout the world and improve the quality of healthcare delivery by reducing the threat of nosocomial (hospital/healthcare facility acquired) infections. In addition, our disposable procedure products provide greater patient safety and infection prevention, through the replacement of reusable devices requiring disinfection with our single-use products. In particular, such products are intended to reduce the challenges associated with proper cleaning and high-level disinfection of numerous reusable components used in GI endoscopy procedures.

We design, develop and manufacture most of our endoscopy products. Our Medical segment offers various preventative maintenance programs, repair services and user training programs to support the effective operation of reprocessing systems over their lifetime. Our field service personnel and international third-party distributors install, maintain, upgrade and repair equipment.

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

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Sales, Marketing and Distribution. We sell and service our full line of endoscopy products through our direct field sales and clinical support service organizations in the United States, Canada, the United Kingdom, Italy, the Netherlands, Belgium, Germany, France, Singapore, Malaysia, Australia and Dubai. Elsewhere in Europe, Asia Pacific and Latin America, we sell primarily through independent distribution partners. In China, we sell both directly and through distributors, based on regional market demands.

Competition. We compete with a number of large companies that have significant product portfolios, market share and global reach, which enable them to offer wide-ranging product bundles to larger customers, such as Group Purchasing Organizations (“GPOs”) and Integrated Delivery Networks (“IDNs”). This competition has the potential to impact our net sales, market share and profit margin. We also compete with a number of small companies with very limited product offerings and operations in one or a limited number of countries. On a product basis, our principal competitors are Steris, Olympus, Boston Scientific, ASP (a division of Fortiv), Metrex, Ruhof, Ecolab, ERBE, Getinge, SteelCo and Wassenburg. We believe that our principal competitive advantages include the strength of our dedicated sales teams, our comprehensive product line of differentiated automated endoscope reprocessors, disposable procedure products and proprietary chemistries, and our reputation for providing high-quality and reliable products supported by our highly responsive clinical support and service teams.

Acquisitions. On March 21, 2018, we purchased all of the issued and outstanding stock of Aexis Medical BVBA (“Aexis Medical”), which is based in Belgium. Aexis Medical specializes in advanced software solutions focused on the tracking and monitoring of instrument reprocessing for hospitals and healthcare professionals.

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. 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.

Life Sciences

General. Our Life Sciences segment designs, develops, manufactures, sells, and installs water purification systems for medical and other bacteria controlled applications. We also provide filtration/separation and disinfectant technologies to the medical and life science markets through a worldwide distributor network. Our products and services include:


•	central dialysis water purification systems,


•	portable dialysis water purification systems,


•	bicarbonate mixing systems,


•	hollow fiber filters and other filtration and separation products,


•	liquid disinfectants and cold sterilization products,


•	“dry fog” products,


•	room temperature sterilization equipment and services, and


•	clean-room certification and decontamination services.

Our products are generally designed for dialysis and other specific healthcare applications, research laboratories, food and beverage, and commercial industrial customers. Our water systems provide biologically pure water specific to our customers’ needs and site conditions, ranging from low-volume, reverse osmosis (“RO”) and deionization systems, to high-volume, complete turnkey purification systems. We provide service and maintenance for water purification systems through an extensive network of regional offices in the United States and, to a smaller degree, in Canada.

Our expertise includes designing systems capable of delivering water for hemodialysis that meets the water quality standards and good manufacturing standards of the Association for the Advancement of Medical Instrumentation (“AAMI”) and all grades of U.S. Pharmacopeia (“USP”) water (i.e., water meeting the U.S. Food and Drug Administration (“FDA”) enforced standards of the USP including “USP Purified Water,” which is a FDA requirement for the labeling of “purified” bottled water). We also package these same technologies and expertise in industrial designs to meet the commercial industrial market requirements.

We also offer a full line of proprietary and third party filters utilizing hollow fiber membrane technology to remove impurities from liquid streams for a wide range of applications. Such applications include the filtering of ultrapure water to remove endotoxins, bacteria and other contaminants in medical environments to provide protection for patients undergoing treatments that use ultrapure water. Our therapeutic filtration products include hemoconcentrators, hemofilters and specialty filters utilized for therapeutic medical applications.

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

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Our liquid disinfectant and cold sterilant products are used in the dialysis, medical, pharmaceutical and other industries. These products include surface disinfectants as well as chemistries used to disinfect ultrapure water systems as part of overall procedures to control the contamination of systems by microorganisms and spores. Our “Dry Fog” equipment dispenses our cold sterilant products in a mist form into rooms and certain structures with complex geometries in order to achieve validated surface disinfection.

Our REVOX^® Sterilization Systems and Services business provides an innovative room-temperature vapor sterilization method for the medical device, pharmaceutical and biomedical industries. It provides customers the capability to sterilize their products at room temperature, through either contract service or on-site agreements, while reducing overall processing times and inventory and capital requirements associated with other industrial sterilization methods.

Sales, Marketing and Distribution. We generally sell our equipment on a direct basis in the United States and Canada and through third-party distributors in other international markets. We are a leading supplier of FDA 510(k) cleared water purification systems to the dialysis industry in North America. A significant portion of our sales in this segment are derived from sales of products and service to dialysis clinics and hospitals in North America.

Competition. We compete with a number of large companies that have significant product portfolios and global reach, as well as a number of small companies with very limited product offerings and operations in one or a limited number of countries. On a product basis, competitors include Evoqua, IsoPure, Baxter and Steris. We believe that the ability of our Life Sciences segment to successfully compete in the water purification, filtration and disinfectant market derives from our expertise in a FDA regulated environment, our broad product offerings and the high value and quality of our products and our national service coverage.

We have observed a continued trend toward formal or informal bundling partnerships and arrangements between kidney dialysis machine suppliers and companies offering medical water purification systems that compete with our systems. The ability to bundle these products offers a competitive advantage to such suppliers, which include Baxter (dialysis machine)/Gambro (water system), B. Braun (dialysis machine)/Lauer (water system), and Fresenius (dialysis machine)/Vivonic (water system). The bundling approach being used in the United States by B. Braun/Lauer represents a competitive threat to our dialysis water business, as does the business combination of Fresenius and Vivonic. See Item 1A, “Risk Factors.”

Acquisitions. On August 1, 2018, we acquired certain net assets of Stericycle Inc. related to its controlled environmental solutions business (“CES Business”). 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.

Dental

General. We design, manufacture, sell, supply and distribute a broad selection of infection prevention healthcare products, the majority of which are single-use products used by dental practitioners. Our products include the following:


•	sterility assurance products such as biological indicators, chemical integrators and sterilization pouches,


•	consumables such as towels, bibs, tray liners and sponges,


•	nitrous oxide/oxygen sedation equipment and related single-use disposable nasal masks,


•	personal barrier products such as face masks, shields, and hand protection products such as hand sanitizers and germicidal wipes,


•	cleaning solutions, high level disinfectants and surface disinfectants,


•	waterline treatment products for maintaining safe dental unit waterlines,


•	amalgam separators,


•	treatment accessories such as saliva ejectors, evacuator tips and plastic cups, and


•	preventatives such as prophy angles and prophy paste.

Significant brand names for our healthcare disposable products include SECURE FIT^®Masks, ISOFLUID^®Masks, RAPICIDE^® Disinfectant and DentaPure^® Cartridges.

Our most significant business in this segment derives from our sterility assurance business. We offer both mail-in services and in-office biological monitoring (spore test) systems enabling healthcare professionals to verify the performance of their sterilizers in accordance with the U.S. Centers for Disease Control and Prevention and industry guidelines for daily or weekly testing. Our expanded portfolio in the dental wastewater management market now includes amalgam separator technology which will help dental practitioners meet a U.S. Environmental Protection Agency (“EPA”) ruling on wastewater management compliance. Our products also include a wide-array of biological indicators, chemical integrators and related products and services that enable

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

Cantel Medical Corp. 2019 Annual Report on Form 10-K

hospitals, surgical centers, office-based practitioners and dental facilities to safely and accurately monitor and verify their sterilization practices and protocols.

We maintain a leading market position in the United States for face masks and dental unit waterline treatments as well as several of our other products used in the dental market.

Sales, Marketing, and Distribution. Our dental products are sold globally to approximately 350 wholesale customers in over 100 countries, with a significant majority located in the United States. Our distribution partners generally include major healthcare distributors, group purchasing organizations and buying co-operatives that sell our products to dental practices, medical facilities, veterinary clinics, and government and educational institutions. The majority of our dental products are sold under the Crosstex brand name. We also produce private label products for several of our distribution partners.

Competition. We compete with a number of large companies that have significant product portfolios and global reach, as well as a number of small companies with very limited product offerings. On a product basis, competitors include Halyard Health, 3M, ASP, Steris, Danaher/Sybron, Dentsply/Sultan Healthcare, Amcor, Porter Instrument, Sterisil, ProEdge and less expensive imported generic products from Asia and other lower cost manufacturing locations. We believe that our long-standing brands, product quality, superior customer service and breadth of portfolio are competitive advantages and are the basis for our success in this segment.

Acquisitions. On February 1, 2019, we purchased all of the issued and outstanding stock of Omnia S.p.A. (“Omnia”), an Italian-based leader in dental surgical consumables solutions. 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.

On July 30, 2019, we signed a definitive agreement to acquire Hu-Friedy Mfg. Co., LLC (“Hu-Friedy”), a leading global manufacturer of instruments and instrument reprocessing workflow systems serving the dental industry. The acquisition is subject to regulatory approvals and other customary closing conditions, and is expected to close during our first quarter fiscal 2020.

Dialysis

General. We design, develop, manufacture, sell and service reprocessing systems and sterilants for dialyzers (a device serving as an artificial kidney), as well as dialysate concentrates and supplies utilized for renal dialysis. Our renal dialysis products include:


•	hemodialysis concentrates and other ancillary supplies,


•	medical device reprocessing systems, and


•	sterilants and disinfectants.

Our renal dialysis treatment products include a line of acid and bicarbonate concentrates, referred to as dialysate concentrates, used by kidney dialysis centers to prepare dialysate, a chemical solution that draws waste products from the patient’s blood through a dialyzer membrane during the hemodialysis treatment. Dialysate concentrates are used in the dialysis process, whether single-use or reuse dialyzers (described below) are being utilized.

Our dialyzer reprocessing products are limited to use by centers that choose to clean, disinfect and reuse dialyzers for the same patient, known as “dialyzer reuse,” rather than discard the dialyzers after a single use. There has been a significant downward trend in dialyzer reuse since 2001, which has significantly decreased sales of our dialysis products tied to reuse during that period. We are exploring dialysis-related opportunities with the potential to mitigate the loss of such business. Likewise, we are expanding marketing efforts of reuse products in emerging markets in Asia, South America and elsewhere. However, no assurance can be given that such opportunities and efforts will prove successful. See Item 1A, “Risk Factors.”

Sales, Marketing and Distribution. Our products are sold in the United States and, to a significantly lesser extent, throughout the world. Our customer base is comprised of large and small dialysis chains as well as independent dialysis clinics. We sell products in the United States primarily through our own direct distribution network, and in many international markets either directly or under various third-party distribution agreements.

Competition. In our Dialysis segment, our most significant competition comes from manufacturers of single-use dialyzers, particularly Fresenius, the largest dialysis chain in the United States and a manufacturer of single-use dialyzers. All or substantially all Fresenius dialysis clinics exclusively use single-use dialyzers and therefore have no need for dialyzer reprocessing equipment.

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

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Information with Respect to Our Business Generally:

Government Regulation

Our business and products are subject to various degrees of governmental regulation in the countries in which we operate. In the United States, the FDA, EPA and other governmental authorities regulate the development, manufacture, labeling, sale, storage and distribution of our products and services. Our international operations also are subject to a significant amount of government regulation, including country-specific rules and regulations and U.S. regulations applicable to our international operations. Compliance with applicable government regulations is a significant expense for us.

Numerous aspects of our business are subject to government regulations including, among other things, research and development, product approvals, product manufacturing, labeling, marketing and promotion, distribution, record-keeping, storage and disposal practices. For example, the FDA inspects medical device manufacturers for compliance with the current Quality Systems Regulations (“QSRs”), which govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging and servicing of all finished medical devices intended for human use. In addition, introductions of new medical devices are generally subject to regulatory clearance or approval. Failure to receive or maintain, or delays in receiving, such clearance or approvals may hurt our competitiveness and have other material adverse consequences on our business, results of operations and cash flows.

We cannot predict the effect on our operations resulting from current or future governmental regulations or the interpretation or application of these regulations. However, such governmental regulations could prevent, delay, or result in the revocation or rejection of regulatory clearance of our products. In addition, if we fail to comply with any applicable regulatory requirements, fines, sanctions, regulatory actions and other penalties could be imposed on us.

We believe that we are currently compliant in all material respects with applicable regulatory requirements. However, there can be no assurance that future or current regulatory, governmental, or private action will not have a material adverse effect on us or on our performance, results, or financial condition. See Item 1A, “Risk Factors.”

Sources and Availability of Raw Materials

We purchase raw materials, sub-assemblies, components and other supplies from numerous suppliers in the United States and abroad. The principal raw materials and supplies that we use to conduct operations include chemicals, paper, resin, stainless steel and plastic components. These raw materials are generally obtainable from several sources and in sufficient quantities within the lead times specified to vendors.

Intellectual Property

We protect our technology and products by, among other means, filing U.S. and foreign patent applications. There can be no assurance, however, that any patent will provide adequate protection for the technology, system, product, service or process it covers. In addition, the process of obtaining and protecting patents can be long and expensive. We also rely upon trade secrets, technical know-how and continuing technological innovation to develop and maintain our proprietary position.

As of July 31, 2019, we held 68 U.S. patents and 312 foreign patents, with 72 U.S. patents pending and 106 foreign patents pending. The majority of our U.S. and foreign patents, for individual products, are effective for twenty years from the initial filing date. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country. In addition, we license from independent third parties under patents, trade secrets and other intellectual property, the right to manufacture and sell certain of our products. In the aggregate, these intellectual property assets and licenses (each of which is long-term) are of material importance to our business.

Our products and services are sold around the world under various trade names, trademarks and brand names. We consider our trade names, trademarks and brand names to be valuable in the marketing of our products in each segment. As of July 31, 2019, we had 2,084 trademark registrations in the United States and in various foreign countries in which we conduct business, as well as 38 trademark applications pending worldwide.

Seasonality

Our businesses generally are not seasonal in nature.

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Cantel Medical Corp. 2019 Annual Report on Form 10-K

Principal Customers

None of our customers accounted for 10% or more of our consolidated net sales during fiscal 2019, 2018 or 2017. As described below, none of our segments are reliant upon a single customer, but some of our segments are currently reliant on a few customers. See Item 1A, “Risk Factors.”

Our Life Sciences segment is reliant on two customers, who collectively accounted for approximately 40.2%, 48.0% and 50.2% of segment net sales in fiscal 2019, 2018 and 2017, respectively.

Our Dental segment is reliant on three customers, who collectively accounted for approximately 47.6%, 45.1% and 43.4% of segment net sales in fiscal 2019, 2018 and 2017, respectively. We expect to have a similar customer profile after the completion of our pending acquisition of Hu-Friedy, further described in Note 19 to our consolidated financial statements in Part II, Item 8 of this report.

Our Dialysis segment is reliant on two customers (which are the same two customers noted above under our Life Sciences segment), who collectively accounted for approximately 41.0%, 40.6% and 44.2% of our Dialysis segment net sales in fiscal 2019, 2018 and 2017, respectively.

Backlog

As of July 31, 2019, our consolidated backlog was approximately $102,925 compared with approximately $91,687 as of July 31, 2018. The majority of the backlog was in our Life Sciences segment which had backlog of $50,272 and $58,556 as of July 31, 2019 and July 31, 2018, respectively. The majority of our backlog is expected to be recognized as revenue within one year of such date.

Competition

The markets in which our business is conducted are highly competitive. Competition is intense in all of our business segments and includes many large and small competitors. Important competitive factors generally include breadth of product offering, product design and quality, safety, ease of use, brand, product service and support, and price. We expect to face continued intense competition and believe that the long-term competitive position for all of our segments depends principally on our success in developing, manufacturing and marketing innovative, cost-effective products and services.

Many of our competitors have greater financial, technical, and human resources than we do, are well-established with reputations for success in the sale and service of their products, and may have certain other competitive advantages over us. However, we believe that the worldwide reputation for the quality and innovation of our products among customers and our reputation for providing quality product service give us a competitive advantage with respect to many of our products.

In addition, certain companies have developed, or may be expected to develop, new technologies or products that directly or indirectly compete with our products. We anticipate that we may face increased competition in the future as new infection prevention products and services enter the market. Numerous organizations are believed to be working with a variety of technologies and sterilizing agents. In addition, a number of companies have developed or are developing disposable medical instruments and other devices designed to address the risks of infection and contamination. There can be no assurance that new products or services developed by our competitors will not be more commercially successful than those provided or developed by us in the future.

For further discussion of competition-related and other risk factors, see Item 1A, “Risk Factors.”

Quality Assurance

We manufacture, assemble and package most of our products in the United States and, to a significantly lesser extent, in Italy, Germany and elsewhere. Each of our production facilities is dedicated to particular processes and products. We have implemented quality assurance procedures to support the quality and integrity of our production processes.

Environmental Matters

We anticipate that our compliance with federal, state, and local laws and regulations, relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, will not have any material effect on our capital expenditures, earnings or competitive position.

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Cantel Medical Corp. 2019 Annual Report on Form 10-K

Employees

As of July 31, 2019, we employed 2,775 persons, of whom 1,947 are located in the United States, 568 are located in Europe, the Middle East and Africa, 194 are located in Asia and Australia, and 66 are located in Canada. None of our employees are represented by labor unions. We consider our relations with our employees to be satisfactory.

Sales to Iran

We ship certain of our products to Iran, and conduct related activities, in accordance with licenses issued by the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury. The Iranian sales were generally conducted through distributors, some of whose customers may include public hospitals owned or controlled directly or indirectly by the Iranian government.

Available Information

Under the Securities Exchange Act of 1934, as amended (“Exchange Act”), we are required to file with or furnish to the SEC annual, quarterly and current reports, proxy and information statements and other information. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We file electronically with the SEC.

We make available, free of charge through the investor relations section of our website, our reports on Forms 10‑K, 10‑Q and 8‑K, and amendments to those reports, filed with or furnished to the SEC as soon as reasonably practicable after they are filed or furnished to the SEC. The address for our website is www.cantelmedical.com.

Also available on our website are our Corporate Governance Guidelines, Charters of the Nominating and Governance Committee, Compensation Committee and Audit Committee, and Code of Business Conduct and Ethics. Information contained on our website is not part of, and is not incorporated in, this or any other report we file with or furnish to the SEC.

Forward Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 and other securities laws. These statements are based on current expectations, estimates, or forecasts about our businesses, the industries in which we operate, and the current beliefs and assumptions of management; they do not relate strictly to historical or current facts. Without limiting the foregoing, words or phrases such as “expect,” “anticipate,” “goal,” “project,” “intend,” “plan,” “believe,” “seek,” “may,” “could” and variations of such words and similar expressions generally identify forward-looking statements. 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. We caution that undue reliance should not be placed on such forward-looking statements, which speak only as of the date made. Some of the factors which could cause results to differ from those expressed in any forward-looking statement are set forth under Item 1A, “Risk Factors” of this Annual Report on Form 10-K. Except as required by law, 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.

Item 1A. Risk Factors.

We are subject to various risks and uncertainties relating to or arising out of the nature of our businesses and general business, economic, financing, legal and other factors or conditions that may affect us. We provide the following cautionary discussion of risks and uncertainties relevant to our businesses, which we believe are factors that, individually or in the aggregate, could have a material and adverse impact on our business, results of operations and financial condition, or could cause our actual results to differ materially from expected or historical results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.

We face intense competition and may not be able to keep pace with the rapid technological changes in the medical device industry, which could have a material adverse effect on our business, financial condition, results of operations or cash flows. The medical device markets in which we primarily participate are highly competitive. We encounter significant competition across

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Cantel Medical Corp. 2019 Annual Report on Form 10-K

our product lines and in each market in which our products are sold from various medical device companies, many of which may have greater financial, technical and marketing resources than we do and are well-established. Some competitors have developed or may be expected to develop technologies or products that could compete with our products or that would render our products obsolete or noncompetitive. In addition, our competitors may achieve patent protection, regulatory approval or product commercialization that would limit our ability to compete with them. Additionally, the medical device markets in which we primarily participate are characterized by extensive research and development, new product introductions and product enhancements, rapid technological change and evolving industry standards. Developments by other companies of new or improved products, processes or technologies may make our products or proposed products obsolete or less competitive and may negatively impact our net sales. Accordingly, our ability to compete is in part dependent on our ability to continually offer enhanced and improved products that meet the changing requirements of our customers. As such, we are required to devote continued efforts and financial resources to develop or acquire scientifically advanced technologies and products, apply our technologies cost-effectively across product lines and markets, obtain patent and other protection for our technologies and products, obtain required regulatory and reimbursement approvals and successfully manufacture and market our products consistent with our quality standards. If we fail to develop new products or enhance existing products, it could have a material adverse effect on our business, financial condition, results of operations or cash flows.

We face continued competition in our endoscopy disposable procedure products from larger competitors. We have seen increased activity by our larger competitors to include infection prevention endoscopy disposable procedure products in their existing market share and bundling agreements. As purchasing decisions continue to be consolidated with GPOs and in a smaller number of IDNs, competitors with broader portfolios will have a competitive advantage in offering a wider range of discounts. If such approach expands, we could face declines in growth or loss of market share, as well as reduced profit margin, for our endoscopy procedural products.

We face increased competition in the water purification system market due to the alliance of kidney dialysis machine suppliers and water purification system suppliers. Outside of the United States, we believe there is a trend in formal or informal bundling partnerships and arrangements between kidney dialysis machine suppliers and companies offering medical water purification systems that compete with our systems. The ability to bundle these products offers a competitive advantage to such suppliers, which include Baxter (dialysis machine)/Gambro (water system), B. Braun (dialysis machine)/Lauer (water system), and Fresenius (dialysis machine)/Vivonic (water system). The bundling approach being used by B. Braun/Lauer, and the business combination of Fresenius and Vivonic, represent competitive threats to our dialysis water business. If such business combinations and bundling approaches expand in the United States and we do not succeed in forming an alliance with a high-quality supplier of kidney dialysis machines, we can lose our current competitive advantages and experience a material loss of net sales and a decrease in margins in our water purification system business.

The market for our dialysis reprocessing products is limited to dialysis centers that reuse dialyzers. The decrease in the reuse portion of the dialysis market in the United States accelerated significantly in recent years and such decrease is expected to continue. Our dialyzer reprocessing products are limited to use by clinics that choose to clean, sterilize and reuse dialyzers, rather than discard the dialyzers after a single-use. Today, only a small number of all dialysis procedures in the United States reuse dialyzers. The downward trend in reuse dialyzers in the United States had accelerated in recent years which resulted in the sale of no reuse dialyzers in the United States for the past several fiscal years. Further, the most significant manufacturers of reuse dialyzers have indicated that they will be ceasing their manufacture of such products. As such, clinics that currently utilize reuse dialyzers will continue to convert to single use dialyzers, which will continue the downward trend and likely eliminate our sale of dialyzer reprocessors and related single-use products in the United States at some point in the near future. The reduction of our dialysis reuse business has had an adverse effect on our Dialysis segment business, which has reduced our margins and net income in this segment.

We face significant challenges in growing our dialysate concentrate sales. The reduced sales of our dialysis reuse products were significantly mitigated by increased sales in our dialysate concentrate during the past several years, which sales are anticipated to remain at similar levels during fiscal 2020. However, no assurance can be given that we will succeed at increasing sales in the near or long term. Fresenius, the largest dialysis chain in the United States, manufactures dialysate concentrate itself and therefore provides dialysate concentrate to its own dialysis clinics. DaVita and certain international customers have also continued their reduction of dialysate concentrate purchases from us as a result of the highly competitive and price sensitive market for such product. In addition, there is increased demand in the market for powdered dialysate products principally due to the lower costs associated with shipping such products. However, we do not manufacture powdered dialysate products.

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Cantel Medical Corp. 2019 Annual Report on Form 10-K

Because a significant portion of our Life Sciences and Dental segments net sales comes from a few large customers, any significant decrease in sales to these customers, due to industry consolidation or otherwise, could harm our operating results. In our Life Sciences segment, two customers collectively accounted for 40.2% of our fiscal 2019 net sales for this segment. The loss of a significant amount of business from either of these two customers would have a material adverse effect on our Life Sciences segment. The distribution network in the United States dental industry is concentrated, with relatively few distributors of consumable products accounting for a significant share of the sales volume to dentists. Accordingly, net sales and profitability of our Dental segment are highly dependent on our relationships with a limited number of large distributors. During fiscal 2019, the top three customers of our Dental segment accounted for 47.6% of its net sales. We expect similar concentration among our top customers after the anticipated completion of the Hu-Friedy transaction further described in Note 19 to our consolidated financial statements in Part II, Item 8 of this report. The loss of a significant amount of business from any of these three customers would have a material adverse effect on our Dental segment. In addition, because our Dental segment products are primarily sold through third-party distributors and not directly to end users, we cannot control the amount and timing of resources that our distributors devote to our products. There can be no assurance that there will not be a loss or reduction in business from one or more of our major customers. In addition, we cannot assure that net sales from customers that have accounted for significant net sales in the past, either individually or as a group, will reach or exceed historical levels in any future period.

Our industry is experiencing significant scrutiny and regulation by governmental authorities, which may lead to greater regulation in the future. Our medical devices and our business activities are subject to rigorous regulation, including by the FDA, EPA, Department of Justice (“DOJ”), and numerous other federal, state, and foreign governmental authorities. These authorities and members of Congress have been increasing their scrutiny of our industry. In addition, certain state governments and the federal government have enacted legislation aimed at increasing transparency of our interactions with healthcare providers. As a result, we are required by law to disclose payments and other transfers of value to healthcare providers licensed by certain states and to all U.S. physicians and U.S. teaching hospitals at the federal level. Any failure to comply with these legal and regulatory requirements could adversely impact our business. In addition, we may continue to devote substantial time and financial resources to further develop and implement policies, systems, and processes to comply with enhanced legal and regulatory requirements, such as the European Union's General Data Protection Regulation, several of which may expose us to significant penalties or fines and may also impact our business. We anticipate that governmental authorities will continue to scrutinize our industry closely, and that additional regulation may increase compliance and legal costs, exposure to litigation, and other adverse effects to our operations. Moreover, as directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the SEC has implemented reporting and disclosure requirements related to the use of certain minerals, known as “conflict minerals” (specifically, tantalum, tin, tungsten (or their ores), and gold) which are mined from the Democratic Republic of the Congo and adjoining countries. There are costs associated with complying with these disclosure requirements, including for diligence in regards to the sources of any conflict minerals used in our products, in addition to the cost of remediation and other changes to products, processes, or sources of supply as a consequence of such verification activities, if appropriate. Although we have not historically had any issues, that could change if such materials are found to be used in our products. As of the date of our conflict minerals report for the 2018 calendar year, although we fully complied with the regulation, we were unable to obtain the necessary information on conflict minerals from all of our suppliers and were unable to determine that all of our products are conflict free. We may continue to face difficulties in gathering this information in the future. We may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we implement.

Our implementation of an Enterprise Resource Planning (“ERP”) software solution and other information technology systems could result in significant disruptions to our operations. We are engaged in a multi-year implementation of a new global ERP solution and other complementary information technology systems, with the first phase of such implementation having been completed during fiscal 2019. Implementation of these solutions and systems is highly dependent on coordination of numerous software and system providers and internal business teams. The interdependence of these solutions and systems is a significant risk to the successful completion of the initiatives and the failure of any one system could have a material adverse effect on the implementation of our overall information technology infrastructure. We may experience difficulties as we transition to these new or upgraded systems and processes, including loss or corruption of data, delayed shipments, decreases in productivity as our personnel and third party providers implement and become familiar with new systems, increased costs and lost revenues. In addition, transitioning to these new systems requires significant capital investments and personnel resources. Difficulties in implementing new or upgraded information systems or significant system failures could disrupt our operations and have a material adverse effect on our capital resources, financial condition, results of operations or cash flows.

Our businesses are heavily reliant on certain raw materials and can be adversely impacted by rising prices and potential governmental changes to import and tariff policies. We purchase raw materials, sub-assemblies, components and other supplies essential to our operations from numerous suppliers in the United States and abroad. The principal raw materials that we use to conduct operations include chemicals, paper, resin, stainless steel and plastic components. From time to time we experience price increases for raw materials, with no guarantee that such increases can be passed along to our customers. In addition, although fuel

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Cantel Medical Corp. 2019 Annual Report on Form 10-K

and oil prices have been at relatively low levels, an increase in prices can also have a significant adverse impact on transportation costs related to both the purchasing and delivery of products and services. If costs materially increase in the future, we may not be able to implement price increases to our customers, which would adversely impact our gross margins. Our business is also subject to risks associated with U.S. and foreign legislation and regulations relating to imports, including quotas, duties, tariffs or taxes, and other charges or restrictions on imports, which could adversely affect our operations and our ability to import products at current or increased levels. We cannot predict whether additional U.S. and foreign customs quotas, duties (including antidumping or countervailing duties), tariffs, taxes or other charges or restrictions, requirements as to where raw materials must be purchased, additional workplace regulations or other restrictions on our imports will be imposed upon the importation of our products in the future or adversely modified, or what effect such actions would have on our costs of operations. Future quotas, duties or tariffs may have a material adverse effect on our business, financial condition, results of operations or cash flows. Future trade agreements could also provide our competitors with an advantage over us, or increase our costs, either of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

The acquisition of new businesses and product lines, which has inherent risks, is an important part of our growth strategy.

We intend to grow, in part, by acquiring new products and businesses. The success of this strategy depends upon several factors, including our ability to:


•	identify and acquire appropriate products and businesses, including obtaining required regulatory (such as antitrust) approvals,


•	obtain financing for acquisitions on terms that are favorable or acceptable,


•	integrate acquired operations, personnel, products, technologies and regulatory procedures into our organization effectively,


•	retain and motivate key personnel and retain the customers and suppliers of acquired companies,


•	realize expected benefits such as perceived tax benefits and synergies, and


•	successfully promote and increase sales and profits of acquired product lines.

We also may not be able to sustain the rates of growth that we have experienced in the past, whether by acquiring businesses or otherwise. In addition, we often experience competition from third parties interested in the same acquisition candidate. This may result in increases in the price paid for acquisition candidates. In addition, assumptions regarding the growth of businesses we acquire may differ from actual results.

Other risks and uncertainties related to acquisitions include:


•	delays in realizing the benefits of the transactions, including achievement of anticipated operating efficiencies and synergies and other transaction benefits as well as forecasted sales and earnings,


•	diversion of management’s time and attention,


•	difficulties in implementing and maintaining uniform standards, controls, procedures and policies, and


•	risks associated with the assumption of contingent or undisclosed liabilities of acquired companies.

Given the subjective nature of the assumptions used in the determination of fair value calculations, we may potentially have significant earnings volatility in our future results of operations. In addition, we have occasionally used our stock as partial consideration for acquisitions. Our common stock may not remain at a price at which it can be used as consideration for acquisitions without diluting our existing stockholders, and potential acquisition candidates may not view our stock attractively. We have a significant amount of goodwill and intangible assets on our balance sheet related to acquisitions. If future operating results of the acquired businesses are significantly less than the results anticipated at the time of the acquisitions, we may be required to incur impairment charges.

The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and as a result we may face unexpected liabilities. Certain of the acquisition agreements by which we have acquired companies require the former owners to indemnify us against certain liabilities related to the operation of the company before we acquired it. In most of these agreements, however, the liability of the former owners is limited and certain former owners may be unable to meet their indemnification responsibilities. We cannot assure that these indemnification provisions will protect us fully or at all, and as a result we may face unexpected liabilities that adversely affect our business, financial condition, results of operations or cash flows.

Our international business subjects us to a number of risks and our limited operating experience and market recognition in new international markets may limit our international expansion strategy and cause our international return on investments and growth to suffer. Our international business subjects us to a number of risks and complications associated with manufacturing, sales, services, and other operations outside of the United States. These include: risks associated with foreign currency exchange rate fluctuations; difficulties in enforcing agreements and collecting receivables through some foreign legal systems; enhanced credit risks in certain European countries as well as emerging market regions; foreign customers with longer payment cycles than customers in the United States; tax laws that restrict our ability to use tax credits, offset gains, or repatriate funds; tariffs and

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Cantel Medical Corp. 2019 Annual Report on Form 10-K

exchange controls or other trade restrictions including transfer pricing restrictions when products produced in one country are sold to an affiliated entity in another country. Our future growth depends in part on our international expansion efforts, including efforts in emerging markets such as China. We have limited experience with regulatory environments and market practices internationally, and we may not be able to penetrate or successfully operate in locations and environments unfamiliar to us. Additionally, global operations are subject to risks and uncertainties, including political and economic instability, general economic conditions, imposition of government controls, the need to comply with a wide variety of foreign and U.S. export laws and trade restrictions. In connection with our expansion efforts we may encounter obstacles we did not face in North America, including cultural and linguistic differences, differences in regulatory environments, labor and market practices, difficulties in keeping abreast of market, business and technical developments, foreign customers’ requirements and preferences, and the difficulty of administering business overseas. Further, sales practices in certain international markets may be inconsistent with our desired business practices and U.S. and other legal requirements, which may impact our ability to expand as planned. We may also encounter difficulty expanding in new international markets because of competitors already entrenched in the market, and our limited brand recognition leading to delayed acceptance of our products in these new international markets. Our failure to develop new markets or disappointing growth outside of existing markets may negatively affect our return on investments relating to our international expansion efforts. In addition, we may experience difficulties in enforcing intellectual property rights or weaker intellectual property right protections in some countries.

On June 23, 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union (“E.U.”), commonly referred to as “Brexit.” As a result of the referendum, the British government has begun negotiating the terms of the United Kingdom’s future relationship with the E.U. Although it is unknown what the final outcome of such negotiated terms will be, it is possible that there will be greater restrictions on imports and exports between the United Kingdom and E.U. countries and increased regulatory complexities. These changes may adversely affect our operations and financial results since we have a significant presence in the U.K. Further, international markets are increasingly being affected by economic pressure to contain reimbursement levels and healthcare costs, and certain international markets may also be impacted by foreign government efforts to understand healthcare practices and pricing in other countries, which could result in increased pricing transparency across geographies and pressure to harmonize reimbursement and ultimately reduce the selling prices of our products. Most international jurisdictions have regulatory approval and periodic renewal requirements for medical devices, and countries that previously did not have regulatory requirements for medical devices may adopt such requirements; we must comply with these requirements in order to market our products in these jurisdictions. In addition, the trend in countries around the world toward more stringent regulatory requirements for product clearance, changing reimbursement models, and more rigorous inspection and enforcement activities has generally caused or may cause us and other medical device manufacturers to experience more uncertainty, delay, risk and expense, including the E.U.'s enactment of the Medical Devices Regulation. We expect that the international regulatory environment will continue to evolve, which could impact our ability to obtain approvals for our products in those jurisdictions, and thereby have a material impact on our business. Further, any significant changes in the competitive, political, legal, regulatory, reimbursement or economic environment where we conduct international operations may have a material impact on our business, financial condition, results of operations or cash flows.

Health care policy changes on both the federal and state levels may have a material adverse effect on us. In response to perceived increases in health care costs in recent years, there have been and continue to be proposals by the federal government, state governments, regulators, and third-party payers to control these costs and, more generally, to reform the U.S. health care system. Certain of these proposals could limit the prices we are able to charge for our products or the amounts of reimbursement available for our products and could limit the acceptance and availability of our products. The adoption of some or all of these proposals could have a material adverse effect on our financial position, results of operations or cash flows. In addition, the U.S. Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, contains provisions that could have a material impact on our business. Among other provisions, this legislation imposes a 2.3% excise tax on all U.S. medical device sales. In January 2018, Congress enacted legislation that further suspended the excise tax until calendar year 2020. Furthermore, we have been required to commit significant resources to “Sunshine Act” compliance. In addition, various healthcare reform proposals have also emerged at the state level. We cannot predict with certainty what healthcare initiatives, if any, will be implemented at the state level, or what the ultimate effect of federal healthcare reform or any future legislation or regulation may have on us or on our customers’ purchasing decisions regarding our products and services.

Our stock price and trading volume has been volatile from time to time and has experienced significant fluctuations over the past several months and years as a result of various market factors. We may experience continued fluctuations in price and volume in the future that could negatively impact the value of our outstanding shares. The market for our common stock has, from time to time, experienced significant price and volume fluctuations that may have been unrelated to our operating performance. In addition, the trading market for our common stock relies in part on the research and reports that industry and other financial analysts publish about us, our business and our industry. We do not control these or any other analysts, nor do we control their respective reports. Our future operating results are subject to substantial uncertainty, and our stock price could decline significantly if we fail to meet or exceed analysts’ forecasts and expectations. If any of the analysts who cover us downgrade our stock, lower

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Cantel Medical Corp. 2019 Annual Report on Form 10-K

their price target or issue commentary or observations about us or our stock that are perceived by the market as negative, our stock price would likely decline rapidly. In addition, there are many other large, well-established, publicly traded companies active in our industry and market, which may cause our company to garner less attention from industry analysts. If these analysts decrease coverage or otherwise cease to cover our company, we could lose visibility in the market, which in turn could cause our stock price to decline.

Competition from lower cost manufacturing facilities such as those located in China, Southeast Asia and certain locations within North America could result in a reduction in our net sales of dental products due to reduced average selling prices or our customers no longer purchasing certain products from us. Despite expensive shipping costs, quality concerns, sustainability issues and other matters, some of our competitors manufacture certain dental products in lower cost locations such as China, Southeast Asia and certain locations within North America. Although we believe the quality of our dental products, which are generally produced in the United States, are superior, our sales in the future may be adversely affected by either loss of sales or reductions in the prices of our products as a result of this lower cost competition. Price erosion resulting from lower cost competition did not have a material adverse impact on our business during fiscal 2019, but no assurance can be given that we will not face increased competition in the future.

We are subject to extensive government regulation, which may delay or prevent new product introduction and subject us to citations, fines and other regulatory actions. Our operations are subject to extensive regulation by governmental and private agencies in both the United States and in other countries where we do business. In the United States, our products and services are regulated by the FDA and other regulatory authorities. In many foreign countries, sales of our products are subject to extensive regulations that may or may not be comparable to those of the FDA. In Europe, our products are regulated primarily by country and community regulations of those countries within the European Economic Area and must conform to the requirements of those authorities. The regulatory agencies regulate the testing, manufacturing, recordkeeping, storage, packaging, labeling, marketing, distribution, marketing, reporting, safety and import and export of medical supplies and devices. Certain international regulatory bodies also impose import restrictions, tariff regulations, duties and tax requirements. In general, unless an exemption applies, a medical device or product or service must receive regulatory approval or clearance before it can be marketed or sold. Delays in agency review can significantly delay new product introduction and may result in a product becoming “dated” or losing its market opportunity before it can be introduced. In addition, the FDA and other agency clearances generally are required before we can make significant modifications to existing products or market new claims or uses for existing products. The FDA also has the authority to require a recall or modification of products in the event of a defect or other issues. The process of obtaining marketing clearances and approvals from regulatory agencies for new products (or modifications to, or additional claims or uses for, existing products) can be time consuming and expensive. There is no assurance that clearances or approvals will be granted or that agency review will not involve delays that would adversely affect our ability to commercialize our products. During the past several years, the FDA, in accordance with its standard practice, has conducted a number of inspections of our manufacturing facilities to ensure compliance with regulatory standards relating to our testing, manufacturing, storage and packaging of products. On occasion, following an inspection, the FDA has called our attention to certain “Good Manufacturing Practices” compliance deficiencies. If we fail to meet QSRs or violate applicable FDA, EPA or other laws or regulations or if any of our medical devices are found to be ineffective or pose an unreasonable health risk, or if we fail to adequately correct violations or comply with requests by regulatory agencies, we could be subject to reports or warning letters, citations and fines as well as additional regulatory action including an order to recall, replace, repair, or refund non-compliant medical devices, which may have material reputational and financial impacts. Further, regulatory agencies could detain or seize adulterated or misbranded medical devices, or ban such medical devices. The regulatory agencies may also impose operating restrictions, enjoin and/or restrain certain conduct resulting in violations of applicable law pertaining to medical devices, including a hold on approving new devices until issues are resolved to its satisfaction, and assess civil or criminal penalties against our officers, employees, or us. The regulatory agencies may also recommend prosecution to the DOJ. Federal, state and foreign regulations regarding the manufacture and sale of our products are subject to change. We cannot predict what impact, if any, such changes might have on our business. In addition, there can be no assurance that regulation of our products will not become more restrictive in the future and that any such development would not have a material adverse effect on our business, financial condition, results of operations or cash flows.

Compliance with international laws and regulations, import and export limitations, anti-corruption laws, and exchange controls may be difficult, burdensome and expensive. We are subject to compliance with various laws and regulations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar anti-bribery laws, which generally prohibit companies and their intermediaries from making bribes or other improper payments to officials for the purpose of obtaining or retaining business. We are also subject to limitations on trade with persons in sanctioned countries. Our growing exposure to international markets increase the inherent risks of encountering such issues. While our employees, distributors and agents are required to comply with these laws, no assurance can be given that our training and internal policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics. The failure to comply with these laws and regulations could subject us to severe fines and penalties material in scope.

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Cantel Medical Corp. 2019 Annual Report on Form 10-K

Our operations, products and services expose us to the risk of environmental, health and safety liabilities, costs and violations that could adversely affect our reputation and financial results. In the ordinary course of certain of our manufacturing processes, we use various chemicals and other regulated substances. Our operations, products and services are subject to environmental laws and regulations, which impose limitations on the discharge of pollutants into the environment and establish standards for the use, generation, treatment, storage and disposal of hazardous and non-hazardous wastes. Although we are not aware of any material claims involving violation of environmental or occupational health and safety laws or regulations, there can be no assurance that such a claim may not arise in the future, which could have a material adverse effect on us. We must also comply with various health and safety regulations in the United States and abroad in connection with our operations. We can give no assurance that our environmental, health and safety compliance programs have been or will at all times be effective. Failure to comply with any of these laws and regulations could result in civil and criminal, monetary and non-monetary penalties and damage to our reputation. In addition, we cannot provide assurance that our costs of complying with current or future environmental protection and health and safety laws and regulations will not exceed our estimates or adversely affect our financial condition, results of operations or cash flows. In addition, we may incur costs related to remedial efforts or alleged environmental damage associated with past or current waste disposal practices or other hazardous materials handling practices. We are also from time to time party to personal injury or other claims brought by private parties alleging injury due to the presence of or exposure to hazardous substances. We may also become subject to additional remedial, compliance or personal injury costs due to future events such as changes in existing laws or regulations, changes in agency direction or enforcement policies, developments in remediation technologies, changes in the conduct of our operations and changes in accounting rules. We cannot assure you that any liabilities arising from past or future releases of, or exposures to, hazardous substances will not adversely affect our reputation or adversely affect our business, financial condition, results of operations or cash flows.

Healthcare cost containment pressures and legislative or administrative reforms resulting in restrictive reimbursement practices of third-party payors or preferences for alternate therapies could decrease the demand for our products, the prices which customers are willing to pay for those products and the number of procedures performed using our devices. Many of our products are purchased by hospitals, physicians and other healthcare providers that typically bill various third-party payors, including governmental programs (e.g., Medicare and Medicaid), private insurance plans and managed care programs, for the healthcare services provided to their patients. The ability of customers to obtain appropriate reimbursement for (or associated with) their products and services from private and governmental third-party payors is critical to the success of medical device companies. The availability of reimbursement affects which products customers purchase and the prices they are willing to pay. Reimbursement varies from country to country and can significantly impact the acceptance of new products and services. Even if we offer a promising new product, we may find limited demand for the product unless reimbursement approval is obtained from private and governmental third-party payors for such product (or associated with its use). Further legislative or administrative reforms to the reimbursement systems in the United States and foreign countries in a manner that significantly reduces reimbursement for procedures using our medical devices or denies coverage for those procedures, including price regulation, competitive pricing, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements, could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Currency fluctuations and trade barriers could adversely affect our results of operations. 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, Australia, and Asia. Changes in the value of the Euro, British Pound, Canadian dollar, Australian dollar, Singapore dollar, Chinese Renminbi and Sri Lankan Rupee against the U.S. dollar affect our results of operations because certain cash bank accounts, accounts receivable and liabilities of Cantel and its subsidiaries are denominated and ultimately settled in U.S. dollars, Euros, British Pounds, Canadian dollars, Australian dollars, Singapore dollars, Chinese Renminbi or Sri Lanka Rupees, but must be converted into each entity’s functional currency. Furthermore, the financial statements of subsidiaries in the European Union, United Kingdom, Canada, Australia, China and Sri Lanka are translated using the accounting policies described in Note 2 to our consolidated financial statements in Part II, Item 8 of this report, and therefore are impacted by changes in the Euro, British Pound, Canadian dollar, Australian dollar, Chinese Renminbi and Sri Lankan Rupee exchange rates relative to the U.S. dollar.

We may be exposed to product liability claims resulting from the use of products we sell and distribute. Our sales and distribution of products may expose us to product liability claims. We maintain product liability insurance, which we believe is adequate for our businesses. However, there can be no assurance that insurance coverage for these risks will continue to be available or, if available, that it will be sufficient to cover potential claims or that the present level of coverage will continue to be available at a reasonable cost. A partially or completely uninsured successful claim against us could have a material adverse effect on us. In addition, we may not have insurance covering claims of emotional harm or mental distress related to our products or services when not associated with physical injury. This could result in our incurring significant uninsured damages.

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Cantel Medical Corp. 2019 Annual Report on Form 10-K

We rely on intellectual property and proprietary rights to maintain our competitive position. We rely on proprietary technology that we protect primarily through licensing arrangements, patents, trade secrets and proprietary know-how. There can be no assurance that any pending or future patent applications will be granted or that any current or future patents, regardless of whether we are an owner or a licensee of the patent, will not be challenged, rendered unenforceable, invalidated or circumvented or that the rights will provide a competitive advantage to us. There can also be no assurance that our trade secrets or non-disclosure agreements will provide meaningful protection of our proprietary information. There can also be no assurance that others will not independently develop similar technologies or duplicate any technology developed by us or that our technology will not infringe upon patents or other rights owned by others.

Breaches of our information technology systems could have a material adverse effect on our operations. We rely on information technology systems to process, transmit, and store electronic information in our day-to-day operations and install certain software systems on our customers' networks. Our information technology systems have been subjected to computer viruses, or other malicious codes, and cyber or phishing attacks. Although past attacks did not have a significant adverse impact on our business, these types of attacks could result in our intellectual property and other confidential information being lost or stolen, disruption of our operations, or other negative consequences, such as increased costs for security measures or remediation costs, diversion of management attention and adverse impact on our relationships with vendors and customers. Such attacks could also impact our customers' networks. Cyber attacks are becoming more sophisticated and frequent and the techniques used in such attacks change rapidly. While we have made investments seeking to address these threats, including monitoring of networks and systems, hiring of experts, employee training and security policies for employees and third-party providers, the techniques used in these attacks change frequently and may be difficult to detect for periods of time and we may face difficulties in anticipating and implementing adequate preventative measures. If our IT systems are damaged or cease to function properly, the networks or service providers we rely upon fail to function properly, or we or one of our third-party providers suffer a loss or disclosure of our business or stakeholder information due to any number of causes ranging from catastrophic events or power outages to improper data handling or security breaches and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to reputational, competitive and business harm as well as litigation and regulatory action. There can be no assurances that our protective measures will prevent future attacks that could have a significant impact on our business.

If we are unable to retain key personnel, our business could be adversely affected. Our success is dependent to a significant degree upon the efforts of key members of our management. Although none of our key executives has an employment agreement with the Company, each key executive is covered by the Company's Executive Severance and Change in Control Plan. In addition, we have short and long term incentive plans for our key executives that are designed in part to have a retentive effect on the executives. However, there can be no assurance that the terms of the severance agreements or incentive plans will have such an effect. We believe the loss or unavailability of any such individuals could have a material adverse effect on our business. In addition, our success depends in large part on our ability to attract and retain highly qualified scientific, technical, sales, marketing and other personnel. Competition for such personnel is intense and there can be no assurance that we will be able to attract and retain the personnel necessary for the development and operation of our businesses.

Some of our facilities are located near coastal zones, and the occurrence of a hurricane or other natural disasters could damage our facilities and equipment, which could harm our operations. Some of our facilities are vulnerable to damage from hurricanes and from other types of disasters, including fire, floods, power loss, communications failures, terrorism and similar events since any insurance we may maintain may not be adequate to cover our losses. If any disaster were to occur, our ability to operate our business at our facilities could be seriously, or potentially completely, impaired.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our corporate headquarters are located at 150 Clove Road, Little Falls, NJ. Listed below are our manufacturing facilities and the principal warehouses, distribution centers, research facilities and administrative offices that we own or lease. In addition, we maintain administrative and sales offices and warehousing and distribution centers in other locations domestically and globally. We believe that our properties are suitable and adequate for the manufacture and distribution of our products.

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

Cantel Medical Corp. 2019 Annual Report on Form 10-K



Location	Owned/Leased	Purpose	Square Footage	Segment
Plymouth, MN (multiple)	Owned	Administrative, sales, R&D & land	267,000	Medical, Dialysis, Life Sciences
Pomezia, Italy	Owned	Manufacturing, warehousing & administrative	156,000	Medical
Henrietta, NY	Leased	Manufacturing, warehousing & administrative	134,000	Dental
Hauppauge, NY	Owned	Administrative, sales, manufacturing & warehousing	65,000	Dental
Conroe, TX (multiple)	Owned	Administrative, sales, R&D, manufacturing, warehousing & training	72,000	Medical
Hauppauge, NY	Leased	Warehousing	52,000	Dental
Sharon, PA	Owned	Manufacturing & warehousing	50,000	Dental
Southend-on-Sea, U.K.	Owned	Manufacturing, warehousing & administrative	49,500	Medical
Plymouth, MN	Leased	Warehousing	154,000	Life Sciences
Conroe, TX (multiple)	Leased	Executive, sales, administrative, R&D & training	42,000	Medical
Lawrenceville, GA	Leased	Manufacturing & warehousing	41,000	Dental
Rush, NY	Owned	Manufacturing, warehousing, administrative & sales	38,000	Dental
Phoenix, AZ	Leased	Manufacturing, administrative & warehousing	37,000	Dental
Gersthofen, Germany	Leased	Manufacturing, administrative & warehousing	35,000	Medical
Santa Fe Springs, CA	Leased	Manufacturing & warehousing	32,000	Dental
Heerlen, the Netherlands	Leased	Sales, service, warehousing & distribution	26,000	All segments
Lowell, MA	Leased	Sales, administrative, warehousing & regeneration	26,000	Life Sciences
Skippack, PA	Leased	Sales, administrative, warehousing and regeneration	23,000	Life Sciences

Item 3. 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 adverse effect on our business, financial condition, results of operations or cash flows.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock trades on the New York Stock Exchange under the symbol “CMD.” On August 31, 2019, we had 303 record holders of common stock. A number of such holders of record are brokers and other institutions holding shares of common stock in “street name” for more than one beneficial owner.

The following table represents information with respect to purchases of common stock made by the Company during the fourth quarter of fiscal 2019:



Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be under the plan or programs
May 1 - May 31	22	⁽¹⁾	$	68.94	—	—
June 1 - June 30	224	⁽¹⁾	$	71.01	—	—
July 1 - July 31	1,094	⁽¹⁾	$	87.85	—	—
	1,340	⁽¹⁾	$	84.73	—	—

_______________________________________________


(1)	The Company does not currently have a share repurchase program. All of the shares purchased during the fourth quarter of fiscal 2019 represent shares surrendered to the Company to pay employee withholding taxes due upon the vesting of restricted stock.

(dollar amounts in thousands except share and per share data or as otherwise specified) 17

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Stock Performance Graph

The following graph compares the cumulative total stockholder return on our common stock for the last five fiscal years with the cumulative total returns of the Russell 2000 index and the Dow Jones U.S. Health Care Equipment & Services index over the same period (assuming an investment of $100 in our common stock and in each of the indexes on July 31, 2014, and where applicable, the reinvestment of all dividends).

Comparison of 5 Year Cumulative Total Return

Among Cantel Medical Corp. Common Stock, the Russell 2000 Index

and the Dow Jones U.S. Health Care Equipment & Services Index



	July 31,
	2014		2015		2016		2017		2018		2019
Cantel Medical Corp.⁽¹⁾	$	100.00	$	164.02	$	200.47	$	222.59	$	278.58	$	277.99
Russell 2000 Index	$	100.00	$	112.03	$	112.03	$	132.70	$	157.56	$	149.74
Dow Jones U.S. Health Care Equipment & Services Index	$	100.00	$	131.02	$	138.64	$	160.32	$	200.55	$	221.78

________________________________________________


(1)	$100 invested on July 31, 2014 in Cantel Medical Corp.'s common stock or index, including reinvestment of dividends. Indexes are calculated on month-end basis.

(dollar amounts in thousands except share and per share data or as otherwise specified) 18

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Item 6. Selected Consolidated Financial Data.

The following selected consolidated statements of income, balance sheets and other financial data have been derived from our audited consolidated financial statements. The selected consolidated financial and operating information set forth below should be read in conjunction with “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and the Notes thereto included elsewhere in this report.



	Year Ended July 31,
Consolidated Statements of Income Data	2019			2018			2017			2016		2015
Net sales	$	918,155		$	871,922		$	770,157		$	664,755	$	565,004
Cost of Sales	490,701			457,951			402,997			355,569		311,537
Gross profit	427,454			413,971			367,160			309,186		253,467

Income from operations	83,519			121,664			110,410			97,251		80,761
Interest expense, net	9,505			5,289			4,303			3,320		2,364
Other income	(1,305		)	(1,138		)	(126		)	—		—
Loss on sale of business	—			—			—			—		2,206
Income before income taxes	75,319			117,513			106,233			93,931		76,191
Income taxes	20,277			26,472			34,855			33,978		28,238
Net income	$	55,042		$	91,041		$	71,378		$	59,953	$	47,953
Earnings Per Share Data
Weighted average basic shares outstanding	41,700,926			41,567,722			41,468,487			41,344,013		41,139,467
Weighted average diluted shares outstanding	41,757,116			41,635,078			41,542,765			41,390,194		41,202,600
Basic earnings per common share	$	1.32		$	2.18		$	1.71		$	1.44	$	1.16
Diluted earnings per common share	$	1.32		$	2.18		$	1.71		$	1.44	$	1.15
Dividends per common share	$	0.20		$	0.17		$	0.14		$	0.12	$	0.10
Other Financial Data
Net cash provided by operating activities	$	66,931		125,912			$	108,193		$	80,268	$	59,070
Capital expenditures	95,438			37,698			27,065			18,889		12,760
Acquisition of businesses, net of cash acquired	40,644			87,488			70,044			94,528		43,567
Depreciation	21,510			17,473			15,045			11,989		10,692
Amortization	20,849			17,357			18,407			13,095		13,265
	July 31,
Consolidated Balance Sheets Data	2019			2018			2017			2016		2015
Cash and cash equivalents	$	44,535		$	94,097		$	36,584		$	28,367	$	31,720
Total assets	1,070,366			963,708			786,373			694,532		584,031
Working capital	200,396			203,460			150,592			126,407		117,737
Long-term debt (excluding debt issuance costs)	233,000			200,000			126,000			116,000		78,500
Stockholders’ equity	661,537			608,867			523,932			454,370		406,633

Item 7. 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 and its subsidiaries. The MD&A is provided as a supplement to and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report. Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).

(dollar amounts in thousands except share and per share data or as otherwise specified) 19

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Overview

Cantel is a leading provider of infection prevention and control 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. We operate our four segments through wholly-owned subsidiaries in the United States and internationally.

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. As a result of this change, our 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.

Fiscal 2019 Summary

Key GAAP financial results for fiscal 2019 compared with fiscal 2018 were as follows:


•	Net sales increased by 5.3% to $918,155 from $871,922, with organic sales growth of 3.9%,


•	Net income decreased by 39.5% to $55,042 from $91,041, and


•	Earnings per diluted share decreased by 39.6% to $1.32 from $2.18.

Key non-GAAP financial results for fiscal 2019 compared with fiscal 2018 were as follows:


•	Non-GAAP net income decreased by 5.1% to $98,999 from $104,346,


•	Non-GAAP earnings per diluted share decreased by 5.4% to $2.37 from $2.51, and


•	Adjusted EBITDAS decreased by 1.9% to $174,848 from $178,270.

Please see a description of our Non-GAAP Financial Measures below.

Acquisitions

Post-Fiscal 2019

On July 30, 2019, we signed a definitive agreement to acquire Hu-Friedy, a leading global manufacturer of instruments and instrument reprocessing workflow systems serving the dental industry. The acquisition is subject to regulatory approvals and other customary closing conditions, and is expected to close during our first quarter fiscal 2020. After closing, we plan to combine Hu-Friedy with our Dental segment. Under the terms of the acquisition, Cantel will pay $725,000 upfront for Hu-Friedy, a portion of which will be paid in our stock (with the specific amount at our election) with the remainder to be paid in cash. An additional amount in potential cash and stock earnout payments may be payable to Hu-Friedy shareholders upon achievement of certain commercial milestones in the eighteen months following closing of the transaction. As a result of the transaction structure, the acquisition will generate an anticipated tax benefit, which we estimate at more than $100,000, which we expect to use to reduce cash taxes over approximately 15 years.

The cash portion of the transaction is being financed through a combination of the borrowings under our amended and restated credit facility, new term loan financing and cash on hand. We anticipate that our enhanced financial profile and scale following closing of the transaction will enable strong cash flow generation and accelerated deleveraging. See “Debt” below for further discussion of the related financing.

Fiscal 2019

On February 1, 2019, we purchased all of the issued and outstanding stock of Omnia, an Italian-based leader in dental surgical consumables solutions, for total consideration (net of cash acquired), excluding acquisition-related costs, of $19,808, consisting of $16,598 of cash and $3,210 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 specified) 20

Cantel Medical Corp. 2019 Annual Report on Form 10-K

On August 1, 2018, we acquired certain net assets of Stericycle Inc. related to its 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.

See Note 4 to our consolidated financial statements in Part II, Item 8 of this report.

Results of Operations

The following table gives information as to the percentages of net sales represented by selected items reflected in our consolidated statements of income.



	Year Ended July 31,															Percentage Change
Statement of income data	2019					2018					2017					2019 / 2018		2018 / 2017
Net sales	$	918,155		100.0	%	$	871,922		100.0	%	$	770,157		100.0	%	5.3	%	13.2	%
Cost of sales	490,701			53.4	%	457,951			52.5	%	402,997			52.3	%	7.2	%	13.6	%
Gross profit	427,454			46.6	%	413,971			47.5	%	367,160			47.7	%	3.3	%	12.7	%

Selling	140,232			15.3	%	129,642			14.9	%	116,113			15.1	%	8.2	%	11.7	%
General and administrative	172,383			18.8	%	138,019			15.8	%	122,270			15.9	%	24.9	%	12.9	%
Research and development	31,320			3.4	%	24,646			2.8	%	18,367			2.4	%	27.1	%	34.2	%
Total operating expenses	343,935			37.5	%	292,307			33.5	%	256,750			33.4	%	17.7	%	13.8	%

Income from operations	83,519			9.1	%	121,664			14.0	%	110,410			14.3	%	(31.4	)%	10.2	%

Interest expense, net	9,505			1.0	%	5,289			0.6	%	4,303			0.5	%	79.7	%	22.9	%
Other income	(1,305		)	(0.1	)%	(1,138		)	(0.1	)%	(126		)	—	%	—	%	—	%
Income before income taxes	75,319			8.2	%	117,513			13.5	%	106,233			13.8	%	(35.9	)%	10.6	%
Income taxes	20,277			2.2	%	26,472			3.1	%	34,855			4.5	%	(23.4	)%	(24.1	)%
Net income	$	55,042		6.0	%	$	91,041		10.4	%	$	71,378		9.3	%	(39.5	)%	27.5	%

The following table gives information as to the net sales by reportable segment and geography, as well as the related percentage of such sales to the total net sales.



	Year Ended July 31,
Net sales by segment	2019				2018				2017
Medical	$	523,669	57.0	%	$	473,937	54.4	%	$	398,773	51.8	%
Life Sciences	201,022		21.9	%	217,030		24.9	%	196,446		25.5	%
Dental	161,608		17.6	%	149,360		17.1	%	144,457		18.7	%
Dialysis	31,856		3.5	%	31,595		3.6	%	30,481		4.0	%
Total net sales	$	918,155	100.0	%	$	871,922	100.0	%	$	770,157	100.0	%
Net sales by geography
United States	$	665,661	72.5	%	$	643,744	73.9	%	$	599,657	77.9	%
International	252,494		27.5	%	228,178		26.1	%	170,500		22.1	%
Total net sales	$	918,155	100.0	%	$	871,922	100.0	%	$	770,157	100.0	%

(dollar amounts in thousands except share and per share data or as otherwise specified) 21

Cantel Medical Corp. 2019 Annual Report on Form 10-K

The following table gives information as to the amount of income from operations, as well as income from operations as a percentage of net sales, for each of our reportable segments.



	Year Ended July 31,
Income from operations	2019				2018				2017
Medical	$	98,356	18.8	%	$	86,833	18.3	%	$	73,440	18.4	%
Life Sciences	20,552		10.2	%	36,803		17.0	%	33,159		16.9	%
Dental	22,289		13.8	%	30,004		20.1	%	28,000		19.4	%
Dialysis	4,922		15.5	%	7,380		23.4	%	8,154		26.8	%
Operating income by segment	146,119		15.9	%	161,020		18.5	%	142,753		18.5	%
General corporate expenses	62,600		6.8	%	39,356		4.5	%	32,343		4.2	%
Income from operations	$	83,519	9.1	%	$	121,664	14.0	%	$	110,410	14.3	%

Fiscal 2019 compared with Fiscal 2018

Net Sales

Total net sales increased by $46,233, or 5.3%, to $918,155 for fiscal 2019 from $871,922 for fiscal 2018. The 5.3% increase in net sales includes an increase of 3.9% in organic sales, an increase of 2.4% in net sales due to acquisitions (offset by dispositions) and a decrease of 1.0% due to foreign currency translation. International net sales increased by $24,316, or 10.7%, to $252,494 for fiscal 2019 from $228,178 for fiscal 2018. The 10.7% increase in international net sales consists of a 5.0% increase due to acquisitions (offset by dispositions), 9.4% organic sales growth and a decrease of 3.7% due to foreign currency translation, resulting from the strengthening of the U.S. dollar.

Medical. Net sales increased by $49,732, or 10.5%, for fiscal 2019 compared with fiscal 2018, which consisted of 11.5% organic sales growth, a 0.7% increase due to acquisitions and a decrease of 1.7% due to foreign currency translation. The increase in organic net sales was primarily driven by increased sales of our reprocessing products (across all product lines) and to a lesser extent, our procedure room products and consumables. The sales growth was primarily driven by our domestic business, and also supported by international sales increases, mostly from the Asia/Pacific region.

Life Sciences. Net sales decreased by $16,008, or 7.4%, for fiscal 2019 compared with fiscal 2018. The decrease was primarily due to continued softness in demand for capital equipment, primarily in the medical water business, and the divestiture of our high purity water business in Canada, partially offset by acquisition-related growth. We expect this softness in demand to continue into the next fiscal year as orders for our hemodialysis water business were down throughout this fiscal year, primarily resulting from a key customer moving toward a dual source approach and a cyclical downturn in this business. For a more detailed discussion on the competitive threat to our hemodialysis water business, see Part I, Item 1A, “Risk Factors.” Foreign currency translation decreased net sales by 0.3% for fiscal 2019.

Dental. Net sales increased by $12,248, or 8.2%, for fiscal 2019 compared with fiscal 2018. The increase was primarily driven by acquisition-related growth, partially offset by a decrease in sales to our distributor network due to inventory adjustments within our channel at the start of this fiscal year. We expect our Dental segment's net sales to increase in fiscal 2020 and beyond as a result of the previously discussed Hu-Friedy acquisition and its related operations.

Dialysis. Net sales increased by $261, or 0.8%, for fiscal 2019 compared with fiscal 2018. The increase was primarily due to the increase in sales volume for our domestic concentrate business, offset by decreases in reprocessing sales and the loss of concentrate business in certain international regions.

Gross Profit

Gross profit increased by $13,483, or 3.3%, to $427,454 for fiscal 2019 from $413,971 for fiscal 2018. Gross profit as a percentage of net sales for fiscal 2019 and 2018 was 46.6% and 47.5%, respectively. The decrease in gross profit as a percentage of net sales for fiscal 2019 was due to increased labor costs resulting from livable wage increases, and the reclassification of certain compensation and benefit-related costs that had previously been recorded in operating expenses into cost of sales. The reclassification negatively impacted gross profit as a percentage of net sales by approximately 0.4% for fiscal 2019. Excluding the impact of acquisition-related and restructuring-related items, gross profit as a percentage of net sales for fiscal 2019 and 2018 was 46.9% and 47.8%, respectively.

(dollar amounts in thousands except share and per share data or as otherwise specified) 22

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Operating Expenses

Operating expenses as a percentage of net sales for fiscal 2019 and 2018 were 37.5% and 33.5%, respectively. As stated above, there was a reclassification of certain salary and benefit related costs that had previously been recorded in operating expenses into cost of sales, which positively impacted operating expenses as a percentage of net sales by approximately 0.4% for fiscal 2019.

Selling expenses increased by $10,590, or 8.2%, to $140,232 for fiscal 2019 from $129,642 for fiscal 2018. The increase was due to primarily due to selling and marketing expenses of our recent acquisitions, and to a lesser extent higher compensation-related costs. Selling expenses as a percentage of net sales were 15.3% and 14.9% for fiscal 2019 and 2018, respectively.

General and administrative expenses increased by $34,364, or 24.9%, to $172,383 for fiscal 2019 from $138,019 for fiscal 2018. The increase was primarily due to ERP implementation costs, including depreciation expense associated with the related ERP assets, higher restructuring-related costs resulting from organizational leadership changes, acquisition-related items (such as transaction and integration-related costs), depreciation expense associated with our Medical segment's new headquarters, and higher amortization expense as a result of our recent acquisitions. General and administrative expenses for fiscal 2018 were negatively impacted by the settlement of a patent infringement matter, resulting in less of an overall increase in fiscal 2019. General and administrative expenses as a percentage of net sales were 18.8% and 15.8% for fiscal 2019 and 2018, respectively.

Research and development expenses (which include continuing engineering costs) increased by $6,674, or 27.1%, to $31,320 for fiscal 2019 from $24,646 for fiscal 2018. The increase was primarily due to additional product development initiatives primarily in our Medical segment, and to a lesser extent due to increased headcount. Research and development expenses as a percentage of net sales were 3.4% and 2.8% for fiscal 2019 and 2018, respectively.

We expect our overall operating expense profile to be higher in fiscal 2020 and beyond as a result of the previously discussed acquisition of Hu-Friedy and its related operations.

Operating Income

Medical. Operating income increased by $11,523, or 13.3%, for fiscal 2019 compared with fiscal 2018. The increase was primarily due to increased sales volume in the United States and internationally, as further explained above. The increase was partially offset by elevated ERP implementation costs, including depreciation expense associated with the related ERP assets, higher restructuring-related charges and depreciation expense associated with our Medical segment's new headquarters. The settlement of a patent infringement matter negatively affected operating income as a percentage of sales by approximately 0.5% in fiscal 2018.

Life Sciences. Operating income decreased by $16,251, or 44.2%, for fiscal 2019 compared with fiscal 2018. The decrease was primarily due to lower net sales, restructuring-related costs (including the accelerated amortization of certain intangible assets) and an increase in research and development costs. We expect this continued softness in demand to continue in the upcoming fiscal year as orders for our hemodialysis water business were down in fiscal 2019, as a result of a key customer moving toward a dual source approach and a cyclical downturn in this business.

Dental. Operating income decreased by $7,715, or 25.7%, for fiscal 2019 compared with fiscal 2018. The decrease was primarily due to reduced gross profit (resulting from livable wage increases, decreased productivity and inflationary pressures) and increased selling and marketing expenses, partially offset by income from operations related to acquisitions. We expect our Dental segment's operating income to increase in fiscal 2020 and beyond as a result of the previously discussed Hu-Friedy acquisition and its related operations.

Dialysis. Operating income decreased by $2,458, or 33.3%, for fiscal 2019 compared with fiscal 2018. The decrease was primarily due to the shift to lower margin products and increased selling expenses, partially offset by higher net sales.

General Corporate Expenses

General corporate expenses relate to unallocated corporate costs primarily related to executive management personnel as well as costs associated with certain facets of our acquisition program and being a publicly traded company. Such expenses increased by $23,244, or 59.1%, for fiscal 2019 from fiscal 2018. These increases were primarily due to an increase of restructuring-related costs resulting from organizational leadership changes, acquisition-related charges and ERP implementation costs.

(dollar amounts in thousands except share and per share data or as otherwise specified) 23

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Interest Expense, Net

Interest expense, net increased by $4,216, or 79.7%, to $9,505 for fiscal 2019 from $5,289 for fiscal 2018. The increase resulted from an increase in the average outstanding borrowings due to both our term loan and revolver borrowings (described below) to support the funding of acquisitions, and to a lesser extent, higher variable interest rates. We expect our interest expense, net to be elevated in fiscal 2020 and beyond due to the financing of the previously discussed Hu-Friedy acquisition.

Other Income

Other income of $1,305 for fiscal 2019 represents the gain on sale of our high purity water business in Canada. Other income of $1,138 for fiscal 2018 represents the favorable resolution of the contingent liability associated with a previous acquisition.

Income Taxes

The consolidated effective tax rate increased to 26.9% for fiscal 2019 from 22.5% for fiscal 2018. The increase in our consolidated effective tax rate was primarily due to the recognition of a discrete tax benefit in fiscal 2018 as a result of the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) associated with the remeasurement of our U.S. deferred tax items which impacted the comparability to fiscal 2019. The rate impact from the discrete tax benefit was partially offset in fiscal 2018 by the recording of a $2,785 valuation allowance on deferred tax assets related to a previous acquisition.

Fiscal 2018 compared with Fiscal 2017

For a discussion of fiscal 2018 compared with fiscal 2017, see Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2018.

Non-GAAP Financial Measures

In evaluating our operating performance, we supplement the reporting of our financial information determined under GAAP with certain non-GAAP financial measures including (i) non-GAAP net income, (ii) non-GAAP earnings per diluted share (“EPS”), (iii) earnings before interest, taxes, depreciation, amortization, loss on disposal of fixed assets, and stock-based compensation expense (“EBITDAS”), (iv) adjusted EBITDAS, (v) net debt and (vi) organic sales. These non-GAAP financial measures are indicators of our performance that are not required by, or presented in accordance with, GAAP. They are presented with the intent of providing greater transparency to financial information used by us in our financial analysis and operational decision-making. We believe that these non-GAAP measures provide meaningful information to assist investors, stockholders and other readers of our consolidated financial statements in making comparisons to our historical operating results and analyzing the underlying performance of our results of operations. These non-GAAP financial measures are not intended to be, and should not be, considered separately from, or as an alternative to, the most directly comparable GAAP financial measures.

To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect comparability of operating results and the trend of earnings. These adjustments are irregular in timing, may not be indicative of our past and future performance and are therefore excluded to allow investors to better understand underlying operating trends. The following are examples of the types of adjustments that are excluded: (i) amortization of purchased intangible assets, (ii) acquisition-related items, (iii) business optimization and restructuring-related charges, (iv) certain significant and discrete tax matters and (v) other significant items management deems irregular or non-operating in nature.

Amortization expense of purchased intangible assets is a non-cash expense related to intangibles that were primarily the result of business acquisitions. Our history of acquiring businesses has resulted in significant increases in amortization of intangible assets that reduce our net income. The removal of amortization from our overall operating performance helps in assessing our cash generated from operations including our return on invested capital, which we believe is an important analysis for measuring our ability to generate cash and invest in our continued growth.

Acquisition-related items consist of (i) fair value adjustments to contingent consideration and other contingent liabilities resulting from acquisitions, (ii) due diligence, integration, legal fees and other transaction costs associated with our acquisition program and (iii) acquisition accounting charges for the amortization of the initial fair value adjustments of acquired inventory and deferred revenue. The adjustments of contingent consideration and other contingent liabilities are periodic adjustments to record such amounts at fair value at each balance sheet date. Given the subjective nature of the assumptions used in the determination of fair value calculations, fair value adjustments may potentially cause significant earnings volatility that are not representative of our operating results. Similarly, due diligence, integration, legal and other acquisition costs associated with our acquisition program, including accounting charges relating to recording acquired inventory and deferred revenue at fair market value, can be

(dollar amounts in thousands except share and per share data or as otherwise specified) 24

Cantel Medical Corp. 2019 Annual Report on Form 10-K

significant and also adversely impact our effective tax rate as certain costs are often not tax-deductible. Since these acquisition-related items are irregular and often mask underlying operating performance, we exclude these amounts for purposes of calculating these non-GAAP financial measures to facilitate an evaluation of our current operating performance and a comparison to past operating performance.

Restructuring-related and business optimization items consist of severance-related costs associated with work force reductions and other restructuring-related activities. Such costs include (i) salary continuation, (ii) bonus payments, (iii) outplacement services, (iv) medical-related premium costs and (v) accelerated stock-based compensation expense.

Excess tax benefits resulting from stock compensation are recorded as an adjustment to income tax expense. The magnitude of the impact of excess tax benefits generated in the future, which may be favorable or unfavorable, are dependent upon our future grants of equity awards, our future share price on the date awards vest in relation to the fair value of awards on grant date and the exercise behavior of our stock award holders. Since these tax benefits are largely unrelated to our results and unrepresentative of our normal effective tax rate, we excluded their impact on net income and diluted EPS to arrive at our non-GAAP financial measures.

Fiscal 2019

During fiscal 2019, we recorded specific discrete tax items associated with our international operations that were unrelated to fiscal 2019. As these items were unrepresentative of our normal effective tax rate, we excluded their impact on net income and diluted EPS for fiscal 2019 to arrive at our non-GAAP financial measures.

During fiscal 2019, we completed the disposition of our high purity water business in Canada. This resulted in a pre-tax gain of $1,305 through other income. Since this gain was not representative of past or future operations, we made an adjustment to our net income and diluted EPS for fiscal 2019 to exclude this gain to arrive at our non-GAAP financial measures.

During fiscal 2019, we recorded an adjustment to a minor litigation matter in our consolidated financial statements. Since these costs are irregular and mask our underlying operating performance, we made an adjustment to our net income and diluted EPS for fiscal 2019 to exclude such costs to arrive at our non-GAAP financial measures.

Fiscal 2018

The 2017 Tax Act significantly revised U.S. tax law by, among other provisions, (a) lowering the applicable U.S. federal statutory income tax rate from 35% to 21%, (b) creating a partial territorial tax system that includes imposing a mandatory one-time transition tax on previously deferred foreign earnings, (c) creating provisions regarding the (1) Global Intangible Low Tax Income, (2) the Foreign Derived Intangible Income deduction, and (3) the Base Erosion Anti-Abuse Tax and (d) eliminating or reducing certain income tax deductions, such as interest expense, executive compensation expenses and certain employee expenses. During fiscal 2018, we recorded a one-time net benefit as a provisional estimate of the net accounting impact of the 2017 Tax Act in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”). Since the net favorable tax benefit is largely unrelated to our results and unrepresentative of our normal effective tax rate, we excluded its impact on net income and diluted EPS for fiscal 2018 to arrive at our non-GAAP financial measures.

During fiscal 2018, the Israeli Government notified us that they would forgive any future amounts due under a contingent obligation payable from a previous acquisition. As a result of this formal notification, we reduced the $1,138 contingent obligation payable to $0 during fiscal 2018, resulting in a gain through other income. Since this gain was irregular, we made an adjustment to our net income and diluted EPS for fiscal 2018 to exclude this gain to arrive at our non-GAAP financial measures.

During fiscal 2018, we settled a patent infringement matter and also recorded an adjustment to another minor litigation matter in our consolidated financial statements. Since these costs are irregular and mask our underlying operating performance, we made an adjustment to our net income and diluted EPS for fiscal 2018 to exclude such costs to arrive at our non-GAAP financial measures.

During fiscal 2018, we recorded a $2,785 valuation allowance on deferred tax assets related to a prior acquisition. Since this tax adjustment is related to acquired net operating losses and is not representative of our normal effective tax rate, we excluded its impact on net income and diluted EPS for fiscal 2018 to arrive at our non-GAAP financial measures.

(dollar amounts in thousands except share and per share data or as otherwise specified) 25

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Fiscal 2017

During fiscal 2017, we recorded the costs associated with the retirement plans of our former Chief Executive Officer in our consolidated financial statements. Since these costs are irregular and mask our underlying operating performance, we made an adjustment to our net income and diluted EPS for fiscal 2017 to exclude such costs to arrive at our non-GAAP financial measures.

The reconciliations of net income and diluted EPS to non-GAAP net income and non-GAAP diluted EPS were calculated as follows:



	July 31,
	2019						2018						2017
Net income/Diluted EPS, as reported	$	55,042		$	1.32		$	91,041		$	2.18		$	71,378		$	1.71
Intangible amortization, net of tax⁽¹⁾	16,021			0.38			13,267			0.32			12,800			0.30
Acquisition-related items, net of tax⁽²⁾	9,689			0.23			2,835			0.07			1,533			0.04
Restructuring-related charges, net of tax⁽³⁾	18,015			0.43			4,658			0.11			2,057			0.05
Litigation matters, net of tax⁽¹⁾	134			—			1,637			0.04			—			—
CEO retirement costs, net of tax⁽¹⁾	—			—			—			—			1,213			0.03
Loss on debt extinguishment, net of tax⁽⁴⁾	—			—			91			—			—			—
Gain on disposition of business, net of tax⁽⁵⁾	(943		)	(0.02		)	—			—			—			—
Resolution of contingent liability⁽⁵⁾	—			—			(1,138		)	(0.03		)	—			—
Excess tax benefits⁽⁶⁾	(584		)	(0.01		)	(2,173		)	(0.05		)	(2,241		)	(0.05		)
Tax matters⁽⁶⁾	1,625			0.04			(5,872		)	(0.13		)	—			—
Non-GAAP net income/Non-GAAP diluted EPS	$	98,999		$	2.37		$	104,346		$	2.51		$	86,740		$	2.08

________________________________________________


(1)	Amounts were recorded in general and administrative expenses.

(2)

In fiscal 2019, pre-tax acquisition-related items of $351 were recorded in net sales, $537 were recorded in cost of sales and $12,241 were recorded in general and administrative expenses. In fiscal 2018, pre-tax acquisition-related items of $893 were recorded in cost of sales and $3,154 were recorded in general and administrative expenses. In fiscal 2017, pre-tax acquisition-related items of $353 were recorded in cost of sales and $2,094 were recorded in general and administrative expenses.

(3)

In fiscal 2019, pre-tax restructuring-related items of $2,243 were recorded in cost of sales and $21,507 were recorded in general and administrative expenses. In fiscal 2018, pre-tax restructuring-related items of $1,517 were recorded in cost of sales and $3,814 were recorded in general and administrative expenses. In fiscal 2017, pre-tax restructuring-related items of $3,284 were recorded in general and administrative expenses.


(4)	Amounts were recorded in interest expense, net.


(5)	Amounts were recorded in other income.


(6)	Amounts were recorded in income taxes.

We believe EBITDAS is an important valuation measurement for management and investors given the increasing effect that non-cash charges, such as stock-based compensation, amortization related to acquisitions and depreciation of capital equipment have on net income. In particular, acquisitions have historically resulted in significant increases in amortization of purchased intangible assets that reduce net income. Additionally, we regard EBITDAS as a useful measure of operating performance and cash flow before the effect of interest expense and is a complement to income from operations, net income and other GAAP financial performance measures.

We define adjusted EBITDAS as EBITDAS excluding the same non-GAAP adjustments to net income discussed previously in this document. We use adjusted EBITDAS when evaluating operating performance because we believe the exclusion of such adjustments, of which a significant portion are non-cash items, is necessary to provide the most accurate measure of on-going core operating results and to evaluate comparative results period over period.

(dollar amounts in thousands except share and per share data or as otherwise specified) 26

Cantel Medical Corp. 2019 Annual Report on Form 10-K

The reconciliations of net income to EBITDAS and adjusted EBITDAS were calculated as follows:



	July 31,
	2019			2018			2017
Net income, as reported	$	55,042		$	91,041		$	71,378
Interest expense, net	9,505			5,289			4,303
Income taxes	20,277			26,472			34,855
Depreciation	21,510			17,473			15,045
Amortization	20,849			17,357			18,407
Loss on disposal of fixed assets	1,592			768			966
Stock-based compensation expense	15,562			9,615			8,844
EBITDAS	144,337			168,015			153,798
Acquisition-related items	13,129			4,047			2,447
Restructuring-related charges⁽¹⁾	18,524			5,001			2,760
Litigation matters	163			2,345			—
CEO retirement costs⁽²⁾	—			—			1,937
Gain on disposition of business	(1,305		)	—			—
Resolution of contingent liability	—			(1,138		)	—
Adjusted EBITDAS	$	174,848		$	178,270		$	160,942

________________________________________________


(1)	Excludes stock-based compensation expense.


(2)	For comparative purposes, we have revised the amounts associated with CEO retirement costs for the twelve months ended July 31, 2017 to exclude stock-based compensation expense which was reported in “Stock-based compensation expense” above.

We define net debt as long-term debt less cash and cash equivalents. Each of the components of net debt appears on our consolidated balance sheets. We believe that the presentation of net debt provides useful information to investors because we review net debt as part of our management of our overall liquidity, financial flexibility, capital structure and leverage.



	July 31,
	2019			2018			2017
Long-term debt (excluding debt issuance costs)	$	233,000		$	200,000		$	126,000
Less cash and cash equivalents	(44,535		)	(94,097		)	(36,584		)
Net debt	$	188,465		$	105,903		$	89,416

We define organic sales as net sales less (i) the impact of foreign currency translation, (ii) net sales related to acquired businesses during the first twelve months of ownership and (iii) divestitures during the periods being compared. We believe that reporting organic sales provides useful information to investors by helping identify underlying growth trends in our business and facilitating easier comparisons of our revenue performance with prior periods. We exclude the effect of foreign currency translation from organic sales because foreign currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. We exclude the effect of acquisitions and divestitures because the nature, size, and number of acquisitions and divestitures can vary dramatically from period to period and can obscure underlying business trends and make comparisons of financial performance difficult. The reconciliation of net sales growth to organic sales growth for total net sales

and net sales of our four reportable segments were calculated as follows:



	Net Sales		Medical Net Sales		Life Sciences Net Sales		Dental Net Sales		Dialysis Net Sales
Net sales growth	5.3	%	10.5	%	(7.4	)%	8.2	%	0.8	%
Impact due to foreign currency translation	1.0	%	1.7	%	0.3	%	—	%	0.2	%
Sales related to acquisitions	(2.4	)%	(0.7	)%	(2.2	)%	(8.4	)%	—	%
Organic sales growth	3.9	%	11.5	%	(9.3	)%	(0.2	)%	1.0	%

(dollar amounts in thousands except share and per share data or as otherwise specified) 27

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. Significant factors affecting the management of liquidity are cash flows generated from operating activities, capital expenditures, acquisitions of businesses and cash dividends. Cash provided by operating activities continues to be a primary source of funds. As necessary, we supplement operating cash flow with borrowings from our revolving credit facility to fund our acquisitions and related business activities.

Cash Flows

Net Cash Provided by Operating Activities. Net cash provided by operating activities decreased to $66,931 in fiscal 2019 from $125,912 in fiscal 2018, primarily due to a decrease in net income (after adjusting for non-cash items) associated with restructuring-related initiatives and acquisition-related costs. In addition, inventory purchases were higher due to the anticipation of our ERP go-live in fiscal 2019 and to continue to support demand in our Medical segment. The timing of receipts associated with accounts receivable and the timing of payments associated with accounts payable (both net of acquisitions) also contributed to this decrease. The timing of collections associated with accounts receivable was primarily driven by the implementation of our ERP system in our Medical segment during the second half of fiscal 2019. We expect our collection efforts associated with our outstanding accounts receivable to improve during fiscal 2020. Net cash provided by operating activities increased to $125,912 in fiscal 2018 from $108,193 in fiscal 2017 primarily due to the increase in net income (after adjusting for non-cash items) and decreases in inventory levels (net of acquisitions), partially offset by decreases in accounts payable due to the timing of payments.

Net Cash Used in Investing Activities. Net cash used in investing activities increased by $7,843 to $133,029 in fiscal 2019 from $125,186 in fiscal 2018, primarily due to an increase in capital expenditures, partially offset by a decrease in cash paid for acquisitions. Net cash used in investing activities increased by $28,124 to $125,186 in fiscal 2018 from $97,062 in fiscal 2017, primarily due to an increase in cash paid for acquisitions and an increase in capital expenditures. During fiscal 2019, 2018 and 2017, net cash used in investing activities included capital expenditures of $95,438, $37,698 and $27,065, respectively, which included expenditures for ERP software, building improvements and purchases of manufacturing and computer equipment. Capital expenditures for fiscal 2019 increased significantly when to compared to fiscal 2018 as a result of the ERP system implementation and the purchase of our Medical segment's new headquarters.

Net Cash Provided by Financing Activities. Net cash provided by financing activities decreased by $42,435 to $14,702 in fiscal 2019 from $57,137 in fiscal 2018, primarily due to a net decrease in borrowings used to support acquisition-related activity, partially offset by an increase in dividend payments. Net cash used in financing activities increased by $59,888 to $57,137 of cash provided in fiscal 2018 from $2,751 of cash used in fiscal 2017. The changes in net cash provided by (used in) financing activities were primarily due to the refinancing of our credit facility, resulting in $200,000 in term loan borrowings in fiscal 2018, and the net effect of borrowings and repayments under our revolving credit facility.

Dividends

During fiscal 2019, we paid semi-annual cash dividends that totaled $0.20 per outstanding share of common stock, of which $0.10 per share was paid on each of January 31, 2019 and July 31, 2019. During fiscal 2018, we paid semi-annual cash dividends that totaled $0.17 per outstanding share of common stock, of which $0.085 per share was paid on each of January 31, 2018 and July 31, 2018. Future declaration of dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors. However, it is our current expectation that semi-annual cash dividends of at least $0.10 per common share will continue to be paid in the foreseeable future.

Debt (Fourth Amended and Restated Credit Agreement)

On June 28, 2018, we entered into a Fourth Amended and Restated Credit Agreement (the “2018 Credit Agreement”). The Amended Credit Agreement refinanced our credit facility under the Third Amended and Restated Credit Agreement dated March 4, 2011, 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.

As of July 31, 2019, we had $43,000 of revolver borrowings and $190,000 of term loan A borrowings under the 2018 Credit Agreement.

(dollar amounts in thousands except share and per share data or as otherwise specified) 28

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Until amended as described below, borrowings under the 2018 Credit Agreement bore 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”). The 2018 Credit Agreement also provided for fees on the unused portion of the revolving credit facility at rates ranging from 0.20% to 0.35%, depending on our Consolidated Leverage Ratio. As of July 31, 2019, the average interest rate on our outstanding borrowings was approximately 3.48%.

We are in compliance with all financial and other covenants under the 2018 Credit Agreement at July 31, 2019. For further information regarding the 2018 Credit Agreement, including a description of affirmative and negative covenants, see Note 10 to our consolidated financial statements in Part II, Item 8 of this report.

Debt (Amendment to 2018 Credit Agreement)

On September 6, 2019, we entered into a First Amendment (the “Amendment”), amending the 2018 Credit Agreement, and as amended by the Amendment, the (“Amended Credit Agreement”). The Amendment adds a $400,000 delayed draw term loan facility (the “Delayed Draw Facility”), which the we may draw subject to the satisfaction of certain limited conditions precedent, to our 2018 Credit Agreement, in addition to the existing tranche A term loan and existing revolving credit facility. Pursuant to the Amended Credit Agreement, subject to the satisfaction of certain conditions precedent, including the consent of the lenders, the Company may from time to time increase its borrowing capacity under the revolving credit facility by, or incur incremental term loans in, an aggregate amount not to exceed the sum of (i) the greater of (x) $300,000 or (y) an amount equal to two times the our consolidated EBITDA, calculated on a pro forma basis, plus (ii) the aggregate principal amount of voluntary prepayments of the revolving loans and term loans.

The Amended 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 each Loan Party 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.

Financing Needs

At July 31, 2019, our total long-term debt (excluding debt issuance costs) of $233,000, net of our cash and cash equivalents of $44,535, was $188,465. Stockholders' equity as of that date was $661,537. Our reportable segments generate significant cash from operations. At July 31, 2019, we had a cash balance of $44,535, of which approximately one-half was held by foreign subsidiaries. Our foreign cash is needed by our foreign subsidiaries for working capital purposes as well as for current international growth initiatives. Accordingly, our foreign unremitted earnings are considered indefinitely reinvested and unavailable for repatriation. We believe that our current cash position, anticipated cash flows from operations and the funds available under our Amended Credit Agreement will be sufficient to satisfy our worldwide 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 September 25, 2019, approximately $355,000 was available under our Amended Credit Agreement.

The Delayed Draw Facility and a portion of the revolving credit facility under our Amended Credit Agreement will be used to finance all or a portion of the cash consideration for our acquisition of Hu-Friedy. The remaining proceeds of the Amended Credit Agreement will be used to refinance certain existing indebtedness of Cantel and Hu-Friedy, and to pay the fees and expenses incurred in connection therewith, as well as for working capital, capital expenditures and other lawful corporate purposes. We anticipate that our enhanced financial profile and scale following closing of the acquisition will enable strong cash flow generation and accelerated deleveraging.

(dollar amounts in thousands except share and per share data or as otherwise specified) 29

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Inflation

Although overall inflation did not have a significant effect on our business, an increase in commodity prices can adversely affect our gross margins. Specifically, our businesses can be adversely impacted by rising fuel and oil prices and are heavily reliant on certain raw materials, such as chemicals, paper, resin, stainless steel and plastic components. From time to time, we experience price increases for raw materials. If we are unable to implement price increases to our customers, our gross margin could be adversely affected.

Commitments and Contractual Obligations

As of July 31, 2019, aggregate annual required payments over the next five years and thereafter under our contractual obligations that have long-term components are as follows:



	Year Ended July 31,
	2020		2021		2022		2023		2024		Thereafter		Total
Maturity of the credit facility⁽¹⁾	$	10,000	$	10,000	$	10,000	$	203,000	$	—	$	—	$	233,000
Expected interest payments under the credit facility	8,663		8,315		7,967		7,000		—		—		31,945
Minimum commitments under noncancelable operating leases	9,099		7,671		6,021		5,659		5,159		15,251		48,860
Contingent consideration	1,411		—		—		—		—		—		1,411
Other long-term obligations⁽²⁾	353		836		73		240		—		—		1,502
Total contractual obligations	$	29,526	$	26,822	$	24,061	$	215,899	$	5,159	$	15,251	$	316,718

_______________________________________________


(1)	Does not include anticipated required payments under the Delayed Draw Facility related to the financing of the Hu-Friedy acquisition. However, anticipated payments will be $7,125, $9,500, $9,500 and $373,875 for fiscal 2020, 2021, 2022 and 2023, respectively.


(2)	Includes uncertain tax positions.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our 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 disclosures 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.

Our significant accounting policies are described more fully in Note 2 to our consolidated financial statements in Part II, Item 8 of this report. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Goodwill and Indefinite-lived Intangible Assets

We have recorded goodwill and trademarks and trade names, all of which have indefinite useful lives and are therefore not amortized. All of our indefinite-lived 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 responsible for determining if impairment exists and considers a number of factors, including third-party valuations, when making these determinations.

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 our 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 and earnings 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.

(dollar amounts in thousands except share and per share data or as otherwise specified) 30

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Business Combinations

Acquisitions require significant estimates and judgments related to the fair value of assets acquired and liabilities assumed. We determine fair value based on the estimated 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. Such initial fair value amounts as well as other acquired assets and liabilities, including deferred tax assets and liabilities, are sometimes refined requiring subsequent adjustments.

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 contingent consideration, certain deferred income tax liabilities, income tax and sales and use tax exposures, including tax liabilities related to our foreign subsidiaries, as well as reserves for accounts receivable, inventories, warranties and contingent obligations. We account for contingent consideration relating to business combinations as a liability and an increase to goodwill at the date of the acquisition and continually re-measure the liability at each balance sheet date by recording changes in the fair value through our consolidated statements of income. We determine the fair value of contingent consideration based on future operating projections under various potential scenarios and weight the probability of these outcomes. Similarly, other acquisition related liabilities can be required to be recorded at fair value at the date of the acquisition and continually re-measured at each balance sheet date. The ultimate settlement of liabilities relating to business combinations may be for amounts which are materially different from the amounts initially recorded and may cause volatility in our results of operations.

We allocate the purchase price of an acquired company to the tangible and identifiable intangible assets and liabilities acquired, with the remaining amount being recorded as goodwill. Intangible assets primarily include customer relationships, technology, brand names and trademarks. The assignment of fair value to the identifiable intangible assets requires judgment. We apply an income-based valuation methodology in measuring the customer relationships acquired, which include certain assumptions such as forecasted future cash flows, customer attrition rates, terminal growth rates and discount rates. Intangibles assets are generally amortized on a straight-line basis, reflecting the pattern in which the economic benefits are consumed, and are amortized over their estimated useful lives.

Off-balance Sheet Arrangements

As of July 31, 2019, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Recent Accounting Pronouncements

Refer to Note 2 to the consolidated financial statements in Part II, Item 8 of this report.

Cybersecurity

We have established an enterprise risk management committee to monitor and escalate enterprise level issues, including cybersecurity matters, to the appropriate management levels within our organization and to members of our Board of Directors as appropriate. Utilizing an escalation framework, our enterprise risk management committee and internal auditor are charged with reviewing cybersecurity risks and incidents for potential financial, operational, and reputational risks. Matters determined to present potential material impacts to our financial results, operations or reputation are reported by management to the chair of our Audit Committee. In addition, the enterprise risk committee is charged with ensuring that management responsible for overseeing the effectiveness of disclosure controls is informed in a timely manner of known cybersecurity risks and incidents that may materially impact our operations so that timely public disclosure can be made as appropriate.

Our directors and executive officers are subject to our Securities Trading Policy, which is designed to facilitate compliance with insider trading laws and governs transactions in our common stock and related derivative securities. Our Stock Trading Policy designates certain blackout periods, dictated by our financial quarters and the release of financial results, during which trading is restricted for individuals in information-sensitive positions, including directors and executive officers. Our Stock Trading Policy also expressly restricts trading at any time while in possession of material non-public information, and permits designated officers to impose additional blackout periods. Cybersecurity risks are one of several matters that may be deemed material information under our Stock Trading Policy, and therefore form the basis of restricting participation in the market outside of a blackout period, or for designating a blackout period.

(dollar amounts in thousands except share and per share data or as otherwise specified) 31

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks arising principally from changes in interest rates and foreign currency.

Interest Rate Market Risk

With respect to interest rate risk, since our credit facility consists of outstanding debt at prevailing market rates of interest, principally under LIBOR contracts ranging from one to twelve months, our market risk with respect to such debt is the increase in interest expense which would result from higher interest rates associated with LIBOR. Our outstanding debt of $233,000 at July 31, 2019 has expected annual interest payments of approximately $8,663 using an effective interest rate of 3.48%. Therefore, a 100 basis-point increase in average LIBOR interest rates would result in incremental interest expense of approximately $2,330. 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, which fixed interest rates at 2.265% on a combined notional value of $150,000. The swap contracts expire on June 28, 2023, in conjunction with the Amended Credit Agreement.

Foreign Currency Market Risk

Changes in the value of the Euro, British Pound, Singapore dollar, Canadian dollar, Australian dollar, Chinese Renminbi and the Sri Lankan Rupee against the U.S. dollar affect our results of operations because certain cash bank accounts, accounts receivable and liabilities of Cantel and its subsidiaries are denominated and ultimately settled in U.S. dollars or these foreign currencies, but must be converted into each entity’s functional currency. Furthermore, the financial statements of most of our international subsidiaries are translated using the accounting policies described in Note 2 to the consolidated financial statements in Part II, Item 8 of this report, and therefore are impacted by changes in the international entities’ functional currency relative to the U.S. dollar.

We use a sensitivity analysis to assess the market risk associated with our foreign currency transactions. Market risk is defined here as the potential change in fair value resulting from an adverse movement in foreign currency exchange rates. Overall for fiscal 2019 and 2018, a uniform 15% adverse movement in foreign currency rates would have resulted in realized losses (after tax) of approximately $32,500 and $4,788, respectively. Conversely, for fiscal 2019 and 2018, a uniform 15% favorable movement in foreign currency rates would have resulted in realized gains (after tax) of approximately $32,500 and $4,788, respectively.

For fiscal 2019 and 2018, the realized losses (after tax) primarily resulted from decreases in the values of the Euro, Australian dollar, Canadian dollar, and British Pound relative to the U.S. dollar due to the composition of our assets and liabilities denominated in foreign currencies and the translation of our foreign subsidiaries’ financial statements. However, the use of foreign currency forward contracts partially offset such realized losses.

In order to hedge against the impact of fluctuations in the value of the Euro, British Pound, Canadian dollar, Australian dollar, Singapore dollar and Chinese Renminbi relative to the U.S. dollar on the conversion of such net assets into the functional currencies, we enter into short-term contracts to purchase Euros, British Pounds, Canadian dollars, Australian dollars, Singapore dollars and Chinese Renminbi forward, which contracts are one-month in duration. These short-term contracts are designated as fair value hedge instruments. There were seven foreign currency forward contracts with an aggregate notional value of $78,264 at July 31, 2019, and seven foreign currency forward contracts with an aggregate notional value of $30,159 at July 31, 2018, which covered certain assets and liabilities that were denominated in currencies other than each entity’s functional currency. 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 these hedging contracts are immediately realized within general and administrative expenses due to the short-term nature of such contracts. For the fiscal years ended July 31, 2019, 2018 and 2017, such forward contracts offset the impact on operations relating to certain assets and liabilities that were denominated in currencies other than each entity’s functional currency. We do not currently hedge against the impact of fluctuations in the value of the Sri Lankan Rupee relative to the U.S. dollar because the overall foreign currency exposure relating to this currency is currently not deemed significant. Overall, fluctuations in the rates of currency exchange did not have a material impact upon our net income in fiscal 2019 compared with fiscal 2018. For purposes of translating the balance sheet at July 31, 2019 compared with July 31, 2018, the total of the foreign currency movements resulted in a foreign currency translation loss of $13,287 for fiscal 2019, primarily due to the increase in the value of the U.S. dollar relative to the Euro, Australian dollar, British Pound and Canadian dollar.

(dollar amounts in thousands except share and per share data or as otherwise specified) 32

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Cantel Medical Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Cantel Medical Corp. and subsidiaries (the “Company”) as of July 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the years ended July 31, 2019 and 2018, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2019 and 2018, and the results of its operations and its cash flows for the years ended July 31, 2019 and 2018, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of July 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 25, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Customer Relationship Intangible Assets in the Omnia S.p.A. and CES Business Acquisitions - Refer to Notes 2 and 4 to the financial statements

Critical Audit Matter Description

During 2019 the Company completed the acquisitions of Omnia S.p.A. and certain net assets of Stericycle Inc. related to its controlled environmental solutions business (the “CES Business”) for approximately $19.8 million and $17.0 million, respectively (collectively referred to as “the acquired entities”). The Company accounted for the acquisitions under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated, on a preliminary basis, to the assets acquired and liabilities assumed based on their respective fair values, including customer relationship identified intangible assets with an aggregate fair value of approximately $18.3 million. The Company estimated the fair value of the customer relationship intangible assets using an income- based valuation methodology, which is a specific discounted cash flow method. The fair value determination of the customer relationship intangible assets required management to make significant estimates and assumptions related to forecasted future cash flows, including the selection of customer attrition rates, terminal growth rates and discount rates.

(dollar amounts in thousands except share and per share data or as otherwise specified) 33

Cantel Medical Corp. 2019 Annual Report on Form 10-K

We identified the customer relationship intangible assets for the acquired entities as a critical audit matter because of the significant estimates and assumptions management made to fair value these assets. This required a high degree of auditor judgment and an increased extent of effort, including the involvement of our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s forecasts of future cash flows, including the selection of customer attrition rates, terminal growth rates, and discount rates.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts of future cash flows and the selection of the customer attrition rates, terminal growth rates and discount rates for the customer relationship intangible assets for the acquired entities included the following, among others:


•	We tested the effectiveness of controls over the valuation of the customer relationship intangible assets, including management’s controls over forecasts of future cash flows and the selection of the customer attrition rates, terminal growth rates and discount rates.


•	We assessed the reasonableness of fiscal year 2019 forecasted cash flows of revenues and operating margins by comparing them to the acquired entities actual 2019 cash flows.


•	We assessed the reasonableness of the forecasted revenue growth rates and operating margins over the cash flow forecast period by comparing them to the acquired entities’ actual revenue growth rates and operating margins during the most recent historical periods.


•	We performed sensitivity analyses of the significant assumptions used in the valuation model to evaluate the change in fair value resulting from changes in the significant assumptions.

•

With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodologies; (2) terminal growth rates by comparing them to industry growth rates and the projected nominal gross domestic product (GDP) growth rate; (3) customer attrition rates by testing the mathematical accuracy of the rates used and comparing them to historical customer data; and (4) discount rates, which included testing the source information underlying the determination of the discount rates, testing the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey

September 25, 2019

We have served as the Company's auditor since 2017.

Cantel Medical Corp. 2019 Annual Report on Form 10-K

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Cantel Medical Corp.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Cantel Medical Corp. and subsidiaries (the “Company”) as of July 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended July 31, 2019, of the Company and our report dated September 25, 2019, expressed an unqualified opinion on those financial statements.

As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Omnia S.p.A. (“Omnia”), which was acquired on February 1, 2019 and whose financial statements constitute 3.5% of total assets and 3.3% of net assets, 1.3% of net sales, and 1.1% of net income of the consolidated financial statement amounts as of and for the year ended July 31, 2019. Accordingly, our audit did not include the internal control over financial reporting at Omnia.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey

September 25, 2019

Cantel Medical Corp. 2019 Annual Report on Form 10-K

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Cantel Medical Corp.

We have audited the accompanying consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows of Cantel Medical Corp. for the period ended July 31, 2017. Our audit also included the financial statement schedule included in the Index at Item 15(a) for the period ended July 31, 2017. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of its operations and its cash flows for the the period ended July 31, 2017, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

New York, New York

September 28, 2017

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Consolidated Balance Sheets



	July 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	44,535		$	94,097
Accounts receivable, net of allowance for doubtful accounts of $2,322 and $1,149	146,910			118,642
Inventories, net	138,234			107,592
Prepaid expenses and other current assets	20,920			17,912
Income taxes receivable	1,197			—
Total current assets	351,796			338,243

Property and equipment, net	185,242			111,417
Intangible assets, net	141,513			137,361
Goodwill	378,109			368,027
Other assets	9,425			5,749
Deferred income taxes	4,281			2,911
Total assets	$	1,070,366		$	963,708

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	39,450		$	34,258
Compensation payable	32,762			30,595
Accrued expenses	38,545			28,525
Deferred revenue	27,840			28,614
Current portion of long-term debt	10,000			10,000
Income taxes payable	2,803			2,791
Total current liabilities	151,400			134,783

Long-term debt	220,851			187,302
Deferred income taxes	29,278			27,624
Other long-term liabilities	7,300			5,132
Total liabilities	408,829			354,841
Commitments and Contingencies (Note 12)

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 75,000,000 shares; issued 46,362,902 shares and outstanding 41,771,228 shares as of July 31, 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	204,795			184,212
Retained earnings	539,097			491,540
Accumulated other comprehensive loss	(22,197		)	(11,456		)
Treasury Stock, at cost; 4,591,674 shares as of July 31, 2019; 4,537,498 shares as of July 31, 2018	(64,794		)	(60,053		)
Total stockholders’ equity	661,537			608,867
Total liabilities and stockholders’ equity	$	1,070,366		$	963,708

See accompanying Notes to Consolidated Financial Statements.

(dollar amounts in thousands except share and per share data or as otherwise specified) 37

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Consolidated Statements of Income



	Year Ended July 31,
	2019			2018			2017
Net sales
Product sales	$	795,403		$	765,158		$	684,678
Product service	122,752			106,764			85,479
Total net sales	918,155			871,922			770,157

Cost of sales
Product sales	406,514			385,597			343,641
Product service	84,187			72,354			59,356
Total cost of sales	490,701			457,951			402,997

Gross profit	427,454			413,971			367,160

Expenses:
Selling	140,232			129,642			116,113
General and administrative	172,383			138,019			122,270
Research and development	31,320			24,646			18,367
Total operating expenses	343,935			292,307			256,750

Income from operations	83,519			121,664			110,410

Interest expense, net	9,505			5,289			4,303
Other income	(1,305		)	(1,138		)	(126		)

Income before income taxes	75,319			117,513			106,233

Income taxes	20,277			26,472			34,855

Net income	$	55,042		$	91,041		$	71,378

Earnings per common share:
Basic	$	1.32		$	2.18		$	1.71
Diluted	$	1.32		$	2.18		$	1.71
Dividends per common share	$	0.20		$	0.17		$	0.14

See accompanying Notes to Consolidated Financial Statements.

(dollar amounts in thousands except share and per share data or as otherwise specified) 38

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Consolidated Statements of Comprehensive Income



	Year Ended July 31,
	2019			2018			2017
Net income	$	55,042		$	91,041		$	71,378

Other comprehensive (loss) income:
Foreign currency translation	(13,287		)	(1,556		)	1,895
Interest rate swap, net of tax	2,546			—			—
Total other comprehensive (loss) income:	(10,741		)	(1,556		)	1,895

Comprehensive income	$	44,301		$	89,485		$	73,273

See accompanying Notes to Consolidated Financial Statements.

(dollar amounts in thousands except share and per share data or as otherwise specified) 39

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Consolidated Statements of Changes in Stockholders’ Equity



						Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock, at cost			Total Stockholders’ Equity
	Common Stock
	Shares		Amount
Balance, August 1, 2016	41,708,214		$	4,608		$	165,573		$	342,053		$	(11,795	)	$	(46,069	)	$	454,370
Repurchases of shares	(89,607	)	—			—			—			—			(6,910		)	(6,910		)
Stock-based compensation	—		—			8,844			—			—			—			8,844
Equity vests/option exercises	116,506		12			(12		)	—			—			—			—
Cancellations of restricted stock	(6,179	)	(1		)	1			—			—			—			—
Excess tax benefit from exercises of stock options and vesting of restricted stock	—		—			196			—			—			—			196
Dividends on common stock	—		—			—			(5,841		)	—			—			(5,841		)
Net income	—		—			—			71,378			—			—			71,378
Other comprehensive income	—		—			—			—			1,895			—			1,895
Balance, July 31, 2017	41,728,934		$	4,619		$	174,602		$	407,590		$	(9,900	)	$	(52,979	)	$	523,932
Repurchases of shares	(62,559	)	—			—			—			—			(7,074		)	(7,074		)
Stock-based compensation	—		—			9,615			—			—			—			9,615
Equity vests/option exercises	46,551		5			(5		)	—			—			—			—
Cancellations of restricted stock	(6,842	)	—			—			—			—			—			—
Dividends on common stock	—		—			—			(7,091		)	—			—			(7,091		)
Net income	—		—			—			91,041			—			—			91,041
Other comprehensive loss	—		—			—			—			(1,556		)	—			(1,556		)
Balance, July 31, 2018	41,706,084		$	4,624		$	184,212		$	491,540		$	(11,456	)	$	(60,053	)	$	608,867
Repurchases of shares	(43,734	)	—			—			—			—			(4,741		)	(4,741		)
Stock-based compensation	—		—			15,562			—			—			—			15,562
Issuance of shares	42,703		4			3,206			—			—			—			3,210
Equity vests/option exercises	67,862		8			942			—			—			—			950
Cancellations of restricted stock	(1,687	)	—			—			—			—			—			—
Dividends on common stock	—		—			—			(8,350		)	—			—			(8,350		)
Net income	—		—			—			55,042			—			—			55,042
Cumulative impact of ASC 606 adoption	—		—			—			865			—			—			865
Other comprehensive loss	—		—			—			—			(10,741		)	—			(10,741		)
Other	—		—			873			—			—			—			873
Balance, July 31, 2019	41,771,228		$	4,636		$	204,795		$	539,097		$	(22,197	)	$	(64,794	)	$	661,537

See accompanying Notes to Consolidated Financial Statements.

(dollar amounts in thousands except share and per share data or as otherwise specified) 40

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Consolidated Statements of Cash Flows



	Year Ended July 31,
	2019			2018			2017
Cash flows from operating activities
Net income	$	55,042		$	91,041		$	71,378
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	21,510			17,473			15,045
Amortization	20,849			17,357			18,407
Stock-based compensation expense	15,562			9,615			8,844
Deferred income taxes	(2,062		)	(7,520		)	118
Other non-cash items, net	(1,940		)	1,076			1,102
Changes in assets and liabilities, net of effects of business acquisitions/divestitures:
Accounts receivable	(23,048		)	(3,700		)	(12,860		)
Inventories	(28,711		)	(3,785		)	887
Prepaid expenses and other assets	(2,364		)	(5,169		)	(957		)
Accounts payable and other liabilities	13,325			10,614			7,124
Income taxes	(1,232		)	(1,090		)	(895		)
Net cash provided by operating activities	66,931			125,912			108,193
Cash flows from investing activities
Capital expenditures	(95,438		)	(37,698		)	(27,065		)
Proceeds from disposal of fixed assets	—			—			47
Proceeds from sale of business, net of cash retained and disposal costs	3,053			—			—
Acquisition of businesses, net of cash acquired	(40,644		)	(87,488		)	(70,044		)
Net cash used in investing activities	(133,029		)	(125,186		)	(97,062		)
Cash flows from financing activities
Proceeds from issuance of long-term debt	—			200,000			—
Repayments of long-term debt	(15,207		)	—			—
Borrowings under revolving credit facility	50,000			82,300			74,000
Repayments under revolving credit facility	(7,000		)	(208,300		)	(64,000		)
Debt issuance costs	—			(2,698		)	—
Dividends paid	(8,350		)	(7,091		)	(5,841		)
Purchases of treasury stock	(4,741		)	(7,074		)	(6,910		)
Net cash provided by (used in) financing activities	14,702			57,137			(2,751		)
Effect of exchange rate changes on cash and cash equivalents	1,834			(350		)	(163		)
(Decrease) increase in cash and cash equivalents	(49,562		)	57,513			8,217
Cash and cash equivalents at beginning of period	94,097			36,584			28,367
Cash and cash equivalents at end of period	$	44,535		$	94,097		$	36,584

Supplemental disclosures of cash flow information:
Cash interest payments	$	9,296		$	5,156		$	3,455
Cash income tax payments	$	19,024		$	35,251		$	35,858
Accruals related to purchases of property and equipment	$	3,311		$	2,281		$	192

See accompanying Notes to Consolidated Financial Statements.

(dollar amounts in thousands except share and per share data or as otherwise specified) 41

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Notes to Consolidated Financial Statements.


1.	Business Description

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. Unless otherwise indicated, references in this Form 10-K to 2019, 2018, 2017 or “fiscal” 2019, 2018, 2017 or other years refer to our fiscal year ended July 31 of that respective year, and references to 2020 or “fiscal” 2020 refer to our fiscal year ending July 31, 2020.

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

Medical: designs, develops, manufactures, sells and installs a comprehensive offering of products and services comprising a complete circle of infection prevention solutions. Our products include endoscope reprocessing and endoscopy procedure products.

Life Sciences: designs, develops, manufactures, sells and installs water purification systems for medical, pharmaceutical and other bacteria controlled applications. We also provide filtration/separation and disinfectant technologies to the medical and life science markets through a worldwide distributor network.

See Note 17, “Reportable Segments.”

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


2.	Summary of Significant Accounting Policies

The following is a summary of our significant accounting policies used to prepare our consolidated financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of Cantel and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's presentation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. On an ongoing basis, we evaluate the adequacy of our reserves and the estimates used in calculations of reserves as well as other judgmental financial statement items, including, but not limited to: collectability of accounts receivable, volume rebates and trade-in allowances, inventory values and obsolescence reserves, warranty reserves, contingent consideration, contingent guaranteed obligations, depreciation and amortization periods, deferred income taxes, goodwill and intangible assets, impairment of long-lived assets, unrecognized tax benefits for uncertain tax positions, reserves for legal exposure, stock-based compensation and expense accruals. Such estimates and assumptions are subjective in nature. We reflect such amounts based upon the most recent information available.

Subsequent Events

We performed a review of events subsequent to July 31, 2019 through the date of issuance of the accompanying consolidated financial statements. See Note 19, “Subsequent Events.”

(dollar amounts in thousands except share and per share data or as otherwise specified) 42

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Revenue Recognition

Sales are recognized as the performance obligations to deliver products or services are satisfied and are recorded based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations. Our sales continue to be recognized primarily when we transfer control to the customer, which can be on the date of shipment or on the date of receipt by the customer. Products and services are primarily transferred to customers at a point in time, with some transfers of services taking place over time. A provision for estimated sales returns, discounts and rebates is recognized as a reduction of sales in the same period that the sales are recognized. Our estimate of the provision for sales returns has been established based on contract terms with our customers and historical business practices and current trends. Shipping and handling costs incurred after the customer has obtained control of our products are treated 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.

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. Such rebates, which consist primarily of volume rebates, are provided for as a reduction of sales at the time of revenue recognition, and amounted to $9,469, $8,401, and $6,291 in fiscal 2019, 2018, and 2017, respectively.

Translation of Foreign Currency Financial Statements

Assets and liabilities of our foreign subsidiaries are translated into U.S. dollars at year-end exchange rates; sales and expenses are translated using average exchange rates during the year. The cumulative effect of the translation of the accounts of the foreign subsidiaries is presented as a component of accumulated other comprehensive income or loss. Foreign exchange gains and losses related to the purchase of inventories denominated in foreign currencies are included in cost of sales and foreign exchange gains and losses related to the incurrence of operating costs denominated in foreign currencies and the conversion of foreign assets and liabilities into functional currencies are included in general and administrative expenses.

Cash and Cash Equivalents

We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

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, work-in-process 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 net realizable value. 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 impact the value of our inventories, resulting in the need for additional reserves.

(dollar amounts in thousands except share and per share data or as otherwise specified) 43

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Property and Equipment

Property and equipment are stated at cost. Additions and improvements are capitalized, while maintenance and repair costs are expensed. When assets are retired or otherwise disposed, the cost and related accumulated depreciation or amortization is removed from the respective accounts and any resulting gain or loss is included in income. Depreciation and amortization is provided on the straight-line method over the estimated useful lives of the assets which generally range from 2-15 years for furniture and equipment, 3-10 years for software, 5-40 years for buildings and improvements and the shorter of the life of the asset or the life of the lease for leasehold improvements. Depreciation expense related to property and equipment in fiscal 2019, 2018 and 2017 was $21,510, $17,473 and $15,045, respectively.

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 responsible for determining if impairment exists and considers a number of factors, including third-party valuations, when making these determinations.

We first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount before proceeding to step one of the two-step quantitative goodwill impairment test, if necessary. Such qualitative factors that are assessed include evaluating a segment’s financial performance, industry and market conditions, macroeconomic conditions and specific issues that can directly affect the segment such as changes in business strategies, competition, supplier relationships, operating costs, regulatory matters, litigation and the composition of the segment’s assets due to acquisitions or other events. At May 1, 2019, because we determined through qualitative factors that the fair values of our Medical, and Dental segments were more likely than not to be greater than the carrying value, we did not proceed to step one of the two-step quantitative goodwill impairment test for those two segments. We performed step one of the two-step quantitative goodwill impairment test for Dialysis due to the continuing shift by our customers from reusable to single-use dialyzers, which is having an adverse impact on our business and is expected to continue. In addition, we also performed step one of the two-step quantitative goodwill impairment test for Life Sciences as one of the segment’s key customers has been moving toward a dual source approach, in combination with a cyclical downturn in this business. In performing a detailed quantitative review for goodwill impairment, management uses a two-step process that begins with an estimation of the fair value of the related reporting units by using weighted fair value results of the discounted cash flow methodology, as well as the market multiple and comparable transaction methodologies, where applicable. The first step is a review for potential impairment, and the second step measures the amount of impairment, if any.

We perform our annual impairment review for indefinite lived intangibles by first assessing qualitative factors, such as those described above, to determine whether it is more likely than not that the fair value of such assets is less than the carrying values, and if necessary, we perform a quantitative analysis comparing the current fair value of our indefinite lived intangibles assets to their carrying values. At May 1, 2019, because we determined through qualitative factors that the fair values of all of our indefinite lived intangible assets were more likely than not to be greater than the carrying value, we did not perform a quantitative analysis for those assets. 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.

We did not recognize any impairment charges for goodwill or indefinite lived intangibles in the years presented.

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. 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. On July 31, 2019, management concluded that no other events or changes in circumstances have occurred that would indicate that the carrying amount of our long-lived assets may not be recoverable.

(dollar amounts in thousands except share and per share data or as otherwise specified) 44

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Customer Relationship Intangible Assets

Customer-relationship intangible assets are valued using an income-based valuation methodology which included certain assumptions such as forecasted cash flows, customer attrition rates, terminal growth rates and discount rates. The assumptions used in the financial forecasts are based on historical data, supplemented by current and anticipated growth rates, management plans, and market-comparable information. Fair-value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. Preliminary assumptions may change and may result in significant changes to the final valuation.

Debt Issuance Costs

Debt issuance costs are capitalized and amortized to interest expense over the term of the related credit agreements. As of July 31, 2019 and 2018, such debt issuance costs, net of related amortization, were included as a reduction to long-term debt and amounted to $2,149 and $2,698, respectively.

Warranties

We provide for estimated costs that may be incurred to remedy deficiencies of quality or performance of our products at the time of revenue recognition. Most of our products have a one year warranty, although certain endoscopy and water purification and filtration products that require installation may carry a warranty period of up to 24 months. Additionally, many of our consumables, accessories, parts and service have a 90-day warranty. 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. As of July 31, 2019 and 2018, our warranty reserves are included in accrued expenses in the consolidated balance sheets and amounted to $2,372 and $3,280, respectively. Our warranty provisions and settlements in fiscal 2019 and 2018 were not material and principally relate to our endoscope reprocessing and water purification products.

Stock-Based Compensation

Stock-based compensation expense is recognized for any option or stock award grant based upon the fair value of the award. Our stock options and time-based stock awards are subject to graded vesting in which portions of the award vest ratably over the vesting period. We recognize compensation expense for the awards with performance conditions using the accelerated attribution method over the requisite service period for each separately vesting portion of the award when it is probable that the performance condition will be achieved. We record expense for the awards with market conditions ratably over the vesting period regardless of whether the market condition is satisfied. We account for forfeitures as they occur, rather than estimate forfeitures over the course of the vesting period.

We determine the fair value of each time-based stock award and performance-based stock award by using the closing market price of our common stock on the last trading date immediately prior to the date of grant. We determine the fair value of each award with market conditions using a Monte Carlo simulation model 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 valuation models is affected by our stock price as well as assumptions regarding a number of subjective variables. These variables may include, but are not limited to, the expected price volatility over the term of the award, the expected dividend yield, the expected term of the award, the probability of meeting performance objectives and the stock price of our peers in the S&P Healthcare Equipment Index.

Advertising Costs

Our policy is to expense advertising costs as they are incurred. Advertising costs charged to expense were $2,885, $4,115 and $3,694 in fiscal 2019, 2018 and 2017, respectively.

Income Taxes

Our provision for income taxes is based on our current period income, changes in deferred income tax assets and liabilities, statutory income tax rates, changes in uncertain tax benefits and the deductibility of expenses or availability of tax credits in various taxing jurisdictions. Tax laws are complex, subject to different interpretations by the taxpayer and the respective governmental taxing authorities and are subject to future modification, expiration or repeal by government legislative bodies. We use significant judgment on a quarterly basis in determining our annual effective income tax rate and evaluating our tax positions.

(dollar amounts in thousands except share and per share data or as otherwise specified) 45

Cantel Medical Corp. 2019 Annual Report on Form 10-K

We regularly review our deferred tax assets for recoverability and establish a valuation allowance, if necessary, based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, as adjusted for valuation allowances, will be realized. Additionally, deferred tax liabilities are regularly reviewed to confirm that such amounts are appropriately stated. A review of our deferred tax items considers known future changes in various income tax rates, principally in the United States. If income tax rates were to change in the future, particularly in the United States and to a lesser extent Germany, the U.K. and Italy, 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 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. Any adjustments upon resolution of income tax uncertainties are recognized in our results of operations. Unrecognized tax benefits are analyzed periodically and adjustments are made as events occur to warrant adjustment to the related liability. Historically, we have not had significant unrecognized tax benefits.

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. 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 3, “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.

(dollar amounts in thousands except share and per share data or as otherwise specified) 46

Cantel Medical Corp. 2019 Annual Report on Form 10-K

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”) which requires lease assets and liabilities to be recorded on the balance sheet for leases with terms greater than twelve months. We will adopt this ASU and related amendments on August 1, 2019 and will elect certain practical expedients permitted under the transition guidance. Additionally, we will elect the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods. We are substantially complete in assessing the transitional impact from adopting the standard; however, we are still assessing the lessor provisions under the standard but do not expect any material adjustments to the estimated right of use asset and/or lease liability. Excluding any impact associated with a recently announced acquisition, we currently estimate the impact of the adoption will result in the recognition of right of use assets and lease liabilities of approximately $30,000 to $35,000 as of August 1, 2019. The adoption of ASU 2016-02 is not expected to have a material impact on our results of operations or cash flows.

3. 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. Contract liabilities primarily relate to payments received from customers in advance of performance under the contract.

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 July 31, 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 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.

(dollar amounts in thousands except share and per share data or as otherwise specified) 47

Cantel Medical Corp. 2019 Annual Report on Form 10-K

The following table gives information as to the net sales disaggregated by geography and product line:



	Year Ended July 31,
Net sales by geography	2019		2018⁽¹⁾
United States	$	665,661	$	643,744
Europe/Africa/Middle East	148,334		131,130
Asia/Pacific	66,228		57,108
Canada	32,152		33,524
Latin America/South America	5,780		6,416
Total	$	918,155	$	871,922
Net sales by product line
Capital equipment	$	221,668	$	240,153
Consumables	569,412		523,073
Product service	122,752		106,764
All other⁽²⁾	4,323		1,932
Total	$	918,155	$	871,922

_______________________________________________


(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

As of July 31, 2019, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) was approximately $73,735, primarily within the Medical segment. We expect to recognize revenue on approximately 50% of these remaining performance obligations in fiscal 2020. These performance obligations primarily reflect the future product service revenues for multi-period service arrangements.

Contract Liabilities

A summary of contract liabilities activity for the year ended July 31, 2019 follows:



	Contract Liabilities
Balance, August 1, 2018	$	29,015
Revenue deferred in current year	61,996
Deferred revenue recognized	(61,913		)
Foreign currency translation	(863		)
Balance, July 31, 2019	$	28,235
Contract liabilities included in Other long-term liabilities	(395		)
Deferred revenue	$	27,840

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.


4.	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 $16,598 of cash and $3,210 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 specified) 48

Cantel Medical Corp. 2019 Annual Report on Form 10-K

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”), which is based in Belgium, 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 allocation of our material acquisitions (each of which was accounted for as a business combination in accordance with ASC Topic 805, “Business Combinations”):



	2019					2018
Purchase Price Allocation	Omnia			CES Business⁽¹⁾		Aexis			BHT Group
	(Preliminary)			(Preliminary)		(Final)			(Final)
Purchase Price:
Cash paid	$	16,598		$	17,047	$	20,308		$	60,216
Fair value of contingent consideration	—			—		1,292			—
Common stock issued	3,210			—		—			—
Total	$	19,808		$	17,047	$	21,600		$	60,216

Allocation:
Property and equipment	1,285			539		130			835
Amortizable intangible assets:
Customer relationships	10,206			8,100		1,800			12,500
Technology	1,257			—		4,600			6,200
Brand names	1,600			—		—			—
Goodwill	11,340			6,137		17,092			40,934
Deferred income taxes	(2,346		)	—		(1,639		)	(5,881		)
Other working capital	1,673			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 specified) 49

Cantel Medical Corp. 2019 Annual Report on Form 10-K

5. Inventories, Net

A summary of inventories, net, is as follows:



	July 31,
	2019			2018
Raw materials and parts	$	69,498		$	49,054
Work-in-process	5,801			13,189
Finished goods	73,050			53,948
Less: reserve for excess and obsolete inventory	(10,115		)	(8,599		)
Total inventories, net	$	138,234		$	107,592


6.	Property and Equipment, Net

A summary of property and equipment, net, is as follows:



	July 31,
	2019			2018
Land, buildings and improvements	$	81,556		$	50,162
Furniture and equipment	130,852			112,661
Leasehold improvements	14,428			9,544
Software	33,869			8,587
Construction in process	38,728			26,003
Less: accumulated depreciation	(114,191		)	(95,540		)
Total property and equipment, net	$	185,242		$	111,417


7.	Derivatives

Foreign Currency

We 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 July 31, 2019 and 2018, all of our derivatives were designated as hedges. We do not hold any derivative financial instruments for speculative or trading purposes.

Changes in the value of the Euro, British Pound, Singapore dollar, Canadian dollar, Australian dollar, Chinese Renminbi and Sri Lankan Rupee against the U.S. dollar affect our results of operations because certain cash bank accounts, accounts receivable, and liabilities of Cantel and its subsidiaries are denominated and ultimately settled in U.S. dollars or these foreign currencies, but must be converted into each entity’s functional currency.

(dollar amounts in thousands except share and per share data or as otherwise specified) 50

Cantel Medical Corp. 2019 Annual Report on Form 10-K

buy Euros, British Pounds, Canadian dollars, Australian dollars, Singapore dollars and Chinese Renminbi 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 Sri Lankan Rupee relative to the U.S. dollar because the overall foreign currency exposures relating to this currency is currently not deemed significant.

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 2.265%. As of July 31, 2019, we had a short term asset of $486 recorded in prepaid expenses and other current assets, and a long term asset of $2,826 recorded in other assets, 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. 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.

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 $0 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 will not be 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 $0. See Note 12, “Commitments and Contingencies.”

(dollar amounts in thousands except share and per share data or as otherwise specified) 51

Cantel Medical Corp. 2019 Annual Report on Form 10-K

The fair values of our financial instruments measured on a recurring basis were categorized as follows:



	July 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Money markets	$	104	$	—	$	—	$	104
Prepaid expenses and other current assets:
Interest rate swap	—		486		—		486
Other Assets:
Interest rate swap	—		2,826		—		2,826
Total assets	$	104	$	3,312	$	—	$	3,416
Liabilities:
Other long-term liabilities:
Contingent consideration	—		—		1,411		1,411
Total liabilities	$	—	$	—	$	1,411	$	1,411



	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

A reconciliation of our liabilities that are measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) for fiscal 2019, 2018 and 2017 is as follows:



	Aexis Medical Contingent Consideration		Jet Prep Assumed Contingent Obligation			Cantel Medical (U.K.) Contingent Guaranteed Obligation			Total
Balance, August 1, 2016	$	—	$	1,138		$	441		$	1,579
Income included in general and administrative expenses	—		—			(265		)	(265		)
Net purchases, issuances, sales and settlements	—		—			(176		)	(176		)
Balance, July 31, 2017	—		1,138			—			1,138
Original fair value of contingent consideration	1,292		—			—			1,292
Loss included in general and administrative expenses	6		—			—			6
Net purchases, issuances, sales and settlements	—		(1,138		)	—			(1,138		)
Balance, July 31, 2018	1,298		—			—			1,298
Loss included in general and administrative expense	113		—			—			113
Balance, July 31, 2019	$	1,411	$	—		$	—		$	1,411

Disclosure of Fair Value of Financial Instruments

As of July 31, 2019 and 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. As of July 31, 2019 and

(dollar amounts in thousands except share and per share data or as otherwise specified) 52

Cantel Medical Corp. 2019 Annual Report on Form 10-K

2018, the carrying value of our outstanding borrowings under our credit facility approximated the fair value of these obligations as the borrowing rates reflect prevailing market interest rates.


9.	Intangibles and Goodwill

Our intangible assets with definite lives consist primarily of customer relationships, technology, brand names, non-compete agreements and patents. These intangible assets are being amortized on 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 12 years. Amortization expense related to intangible assets was $20,849, $17,357 and $18,407 for fiscal 2019, 2018 and 2017, respectively. Our intangible assets that have indefinite useful lives, and therefore are not amortized, consist of trademarks and trade names.

Our intangible assets consist of the following:



	July 31, 2019							July 31, 2018
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Intangible assets with finite lives⁽¹⁾:
Customer relationships⁽²⁾	$	146,204	$	(54,866	)	$	91,338	$	133,347	$	(45,618	)	$	87,729
Technology⁽³⁾	60,032		(24,081		)	35,951		54,585		(19,836		)	34,749
Brand names⁽²⁾	8,361		(3,256		)	5,105		8,141		(3,857		)	4,284
Non-compete agreements⁽⁴⁾	2,880		(1,653		)	1,227		3,060		(1,628		)	1,432
Patents and other registrations⁽⁵⁾	2,866		(1,252		)	1,614		2,826		(1,179		)	1,647
	220,343		(85,108		)	135,235		201,959		(72,118		)	129,841
Trademarks and tradenames	6,278		—			6,278		7,520		—			7,520
Total intangible assets	$	226,621	$	(85,108	)	$	141,513	$	209,479	$	(72,118	)	$	137,361

_______________________________________________


(1)	During fiscal 2019, we wrote off $6,087 of fully amortized intangible assets.


(2)	Weighted average amortization period remaining of 13 years.


(3)	Weighted average amortization period remaining of 10 years.


(4)	Weighted average amortization period remaining of 15 years.


(5)	Weighted average amortization period remaining of 18 years.

During fiscal 2017, we decided to exit the Jet Prep business that was acquired in fiscal 2014. The Jet Prep acquisition was a fully integrated business within our Medical segment. The useful life of the technology related intangible asset was revised to its respective cease use date, which resulted in accelerated amortization of approximately $2,401 that was recorded in the consolidated statement of income.

We expect to recognize $18,025, $17,706, $17,324, $16,294 and $15,427 of amortization expense related to intangible assets in fiscal 2020, 2021, 2022, 2023 and 2024, respectively. The expected amortization expense reflects those purchased intangible assets on our consolidated balance sheet as of July 31, 2019.

Goodwill changed during fiscal 2019 and 2018 as follows:



	Medical			Life Sciences			Dental			Dialysis		Total Goodwill
Balance, August 1, 2017	$	129,945		$	59,088		$	114,279		$	8,133	$	311,445
Acquisitions	58,026			—			—			—		58,026
Foreign currency translation	(1,281		)	(163		)	—			—		(1,444		)
Balance, July 31, 2018	186,690			58,925			114,279			8,133		368,027
Acquisitions	—			6,137			11,340			—		17,477
Divestitures	—			(491		)	—			—		(491		)
Foreign currency translation	(6,493		)	(90		)	(321		)	—		(6,904		)
Balance, July 31, 2019	$	180,197		$	64,481		$	125,298		$	8,133	$	378,109

(dollar amounts in thousands except share and per share data or as otherwise specified) 53

Cantel Medical Corp. 2019 Annual Report on Form 10-K


10.	Financing Arrangements

Our long-term debt consists of the following:



	July 31,
	2019			2018
Revolving credit loans outstanding	$	43,000		$	—
Tranche A term loan outstanding	190,000			200,000
Unamortized debt issuance costs	(2,149		)	(2,698		)
Total long-term debt, net of unamortized debt issuance costs	230,851			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	$	220,851		$	187,302

On June 28, 2018, we entered into a Fourth Amended and Restated Credit Agreement (the “2018 Credit Agreement”). The Amended Credit Agreement refinances our credit facility under the Third Amended and Restated Credit Agreement (the “Existing Credit Agreement”) dated March 4, 2011, 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 its 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.

As of July 31, 2019, we had $190,000 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 fiscal 2019, we made principal payments of $10,000. We also settled $5,207 of debt which was assumed as part of the Omnia acquisition.

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”). The Amended Credit Agreement also provides for fees on the unused portion of the revolving credit facility at rates ranging from 0.20% to 0.35%, depending on our Consolidated Leverage Ratio. At July 31, 2019, the lender’s base rate was 5.50% and the LIBOR rate was 2.23%. 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 July 31, 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 1.26x at July 31, 2019. At July 31, 2019, the interest rate on our outstanding borrowings was approximately 3.48%.

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.	Income Taxes

On December 22, 2017, the U.S. government enacted wide-ranging tax legislation, the Tax Cuts and Jobs Act (the “2017 Tax Act”). The 2017 Tax Act significantly revised U.S. tax law by, among other provisions, (a) lowering the applicable U.S. federal statutory income tax rate from 35% to 21%, (b) creating a partial territorial tax system that includes imposing a mandatory one-time transition tax on previously deferred foreign earnings, (c) creating provisions regarding the (1) Global Intangible Low Tax Income (“GILTI”), (2) the Foreign Derived Intangible Income (“FDII”) deduction, and (3) the Base Erosion Anti-Abuse Tax (“BEAT”), and (d) eliminating or reducing certain income tax deductions, such as interest expense, executive compensation expenses and certain employee expenses.

ASC 740, “Income Taxes,” requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the 2017 Tax Act’s provisions, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which allows companies to record the tax effects of the 2017 Tax Act on a provisional basis and then, if necessary, subsequently adjust such amounts during a limited measurement period as more information becomes available. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its

(dollar amounts in thousands except share and per share data or as otherwise specified) 54

Cantel Medical Corp. 2019 Annual Report on Form 10-K

accounting, but cannot extend beyond one year from enactment. As a result, we provided a provisional estimate of the effect of the 2017 Tax Act for the fiscal year ended July 31, 2018, and recorded a net benefit of $8,657 due to the impact on our deferred taxes on the basis of the actual fiscal 2018 results of operations. The measurement period provided by SAB 118 concluded during the second quarter of fiscal 2019, and no material adjustments were made to the provisional estimates recorded.

As part of U.S. tax reform, the 2017 Tax Act imposed a one-time transition tax on certain accumulated positive foreign earnings (net of foreign deficits) across all non-U.S. subsidiaries, as computed under U.S. tax principles. As of December 31, 2017, our non-U.S. subsidiaries were in a net foreign deficit position in the aggregate, and therefore no accrual for the transition tax was made.

Section 15 of the Internal Revenue Code (the “Code”) governs rate changes and was not amended by the 2017 Tax Act. Section 15 requires a blended tax rate for fiscal-year taxpayers for their fiscal year that includes the effective date of the rate change, which was January 1, 2018. As a result of the 2017 Tax Act, we revised our estimated annual effective rate to reflect the change in the U.S. federal statutory rate by computing a tentative tax under both rates, and then prorating the tentative tax based on the number of days with and without the rate change to arrive at a blended tax rate of 26.9%, as required by the Code. This blended rate was applied for fiscal 2018 (beginning with the second quarter) and the new U.S. federal statutory rate of 21% applies to fiscal 2019 and beyond.

As noted above, the 2017 Tax Act also establishes new tax laws that will affect the fiscal year ending July 31, 2019, which include the GILTI provision, the FDII deduction, a new minimum tax related to payments to foreign subsidiaries and affiliates known as BEAT and certain employee expense deductions. The provisional estimates were based on our understanding of the 2017 Tax Act and other information available at the time of the estimates, including assumptions and expectations about future events, such as projected financial performance, and are subject to further refinement as additional information becomes available, including potential new or interpretative guidance issued by the SEC, the FASB, or Internal Revenue Service (“IRS”).

The consolidated effective tax rate was 26.9%, 22.5% and 32.8% for fiscal 2019, 2018 and 2017, respectively, and reflects income tax expense for our U.S. and international operations at their respective statutory rates.

The provision for income taxes consists of the following:



	Year Ended July 31,
	2019					2018					2017
	Current		Deferred			Current		Deferred			Current		Deferred
United States:
Federal	$	13,494	$	683		$	24,288	$	(7,308	)	$	28,900	$	2,020
State	3,976		(15		)	5,078		491			4,352		261
International	4,869		(2,730		)	4,626		(703		)	1,545		(2,223		)
Total	$	22,339	$	(2,062	)	$	33,992	$	(7,520	)	$	34,797	$	58

The geographic components of income (loss) before income taxes are as follows:



	Year Ended July 31,
	2019		2018		2017
United States	$	68,342	$	115,697	$	108,329
International	6,977		1,816		(2,096		)
Total	$	75,319	$	117,513	$	106,233

(dollar amounts in thousands except share and per share data or as otherwise specified) 55

Cantel Medical Corp. 2019 Annual Report on Form 10-K

The consolidated effective income tax rate differed from the U.S. statutory tax rate of 21.0% in fiscal 2019, 26.9% in fiscal 2018 and 35.0% in 2017 due to the following:



	Year Ended July 31,
	2019		2018		2017
Expected statutory tax⁽¹⁾	21.0	%	26.9	%	35.0	%
Differential attributable to:
Foreign operations	0.8	%	0.6	%	—	%
State and local taxes	4.8	%	3.7	%	3.9	%
Domestic production deduction	—	%	(1.8	)%	(2.7	)%
Acquisition-related items, net	0.1	%	—	%	0.1	%
Impact of tax legislation on deferred taxes	(0.1	)%	(7.4	)%	—	%
R&E tax credit	(1.0	)%	(0.7	)%	(1.4	)%
Executive compensation	1.4	%	0.2	%	0.3	%
Excess tax benefits	(0.7	)%	(1.7	)%	(2.2	)%
Valuation allowance	0.1	%	2.4	%	—	%
Other	0.5	%	0.3	%	(0.2	)%
Consolidated effective income tax rate	26.9	%	22.5	%	32.8	%

_______________________________________________


(1)	During fiscal 2018, we revised our estimated annual rate to reflect a blended U.S. federal statutory rate of 26.9% as compared to 35.0%.

(dollar amounts in thousands except share and per share data or as otherwise specified) 56

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Tax assets and liabilities, shown before and after jurisdictional netting of deferred tax assets (liabilities), are comprised of the following:



	July 31,
	2019			2018
Deferred tax assets:
Accrued expenses	$	4,175		$	5,354
Inventories	5,408			3,165
Accounts receivable	593			306
Other long-term liabilities	211			103
Stock-based compensation	3,586			2,700
Capital investment	426			426
Domestic NOLs	137			—
Foreign NOLs	10,284			8,605
Subtotal	24,820			20,659
Valuation allowance	(5,701		)	(6,358		)
	19,119			14,301
Deferred tax liabilities:
Property and equipment	(11,342		)	(7,352		)
Intangible assets	(21,156		)	(21,300		)
Goodwill	(11,618		)	(10,362		)
	(44,116		)	(39,014		)
Net deferred income taxes	$	(24,997	)	$	(24,713	)

Reported in Consolidated Balance Sheets as:
Deferred income taxes (assets)	$	4,281		$	2,911
Deferred income taxes (liabilities)	(29,278		)	(27,624		)
	$	(24,997	)	$	(24,713	)

For foreign tax reporting purposes, our Net Operating Losses (“NOLs”) are $10,421 and $8,605 as of July 31, 2019 and 2018, respectively, which originated primarily from our foreign acquisitions and operations. Most of these NOLs do not expire and are fully available for utilization against future profits in certain non-U.S. tax jurisdictions. However, we have recorded a valuation allowance of $5,701 for these foreign NOLs, which are primarily associated with certain early-stage foreign operations, as well as $2,785 recorded in fiscal 2018 relating to pre-acquisition losses attributed to our U.K. operations. Furthermore, the accumulated loss is also related to the exit of the Jet Prep business which is more fully described in Note 9, “Intangibles and Goodwill.” We believe it is more likely than not that we will be unable to utilize these NOLs.

During fiscal 2019 and 2018, no dividends were repatriated from our foreign subsidiaries. As a result of the mandatory one-time transition tax required under the 2017 Tax Act, all of the undistributed earnings of our foreign subsidiaries are deemed repatriated and considered previously taxed income (“PTI”). Additionally, we continue to be indefinitely reinvested and continue to evaluate our assertion for certain legal entities. Accordingly, deferred taxes are not provided on undistributed earnings of foreign subsidiaries that are indefinitely reinvested. Determining the tax liability that would arise if these earnings were remitted is not practicable. As of July 31, 2019, the cumulative amount of such undistributed earnings, inclusive of PTI, indefinitely reinvested outside the U.S. was approximately $45,566.

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 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. Any adjustments upon resolution of income tax uncertainties are recognized in our results of operations. Our policy is to record potential interest and penalties related to income tax positions in income tax expense in our consolidated financial statements. However, such amounts have been

(dollar amounts in thousands except share and per share data or as otherwise specified) 57

Cantel Medical Corp. 2019 Annual Report on Form 10-K

relatively insignificant due to the nominal amount of our unrecognized tax benefits relating to uncertain tax positions. We have uncertain tax positions of $432, primarily related to acquisitions, as of July 31, 2019 and $0 as of July 31, 2018.

Although we remain subject to audit by the IRS for fiscal years ended July 31, 2016 and forward, we are currently under IRS audit only for fiscal year 2017. With respect to state or foreign income tax examinations, we are generally no longer subject to examinations for fiscal years ended prior to July 31, 2013.

12. Commitments and Contingencies

Operating Leases

We have several non-cancelable operating leases, primarily for our corporate headquarters, certain of our leased manufacturing facilities, warehouses, office space and equipment. Total rental expense related to our operating leases was $9,601, $8,801 and $7,715 for fiscal 2019, 2018 and 2017, respectively.

As of July 31, 2019, future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) for the periods set forth below were as follows:



Fiscal year ending:	Total
2020	$	9,099
2021	7,671
2022	6,021
2023	5,659
2024	5,159
Thereafter	15,251
Total	$	48,860

Contingent Consideration

As of July 31, 2019, we had $1,411 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 $0 during the first quarter of fiscal 2018, resulting in a benefit through other income for the fiscal year ended July 31, 2018.

Legal Proceedings

In May 2017, Cantel Medical (UK) Limited and Cantel (UK) Limited filed a lawsuit in the U.K. High Court of Justice against ARC Medical Design Limited (“ARC”) seeking a judgment of invalidity on two of ARC’s patents and additionally/alternatively a declaration of non-infringement of our AmplifEYE^TM Endoscopic device. ARC filed counterclaims alleging that the AmplifEYE^TM device infringed the two patents as well as registered community design marks and unregistered design rights that ARC had in its Endocuff^TM and Endocuff Vision^TM devices. In February 2018, the trial judge entered a judgment in favor of ARC, and we decided not to appeal the decision. We entered into a settlement agreement with ARC in March 2018 under which we agreed not to make, use, sell or offer to sell the AmplifEYE^TMdevice in the European Union until ARC’s rights expire, and reimbursed ARC for a portion of their legal costs. During fiscal 2018, we recorded $2,608 of litigation costs within selling, general and administrative expenses associated with this matter.

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.

(dollar amounts in thousands except share and per share data or as otherwise specified) 58

Cantel Medical Corp. 2019 Annual Report on Form 10-K


13.	Accumulated Other Comprehensive Loss

The components and changes in accumulated other comprehensive loss for fiscal 2019, 2018 and 2017 were as follows:



	Foreign Currency Translation Adjustments			Changes in Fair Value of Interest Rate Swaps		Tax effects			Total
Balance, August 1, 2016	$	(11,795	)	$	—	$	—		$	(11,795	)
Other comprehensive income	1,895			—		—			1,895
Balance, July 31, 2017	(9,900		)	—		—			(9,900		)
Other comprehensive loss	(1,556		)	—		—			(1,556		)
Balance, July 31, 2018	(11,456		)	—		—			(11,456		)
Other comprehensive (loss) income	(13,287		)	3,312		(766		)	(10,741		)
Balance, July 31, 2019	$	(24,743	)	$	3,312	$	(766	)	$	(22,197	)


14.	Earnings Per Common Share

Basic Earnings Per Common Share (“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):



	Year Ended July 31,
	2019			2018			2017
Numerator for basic and diluted earnings per share:
Net income	$	55,042		$	91,041		$	71,378
Less income allocated to participating securities	(51		)	(320		)	(431		)
Net income available to common shareholders	$	54,991		$	90,721		$	70,947
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 attributable to common stock	41,700,926			41,567,722			41,468,487
Dilutive effect of stock options using the treasury stock method and the average market price for the year	56,190			67,356			74,278
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock	41,757,116			41,635,078			41,542,765
Earnings per share attributable to common stock:
Basic earnings per share	$	1.32		$	2.18		$	1.71
Diluted earnings per share	$	1.32		$	2.18		$	1.71
Stock options excluded from weighted average dilutive common shares outstanding because their inclusion would have been antidilutive	—			—			—

(dollar amounts in thousands except share and per share data or as otherwise specified) 59

Cantel Medical Corp. 2019 Annual Report on Form 10-K

A reconciliation of weighted average number of shares and common stock equivalents attributable to common stock, as determined above, to our total weighted average number of shares and common stock equivalents, including participating securities, is set forth in the following table:



	Year Ended July 31,
	2019	2018	2017
Denominator for diluted earnings per share - weighted average number of shares and common stock equivalents attributable to common stock	41,757,116	41,635,078	41,542,765
Participating securities	38,905	148,700	254,727
Total weighted average number of shares and common stock equivalents attributable to both common stock and participating securities	41,796,021	41,783,778	41,797,492


15.	Stock-Based Compensation

2016 Equity Incentive Plan

On January 7, 2016, we terminated the Cantel Medical Corp. 2006 Equity Incentive Plan (the “2006 Plan”) and adopted the Cantel Medical Corp. 2016 Equity Incentive Plan (the “2016 Plan”). As a result, no further options or awards will be granted under the 2006 Plan. The 2016 Plan provides for the granting of stock options, stock appreciation rights (“SARs”), restricted stock awards, restricted stock units (“RSUs”) and performance-based awards to our employees, independent contractors and consultants. It also provides the flexibility to grant equity-based awards to our non-employee directors. The 2016 Plan does not permit the granting of discounted options or discounted stock appreciation rights.

The maximum number of shares as to which equity awards may be granted under the 2016 Plan is 1,200,000 shares. The 2016 Plan will terminate on the date of our annual meeting of stockholders following the close of our fiscal year ending in 2025, unless terminated earlier by the Board of Directors. Stock awards under this plan:


•	will be granted at the closing market price at the time of the grant,


•	will include terms which may not exceed ten years, subject to certain exceptions, and


•	may be granted in the form of restricted stock and RSUs, performance awards, or dividends.

Stock awards outstanding under the 2016 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 of each of the first three anniversaries of the grant date subject to being employed through such vesting date. At July 31, 2019, 307,153 unvested restricted stock shares were outstanding under the 2016 Plan. No options were outstanding under the 2016 Plan. At July 31, 2019, 755,429 shares are collectively available pursuant to restricted stock and other stock awards, stock options and SARs.

2006 Equity Incentive Plan

A total of 5,591,000 shares of common stock were granted under the 2006 Plan, of which 2,700,000 shares were authorized for issuance pursuant to stock options and stock appreciation rights and 2,891,000 shares were authorized for issuance pursuant to restricted stock and other stock awards. 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 through such vesting date. At July 31, 2019, options to purchase 40,000 shares of common stock were outstanding, and no unvested restricted stock shares were outstanding under the 2006 Plan.

The following table shows the components of stock-based compensation expense recognized in the consolidated statements of income:



	Year Ended July 31,
	2019		2018		2017
Cost of sales	$	1,010	$	663	$	371
Operating expenses:
Selling	2,428		1,458		1,582
General and administrative	11,828		7,292		6,774
Research and development	296		202		117
Total operating expenses	14,552		8,952		8,473
Stock-based compensation before income taxes	$	15,562	$	9,615	$	8,844

(dollar amounts in thousands except share and per share data or as otherwise specified) 60

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Our stock options and time-based stock awards are subject to graded vesting in which portions of the awards vest at different times during the vesting period. We recognize compensation expense for awards subject to graded vesting using the straight-line basis over the vesting period.

In October 2016, we granted for the first time to certain employees both equity awards with performance conditions and equity awards with market conditions. The actual number of equity awards earned and eligible to vest will be determined based on the level of achievement against budgeted revenue and a defined gross profit percentage or based on the level of achievement against budgeted earnings per share, with respect to the awards with performance conditions, and our 3-year relative total stockholder return performance as measured against the S&P Healthcare Equipment Index, with respect to the awards with market conditions. The maximum share attainment of these awards are 200% of the initial granted shares. We recognize compensation expense for the awards with performance conditions using the accelerated attribution method over the requisite service period for each separately vesting portion of the award when it is probable that the performance condition will be achieved. We record expense for the awards that are subject to market conditions ratably over the vesting period regardless of whether the market condition is satisfied.

As of July 31, 2019, total unrecognized stock-based compensation expense, before income taxes, related to total nonvested stock options and restricted stock awards was $13,874 with a remaining weighted average period of 12 months over which such expense is expected to be recognized. The majority of our nonvested awards relate to restricted stock awards. We account for forfeitures as they occur, rather than estimate expected forfeitures over the vesting period.

We determine the fair value of each time-based stock award and performance-based stock award by using the closing market price of our common stock on the date of grant. We determine the fair value of each stock award with market conditions using a Monte Carlo simulation on the date of grant using the following assumptions:



	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 fiscal 2019, 2018 and 2017 follows:



	Number of Time-based Shares		Number of Performance-based Shares		Number of Market-based Shares		Number of Total Shares		Weighted Average Fair Value
August 1, 2016	331,367		—		—		331,367		$	46.09
Granted	86,305		16,960		9,800		113,065		$	81.77
Vested⁽¹⁾	(214,932	)	(725	)	(555	)	(216,212	)	$	43.62
Forfeited	(5,922	)	—		—		(5,922	)	$	59.40
July 31, 2017	196,818		16,235		9,245		222,298		$	66.28
Granted	94,309		17,486		10,465		122,260		$	101.74
Vested⁽¹⁾	(115,943	)	(5,845	)	—		(121,788	)	$	60.25
Forfeited	(6,864	)	(1,800	)	(2,000	)	(10,664	)	$	95.09
July 31, 2018	168,320		26,076		17,710		212,106		$	88.87
Granted	188,431		35,981		25,320		249,732		$	85.16
Vested⁽¹⁾	(105,516	)	(13,327	)	(5,265	)	(124,108	)	$	80.44
Forfeited	(16,371	)	(8,520	)	(5,686	)	(30,577	)	$	96.54
July 31, 2019	234,864		40,210		32,079		307,153		$	88.99

_______________________________________________


(1)	The aggregate fair value of all nonvested stock awards which vested was approximately $9,985, $7,338 and $9,431 in fiscal 2019, 2018 and 2017, respectively.

(dollar amounts in thousands except share and per share data or as otherwise specified) 61

Cantel Medical Corp. 2019 Annual Report on Form 10-K

A summary of stock option activity for fiscal 2019, 2018 and 2017 follows:



	Number of shares		Weighted Average Exercise Price		Weighted Average Contractual Life Remaining	Aggregate Intrinsic Value
Outstanding at August 1, 2016	122,500		$	29.36
Exercised	—		$	—
Outstanding at July 31, 2017	122,500		$	29.36
Exercised	(52,500	)	$	17.04
Outstanding at July 31, 2018	70,000		$	38.60
Exercised	(30,000	)	$	31.81
Outstanding at July 31, 2019	40,000		$	43.70	0.57 years	$	1,943
Exercisable at July 31, 2019	40,000		$	43.70	0.57 years	$	1,943

In fiscal 2019, 2018 and 2017, 5,000, 13,333 and 23,333, respectively, options vested, with an aggregate fair value of approximately $277, $226 and $349, respectively. At July 31, 2019, 2018 and 2017, there were 40,000, 70,000 and 122,500, respectively, outstanding options with an aggregate fair value of $1,943, $3,788 and $5,493, respectively. At July 31, 2019 and 2018, all of the outstanding options had vested or were expected to vest in future periods.

We do not currently have a publicly announced stock repurchase program. All of the shares purchased during fiscal 2019, 2018 and 2017 represent shares surrendered relating to cashless exercises of stock options and to pay employee withholding taxes due upon the vesting of restricted stock or the exercise of stock options. In fiscal 2019, 2018 and 2017, such purchases amounted to 54,176, 72,058 and 89,607 shares at a total average price per share of $87.51, $98.16 and $77.12, respectively.

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. Additionally, all options were considered to be deductible for tax purposes in the valuation model. Such non-qualified options were tax-effected using our estimated U.S. effective tax rate at the time of grant. All of our stock options and restricted stock awards are expected to be deductible for tax purposes, except for certain stock awards granted to employees residing outside of the United States, and were tax-effected using our estimated U.S. effective tax rate at the time of grant.

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 described above. For fiscal 2019, income tax deductions of $2,592 were generated, of which $2,008 were recorded as a reduction in income tax expense over the equity awards’ vesting period and the remaining excess tax benefit of $584 was recorded as a reduction in income tax expense. For fiscal 2018, income tax deductions of $4,161 were generated, of which $1,988 were recorded as a reduction in income tax expense over the equity awards’ vesting period and the remaining excess tax benefits of $2,173 were recorded as a reduction in income tax expense. For fiscal 2017, income tax deductions of $5,292 were generated, of which $3,351 were recorded as a reduction in income tax expense over the equity awards’ vesting period and the remaining excess tax benefits of $2,241 were recorded as a reduction in income tax expense.


16.	Retirement Plans

We have 401(k) Savings and Retirement Plans for the benefit of eligible U.S. employees. Additionally, our Canadian and certain European subsidiaries maintain profit sharing plans for the benefit of eligible employees. Employer contributions are both discretionary and non-discretionary and are limited in any year to the amount allowable by government tax authorities.

Aggregate employer contributions recognized under these plans were $4,999, $4,676 and $3,863 for fiscal 2019, 2018 and 2017, respectively.


17.	Reportable Segments

In accordance with 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 income from operations. 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. As a result of this change, our 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.

(dollar amounts in thousands except share and per share data or as otherwise specified) 62

Cantel Medical Corp. 2019 Annual Report on Form 10-K

None of our customers accounted for 10% or more of our consolidated net sales during fiscal 2019, 2018 and 2017.

Our reportable segments are as follows:

Life Sciences: designs, develops, manufactures, sells, and installs water purification systems for medical, pharmaceutical and other bacteria controlled applications. We also provide filtration/separation and disinfectant technologies to the medical and life science markets through a worldwide distributor network. Two customers collectively accounted for approximately 40.2%, 48.0% and 50.2% of our Life Sciences segment net sales in fiscal 2019, 2018 and 2017, respectively.

Dental: designs, manufactures, sells, supplies and distributes a broad selection of infection prevention healthcare products, the majority of which are single-use products used by dental practitioners. Three customers collectively accounted for approximately 47.6%, 45.1% and 43.4% of our Dental segment net sales in fiscal 2019, 2018 and 2017, respectively.

Dialysis: designs, develops, manufactures, sells and services reprocessing systems and sterilants for dialyzers (a device serving as an artificial kidney), as well as dialysate concentrates and supplies utilized for renal dialysis. Two customers collectively accounted for approximately 41.0%, 40.6% and 44.2% of our Dialysis segment net sales in fiscal 2019, 2018 and 2017, respectively. These customers are the same two customers noted above under our Life Sciences segment.

Information as to reportable segments is summarized below:



	Year Ended July 31,
	2019		2018		2017
Net sales:
Medical	$	523,669	$	473,937	$	398,773
Life Sciences ⁽¹⁾	201,022		217,030		196,446
Dental ⁽¹⁾	161,608		149,360		144,457
Dialysis	31,856		31,595		30,481
Total	$	918,155	$	871,922	$	770,157

_______________________________________________


(1)	In fiscal 2018, approximately $5,820 of net sales were reclassified out of our Dental segment and into our Life Sciences segment associated with the changes in our segments noted above. Fiscal 2017 amounts were not material and were not adjusted.



	Year Ended July 31,
	2019			2018			2017
Income from operations:
Medical	$	98,356		$	86,833		$	73,440
Life Sciences ⁽¹⁾	20,552			36,803			33,159
Dental ⁽¹⁾	22,289			30,004			28,000
Dialysis	4,922			7,380			8,154
	146,119			161,020			142,753
General corporate expenses	62,600			39,356			32,343
Income from operations	83,519			121,664			110,410
Interest expense, net	9,505			5,289			4,303
Other income	(1,305		)	(1,138		)	(126		)
Income before income taxes	$	75,319		$	117,513		$	106,233

_______________________________________________


(1)	In fiscal 2018, approximately $1,704 of income from operations were reclassified out of our Dental segment and into our Life Sciences segment associated with the changes in our segments noted above. Fiscal 2017 amounts were not material and were not adjusted.

(dollar amounts in thousands except share and per share data or as otherwise specified) 63

Cantel Medical Corp. 2019 Annual Report on Form 10-K



	July 31,
	2019		2018
Identifiable assets:
Medical	$	532,250	$	490,702
Life Sciences	184,737		151,460
Dental	272,309		210,831
Dialysis	19,016		22,614
General corporate, including cash and cash equivalents	62,054		88,101
Total	$	1,070,366	$	963,708



	Year Ended July 31,
	2019		2018		2017
Capital expenditures:
Medical	$	52,907	$	18,996	$	13,816
Life Sciences	16,408		4,409		3,689
Dental	16,243		2,441		2,492
Dialysis	3,203		644		1,296
General corporate	6,677		11,208		5,772
Total	$	95,438	37,698		27,065



	Year Ended July 31,
	2019		2018		2017
Depreciation and amortization:
Medical	$	23,033	$	19,002	$	18,245
Life Sciences	7,482		5,628		5,706
Dental	9,844		8,756		8,556
Dialysis	39		711		427
General corporate	1,961		733		518
Total	$	42,359	$	34,830	$	33,452

Information as to geographic areas (including net sales which represent the geographic area from which we derive its net sales from external customers) is summarized below:



	Year Ended July 31,
	2019		2018		2017
Net sales:
United States	$	665,661	$	643,744	$	599,657
Europe/Africa/Middle East	148,334		131,130		95,753
Asia/Pacific	66,228		57,108		40,964
Canada	32,152		33,524		26,648
Latin America/South America	5,780		6,416		7,135
Total	$	918,155	$	871,922	$	770,157

(dollar amounts in thousands except share and per share data or as otherwise specified) 64

Cantel Medical Corp. 2019 Annual Report on Form 10-K



	July 31,
	2019		2018
Total long-lived assets:
United States	$	128,010	$	80,918
Europe/Africa/Middle East	64,742		35,824
Asia/Pacific	4,201		2,531
Canada	1,995		804
Total	198,948		120,077
Goodwill and intangible assets, net	519,622		505,388
Total	$	718,570	$	625,465


18.	Quarterly Results of Operations (unaudited)

The following is a summary of the quarterly results of operations for fiscal 2019 and 2018:



Fiscal 2019	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Net sales	$	225,589		$	224,538		$	228,552		$	239,476
Cost of sales	120,340			119,863			121,675			128,823
Gross profit	105,249			104,675			106,877			110,653
Gross profit percentage	46.7		%	46.6		%	46.8		%	46.2		%
Net income	$	19,242		$	18,800		$	8,175		$	8,825
Earnings per common share:
Basic	$	0.46		$	0.45		$	0.20		$	0.21
Diluted	$	0.46		$	0.45		$	0.20		$	0.21



Fiscal 2018	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Net sales	$	212,766		$	213,034		$	217,268		$	228,854
Cost of sales	112,107			111,799			112,594			121,451
Gross profit	100,659			101,235			104,674			107,403
Gross profit percentage	47.3		%	47.5		%	48.2		%	46.9		%
Net income	$	22,929		$	32,488		$	18,736		$	16,888
Earnings per common share:
Basic	$	0.55		$	0.78		$	0.45		$	0.41
Diluted	$	0.55		$	0.78		$	0.45		$	0.41


19.	Subsequent Events

Hu-Friedy Acquisition

Amendment to 2018 Credit Agreement

(dollar amounts in thousands except share and per share data or as otherwise specified) 65

Cantel Medical Corp. 2019 Annual Report on Form 10-K

$400,000 delayed draw term loan facility (the “Delayed Draw Facility”), which we may draw subject to the satisfaction of certain limited conditions precedent, to our 2018 Credit Agreement, in addition to the existing tranche A term loan and existing revolving credit facility. Pursuant to the Amended Credit Agreement, subject to the satisfaction of certain conditions precedent, including the consent of the lenders, the Company may from time to time increase its borrowing capacity under the revolving credit facility by, or incur incremental term loans in, an aggregate amount not to exceed the sum of (i) the greater of (x) $300,000 or (y) an amount equal to two times the our consolidated EBITDA, calculated on a pro forma basis, plus (ii) the aggregate principal amount of voluntary prepayments of the revolving loans and term loans.

The Delayed Draw Facility and a portion of the revolving credit facility will be used to finance all or a portion of the cash consideration for our acquisition of Hu-Friedy. The remaining proceeds of the Amended Credit Agreement will be used to refinance certain existing indebtedness of Cantel and Hu-Friedy, and to pay the fees and expenses incurred in connection therewith, as well as for working capital, capital expenditures and other lawful corporate purposes.

Borrowings under the Amended Credit Agreement bear interest at rates ranging from 0.00% to 1.25% above prime rate for base rate borrowings, or at rates ranging from 1.00% to 2.25% above LIBOR for LIBOR based borrowings, depending on our “Consolidated Leverage Ratio,” which is the consolidated ratio of total funded debt (minus certain unrestricted cash) to consolidated EBITDA. The Amended Credit Agreement also provides for fees on the unused portion of the revolving credit facility at rates ranging from 0.20% to 0.40%, depending on our Consolidated Leverage Ratio. The Amended 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 each Loan Party 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.

Schedule II - Valuation and Qualifying Accounts



	Balance at Beginning of Period		Additions		Deductions			Translation Adjustments			Balance at End of Period
Allowance for doubtful accounts
Year ended July 31, 2019	$	1,149	$	1,541	$	(336	)	$	(32	)	$	2,322
Year ended July 31, 2018	$	1,808	$	326	$	(977	)	$	(8	)	$	1,149
Year ended July 31, 2017	$	1,850	$	998	$	(1,056	)	$	16		$	1,808

Reserve for excess and obsolete inventory
Year ended July 31, 2019	$	8,599	$	2,937	$	(1,218	)	$	(203	)	$	10,115
Year ended July 31, 2018	$	8,853	$	1,719	$	(1,862	)	$	(111	)	$	8,599
Year ended July 31, 2017	$	5,390	$	5,016	$	(1,580	)	$	27		$	8,853

Deferred tax asset valuation allowance
Year ended July 31, 2019	$	6,358	$	1,086	$	(1,891	)	$	148		$	5,701
Year ended July 31, 2018	$	2,984	$	3,538	$	(119	)	$	(45	)	$	6,358
Year ended July 31, 2017	$	2,334	$	615	$	—		$	35		$	2,984

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

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 defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of July 31, 2019. 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, as of the end of the period covered by this report, 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

(dollar amounts in thousands except share and per share data or as otherwise specified) 66

Cantel Medical Corp. 2019 Annual Report on Form 10-K

reported within the time periods specified by the SEC and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

Management’s Report on Internal Control over Financial Reporting

The management of Cantel Medical Corp. is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:


(i)	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company,


(ii)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and


(iii)	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies and procedures included in such controls may deteriorate.

We, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of our internal controls over financial reporting based on the framework and criteria established in “Internal Control — Integrated Framework (2013 framework),” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer each concluded that our internal control over financial reporting was effective as of July 31, 2019.

Our independent auditors, Deloitte & Touche LLP, have issued a report on our internal control over financial reporting, which is included in Part II, Item 8 of this report.

Changes in Internal Control

We have evaluated our internal control 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 control over financial reporting, except as described below.

On February 1, 2019, we acquired Omnia, as more fully described in Note 4 to the consolidated financial statements. This business is included in our 2019 consolidated financial statements and constituted 3.5% and 3.3% of total assets and net assets, respectively, as of July 31, 2019, and 1.3% and 1.1% of net sales and net income, respectively, for the year then ended. During the initial transition period following the acquisition, we enhanced our internal control process to ensure that all financial information related to this acquisition was properly reflected in our consolidated financial statements. However, since Omnia was acquired on February 1, 2019, a complete integration of the internal controls relating to the acquired businesses was not practical for purposes of inclusion in our evaluation of the effectiveness of our internal control over financial reporting. We expect that all aspects of Omnia will be fully integrated into our existing internal control structure in fiscal 2020.

In 2017, we began the process of implementing a global operating and financial reporting information technology system, SAP S4 Hana (“SAP”), as part of a multi-year plan to integrate and upgrade our systems and processes. The first phase of this implementation became operational in February 2019, at our Medical segment's United States operations, our Medivators B.V. operations and at our corporate headquarters. As the phased implementation of SAP continues, we are experiencing certain changes to our processes and procedures which, in turn, result in changes to our internal control over financial reporting. We believe the necessary steps have been taken to monitor and maintain appropriate internal control over financial reporting during this period of change and we will continue to evaluate the operating effectiveness of related key controls during subsequent periods. While we expect SAP to strengthen our internal financial controls by automating certain manual processes and standardizing business processes and reporting across our organization, management will continue to evaluate and monitor our internal controls as each of the affected areas evolves.

(dollar amounts in thousands except share and per share data or as otherwise specified) 67

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

We have adopted a Code of Ethics for the Chief Executive Officer, the Chief Financial Officer, Chief Accounting Officer, and other officers and management personnel that is posted on our website, www.cantelmedical.com. We intend to satisfy the disclosure requirement regarding any amendment to, or a waiver of, a provision of the Code of Ethics for the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and other officers and management personnel by posting such information on our website.

The remainder of the information required by Item 10 is incorporated by reference to our definitive proxy statement for our 2019 annual meeting of stockholders, which we intend to file within 120 days of the end of our fiscal year.

Item 11. Executive Compensation.

Information required to be disclosed by this Item is incorporated by reference from our definitive proxy statement for our 2019 annual meeting of stockholders, which we intend to file within 120 days of the end of our fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following sets forth certain information as of July 31, 2019 with respect to our equity compensation plans under which our securities may be issued:



	Number of securities to be issued upon exercise of outstanding options	Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under compensation plans (excluding securities reflected in (a))
Plan Category	(a)	(b)		(c)
Equity compensation plans approved by security holders	40,000	$	43.70	755,429	⁽¹⁾
Equity compensation plans not approved by security holders	—	—		—
Total	40,000	$	43.70	755,429	⁽¹⁾

________________________________________________


(1)	Collectively consists of stock option and SARs awards and restricted stock and performance awards available for grant under the plans.

The remainder of the information required by Item 12 is incorporated by reference from our definitive proxy statement for our 2019 annual meeting of stockholders, which we intend to file within 120 days of the end of our fiscal year.

Item 13. Certain Relationships and Related Transactions and Director Independence.

The information required to be disclosed by this Item is incorporated by reference from our definitive proxy statement for our 2019 annual meeting of stockholders, which we intend to file within 120 days of the end of our fiscal year.

Item 14. Principal Accounting Fees and Services.

(dollar amounts in thousands except share and per share data or as otherwise specified) 68

Cantel Medical Corp. 2019 Annual Report on Form 10-K

PART IV

Item 15. Exhibits, Financial Statement Schedules.


(a)	The following documents are filed as part of this Annual Report on Form 10-K for the fiscal year ended July 31, 2019.


1.	Consolidated Financial Statements:


(i)	Report of Independent Registered Public Accounting Firm.


(ii)	Consolidated Balance Sheets as of July 31, 2019 and 2018.


(iii)	Consolidated Statements of Income for the years ended July 31, 2019, 2018 and 2017.


(iv)	Consolidated Statements of Comprehensive Income for the years ended July 31, 2019, 2018 and 2017.


(v)	Consolidated Statements of Changes in Stockholders’ Equity for the years ended July 31, 2019, 2018 and 2017.


(vi)	Consolidated Statements of Cash Flows for the years ended July 31, 2019, 2018 and 2017.


(vii)	Notes to Consolidated Financial Statements.


2.	Consolidated Financial Statement Schedules:


(i)	Schedule II - Valuation and Qualifying Accounts for the years ended July 31, 2019, 2018 and 2017.

All other financial statement schedules are omitted since they are not required, not applicable, or the information has been included in the Consolidated Financial Statements or Notes thereto.


3.	Exhibits:

2(a) - Purchase and Sale Agreement, dated as of July 29, 2019, by and among Cantel Medical Corp., Hu-Friedy Mfg. Co., LLC, Dental Holding, LLC, and, for limited purposes set forth therein, Ken Serota and Ron Saslow. (Incorporated herein by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on July 30, 2019, File No. 001-31337.)

3(a) - Registrant’s Restated Certificate of Incorporation, dated July 20, 1978. (Incorporated herein by reference to Exhibit 3(a) to Registrant’s 1981 Annual Report on Form 10-K.)

3(b) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on February 16, 1982. (Incorporated herein by reference to Exhibit 3(b) to Registrant’s 1982 Annual Report on Form 10-K.)

3(c) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on May 4, 1984. (Incorporated herein by reference to Exhibit 3(c) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 30, 1984.)

3(d) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on August 19, 1986. (Incorporated herein by reference to Exhibit 3(d) to Registrant’s 1986 Annual Report on Form 10-K.)

3(e) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on December 12, 1986. (Incorporated herein by reference to Exhibit 3(e) to Registrant’s 1987 Annual Report on Form 10-K [the “1987 10-K”].)

3(f) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on April 3, 1987. (Incorporated herein by reference to Exhibit 3(f) to Registrant’s 1987 10-K.)

3(g) - Certificate of Change of Registrant, filed on July 12, 1988. (Incorporated herein by reference to Exhibit 3(g) to Registrant’s 1988 Annual Report on Form 10-K, File No. 001-31337.)

3(h) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on April 17, 1989. (Incorporated herein by reference to Exhibit 3(h) to Registrant’s 1989 Annual Report on Form 10-K, File No. 001-31337.)

3(i) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on May 10, 1999. (Incorporated herein by reference to Exhibit 3(i) to Registrant’s 2000 Annual Report on Form 10-K, File No. 001-31337 [the “2000 10-K”].)

Cantel Medical Corp. 2019 Annual Report on Form 10-K

3(j) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on April 5, 2000. (Incorporated herein by reference to Exhibit 3(j) to Registrant’s 2000 10-K.)

3(k) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on September 6, 2001. (Incorporated herein by reference to Exhibit 3(k) to Registrant’s 2001 Annual Report on Form 10-K, File No. 001-31337.)

3(l) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on June 7, 2002. (Incorporated herein by reference to Exhibit 3(l) to Registrant’s 2002 Annual Report on Form 10-K, File No. 001-31337.)

3(m) - Certificate of Amendment of Certificate of Incorporation of Registrant, filed on December 22, 2005. (Incorporated herein by reference to Exhibit 3(m) to Registrant’s 2006 Annual Report on Form 10-K, File No. 001-31337.)

3(n) - Certificate of Amendment of Certificate of Incorporation of Registrant filed on January 14, 2013. (Incorporated herein by reference to Exhibit 3(n) to Registrant’s 2013 Annual Report on Form 10-K, File No. 001-31337.)

3(o) - Registrant’s By-Laws, as amended through November 1, 2013. (Incorporated herein by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on November 7, 2013, File No. 001-31337.)

3(p) - Registrant's By-Laws as amended through January 3, 2018. (Incorporated herein by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on January 9, 2018, File No. 001-31337.)

Exhibit 4 - Description of Securities.

10(a) - 2006 Equity Incentive Plan, as amended. (Incorporated herein by reference to Exhibit 10(a) to Registrant’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2013, File No. 001-31337.)*

10(b) - Form of Stock Option Agreement for option grants to directors and executive officers under Registrant’s 2006 Equity Incentive Plan. (Incorporated herein by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K filed on October 27, 2011, File No. 001-31337 [the “October 2011 8-K”].)*

10(c) - Form of Restricted Stock Agreement under Registrant’s 2006 Equity Incentive Plan for grants to executive officers. (Incorporated herein by reference to Exhibit 10.5 to Registrant’s October 2011 8-K.)*

10(d) - Form of Restricted Stock Agreement under Registrant’s 2006 Equity Incentive Plan for grants to directors. (Incorporated herein by reference to Exhibit 10.6 to Registrant’s October 2011 8-K.)*

10(e) - Separation Agreement and General Release dated as of March 8, 2019 between the Company and Jorgen B. Hansen. (Incorporated herein by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed on March 8, 2019, File No. 001-31337.)*

10(f) - Retirement Agreement and General Release dated as of March 29, 2019 between the Company and Eric W. Nodiff. (Incorporated herein by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q filed on June 6, 2019, File No. 001-31337.)*

10(g) - Confidentiality and Non-Competition Agreement dated as of November 15, 2012 between Registrant and Jorgen B. Hansen (Incorporated herein by reference to Exhibit 10.2 to Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 2012, File No. 001-31337.)*

10(h) - Confidentiality and Non-Competition Agreement dated as of January 1, 2010 between Registrant and Eric W. Nodiff (Incorporated herein by reference to Exhibit 10.9 to Registrant’s February 2010 8-K.)*

10(i) - Confidentiality and Non-Competition Agreement dated as of March 23, 2015 between Registrant and Peter Clifford (Incorporated herein by reference to Exhibit 10.2 to Registrant’s March 2015 8-K.)*

10(j) - Cantel Medical Corp. 2016 Equity Incentive Plan (Incorporated herein by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q filed on November 30, 2018, File No. 001-31337.)*

Cantel Medical Corp. 2019 Annual Report on Form 10-K

10(k) - Form of Restricted Stock Agreement (Time-Based Grants) under Cantel Medical Corp. 2016 Equity Incentive Plan for grants to executive officers (Incorporated herein by reference to Exhibit 10(r) to Registrant's Annual Report on From 10-K for the fiscal year ended July 31, 2016, File No. 001-31337 [the "2016 10-K"].) *

10(l) - Form of Restricted Stock Agreement (Time-Based Grants) under Cantel Medical Corp. 2016 Equity Incentive Plan for grants to directors (Incorporated herein by reference to Exhibit 10(s) to Registrant's 2016 10-K.)*

10(m) - Form of Restricted Stock Agreement (Performance-Based Grants – Revenue Based) under Cantel Medical Corp. 2016 Equity Incentive Plan for grants to executive officers (Incorporated herein by reference to Exhibit 10(t) to Registrant's 2016 10-K.) *

10(n) - Form of Restricted Stock Agreement (Performance-Based Grants – TSR Based) under Cantel Medical Corp. 2016 Equity Incentive Plan for grants to executive officers (Incorporated herein by reference to Exhibit 10(u) to Registrant's 2016 10-K.)*

10(o) - Form of Restricted Stock Agreement (Time-Based) under Cantel Medical Corp. 2016 Equity Incentive Plan for annual grants to directors (Incorporated herein by reference to Exhibit 10(v) to Registrant's 2016 10-K.)*

10(p) - Fourth Amended and Restated Credit Agreement dated as of June 28, 2018 among Cantel Medical Corp., Bank of America, N.A., Wells Fargo Bank, National Association, JPMorgan Chase Bank, N.A., and the other lenders party hereto. (Incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on July 2, 2018, File No. 001-31337.)

10(q) - Earnout Agreement, dated as of July 29, 2019, by and between Dental Holding, LLC and Cantel Medical Corp. (Incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on July 30, 2019, File No. 001-31337.)

10(r) - First Amendment, dated as of September 6, 2019, among Cantel Medical Corp., the subsidiary obligors party thereto, the lenders party thereto, and Bank of America, N.A. (Incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on September 9, 2019, File No. 001-31337.)

Exhibit 10.1 - Cantel Medical Corp. Executive Severance and Change in Control Plan.

Exhibit 21 - Subsidiaries of Registrant.

Exhibit 23.1 - Consent of Deloitte & Touche LLP.

Exhibit 23.2 - Consent of Ernst & Young LLP.

Exhibit 31.1 - Certification of Principal Executive Officer.

Exhibit 31.2 - Certification of Principal Financial Officer.

Exhibit 32 - Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

101 The following materials from Cantel Medical Corp.’s Form 10-K for the fiscal year ended July 31, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at July 31, 2019 and 2018, (ii) Consolidated Statements of Income for each of the three years in the period ended July 31, 2019, (iii) Consolidated Statements of Comprehensive Income for each of the three years in the period ended July 31, 2019, (iv) Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period ended July 31, 2019, (v) Consolidated Statements of Cash Flows for each of the three years in the period ended July 31, 2019 and (vi) Notes to Consolidated Financial Statements.

*Management contract or compensatory plan or arrangement of the Company required to be filed as an exhibit.

Item 16. Form 10-K Summary

None.

Cantel Medical Corp. 2019 Annual Report on Form 10-K

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	CANTEL MEDICAL CORP.

Date: September 25, 2019		By:	/s/ George L. Fotiades
		George L. Fotiades, President,
		Chief Executive Officer
		(Principal Executive Officer)

		By:	/s/ Shaun M. Blakeman
		Shaun M. Blakeman, Senior Vice President,
		Chief Financial Officer
		(Principal Financial Officer)

		By:	/s/ Brian R. Capone
		Brian R. Capone, Senior Vice President,
		Chief Accounting Officer
		(Principal Accounting Officer)

Cantel Medical Corp. 2019 Annual Report on Form 10-K

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:



/s/ Charles M. Diker	Date:	September 25, 2019
Charles M. Diker, Director and Chairman of the Board

/s/ Alan. R. Batkin	Date:	September 25, 2019
Alan R. Batkin, Lead Independent Director

/s/ Ann E. Berman	Date:	September 25, 2019
Ann E. Berman, Director

/s/ Mark N. Diker	Date:	September 25, 2019
Mark N. Diker, Director

/s/ Anthony B. Evnin	Date:	September 25, 2019
Anthony B. Evnin, Director

/s/ Laura L. Forese	Date:	September 25, 2019
Laura L. Forese, Director

/s/ George L. Fotiades	Date:	September 25, 2019
George L. Fotiades, Director, President and CEO

/s/ Ronnie Myers	Date	September 25, 2019
Ronnie Myers, Director

/s/ Peter J. Pronovost, M.D., Ph.D.	Date:	September 25, 2019
Peter J. Pronovost, M.D., Ph.D., Director

Exhibit 4

DESCRIPTION OF SECURITIES

The following description of the capital stock of Cantel Medical Corp. (the “Company,” “we,” “us” or “our”) is a summary only. This summary is not complete and is qualified in its entirety by reference to the Company’s Restated Certificate of Incorporation, dated July 20, 1978, as amended (the “Amended Certificate”), and By-Laws, as amended on January 3, 2018 (the “By-Laws”), each of which is incorporated by reference herein and filed as an exhibit to our Annual Report on Form 10-K for the fiscal year ended July 31, 2019, to which this Exhibit 4 is also attached.

General

Our capital stock consists of a total of 76,000,000 authorized shares, of which 75,000,000 shares, par value $0.10 per share, are designated as common stock and 1,000,000 shares, par value $1.00 per share, are designated as preferred stock. Our common stock is listed on the New York Stock Exchange under the symbol “CMD.”

Common Stock

Voting rights. Holders of our common stock are entitled to one vote per share on all matters to be voted upon by our stockholders. The holders of our common stock do not have cumulative voting rights in the election of directors. We do not have a classified Board of Directors. Our By-laws provide that unless a greater number of affirmative votes is required by our Amended Certificate, our By-Laws, the rules or regulations of any stock exchange applicable to the Company, or as otherwise required by law or pursuant to any regulation applicable to the Company, at a meeting of stockholders, our stockholders will approve any matter, other than the election of directors and as noted below, if the votes cast in favor of such matter exceed the votes cast against such matter. A nominee for director will be elected to our Board of Directors if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election; provided, however, that directors will be elected by a plurality of the votes cast where the number of nominees exceeds the number of directors to be elected. One or more of our directors may be removed by the affirmative vote of stockholders holding two-thirds of our stock. Our By-Laws may be amended by the affirmative vote of stockholders representing a majority of the whole capital stock entitled to vote at an annual meeting of our stockholders. The authorized number of shares of our common stock may, without a class or series vote, be increased or decreased by the affirmative vote of stockholders holding a majority of the outstanding shares of capital stock entitled to vote thereon.

Dividend rights. Holders of our common stock are entitled to ratably receive dividends if, as and when dividends are declared from time to time by our Board of Directors out of funds legally available for that purpose, after payment of dividends required to be paid on outstanding preferred stock, as described below, if any.

Liquidation rights. Upon liquidation, dissolution or winding-up of the Company, the holders of our common stock will be entitled to receive ratably the assets available for distribution to our stockholders after payment of liabilities and accrued but unpaid dividends and liquidation preferences on any outstanding preferred stock.

Other rights and preferences. Our common stock has no preemptive or conversion rights. There are no redemption or sinking fund provisions applicable to our common stock. All outstanding shares of our common stock are fully paid and non-assessable.

Registration rights. Some of our stockholders have certain demand registration rights and piggyback and other registration rights with respect to shares of our common stock held by them, as described from time to time in our periodic reports filed with the Securities and Exchange Commission.

Preferred Stock

Pursuant to our Amended Certificate, our Board of Directors may issue shares of preferred stock from time to time, in one or more series, with the designations of the series, the voting rights of the shares of the series (if any), the powers, preferences and relative participation, optional or other special rights (if any) and any qualifications, limitations or restrictions thereof as our Board of Directors from time to time may adopt by resolution (and without

further stockholder approval), subject to certain limitations. Each series will consist of that number of shares as will be stated and expressed in the certificate of designations providing for the issuance of the stock of the series. Our Board of Directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock, and the issuance of preferred stock could, under certain circumstances, have the effect of delaying, deferring or preventing a change in control of us. The number of authorized shares of preferred stock may, without a class vote of such preferred stock or any series thereof, be increased or decreased by the affirmative vote of the holders of a majority of the capital stock entitled to vote thereon, except as otherwise provided in the resolution fixing the voting rights of any such series of preferred stock.

Anti-Takeover Effects of Certain Provisions of Delaware Law and our Amended Certificate and By-Laws

Antitakeover Effects of Section 203 of the DGCL. We have elected not to opt out of Section 203 of General Corporation Law of the State of Delaware (the “DGCL”). In general, Section 203 of the DGCL prevents an “interested stockholder” (as defined in the DGCL) from engaging in a “business combination” (as defined in the DGCL) with us for three years following the date that person becomes an interested stockholder, unless one or more of the following occurs:


•	before that person became an interested stockholder, our Board of Directors approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination;

•

upon consummation of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) stock held by directors who are also officers of our Company and by employee stock plans that do not provide employees with the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or


•	following the transaction in which that person became an interested stockholder, the business combination is approved by our Board of Directors and authorized at a meeting of stockholders by the affirmative vote of the holders of at least 66 2/3% of our outstanding voting stock not owned by the interested stockholder.

In general, a “business combination” is defined to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder and an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more of a corporation’s voting stock. The DGCL generally defines “interested stockholder” as any person who, together with affiliates and associates, is the owner of 15% or more of our outstanding voting stock or is our affiliate or associate and was the owner of 15% or more of our outstanding voting stock at any time within the three-year period immediately before the date of determination. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.

The provisions of the DGCL, our Amended Certificate and our By-Laws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Certain Corporate Antitakeover Provisions. Certain provisions in our Amended Certificate and By-Laws could have the effect of delaying, deferring or preventing another party from acquiring or seeking to acquire control of the Company. For example, our Amended Certificate and/or By-Laws contain provisions that:


•	permit our Board of Directors to issue, without any further vote or action by the stockholders, shares of preferred stock in one or more series and, with respect to each such series, to fix the number of shares

constituting the series and the designation of the series, the voting rights (if any) of the shares of the series and the powers, preferences and relative participation, optional and other special rights, if any and any qualifications, limitations or restrictions of the shares of such series;


•	provide that vacancies on our Board of Directors may be filled by a majority of our Board of Directors then in office, although less than a quorum;


•	provide that stockholders do not have the right to cumulative voting in the election of directors;


•	provide that special meetings of stockholders may only be called by a majority of our Board of Directors, and that only proposals included in the Company’s notice or otherwise brought before the meeting by or at the direction of our Board of Directors may be considered at such special meetings; and

•

provide that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any derivative action or proceeding brought on the Company’s behalf, any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers, or other employees to us or to our stockholders, any action asserting a claim arising pursuant to the DGCL, or any action asserting a claim governed by the internal affairs doctrine.

CANTEL MEDICAL CORP.

EXECUTIVE SEVERANCE AND CHANGE IN CONTROL PLAN

1. ESTABLISHMENT AND PURPOSE OF PLAN 1

2. DEFINITIONS AND CONSTRUCTION 1

3. SEVERANCE BENEFITS FOR QUALIFYING TERMINATIONS 8

4. NO CONTRACT OF EMPLOYMENT 13

5. CONFLICT IN BENEFITS; NONCUMULATION OF BENEFITS 13

6. ADMINISTRATION, TERMINATION, AND AMENDMENT OF PLAN 14

7. CLAIMS FOR BENEFITS 15

8. NOTICES 19

9. CERTAIN FEDERAL TAX CONSIDERATIONS 20

10. ADDITIONAL PROVISIONS 23

EXHIBIT A FORM OF PARTICIPATION AGREEMENT A-1

EXHIBIT B FORM OF SEVERANCE AND RELEASE AGREEMENT B-1

CANTEL MEDICAL CORP.
EXECUTIVE SEVERANCE AND CHANGE IN CONTROL PLAN


1.	ESTABLISHMENT AND PURPOSE OF PLAN

1.1. Establishment. Cantel Medical Corp., a Delaware corporation ("Cantel" or the "Company"), has adopted this Cantel Medical Corp. Executive Severance and Change in Control Plan (as amended from time to time, the "Plan") with approval of the Compensation Committee of the Board of Directors of the Company.

1.2. Purpose. The purpose of the Plan is to provide eligible key employees of the Company and certain subsidiaries of the Company who experience a Qualifying Termination (defined below) with severance benefits in accordance with the terms and conditions set forth below. The Company believes that it is in the best interests of the Company's shareholders to provide financial assistance through severance payments and other benefits to eligible key employees who experience a Qualifying Termination as specified herein. With respect to each Participant (defined below), the Plan supersedes all plans, agreements, or other arrangements for severance benefits or for enhanced severance payments whether or not before, on or after a Change in Control. To the extent the Plan provides deferred compensation it is an unfunded plan primarily for the purposes of providing deferred compensation to a select group of management or highly compensated employees as described in Sections 201, 301 and 401 of ERISA.

1.3. Effective Date. The Plan is adopted, as amended, and effective as of September 23, 2019 (the "Effective Date").

The Company reserves the right to amend, modify or terminate the Plan at any time for any reason, subject to the limitations set forth herein.

The Plan is subject to the terms and conditions of the Cantel Medical Corp. 2016 Equity Incentive Plan, as amended, and any successor plan thereto (the "Equity Plan").


2.	DEFINITIONS AND CONSTRUCTION

2.1. Definitions. Whenever used in the Plan, the following terms shall have the meanings set forth below:

(a) "Accrued Obligations" means the following:

i. any earned but unpaid Base Salary (defined below) through the Participant's Termination Date (defined below), plus any accrued and unused paid time off ("PTO") due to the Participant under the Company's PTO program through the Participant's Termination Date, which amounts shall be paid to the Participant not later than the payment date for the payroll period next following the Participant's Termination Date;

ii. reimbursements for any properly reimbursable business expenses to which the Participant is entitled pursuant to any applicable established reimbursement policies, provided that the Participant applies for such reimbursements in accordance with the terms and procedures set forth in the applicable established reimbursement policies, and within the period required by such procedures (but under no circumstances later than ninety (90) days after the Participant's Termination Date);

iii. vested benefits, if any, under any retirement plan, nonqualified deferred compensation plan, or any health or welfare benefit plan sponsored by any Group Company (defined below), to which the Participant is entitled pursuant to the terms of such plans or related agreements; and

iv. vested benefits, if any, to which the Participant is entitled pursuant to the terms of an award granted under the Equity Plan.

(b) "Adverse Action" shall have the meaning set forth in Section 6.2 below.

(c) "Annualized Bonus" means the greater of (i) a Participant's annual Bonus (defined below) for the most recently completed Fiscal Year for which annual bonuses have been determined or (ii) a Participant's average annual Bonus for the two (2) most recently completed Fiscal Years for which annual Bonuses have been determined. In the event that the Annualized Bonus cannot be determined for a Participant under (i) or (ii) above, "Annualized Bonus" with respect to such Participant means the Target Annual Bonus (defined below).

(d) "Base Salary" means the annual base salary in effect immediately prior to the Participant's Termination Date (without giving effect to any reduction forming the basis for a termination for Good Reason). For the avoidance of doubt, Base Salary does not include any bonuses, commissions, fringe benefits, car allowances, or other special or irregular payments.

(e) "Board" means the Board of Directors of the Company.

(f) "Bonus" means any annual cash bonus payable under any bonus plan, short term incentive compensation plan or other like benefit plan of a Group Company in which the Participant participates, whether or not awards thereunder are discretionary, including without limitation, the Company's Annual Incentive Plan as in effect from time to time.

(g) "Cause" means any one of the following, as determined by the Committee in its sole discretion:

i. the Participant's act of fraud, embezzlement, theft or other intentional material violation of the law in connection with or in the course of his or her employment;

ii. the Participant's willful or gross misconduct that is likely to materially injure the reputation, business or a business relationship of any Group Company;

iii. the Participant's willful material violation or breach of any confidentiality, non-competition or non-solicitation obligation (contractual or otherwise) to a Group Company;

iv. the Participant's continued and willful failure or refusal (other than as a result of incapacity due to mental or physical impairment) to perform his or her material duties of employment or to adhere to any written policies of the Company;

v. the Participant's sexual harassment of an employee or other third party that has been reasonably substantiated and investigated; or

vi. the Participant's willful conduct that endangers or compromises the health or safety of another employee or creates a hostile work environment.

For purposes of this definition of "Cause," no act, or failure to act, on the part of the Participant will be deemed "willful" if it was done or omitted to be done by the Participant in good faith or with a reasonable belief that the act or omission was not opposed to the best interests of the Company Group.

If (A) a Group Company has terminated a Participant without Cause or a Participant has resigned for Good Reason and, within six (6) months after the Termination Date, matters constituting Cause become known to a Group Company, or (B) if a Participant resigns for Good Reason after a Group Company learns of matters constituting Cause but before the Group Company is able to effectuate a termination for Cause, the Committee may in any such case, by written notice to a Participant, treat such termination as being for Cause; except that this provision shall not apply following a Change in Control.

(h) "Change in Control" shall have the meaning set forth in the Equity Plan.

(i) "Change in Control Coverage Period" means the period commencing with, and ending 24 months following, the date of a Change in Control. Notwithstanding anything in this Agreement to the contrary, if (i) a Participant experiences a Termination of Employment by the Company without Cause, (ii) the Termination Date of such Participant’s Termination of Employment is prior to the date on which a Change in Control occurs, and (iii) it is reasonably demonstrated by such Participant that such Termination of Employment (x) was at the request of a third party that has taken steps reasonably calculated to effect a Change in Control or (y) otherwise arose in connection with or anticipation of a Change in Control, then, solely with respect to such Participant, the “Change in Control Coverage Period” shall mean the period commencing immediately prior to such Termination Date and ending on the date of the Change in Control.

(j) "CIC Additional Bonus Payment" shall have the meaning set forth in Section 3.2(b) below.

(k) "CIC Continuation Benefit" shall have the meaning set forth in Section 3.2(e) below.

(l) "CIC Severance Payment" shall have the meaning set forth in Section 3.2(a) below.

(m) "Claim" shall have the meaning set forth in Section 7.1(a) below.

(n) "Claimant" shall have the meaning set forth in Section 7.1(a) below.

(o) "Claims Administrator" shall have the meaning set forth in Section 6.1(d) below.

(p) "COBRA" means the continuation coverage provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

(q) "COBRA Severance Benefit" shall have the meaning set forth in Section 3.1(e) below.

(r) "Code" means the Internal Revenue Code of 1986, as amended, or any successor thereto and any applicable regulations promulgated thereunder.

(s) "Committee" means the Compensation Committee of the Board.

(t) "Company" means Cantel Medical Corp., a Delaware corporation, or any successor thereto.

(u) "Company Group" means the group consisting, from time to time, of the Company and each direct and indirect Subsidiary of the Company.

(v) "Delay Period" shall have the meaning set forth in Section 9.1(b) below.

(w) "Director" means a member of the Board.

(x) "Disability" means an illness or injury that, in the opinion of the Committee, renders the Participant unable to perform the essential functions of his or her job with or without a reasonable accommodation, and that qualifies the Participant for disability benefits under a long-term disability plan of a Group Company in which the Participant is a participant; provided, however, that a Disability shall not be deemed to have occurred hereunder unless the Participant is absent from work or otherwise substantially unable to assume his or her normal duties for a period of ninety (90) successive days or an aggregate of one hundred twenty (120) days during any consecutive twelve-month period during the Term.

(y) "Eligible Employee" means any employee of any Group Company, with the title of Vice President II (salary grade E2) or higher, who is classified by the Company as a regular employee on a U.S. payroll (not including an employee based in, or paid from a payroll in, the Commonwealth of Puerto Rico), and who is employed on a full-time basis (i.e., is regularly scheduled to work 30 or more hours per week). Notwithstanding the foregoing to the contrary, any employee classified by the Company or relevant Group Company, in its sole discretion, as being in one or more of the following categories, shall not be an Eligible Employee:

i. any employee with an employment agreement or contract (including a letter agreement) providing for severance benefits and which becomes effective by its terms after the Effective Date of this Plan, unless such employment agreement or contract expressly provides that the employee is eligible to receive severance benefits under this Plan;

ii. any individual regarded as an independent contractor and/or consultant;

iii. any individual classified as a regular or part-time employee on a U.S. payroll and scheduled to work fewer than 30 hours per week;

iv. any employee classified as a "foreign employee," meaning an employee based or employed in a country that is not the United States or paid from a non-U.S. payroll (including an employee based in the Commonwealth of Puerto Rico or paid from a payroll in the Commonwealth of Puerto Rico);

v. any employee who, in the sole discretion of the Company, has breached, or is in breach of an Existing Restrictive Covenant Agreement (defined below); and

vi. any employee who has served as an employee of the Company for less than six months.

(z) "Equity Plan" means the Cantel Medical Corp. 2016 Equity Incentive Plan, as it may be amended from time to time, or any successor thereto.

(aa) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor thereto and any applicable regulations promulgated thereunder.

(bb) "Excise Tax" shall have the meaning set forth in Section 9.2(a) below.

(cc) "Existing Restrictive Covenant Agreement" shall have the meaning set forth in Section 5.1 below.

(dd) "Fiscal Year" means the fiscal year of the Company.

(ee) "Good Reason" means any of the following events solely during a Change in Control Coverage Period without the Participant's express written consent:

i. a material reduction (other than during a period of the Participant's mental or physical impairment) in the Participant's authority, duties, or responsibilities or the assignment to the Participant of duties on a continuous or regular basis that are materially inconsistent with the duties of the Participant prior to the Participant's Change in Control Coverage Period;

ii. a reduction in the Participant's base compensation (other than an across the board reduction applicable to all employees within the same Tier as the Participant) or failure to include the Participant with other similarly situated employees in any incentive, bonus, or benefit plans as may be offered by the Company Group from time to time;

iii. a change in the primary location at which the Participant is required to perform the duties of his or her employment to a location that is more than thirty (30) miles from the location at which his or her office is located prior to the Participant's Change in Control Coverage Period, provided that such change in primary location results in a material increase (i.e., at least 30 minutes) in the Participant's one-way commuting time;

iv. a material breach of an employment agreement or contract (including a letter agreement) with the Participant; or

vi. the failure of a successor entity to assume the obligations under this Plan or to provide the Participant with a plan providing substantially similar or better severance benefits;

provided, however, in all cases, that the Participant who is asserting that an event constituting Good Reason has occurred has provided the Company with written notice of the circumstances giving rise to the Good Reason event (a "Good Reason Notice"), in accordance with the procedures set forth in Section 8 below, within sixty (60) days after the initial existence of such circumstances. An event constituting Good Reason shall no longer constitute Good Reason if the circumstances described in the Good Reason Notice are cured by the Company Group within thirty (30) days following its receipt of the Good Reason Notice. If the Company Group does not cure the circumstances giving rise to the Good Reason event described in the Good Reason Notice within thirty (30) days after receipt of the Good Reason Notice, the Participant who provided the Good Reason Notice may resign for Good Reason only by terminating employment within thirty (30) days following the end of the Company Group's thirty (30) day cure period.

(ff) "Group Company" means the Company or any other company within the Company Group.

(gg) "Life Insurance Benefit" shall have the meaning set forth in Section 3.2(g) below.

(hh) "Participant" means any individual who is an Eligible Employee selected by the Committee to participate in the Plan and who executes and returns to the Company a Participation Agreement (defined below).

(ii) "Participation Agreement" means an Agreement to Participate in the Plan, in substantially the form attached hereto as Exhibit A, or in such other form as the Committee may approve from time to time.

(jj) "Prior Year Bonus Payment" shall have the meaning set forth in Section 3.1(c) below.

(kk) "Pro-Rata Bonus Payment" shall have the meaning set forth in Section 3.1(d) below.

(ll) "Qualifying Termination" means the occurrence of either of the following events:

i. the involuntary termination without Cause of a Participant's employment with a Group Company that employs the Participant; or

ii. with respect to a Tier I Participant (defined below) or a Tier II Participant (defined below) only, such Participant's resignation from such employment with the Company for Good Reason (which can only occur during a Change in Control Coverage Period);

provided, however, that a Qualifying Termination shall not include any termination of a Participant's employment which is (A) for Cause, (B) a result of a Participant's death or Disability, (C) a result of a Participant's resignation other than for Good Reason, or (D) a Participant's termination following his or her failure to accept a continued employment at a comparable position (as determined by the Committee in its sole discretion) in connection with any sale, divestiture or outsourcing of the company or business unit in which he or she had been employed prior to his or her termination.

(mm) "Separation and Release Agreement" means an agreement between the Participant and the Company in the form of Exhibit B or another form that is acceptable to the Company, and which at the Company's discretion, and to the extent permitted by applicable law, may include, among other things, certain restrictive covenants applicable to the Participant, including confidentiality, non-solicitation and non-competition provisions, as well as a full general release by the Participant in favor of the Company Group and any of its affiliates, stockholders, Directors, officers, employees, agents, insurers, predecessors, successors and/or assigns, and other related parties (including, without limitation, fiduciaries of employee benefit plans) releasing all claims, known or unknown (the "Release").

(nn) "Section 409A" means Section 409A of the Code and any applicable regulations (including proposed or temporary regulations) and other administrative guidance promulgated thereunder.

(oo) "Section 409A Change in Control" shall have the meaning set forth in Section 9.1(f) below.

(pp) "Severance Payments" shall have the meaning set forth in Section 3.1(a) below.

(qq) "Specified Employee" means a specified employee within the meaning of that term under Section 409A(a)(2)(B)(i) of the Code.

(rr) "Subsidiary," with respect to the Company, means any entity in which the Company owns or otherwise controls, directly or indirectly, stock or other ownership interests having the voting power to elect a majority of the board of directors, or other governing group having functions similar to a board of directors, as determined by the Committee.

(ss) "Target Annual Bonus" means the Participant's target annual cash bonus opportunity, determined based on the target percentage ascribed to the Participant, as in effect immediately prior to any termination of employment (without giving effect to any reduction forming the basis, in whole or in part, for a termination for Good Reason).

(tt) "Termination Date" means the effective date of the Participant's Termination of Employment.

(uu) "Termination of Employment" means, in respect of a Participant, a termination of employment with the Company Group as determined by the Committee; provided, however, that with respect to payment of deferred compensation subject to Section 409A, "Termination of Employment" means "separation from service" within the meaning of Section 409A.

(vv) "Tier I Participant" means (i) a Participant with the title of Chief Executive Officer of the Company, and (ii) any other Participant specifically classified as a Tier I Participant by the Committee, as determined in the Committee's sole discretion.

(ww) "Tier I Participant Additional Bonus Payment" shall have the meaning set forth in Section 3.1(b) below.

(xx) "Tier II Participant" means any Participant who is an executive officer of the Company (and not any other Group Company) with the title of Chief Financial Officer, Executive Vice President or Senior Vice President, as well as any member of the Company's Executive Leadership Team (ELT), other than (i) the Chief Executive Officer of the Company and (ii) any other Tier I Participant. For the sake of clarity, except for members of the Executive Leadership Team, Tier II Participants do not include Participants who are executive officers of Group Companies (and not of the Company).

(yy) "Tier III Participant" means any Participant other than a Tier I Participant or Tier II Participant.

2.2. Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise.


3.	SEVERANCE BENEFITS FOR QUALIFYING TERMINATIONS

3.1. Benefits for a Qualifying Termination Outside of a Change in Control Coverage Period. If a Participant experiences a Qualifying Termination at any time other than during a Change in Control Coverage Period, such Participant shall receive any Accrued Obligations to which he or she is entitled, and, provided that: (i) the Participant continues to comply with any restrictive covenants applicable to the Participant by Company policy or by specific written agreement and (ii) within the time limit specified in the Separation and Release Agreement following the Participant's Qualifying Termination, the Participant has delivered to the Company an executed Separation and Release Agreement and such Separation and Release Agreement has become effective, enforceable and irrevocable in accordance with its terms, such Participant shall also be eligible to receive the following benefits set forth in Sections 3.1(a) through (f) below, less applicable taxes, withholdings and deductions. Subject to potential delay or reduction pursuant to the terms of Section 9.1 below, all cash payments to which a Participant is entitled to receive under Section 3.1 shall be made in a single lump sum as soon as administratively practicable, but in no event later than fifteen (15) days after such Participant's Separation and Release Agreement has become effective and irrevocable; provided, however, that if the full period given to such Participant to consider the Separation and Release Agreement plus any revocation period provided for in such Separation and Release Agreement begins in one calendar year and ends in the subsequent calendar year, then the payment shall not be made until the subsequent calendar year.

(a) The Severance Payments. The Participant shall be paid an amount determined in accordance with the chart set forth immediately below (the "Severance Payment"). The formula utilized to calculate the severance benefit set forth in this Section 3.1(a) is as follows:



Participant Level	Formula
Tier I Participant	2.0 x Participant's annual Base Salary as of the Termination Date.
Tier II Participant	1.0 x Participant's annual Base Salary as of the Termination Date.
Tier III Participant	0.75 x Participant's annual Base Salary as of the Termination Date.

(b) Tier I Participant Additional Bonus Payment. With respect to Tier I Participants only, the Participant shall be paid an amount equal to the product of two times such Tier I Participant's Target Annual Bonus (the "Tier I Participant Additional Bonus Payment").

(c) Prior Year Bonus Payment. If a Participant's Termination Date is after the end of the immediately preceding annual Bonus period (i.e., after the end of the last Fiscal Year) but before the Bonus for that year has been paid to the Participant, the Participant shall be paid an annual cash Bonus for the completed bonus year immediately preceding the Participant's Termination Date (the "Prior Year Bonus Payment") in the amount determined under the terms of the applicable Bonus plan notwithstanding any provision of the Bonus plan that requires continued employment after the end of the immediately preceding annual Bonus period but subject to all other provisions of the Bonus plan. To the extent that a Participant is entitled to receive the Prior Year Bonus Payment for any Fiscal Year under this Section 3.1(c), such Participant shall not also be entitled to any Bonus payment for such Fiscal Year under the terms of the applicable Bonus plan. Amounts payable under this Section 3.1(c) will be deemed payments attributable to the Participant's employment prior to or on the Termination Date and not as severance.

(d) Pro-Rata Bonus Payment. The Participant shall be paid a pro-rata portion of the annual cash Bonus for the Fiscal Year in which the Termination Date occurs based on achievement of 100% of the applicable performance target for such year (determined by multiplying the amount of the target annual Bonus for the full Fiscal Year by a fraction, the numerator of which is the number of months during the Fiscal Year in which the Termination Date occurs that the Participant had been employed by the Company Group, and the denominator of which is 12) (the "Pro-Rata Bonus Payment") notwithstanding any provision of the Bonus plan that requires continued employment through the end of the annual Bonus period or beyond but subject to all other provisions of the Bonus plan. For purposes of such calculation, if the Termination Date is on or before the 15^th day of the month, the Participant will get credit for one-half month; and if the Termination Date is after the 15^th day of the month, the Participant will get credit for the full month. In the event that the Company has not established performance targets for the applicable annual Bonus plan with respect to the Fiscal Year in which the Termination Date occurs, the pro-rata portion of the Bonus payable under this section shall be based on the Participant's Target Annual Bonus. To the extent that a Participant is entitled to receive the Pro-Rata Bonus Payment for any Fiscal Year under this Section 3.1(d), such Participant shall not also be entitled to any Bonus payment for such Fiscal Year under the terms of the applicable Bonus plan. Amounts payable under this Section 3.1(d) will be deemed payments attributable to the Participant's employment prior to or on the Termination Date and not as severance.

(e) COBRA Severance Benefit. The Company shall pay the Participant an amount equal to the sum of the employer portion and the employee portion of the full monthly premium for the Participant's elected coverage under the Cantel group health plan (including medical and dental coverages) as in effect on the day prior to the Participant's Termination Date, for the period specified in the chart below (the "COBRA Severance Benefit").



Participant Level	COBRA Severance Benefit Period
Tier I Participant	18 months
Tier II Participant	12 months
Tier III Participant	9 months

The COBRA Severance Benefit described above will be paid regardless of whether or not the Participant and/or the Participant's enrolled spouse and/or dependents elect to continue their group health plan coverage pursuant to COBRA or otherwise. Any such election will be the sole responsibility of the Participant and/or his or her spouse and/or dependents.

(f) Outplacement Services. During the twelve (12) month period following a Participant's Termination Date, the Participant will be entitled, at the Company's cost, to outplacement services provided by a firm selected by the Company. A Participant entitled to outplacement services hereunder must notify the Company of his or her desire to utilize such services within twenty (20) days following his or her Termination Date.

(g) Treatment of Outstanding Equity Awards. Subject to the terms of the Equity Plan and Section 409A, the Committee may in its discretion accelerate the vesting of, or waive or modify performance requirements of, any equity awards granted under the Equity Plan in the event of a termination of the Participant's employment for any reason other than Cause.

3.2. Benefits for a Qualifying Termination During a Change in Control Coverage Period. If a Participant experiences a Qualifying Termination at any time during a Change in Control Coverage Period, such Participant shall receive any Accrued Obligations to which he or she is entitled, and, provided that: (i) the Participant continues to comply with any restrictive covenants applicable to the Participant by Company policy or by specific written agreement, and (ii) within the time limit specified in the Separation and Release Agreement following the Participant's Qualifying Termination, the Participant has delivered to the Company an executed Separation and Release Agreement and such Separation and Release Agreement has become effective, enforceable and irrevocable in accordance with its terms, such Participant shall be eligible to receive the benefits set forth in Sections 3.2(a) through (h) below (but none of the benefits under Section 3.1 above), less applicable taxes, withholdings and deductions. If a Participant has received any benefits under Section 3.1 and then subsequently becomes entitled to benefits under this Section 3.2, then the benefits payable under Section 3.2 shall be offset by the amount of benefits previously received by the Participant under Section 3.1 (and thereupon the Participant will no longer be entitled to receive any additional benefits under Section 3.1).

Subject to potential delay or reduction pursuant to the terms of Sections 9.1 or 9.2 below, all cash payments to which a Participant is entitled to receive under Section 3.2 shall be made in a single lump sum as soon as administratively practicable, but in no event later than fifteen (15) days after such Participant's Separation and Release Agreement has become effective and irrevocable; provided, however, that if the full period given to such Participant to consider the Separation and Release Agreement plus any revocation period provided for in such Separation and Release Agreement begins in one calendar year and ends in the subsequent calendar year, then the payment shall not be made until the subsequent calendar year.

(a) The CIC Severance Payment. The Participant shall be paid an amount to be determined in accordance with the chart set forth immediately below (the "CIC Severance Payment"). The formula utilized to calculate the severance benefit set forth in this Section 3.2(a) of this Plan is as follows:



Participant Level	Formula
Tier I Participant	2.0 x Participant's annual Base Salary as of the Termination Date.
Tier II Participant	2.0 x Participant's annual Base Salary as of the Termination Date.
Tier III Participant	1.0 x Participant's annual Base Salary as of the Termination Date.

(b) CIC Additional Bonus Payment. For Tier III Participants only, the Participant shall be paid an amount equal to the greater of: (i) the Participant's Target Annual Bonus (but as in effect immediately prior to the Change in Control rather than as in effect at his or her Termination Date), or (ii) the Participant's Annualized Bonus; and for Tier I and Tier II Participants only, a payment in an amount equal to the product of two (2) times the greater of: (i) the Participant's Target Annual Bonus (but as in effect immediately prior to the Change in Control rather than as in effect at his or her Termination Date), or (ii) the Participant's Annualized Bonus (in each case, the "CIC Additional Bonus Payment").

(c) Prior Year Bonus Payment. The Participant shall be paid the Prior Year Bonus Payment, as defined in Section 3.1(c) above, and in accordance with the terms and conditions set forth in Section 3.1(c) above.

(d) Pro-Rata Bonus Payment. The Participant shall be paid the Pro-Rata Bonus Payment as defined in Section 3.1(d) above, and in accordance with the terms and conditions set forth in Section 3.1(d) above.

(e) CIC Continuation Benefit. The Company shall pay the Participant an amount calculated in the same manner as the COBRA Severance Benefit described in Section 3.1(e) above, and in accordance with the terms and conditions set forth in Section 3.1(e) above; provided, however, that under this Section 3.2(e) the relevant period shall be the period specified in the chart below rather than the period specified in Section 3.1(e) above (the "CIC Continuation Benefit").



Participant Level	Applicable Period
Tier I Participant	24 months
Tier II Participant	24 months
Tier III Participant	12 months

(g) Life Insurance. The Company shall pay the Participant an amount intended to be equivalent to the total premium cost of the Participant's group term life insurance coverage under the Cantel group life insurance plan as in effect on the day prior to the Participant's Termination Date, for a twenty-four (24) month period following the Termination Date (the "Life Insurance Benefit").

The Life Insurance Benefit described above will be paid regardless of whether the Participant elects to convert his or her group life insurance coverage to individual coverage (if such conversion is available), or whether the Participant elects to purchase a separate life insurance policy of his or her choosing. Any such election will be the sole responsibility of the Participant.

(h) Treatment of Outstanding Equity Awards. Subject to Section 409A (if applicable) regarding the time of payment of an award under the Equity Plan, (i) any and all non-performance-based awards and performance-based awards granted under the Equity Plan will become fully vested as of the Termination Date and (ii) in the case of performance-based awards, such full vesting will occur on the basis that performance had been achieved at the "target" level specified in the award.

3.3. Other Terminations. If a Participant's termination of employment results from any reason other than a Qualifying Termination, such Participant shall be eligible only to receive his or her Accrued Obligations.


4.	NO CONTRACT OF EMPLOYMENT

Neither the establishment of the Plan, nor any amendment thereto, nor the payment or provision of any benefits pursuant to the Plan shall be construed as giving any person the right to be employed by any member of the Company Group. The employment relationship between each Participant and any member of the Company Group is an "at-will" relationship. Accordingly, either the Participant or any member of the Company Group that employs the Participant may terminate the relationship at any time. Effective upon a Participant's Termination of Employment for any reason, the Participant shall hold no further office, directorship or other position with the Company Group and will be deemed to have resigned from any and all such positions.


5.	CONFLICT IN BENEFITS; NONCUMULATION OF BENEFITS

5.1. Effect of Plan. The terms of the Plan, when accepted by a Participant pursuant to an executed Participation Agreement, shall supersede all prior agreements and arrangements, whether written or oral, and understandings regarding the subject matter of the Plan (including, but not limited to any severance provisions under any employment agreement entered into prior to the effective date of his or her Participation Agreement), and shall be the exclusive terms for the determination of any severance payments and benefits due to such Participant. The foregoing notwithstanding, the terms of the Plan do not supersede or take priority over the terms or conditions of any agreement between a Participant and a Group Company relating to maintaining the confidentiality of information, the assignment of inventions, non-competition, and/or nonsolicitation of Company Group employees, or any other agreements containing restrictive covenants intended to protect the business and goodwill of the Company Group (any such agreements, collectively, the "Existing Restrictive Covenant Agreements"). This Plan and any Existing Restrictive Covenant Agreement shall be treated and interpreted as complementary, and in the event of any conflict between certain provision(s) in the Plan and certain provision(s) in an Existing Restrictive Covenant Agreement, the provision(s) of the document which is regarded as most beneficial to the Company's interests, as determined in the Committee's sole discretion, is the provision(s) that shall be applicable and applied.

5.2. Noncumulation of Benefits. Except as expressly provided in a written, fully executed agreement between a Participant and the Company which is entered into after the date of such Participant's Participation Agreement and which is approved by the Board or the Committee, the total amount of payments and benefits that may be received by such Participant as a result of events giving rise to a Qualifying Termination pursuant to (a) the Plan, (b) any agreement between such Participant and a Group Company, or (c) any other plan, practice, or statutory obligation of a Group Company, shall not exceed the amount of payments and benefits provided by the Plan upon such events. To the extent that a Participant shall have received severance payments or other severance benefits under any other plan or agreement of any Group Company before receiving severance payments or other severance benefits pursuant to this Plan, the severance payments or other severance benefits under such other plan or agreement shall reduce (but not below zero) the corresponding severance payments or other severance benefits to which such Participant shall be entitled under this Plan. To the extent that a Participant accepts payments made pursuant to this Plan, such Participant shall be deemed to have waived his or her right to receive a corresponding amount of future severance payments or other severance benefits under any other plan or agreement of the Company Group. Payments and benefits provided under the Plan shall be in lieu of any termination or severance payments or benefits for which the Participant may be eligible under any of the plans or policy of the Company Group or under the Worker Adjustment Retraining Notification Act of 1988 or any similar statute or regulation.


6.	ADMINISTRATION, TERMINATION, AND AMENDMENT OF PLAN

6.1. Administration. The Committee shall act as the plan administrator of the Plan. The Committee has the sole discretion and authority to administer the Plan, including the sole discretion and authority to:

(a) adopt such rules as it deems advisable in connection with the administration of the Plan, and to construe, interpret, apply and enforce the Plan and any such rules and to remedy ambiguities, errors or omissions in the Plan;

(b) determine questions of eligibility and entitlement to benefits and interpret the terms and provisions of the Plan;

(c) act under the Plan on a case-by-case basis; the Committee's decisions under the Plan need not be uniform with respect to similarly situated Participants; and

(d) delegate its authority under the Plan to any Director, officer, employee, or group of Directors, officers and/or employees of the Company; provided that if any person with administrative authority becomes eligible or makes a claim for Plan benefits, that person will have no authority with respect to any matter specifically affecting his or her individual interest under the Plan, and the Committee will designate another person to exercise such authority. The Committee has delegated its day-to-day ministerial responsibility under the Plan to the Company's Human Resources Department under the supervision of the Company's highest level officer in charge of Human Resources or such other person or persons as the Committee may designate (the "Claims Administrator").

Any determination of the Committee shall be final and conclusive, and shall bind and may be relied upon by the Company Group, each of the Participants and all other parties in interest.

6.2. Amendment and Termination of the Plan. Subject to compliance with the requirements of Section 409A, the Committee may amend or terminate the Plan in any respect (including any change to the severance benefits) at any time; provided, however, that any amendment that would defer the payment or reduce the amount of severance benefits hereunder to any Participant, or any action that would remove a Participant from participation in the Plan, or any amendment that would revise the definition of Cause in a manner that adversely affects the Participants, or any termination of the Plan (each an "Adverse Action") shall be effective only with one (1) year's prior written notice to affected Participant(s); provided further, however, that no Adverse Action may be adopted or become effective during a Change in Control Coverage Period. Notwithstanding the foregoing but subject to the requirement of compliance with Section 409A, if applicable, the limitations on the timing of Adverse Actions may be waived in writing by any affected Participant.


7.	CLAIMS FOR BENEFITS

7.1. Claims for Benefits.

(a) No claim shall be required for benefits due under the Plan. Any individual eligible for benefits under this Plan who believes he or she is entitled to additional benefits or who desires to clarify his or her right to future benefits under the Plan (a "Claimant") may submit his or her application for benefits ("Claim") to the Claims Administrator, with a copy to the Company's General Counsel; provided, that in the event that the Claimant seeking benefits would otherwise be the Claims Administrator, then the Company's Chief Executive Officer (or his or her designee) shall act as the Claims Administrator. All Claims under the Plan must be properly submitted not later than one (1) year after the date on which the Participant is sent a communication from the Plan, the Committee or a Group Company containing the information contested or challenged by the Claim.

A Claimant has the right to appoint someone to represent him or her in the benefit claim. A Claimant may do so by including the appointed representative's name and contact information in the initial written claim for benefits or otherwise in writing to the Claims Administrator at the Company's address shown in Section 8.1(a). Unless the Claimant indicates otherwise, if a Claimant appoints a representative to act on his or her behalf with respect to the benefit claim, the Plan will direct all notifications regarding the claim to the designated representative. A Claimant may cancel or modify the appointment of the representative at any time by notifying the Claims Administrator in writing.

(b) When a Claim has been filed properly, it shall be evaluated subject to a full and fair review and the Claimant or his or her duly authorized representative shall be notified of the approval or the denial of the Claim within 90 days (45 days if the Claim relates to disability status) after the receipt of such Claim. If special circumstances require an extension of time for processing a Claim, a written notice of the extension shall be furnished to the Claimant before the end of the initial ninety (90) day or forty-five (45) day period, as applicable. In no event shall such extension exceed ninety (90) days. The notice of extension shall explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the Claim, and the additional information needed to resolve those issues. A Claimant or representative will have at least 45 days to provide the specified information.

If a Claim for benefits is denied, in whole or in part, the notice shall be written in a manner calculated to be understood by the Claimant and shall include:

i. The specific reason or reasons for the denial;

ii. References to the specific Plan provisions on which the denial is based;

iii. A description of any additional material or information necessary for the applicant to perfect the Claim and an explanation of why such material or information is necessary; and

iv. A description of the Plan's Claims review procedures and the time limits applicable to such procedures, and a statement of Claimant's right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review.

(c) Further, in the case of the denial of a Claim involving Disability, the notification will be set forth in a culturally and linguistically appropriate manner and will also include the following:

(i) a statement that if the adverse determination relies upon an internal rule, document, guideline, protocol, standard or other similar criterion, upon the Claimant's request a copy of such rule, document, guideline, protocol, standard or other similar criterion is available free of charge;

(ii) a statement that if the adverse determination is based on a medical necessity or experimental treatment or similar exclusion or limit, upon the Claimant's request an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the medical circumstances at hand, is available free of charge; and

(iii) a discussion of the decision including an explanation of the basis for disagreeing with or not following:

(1) the views presented to the Plan of health care professionals who treated the Claimant or vocational professionals who evaluated the Claimant;

(2) the views of the medical and vocational experts whose advice was obtained on behalf of the Plan, without regard to whether the advice was relied upon in making the benefit determination; and

(3) a Social Security Administration disability determination presented to the Plan by the Claimant.

7.2. Appeal of Denial of Claim.

(a) Except as otherwise noted below with respect to the appeal of a denial of a Claim involving a Disability, if a Claim is denied, in whole or in part, or if a Claim is neither approved nor denied within the period specified in Section 7.2(b) or, if applicable, Section 7.2(c) (i.e., is deemed "denied"), Claimant may appeal the denial to the Committee within 60 days (180 days if the Claim relates to Disability status) after receipt of such denial (or after such Claim is deemed denied). In pursuing such appeal, Claimant or his or her duly authorized representative:

i. may request in writing that the Committee review the denial;

ii. may receive, upon request and free of charge, reasonable access to documents, records and other information relevant to the Claim for benefits; and

iii. may submit documents, records and comments and other information in writing.

(b) Upon receipt of a request for review from a Claimant, the Committee shall make a full and fair evaluation. The decision on review shall be made by the Committee within sixty (60) days (forty-five (45) days if the appeal is from a denied Claim as to disability status) of receipt of the request for review. If the Committee determines that special circumstances require an extension of time for processing the Claim, the Claimant or representative will receive a written notice of the extension before the end of the initial sixty (60) or forty-five (45) day period, as applicable. The extension notice shall indicate the special circumstances requiring the extension and the date by which the Plan expects to render the determination on review. The decision on review shall be made in writing, shall be written in a manner calculated to be understood by Claimant, and, if the decision on review is a denial of the Claim for benefits, shall include:

i. The specific reason or reasons for the denial;

ii. References to the specific Plan provisions on which the denial is based;

iii. A statement that Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to Claimant's Claim for benefits; and

iv. A statement of Claimant's right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination.

i. was relied upon the Claims Administrator in making a decision on the Claim;

ii. was submitted, considered or generated in the course of the Claims Administrator's making a decision on the Claim without regard to whether the Claims Administrator relied upon it in making that decision; or

iii. complies with administrative processes and safeguards which are designed to ensure and to verify that decisions on Claims are made in accordance with governing Plan documents, whose provisions are applied consistently with respect to similarly situated Claimants.

(d) A review of a denial of a Claim for benefits based upon Disability will not afford deference to the initial adverse benefit determination and will:

i. be conducted by a named person who is neither the individual who made the initial adverse determination, nor a subordinate of such individual;

ii. be conducted, if the Claim is based, in whole or in part, on a medical judgment, upon consultation with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment and who has neither consulted in connection with the initial adverse determination, nor is a subordinate of the individuals who made the initial adverse determination; and

iii. identify medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination.

(e) The Claimant or representative will receive, free of charge, as soon as possible and sufficiently in advance of the date on which a notice of adverse benefit determination on review is required to be provided, any new or additional evidence considered, relied upon or generated in connection with the Claim, and any new or additional rationales forming the basis of the Committee's determination of the Claim.

(f) In addition to the three (3) requirements noted in clause (c) above, a document, record or information also is relevant to a claim involving Disability benefits if it constitutes a statement of policy or guidance with respect to the Plan concerning the denied benefit even if not relied upon in making the determination.

(g) The Committee will notify the Claimant or representative of its decision on review of a denial of a Claim involving Disability within 45 days of having received the request for review. In special circumstances, the Committee may require an extension of up to an additional 45 days to process the appeal. If an extension is needed, the Committee will notify the Claimant or representative prior to the end of the initial 45-day period and describe the special circumstances necessitating the extension.

(h) In the case of a decision on appeal upholding the Claims Administrator's initial denial of the Claim involving Disability, the Committee's notice of its decision on appeal will set forth, in an understandable manner, the following information:

i. the same information as in the initial benefit determination notice regarding internal rules, documents, guidelines, protocols, standards or other similar criterion (or the claimant's access to that information);

ii. the same statement as in the initial benefit determination notice regarding denials based on medical necessity or experimental treatments;

iii. the same explanation of the basis for disagreeing or not following: the views of health or vocational professionals treating or evaluating the Claimant; the views of medical or vocational experts whose advice was obtained by the Plan, without regard to whether the advice was relied upon; and any Social Security Administration disability determination presented by the Claimant to the Plan;

iv. the same statement of the Claimant's right to bring a civil action under Section 502(a) of ERISA, which shall also include a description of any applicable Plan-imposed limitations period, including the calendar date when the limitations period will expire; and

v. the following statement: "You and your Plan may have other voluntary alternative dispute resolution options, such as mediation. One way to find out what may be available is to contact your local U.S. Department of Labor Office and your State insurance regulatory agency."

7.3. Finality. All interpretations, determinations and decisions with respect to any Claim, including the appeal of any Claim, and any matter relating to the Plan will be made by the Committee, in its sole discretion, based on the Plan and comments, documents, records and other information presented to it, and will be final, conclusive and binding on all persons.

7.4. Exhaustion and Time Limit. A Claimant shall have no right to seek review of a denial of benefits, or to bring any action in any court to enforce a Claim, before filing a Claim and exhausting his or her rights to review under Sections 7.2 and 7.3 above. All actions regarding a denial of benefits or a Claim under the Plan must be filed not later than one (1) year after the date on which the Committee issues its adverse benefit determination. Venue for any such action shall be as provided in Section 10.2.


8.	NOTICES

8.1. General. For purposes of the Plan, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States certified mail, return receipt requested, or by overnight courier, postage prepaid, as follows:

(a) If to the Committee or the Company:

Compensation Committee of the Board of Directors of
Cantel Medical Corp.
150 Clove Road
Little Falls, New Jersey 07424
Attention: General Counsel

(b) If to a Participant, at the home address which such Participant most recently communicated to the Company in writing.

8.2. Notice of Change of Address. The Company may provide Participants with notice of a change of address, and a Participant may provide the Company with notice of a change of address, pursuant to this Section 8.

8.3. Participant Information. Each Participant shall notify the Committee of his or her home address and each change of home address. Each Participant shall also furnish the Committee with any other information and data that the Committee considers necessary for the proper administration of the Plan. The information provided by the Participant under this Section shall be binding on the Participant and his or her dependents, beneficiaries, heirs and estate for all purposes of the Plan and the Committee shall be entitled to rely on any representations regarding personal facts made by a Participant unless such representations are known to be false.

8.4. Electronic Media. Under procedures authorized or approved by the Committee, any form for any notice, election, designation, or similar communication required or permitted to be given to or received from a Participant under this Plan may be communicated or made available to the Company or a Participant in an electronic medium (including computer network, e-mail or voice response system) and any such communication to or from a Participant through such electronic media shall be fully effective under this Plan for such purposes as such procedures shall prescribe. Any record of such communication retrieved from such electronic medium under its normal storage and retrieval parameters shall be effective as a fully authentic executed writing for all purposes of this Plan absent manifest error in the storage or retrieval process.


9.	CERTAIN FEDERAL TAX CONSIDERATIONS

9.1. Internal Revenue Code Section 409A.

(a) The amounts payable under the Plan are intended to comply with or, to the maximum extent possible, be exempt from Section 409A, and all provisions of the Plan shall be interpreted and construed in a manner that establishes an exemption from or compliance with the requirements for avoiding additional taxes or interest under Section 409A(a)(1)(B) of the Code. In no event whatsoever will the Company Group, or any Board member, officer or employee of any Group Company acting on behalf of the Company Group, be liable for any additional tax, interest or penalties that may be imposed on a Participant under Section 409A or any damages for failing to comply with Section 409A. Notwithstanding anything in this Plan to the contrary, the Board, the Committee and the Company Group do not guarantee the tax treatment of any payments or benefits under this Plan, whether pursuant to the Code, federal, state or local tax laws or regulations.

(b) A Termination of Employment shall not be deemed to have occurred for purposes of any provision of the Plan providing for the payment of any amounts or benefits subject to Section 409A upon or following a Termination of Employment unless such termination is also a "separation from service" within the meaning of Section 409A and, for purposes of any such provision of the Plan, references to a "termination," "termination of employment" or like terms shall mean "separation from service." If a Participant is deemed on his or her Termination Date to be a Specified Employee, then with regard to any payment or the provision of any benefit that is considered deferred compensation under Section 409A payable on account of a "separation from service," such payment or benefit shall be made or provided on the date which is the earlier of: (i) the first day of the seventh (7th) month following the date of such "separation from service" of such Participant, and (ii) the date of such Participant's death (the "Delay Period"). Upon the expiration of the Delay Period, all of the payments of a Participant delayed pursuant to this Section 9.1(b) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid to such Participant in a lump sum, without interest, and any remaining payments and benefits due such Participant under the Plan shall be paid or provided in accordance with the payment dates specified herein for such payments or benefits.

(c) All reimbursements of expenses provided for herein shall be payable in accordance with the Company's expense reimbursement policies in effect from time to time, but in any event shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by the Participant seeking reimbursement. No such reimbursement or expenses eligible for reimbursement in any taxable year shall in any way affect the expenses eligible for reimbursement in any other taxable year. The right to reimbursement or in-kind benefits shall not be subject to liquidation or exchanged for another benefit.

(d) For purposes of Section 409A, a Participant's right to receive any installment payments pursuant to the Plan shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under the Plan specifies a payment period with reference to a number of days (e.g., "payment shall be made within sixty (60) days following the Termination Date"), the actual date of payment within the specified period shall be within the sole discretion of the Company.

(e) To the extent any payment or benefit which constitutes Section 409A deferred compensation is contingent upon the execution and non-revocation of a Release, then such payment or benefit shall not commence until the latest of: (i) the first payroll date occurring on or after the sixtieth (60th) day following the Participant's Termination of Employment; (ii) the first payroll date occurring on or after the period for revocation of a Release has expired; and (iii) the set payment date otherwise established for commencing the payments and/or benefits. Further, if the full period given to a Participant to consider such Release plus any revocation period provided for in such Release begins in one calendar year and ends in the subsequent calendar year, then any payment or benefit which constitutes Section 409A deferred compensation shall not be made until the subsequent calendar year.

(f) Notwithstanding any provision of the Plan to the contrary, to the extent that any amount constituting Section 409A deferred compensation would become payable in a lump sum rather than installments under the Plan by reason of a Change in Control, such amount shall become payable in a lump sum only if the event constituting a Change in Control would also constitute a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A (a "Section 409A Change in Control"). The portion of any payment or benefit which constitutes Section 409A deferred compensation and which would otherwise be payable in a lump sum pursuant to Section 3.2 upon a Change in Control that does not qualify as a Section 409A Change in Control shall be paid based upon the time and form of payment set forth in Section 3.2, and with respect to other awards or programs in accordance with the plan or other documents governing such award.

9.2. Internal Revenue Code Section 280G Contingent Cutback.

(a) If any payment(s) or benefit(s) that a Participant would receive pursuant to the Plan and/or pursuant to any other agreement, plan, policy or arrangement would (i) constitute a "parachute payment" within the meaning of Section 280G of the Code and applicable regulations, and (ii) but for this Section 9.2 or any reduction provided by reason of Section 280G of the Code in any such other agreement, plan, policy or arrangement, would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then such Participant shall be entitled to receive either (A) the full amount of the parachute payments, or (B) the maximum amount that may be provided to such Participant without resulting in any portion of such parachute payments being subject to the Excise Tax, whichever of clauses (A) and (B), after taking into account applicable federal, state, and local income and employment taxes and the Excise Tax, results in the receipt by such Participant, on an after-tax basis, of the greatest portion of the parachute payments. Any reduction for purposes of clause (B) shall be made in the following order: (i) cash severance payments that are exempt from Section 409A shall be reduced; (ii) other cash payments and benefits that are exempt from Section 409A, but excluding any payments attributable to an acceleration of vesting or payments with respect to equity-based compensation that are exempt from Section 409A, shall be reduced; (iii) any other payments or benefits, but excluding any payments attributable to an acceleration of vesting and payments with respect to equity-based compensation that are exempt from Section 409A, shall be reduced on a pro-rata basis or in such other manner that complies with Section 409A; (iv) any payments attributable to an acceleration of vesting or payments with respect to equity-based compensation that are exempt from Section 409A shall be reduced, in each case beginning with payments that would otherwise be made last in time; and (v) to the extent any of such payments or benefits are Section 409A deferred compensation, such payments shall be reduced, in each case beginning with payments that would otherwise be made last in time but without changing any payment date.

(b) Unless the Company and a Participant otherwise agree in writing, any determination required under Section 9.2(a) shall be made in writing by the Company's independent public accountants, whose determination shall be conclusive and binding upon such Participant and the Company for all purposes. For purposes of making the calculations required by Section 9.2(a), the Company's independent public accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and such Participant shall furnish to the Company's independent public accountants such information and documents as the accountants may reasonably request in order to make a determination under Section 9.2(a). The Company shall bear all costs the accountants may reasonably incur in connection with any calculations contemplated by this provision.


10.	ADDITIONAL PROVISIONS

10.1. Records. The records of a Group Company with respect to a Participant's length of employment, employment history, reason for employment termination, base pay, absences, and all other relevant matters may be conclusively relied on by the Committee.

10.2. Choice of Law and Dispute Resolution. This Plan is an employee pension benefit plan that is regulated by ERISA, a federal law. Except to the extent pre-empted by ERISA or other federal law, the Plan shall be governed by and construed in accordance with the laws of the State of New Jersey, without regard to its conflict of law provisions. The Company and each Participant agree that the state courts of New Jersey and, if the jurisdictional prerequisites exist at the time, the federal courts in the State of New Jersey, shall have sole and exclusive jurisdiction to hear and determine any dispute or controversy arising under or relating to this Plan. The Company and each Participant irrevocably (i) consents to the exclusive jurisdiction and venue of the courts of New Jersey and federal courts in the State of New Jersey, in any and all actions arising under or relating to this Plan, and (ii) waives any jurisdictional defenses (including personal jurisdiction and venue) to any such action. The Committee's interpretation of Plan provisions, and any findings of fact, including eligibility to participate and eligibility for benefits, are final, shall be given deference by any court of law and will not be subject to "de novo" review unless shown to be arbitrary and capricious. The Company and the Participant will each separately pay its counsel fees and expenses unless otherwise determined by a court of competent jurisdiction.

10.3. No Mitigation. No Participant shall have any duty to mitigate the amounts payable under this Plan by seeking or accepting new employment or self-employment following termination. Except as specifically otherwise provided in this Plan, all amounts payable pursuant to this Plan shall be paid without reduction regardless of any amounts of salary, compensation or other amounts that may be paid or payable to the Participant as the result of the Participant's employment by another employer or self-employment.

10.4. Unfunded Obligation. All amounts payable to Participants pursuant to the Plan are unfunded obligations of the Company. The Company shall not be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. Payments under the Plan shall be made, as due, from the general funds of the Company. The Plan shall constitute solely an unsecured promise by the Company Group to make such payments to the extent provided herein.

10.5. Recoupment and Offset. The Company has the unilateral right, in its sole discretion, and to the extent permitted by applicable law, to offset the payment of benefits under the Plan against amounts due from a Participant under the Company's clawback/recoupment policy as in effect from time to time (including, without limitation, any clawback, recovery or recoupment policy which the Company may be required to adopt under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law and the rules and regulations of the U.S. Securities and Exchange Commission thereunder or the requirements of any national securities exchange on which the Company's common stock may be listed) and against any other amounts owed to the Company Group by a Participant.

10.6. Overpayments. If any overpayment is made to a Participant under the Plan for any reason, the Company will have the right to recover the overpayment. The Participant and his successors shall cooperate fully with the Company and return any overpayment. The Company also has the right to offset an overpayment from any other payment of compensation made to or on behalf of the Participant.

10.7. Limitation of Liability; Indemnification.

(a) The members of the Board, the Committee and the Claims Administrator shall have no liability with respect to any action or omission made by them in good faith or from any action made in reliance on (i) the advice or opinion of any accountant, legal counsel, medical adviser or other professional consultant or (ii) any resolutions of the Board certified by the secretary or assistant secretary of the Company. Each member of the Board, the Committee, the Claims Administrator and each employee to whom are delegated duties, responsibilities and authority with respect to the Plan shall be indemnified, defended, and held harmless by the Company and its successors against all claims, liabilities, fines and penalties and all expenses (including but not limited to attorneys' fees) reasonably incurred by or imposed on such member of the Board, the Committee, the Claims Administrator and each employee to whom such duties, responsibilities and authorities are delegated that arise as a result of his, her or its actions or failure to act in connection with the operation and administration of the Plan, to the extent lawfully allowable and to the extent that such claim, liability, fine, penalty or expense is not paid for by liability insurance purchased by or paid for by the Company (or any of the other companies in the Company Group). Notwithstanding the foregoing, the Company shall not indemnify any person for any such amount incurred through any settlement or compromise of any action unless the Company consents in writing to such settlement or compromise.

(b) To the extent applicable, the Company will continue to cover each Participant under its directors' and officers' insurance policy following the Termination Date for a period of time equal to the applicable statute of limitations. The Company shall indemnify and hold each Participant harmless to the fullest extent legally permitted or authorized by the Company's by-laws or by applicable law, in respect of any liability, damage, cost or expense (including reasonable attorneys' fees) actually and reasonably incurred in connection with the defense of any claim, action, suit or proceeding to which the Participant is a party by reason of the Participant's being or having been an officer or director of the Company or any subsidiary or affiliate, or the Participant's serving or having served at the request of such other entity as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, business organization, enterprise or other entity, including service with respect to employee benefit plans. Without limiting the generality of the foregoing, the Company shall pay the expenses (including reasonable attorneys' fees) actually and reasonably incurred in defending any such claim, action, suit or proceeding in advance of its final disposition, upon receipt of the Participant's undertaking to repay all amounts advanced unless it is ultimately determined that the Participant is entitled to be indemnified under this Section.

10.8. No Representations. By executing a Participation Agreement, a Participant acknowledges that in becoming a "Participant" in the Plan, such Participant is not relying and has not relied on any promise, representation or statement made by or on behalf of the Company Group which is not set forth explicitly in the Plan.

10.9. Waiver. No waiver by a Participant or the Company Group of any breach of, or of any lack of compliance with, any condition or provision of the Plan by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

10.10. Validity and Severability. The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision of the Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

10.11. Benefits Not Assignable. Except as otherwise required by law, no right or interest of any Participant under the Plan shall be assignable or transferable, in whole or in part, either directly or otherwise, including, without limitation, by execution, levy, garnishment, attachment, pledge or in any other manner, and no attempted transfer or assignment thereof shall be effective.

10.12. Tax Withholding. All payments made pursuant to the Plan will be subject to withholding of applicable income and employment taxes.

10.13. Further Assurances. From time to time, at the Company's request and without further consideration, a Participant shall execute and deliver such additional documents and take all such further action as reasonably requested by the Company to be necessary or desirable to make effective, in the most expeditious manner possible, the terms of the Plan, such Participant's Participation Agreement, and/or such Participant's Separation and Release Agreement.

10.14. Successors. This Plan shall inure to the benefit of and be binding upon the Company, each company with the Company Group, and their respective successors and assigns. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of any Group Company to assume expressly and agree to comply with this Plan in the same manner and to the same extent that such Group Company would be required to comply with it if no such succession had taken place. Failure to require such assumption will be a material breach of this Plan. Any successor to the business or assets of any Group Company that assumes or agrees to perform this Plan by operation of law, contract, or otherwise shall be jointly and severally liable with the Company Group under this Plan as if such successor were the employer.

10.15. Payments to Beneficiary. If a Participant dies after becoming entitled to payments under this Plan but before receiving all amounts to which he or she is entitled under this Plan, then such remaining amounts shall be paid to his or her estate notwithstanding his or her marital status.

EXHIBIT A

FORM OF AGREEMENT TO PARTICIPATE IN THE CANTEL MEDICAL CORP. EXECUTIVE SEVERANCE AND CHANGE IN CONTROL PLAN

[CANTEL MEDICAL CORP. LETTERHEAD]

[DATE], 20__

AGREEMENT TO PARTICIPATE IN THE CANTEL MEDICAL CORP. EXECUTIVE SEVERANCE AND CHANGE IN CONTROL PLAN

Dear [INSERT PARTICIPANT NAME],

As a critical employee of Cantel Medical Corp. (the "Company" and, together with its direct and indirect subsidiaries, the "Company Group") or another member of the Company Group, you are eligible to participate in the Company's newly adopted Executive Severance and Change in Control Plan (as amended from time to time, the "Plan"). A copy of the Plan is enclosed with this Agreement to Participate in the Cantel Medical Corp. Executive Severance and Change in Control Plan (the "Participation Agreement"). Capitalized terms used in this Participation Agreement and not otherwise defined herein shall have the meanings ascribed to them in the Plan.

The Company considers the severance benefits offered under the Plan to be an important part of our overall executive compensation program and consistent with competitive market practice. We believe that providing appropriate severance benefits helps to attract and retain highly qualified executives by providing income continuity in the event of an involuntary termination of employment. These arrangements also allow the Company Group to protect its interests through corresponding confidentiality, non-solicitation, noncompetition and other restrictive covenants, which are among the provisions that will be incorporated into a Separation and Release Agreement that the Participant in the Plan must execute and return (and not thereafter revoke) in order to be eligible to receive the severance benefits set forth in the Plan. You are hereby notified in accordance with the Defend Trade Secrets Act of 2016 that you will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. You are further notified that if you file a lawsuit for retaliation by the Company for reporting a suspected violation of law, you may disclose the Company's trade secrets to your attorney and use the trade secret information in the court proceeding if you: (a) file any document containing the trade secret under seal; and (b) do not disclose the trade secret, except pursuant to court order.

By accepting this Participation Agreement, you hereby acknowledge, agree and confirm that:

1. You have received a copy of the Plan and have read, understand and are familiar with the terms and provisions of the Plan;

2. The Plan supersedes and replaces the severance provisions of any existing severance arrangement (or other agreement providing for severance benefits), whether written or unwritten, to which you are a party[, including but not limited to the [INSERT NAME(S) OF EXISTING AGREEMENT(S) PROVIDING SEVERANCE BENEFITS], dated [INSERT DATE]] (each, a "Prior Severance Agreement"). You agree that each Prior Severance Agreement is hereby rendered null and void and no longer in effect. You further agree that in no circumstances are you or will you be eligible to receive severance benefits of any kind under a Prior Severance Agreement.

3. The employment relationship between yourself and the Company (or any Group Company that employs you) is an "at-will" relationship;

4. In order to obtain certain of the severance benefits provided for in the Plan, you will be required to execute, deliver, and not thereafter revoke, a Separation and Release Agreement, which will contain, among other things, certain restrictive covenants to which you will be subject;

5. Disputes and disagreements regarding your right to severance benefits under the Plan are governed by a claims procedure set forth in Section 7 of the Plan, which you must follow; and

6. The Company has the unilateral right, in its sole discretion, to offset the payment of benefits to you under the Plan against amounts due from you under the Company's clawback/recoupment policy as in effect from time to time and against any other amounts that you owe to the Company Group.

You acknowledge that: (i) the Plan confers significant legal rights and obligations; (ii) the Company has encouraged you to consult with legal and financial advisors as appropriate; and (iii) you have had adequate time to consult with such advisors before executing this Participant Agreement.

Please indicate your acceptance and agreement to the Plan and this Participation Agreement by signing in the space indicated below and returning the agreement to the Company by no later than May 31, 2019. Upon your acceptance, you shall be deemed a "Participant" of the Executive Severance Plan as of the date your duly signed Participation Agreement is received by the Company.

Sincerely,

CANTEL MEDICAL CORP.

By:

Name: Jean Casner

Title: Senior Vice President, Chief Human Resources Officer

AGREED AND ACCEPTED BY THE UNDERSIGNED ON THIS ____ DAY OF _______________, 20__.

PARTICIPANT

[INSERT PARTICIPANT NAME]

Signature

Name Printed

Address

EXHIBIT B

FORM OF SEPARATION AND RELEASE AGREEMENT

To: [Name of Employee]

From: [*]

Date: [*]

RE: CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE (the “Agreement”)

This letter confirms that your employment with Cantel Medical Corp. or one of its direct or indirect subsidiaries (collectively, the “Company”) will terminate effective [*] (the “Termination Date”), regardless of whether you execute this Agreement (or the date of your execution of this Agreement). This letter also confirms your final pay and benefits as well as the separation benefits you will receive if you sign and return the original of this Agreement to the Company (as instructed below) and do not rescind the release of ADEA Claims (as defined below) under Section 17 of this Agreement, in the time frames noted below and abide by all other terms of this Agreement. All payments made to you under this Agreement are subject to applicable withholdings, taxes and deductions; and all cash payments will be paid through the Company’s payroll system in the ordinary course. This Agreement is intended to be consistent with the benefits payable to Participants under Section 3.1 of the Cantel Medical Corp. Executive Severance and Change in Control Plan (the “Plan”) and is subject to the terms of the Plan.

Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings ascribed to them in the Plan. You are deemed a Tier [*] Participant under the Plan.

1.Final Pay and Benefits. Regardless of whether you sign and return this Agreement, you will receive the final pay and benefits set forth in this Section 1 as follows:


•	Final Pay. You will be paid your regular base salary through and including the Termination Date, as well as any accrued and unused PTO (which includes vacation and sick days, but not floating holidays) through such date, subject to applicable taxes and withholding.


•	Reimbursement of Expenses. Provided that you apply for reimbursement in accordance with the Company’s established reimbursement procedures (within the period required by such procedures but under no circumstances later than ninety (90) days after the Termination Date), the Company will pay you any reimbursements to which you are entitled under such procedures.

•

Benefits. Your medical and dental insurance benefits (to the extent applicable) will be continued through the last day of the month in which the Termination Date occurred. You will have the option to continue these benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) for up to 18 months, or for such other period as provided by law, provided that you timely apply for COBRA and timely pay the required premiums for COBRA continuation coverage. Your COBRA period will begin on the first day of the first month following the month in which the Termination Date occurs. You will receive COBRA information from our COBRA administrator promptly following the Termination Date, which will include information regarding the date by which you must enroll and the premiums you would be required to pay if you want COBRA coverage. All other benefits, including, but not limited to, PTO, and holiday pay, end on the Termination Date.

Your 401(k) benefits are governed by applicable plan documents. In addition, you may receive the vested benefits, if any, to which you are entitled pursuant to the terms of an award granted under the Equity Plan.

2.Separation Package. In addition to the final pay and benefits addressed in Section 1 above, as consideration for the release provided in this Agreement, the Company will provide you with the severance pay and benefits set forth in this Section 2 (the “Separation Package”) to which you would not otherwise be entitled, provided that you: (i) continue to meet the duties and responsibilities of your position through the Termination Date; (ii) sign and return the original of this Agreement to Ms. Jean Casner, Senior Vice President – Chief Human Resources Officer, Cantel Medical Corp., 150 Clove Road, Little Falls, New Jersey 07424, by hand, email to jcasner@cantelmedical.com (with a copy to HRIS@cantelmedical.com), or mail, no earlier than the Termination Date or later than 21 days following your receipt of this Agreement; (ii) do not rescind the release of ADEA Claims under this Agreement during the Rescission Period (defined below in Section 17 of this Agreement); and (iii) abide by all other terms of this Agreement. The timing of payments under this Section 2 is subject to Internal Revenue Code Section 409A, as described in Section 20 below:


•	Severance Payment: The Company will pay you a Severance Payment in a single lump sum of [], being [] times your annual Base Salary as of the Termination Date, in accordance with Section 3.1(a) of the Plan.

•

[INCLUDE ONLY IF APPLICABLE] Prior Year Bonus Payment: If your Termination Date is after the end of the last Fiscal Year) but before the Bonus for that year has been paid, the Company will pay you the amount determined under the terms of the applicable Bonus plan notwithstanding any provision of the Bonus plan that requires continued employment after the end of the immediately preceding annual Bonus period but subject to all other provisions of the Bonus plan, in accordance with Section 3.1(c) of the Plan.]


•	Pro-Rated Bonus Payment: The Company will pay you a pro rata portion of your FY2019 target Bonus, based on achievement of 100% of the applicable performance target for such year, in accordance with Section 3.1(d) of the Plan.

•

COBRA Severance Benefit: The Company will pay you in a lump sum an amount equal to the sum of the employer portion and the employee portion of the full monthly premium for your elected coverage under the Cantel group health plan (including medical and dental coverages) as in effect on the day prior to the Termination Date, for a period of [*] months (the "COBRA Severance Benefit"). The COBRA Severance Benefit will be calculated and paid in accordance with Section 3.1(e) of the Plan. Section 1 above describes the steps you must take if you want to have COBRA coverage; nonetheless, this COBRA severance benefit is independent of whether you elect COBRA coverage (or any other coverage).

•

LTI: The [*] unvested time-based restricted stock units (RSUs) of Cantel held by you on the Termination Date that are scheduled to vest on or before [*] will be deemed vested and no longer subject to forfeiture as of the Termination Date. Notwithstanding the foregoing or any provision in any applicable RSU agreement to the contrary, shares in settlement of the vested RSUs, including all dividend equivalents associated therewith, will be delivered or the cash equivalent paid, as applicable, as of the payment date provided for in the original grant of such RSUs. You acknowledge and agree that any and all other RSUs held by you on the Termination Date will be forfeited on the Termination Date, and you are not entitled to, and are not receiving, any additional equity awards or cash equivalents on or after the date of this Agreement

•

Outplacement Assistance. Following the Termination Date, you will be entitled, at the Company's cost, to outplacement services for a period not to exceed twelve (12) months. Such services will be provided by a firm selected by the Company and subject to the standard terms of their applicable outplacement program. You must notify the Company of your desire to utilize such services within twenty (20) days following the Termination Date and commence such services within sixty (60) days following the Termination Date.

3.General Release of Claims. By signing this Agreement, you agree that the Separation Package, and other benefits set forth in this Agreement constitute adequate consideration for your release and waiver of claims as set forth below. For valuable consideration you receive from the Company pursuant to this Agreement, you, on behalf of yourself and your heirs, executors, administrators, trustees, representatives, successors and assigns (collectively, the “Releasors”) hereby release, waive and forever discharge all claims, demands, causes of actions, administrative claims, obligations, liabilities, claims for punitive or liquidated damages or penalties, any other damages, any claims for costs, disbursements or attorney’s fees, any individual or class action claims, and any other claims or demands of any nature whatsoever, whether asserted or unasserted, known or unknown, absolute or contingent that you or any of the other Releasors have or may have against the Company, any parent, subsidiary, division, affiliated or related entities, its and their present and former officers, directors, shareholders, trustees, employees, agents, attorneys, insurers, representatives and consultants, and the current and former trustees and administrators of any pension or other benefit plan applicable to the employees or former employees of any of them, and the successors, predecessors and assigns of each (collectively “Releasees”), arising out of, or in any manner based upon, or related to, any act, occurrence, transaction, omission or communication that transpired or occurred at any time on or before the date of your signing of this Agreement.

Without limitation to the foregoing, you specifically release, waive and forever discharge the Releasees from and against: any and all claims arising out of or relating to your employment by the Company (and/or by any of the other Releasees), the terms and conditions of such employment and/or the termination of such employment; any and all claims that arise under the U.S. Constitution, the New Jersey Constitution, the New Jersey Law Against Discrimination, N. J. Rev. Stat. § 10:5-1 et seq., the New Jersey Family Leave Act, N.J. S.A. § 34:11B-1 et seq., the New Jersey Conscientious Employee Protection Act, N.J. Stat. § 34:19-1 et seq., and any claims under any other New Jersey or other state or local anti-discrimination, employment or human rights laws or regulations, any claims under the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., the Americans with Disabilities Act, 42 U.S.C. § 12101 et seq., the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq., the Equal Pay Act, the federal Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., the National Labor Relations Act, 29 U.S.C. § 151 et seq., the Genetic Information Nondiscrimination Act, 42 U.S.C. § 2000ff et seq., the Sarbanes-Oxley Act, 15 U.S.C. § 7201 et seq., the Fair Labor Standards Act of 1938, 29 U.S.C. § 201 et seq., and any amendments to any of the above; any and all claims arising under any other local, state or federal constitution, statute, ordinance, regulation or order, or that involve claims for discrimination or harassment based on age, race, religion, creed, color, national origin, citizenship, ancestry, affectional or sexual orientation, sexual preference, gender identity or expression, military or veterans status, sex, disability, marital status, parental status, pregnancy, genetic information, or any other legally protected category or characteristic; any and all claims for wages, salary, commissions, bonuses, equity, incentives, insurance, paid and unpaid leave, expense reimbursement, or other compensation; any and all claims for retaliation, reprisal, wrongful discharge, breach of contract (express or implied); any and all whistleblower claims under any federal, state or local law or regulation or under common law; any violation of express or implied employment agreements, covenants, promises or duties, intellectual property or proprietary rights, and/or any other tortious conduct, such as assault or battery, background check violations, defamation, detrimental reliance, fiduciary breach, fraud, indemnification, intentional or negligent infliction of emotional distress, interference with contractual or other legal rights, invasion of privacy, loss of consortium, misrepresentation, negligence (including negligent hiring, retention, or supervision), personal injury, promissory estoppel, public policy violation, retaliatory discharge, safety violations; posting or records-related violations or other federal, state or local statutory or common law cause of action, including, without limitation, any claims for compensatory, emotional or distress damages, punitive or liquidated damages, attorneys’ fees, costs, interest, penalties or disbursements.

[ADD THE APPLICABLE STATE PROVISIONS BELOW, IF ANY, FOR EMPLOYEES WHO RESIDE IN OR ARE BASED IN CA, MA, MN, MO, ND, RI, SD or WV (I.E., ”BASED IN” MEANING THE CANTEL OFFICE WHERE HE/SHE REPORTS). DELETE INAPPLICABLE PROVISIONS]

[California: Because you work or reside in California, you waive all rights under California Civil Code § 1542 which provides: “A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.]

[Massachusetts. You also waive all claims or rights arising under the Massachusetts Payment of Wages Law, G.L. c.149; the Massachusetts Fair Employment Practices Act, G.L. c.151B; An Act Relative to Domestic Violence, M.G.L. ch. 149, s. 52E; the Massachusetts Law Prohibiting Unlawful Discrimination, M.G.L. ch. 151B, § 1 et seq.; the Massachusetts Right to be Free from Sexual Harassment Law, M.G.L. ch. 214, § 1C; the Massachusetts Discrimination Against Certain Persons on Account of Age Law, M.G.L. ch. 149, § 24A et seq.; the Massachusetts Equal Rights Law, M.G.L. ch. 93, § 102 et seq.; any claims under any other Massachusetts or other Commonwealth or local anti-discrimination, employment or human rights laws or regulations, or any other Massachusetts or other Commonwealth or local law, ordinance or regulation, any claims under any other Commonwealth or local law, ordinance or regulation.]

[Minnesota. This Agreement releases claims under the Minnesota Constitution, the Minnesota Human Rights Act, M.S.A. §363A.01 et seq., the Minnesota Equal Pay for Equal Work Law, M.S.A. §181.66 et seq., the Minnesota Dismissal for Age Statute, M.S.A. §181.81 et seq., the Minnesota Retaliatory Discharge Law, M.S.A. §176.82; the Minnesota Nonwork Activities Law, M.S.A. § 181.938; the Minnesota Notice of Termination Law, M.S.A. § 181.931 et seq.; and any under any other Minnesota or other state or local anti-discrimination, employment or human rights laws or regulations, or any other New Jersey or other state or local law, ordinance or regulation, any claims under any other state or local law, ordinance or regulation.]

[FOR MO, ND, RI, SD or WV, applicable statutes must be added]

4.Release of Unknown Claims. You understand that this release extends to all of the aforementioned claims and potential claims, whether now known or unknown, suspected or unsuspected.

5.Excluded Claims. You are not, by signing this Agreement, releasing or waiving (i) any vested interest you may have in any stock grants, stock options or other forms of equity awards, 401(k) or other retirement plan by virtue of your employment with the Company, subject to the terms and conditions of the applicable plans, any grant or award agreement and applicable law, (ii) any rights or claims that may arise after this Agreement is signed by you, (iii) the right to institute legal action for the purpose of enforcing the provisions of this Agreement, (iv) any right you may have to apply for any state unemployment insurance benefits, (v) any workers compensation benefits to which you may be entitled under applicable law, (vi) any rights to indemnification under any agreement with the Company, any certificate of incorporation or by laws (or comparable organizational document) of the Company or any applicable insurance policy of the Company with respect to acts or omissions by you occurring or alleged to have occurred during the course of your employment by the Company (and/or by any of the other Releasee entities), subject to the applicable definitions, terms and conditions of any such agreement, certificate of incorporation, by laws (or comparable organizational document), insurance policy and applicable law, or (vii) any rights for continuation coverage under COBRA. Additionally, nothing in this Agreement waives or otherwise limits your right to: file a charge or complaint with the U.S. Equal Employment Opportunity Commission (“EEOC”) (and/or with any other government agency); testify, assist or participate in any investigation, hearing or proceeding conducted by the EEOC (and/or by any other government agency); or challenge under the Older Workers Benefit Protection Act (“OWBPA”) (29 U.S.C. § 626) the knowing and voluntary nature of your release of any claims that you may have under the ADEA. However, neither the immediately preceding sentence nor any other provision in this Agreement constitute a waiver of any kind by any of the Releasees of their right to assert the Release set forth in this Agreement as a defense to any charge or complaint filed with the EEOC, any other government agency, any court, and/or any other tribunal. Additionally, you hereby waive any right to, and agree that you will not accept, any monetary award or recovery resulting from a filing of a charge or complaint by or with the EEOC, any other government agency, any court, and/or any other tribunal against the Company (and/or against any of the other Releasees) asserting or alleging any claim, demand or cause of action that has been released or waived in this Agreement. In addition, for the avoidance of doubt, nothing in this Agreement shall be interpreted to limit your right to receive an award to which you may be entitled for information provided to the U.S. Securities and Exchange Commission (“SEC”), the U.S. Commodity Futures Trading Commission (“CFTC”), or equivalent state securities enforcement agencies.

6.Promise Not To Sue. A “promise not to sue” means you promise not to sue any Releasee in court. This is different from the General Release above. Besides releasing claims covered by that General Release, you agree never to sue any Releasee for any reason covered by that General Release. Despite this Promise Not To Sue, however, you may file suit to enforce this Agreement or to challenge its validity under the ADEA. If you sue a Releasee in violation of this Agreement: (i) you shall be required to pay that Releasee’s reasonable attorney fees and other litigation costs incurred in defending against your suit; or alternatively (ii) the Company can require you to return all but $100.00 of the money and benefits provided to you under this Agreement. In that event, the Company shall be excused from any remaining obligations that exist solely because of this Agreement.

7.Whistleblowing. You agree that (i) no one has interfered with your ability to report within the Company possible violations of any law, and (ii) it is the Company’s policy to encourage such reporting.

8.Cooperation on Transition of Business. You agree that you will provide to the Company on or before your last date of employment, and at any time within 3 months thereafter, upon the Company’s reasonable request on or following the Termination Date, a list and status of current work projects and other information deemed necessary by the Company to ensure an orderly transition of such projects. You further agree to also provide a list of any current action items with key customers and/or vendors or external communication follow up with customers or vendors that need to occur to ensure continuation of business. You also agree to reasonably cooperate with the Company in the transition of work responsibilities.

9.Return of Property. You acknowledge by your signature to this Agreement that as of the date you sign this Agreement you have returned to the Company all property of the Company, or any related entity, including laptops, smartphones, cell phones, tablets, external storage devices, any other electronic devices and equipment, or any other property issued to you during the course of employment and all documents, files, correspondence, emails and other electronic communications, reports, materials, legal documents, contracts, marketing materials, and other items, whether in hard copy, on DVD, disc, flash drive or other storage mechanism, or on any electronic device, or otherwise, including all copies, which belong to the Company or any related entity or are related to the business of, or the services you performed for, the Company or any related entity, for any customer, including but not limited to any property, documents, files, correspondence, emails and other electronic communications, reports, materials, legal documents, contracts, marketing materials, and other items containing trade secret, proprietary or confidential information and materials.

10.Confidentiality of Agreement. This Agreement, its terms, conditions and existence are strictly confidential, and you agree that you will not divulge or disclose this Agreement, its terms or existence in any way to any person, other than to your spouse, children, legal or tax advisor, the state unemployment compensation authorities, the taxing authorities, or any Releasees, except as required by law. Should you choose to divulge or disclose the terms, conditions and/or existence of this Agreement to any person permitted to receive the information, other than governmental agencies, you must ensure that the person will be similarly bound to keep the terms, conditions and existence of this Agreement confidential.

11.Non-Disparagement. You agree that you will not make any disparaging or negative remarks, whether oral or in writing, regarding the Company, or its respective officers, directors, employees or affiliates, or their respective operations, products and/or services. Neither this Section nor any other provision of this Agreement affects or restricts your obligation to provide good faith truthful information in connection with an application for state unemployment compensation benefits, or to provide any other good faith truthful information required in response to a government inquiry, in response to a valid subpoena or court order, in an action to enforce the terms of this Agreement, or as otherwise specifically required by law. In addition, neither this Section nor any other provision of this Agreement affects or restricts your obligation to provide good faith truthful information in connection with the filing of a claim or charge with, or an investigation, hearing or proceeding conducted by, a governmental agency, including the SEC, the CFTC, the EEOC or similar state agencies. You acknowledge and agree however (as indicated above in the General Release of Claims section of this Agreement) that you will not be entitled to recover any award of money, compensation, costs, attorney’s fees or damages whatsoever from the Company or any of the other Releasees in connection with any charge of discrimination or other claim that has been released and/or waived under Section 3 of this Agreement or if you have such a charge or claim filed on your behalf, and you agree that the Separation Package that you receive or for which you are eligible under this Agreement fully and completely compensates you for any and all claims you may have against the Company or any of the related entities and individuals released in the General Release of Claims section of this Agreement.

12.Non-Admission. Neither the Company's offer reflected in this Agreement nor any payment under this Agreement are an admission that you have a viable claim against the Company or any other Releasee. Each Releasee denies all liability.

13.Return of Separation Package. You will not receive the Separation Package described in this Agreement, and you will be required to return any such payments or benefits included in the Separation Package made to you or on your behalf if you (i) do not meet the duties and responsibilities of your position through the Termination Date, (ii) do not sign this Agreement and return the original of this Agreement in the time period specified in this Agreement, (iii) rescind the release of ADEA Claims under this Agreement after signing the Agreement, (iv) violate any of the terms and conditions set forth in this Agreement, including but not limited to the confidentiality requirements set forth above in this Agreement, or (v) if you intentionally and materially breach any obligations, covenants, restrictions or agreements of confidentiality, non-solicitation, non-competition under an agreement between you and the Company signed by you on [*] (the “Confidentiality Agreement”) and fail to cure such breach (if curable) within thirty (30) days. The remedies provided for in this Section 13 are in addition to any other remedies that may be available to the Company under law or equity.

14.Binding Effect. This Agreement is final and binding upon and inures to the benefit of the parties and their respective successors and legal representatives and permitted assigns, and together with the applicable provisions of the Confidentiality Agreement (defined above) constitutes the complete and exclusive statement of the terms and conditions of the termination of your employment with the Company. You further acknowledge that you have not relied on any representations or statements, whether oral or written, other than the express statements of this Agreement (and the applicable provisions of the Confidentiality Agreement), in signing this Agreement. With the exception of the Confidentiality Agreement, this Agreement supersedes and merges all prior negotiations, agreements and understandings between the Company and you, if any. No modification, release, discharge, or waiver, of any provision of this Agreement shall be of any force or effect unless made in writing and signed by the Company and you, and specifically identified as an amendment, modification, release, or discharge of this Agreement. If any term, clause, or provision of this Agreement is determined for any reason by a court of competent jurisdiction to be invalid, unenforceable, or void, the determination shall not impair or invalidate any of the other provisions of this Agreement, all of which shall be performed in accordance with their respective terms. However, if any of the waivers and releases set forth in Section 3 of this Agreement are held to be invalid, void and/or unenforceable by a court then: the remaining waivers and releases shall remain fully valid and enforceable and, upon request by the Company, you shall immediately duly execute and deliver to the Company a release and waiver that is legal and enforceable to the fullest extent of the law.

15.Consideration Period. By your signature to this Agreement, you acknowledge and agree that you have been given a period of at least twenty-one (21) calendar days following the date this Agreement was provided to you (the “Consideration Period”) to consider this Agreement prior to signing it and that you have not signed it prior to the Termination Date. If you have signed it prior to the expiration of the twenty-one (21) day period, you are acknowledging that you have done so knowingly and voluntarily and have waived the remainder of the Consideration Period. By your signature you also acknowledge and agree that the Company has advised you to consult with an attorney of your choice at your expense prior to signing this Agreement and you have done so, or chosen not to do so, of your own accord. You further agree that any modifications made to this Agreement, material or otherwise, do not restart or affect in any manner the Consideration Period of at least twenty-one (21) calendar days.

16.Post-Termination Confidentiality. By signing this Agreement, you acknowledge and agree that the post-termination obligations and provisions of the Confidentiality Agreement will continue in full force and effect according to the applicable terms of the Confidentiality Agreement following your termination. By signing this Agreement, you represent that you have complied with all obligations, terms and provisions of the Confidentiality Agreement and will continue to comply with the obligations that survive termination of your employment.

17.Right to Rescind Release of ADEA Claims. You are hereby notified of your right to rescind the release of claims in regard to claims arising under the Federal Age Discrimination in Employment Act, 29 U.S.C. § 621, et seq. (“ADEA Claims”) within seven (7) calendar days after signing this Agreement (the “Rescission Period”). To be effective, the rescission must be in writing and delivered to Ms. Jean Casner, Senior Vice President – Chief Human Resources Officer, Cantel Medical Corp., 150 Clove Road, Little Falls, New Jersey 07424, by hand, email to jcasner@cantelmedical.com, (with a copy to HRIS@cantelmedical.com), or mail. If delivered by mail, the rescission must be postmarked within the required period, properly addressed to Ms. Casner, as set forth above, and sent by certified mail, return receipt requested, or recognized overnight courier. It is further understood that, if you rescind the release of ADEA Claims in accordance with this Section, or if you decide not to sign this Agreement, the Company shall have no obligation to provide the Separation Package to you under Section 2 of this Agreement, and you shall be required to return or repay any payments or benefits included in the Separation Package already received or made on your behalf.

18.Governing Law; Jurisdiction. This Agreement will be governed by and construed in accordance with the laws of the State of New Jersey without regard to principles of conflicts of laws. As to any dispute concerning or arising out of this Agreement, each of the Company and you hereby expressly consent to personal jurisdiction in the State of New Jersey, hereby submit to the exclusive jurisdiction of the state and federal courts located in the State of New Jersey, County of Passaic, and further agree not to assert that any action brought in such jurisdiction has been brought in an inconvenient forum or that such venue is improper. To the extent permitted by law, any and all claims asserted in such an action shall be adjudicated by a judge sitting without a jury.

19.Tax Consequences. Notwithstanding any action the Company takes under Sections 1 or 2 with respect to any or all federal, state or local income tax, payroll tax, or other tax-related withholding with respect to payments under this Agreement, the ultimate liability for all taxes with respect to such payments is and remains your responsibility and the Company (i) makes no representation or undertakings regarding the treatment of any tax-related items in connection with this Agreement, and (ii) does not commit to structure the payments to reduce or eliminate your liability for any taxes with respect to the payments.

20.Section 409A. This Agreement, and any payment hereunder, is intended to be exempt from Section 409A of the Internal Revenue Code (“Section 409A”) under the short-term deferral and separation pay plan exemptions to the maximum extent permitted by Section 409A. However, to the extent that this Agreement or any payment hereunder is subject to Section 409A, the Agreement will be construed and interpreted in a manner that is consistent with the requirements of Section 409A. For these purposes, each “payment” (as defined by Section 409A) made under this Agreement shall be considered a “separate payment.” Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A and in no event will the Company, its divisions and affiliates nor their respective directors, officers, employees or advisers be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by you on account of non-compliance with Section 409A.

If this Agreement (or any portion thereof) is subject to Section 409A and any amount subject to Section 409A becomes payable as a result of your “separation from service” (as defined under Section 409A) and at such time you are a “specified employee” (as defined under Section 409A), payment of such amount shall be delayed and shall be paid (without interest) on the first day of the seventh calendar month following the date of your “separation from service.” Further, in the event that the period of time given to consider a release agreement spans two years, to the extent a payment is subject to the execution of the release and to Section 409A, the payment may not be made earlier than January 1 of the second year.

21.Resignations. Effective as of the Termination Date, you will be deemed to have resigned from any and all of your director positions and offices with the Company and any and all of its affiliates and divisions. However, upon the request of the Company, you agree to sign and return to the Company any formal resignations of Cantel affiliates provided by the Company.

22. Applicable only to Employees aged 62 or older: Medicare Secondary Payer. Nothing in this Agreement prevents either party from: (i) addressing any claim for reporting violations, penalties, or reimbursement liabilities under the Medicare Secondary Payer law or the Medicare, Medicaid, and SCHIP Extension Act of 2007; (ii) communicating information about this Agreement for compliance purposes to the Department of Health and Human Services or the Centers for Medicare & Medicaid Services; or (iii) otherwise complying with the above laws. In addition, you agree to indemnify and defend the Company against any loss or liability it incurs due to Medicare conditional payments related to the accident, injury, or illness underlying this settlement.

You have consulted with an attorney before signing this Agreement (or been advised by this Agreement of your right to do so) regarding each parties’ obligations (if any) to reimburse Medicare for conditional payments related to the accident, injury, or illness underlying this settlement. No mistake of law or fact by either party regarding any obligation to reimburse Medicare shall be grounds for nullifying, voiding, or reforming this Agreement.

23.Severability. If any one or more of the provisions of this Agreement is held invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision that comes closest to the intent of the parties.

[Remainder of page intentionally left blank.]

Your signature below indicates that you have carefully read, understand and agree to all terms and provisions of this Agreement in its entirety. Your signature further indicates that you have had a sufficient and reasonable amount of time prior to signing this Agreement to ask questions regarding this Agreement, that you have been advised to seek legal advice, and that you have signed this Agreement as a free and voluntary act.

If you wish to receive the Separation Package set forth above in this Agreement, you must sign and return the original of this Agreement to the Company by hand or by mail (or overnight courier) (as set forth in Section 2 above) no earlier than the Termination Date and no later than the 21^st day following your receipt of this Agreement. You must also abide by all other terms of this Agreement. You should keep a copy for your records.

Sincerely,

CANTEL MEDICAL CORP.

By: ___________________________________________________

[Balance of page intentionally left blank. Your signature page to follow.]

ACCEPTANCE AND AGREEMENT TO CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE

By signing below, I, [*], acknowledge and agree to the following:


•	I have not suffered any on-the-job injury for which I have not already filed a claim, and the end of my employment is not related to any such injury.


•	I do not have any pending lawsuits against the Company.


•	I have had adequate time to consider whether to sign this Confidential Separation Agreement and General Release.


•	I have read this Confidential Separation Agreement and General Release carefully.


•	I understand, accept and agree to all of the terms of this Confidential Separation Agreement and General Release.


•	I am knowingly and voluntarily releasing my claims as set forth in this Confidential Separation Agreement and General Release.


•	I have not, in signing this Confidential Separation Agreement and General Release, relied upon any representations or statements, written or oral, or explanations made by the Company except for those specifically set forth in this Confidential Separation Agreement and General Release and the Confidentiality Agreement.


•	I intend this Confidential Separation Agreement and General Release to be legally binding.


•	I have kept a full copy of this Confidential Separation Agreement and General Release for my records.

I am signing this Confidential Separation Agreement and General Release no earlier than the Termination Date as defined above.

Date [Name of Employee]

EXHIBIT 21

CANTEL MEDICAL CORP.

Subsidiaries of Registrant



Cantel (Canada) Inc.	(Incorporated under the laws of Ontario, Canada)
Medivators Inc.	(Incorporated under the laws of Minnesota)
Medivators B.V.	(Incorporated under the laws of the Netherlands)
Cantel Medical Asia/Pacific Pte. Ltd.	(Incorporated under the laws of Singapore)
Mar Cor Purification, Inc.	(Incorporated under the laws of Pennsylvania)
Crosstex International, Inc.	(Incorporated under the laws of New York)
SPS Medical Supply Corp.	(Incorporated under the laws of New York)
Cantel Medical International LLC	(Organized under the laws of Delaware)
CMCI C.V.	(Incorporated under the laws of the Netherlands)
Cantel Medical International B.V.	(Incorporated under the laws of the Netherlands)
Cantel (Belgium) BVBA	(Incorporated under the laws of Belgium)
Cantel Medical (UK) Limited	(Incorporated under the laws of England and Wales)
Cantel Lanka (Pvt) Ltd.	(Incorporated under the laws of Sri Lanka)
Cantel Medical (Italy) S.r.l.	(Incorporated under the laws of Italy)
Cantel Medical Devices (China) Co., Ltd.	(Incorporated under the laws of China)
Cantel (UK) Limited	(Incorporated under the laws of England and Wales)
Medical Innovations Group Limited	(Incorporated under the laws of England and Wales)
Medi-Cart International Limited	(Incorporated under the laws of England and Wales)
Accutron, Inc.	(Incorporated under the laws of Arizona)
Cantel Medical (Hong Kong) Limited	(Incorporated under the laws of Hong Kong)
Cantel Medical (Malaysia) Sdn. Bhd.	(Incorporated under the laws of Malaysia)
Cantel Middle East FZ-LLC	(Incorporated under the laws of Dubai (UAE))
Cantel (Germany) GmbH	(Incorporated under the laws of Germany)
Cantel (France) SAS	(Incorporated under the laws of France)
Cantel (Australia) PTY LTD	(Incorporated under the laws of Australia)
TIV Technisches Institut fur Validierung GmbH	(Incorporated under the laws of Germany)
Cantel (Production) Germany GmbH	(Incorporated under the laws of Germany)
BHT Hygienetechnik Holding GmbH	(Incorporated under the laws of Germany)
BHT Hygienetechnik GmbH	(Incorporated under the laws of Germany)
Omnia S.r.l.	(Incorporated under the laws of Italy)
Bior Medica S.r.l.	(Incorporated under the laws of Italy)
Omnia Dental S.L.	(Incorporated under the laws of Spain)
Camark S.A.	(Incorporated under the laws of Greece)
Omnia LLC	(Incorporated under the laws of Pennsylvania)
Jet Prep. Ltd	(Incorporated under the laws of Israel)

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-140388, 333-157033, 333-163806, 333-180171, and 333-210073 on Form S-8 of our reports dated September 25, 2019, relating to the consolidated financial statements and financial statement schedule of Cantel Medical Corp. and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended July 31, 2019.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey

September 25, 2019

EXHIBIT 23.2

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:


(1)	Registration Statements (Form S-8 Nos. 333-140388, 333-157033, 333-163806 and 333-180171) pertaining to the Cantel Medical Corp. 2006 Equity Incentive Plan, as amended, and

(2) Registration Statement (Form S-8 No. 333-210073) pertaining to the Cantel Medical Corp. 2016 Equity Incentive

Plan;

of our report dated September 28, 2017, with respect to the consolidated financial statements of Cantel Medical Corp., for the period ended July 31, 2017, included in this Annual Report (Form 10-K) of Cantel Medical Corp., for the year ended July 31, 2019.

/s/ Ernst & Young LLP

New York, New York

September 25, 2019

EXHIBIT 31.1

CERTIFICATIONS

I, George L. Fotiades, certify that:


1.	I have reviewed this Annual Report on Form 10-K of Cantel Medical Corp.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: September 25, 2019



By:	/s/ George L. Fotiades
George L. Fotiades, President and Chief Executive Officer (Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATIONS

I, Shaun M. Blakeman, certify that:


1.	I have reviewed this Annual Report on Form 10-K of Cantel Medical Corp.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: September 25, 2019



By:	/s/ Shaun M. Blakeman
Shaun M. Blakeman, Senior Vice President and Chief Financial Officer

Exhibit 32

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF

TITLE 18, UNITED STATES CODE)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), the undersigned officers of Cantel Medical Corp. (the “Company”), do hereby certify with respect to the Annual Report of the Company on Form 10-K for the year ended July 31, 2019 as filed with the Securities and Exchange Commission (the “Form 10-K”) that, to the best of their knowledge:


1.	The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: September 25, 2019

/s/ George L. Fotiades

George L. Fotiades

President and Chief Executive Officer

(Principal Executive Officer)

/s/ Shaun M. Blakeman

Shaun M. Blakeman

Senior Vice President, Chief Financial Officer

(Principal Financial Officer)