Cantel Medical Corporation

150 Clove Road, 9th Floor
Little Falls, New Jersey 07424
U.S.A.
Telephone: (973) 890-7220
Fax: (973) 890-7270
Web site: http://www.cantelmedical.com

Public Company
Incorporated: 1952 as Charvoz-Carsen Corporation
Employees: 828
Sales: $197.4 million (2005)
Stock Exchanges: New York
Ticker Symbol: CMN
NAIC: 423450 Medical, Dental, and Hospital Equipment and Supplies Merchant Wholesalers

Listed on the New York Stock Exchange, Cantel Medical Corporation provides medical equipment and services in the infection prevention and control market through the activities of six subsidiaries. Minntech Corporation, The Biolab Group, and Mar Cor units concentrate on filtration, water, and disinfection technologies. Operating out of Hauppauge, New York, Crosstex International focuses on the dental office market, manufacturing such products as facemask and shields, barrier films, disinfectants, soaps, lotions, sanitizers, patient bibs, and cotton and gauze items. In addition to its U.S. facilities, Crosstex maintains manufacturing in Georgia, Japan, The Netherlands, and Argentina. Saf-T-Pak Inc. is involved in the safe handling and transportation of infectious and biological specimens, offering specialty packaging products and compliance training services. The final subsidiary, Carsen Group, is a Canadian marketer of medical equipment, including flexible and rigid endoscopes, endoscope disinfection equipment, as well as scientific equipment—primarily microscopes and image analysis hardware and software. Cantel maintains its corporate headquarters in Little Falls, New Jersey.

POSTWAR ROOTS

Cantel grew out of the business established by Walter Carsen in Canada in 1946. Raised in Cologne, Germany, Carsen traveled to London, England, in 1940 at the age of 18 to learn the optical industry. After France was defeated by Nazi Germany in that year, Carsen was interred briefly before being allowed to emigrate to Canada in 1941. He settled in Toronto and soon joined the Canadian Army as an electrical and mechanical engineer. After the war he recognized there would be a demand for 35mm cameras and went into business with almost no funding. In 1949 he forged a relationship with Japan's Olympus Optical Company Ltd. to distribute 35mm cameras and a wide range of other optical products that would one day include endoscopes. W. Carsen Co. was a shoestring affair at first, its founder content to live modestly while he built up the business. He scoured Europe, acquiring the marketing rights to a wide range of optical products, including microscopes, fibre-optic medical instruments, binoculars, and telescopes. By the early 1960s the company was generating annual sales in the $10 million range.

In October 1962 Carsen sold the business to New Jersey-based Charvoz-Carsen, which had been established in 1952. Carsen then went on to enjoy a second life as a patron of the arts in Canada. Charvoz-Carsen was reincorporated in Delaware in 1963 in preparation for going public. The company evolved into a distributor of audio, optical, drafting, and engineering equipment, and graphic and fine art supplies. In September 1986 the company attempted to diversify further by acquiring Stendig Industries Inc., a well known manufacturer and importer of residential and contract furniture.

Because management hoped to become even more involved in the furniture field, in December 1986 Charvoz-Carsen changed its name to Stendig Industries. The company soon added to its furniture assets, acquiring a controlling interest in Vitra Seating, Inc. and also buying Erwin-Lambert, Inc. in 1987. For the year, Stendig posted sales around $52 million, a sharp increase over the $22 million to $24 million the company generated five years earlier. However it proved to be an unwieldy mix of assets and, more importantly, unprofitable. In April 1988 the company began a reorganization effort that led to the hiring of James P. Reilly as chief executive officer a year later. It was with his arrival that Cantel's business mix began to take shape.

Reilly was born in Vineland, New Jersey, in 1940. After earning an undergraduate degree from St. Joseph's University in Philadelphia in 1962, he went to work for the Price Water house accounting firm in Newark. He left in 1969 to take a job with Metrocare Inc., where he became chief financial officer. He then served stints in top management positions at Hanson Industries in Iselin, New York, and Elmont, New York-based Fasig-Tipton Inc., before becoming president and chief operating officer at North American Watch Company in New York City, where he worked from 1985 until the time he joined Stendig.

NAME CHANGE: 1985

According to Investor's Business Daily, Reilly arrived "to find [Stendig] deep in debt and spread across too many businesses. The troubled company was selling high-end furniture, graphic arts services and ergonomic office seating. He liquidated and sold businesses, focusing on Cantel's medical equipment and services business, Carsen Group." In April 1989 Erwin-Lambeth was sold, and the company's name was changed to Cantel Industries. The company's interest in Vitra was also divested in July of that year. Carsen's most valuable asset was its Canadian distribution agreement with Olympus Optical Co. Thus, Reilly elected to focus on the medical products, including microscopes, but the primary focus was on endoscopes, instruments fitted with a video camera to allow doctors to inspect a patient's colon, intestines, or lungs for polyps and cysts that might turn into cancer. Changing Cantel's business mix was not accomplished overnight, however. The company continued to distribute Olympus cameras and other consumer products during the 1990s, and it did not completely exit the furniture business until Charvoz-Dauphin Office Seating's North American divisions were sold in October 1993, fetching $3 million.

Cantel added to its scientific instrument product lines in 1994, signing a long-term agreement with Germany's Jenopyik Technologie GmbH to distribute laser distance measurement and thermal imaging products. An important turning point in the transformation of Cantel occurred in March 1996 when Minneapolis-based MediVators, Inc. was acquired for $10 million in stock. MediVators sold automated disinfection equipment for endoscopes, and the addition of the company helped Reilly to flesh out Cantel's endoscope business. Moreover, it set the stage for Olympus agreeing to promote and distribute Carsen and Medivators' equipment along with its endoscopes. MediVators'endoscope disinfecting system, the DSD-91, was computer controlled and capable of disinfecting two endoscopes simultaneously. It received Food and Drug Administration approval in March 1994. In addition to disinfection equipment, MediVators also sold medical sharps disposal systems, but this business was discontinued a year later. Cantel then added to its disinfection business in March 1998 by acquiring less expensive single and dual disinfection units from Chris Lutz Medical, Inc.

The changes Reilly made to Cantel's business mix began to bear fruit in the late 1990s. Sales totaled $24.7 million in fiscal 1991 and grew to $34.1 million by fiscal 1995. Revenues reached only $35 million in fiscal 1997, to go with net income of $1.1 million. The addition of disinfection products played a key role in Cantel topping $40 million in sales in fiscal 1998 and the recording of $1.7 million in earnings. Revenues continued to grow in fiscal 1999, reaching $50.1 million.

COMPANY PERSPECTIVES

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

In 2000 Carsen terminated its consumer products business, selling back its inventories of Olympus consumer products to Olympus, and Cantel Industries changed its name to Cantel Medical Corporation. This began a period of steady expansion as Cantel further defined itself as a medical products company, one focused on the promising field of infection control. According to Investor's Business Daily in a 2001 article, about 5 percent of all patients in the United States fell victim to infections they encountered at hospitals and to treat them, hospitals spent about $4 billion a year: "The result is a war on germs as health care providers battle to improve service and reduce liability and treatment costs. That war is turning industry attention toward systematic, facility-wide disinfection programs." What Cantel wanted to do was to make the case that automating the disinfection process was prudent and cost effective, significantly reducing the chance that germs could spread because hospital personnel might lose focus performing a repetitive task. Cantel hoped to not only build its automated disinfection system for endoscopes, including the addition of the chemical disinfectants themselves, but to also use it as a platform to become involved in other aspects of infection control.

MINNTECH CORPORATION ACQUIRED 2001

With almost no debt and some $5 million in cash, Cantel was ready in 2001 to take the next step in building its infection control business. In September of that year it acquired Plymouth, Minnesota-based, Minntech Corporation in a $77.9 million stock and cash purchase. Founded in 1974, Minntech made disinfection and reprocessing systems for renal dialysis, and filtration and separation products, such as membranes and chemical sterilants, for medical and non-medical applications. With more than $75 million in sales, Minntech doubled Cantel's revenues. Moreover, the acquisition marked a sea change in Cantel's business mix. Prior to Minntech, Cantel derived about 80 percent of it sales from capital equipment and the rest from the more profitable, and ongoing sale, of consumables. Within three years, the company saw those numbers nearly reverse themselves, as consumables now accounted for three-quarters of all sales. Also of note in 2001, Carsen made a minor acquisition, paying $405,000 for Technimed Instruments Inc. and Technimed International, providers of hand-held surgical instrumentation and rigid endoscope repair services in Canada.

With Minntech in the fold, Cantel experienced an increase of sales from $49 million in fiscal 2001 to $120 million in fiscal 2002 and $129.3 million in fiscal 2003. Net income increased from $4.4 million in fiscal 2001 to more than $7.9 million in fiscal 2003. During this period, in May 2002, Cantel also gained a coveted listing on the New York Stock Exchange. In August 2003, just after the 2003 fiscal year came to a close on July 31, Cantel was ready for further external growth. On the same day, it completed the acquisition of a pair of companies, Biolab Equipment Ltd., acquired for $7.9 million, and Mar Cor Services Inc., acquired for $8.215 million They were both part of a strategy to get Cantel involved in the water treatment business. Based in Canada and founded in 1969, Biolab specialized in "ultra-pure water," serving the biotechnology, medical, pharmaceutical, research, and semiconductor industries. The Skippack, Pennsylvania-based Mar Cor was founded in 1971 and operated in a dozen U.S. cities, providing water treatment equipment design, project management, installation and maintenance, service deionization, and mixing systems to the medical community. Cantel also made inroads internationally in 2003 by acquiring Dutch company Dyped Medical B.V., the addition of which supplemented Minntech's technological capabilities and provided a endoscope disinfection system that was compliant with European standards.

KEY DATES

1946:: The W. Carsen Co. is formed by Walter Carsen in Canada.
1952:: Charvoz-Carsen Inc. is incorporated in New Jersey.
1962:: Charvoz-Carsen acquires the W. Carsen Co.
1986:: Charvoz-Carsen becomes Stendig Industries, Inc.
1989:: Stendig becomes Cantel Industries, Inc.
1996:: MediVators is acquired.
2000:: The company's name is changed to Cantel Medical Corporation.
2003:: Biolab Equipment Ltd. and Mar Cor Services, Inc., are acquired.
2005:: Crosstex International is acquired.

To sustain its growth and keep its pipeline filled with new products, Cantel completed another acquisition in June 2004, paying $8.5 million for Saf-T-Pak in order to become involved in the specialized medical packaging and training field. The focus of Saf-T-Pak was on the safe transport of blood, tissue, and other infectious and biological materials. It was a small company, based in Edmonton, Canada, and generated just $5 million a year, but it provided Cantel with a base in the fast-growing specialized packaging field. The company estimated that each year in the United States about 1 billion biological specimens were shipped to and from medical offices. Moreover, the U.S. Department of Transportation had recently increased the types of specimens that had to adhere to strict packaging standards, providing even greater opportunities for Cantel to develop another niche revenue stream. The company was not dominant in any particular area, but it was well diversified. In fact, according to Investor's Business Daily, "If Cantel was more concentrated on one area, it could come under attack. As it is, no single firm complete with it across all product lines."

With contributions from its four acquisitions, Cantel experienced a 31.5 percent increase in sales to $170 million in fiscal 2004, while net income improved to $10.7 million. The company looked to make larger acquisitions, focusing on companies with sales of at least $25 million—due in large part to the regulations imposed of the new Sarbanes-Oxley Act. The paperwork burden had become so great because of the new law that a small acquisition was simply not worth the trouble. Cantel's next acquisition came in August 2005 with the $77.9 million purchase of Crosstex International. Founded in 1953, Crosstex added a new avenue to pursue in the infection control business: the dental office. Crosstex offered a number of single-use infection-control products, including patient bibs, gloves, face masks, and sterilization items. The addition of Crosstex was especially important because several weeks earlier, Olympus decided to end its $38-million-a-year contract with Carsen to distribute medical and scientific supplies in Canada, electing to handle the business in-house. The announcement dealt a blow to the price of Cantel's stock, which traded above $30 but fell into the teens at this news. The Crosstex acquisition helped to provide something of a rebound to the stock price.

Mantel continued to refine its business mix in 2005. In April of that year it established Mar Cor Purification, combining Mar Cor Services and Biolab with Minntech's water filters and disinfectant products. Cantel enjoyed another strong year in fiscal 2005, as sales approached the $200 million mark and net income totalled $15.5 million. Those numbers were likely to continue to improve in light of the addition of Crosstex and the increasing need for infection control that would result from the growing medical needs of an aging baby boom generation.