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

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

Results of Operations provides a discussion of the consolidated results of operations for the three and nine months ended April 30, 2009 compared with the three and nine months ended April 30, 2008.

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

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

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

Overview

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

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

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

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

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

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

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

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

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

Significant Activity

(i) Net income increased by 109% and 85% for the three and nine months ended April 30, 2009, respectively, compared with the three and nine months ended April 30, 2008. We continue to benefit from having a broad portfolio of infection prevention and control products sold into diverse business segments and we have proactively developed our overall business to where approximately 75% of our net sales are consumable products and service. While all of our business segments performed well, the Endoscope Reprocessing, Dialysis and Water Purification and Filtration segments contributed a significant portion of the increase to net income for the three and nine months ended April 30, 2009. The primary factors that contributed to this financial performance, as further described elsewhere in this MD&A, were as follows:

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

† realization of price increases,

†          improved manufacturing and distribution costs,



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

† favorable interest costs, and

† a lower effective tax rate.

However, we cannot provide assurances that this level of growth can continue to be achieved, especially given the economic downturn and other potential risks or uncertainties. See "Risk Factors" in our 2008 Form 10-K for a discussion of the Company's risk factors.

(ii) We sell our dialysis products to a concentrated number of customers. Sales in our Dialysis segment were adversely impacted by continued loss of some low margin dialysate concentrate business from domestic customers as a result of the highly competitive and price sensitive market for such product, as more fully described elsewhere in this MD&A. Additionally, we cannot provide assurances that the current level of concentrate sales to international customers will be sustained.

(iii) The deterioration in the economy and credit markets adversely impacted our results of operations for the nine months ended April 30, 2009, compared with the nine months ended April 30, 2008, by causing some of our customers to delay spending on certain products, especially capital equipment in our Endoscope Reprocessing and Water Purification and Filtration segments, as more fully described elsewhere in this MD&A. Sales of capital equipment represent approximately 25% of our overall consolidated net sales and are primarily included in our Water Purification and Filtration, Dialysis and Endoscope Reprocessing segments.

(iv) In June 2008, we announced and began executing our plan to restructure our Netherlands manufacturing operations as part of our continuing effort to reduce operating costs and leverage our existing United States infrastructure. As a result of this restructuring, approximately $13,000 and $358,000 of restructuring costs were recorded in the three and nine months ended April 30, 2009, respectively, which decreased both basic and diluted earnings per share by $0.02 during the nine months ended April 30, 2009, as more fully described in Note 16 to the Condensed Consolidated Financial Statements and elsewhere in this MD&A.

(v) Fluctuations in the rates of currency exchange had an overall favorable impact on our net income for the three and nine months ended April 30, 2009, compared with the three and nine months ended April 30, 2008, despite the adverse impact on net sales, as more fully described elsewhere in this MD&A.

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

Results of Operations

The results of operations described below reflect the operating results of Cantel and its wholly-owned subsidiaries and includes the results of operations of DSI, Verimetrix and Strong Dental for the three and nine months ended April 30, 2009 and the portion of the three and nine months ended April 30, 2008 subsequent to their respective acquisition dates.

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

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

                             Three Months Ended                        Nine Months Ended
                                 April 30,                                 April 30,
                          2009                2008                 2009                 2008
                                            (Dollar amounts in thousands)
                       $         %         $         %          $         %          $         %

Water
Purification and
Filtration         $  18,165     27.3   $ 16,100     25.1   $  53,434     27.6   $  50,122     27.1
Healthcare
Disposables           15,587     23.5     15,494     24.1      45,707     23.7      43,445     23.5
Dialysis              14,220     21.4     16,037     25.0      43,700     22.6      46,184     24.9
Endoscope
Reprocessing          14,162     21.3     12,639     19.7      38,526     19.9      34,583     18.7
All Other              4,297      6.5      3,908      6.1      11,890      6.2      10,759      5.8
                   $  66,431    100.0   $ 64,178    100.0   $ 193,257    100.0   $ 185,093    100.0

Net Sales

Net sales increased by $2,253,000, or 3.5%, to $66,431,000 for the three months ended April 30, 2009 from $64,178,000 for the three months ended April 30, 2008.

Net sales increased by $8,164,000, or 4.4%, to $193,257,000 for the nine months ended April 30, 2009 from $185,093,000 for the nine months ended April 30, 2008.

Net sales were adversely impacted for the three and nine months ended April 30, 2009 compared with the three and nine months ended April 30, 2008 by approximately $390,000 and $770,000, respectively, due to the translation of Canadian dollar net sales primarily of our Water Purification and Filtration operating segment using a weaker Canadian dollar against the United States dollar.

The increase in net sales for the three and nine months ended April 30, 2009 was principally attributable to increases in sales of water purification and filtration products and services, endoscope reprocessing products and services and therapeutic filtration products (included in All Other), partially offset by a decrease in dialysis products. The increase in net sales for the nine months ended April 30, 2009 was also affected by an increase in sales of healthcare disposable products.

Net sales of water purification and filtration products and services increased by 12.8% and 6.6% for the three and nine months ended April 30, 2009, respectively, compared with the three and nine months ended April 30, 2008, primarily due to (i) an increase in demand during fiscal 2009 for our sterilants and filters by pharmaceutical companies and within our installed equipment base of business, including one of our largest customers who standardized on our consumables products in their ordering system utilized by their dialysis clinics, (ii) an increase in

sales of capital equipment used for dialysis as well as some large commercial and industrial equipment sales during the three months ended April 30, 2009 and
(iii) higher selling prices, which offset increased manufacturing costs and favorably impacted net sales for the three and nine months ended April 30, 2009 and 2008 by approximately $360,000 and $1,300,000, respectively. Partially offsetting these increases were delayed investments during the first six months of fiscal 2009 by our customers of our water purification equipment used for dialysis as well as for commercial and industrial (large capital) applications as a result of the deterioration in the general economy and credit markets. Despite the increase in capital equipment sales during the three months ended April 30, 2009, the deterioration in the general economy and credit markets may continue to adversely affect capital equipment sales.

Net sales of endoscope reprocessing products and services increased by 12.1% and 11.4% for the three and nine months ended April 30, 2009, respectively, compared with the three and nine months ended April 30, 2008, primarily due to the increase in demand in the United States for our disinfectants and product service due to the increased field population of equipment as well as our ability to gradually convert the sale of such items from our former equipment distributor (who continued to purchase high-level disinfectants, cleaners, and consumables from us and provide product service to our customers) to our direct sales and service force at higher selling prices. Higher selling prices, most of which relates to the direct sale of disinfectants, consumables and product service, resulted in approximately $500,000 and $1,980,000 in incremental net sales for the three and nine months ended April 30, 2009, respectively, compared with the three and nine months ended April 30, 2008. The increase in net sales was also due to approximately $184,000 in incremental net sales in the first quarter of our fiscal 2009 due to the acquisition of Verimetrix during the first quarter of our fiscal 2008. Partially offsetting these increases was a decrease in sales of endoscope reprocessing equipment during the three and nine months ended April 30, 2009 as a result of delayed spending on such investments due to the recent deterioration in the general economy and credit markets, which may continue to adversely affect future equipment sales.

Net sales contributed by the Therapeutic Filtration operating segment were $2,491,000 and $7,243,000 for the three and nine months ended April 30, 2009, an increase of 18.7% and 29.2% compared with three and nine months ended April 30, 2008, respectively. The increase in sales was primarily due to increases in
(i) both domestic and international demand for our hemofilter products (filtration devices that perform a slow, continuous blood filtration therapy used to control fluid overload and acute renal failure in unstable, critically ill patients who cannot tolerate the rapid filtration rates of conventional hemodialysis), (ii) domestic demand for our hemoconcentrator products (filtration devices used to concentrate red blood cells and remove excess fluid from the bloodstream during open-heart surgery) and (iii) other specialty blood filter devices manufactured by us on an OEM (Original Equipment Manufacture) basis for a customer's hydration system and another customer's new external artificial liver machine. Increases in selling prices of our therapeutic filtration products did not have a significant effect on net sales for the three and nine months ended April 30, 2009 compared with the three and nine months ended April 30, 2008.

Net sales of healthcare disposables products increased by 5.2% for the nine months ended April 30, 2009 compared with the nine months ended April 30, 2008 primarily due to (i) approximately $1,880,000 in higher net sales due to an increase in selling prices which were implemented to offset corresponding supplier cost increases, (ii) the adverse impact on the first quarter of our fiscal 2008 due to the consolidation of certain distributors of our dental products during 2007 resulting in the rationalization of duplicate inventories of the consolidated companies and (iii) approximately $194,000 in incremental net sales in the first quarter of our

fiscal 2009 due to the acquisition of Strong Dental during the first quarter of our fiscal 2008. Net sales of healthcare disposables products for the three and nine months ended April 30, 2009 were not significantly affected by the outbreak of the H1N1 flu (swine flu) since the increase in demand for healthcare disposables products did not occur until the end of such period, resulting in significant backorders at April 30, 2009. Although we expect sales of high margin face masks and other healthcare disposables products to be strong in our fourth quarter of fiscal 2009 due to the H1N1 flu, we cannot provide assurances that such increased sales levels can be sustained beyond our fourth quarter of fiscal 2009 since such demand is highly dependent upon the severity of the H1N1 flu, the ability of our Company to educate customers and potential additional customers on the benefits of our facemasks, disinfectants and other products and the level of urgency our customers and the general public develop with respect to epidemic and pandemic preparedness.

Net sales of dialysis products and services decreased by 11.3% and 5.4% for the three and nine months ended April 30, 2009, respectively, compared with the three and nine months ended April 30, 2008 primarily due to the continuing adverse impact of previously losing some dialysate concentrate business (a concentrated acid or bicarbonate used to prepare dialysate, a chemical solution that draws waste products from a patient's blood through a dialyzer membrane during hemodialysis treatment) from domestic customers as a result of the highly competitive and price sensitive market for this low margin commodity product. Due to sales price decreases by some of our competitors, we expect a continued decrease in net sales of our low margin dialysate concentrate product to domestic customers throughout fiscal 2009 as we elect not to pursue unprofitable concentrate sales. Additionally, we can not provide assurances that the level of concentrate sales to international customers will be sustained. Partially offsetting this decrease were (i) an increase in demand for our Renatron dialyzer reprocessing equipment both in the United States and internationally and (ii) higher selling prices, which favorably impacted net sales for the three and nine months ended April 30, 2009 and 2008 by approximately $160,000 and $680,000, respectively, to partially offset higher manufacturing and shipping costs, including freight invoiced to customers (related costs of a similar amount are included within cost of sales.)

Gross profit

Gross profit increased by $3,242,000, or 14.6%, to $25,523,000 for the three months ended April 30, 2009 from $22,281,000 for the three months ended April 30, 2008. Gross profit as a percentage of net sales for the three months ended April 30, 2009 and 2008 was 38.4% and 34.7%, respectively.

Gross profit increased by $7,784,000, or 12.0%, to $72,757,000 for the nine months ended April 30, 2009 from $64,973,000 for the nine months ended April 30, 2008. Gross profit as a percentage of net sales for the nine months ended April 30, 2009 and 2008 was 37.6% and 35.1%, respectively.

The gross profit percentage for the three and nine months ended April 30, 2009 increased compared with the three and nine months ended April 30, 2008 primarily due to (i) favorable sales mix due to the increased sales volume of certain high margin products such as disinfectants and consumables in our Endoscope Reprocessing segment, sterilants and filters in our Water Purification and Filtration segment and face masks and sterilization accessories in our Healthcare Disposables segment and decreased sales of our low margin dialysate concentrate product in our Dialysis segment, (ii) higher selling prices including those attributable to our ability to gradually convert the sale of high-level disinfectants, cleaners, and consumables in our Endoscope

Reprocessing segment from our former equipment distributor (who continues to purchase such items from us) to our direct sales and service force at higher selling prices, (iii) improved efficiencies in our manufacturing, transportation and service functions and (iv) inefficiencies in our Water Purification and Filtration segment during the three months ended October 31, 2007 as a result of the integration of the acquired GE Water & Process Technologies' water dialysis business into our facilities. Partially offsetting this increase was a decrease in gross profit percentage attributable to restructuring charges of approximately $176,000 recorded primarily in our Endoscope Reprocessing segment during the first six months of fiscal 2009 relating to the relocation of our Netherlands manufacturing operations, as more fully described elsewhere in this MD&A.

Operating Expenses

Selling expenses increased by $794,000, or 11.0%, to $7,984,000 for the three months ended April 30, 2009, from $7,190,000 for the three months ended April 30, 2008, primarily due to (i) higher compensation expense relating to annual salary increases in all of our reporting segments, additional sales personnel primarily in our Water Purification and Filtration and Healthcare Disposables segments and incentive compensation and (ii) an increase of approximately $190,000 in advertising and marketing expense primarily related to our Healthcare Disposables segment. This increase was partially offset by a decrease of approximately $110,000 as a result of translating selling expenses of our international subsidiaries using a weaker Canadian dollar and euro against the United States dollar.

Selling expenses increased by $1,511,000, or 7.3%, to $22,326,000 for the nine months ended April 30, 2009, from $20,815,000 for the nine months ended April 30, 2008, primarily due to (i) higher compensation expense relating to annual salary increases in all of our reporting segments, additional sales personnel primarily in our Water Purification and Filtration and Healthcare Disposables segments and incentive compensation and (ii) an increase of approximately $380,000 in advertising and marketing expense primarily related to our Healthcare Disposables segment. This increase was partially offset by a decrease of approximately $220,000 as a result of translating selling expenses of our international subsidiaries using a weaker Canadian dollar and euro against the United States dollar.

Selling expenses as a percentage of net sales were 12.0% and 11.2% for the three months ended April 30, 2009 and 2008, respectively, and 11.6% and 11.2% for the nine months ended April 30, 2009 and 2008, respectively.

General and administrative expenses decreased by $817,000, or 8.2%, to $9,106,000 for the three months ended April 30, 2009, from $9,923,000 for the three months ended April 30, 2008, primarily due to the prior year inclusion of approximately $720,000 in separation benefits and other costs related to the resignation of our former President and Chief Executive Officer on April 22, 2008, a decrease in overhead at our Netherlands operation due to the completion of restructuring activities, as more fully described elsewhere in this MD&A, and a decrease of $174,000 in amortization expense of intangible assets. These decreases were partially offset by higher compensation expense relating to annual salary increases and incentive compensation in all our reporting segments and an increase of approximately $254,000 in stock-based compensation expense.

General and administrative expenses decreased by $680,000, or 2.4%, to $27,167,000 for the nine months ended April 30, 2009, from $27,847,000 for the nine months ended April 30, 2008,

principally due to (i) the prior year inclusion of approximately $720,000 in separation benefits and other costs related to the resignation of our former President and Chief Executive Officer on April 22, 2008, (ii) a decrease of approximately $560,000 as a result of foreign exchange gains associated with translating certain foreign denominated assets into functional currencies and the translation of general and administrative expenses of our international subsidiaries using a significantly weaker Canadian dollar and euro against the United States dollar, (iii) a decrease in overhead at our Netherlands operation due to the completion of restructuring activities, as more fully described elsewhere in this MD&A, and (iv) a decrease of $427,000 in amortization expense of intangible assets. These decreases were partially offset by an increase in compensation expense primarily related to annual salary increases and incentive compensation in all our reporting segments, an increase of approximately $237,000 in stock-based compensation expense and approximately $182,000 of restructuring expense related to the relocation of our Medivators' manufacturing operations from the Netherlands to the United States.

General and administrative expenses as a percentage of net sales were 13.7% and 15.5% for the three months ended April 30, 2009 and 2008, respectively, and 14.1% and 15.0% for the nine months ended April 30, 2009 and 2008, respectively.

Research and development expenses (which include continuing engineering costs) increased by $333,000 to $1,261,000 for the three months ended April 30, 2009, from $928,000 for the three months ended April 30, 2008. For the nine months ended April 30, 2009, research and development expenses increased by $430,000 to $3,309,000, from $2,879,000 for the nine months ended April 30, 2008. The increase in research and development expenses for the three and nine months ended April 30, 2009, compared with the three and nine months ended April 30, 2008, is primarily due to increased development work on certain new products primarily in our Water Purification and Filtration, Endoscope Reprocessing and Therapeutic Filtration segments.

Interest

Interest expense decreased by $597,000 to $588,000 for the three months ended April 30, 2009, from $1,185,000 for the three months ended April 30, 2008. For the nine months ended April 30, 2009, interest expense decreased by $1,649,000 to $2,013,000, from $3,662,000 for the nine months ended April 30, 2008. For the three and nine months ended April 30, 2009, interest expense decreased primarily due to decreases in average outstanding borrowings and average interest rates.

Interest income decreased by $73,000 to $24,000 for the three months ended April 30, 2009, from $97,000 for the three months ended April 30, 2008. For the nine months ended April 30, 2009, interest income decreased by $262,000 to $132,000, from $394,000 for the nine months ended April 30, 2008. For the three and nine months ended April 30, 2009, interest income decreased primarily due to a decrease in average interest rates.

Income taxes

The consolidated effective tax rate was 37.5% and 40.0% for the nine months ended April 30, 2009 and 2008, respectively. The decrease in the consolidated effective tax rate was affected principally by the geographic mix of pre-tax income and the impact of various tax rate reductions, as described below.

The majority of our income before income taxes was generated from our United States

operations, which had an overall effective tax rate of 38.2% and 38.0% for the nine months ended April 30, 2009 and 2008, respectively. Our United States effective tax rate for the nine months ended April 30, 2009 was favorably impacted by New York state tax rate reductions enacted in 2008, which primarily relate to our Healthcare Disposables segment, and recently enacted Federal tax legislation that enabled us to claim the research and experimentation tax credit, offset by additional taxes related to the repatriation of earnings from our Netherlands subsidiary.

Approximately 6% of our income before income taxes was generated from our Canadian operations, which had an overall effective tax rate for the nine months ended April 30, 2009 and 2008 of 20.5% and 28.8%, respectively. This low overall effective tax rate for the nine months ended April 30, 2009 was attributable to the impact of a lower overall effective rate in our Specialty Packaging segment as applied to existing deferred income tax liabilities.

Due to the uncertainty of our Netherlands subsidiary utilizing tax benefits in the future, a tax benefit was not recorded on the losses from operations at our Netherlands subsidiary for the nine months ended April 30, 2009 and 2008, thereby adversely affecting our overall consolidated effective tax rate. The . . .