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 months ended October 31, 2012 compared with the three months ended October 31, 2011.

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

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

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

Overview

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

† Endoscopy: Medical device reprocessing systems, disinfectants, detergents and other supplies used to high-level disinfect flexible endoscopes. This segment also offers disposable infection control products intended to eliminate the challenges associated with proper cleaning and sterilization of numerous reusable components used in gastrointestinal (GI) endoscopy procedures.

† 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, sterilization pouches, towels and bibs, tray covers, saliva ejectors, germicidal wipes, plastic cups, and disinfectants. This segment also offers both a mail-in service and in-office spore test kits for healthcare professionals to verify the performance of their sterilizers.

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

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

† Chemistries: Sterilants, disinfectants and decontamination services used in various applications for infection prevention and control. (Included in the All Other reporting segment.)

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

See our Annual Report on Form 10-K for the fiscal year ended July 31, 2012 (the "2012 Form 10-K") and our Condensed Consolidated Financial Statements for additional financial information regarding our reporting segments.

Significant Activity

(i) Net sales and net income increased by 6.9% and 54.0%, respectively, for the three months ended October 31, 2012 compared with the three months ended October 31, 2011 to a record level of net sales for a three month period. We continue to benefit from having a broad portfolio of infection prevention and control products sold into diverse business segments, where approximately 73% of our net sales are attributable to consumable products and service. The primary factors that contributed to this financial performance, as further described elsewhere in this MD&A, were as follows:

† improved sales and profitability in our Water Purification and Filtration segment primarily relating to increased sales of our capital equipment, consumables and service in the dialysis industry mainly attributable to new product introductions such as our heat sanitizable water purification systems, which are sold at higher average selling prices and gross margins than the systems with the traditional non-heated sanitization technology,

† improved sales and profitability in our Therapeutic Filtration segment primarily due to the market shortage of certain filters as a result of damage done from an earthquake to the manufacturing facilities of a large competitor,

† improved profitability in our Endoscopy segment due principally to a shift of product mix to higher margin products including increases in sales volume of endoscope reprocessing disinfectant and consumable products as a result of the increased field population of equipment, as well as disposable infection control products used in gastrointestinal (GI) endoscopy procedures as a result of new product introductions,

† improved sales and profitability in our Healthcare Disposables segment primarily due to increased demand for our face masks and sterility assurance products and the decreasing price of raw materials,

† improved gross profit percentage in our three largest operating segments,

† the implementation of various cost control initiatives such as the closing of our Japan location in July 2012 as part of our decision to service our Japan customers in a more cost effective manner, and

† lower interest expense.

The above factors were partially offset by:

† decreases in sales volume of our endoscope reprocessing equipment as these capital equipment sales were elevated in prior periods partially as a result of our participation in a major initiative by the Veterans Administration to upgrade their hospitals' endoscope reprocessing equipment as well as regulatory issues experienced by a major competitor, and

† decreases in net sales and profitability in our Dialysis operating segment.

(ii) We sell our dialysis products to a concentrated number of customers. Sales in our Dialysis segment were adversely impacted by the decrease in demand for our RENATRON® reprocessing equipment and sterilants, as more fully described elsewhere in this MD&A. This reduction in dialysis sales has reduced overall profitability in this segment. Our market for dialysis reprocessing products is limited to dialysis centers that reuse dialyzers, which market has been decreasing in the United States despite the environmental advantages and our belief that the per-procedure cost of reuse dialyzers is more economical than single-use dialyzers. A further decrease in the market for reprocessing products is likely to result in continued loss of net sales and a lower level of profitability in this segment in the future. See "Risk Factors" in the 2012 Form 10-K.

(iii) In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. The legislation imposes significant new taxes on medical device makers in the form of a 2.3% excise tax on all U.S. medical device sales beginning in January 2013. Since a significant portion of our sales are considered medical device sales under this new legislation, our gross profit percentage will be adversely affected beginning in January 2013, as more fully described elsewhere in this MD&A.

(iv) On November 1, 2012, our Crosstex subsidiary acquired all the issued and outstanding stock of SPS Medical Supply Corp. (the "SPS Business" or the "SPS Acquisition"), as more fully described in Note 3 to the Condensed Consolidated Financial Statements.

(v) On October 31, 2012, our Board of Directors approved an 18% increase in the semiannual cash dividend to $0.055 per share of outstanding common stock, which is payable on December 14, 2012 to shareholders of record at the close of business on November 14, 2012, as more fully described elsewhere in this MD&A.

(vi) In order to more fully capitalize on the strength of the Medivators brand name currently used in our endoscopy business, we decided to change the name of Minntech Corporation to Medivators Inc. The name change was effective on August 1, 2012.

(vii) The Company issued 9,955,000 additional shares of common stock in connection with a three-for-two stock split effected in the form of a 50% stock dividend paid on

February 1, 2012 to stockholders of record on January 23, 2012, as more fully described elsewhere in this MD&A.

(viii) On August 1, 2011, the start of our prior fiscal year, our subsidiary Medivators Inc. ("Medivators") acquired the business and substantially all of the assets of Byrne Medical, Inc. ("BMI"), as more fully described in Note 3 to the Condensed Consolidated Financial Statements. Certain components of the acquisition's purchase price were recorded at fair value and are continually re-measured at each balance sheet date, which has the potential for creating earnings volatility in the future as further described elsewhere in this MD&A and in Notes 3 and 6 to the Condensed Consolidated Financial Statements.

(ix) In conjunction with the acquisition of the business and substantially all of the assets of BMI and the impending expiration of our existing credit facility, we entered into a $150,000,000 Second Amended and Restated Credit Agreement dated as of August 1, 2011, as more fully described elsewhere in this MD&A and in Notes 3 and 9 to the Condensed Consolidated Financial Statements. Additionally, in order to protect our interest rate exposure in future years, we entered into interest rate swap agreements in fiscal 2012, as more fully described elsewhere in this MD&A and in Notes 5 and 9 to the Condensed Consolidated Financial Statements.

Results of Operations

The results of operations described below reflect the operating results of Cantel and its wholly-owned subsidiaries. Since the SPS Acquisition was consummated after the first quarter of our fiscal 2013, its results of operations are not included in our results of operations for any periods presented.

The following discussion should also be read in conjunction with our 2012 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
                                                 October 31,
                                           2012                2011
                                        (Dollar amounts in thousands)
                                        $          %        $         %

Endoscopy                           $   36,679    36.8   $ 36,052    38.7
Water Purification and Filtration       29,083    29.2     24,965    26.8
Healthcare Disposables                  19,955    20.0     19,406    20.8
Dialysis                                 8,187     8.2      9,167     9.8
All Other                                5,777     5.8      3,672     3.9
                                    $   99,681   100.0   $ 93,262   100.0

Net Sales

Net sales increased by $6,419,000, or 6.9%, to $99,681,000 for the three months ended October 31, 2012 from $93,262,000 for the three months ended October 31, 2011.

The increase in net sales for the three months ended October 31, 2012 was principally

attributable to increases in sales of water purification and filtration products and therapeutic filtration products (recorded in the All Other reporting segment).

Net sales of water purification and filtration products and services increased by $4,118,000, or 16.5%, for the three months ended October 31, 2012, compared with the three months ended October 31, 2011, primarily due to (i) an increase in demand for our water purification capital equipment, consumables and service in the dialysis industry mainly attributable to new product introductions such as our heat sanitizable water purification systems which are also sold at higher average selling prices than systems with the traditional non-heated sanitization technology and (ii) price increases on certain water purification products and services, which favorably impacted net sales for the three months ended October 31, 2012 by approximately $890,000. Partially offsetting these increases was a decrease in demand for capital equipment used for commercial and industrial applications.

Net sales in the All Other reporting segment increased by $2,105,000, or 57.3%, for the three months ended October 31, 2012 compared with the three months ended October 31, 2011, primarily due to a $1,445,000, or 100.3%, increase in net sales in our Therapeutic Filtration operating segment and a $545,000, or 84.2%, increase in net sales in our Chemistries operating segment. The increase in net sales in our Therapeutic Filtration segment was due to an increase in demand, both in the United States and internationally, for our hemoconcentrator products (a device used to concentrate red blood cells and remove excess fluid from the bloodstream during open-heart surgery) and our hemofilter products (a device used to perform hemofiltration in 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) as a result of a market shortage of these filters due to damage done from an earthquake to the manufacturing facilities of a large competitor. We expect this elevated level of filter sales to return to a similar level that existed in prior periods once our competitor regains its full manufacturing capabilities, which we estimate will occur in the beginning of calendar 2013. The increase in net sales in our Chemistries segment was the result of an increase in sales demand in the United States and internationally for sterilants manufactured by us on an OEM basis. Increases in selling prices of our therapeutic filtration, specialty packaging and chemistries products did not have a significant effect on net sales in the All Other segment for the three months ended October 31, 2012 compared with the three months ended October 31, 2011.

Net sales of endoscopy products and services increased by $627,000, or 1.7%, for the three months ended October 31, 2012, compared with the three months ended October 31, 2011, primarily due to increases in demand in the United States for
(i) our disinfectants, service and consumables due to the increase in the installed base of endoscope reprocessing equipment and (ii) our new product introductions of valves and hybrid tubing procedural products (disposable infection control products used in gastrointestinal (GI) endoscopy procedures). Partially offsetting these increases was a decrease in demand for our endoscope reprocessing equipment. Demand for our endoscope reprocessing equipment had been elevated during the second half of fiscal 2011 and the first half of fiscal 2012 due to our previous investments in new product offerings and sales and marketing programs, as well as regulatory issues experienced by a major competitor, all of which enabled us to increase our sales of endoscope reprocessing equipment including successfully participating in a major initiative beginning in the second half of fiscal 2011 by the Veterans Administration to upgrade their hospitals' endoscope reprocessing equipment. Beginning in our second quarter of fiscal 2012, this elevated level of capital equipment sales gradually decreased to a similar level that existed prior to the second half of fiscal 2011. However, we expect disinfectants, service, consumables and equipment accessories to continue to

benefit as we continually increase the installed base of endoscope reprocessing equipment. Changes in selling prices did not have a significant effect on net sales for the three months ended October 31, 2012 compared with the three months ended October 31, 2011.

Net sales of healthcare disposables products increased by $549,000, or 2.8%, for the three months ended October 31, 2012, compared with the three months ended October 31, 2011, principally due to increases in customer demand in the United States for our face masks and sterility assurance products, partially offset by the loss of some private label business as a result of a customer's decision to purchase certain healthcare disposable products from low cost providers including competitors whose products are manufactured in China and Southeast Asia due to lower overall costs. Changes in selling prices did not have a significant effect on net sales for the three months ended October 31, 2012 compared with the three months ended October 31, 2011.

Net sales of dialysis products and services decreased by $980,000, or 10.7% for the three months ended October 31, 2012, compared with the three months ended October 31, 2011, due to a decrease in demand primarily in the United States (including a decrease from our largest dialysis customer, DaVita, Inc. ("DaVita")) for our RENATRON® dialyzer reprocessing equipment and sterilants. Our market for dialysis reprocessing products is limited to dialysis centers that reuse dialyzers, which market has been decreasing in the United States despite the environmental advantages and our belief that the per-procedure cost of reuse dialyzers is more economical than single-use dialyzers. The shift from reusable to single-use dialyzers is principally due to the lowering cost of single-use dialyzers, the ease of using a dialyzer one time, and the commitment of Fresenius Medical Care, the largest dialysis provider chain in the United States and a manufacturer of single-use dialyzers, to convert dialysis clinics performing reuse to single-use facilities. In addition, DaVita has been evaluating the economics and other factors associated with single-use versus reuse on a regional basis. This evaluation has resulted in the conversion by DaVita of certain clinics from reuse to single-use and in many cases the opening of new clinics as single-use clinics. A further decrease in the market for reprocessing products is likely to result in continued loss of net sales and a lower level of profitability and operating cash flow in this segment in the future as well as potential future impairments of long-lived assets. Additionally, our Dialysis segment is highly dependent upon DaVita as a customer and any further shift by this customer away from reuse would have a material adverse effect on our Dialysis segment net sales. Changes in selling prices of our dialysis products did not have a significant effect on net sales for the three months ended October 31, 2012 compared with the three months ended October 31, 2011.

Gross profit

Gross profit increased by $5,777,000, or 15.2%, to $43,727,000 for the three months ended October 31, 2012 from $37,950,000 for the three months ended October 31, 2011. Gross profit as a percentage of net sales for the three months ended October 31, 2012 and 2011 was 43.9% and 40.7%, respectively.

Gross profit as a percentage of net sales for the three months ended October 31, 2012 increased compared with the three months ended October 31, 2011 primarily due to (i) more favorable sales mix due to increases in sales volume of certain products that carry higher gross margin percentages than each segment's prior year period overall gross profit percentage (such as our new heat sanitizable water purification systems in our Water Purification and Filtration segment, disinfectants and disposable GI procedural products in our Endoscopy segment,

sterilants in our Chemistries segments, filters in our Therapeutic Filtration segment and face masks and sterility assurance products in our Healthcare Disposables segment) and decreases in sales volume of lower margin products (such as endoscope reprocessing equipment in our Endoscopy segment), (ii) the inclusion in the prior year period of a $893,000 one-time acquisition accounting charge relating to the acquired inventory in the Byrne Acquisition, (iii) a decrease in raw materials costs primarily in our Healthcare Disposables segment due to the decreasing price of oil and (iv) increases in selling prices on certain products primarily in our Water Purification and Filtration segment.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. The legislation imposes significant new taxes on medical device makers in the form of a 2.3% excise tax on all U.S. medical device sales beginning in January 2013. Since a significant portion of our sales are considered medical device sales under this new legislation, we will record the excise tax in cost of sales thereby adversely affecting our gross profit percentage beginning in January 2013. If this legislation had been effective throughout fiscal 2012, we estimate that our annual excise tax would have been within the range of $4,000,000 to $5,000,000, which would have directly decreased our gross profit by such amount. Although we plan to implement further cost reductions and revenue enhancement initiatives to partially offset this new excise tax, we cannot provide any assurances that we will be successful in significantly reducing the impact of this tax on our business. Additionally, other elements of this legislation could meaningfully change the way health care is developed and delivered and may materially impact numerous aspects of our business in the future. See "Risk Factors" in our 2012 Form 10-K.

Furthermore, we cannot provide assurances that our gross profit percentage will not be adversely affected in the future (i) by uncertainties associated with our product mix, (ii) by further price competition in certain of our segments such as Healthcare Disposables (due to a more competitive environment as well as competition from products manufactured in China and Southeast Asia, as explained below), Endoscopy (primarily when selling to Group Purchasing Organization (GPOs) and other price competitive sales) and Dialysis (relating to the market shift from reusable to single-use dialyzers as explained above) or (iii) if raw materials and distribution costs increase and we are unable to implement price increases. In regard to products manufactured in China and Southeast Asia, some of our competitors manufacture certain healthcare disposable products in China and Southeast Asia due to lower overall costs despite expensive shipping costs. Although we believe the quality of our healthcare disposable products, which are generally produced in the United States, are superior to similar products produced in China and Southeast Asia, we may experience significant pricing pressure that would adversely affect our gross profit in the future in our Healthcare Disposables segment as a result of low cost competition from products produced in China and Southeast Asia.

Operating Expenses

Selling expenses increased by $490,000, or 3.8%, to $13,413,000 for the three months ended October 31, 2012 from $12,923,000 for the three months ended October 31, 2011, primarily due to our increased investment of approximately $840,000 to further develop and support our sales team through sales meetings, the addition of sales personnel primarily in our international operations, increased travel budgets and annual raises, partially offset by approximately $490,000 in lower commission expense due to changing the structure of our Endoscopy sales commission plan.

Selling expenses as a percentage of net sales were 13.5% and 13.9% for the three months ended October 31, 2012 and 2011, respectively.

General and administrative expenses decreased by $54,000 to $12,048,000 for the three months ended October 31, 2012, from $12,102,000 for the three months ended October 31, 2011, primarily due to the prior year inclusion of $626,000 in acquisition related expenses relating to the Byrne Acquisition, partially offset by (i) approximately $340,000 in higher compensation expense relating to annual salary raises, higher incentive compensation and employee benefit costs and
(ii) an unfavorable change of $255,000 relating to fair value adjustments of contingent consideration and a price floor financial instrument as further described in Notes 3 and 6 to the Condensed Consolidated Financial Statements.

General and administrative expenses as a percentage of net sales were 12.1% and 13.0% for the three months ended October 31, 2012 and 2011.

Research and development expenses (which include continuing engineering costs) increased by $149,000, or 6.9%, to $2,294,000 for the three months ended October 31, 2012 from $2,145,000 for the three months ended October 31, 2011.

Operating Income by Segment



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



                                                    Three Months Ended October 31,
                                                   2012                       2011
                                                    (Dollar amounts in thousands)
                                           Operating      % of        Operating      % of
                                            Income      net sales      Income      net sales
Endoscopy                                 $     7,676        20.9 %  $     5,777        16.0 %
Water Purification and Filtration               3,908        13.4 %        2,683        10.7 %
Healthcare Disposables                          4,091        20.5 %        2,996        15.4 %
Dialysis                                        2,176        26.6 %        2,203        24.0 %
All Other                                         932        16.1 %         (311 )      -8.5 %
Operating income                               18,783        18.8 %       13,348        14.3 %
General corporate expenses                     (2,811 )                   (2,568 )
Income before interest and income taxes   $    15,972        16.0 %  $    10,780        11.6 %

The Endoscopy segment's operating income increased by $1,899,000, or 32.9%, for the three months ended October 31, 2012, compared with the three months ended October 31, 2011, primarily due to (i) increases in demand in the United States for our disinfectants, service, consumables and disposable procedural GI products, which are all higher margin products, (ii) the inclusion in the prior year period of a $893,000 one-time acquisition accounting charge relating to the acquired inventory in the Byrne Acquisition, and (iii) lower commission expense, partially offset by a decrease in demand for our endoscope reprocessing equipment and further investment in our sales team, as further explained above.

The Water Purification and Filtration segment's operating income increased by $1,225,000, or 45.7%, for the three months ended October 31, 2012, compared with . . .