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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 OCTOBER 31, 2001
COMMISSION FILE NUMBER 000-21109
CUNO INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 06-1159240
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Research Parkway, Meriden, Connecticut 06450
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(203) 237-5541
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of class)
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 the
filing requirements for at least the past 90 days.
Yes X No
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of December 31, 2001, 16,392,244 common shares were outstanding, and
the aggregate market value of the common shares (based upon the last price on
that date) was approximately $500,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the documents of the Registrant listed below have
been incorporated by reference into the indicated parts of this Annual Report on
Form 10-K.
Notice of Annual Meeting of Shareholders March 27, 2002 and
Proxy Statement.
Part III, Items 10-13
Part IV, Item 14
Annual Report to Shareholders, Part IV, Item 14
The exhibit index is located on pages 13-14.
1
PART I
ITEM 1. BUSINESS
(a) General development of business:
CUNO Incorporated ("CUNO" or the "Company") is a world leader in the
designing, manufacturing and marketing of a comprehensive line of filtration
products for the separation, clarification and purification of liquids and
gases. The Company's products, which include proprietary depth filters and
semi-permeable membrane filters, are used in the potable water, fluid
processing, and healthcare markets. These products, most of which are
disposable, effectively remove contaminants that range in size from molecules to
sand particles. The Company's sales are approximately balanced between domestic
and international markets.
The Company's objective is to provide high value-added products and
premium customer service. The Company's proprietary manufacturing processes
result in products that lower customers' operating expenses and improve the
quality of customers' end products by providing longer lasting, higher quality
and more efficient filters. As part of the Company's commitment to customer
service, the Company designates its own scientists, each of whom possess
particular industry expertise, to collaborate with customers on specific
projects to insure satisfaction with its products and to create new products.
The Company realigned its business to accelerate net sales growth and
improve operating margins. Key to its success are the development and
implementation of the following initiatives, which are key elements of its
ongoing growth strategy: (i) develop new products for specific markets, (ii)
decrease product development cycle times, (iii) develop pre/final filter
systems, (iv) increase customer focus, (v) improve operating efficiencies, and
(vi) pursue selective acquisitions.
(b) Financial information about industry segments:
The Company is divided into five geographic operating segments, each of
which has general operating autonomy over its products. These operating segments
are as follows: North America, Europe, Japan, Asia/Pacific, and Latin America.
See Note 9 - Segment Financial Data on pages 29-31 of the 2001 Annual Report to
Stockholders which is incorporated herein by reference.
(c) Narrative description of business:
OVERVIEW: Filtration is the process of separating particles of various sizes
from liquids or gases. The mechanics of filtration range from the removal of
coarse contaminants, most often particulates, as large as 200 microns such as
sand and sediment, to the elimination of bacteria and viruses at less than .01
micron (human hair is typically 20 microns in diameter). A filtration device
consists of a plastic or metal housing and a filtration medium. Filtration
media, which can be manufactured out of a variety of substances, act as the
separator or barrier in the filtration process.
Filtration media include microporous membranes, glass, synthetic and
cellulosic fibers, porous metals and ceramics. Microporous membranes are thin,
film-like materials with millions of uniform microscopic holes. Membranes are
the most widely used filtration media because they remove specifically-sized
particles and can be configured into a variety of shapes and sizes. Each of
CUNO's five operating segments manufacture and sell products into the potable
water, fluid processing, and healthcare markets.
OPERATING SEGMENTS: The Company addresses three primary markets from a
geographical operating structure. Each of CUNO's five operating segments (North
America, Europe, Japan, Asia/Pacific, and Latin America) manufacture and sell
products into the potable water, fluid processing, and healthcare markets. These
markets represent the end markets in which the customers reside. Since the
nature and attributes of the markets vary widely
2
by geographic region, to best address these markets the Company has established
a management structure based upon geography. The management for each of the
geographic regions operate independent sales and manufacturing organizations
that function within an overall corporate framework of strategic initiatives and
targets. The majority of these initiatives and targets are established to best
address the three major markets and to achieve the financial objectives of the
business. Further detail on the Company's three major markets follows:
Potable Water: The potable water market includes residential,
commercial, and food service customers. According to industry data, it is
estimated that one billion people in the world do not have safe drinking water.
Demand is driven both by consumers' desire to improve the taste and quality of
their drinking water and by the expanded concern of regulatory agencies. North
American sales have increased sharply since 1999 due primarily to exceptional
growth in new appliance filters for the OEM market and the successful
assimilation of Chemical Engineering Corporation. Growth potential appears
especially strong in Asia/Pacific and Latin American countries where the quality
of drinking water has been found to be severely deficient in several regions.
Water safety concerns have driven the growth of the consumer bottled water
market to over $2 billion in the United States, as well as the growth in the
water filtration market.
The food service industry has an increasing need for consistent global
product quality. Food service includes water used for fountain beverages, steam
ovens, coffee and tea (i.e. "recipe quality water"). Specifically, restaurants
have become increasingly aware of the need for water filtration to control the
taste and quality of the water used in their businesses. Sales to the potable
water market totaled $107,263,000, $101,483,000, and $87,649,000, in 2001, 2000,
and 1999, respectively.
Fluid Processing: Major customers in the fluid processing
market include chemical, petrochemical and oil and gas processors, manufacturers
of paints and resins, producers of electronics and semi-conductors, and power
generation facilities. As sophisticated manufacturing processes increase and as
the adoption of practices focused on quality increase, the Company believes the
demand for filtration products will also increase. In part, this trend is driven
by the enhanced ability to detect contaminants in process streams. As automation
increases, focus on quality control increases, and as the ability to detect
contaminants progresses, fluid filtration will play a greater role in the
manufacturing process.
A significant segment of the Company's fluid processing market is
electronics manufacturing. Ultra pure water is used to rinse the components
during manufacturing in order to ensure that the product is particle free with
no residual contamination. The industry uses corrosive, high purity chemicals
and gases for the manufacture of computer chips, hard disks, video terminals and
other components. All of the chemicals and gases used are processed through very
fine filtration systems. The strengthening demand for electronic products and
oil and gas products has helped recent sales growth, and certain new products
are expected to stimulate growth in the future. Sales to the fluid processing
market totaled $71,898,000, $78,781,000, and $72,269,000 in 2001, 2000, and
1999, respectively.
Healthcare: The healthcare market is experiencing rapid growth as a
result of the intensive research efforts to find cures for diseases, the
increasing use of rapid and simpler diagnostic tests to help reduce healthcare
costs, the trend toward finer and more cost-efficient filtration and increased
governmental regulation. When harmful elements are identified, they are often
regulated or new medical standards of care are implemented to decrease or
eliminate contact. In many cases, fluid filtration can play a key role in
eliminating contact with many harmful elements. Price is not the primary factor
in the customers' filtration decision process, but rather the performance and
reliability of the product.
The healthcare market customers include pharmaceutical and
biotechnology companies which require cost-efficient filtration and high levels
of purity for production of sterile, contaminate free drugs, as well as
producers of diagnostic test kits which require highly efficacious membranes. In
addition, applications include the production of bacteria-free water and food
and beverage products. Sales to the healthcare market totaled $65,288,000,
$62,810,000, and $60,666,000 in 2001, 2000, and 1999, respectively.
3
GROWTH STRATEGY: The Company's goals are to grow at a rate higher than the
general filtration market and to increase the Company's operating margins. Key
elements of the Company's growth strategy include:
Develop New Products for Specific Markets. The Company has initiated a
strategy to develop high value-added products for specific markets.
Historically, the Company offered non-differentiated products and often competed
solely on price. To gain a better understanding of specific markets and guide
new product development, the Company introduced Scientific Application Support
Services ("S.A.S.S."). S.A.S.S. uses scientists with post-graduate degrees who
are experts in the specific industry they serve. They collaborate with customers
who are developing and implementing new processes or products that have specific
filtration requirements. Often these relationships lead to the development of
new market specific products.
Decrease Product Development Cycle Times. The Company has decreased its
product development cycle times to approximately 18 to 24 months. This
improvement has occurred through increased market focus, collaboration with
leading-edge customers through S.A.S.S. teams and the formation of
cross-functional product launch teams. The Company believes it can continue to
shorten product development cycle times through these same methods.
Develop Pre/Final Filter Systems. Many filtration systems have one or
more pre-filters to remove large contaminants from the liquid or gas before it
passes through the final filter, prolonging the life of the more expensive final
filter. When these filters are designed together in a system, the performance of
the system is enhanced. The Company has a leading pre-filter market position and
is expanding the number of final filters it offers. This allows the Company to
provide its customers with a total filter solution from one vendor.
Increased Customer Focus. The Company has traditionally sold to the
distributor, who in turn sells to the end user. The Company's current goal is to
provide unmatched customer service to its end-user customers, while providing
resources to its distributors. In many cases the customer is unable to define
its filtration needs accurately and seeks outside resources to identify and
choose the best filtration alternative. The Company's S.A.S.S. professionals
meet this need. Management has been training and focusing distributors on
specific market segments and providing additional training, sales, and marketing
support. This enables distributors to provide customers with superior industry
expertise and company-specific product knowledge.
Improve Operating Efficiencies. The Company believes it can improve
operating efficiencies by offering higher margin new products and implementing
cost controls, productivity gains, profit-based compensation for its employees
and outsourcing production of certain processes. The Company has initiated a
capital investment program designed to (i) integrate cell-based manufacturing,
(ii) provide higher yields from raw materials, (iii) improve inventory
management, (iv) lower labor costs, (v) reduce manufacturing cycle times, and
(vi) reduce scrap rates.
Pursue Selective Acquisitions. The Company believes that the trend
towards consolidation in certain portions of the filtration industry, together
with recent systems trends (pre-filter and filter), may provide the Company with
attractive opportunities to acquire high-quality companies and subsequently
allow the Company to expand into new geographic markets, add new customers,
provide new products, manufacturing and service capabilities or increase the
Company's penetration with existing customers.
In the second quarter of fiscal 2001, CUNO closed on two acquisitions -
a product line in Australia and a distributor in Europe -- for a total cost of
$4.5 million. These acquisitions do not have a material effect on the Company's
historical financial statements or pro forma operating results. In the second
quarter of fiscal 2000, the Company made a contingent consideration payment of
$2.9 million related to the previous acquisition of Chemical Engineering
Corporation (CEC). This payment was recorded as additional goodwill. There will
be no future contingency payments related to the CEC acquisition. The
acquisition of CEC included certain life insurance
4
policies on key officers of CEC. In the second quarter of 2000, CUNO elected to
surrender these policies for their cash surrender value upon settlement.
PRODUCTS: The Company manufactures a full range of products by offering its
customers solutions to a wide range of filtration requirements. Many of the
products manufactured by the Company use electrokinetic adsorption, a
proprietary chemical process developed by the Company which alters both membrane
and depth filter media surfaces. Electrokinetic adsorption uses molecular
charges on dissolved ions to bind finer contaminants to the filter surface. This
attribute significantly enhances filtration efficiency by removing contaminants
smaller than the micron rating of the filter. The Company typically groups its
products into the following categories:
Membranes: The typical polymer and nylon membranes that the Company
produces resemble plastic films except for the molecular size pores that are
engineered into the surface and depth of the membrane. By varying pore size and
altering the physical or chemical properties of the membrane, the quantity and
type of substances which can pass through the membrane can be regulated with
absolute certainty. The Company manufactures "absolute rated" products where no
particle above a certain size can pass through the membrane. In many
applications, these membranes can be integrity tested to ensure specific
performance both at the beginning and end of a particular process. A membrane
can be employed in a variety of configurations, including flat sheets, discs and
cartridges which contain high surface area and pleated membrane media.
Uses of membranes include water purification for electronics and
applications in semiconductor manufacturing, pharmaceutical, biotechnology and
other applications, as well as residential use for drinking water.
The Company's products include those sold under the following labels:
Zetapor(R), Microfluor(R), PolyPro(R), ZetaBind(R), Electropor II(TM),
BevASSURE(TM), MaxMedia(TM), Synchro(R), Acro(R), and AC/PH Lithowater(R).
Depth Filters: The Company's disposable depth filters are constructed
from a matrix or formation of very fine and micro-fine fibers such as
polypropylene, cotton, polyester, glass fiber, acrylic, rayon, polymer, carbon
and other materials. The fibre matrix is then processed into a rigid filter
media using techniques such as thermal bonding, resin bonding, pleating or
winding. The Company's technology has a strong emphasis on graded density
attributes and electrokinetic adsorption. Graded density depth technology allows
filter media to be manufactured with very open porous outer layers,
progressively becoming smaller in the size of the pores or void volume through
the depth of the filter media. Graded density construction extends filter life
in many applications and reduces pressure loss across the filtration process
thereby reducing energy costs. The structure of graded density filter media
allows particles to be trapped throughout the depth of the cartridge which
minimizes surface binding, allows for high contaminant capacity and lower
pressure drops than solely trapping particles on the surface of the media.
The Company manufactures depth filters in a wide variety of cartridge
and pore sizes with "absolute" particulate ratings. The filter cartridges are
used in filter housings which can be manufactured in a broad range of metals or
plastics to suit particular customer specifications. Filter housings are
designed for a wide range of temperatures and pressures.
The Company's depth filter products include those sold under the
following labels: Zeta Plus(R), Betafine(R), Micro-Klean(R) III, Beta-Klean(R),
Betapure(R), PolyNet(TM), BioCap(TM), Micro-Wynd(R) II, Econo-Klean(TM),
Virosorb(R) and Petro-Klean(R).
Cleanable Filters and Systems: The Company designs and manufactures an
extensive range of self-cleaning disc filters, backwash strainers and
recleanable metal filters. The self-cleaning disc filters and backwash strainers
can be electrically or mechanically operated with automatic controls to provide
for specific requirements in process applications. The recleanable metal filter
elements are constructed of sintered porous stainless steel or metal screens in
tubular and pleated construction. The recleanable elements can be cleaned in
place in a filter housing or removed for mechanical, ultrasonic or chemical
cleaning.
5
The Company's cleanable filters and system products include those sold
under the following labels: Poro-Klean(R), Micro-Screen(R), and Auto-Klean(R).
Housings and Systems: The Company designs and manufactures a wide
variety of filter housings to suit specific process and customer applications.
The housings can be of plastic or metal construction utilizing a broad range of
materials including polypropylene, PVC, nylon, aluminum, copper, brass, steel,
stainless steel and other specialized metals, such as titanium.
Specialized designs include sanitary, electropolished and coated
finishes for chemical resistance and ease of sterilization, sanitization or
cleaning. The Company supplies a broad range of standard housings manufactured
from type 316 stainless steel in sanitary, polished and electropolished finishes
for enhancing pharmaceutical and electronic applications. Finish specifications
can be measured in terms of Roughness Average (Ra) with average variations in
surface finish measured in microns down to 0.45 micron, the size of small
bacteria.
The Company designs and manufactures proprietary housings and systems
such as CTG-Klean(TM) with patented features and a totally enclosed disposable
filter media pack for use in critical applications where housing cleanliness is
essential or when physical separation of toxic or corrosive chemicals from the
metal housing is desired.
The Company's range of housings are designed and manufactured to
regulatory pressure vessel codes, particularly for applications in the oil and
gas, refinery and petrochemical industries. The Company designs and markets
housings to meet the local regulatory requirements in most countries.
BACKLOG: The Company's backlog on October 31, 2001 was $16.5 million as compared
to $15.3 million as of the same date the previous year. Due to the relatively
short manufacturing cycle and the Company's use of wholesale distributors as
well as general industry practice, backlog, which typically represents less than
30 days of shipments, is not deemed to be significant. A substantial portion of
the Company's revenues result from orders received and product sold in the same
month.
COMPETITION: The markets in which the Company competes are highly competitive.
The Company competes with many domestic and international filtration companies
in its global markets including some which are larger and which possess greater
resources. No one company has a significant presence in all the Company's
markets. The principal methods of competition are product specifications,
performance, quality, knowledge, reputation, technology, distribution
capabilities, service and price. Some of the Company's other competitors are
multi-line companies with other principal sources of income, some of which have
substantially greater resources than the Company; many others are local product
assemblers or service companies that purchase components and supplies such as
valves and tanks from more specialized manufacturers than the Company. Through
its S.A.S.S. teams, the Company has developed many products by collaborating
with its customers throughout the design and development process. The Company
believes that these relationships provide it with a competitive advantage over
other manufacturers.
RESEARCH AND DEVELOPMENT: The Company's research, development, and engineering
activities are conducted in its own laboratories, supplemented by on-site
development and application of custom design and other technical skills. The
Company's research, development and engineering expenditures, which consisted
mainly of the development of new products, product applications and
manufacturing processes for fiscal year 2001, 2000, and 1999 were approximately
$13.7, $12.9 million, and $11.7 million, respectively, and 5.6 percent, 5.3
percent, and 5.3 percent of net sales, respectively. The Company also incurs
additional internal costs relating to its sales and service personnel for
product development.
MANUFACTURING: The Company's manufacturing is largely vertically integrated,
using unique, proprietary and patented processes, with many of the major
components of its filtration units manufactured and assembled in its own plants.
The Company has begun to outsource a limited amount of its manufacturing
processes, such as segments of
6
metal housing manufacturing. The Company believes that it generally has
sufficient manufacturing capacity for the foreseeable future. The Company has
developed a new, more efficient membrane manufacturing process that the Company
believes provides a competitive advantage through the production of superior
products at lower costs. All of the Company's manufacturing facilities are ISO
9002 certified.
RAW MATERIAL SUPPLIERS: The primary raw materials used by the Company are
cotton, nylon, acrylic, cellulose, resins, plastics and metals. The Company has
not experienced a shortage of any of its raw materials in the past three years.
The Company believes that there is an adequate supply of all of its raw
materials at competitive prices from a variety of suppliers.
DISTRIBUTION AND SALES: The Company has approximately 150 independent
distributors of its products in 65 countries. Distributors represent the primary
channel in the marketing of the Company's healthcare and fluid processing
products. The Company has agreements with all of its major distributors in the
United States. In certain markets outside the United States, the Company uses
dedicated sales people. The Company's potable water products are sold directly
to wholesalers, such as plumbing suppliers, water quality dealers and major
resellers, and through manufacturing representatives.
The Company's agreements with its United States distributors are
usually for a period of two years. Such agreements usually assign an exclusive
territory, prohibit distributors from carrying competing products, require that
distributors share market and customer related information other than pricing
with the Company, and require distributors to carry an adequate stock of its
products. The Company does not believe that the loss of any one of its
distributors would have a significant adverse effect on the Company. The
Company's top ten customers accounted for approximately 29 percent of its total
sales in fiscal year 2001.
Whirlpool accounted for approximately 11.5% of fiscal 2001 sales. The
Company believes that no other customers account for more than ten percent of
sales. As of October 31, 2000, the Company employed approximately 390 people as
sales people. Of such employees, approximately 250 are located overseas.
TRADEMARKS AND PATENTS: Trademarks and brand name recognition are important to
the Company. The Company generally owns the trademarks under which its products
are marketed. The Company has registered its trademarks and will continue to do
so as they are developed or acquired. The Company has over 380 registered
trademarks throughout the world.
The Company has over 275 active patents throughout the world and more
than 145 patent applications pending worldwide. The Company additionally relies
on proprietary, non-patented technologies to a certain extent. Certain of the
Company's employees sign non-disclosure and assignment of proprietary rights
agreements.
The Company protects its intellectual property and believes there is
significant value associated with it. However, the Company believes that the
loss of one or more of its trademarks and patents would not have a material
adverse effect, as it is not heavily dependent on any one or few and is
continually expanding its intellectual estate through new additions.
SEASONALITY: The Company's business is typically not seasonal. However, sales in
the first quarter of each fiscal year tend to be lower than the other quarters
due to the holiday season and year-end distributor inventory reductions.
GOVERNMENT REGULATIONS: Management believes that it is in substantial compliance
with applicable regulations of Federal, state and local authorities regulating
the handling of specified substances and the discharge of materials into the
environment.
The Company manufactures certain filtration products that are used as
components in medical devices and the Company must use the Food and Drug
Administration ("FDA") listed materials in the manufacture of these
7
products. Additionally, the Company maintains Drug Master File ("DMF") files on
certain products sold into the health care market.
Certain medical devices marketed and manufactured by the Company's
customers are subject to extensive regulation by the FDA and, in some instances,
by foreign governments. Noncompliance with FDA requirements can result in, among
other things, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the government
to grant pre-market clearance or pre-market approval for devices, withdrawal of
marketing approvals and criminal prosecution. Before a new device can be
introduced into the market, the manufacturer must generally obtain FDA clearance
through either a 510(k) notification or pre-market approval application ("PMA").
A 510(k) clearance will be granted if the submitted information establishes that
the proposed device is "substantially equivalent" to a legally marketed Class I
or II medical device, or to a Class III medical device for which the FDA has not
called for PMAs. The FDA recently has been requiring a more rigorous
demonstration of substantial equivalence than in the past. It generally takes
from four to twelve months from submission to obtain a 510(k) clearance, but it
may take longer. The FDA may determine that a proposed device is not
substantially equivalent to a legally marketed device, or that additional
information is needed before a substantial equivalence determination can be
made.
In many areas the sale and promotion of water treatment devices is
regulated at the state level by product registration, advertising restrictions,
water testing, product disclosure and other regulations specific to the water
treatment industry. In some local areas certain types of water treatment
products, including those manufactured by the Company, are restricted because of
a concern with the amount and type of contaminants per volume of water they
discharge as locally regulated.
ENVIRONMENTAL MATTERS: Compliance with foreign, Federal, state and local laws
and regulations enacted to regulate the handling of and the discharge of
specified materials into the environment has not had, and is not expected to
have, a material effect upon the Company's business.
EMPLOYEES: At October 31, 2001, the Company employed approximately 1,570 people
worldwide (exclusive of employees of independent distributors), with over
approximately 840 employees in the United States and approximately 730 employees
in other countries.
(d) Financial information about foreign and domestic operations and export
sales.
See Note 9 to the financial statements on pages 29-31 of the 2001
Annual Report to Stockholders which is incorporated herein by reference.
8
ITEM 2. PROPERTIES
The Company's world headquarters is located in Meriden, Connecticut.
This facility also contains a manufacturing and assembly plant. The following
table sets forth the location and approximate size of the Company's principal
properties and facilities, most of which are owned by the Company.
Approximate
Facility Size
Location (Sq. Ft.)
-------- ---------
Meriden, Connecticut ...................... 189,000
Enfield, Connecticut ...................... 155,000
Stafford Springs, Connecticut ............. 165,000
Kita-Ibaragi, Japan ....................... 40,000
Mairinque, Brazil ......................... 65,000
Calais, France ............................ 50,000
Mazeres, France ........................... 40,000
Sydney, Australia * ....................... 265,000
Singapore** ............................... 18,546
Churubusco, Indiana ....................... 47,000
Sucy en Brie, France ** ................... 20,000
Nantes, France ** ......................... 4,600
* 10 percent of this facility is sublet to unrelated third parties.
** Leased facility.
In addition to the properties listed above, the Company leases one
facility in the United States and approximately 16 facilities outside the United
States. These facilities are generally used as warehouses and/or sales offices.
ITEM 3. LEGAL PROCEEDINGS
As of the date hereof there is no pending litigation of a material
nature, other than ordinary routine litigation incidental to the business, to
which the Company or any of its subsidiaries is a party or which may affect the
income from, title, to, or possession of, any of their respective properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of stockholders during the
fourth quarter of fiscal year 2001.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers of the Registrant is presented
in Part III below and incorporated herein by reference.
9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The portion of the 2001 Annual Report to Stockholders appearing on page 1 under
the heading "Market Data" is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The financial data on page 35 of the 2001 Annual Report to Stockholders,
captioned "Summary of Financial Data" is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 2001-1999
The following portions of the 2001 Annual Report to Stockholders are
incorporated herein by reference:
(a) All of the material on pages 8-14 under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information appearing under the caption "Market Risk Disclosures" appearing on
pages 13-14 of the 2001 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and report of independent
auditors included on pages 15-34 of the Annual Report to Stockholders for the
fiscal year ended October 31, 2001 are incorporated herein by reference.
Quarterly Results of Operations on page 34 of the 2001 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Regarding the directors of the Registrant, reference is made to the
information set forth under the caption "Election of Directors" in the Company's
definitive Proxy Statement, which information is incorporated by reference
herein.
The principal executive officers of the Company and their recent
business experience are as follows:
Name Office Held Age
---- ----------- ---
Mark G. Kachur ..................... Chairman of the Board of Directors, 58
President and Chief Executive
Officer
Frederick C. Flynn, Jr. ............ Senior Vice President - Finance and 51
Administration, Controller, Chief
Financial Officer, and Assistant
Secretary
Thomas J. Hamlin ................... Senior Vice President, Research & 40
Development
Timothy B. Carney .................. Vice President, and General Manager 49
and President - North America Water
Group
Anthony C. Doina ................... Vice President and General Manager, 45
US Process Filtration Division
John A. Tomich ..................... General Counsel and Secretary 44
None of the officers are related and they are elected from year to year
or until their successors are duly elected and qualified.
Mark G. Kachur. Mr. Kachur is the Chairman of the Board of Directors,
President and Chief Executive Officer of the Company. Mr. Kachur has been a
director of the Company since July 1996. Since joining the Company in 1994, Mr.
Kachur has been a Senior Vice President of Commercial Intertech and President
and Chief Operating Officer of the Company. From 1992 until 1994, he was
President and CEO of Biotage, Inc., from 1971 to 1991, he was with Pall
Corporation, the last seven years as a Group Vice President. He holds a bachelor
of science degree in Mechanical Engineering from Purdue University and a
master's degree in Business Administration from the University of Hartford.
Frederick C. Flynn, Jr. Mr. Flynn is the Senior Vice President -
Finance and Administration, Chief Financial Officer, Controller, and Assistant
Secretary of the Company. Prior to joining CUNO in January 1999, Mr. Flynn was
Senior Vice President and Chief Financial Officer of GE Capital Information
Technology Solutions. From 1989 to 1995 Mr. Flynn was Vice President and
Treasurer of United Technologies Corporation. He holds a bachelor of science
degree in Economics from Boston College and a master's degree in Business
Administration from the University of Connecticut.
11
Thomas J. Hamlin. Mr. Hamlin is the Senior Vice President of Research
and Development. Since joining the Company in 1983, Mr. Hamlin has held a
variety of positions including managerial positions in manufacturing and plant
operations as well as Vice President of Product Development. Mr. Hamlin holds a
bachelor of science degree in mechanical engineering from Rensselaer Polytechnic
Institute and a master's degree in Business Administration from RPI, Hartford
Graduate Center.
Timothy B. Carney. Mr. Carney is the Company's Vice President, and
General Manager and President of the North American Water Group. Previous to
this, Mr. Carney served as the Company's Controller and effective November 1999,
became Senior Vice President - Finance and Administration of the Company's
worldwide Water Group. From 1993 until joining the Company, he served Commercial
Intertech as CUNO Inc. Group Controller and from 1989 until 1993 he served
Commercial Intertech as General Manager and Controller of Water Factory Systems.
He holds a bachelor of science degree in economics and a master's degree in
Business Administration from Youngstown State University.
Anthony C. Doina. Mr. Doina is the Vice President and General Manager
of the US Process Filtration Division, effective November 1998. Since joining
the Company in 1994, Mr. Doina has also served in the capacity of Vice President
of Process Sales. From 1978 until 1994 he was employed by Pall Corporation,
serving in a number of positions in Research and Development, Marketing, and
Sales (Vice President of Sales). Prior to joining the Company, Mr. Doina had
over 16 years of sales experience in the filtration industry. Mr. Doina holds a
bachelor of science degree in chemistry from the University of Stony Brook.
John A. Tomich. Mr. Tomich is General Counsel and Secretary of the
Company. Before joining CUNO Incorporated after the spin-off he was Counsel and
Assistant Secretary for Commercial Intertech, where he had been employed since
January 1990 and had been involved extensively with the legal matters affecting
CUNO. He holds a bachelor of Engineering degree in Mechanical Engineering from
Youngstown State University and Juris Doctor degree from the University of
Akron, School of Law. He is a licensed patent attorney.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption
"Executive Compensation" appearing in the Company's definitive Proxy Statement,
which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Reference is made to the information contained under the captions
"Security Ownership of Management" and "Security Ownership of Certain Beneficial
Owners" in the Company's definitive Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information contained under the caption
"Compensation of the Board of Directors" in the Company's definitive Proxy
Statement, which information is incorporated herein by reference.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) The following consolidated financial statements of CUNO
Incorporated included in its
12
2001 Annual Report to Shareholders are incorporated by
reference in Item 8:
Page Number
In This Report
--------------
Consolidated Statements of Income -
Years ended October 31, 2001,
2000, and 1999 ................................................. 16
Consolidated Balance Sheets as of
October 31, 2001 and 2000 ...................................... 17
Consolidated Statements of Stockholders'
Equity - Years ended October 31,
2001, 2000, and 1999 ........................................... 18
Consolidated Statements of Cash Flows -
Years ended October 31, 2001, 2000, and 1999 ................... 19
Notes to Consolidated Financial Statements ....................... 20-34
(2) The following financial statement schedule of CUNO
Incorporated is included in Item 14 (d):
Schedule II Valuation and Qualifying
Accounts .......................................................... S-1
All other schedules for which provision is made in
the applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been
omitted.
(3) Exhibits
(i)3.1 -- Articles of Incorporation Filed as of April 17, 1992
Incorporated by reference to Exhibit 3.1 to the Company's Form 10 (as filed with
Amendment No. 2 thereto dated August 20, 1996).
10 -- Material Contracts
(i)10.4 Form of Distribution and Interim Services Agreement by and
between CUNO Incorporated and Commercial Intertech Corp.
(i)10.5 Form of Tax Sharing Agreement by and between CUNO Incorporated
and Commercial Intertech Corp.
(i)10.6 Form of Employee Benefits and Compensation Allocation
Agreement by and between CUNO Incorporated and Commercial
Intertech Corp.
(iv)10.7 Employment Agreement - Mark G. Kachur dated December 3,
1993(i), as amended December 1, 1997.
(ii)10.8 Termination and Change of Control Agreement - Paul J. Powers
dated October 1, 1996
(ii)10.9 Termination and Change of Control Agreement - Mark G. Kachur
dated October 1, 1996
13
(ii)10.10 Termination and Change of Control Agreement - Michael H.
Croft dated October 1, 1996
(ii)10.11 Termination and Change of Control Agreement - Ronald C.
Drabik dated October 1, 1996
(iv)10.12 Termination and Change of Control Agreement - Timothy B.
Carney dated October 1, 1996(ii), as amended October 31, 1997.
(ii)10.13 Termination and Change of Control Agreement - John A. Tomich
dated October 1, 1996
(iii)10.14 Credit Agreement dated October 1, 1996 between CUNO
Incorporated and Mellon Bank, N.A.
(iii)10.15 CUNO Incorporated Executive Management Incentive Plan
(iii)10.16 CUNO Incorporated Management Incentive Plan
(iv)10.17 CUNO Incorporated Savings and Retirement Plan
(iv)10.18 Employment Agreement - Paul J. Powers dated December 1, 1997.
(v)10.19 First Amendment to Distribution and Interim Services Agreement
(vi)10.20 CUNO Incorporated Nonqualified Deferred Compensation Plan for
Mark G. Kachur
(vii)10.21 Termination and Change of Control Agreement - Frederick C. Flynn,
Jr. dated January 21, 1999
(vii)10.22 Ronald C. Drabik - Agreement and General Release
(viii)10.23 Employment Agreement - Frederick C. Flynn, Jr.
(ix)10.24 Employment Agreement - Michael C. Croft
10.25 Employment Agreement - Mark G. Kachur
13 - Certain sections of the Annual Report to Shareholders for the
year ended October 31, 2001.
21 - Subsidiaries of the Registrant
23 - Consent of Independent Auditors
- ------------------------------
(i) Incorporated by reference to the Registrant's Registration
Statement on Form 10, as amended, filed with the Securities and Exchange
Commission on July 29, 1996.
(ii) Incorporated by reference to the registrant's Annual Report on
Form 10-K, as amended, filed with the Securities and Exchange Commission on
January 23, 1997.
(iii) Incorporated by reference to the Registrant's Registration
Statement on Form S-1, as amended, filed with the Securities and Exchange
Commission on February 27, 1997.
(iv) Incorporated by reference to the registrant's Annual Report on
Form 10-K, filed with the Securities and Exchange Commission on January 28,
1998.
(v) Incorporated by reference to the registrant's Quarterly Report on
Form 10-Q, filed with the Securities and Exchange Commission on February 27,
1998.
(vi) Incorporated by reference to the registrant's Annual Report on
Form 10-K, filed with the Securities and Exchange Commission on January 29,
1999.
(vii) Incorporated by reference to the registrant's Quarterly Report on
Form 10-Q, filed with the Securities and Exchange Commission on April 4, 1999.
(viii) Incorporated by reference to the registrant's Quarterly Report
on Form 10-Q, filed with the Securities and Exchange Commission on June 4, 1999.
(ix) Incorporated by reference to the registrant's Quarterly Report on
Form 10-Q, filed with the Securities and Exchange Commission on September 11,
2000.
(b) Reports on Form 8-K for the quarter ended October 31, 2001
NONE
Additional information relating to management contracts and
renumerative plans is contained in Note 10-Stock Options and Awards of the
Notes to Consolidated Financial Statements on pages 31-32.
14
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.
CUNO Incorporated
Date: January 14, 2002
/s/ Mark G. Kachur /s/ Frederick C. Flynn, Jr.
- ---------------------------- --------------------------
Mark G. Kachur Frederick C. Flynn, Jr.
Chairman of the Board Senior Vice President --
of Directors, President, and Finance and Administration,
Chief Executive Officer Chief Financial Officer,
Controller, and Assistant Secretary
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 date indicated above.
Name Title Date
- ---- ----- ----
Joel B. Alvord* Director January 14,
2002
Charles L. Cooney, Ph.D.* Director January 14,
2002
Frederick C. Flynn, Jr.* Director January 14,
2002
John A. Galvin* Director January 14,
2002
Mark G. Kachur* Chairman January 14,
2002
C. Edward Midgley* Director January 14,
2002
David L. Swift* Director January 14,
2002
*By: /s/ John A. Tomich
-----------------------------
John A. Tomich
Attorney-in-Fact, Pursuant to
Power of Attorney
15
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
CUNO INCORPORATED
YEARS ENDED OCTOBER 31, 2001, 2000, AND 1999
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------------
BALANCE AT CHARGED TO OTHER
BEGINNING CHARGED TO COSTS ACCOUNTS - BALANCE AT END
DESCRIPTION OF PERIOD AND EXPENSES DESCRIBE DEDUCTIONS OF PERIOD
- ---------------------------------------------------------------------------------------------------------------------------
Year ended October 31, 2001
Deducted from asset accounts:
Allowance for doubtful accounts
receivable $1,394,685 $133,384 $(87,204)(D) $104,375(A) $1,336,490
========== =========== ============ =========== ==========
Valuation allowance for deferred
income tax assets $ 350,000 $ 0 $ 0 $234,000(C) $ 116,000
========== =========== ============ =========== ==========
Year ended October 31, 2000
Deducted from asset accounts:
Allowance for doubtful accounts
receivable $1,705,641 $265,698 $(91,366)(D) $485,288(A) $1,394,685
========== =========== ============ =========== ==========
Valuation allowance for deferred
income tax assets $ 189,000 $161,000(B) $ 0 $ 0 $ 350,000
========== =========== ============ =========== ==========
Year ended October 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts
receivable $1,179,057 $588,118 $ 52,251(D) $113,785(A) $1,705,641
========== =========== ============ =========== ==========
Valuation allowance for deferred
income tax assets $ 203,000 $189,000(B) $ 0 $203,000(C) $ 189,000
========== =========== ============ =========== ==========
(A) Uncollectible accounts written off, net of recoveries.
(B) Establishment of valuation allowance for operating loss carryforwards.
(C) Net operating loss carryforwards utilized.
(D) Changes in foreign currency.
S-1