CUNO Incorporated

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CUNO Incorporated

400 Research Parkway
Meriden, Connecticut 06450
U.S.A.
Telephone: (203) 237-5541
Toll Free: (800) 243-6894
Fax: (203) 238-8977
Web site: http://www.cuno.com

Public Company
Incorporated: 1912 as Cuno Engineering Corporation
Employees: 1,650
Sales: $258.2 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: CUNO
NAIC: 333319 Other Commercial and Service Industry Machinery Manufacturing; 333999 All Other Miscellaneous General Purpose Machinery Manufacturing

CUNO Incorporated designs, manufactures, and markets a variety of general filtration, microfiltration, and ultra-filtration products for residential, commercial, and industrial use. A worldwide leader, CUNO has more than 300 patented technologies, including microporous membranes, depth filters, and cleanable filters and systems, which are applied to the potable water, fluid processing, and healthcare markets. Customers in the fluid processing market include chemical, gas, oil, and petrochemical processors, paints and resins manufacturers, and electronics and semi-conductor manufacturers. Healthcare customers include pharmaceutical manufacturers and biological and diagnostics specialists who require purification at the molecular level.

Water filtration and treatment systems for consumer and commercial applications are available under the Aqua-Pure, Water Factory Systems, and MacClean brands. Products include drinking water purification and whole-house water filtration under the Aqua-Pure brand, and water treatment systems, such as water softening, iron removal, acid neutralization, sulfur filtration, and microbiological control, available under both the MacClean and Aqua-Pure brands. Water Factory Systems products implement advanced technology reverse osmosis, which removes chlorine, pesticides, herbicides, radioactive particles, dissolved solids, and other contaminants. Reverse osmosis involves a pre-filtration step, purification through a reverse osmosis membrane, and a final step utilizing activated carbon to remove unpleasant tastes and odors. Water filtration products are available for the foodservice industry as well as consumers.

Engineering Diverse Industrial Products: 1912–60

Charles Cuno founded Cuno Engineering Corporation in 1912 to develop and manufacture electrical automotive equipment. The company’s most enduring early product was the Cuno Electric Match, a cigarette lighter mounted on the dashboard of automobiles, promoted as a safe alternative to using matches while driving. The six models ranged in price from $6 to $ 15 per unit, available as standard equipment on fine cars or sold through automobile dealers and direct to the consumer. In 1926 Cuno entered the market for filtration products, applied to automotive and industrial uses. The company sold these patented products under the Micro-Klean brand name.

While Cuno Engineering became a leader in filtration technology, the company continued to produce automobile cigarette lighters. During the 1950s, however, filtration became a primary focus. Having grown to $4 million in revenues in 1954, Cuno Engineering became a public company in 1955, selling 200,000 shares at $16.50 per share. Funds from the stock offering were used to purchase Connecticut Filter as well as to pay bank debt. About this time the company began to develop filtration products for drinking water and food and beverage processing. For instance, in France Cuno filters were used to clarify fine cognacs. In 1958 Cuno Engineering expanded to European markets through a joint venture with Olin Mathieson Chemical Corporation. Olin Cuno Filter Corporation USA established a sales office and distribution center in Europe. American Machinery and Foundry, Inc. (AMF), a conglomerate of industrial and leisure and sporting goods companies, purchased Cuno Engineering in 1960; afterward the company focused on filtration and separation technologies exclusively.

Emphasis on Filtration Technology Development: 1960–85

While AMF Cuno continued to develop, manufacture, and market filtration products for industrial use, residential water filtration became a more important part of its research and development activities. The company’s engineers collaborated with other divisions at AMF, applying its expertise in water purification to development on AMF desalinization technology. As concern for water contamination grew during the 1960s, the company developed water filtration products for residential and commercial uses. Under the Aqua-Pure brand AMF Cuno sold a line of cartridges designed to fit inside the cold water pipeline to remove particles as well as unpleasant tastes and odors. The Aqua-Pure Chemical Feeder, introduced in 1967, added chlorine or bleach through the water line to kill bacteria. Adapting industrial technology to home use, AMF Cuno introduced the AP400 Lime Aid Water Conditioner for water heaters in 1975. A filter cartridge, placed in the cold water pipe that feeds into a water heater, removed dirt and sediment and minerals and prevented mineral deposits and clogs in hot water heater elements and thermostats. AMF Cuno marketed these water filtration products primarily through wholesale plumbing suppliers. Purwater brand systems provided an inexpensive home water filtration option. Sold through hardware stores and home centers, Purwater products filtered rust, dirt, and chemicals from drinking water.

AMF Cuno designed nitrations and separation technology that worked at the microscopic level for industrial, medical research, and healthcare applications. In 1973 the company patented Zeta Plus, the first nonasbestos filtration system with charged membranes capable of trapping microscopic contaminants. Zetapor brand products provided even finer filtration with microporous membranes. Both Zeta Plus and Zetapor products were used by pharmaceutical, electronics, and food and beverage manufacturing industries as well as in medical science research. After AMF acquired a biological and diagnostic products company in 1980, AMF Cuno assisted in the development of a purified cell culture serum, ZetaSera-D. The serum was used for research in the biological sciences, including genetic engineering and cancer research, and for production of vaccines and interferon. Filtration and separation technology played an integral role in producing the culture serum.

In 1982 AMF divided Cuno into two divisions to reflect patterns of existing and expected growth. General Filter Products consolidated traditional areas of business, such as industrial filters, Aqua-Pure products, Purwater systems, as well as PCP metering pumps. The Microfiltration Products division consolidated efforts to develop new products under the Zeta Plus and Zetapor brands.

In 1983 AMF added the Molecular Separations Division to design, manufacture, and market a new product. In development for two years and representing a significant advance in purification, ZetaPrep utilized an ion-exchange material to address the purification problems of biotechnology and genetic engineering. ZetaPrep separation devices were designed to be effective at the molecular level, for use in producing pure formulations of vaccines, hormones, enzymes, and antibodies. AMF expanded a research and development laboratory at its Talcottville facility to support research in Chromatographie fluids separation and other fluid separation applications.

AMF Cuno continued to design filtration products for industrial use. In 1985 the company introduced a line of filters designed for coatings clarification. The Betapure product line addressed the needs of industrial filtration of extremely viscous fluid processed under high pressure. Betapure products filtered particles to create clear topcoats for automotive finishes and magnetic coatings for tapes and computer discs. AMF Cuno introduced Micro-Klean II Filter Cartridges for waterflood, disposal well, and lube oil systems.

AMF Cuno continually improved on its products with proprietary new technology. In 1985 the company introduced a new line of three Aqua-Pure Reverse Osmosis water purification systems. New to the Aqua-Pure brand was the Iron Removal System, which oxidized, then trapped iron for removal from residential, commercial, and industrial water lines.

New Ownership in 1986

New leadership at AMF narrowed the company’s focus to leisure and sporting goods, leading to AMF’s divestment of Cuno in 1986. Commercial Shearing, Inc. purchased Cuno for an amount estimated at more than $100 million. Commercial Shearing manufactured hydraulic power components, such as pumps, motors, valves, and cylinders, as well as a variety of metal products used in the construction, transportation, materials handling, mining, and agricultural machinery industries. At this time Cuno operated four plants in the United States, while facilities in France, Brazil, Japan, and Australia supported manufacturing and distribution for customers in 75 countries. Commercial Shearing purchased Cuno for its technological and market leadership in filtration products, particularly water purification.

Renamed Commercial Intertech Corporation (CIC), the company emphasized its interest in water filtration with the December 1988 acquisition of Water Factory Systems. Founded in Irvine, California, in 1970, Water Factory Systems sold reverse osmosis water treatment systems for consumer use and water treatment equipment for industrial applications. The acquisition included a network of retail stores serving commercial and home markets and LithoWater, a pollution control technology designed to reduce volatile organic compounds for industrial water users, such as printers.

Company Perspectives

CUNO is a world leader in the design, manufacture, and marketing of a comprehensive line of filtration products for the separation, clarification, and purification of fluids and gasses.

Much of Cuno’s growth at this time originated from consumer interest in water purification products. New channels of distribution included hardware stores, home centers, and mass merchandisers. The company provided private label consumer water filtration products for Shaklee, Sears & Roebuck, and others.

Notable growth in industrial products involved overseas expansion and new technologies. Marketing to specific markets overseas led to increased demand for industrial filters, prompting construction of a new manufacturing facility in Japan in 1989. Sales of Microfluor filters for gases sterilization increased noticeably. A 45 percent increase in sales worldwide demanded additional production capacity for Betapure products as well as Micro-Klean products, which complemented and were often used with Betapure filters. New technology in hazardous waste control involved a combination of ion exchange and traditional filtration to remove heavy metals from wastewater at plating and printing businesses.

In 1991 CIC purchased Bioken Separations and combined it with Cuno’s separations operation. Renamed Cuno Separations Division, the group manufactured proprietary crossflow membranes and devices that addressed the needs of ultra-pure filtration for applications in biopharmaceuticals, beverage, electronics, and industrial uses. Its water filtration systems were used in laboratory research and municipal water utilities, with customization available.

Cuno relocated, consolidated, and expanded its water purification systems manufacturing at one 120,000-square-foot facility in Enfield, Connecticut, purchased in late 1992. Water Factory Systems was relocated to the site from California and Aqua-Pure and other water filtration systems manufacturing was relocated from the Talcottville, Connecticut plant, which closed. In addition to housing increased manufacturing capacity, the new facility provided space for the company’s major domestic distribution center.

Mid-1990s: Initiatives Positioning Cuno for Success

With fluctuating sales in the early 1990s and net losses in 1992 and 1993, Cuno established six initiatives to concentrate the company on long-term growth and continuing improvement. These included improvements in its manufacturing operations, such as more efficient use of raw materials and reduction of scrap. The company shortened its manufacturing cycles, improved inventory management, and reduced labor costs as well. Another main objective involved making select acquisitions; in 1995, however, the company divested its Cuno Separations unit because of its poor performance. The company identified the development of pre/final filter systems as essential to its success.

Three overlapping and important initiatives involved designing products for specific markets, with an emphasis on customer needs. In the past Cuno produced general products and competed on price. In 1994 the company sought to design products for specific uses and to provide quality products for markets where price was less important. Cuno formed the Scientific Application Support Services (SASS) to collaborate with customers in developing filters, often for new technological processes. The company looked at cross-functional applications of existing products as well. Cuno established direct relationships with its product users, rather than simply allow distributors to address the needs of customers. To support the SASS program, Cuno expanded the engineering staff by 28 percent between 1994 and 1996. To facilitate implementation of new products, Cuno reduced the product development cycle from four to five years to less than two years.

The SASS program succeeded in gaining new business for Cuno. A proprietary nylon membrane played a significant role in development of new products; sales related to these high margin filters increased 100 percent in 1996. Revenues increased 25 percent between fiscal 1994 and 1996, from $143 million to $179 million, respectively. Sales of Fluid Processing products rose from $69.6 million to $81.1 million, with much of the increase originating with semi-conductor manufacturers. Sales to the healthcare market rose from $32.7 million to $47.9 million as new management in Europe improved sales in the healthcare sector there. Sales to restaurants and foodservice organizations supported increases in the potable water market, from $40.9 million in 1994 to $49.3 million in 1996. The formation of a sales team dedicated to reverse osmosis products facilitated increased sales, as did improvements in countertop and under-the-sink reverse osmosis systems that allowed for competitive pricing and attracted new buyers. The company successfully introduced several existing products in overseas markets, particularly Brazil. With effective cost reductions, Cuno reported net income of $6 million in 1996.

Key Dates

1912:: Cuno Engineering Corporation is founded.
1926:: Cuno Engineering develops its first industrial filters.
1955:: Cuno Engineering becomes a public company.
1960:: American Machinery and Foundry acquires Cuno Engineering; business is renamed AMF Cuno.
1973:: Zeta Plus brand of microporous filtrations products is introduced.
1986:: Commercial Shearing acquires AMF Cuno.
1988:: The acquisition of Water Factory Systems strengthens Cuno in the consumer market.
1995:: The Scientific Application Support Services Program adds customer focus to product research.
1996:: CUNO Incorporated becomes an independent company through share dividend distribution.
1997:: CUNO launches nine new products for a variety of filtration applications.
2000:: Forbes magazine includes CUNO on its list of the 200 Best Small Companies.
2002:: Sales of appliance filters account for 13.2 percent of total revenues.

Moving Forward As an Independent Company in the Late 1990s

During 1996 CIC deflected an attempted hostile takeover by United Dominion Industries, specifically interested in Cuno. The board rejected a tender offer as inadequate and suggested the shareholders reject it as well. CIC already planned to spin off Cuno as an independent company, seeing Cuno’s leadership in the fluid purification industry as a value best left to itself. In the interests of the shareholders, CIC moved forward with the separation. After a higher offer was rejected, United Dominion attempted unsuccessfully to stop the spinoff through legal means. In September CIC distributed all Cuno shares in the form of a dividend to shareholders. The new company, CUNO Incorporated, assumed $30 million in debt and $5.3 million in spinoff costs through a dividend to CIC. To strengthen its financial position for continuing internal growth, CUNO raised $26.4 million through an equity offering in May 1997.

By May 1997 CUNO launched nine products for worldwide distribution. These included Electropor II, providing submicron level filtration for ultra-purified water necessary in semi-conductor manufacturing. The Petro Klean depth filter, used by the oil and gas industry, involved a grooved surface for more effective purification and long-lasting use. Scale Gard prevented the buildup of minerals that can block mechanisms in steam ovens and boilers used in the foodservice industry, particularly in regions with hard water. Fluid filtration products for the healthcare market included Zetaplus Biocap for laboratory and pilot project use; Zetabind II used a microporous nylon membrane for diagnostics and laboratory use.

In November 1997 the company formed the Consumer Filter Products Group to consolidate businesses worldwide in the residential, foodservice, and commercial potable water product markets, previously handled on a geographic basis. With 25 percent of revenues originating from these markets, Cuno expected continued and rapid growth in this area. In 1998 the group introduced a new Aqua-Pure reverse osmosis product that improved the quality of filtration through a thin film composite membrane. A new Water Factory reverse osmosis system incorporated performance improvements, with electronic control and thin-film membranes. A strategic alliance with NuSkin Enterprises, a health products company, prompted the introduction of Fountain Fresh, a high performance home water filtration system manufactured by Cuno and distributed in Japan under the NuSkin brand.

Continuing the business improvement program established in 1994, CUNO reorganized certain functions in late 1998. The company began to outsource metal housing manufacturing, streamlined membrane production in the United States, and consolidated distribution in the United States and Europe. Cost reductions involved the elimination of both salary and wage positions. In March 1998 CUNO acquired the Chemical Engineering Corporation (CEC). Already a supplier to CUNO for ten years, CEC designed and manufactured water conditioning equipment, including water softening, iron removal, and acid neutralization. Formerly sold under the CES CO brand, the line under CUNO was renamed MacClean.

Although sales of $220.6 million in 1999 represented an 11 percent increase over 1998, that increase occurred through a shift in markets. Sales declined slightly in the healthcare and fluid processing markets, particularly due to the oil industry in the United States and Japan. Fluid processing reported $72.3 million in sales and sales in healthcare amounted to $60.7 million. The decline was offset by increased sales in potable water markets, particularly in Australia, Brazil, and Europe. In 1999, however, sales of water purification and filtration products rose by 37.4 percent, to $87.7 million, as the introduction of a new line of water filters, primarily sold to appliance manufacturers, positively impacted North American sales.

Continuing Focus on New Product Development in the Early 2000s

Spending approximately 5 to 6 percent of net revenues on research and development, CUNO continued to design new products and improve existing filtration technologies. PolyPro XL filters provided flexible usage when a high level of purification is needed, whether for healthcare, industrial, or water filtration applications, or at the prefiltration, membrane protection, or final filtration stage. New products for the fluid processing market included PolyNet, an advanced polypropylene depth filter cartridge, and Betafine XL, an industrial polypropylene pleated filter. CUNO introduced a new line of patented carbon filters for the potable water market, providing overall superior performance with fewer service requirements.

CUNO introduced several new products for the healthcare market. Zeta Plus VR Series was produced to remove viral contaminants from blood plasma, serum, and other products of biological research. Microfluor II provided a high-flow capacity for pharmaceutical manufacturing. The LifeASSURE PB series provided a prefiltration of large particles and filtration of smaller particles in one cartridge. In collaboration with Xtrana, Inc., CUNO developed Xtra Bind Nylon-XBN membrane for nucleic-acid sample preparation. The product combined CUNO’s nylon microporous membranes with Xtrana’s Xtra Bind. Applications for CUNO’s new Novylon membranes included test kits for pregnancy and infectious diseases. SterASSURE, introduced in late 2002, utilized a pleated, multi-zone membrane construction for the final step in filtration for healthcare applications.

By the end of fiscal 2002 potable water systems accounted for nearly half of revenues, $119.6 million of reported sales of $258.2 million in fiscal 2002. CUNO experienced its greatest gains in the North American market for residential water filtration systems as the company sought new outlets through home builders and upscale kitchen and bath showrooms. Appliance filters continued to sell very well, with sales to Whirlpool alone accounting for 13.2 percent of total revenues in 2002. Sales of fluid processing products continued to decline, though at a slower pace, at $68.7 million in revenues, while sales to the healthcare market increased slowly, to $70 million. With improvements to supply chain management and implementation of proprietary manufacturing technology, net income rose to $23 million in fiscal 2002.