INDEPENDENT AUDITORS' REPORT Osmonics, Inc. We have audited the consolidated financial statements of Osmonics, Inc. (the Company) as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996 and have issued our report thereon dated February 10, 1997. Such financial statements and report are included in the Company's 1996 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedule of the Company, listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ Deloitte and Touche LLP Minneapolis, Minnesota February 10, 1997 OSMONICS, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (In thousands) Years Ended December 31, 1996, 1995 and 1994 Column A Column B Column C Column D Column E Additions Balance Charged Charged Balance at to to at Beginning Cost and Other End of Description of Period Expensed Accounts Deductions Period Year Ended December 31, 1996: Current Operations: Allowance for Doubtful Accounts $1,177 $ 59 $ 329(FA) $ 907 Warranty and Start-up Reserve $1,868 $2,414 $2,480(FB) $1,802 Discontinued Operations: Warranty Reserve $1,957 $1,957 Year Ended December 31, 1995: Current Operations: Allowance for Doubtful Accounts $1,329 $ 80 $109(FC) $ 341(FA) $1,177 Warranty and Start-up Reserve $1,981 $1,406 $1,519(FB) $1,868 Discontinued Operations: Allowance for Doubtful Accounts $ 46 $ 46(FA) $ 0 Warranty Reserve $1,961 $ 4(FB) $1,957 Reserve for Discontinued Operations $ 127 $ 127 $ 0 Year Ended December 31, 1994: Current Operations: Allowance for Doubtful Accounts $1,276 $ 134 $ 81(FA) $1,329 Warranty and Start-up Reserve $1,996 $1,350 $1,365(FB) $1,981 Discontinued Operations: Allowance for Doubtful Accounts $ 87 $ 41(FA) $ 46 Warranty Reserve $1,972 $ 10(FB) $1,961 Reserve for Discontinued Operations $ 240 $ 113 $ 127 <FN> <FA> Uncollectible accounts charged against allowance. <FB> Actual warranty claims and start-up costs charged against reserve. <FC> Addition due to acquisition. </FN>