U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
Commission File No. 0-21232
RECOVERY ENGINEERING, INC.
(Name of small business issuer in its charter)
MINNESOTA 41-1557115
- ------------------------------ ------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2229 EDGEWOOD AVENUE SOUTH, MINNEAPOLIS, MN 55426
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(Address of principal executive offices)
Registrant's telephone number: (612) 541-1313
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Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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(Title of class)
Indicate by checkmark 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 such filing
requirements for the past 90 days. Yes __X__ No ____
Indicate by checkmark 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. __X__
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405, 17 CFR 230.405).
$25,442,770 AS OF MARCH 14, 1997
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date.
COMMON STOCK, $.01 PAR VALUE - 3,282,938 SHARES AS OF MARCH 14, 1997
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended December
31, 1996 (the "Annual Report to Shareholders"), are incorporated by reference
into Part II. Portions of the definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on April 24, 1997 (the "Proxy Statement"), and to be
filed within 120 days after the Registrant's fiscal year ended December 31,
1996, are incorporated by reference into Part III.
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. BUSINESS.................................................... 1
General.................................................. 1
Background............................................... 1
Company History and Strategy............................. 2
Household Water Filters.................................. 3
Portable Drinking Water Systems.......................... 5
Reserve Osmosis Desalinators............................. 6
Marketing and Distribution............................... 7
Research and Development................................. 8
Patents.................................................. 8
Competition.............................................. 8
Manufacturing............................................ 8
Government Regulation.................................... 9
Employees................................................ 9
ITEM 2. PROPERTIES.................................................. 9
ITEM 3. LEGAL PROCEEDINGS........................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 10
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED
STOCKHOLDER MATTERS......................................... 10
ITEM 6. SELECTED FINANCIAL DATA..................................... 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................... 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE...................... 10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS............................ 10
ITEM 11. EXECUTIVE COMPENSATION...................................... 11
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.............................................. 11
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K..................................... 12
SIGNATURES.................................................. 14
PART I
ITEM 1. BUSINESS
GENERAL
Recovery Engineering, Inc. ("REI" or the "Company"), a Minnesota
corporation, designs, develops, manufactures, and markets proprietary
small-scale drinking water systems. Sold under the PUR(R) brand name, the
Company's products include a line of self-monitoring water filters for home use,
a rugged line of portable water systems for outdoor enthusiasts and
international travelers, and the world's most energy efficient line of
desalinators for sailors and military personnel.
The household product line was developed to address growing concerns
about residential drinking water quality and dissatisfaction with products
currently offered by competitors. These products incorporate proprietary
technology which the Company believes gives it a sustainable competitive
advantage over other products currently in the market. This technology, known as
ASM(R) (Automatic Safety Monitor(TM), monitors the life remaining in a filter
cartridge and then shuts off the water flow when a filter has reached the end of
its useful life. These filter products use advanced filtration technologies
including ion exchange resin and activated carbon technology to remove lead,
chlorine, and other contaminants while improving water taste, odor and color.
Selected models also remove microorganisms as small as Cryptosporidium and
Giardia.
In 1995, the Company entered into an agreement with Braun AG, a leading
German housewares company, to supply water filters for Braun's FlavorSelect(R)
coffee makers. This product also incorporates the ASM and uses ion exchange
resin and activated carbon technology.
The Company has also entered into an agreement with Groupe-SEB, the
second largest small appliance manufacturer in the world. The terms of the
agreement provide Groupe-SEB with rights to distribute PUR household water
filters in all countries outside of North America and Japan.
REI's antimicrobial portable water purifiers use a proprietary
disinfection technology that eliminates all harmful microorganisms from drinking
water in seconds, making it possible for individuals to treat contaminated water
when they are traveling or backpacking. The energy recovery technology used in
the Company's reverse osmosis desalinators reduces the pumping energy needed to
desalinate seawater by approximately 90%, enabling the development of unique
hand-operated systems for life rafts.
The Company has historically invested and expects to continue to invest
in research and development activities. New technologies currently under
development are expected to result in the introduction of several new water
treatment products to enhance existing product lines.
BACKGROUND
During the last half-century, reliable drinking water has largely been
taken for granted in the United States and other western nations. Despite its
seeming abundance, however, potable water is quite rare. Two-thirds of the
Earth's surface is covered by salt water, while most of the rivers and lakes of
the world contain toxins or microorganisms that may cause disease. Much of the
populated world, including parts of Asia, Africa and Latin America, does not
have adequate sewage or water treatment facilities, leaving tap water unfit for
human consumption. In the United States and other developed countries, lead and
other impurities can make water potentially unsafe or unpleasant in taste, color
and odor.
The type of equipment required to treat polluted drinking water varies
depending upon the type of contamination. In general, water filters are designed
only to remove sediment and chemical contaminants. To remove microbiological
contaminants such as viruses, bacteria and protozoa, water purifiers are
required.
HOUSEHOLD MARKET
Concerns about the quality of drinking water among United States
consumers have increased significantly in recent years. The Company believes
that this increasing awareness and concern has contributed significantly to a
steady increase in the size of the market in the United States for household tap
water substitutes (primarily bottled water) and drinking water equipment. The
United States market for bottled water is currently estimated to be over $3
billion annually. An additional $1 billion per year is estimated to be spent on
drinking water treatment equipment, services and supplies.
A variety of products is currently available to improve the aesthetic
properties of water (taste, color and odor) and to remove harmful contaminants
such as lead and chlorine. Consumer research conducted by the Company in 1993
and reconfirmed in 1996 revealed, however, that the performance of existing
water filters failed to meet consumers' expectations, primarily because
consumers have no way of knowing whether or not the filters are working. The PUR
Self Monitoring Water Filter(TM), which incorporates the Company's ASM
technology, is designed to assure consumers that they will only obtain properly
filtered drinking water, by automatically shutting off the water flow when the
filter cartridge has reached the end of its useful life. The ASM technology also
provides consumers with an ongoing read-out of the filter cartridge's remaining
life so that they can anticipate the need to purchase a replacement filter
cartridge.
RECREATIONAL AND MILITARY MARKETS
International travelers, sailors and campers often find themselves in
locations where a central water supply is either unavailable or unreliable.
International travelers and outdoor enthusiasts have long known of the hazards
of drinking the water in certain countries or from lakes and streams, while
saltwater sailors generally must contend with limited storage space for drinking
and emergency water. These individuals have historically relied on slow acting
chemical processes to treat non-potable water, or on nothing at all, risking
either serious illness or dehydration.
Individuals are spending an increasing amount of time pursuing
recreational activities, as evidenced by the growth of the leisure equipment
market over the past 20 years. According to the United States Census Bureau,
United States citizens make an estimated six million trips each year to
countries where the local water supply is not reliable and take over 30 million
backpacking trips each year, and nearly 90,000 sailors own ocean-going
sailboats. Similar trends in the level of recreational activity and leisure
equipment purchases are present internationally.
Armed service personnel around the world also encounter situations
where no reliable water supply is available. In particular, space limitations
prevent the storage of significant amounts of emergency potable water on board
ship and airplane life rafts, while harsh field activities often force soldiers
to rely on contaminated natural water sources. It is estimated that there are
40,000 life rafts presently available for use by the United States armed forces,
all of which require some means of desalinating seawater to ensure the survival
of military personnel. Likewise, when any of the more than 800,000 United States
infantrymen are deployed in the field, a reliable and efficient means of
purifying water is often required.
COMPANY HISTORY AND STRATEGY
Since its formation in 1986, the Company has utilized its mechanical
and chemical engineering expertise to develop new water filtration and
purification products for use where size, cost or energy constraints have
prevented the adequate treatment of water. The Company's existing and proposed
product lines address a wide range of needs in the military, recreational and
consumer markets for water filtration and purification products; with each
product, the Company has focused on a market segment that enables the Company to
expand and build on its existing expertise and reputation in water filtration
and purification.
The Company's first product, developed for the United States Navy,
required the invention of a compact hand-operated reverse osmosis desalinator
that could produce up to 25 gallons of fresh water per day. The Navy sought to
deploy such a device on its life rafts as a replacement for chemical desalter
kits. In 1988, the Company introduced its first reverse osmosis desalinator,
which utilized a unique energy recovery technology to reduce by approximately
90% the pumping energy needed to purify seawater. Since that time, three other
products have been developed around this technology, each for applications where
desalinating seawater had not been previously practical.
In 1988, the Company also initiated development of products designed to
treat contaminated fresh water. To overcome the limitations of existing
filtration and chemical means employed for field water treatment, the Company
developed a new technology, known as Tritek(R), capable of eliminating all types
of microorganisms, including protozoa, bacteria and viruses, from drinking water
in seconds. In addition, since size limitations prevented use of a filter large
enough to remove high quantities of sediment without clogging, the Company
developed a unique self-cleaning filter technology for its top-of-the-line model
that extends the life of a conventional microfilter by approximately 20 to 40
times, depending on the water conditions. The Company introduced the PUR
Explorer(R) and Portable(TM) models in 1991, the PUR Scout(TM) in 1992, the PUR
Hiker(TM) in 1993, the PUR Pioneer(TM) in 1994, and will be introducing the PUR
Voyager in 1997.
In 1994, the Company introduced the PUR Self Monitoring Water Filter
product for household use. This faucet-mounted product incorporates the
Company's proprietary technology known as ASM which indicates to the consumer
the life remaining in a filter cartridge and then shuts off the water flow when
a filter cartridge has reached the end of its useful life.
In 1995, the Company completed development of a water filter product to
be used in Braun FlavorSelect(R) coffee makers. All new FlavorSelect coffee
makers sold in Europe and Asia include the PUR water filter. Braun rolled
out this new filter to the US during 1996. This product also incorporates the
Company's proprietary ASM technology.
In 1996, the Company introduced two new PUR Self Monitoring Water
Filters for household use. The countertop model incorporates the Company's
proprietary ASM technology and utilizes the Company's advanced carbon block
technology. The water pitcher model also incorporates the Company's proprietary
ASM technology and uses ion exchange resin and activated carbon technology.
Replacement filters for the pitcher model fit the leading competitor's pitcher
models.
In 1996, the Company completed an international distribution agreement
with Groupe-SEB, the second largest small appliance manufacturer in the world.
Groupe-SEB is a $1.9 billion, French-based company whose products are
distributed in over 80 countries, and are marketed under two brand names,
Rowenta and T-Fal. The terms of the agreement provide Groupe-SEB with
distribution rights of PUR household water filters in all countries outside of
North America and Japan. The multi-year agreement with renewal options gives the
Company immediate access to worldwide markets with minimal investment in sales
and marketing activities.
HOUSEHOLD WATER FILTERS
In 1994, the Company began shipping its faucet-mounted water filter for
household applications for sale in the United States. In January 1996 the
Company introduced its countertop water filter, in September 1996 the Company
introduced its pitcher water filter, and in 1997 the Company will introduce an
under-sink product. This will complete the Company's strategy of developing a
"good, better, best" line of products based on performance and consumer
benefits.
A variety of products is currently available to improve the aesthetic
properties of drinking water (taste, color and odor) and to remove harmful
contaminants such as lead and chlorine. Currently, the most common drinking
water treatment technologies for household use include activated carbon
filtration, reverse osmosis, distillation and ion exchange (a chemical process
which removes certain contaminants such as lead). These technologies vary based
primarily upon cost, ease of use and effectiveness, but each can be adapted to
some method of household use.
In the current household market, the channels of retail distribution
tend to define the types of products offered to consumers. Water treatment
dealers typically offer larger, more expensive systems, primarily utilizing
reverse osmosis, that are mounted under the sink or at the location where the
water enters the home. Mass market retailers focus primarily on activated carbon
filtration, offering less expensive products with replaceable filter cartridges,
including carafes or filters that can be mounted on the faucet. To a lesser
extent, activated carbon filtration and distillation systems that can be
installed on the counter or under the sink are available from mass market
outlets such as home centers and hardware stores. Filtration systems are also
sold through direct sales networks such as door-to-door sales and mail order
organizations. The Company's PUR household water filters are positioned to
compete with mass market retail products.
Despite growing concern over water quality and safety, the domestic
market penetration of self-installed household drinking water treatment systems
is estimated to be only nine percent of United States households. Consumer
research conducted by the Company in 1993, and reconfirmed in 1996, revealed
that the performance of existing water filters failed to meet consumers'
expectations, primarily because consumers have no way of knowing whether or not
the filters are working. Most harmful contaminants do not affect the taste,
color or odor of water, which makes it difficult for a consumer to evaluate the
effectiveness of a filter.
To address this consumer concern, and to assure consumers that they
will only obtain properly filtered drinking water, the PUR household water
filter incorporates the Company's ASM technology on all products. This
technology provides an ongoing read-out of the life remaining in a water filter
cartridge and automatically shuts off the water flow when the filter cartridge
has reached the end of its useful life. Because ASM technology shuts off the
water flow when the filter cartridge has reached the end of its useful life, the
Company believes that consumers will be more likely to purchase replacement
cartridges on a timely basis, providing the Company an opportunity for recurring
sales to users of PUR products. Replacement filter cartridges are sold at retail
prices which allow consumers to obtain filtered water at a small fraction of the
cost of bottled water, which typically is sold for $.60 to $1.00 per gallon.
The products comprising the PUR line of household water filters are as
follows:
PUR FM SERIES. The PUR FM Series Self-Monitoring Water Filter,
introduced in 1994, is a compact faucet-mounted water filter which is
approximately five inches high, with a flow rate of three liters per minute. The
packages include one or two replacement filter cartridges, each of which has a
useful life of about two to three months in a typical home. The filter
incorporates a patented carbon block filter which removes microorganisms as
small as Cryptosporidium and Giardia. The filter also removes 98% of lead,
chlorine, and sediment from drinking water while improving taste, color and
odor. (Suggested retail price: $29.99)
PUR CT SERIES. The PUR CT Series Self-Monitoring Water Filter,
introduced in January 1996, is a compact countertop water filter which is
approximately 9 inches high with a flowrate of three liters per minute. The
countertop model offers greater contaminant reduction and longer filter life
than the PUR FM series faucet-mounted water filter. It uses replaceable filter
cartridges with a useful life of about eight to twelve months in a typical home.
The filter incorporates a patented carbon block filter which removes
microorganisms as small as Cryptosporidium and Giardia. The filter also reduces
contaminants such as 98% of lead, pesticides, herbicides, chlorine, and mercury
from drinking water while improving taste, color and odor. Certain models come
with a mounting bracket that allows the unit to be installed on the wall, under
the cabinet or behind the sink. (Suggested retail price: $69.99)
PUR CR SERIES. The PUR CR Series Self-Monitoring Water Filter,
introduced in September 1996 is a water pitcher which holds approximately a half
gallon of filtered water. The slim design fits into the refrigerator door. The
packages include one or two replacement filter cartridges, each of which has a
40-gallon useful life, or about one month usage in the typical home. The filter
removes 98% lead, and reduces chlorine and sediment while improving taste,
color, and odor. (Suggested retail price: $24.99)
PUR PLUS FM SERIES. The PUR Plus FM Series Self-Monitoring Water
Filter, introduced in 1997, is a compact faucet-mounted water filter which is
approximately five inches high, with a flowrate of three liters per minute. It
will feature PUR's exclusive Automatic Safety Monitor, and a convenient filtered
water spray flow for washing fruits and vegetables. The packages include one or
two replacement filter cartridges, each of which has a useful life of two to
three months in the typical home. The filter incorporates the same patented
carbon block filter as the existing PUR FM Series but has better contaminant
removal characteristics. The filter not only removes microorganisms, lead, and
chlorine, but also removes pesticides, herbicides, atrazine, mercury and
asbestos while improving taste, color and odor. (Suggested retail price: $39.99)
PUR FAUCET-MOUNT REPLACEMENT CARTRIDGES. PUR replacement cartridges for
the FM Series are sold in single, double, and triple packs. (Suggested retail
price: $14.99 to $26.99)
PUR PLUS FAUCET-MOUNT REPLACEMENT CARTRIDGES. PUR replacement
cartridges for the FM Plus Series are sold in single, double, and triple packs.
(Suggested retail price: $14.99 to $34.99)
PUR COUNTERTOP REPLACEMENT CARTRIDGES. PUR replacement cartridges for
the CT Series are sold in single packs. (Suggested retail price: $29.99)
PUR CARAFE REPLACEMENT CARTRIDGES. PUR replacement cartridges for the
CR Series are sold in single and triple packs. (Suggested retail price: $7.99
and $21.99)
PORTABLE DRINKING WATER SYSTEMS
The Company offers a line of PUR antimicrobial water purifiers and
microfilters for treating fresh water supplies contaminated with microorganisms.
These products are designed to meet the needs of international travelers,
outdoor enthusiasts and military personnel.
Various methods have historically been used to disinfect water,
including chlorine gas, iodine, silver nitrate, hydrogen peroxide and boiling.
These methods involve a significant amount of time to be effective and,
therefore, are not convenient or practical for use on a consistent basis to
produce drinking water. In addition, chemical disinfectants are relatively
ineffective against cyst forms of various parasites, including GIARDIA LAMBLIA,
and leave residual concentrations in water, which may render the water
unpalatable. Filtration is also commonly used to treat contaminated water. While
it is an effective means of removing larger microorganisms, like protozoa and
bacteria, it is not a practical means of removing viruses. In addition, the
smaller the pore size of the filter, the more quickly it will clog. Therefore,
using a filter with as large a pore size as possible is preferable in order to
maximize its life, making it undesirable to rely on it to remove microorganisms
as small as bacteria.
PUR fresh water purifiers incorporate the Company's proprietary Tritek
technology, which combines microfiltration and an iodinated resin matrix to
produce safe drinking water in seconds. The microfilter is used to remove
sediment and the largest and most chemically resistant microorganisms. Smaller
microorganisms, like bacteria and viruses, are killed upon contact with the
iodinated resin. The result is a process that takes advantage of the positive
attributes of microfiltration and iodinated resin, without suffering the
drawbacks of each approach when used alone.
The products comprising the PUR line of fresh water purifiers and
microfilters are as follows:
PUR EXPLORER. The Explorer, introduced in 1991, is a lightweight water
purifier designed for backpackers, campers and other outdoor enthusiasts. The
Explorer consists of a pump unit with a T-shaped handle, a filtered intake hose
and an output hose with a convenient hose clip for filling containers. A
double-acting pump enables one person to produce over 1.5 liters of water per
minute. The Explorer is approximately 11 inches long and weighs 20 ounces; the
intake and output hoses are each approximately three feet long. The Explorer
includes a self-cleaning mechanism, permitting the filter to be cleaned
conveniently without disassembly. (Suggested retail price: $129.95.)
PUR PORTABLE. The Portable, introduced in 1991, is a compact purifier
designed specifically for world travelers. Approximately 6-1/2 inches high when
stored and only 12 ounces in weight, it is small enough to fit readily in a
purse, daypack or briefcase. The Portable uses a plunger to force contaminated
water through a Tritek purifier filter cartridge. A convenient drinking cup,
which is filled from a fold-out spout as the piston is operated, is included
with the Portable. A cup of safe, palatable drinking water can be produced in
approximately five to ten seconds. (Suggested retail price: $49.95.)
PUR SCOUT. The Scout, introduced in 1992, is a smaller version of the
Explorer, approximately nine inches long and 12 ounces in weight, with intake
and output hoses approximately three feet long. It produces approximately 0.5
liter of water per minute. The Scout does not have the self-cleaning mechanism
included in the Explorer. (Suggested retail price: $79.95.)
PUR HIKER. The Company introduced the Hiker, a water microfilter, in
August 1993. The Hiker incorporates the Company's proprietary Anti-Clog Filter
Technology (AFT) which extends the life of the filter, eliminating the need for
the user to clean or maintain it. The Hiker, which weighs 11 ounces, is designed
for backpacking, camping and other outdoor recreation. The Hiker produces over
1.0 liter per minute and is approximately eight inches long; the intake and
output hoses are each approximately three feet long. (Suggested retail price:
$54.95.)
PUR PIONEER. The Company broadened its position in this market with the
August 1994 introduction of the Pioneer, an entry level water microfilter, which
began shipping in the second quarter of 1995. The Pioneer features a disposable
microfilter, designed to filter up to 20 gallons, and a built-in bottle adapter
which connects directly to Nalgene(TM) bottles (a trademark of Nalgene Co.). The
Pioneer, which weighs eight ounces, is designed for backpacking, camping and
other outdoor recreation. The Pioneer produces 1.0 liter per minute and is
approximately 4.5 inches in diameter; the intake and output hoses are each
approximately three feet long. (Suggested retail price: $29.95.)
PUR CARBON FILTER CARTRIDGE. In August 1991, the Company introduced a
carbon filter cartridge that can be used in conjunction with the Explorer and
Scout. The carbon cartridge, which attaches to the Tritek filtration cartridge,
improves the taste of the purified water and reduces any residual iodine or
other chemicals that may be present in the water. (Suggested retail price:
$19.95.)
PUR STOP TOP. In March 1995, the Company introduced a combined carbon
cartridge and bottle adapter that can be used in conjunction with the Explorer,
Scout, Hiker and Pioneer. The carbon cartridge improves the taste of the
purified water and reduces any residual iodine or other chemicals that may be
present in the water. (Suggested retail price: $14.95)
PUR EASYFILL BOTTLE ADAPTER. In March 1995, the Company introduced a
bottle adapter for the Explorer, Scout and Hiker. The bottle adapter connects to
all popular water bottles and is lightweight, durable and easy to use.
(Suggested retail price: $4.95)
Each of the PUR fresh water purifiers is registered with the EPA, which
has established minimum performance guidelines for microbiological water
purifiers. See "Regulation."
REVERSE OSMOSIS DESALINATORS
The Company offers a line of PUR reverse osmosis desalinators for
producing fresh water when sources of energy are either unavailable or in
limited supply. These products are used primarily in offshore marine, commercial
life raft and military applications.
Reverse osmosis desalination, which has been in use in large-scale
systems for over 20 years, occurs when feed water with dissolved solids (such as
salt) is forced against a semipermeable membrane at high pressure, typically 800
pounds per square inch. The membrane acts as a barrier to contaminants such as
salts, viruses and bacteria, separating them from the pure water that passes
through the membrane. In a conventional reverse osmosis system, approximately
10% of the seawater forced against the membrane passes through as pure water.
The remaining high-pressure waste brine stream passes through a pressure
reducing valve and is discharged. This process requires a large amount of
energy, making it impractical for small-scale applications.
Each of the Company's reverse osmosis products is a compact unit
incorporating a high-pressure energy recovery pump and a reverse osmosis
membrane. The patented high-pressure energy recovery pump is designed to recover
and effectively use energy that is wasted in a conventional reverse osmosis
system. The pump recycles the high-pressure waste brine stream, redirecting it
to the backside of the pump's piston. The force of the recycled brine counters
the opposing force on the piston's front side, providing a power assist to the
pumping operation. By thus recovering energy contained in the high-pressure
waste brine stream, the Company's energy recovery pump reduces the external
power needed to operate a desalinator by approximately 90%, and makes possible a
small-scale low-energy desalinator.
In 1997 the Company expects to initiate a new phase of the military
business which will involve reverse osmosis units currently in the field. The
Company is currently negotiating an agreement with the US Navy to service all of
the US military's manual desalinators on a four year cycle at REI's facility.
HAND-OPERATED DESALINATORS. The PUR Survivor(R)-35 and PUR Survivor-06
are hand-operated desalinators, designed primarily for emergency life raft use.
The PUR Survivor-35, the first desalinator built by the Company, was designed
for use by the United States Navy in 25-person life rafts and is also available
in commercial versions. The Survivor-35 can produce as much as 1.4 gallons of
fresh water per hour, which is ample for emergency use. It can also be used to
supplement fresh water supplies on a non-emergency basis. The Survivor-06, the
smallest reverse osmosis desalinator manufactured in the world, can produce a
pint of fresh water in less than 30 minutes. It is recommended for 4- to
12-person life rafts and individual survival kits. The Company is not aware of
any other hand-operated desalinators on the market.
12-VOLT DESALINATORS. The PUR PowerSurvivor-35, PUR PowerSurvivor-80
and PUR PowerSurvivor-160 are driven by a 12-volt DC motor with power supplied
by a boat's battery. Designed to meet the needs of the cruising sailor and
offshore powerboater, these products provide a renewable supply of fresh water
for drinking, cooking and clean-up. The PowerSurvivor-35 produces up to 1.4
gallons of fresh water per hour, using 4 amps of power. The PowerSurvivor-80
produces up to 3.3 gallons of fresh water per hour using 8 amps of power. The
PowerSurvivor-160 produces 6.7 gallons of fresh water per hour using 16 amps of
power. With these desalinators, boaters are able to extend their cruising range
without the space and weight required for larger fresh water storage tanks.
MARKETING AND DISTRIBUTION
The Company sells its products to consumers through a number of
different distribution channels. The Company's Vice President of Sales and Vice
President of Marketing direct the efforts of thirty-seven other people in its
sales and marketing departments to coordinate selling and servicing activities
to customers.
The Company currently sells the household water filters in the United
States and Canada through all mass retail channels, comprised of department
stores, mass merchants, catalog showrooms, drug stores, hardware stores, and
warehouse clubs. The Company's household products are distributed in over 15,000
stores nationwide. The Company plans to augment its distribution with the
addition of a few key retailers in the various channels. The accounts are
serviced by a network of more than 30 independent manufacturers' representative
agencies.
Over 1,000 outdoor and travel stores and more than a dozen mail order
catalogs offer the Company's fresh water purifiers and microfilters to campers,
backpackers and travelers around the country. A network of approximately 20
independent manufacturers' representatives services these accounts. Recreational
and commercial sailors can purchase the Company's reverse osmosis desalinators
from over 300 marine dealers and service centers on the Atlantic, Pacific and
Gulf coasts and from several marine catalogs. Internal sales and service
personnel manage these accounts directly. The Company also sells directly to the
United States armed forces. Sales to foreign military forces and consumers are
made through approximately 30 distributors located in Europe, Asia and the
Middle East. To create awareness for its products, the Company advertises in
consumer and trade publications, participates in consumer and trade shows, and
publishes periodic newsletters to its retailers.
The Company was awarded contracts in 1995 valued at up to $13 million
for the delivery of Survivor-35 and Survivor-06 desalinators to the United
States Air Force. Units shipped on the base contracts totaling $4.2 million were
delivered in 1995, and $3.4 million in 1996. Additional options totaling $5.4
million are expected to be exercised. The Company also sells the Survivor-35 and
Survivor-06 to foreign distributors who supply local military agencies.
RESEARCH AND DEVELOPMENT
With the technologies it has developed, the Company believes that its
products offer performance superior to comparably priced products sold by
competitors. The Company has a twenty-three person engineering staff which
engages in research and development of new products, and development of
enhancements to existing products. The Company's expenditures for research and
development were $2,007,000 in 1996, $2,021,000 in 1995, and $1,064,000 in 1994,
approximately 6%, 9%, and 6% of sales, respectively. The Company expects that
its research and development expenditures will continue to represent a
significant percentage of revenues in the future. There can be no assurance,
however, that the Company's technology and products will not be made obsolete by
technologies developed by others.
PATENTS
The Company is the owner of two United States patents with respect to
its reverse osmosis desalinators, three United States patents with respect to
its portable drinking water systems and four United States patents with respect
to its household drinking water systems. These patents expire at various dates
from 1997 to 2013. The Company has applied for corresponding foreign patents
where it deemed such applications necessary. The Company has also applied for
seven other patents in the United States with respect to its household drinking
water products and for corresponding foreign patents. No assurance can be given
that any patents applied for will be issued or that patents currently held or
new patents, if issued, will be valid or will provide any significant
competitive advantage to the Company.
COMPETITION
The Company competes with a number of companies in the manufacture and
marketing of household water filtration and purification systems. The most
significant competitors in this market currently are Teledyne, Inc., Culligan,
Health-O-Meter, Pollenex, Brita U.S.A. (a subsidiary of Clorox Company) and Mr.
Coffee, Inc. As this market develops, the Company may experience increased
competition from public water utilities, appliance manufacturers and consumer
electronics companies.
The Company is not aware of any other company which manufactures
hand-operated desalinators. The Company competes with several other companies in
the manufacture and sale of small-scale motorized reverse osmosis desalinators.
These companies include HRO (a division of Standard Communications Corp.), Sea
Recovery Corp. and Village Marine Tec.
The Company also competes with several companies in the manufacture of
water filters and purifiers for personal and recreational uses. These companies
include General Ecology, Inc., Katadyn U.S.A., Inc., Mountain Safety Research
Corporation (a subsidiary of Recreational Equipment, Inc.), SweetWater, Inc. and
Timberline, Inc.
The Company competes in the sale of drinking water systems on the basis
of the design, performance and value of those products.
MANUFACTURING
The principal raw materials utilized in the Company's manufacturing
operations are engineered thermoplastics, stainless steel and filtration media.
The Company relies on third party machine shops and injection molders to
manufacture components to the Company's specifications. The assembly, testing,
quality control and packaging of the Company's products are conducted by the
Company's employees at its facilities in Minneapolis, Minnesota.
The Company purchases reverse osmosis membranes from FilmTec, a
division of Dow Chemical Corporation, pursuant to a three-year renewable
agreement with FilmTec which expires in December 1999. The Company also
purchases microfilters and filter media for its portable and household drinking
water systems from other manufacturers pursuant to long-term contracts. The
interruption of any of these supply relationships could have a material adverse
effect on the Company's results of operations.
GOVERNMENT REGULATION
The manufacture, marketing, advertising and distribution of water
purification devices containing active ingredients, such as iodine, is regulated
by the EPA. The EPA generally requires registration of the manufacturer, the
active ingredients and the applicable device and its packaging prior to sale of
the product. Registration entails obtaining scientific data as to the efficacy
and toxicity of the device and its active ingredients. The PUR Explorer,
Portable and Scout, all of which contain iodinated resin, have been registered
by the EPA as "microbiological water purifiers."
In 1986, the EPA issued a tentative protocol (the "1986 Protocol"),
applicable to all manufacturers, for the testing and certification of all
microbiological water purification devices, including those offered by the
Company. The 1986 Protocol requires that to be registered as a "microbiological
water purifier," a device must remove, kill or inactivate all types of
disease-causing microorganisms from the water, including bacteria, viruses and
protozoan cysts, so as to render the processed water safe for drinking. The 1986
Protocol does not require the removal of all traces of iodine from the treated
water. Because small amounts of iodine may be present in water treated by the
Company's antimicrobial water purifiers, the Company, in its labeling, advises
persons with thyroid problems and pregnant women to consult their doctors before
use of such products. Management believes the Company's water purification
products satisfy all the 1986 Protocol requirements.
In addition to EPA regulation, some states require registration of
household water filtration and purification products. The Company believes that
its current household products, and any future household products it develops,
comply and will comply with state regulations applicable to such products. There
can be no assurance, however, that such state registration requirements will not
result in delays in introduction of these products in certain markets.
The Company is also subject to regulation with respect to the handling
and disposal of the elemental iodine used in manufacturing resins. The Company
believes it is in compliance with applicable rules, and that it has properly
disposed of such material. There can be no assurance that more restrictive and
costly requirements will not be imposed in the future.
EMPLOYEES
At December 31, 1996, the Company had approximately 274 full-time
employees and contract workers, of whom 23 were involved in research and
development, 190 in manufacturing, assembly and testing, 35 in sales, marketing,
technical and customer service, and 26 in administration. None of the Company's
employees is represented by a labor union or is covered by a collective
bargaining agreement. The Company has not experienced any work stoppages and
believes that its employee relations are excellent.
ITEM 2. PROPERTIES
The Company is headquartered in a leased facility of 51,648 square feet
at 2229 Edgewood Avenue South, Minneapolis, Minnesota 55426, pursuant to a
seven-year lease which expires on December 31, 2000. The Company has leased a
warehouse facility of 13,136 square feet at 13310 Industrial Park Boulevard
North, Minneapolis, Minnesota 55441, pursuant to a three-year lease which
expires on July 14, 1998. The Company has leased an additional manufacturing
facility of 9,875 square feet at 6407 Welcome Avenue, Brooklyn Park, MN 55428
pursuant to a one year lease that expires on July 31, 1997. The Company has
leased additional manufacturing space of 4,000 square feet at 8712 Monticello
Lane, Maple Grove MN 55365 pursuant to a two-year lease which expires November
31, 1998. The Company has leased additional warehouse facility of 7,500 square
feet at 9200 10th Avenue North, Golden Valley, MN 55427 on a month to month
lease.
The Company initiated construction on a new facility in 1996 with plans
to consolidate all facilities into one leased facility of 100,000 square feet,
pursuant to a 10 year lease which expires on April 4, 2007. The Company believes
this new facility will provide sufficient space to support the Company's
anticipated requirements for the near-term, and that additional or alternate
facilities would be available on terms acceptable to the Company if the
Company's operations were to require additional space.
The Company owns manufacturing and engineering equipment, located at
its facilities in Minneapolis, used in its assembly operations and research and
development efforts. Such equipment is available from a variety of sources, and
the Company believes that it currently owns or can readily acquire equipment
required for its current and anticipated levels of operations.
ITEM 3. LEGAL PROCEEDINGS
The Company was notified January 10, 1997 of a complaint filed by Brita
for patent infringement on its pitcher products. The complaint names Recovery
Engineering and other water filtration companies as defendants. The Company was
aware of Brita's patent prior to developing its own design and is confident it
does not infringe upon Brita's patent. The Company plans to defend vigorously
its right to market and sell these products. The Company from time to time is
involved in various legal proceedings arising in the normal course of business,
none of which is expected to result in any material loss to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the quarter ended December 31, 1996.
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Common stock market and dividend information on page 16 of the Annual
Report to Shareholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data on page 16 of the Annual Report to Shareholders
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations on pages 8 and 9 of the Annual Report to Shareholders is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and financial statements included on
pages 10 through 16 of the Annual Report to Shareholders are incorporated herein
by reference.
Quarterly Results of Operations Information on page 16 of the Annual
Report to Shareholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
The information contained on pages 2 through 5 of the Proxy Statement
with respect to directors and executive officers of the Company, is hereby
incorporated by reference in response to this item.
The information contained on page 13 of the Proxy Statement with
respect to compliance with Section 16(a) of the Exchange Act is hereby
incorporated by reference in response to this item.
ITEM 11. EXECUTIVE COMPENSATION
The information contained on pages 5 through 11 of the Proxy Statement
with respect to executive compensation, is hereby incorporated by reference in
response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on pages 12 and 13 of the Proxy Statement
with respect to security ownership of certain beneficial owners and management,
is hereby incorporated by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained on page 9 of the Proxy Statement with respect
to certain relationships and related transactions, is hereby incorporated by
reference in response to this item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of the report:
1. Financial Statements.
The following financial statements of Recovery Engineering, Inc.
included in the Annual Report to Shareholders, are incorporated by
reference in Item 8:
Balance sheets - December 31, 1996 and 1995
Statements of operations - Years ended December 31, 1996, 1995, and
1994
Statement of changes in shareholders' equity - Years ended December 31,
1996, 1995, and 1994
Statements of cash flows - Years ended December 31, 1996, 1995, and
1994
Notes to financial statements - December 31, 1996
2. Financial Statement Schedules.
The following schedule supporting financial statements for the three
years ended December 31, 1996 is filed herewith:
Schedule II Valuation and Qualifying Accounts.
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable and therefore have been omitted.
3. Listing of Exhibits.
EXHIBIT
NO. DESCRIPTION
--- -----------
3.1 Articles of Incorporation of Recovery Engineering, Inc., as
amended
3.2 Bylaws of Recovery Engineering, Inc.
10.1 Lease Agreement dated December 31, 1993, between Lemar and
Recovery Engineering, Inc.
10.1.1 First Amendment to Lease Agreement dated December 2, 1994
between Lemar and Recovery Engineering, Inc.
10.1.2 Second Amendment to Lease Agreement dated June 23, 1995
between Lemar and Recovery Engineering, Inc.
10.3 Form of Distributor Agreement
10.4 Sales Contract dated May 30, 1991, between Dow Chemical
U.S.A. and Recovery Engineering, Inc.
10.4.1 Addendum dated September 9, 1993, to Sales Contract dated
May 30, 1991, between Dow Chemical U.S.A. and Recovery
Engineering, Inc.
10.6 Recovery Engineering, Inc. 1986 Stock Option Plan, as
amended *
10.7 Recovery Engineering, Inc. 1993 Director Stock Option Plan *
10.8 Recovery Engineering, Inc. 1994 Stock Purchase Plan *
10.9 Recovery Engineering, Inc. 1994 Stock Option and Incentive
Plan *
10.11 Contract between Department of the Air Force and Recovery
Engineering, Inc. dated July 13, 1993 (PUR Survivor-35)
10.12 Contract between Department of the Air Force and Recovery
Engineering, Inc. dated July 13, 1993 (PUR Survivor-06)
10.13 Lease Agreement dated July 12, 1995 between Minneapolis
Industrial Properties, II, Inc. and Recovery Engineering,
Inc.
10.14 Credit Agreement dated March 7, 1996 between First Bank
National Association and Recovery Engineering, Inc.
10.15 Contract between Department of the Air Force and Recovery
Engineering, Inc. dated August 1, 1995 (PUR Survivor-06) **
10.16 Contract between Department of the Air Force and Recovery
Engineering, Inc. dated September 22, 1995 (PUR
Survivor-35) **
10.17 Securities Purchase Agreement dated July 19, 1996 by and
among the Company and the Goldman Sachs Limited Partnerships
10.18 Registration Rights Agreement dated July 19, 1996 by and
among the Company and the Goldman Sachs Limited
Partnerships.
10.19 Executive Restriction Agreement dated July 19, 1996 by and
among the Company, the Goldman Sachs Limited Partnerships
and the Executive.
10.20 Lease Agreement dated November 8, 1997 between Ryan
Construction and Recovery Engineering, Inc.
11.1 Statement re Computation of Earnings (Loss) Per Share
13.1 1996 Annual Report to Shareholders
21.1 Subsidiaries of Recovery Engineering, Inc.
23.1 Consent of Ernst & Young LLP
* Management Contracts
** The Company has requested confidential treatment of portions
of such exhibit.
(b) Reports on Form 8-K
In November 1996, the Company filed a report on Form
8-K relating to the sale of $15 million principal
amount of convertible notes to certain investment
partnerships affiliated with Golman Sachs.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RECOVERY ENGINEERING, INC.
(Registrant)
Dated: March 24, 1997. /s/ Brian F. Sullivan
-------------------------------------
Brian F. Sullivan
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Dated: March 24, 1997. /s/ Brian F. Sullivan
-------------------------------------
Brian F. Sullivan
President, Chief Executive Officer
and Director
(principal executive officer)
Dated: March 24, 1997. /s/ Charles F. Karpinske
-------------------------------------
Charles F. Karpinske
Chief Financial Officer
(principal financial and accounting
officer)
Dated: March 24, 1997. /s/ John R. Albers
-------------------------------------
John R. Albers
Director
Dated: March 24, 1997. /s/ John E. Gherty
-------------------------------------
John E. Gherty
Director
Dated: March 24, 1997. -------------------------------------
Sanjay H. Patel
Director
Dated: March 24, 1997.
-------------------------------------
William D. Thompson
Director
Dated: March 24, 1997. /s/ William F. Wanner, Jr.
-------------------------------------
William F. Wanner, Jr.
Director
Dated: March 24, 1997. -------------------------------------
Ronald W. Weber
Director
/s/ Richard J. Zeckhauser
Dated: March 24, 1997. -------------------------------------
Richard J. Zeckhauser
Director
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBIT INDEX TO FORM 10-K
For the year ended Commission File No.: 0-21232
December 31, 1996
- ---------------------------------------------------------------------------------------------------------
RECOVERY ENGINEERING, INC.
- ---------------------------------------------------------------------------------------------------------
Method of
Exhibit Filing
- ------- ------
3.1 Article of Incorporation of Recovery Engineering, Inc., as amended Note 9
3.2 Bylaws of Recovery Engineering, Inc. Note 10
10.1 Lease Agreement dated December 31, 1993, between Lemar Note 2
and Recovery Engineering, Inc.
10.1.1 First Amendment to Lease Agreement dated December 2, 1994 between Note 4
Lemar and Recovery Engineering, Inc.
10.1.2 Second Amendment to Lease Agreement dated June 23, 1995 between
Lemar and Recovery Engineering, Inc. Note 5
10.3 Form of Distributor Agreement Note 1
10.4 Sales Contract dated May 30, 1991, between Dow Chemical U.S.A.
and Recovery Engineering, Inc. Note 1
10.4.1 Addendum dated September 9, 1993, to Sales Contract dated May 30, 1991,
between Dow Chemical U.S.A. and Recovery Engineering, Inc. Note 3
10.6 Recovery Engineering, Inc. 1986 Stock Option Plan, as amended Note 1 T
10.7 Recovery Engineering, Inc. 1993 Director Stock Option Plan Note 2 TT
10.8 Recovery Engineering, Inc. 1994 Stock Purchase Plan Note 2 TT
10.9 Recovery Engineering, Inc. 1994 Stock Option and Incentive Plan Note 2 TT
10.11 Contract between Department of the Air Force and Recovery Engineering,
Inc. dated July 13, 1993 (PUR Survivor-35) Note 3
10.12 Contract between Department of the Air Force and Recovery Engineering,
Inc. dated July 13, 1993 (PUR Survivor-06) Note 3
10.13 Lease Agreement dated July 12, 1995 between Minneapolis Industrial
Properties II, Inc. and Recovery Engineering, Inc. Note 5
10.14 Credit Agreement dated March 7, 1996 between First Bank National Association
and Recovery Engineering, Inc. Note 5
10.15 Contract between Department of the Air Force and Recovery Engineering,
Inc. dated August 1, 1995 (PUR Survivor-06) Note 5+
10.16 Contract between Department of the Air Force and Recovery Engineering,
Inc. dated September 22, 1995 (PUR Survivor-35) Note 5+
10.17 Securities Purchase Agreement dates July 19, 1996 by and among the Company Note 6
and the Limited Partnerships (including form of Note attached thereto as Exhibit
10.18 Registration Rights Agreement dated July 19, 1996 by and among the Company Note 7
and the Limited Partnerships.
10.19 Executive Restriction Agreement dated July 19, 1996 by and among the Note 8 TT
Company, the Limited Partnerships and the Executive.
10.20 Lease Agreement dated November 8, 1997 between Ryan Construction and
Recovery Engineering, Inc. Filed herewith
11.1 Statement re computation of earnings (loss) per share Filed herewith
13.1 1996 Annual Report to Shareholders (only those pages expressly incorporated Filed herewith
by reference shall be deemed filed with the commission)
21.1 Subsidiaries of Recovery Engineering, Inc. Filed herewith
23.1 Consent of Ernst & Young LLP Filed herewith
- ----------------------
Note 1 Incorporated by reference to the same numbered Exhibit to the
Company's Registration Statement on Form SB-2 (No. 33-57826C), which
was declared effective March 4, 1993, pursuant to Rule 12b-32.
Note 2 Incorporated by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1993 (File No. 0-21232)
Note 3 Incorporated by reference to the same numbered Exhibit to the
Company's Registration Statement on Form SB-2 (No.33- 78292), which
was declared effective June 2, 1994, pursuant to Rule 12b-32.
Note 4 Incorporated by reference to the same numbered exhibit to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994 (File No. 0-21232)
Note 5 Incorporated by reference to the same numbered Exhibit to the
Company's Annual Report form 10-K for the fiscal year ended December
31, 1995 (File No. 0-21232)
Note 6 Filed as Exhibit 4.1 to the Company's Report on Form 8-K, dated July
19, 1996 (File No. 0-21232) and incorporated herein by reference.
Note 7 Filed as Exhibit 99.1 to the Company's Report on Form 8-K, dated July
19, 1996 (File No. 0-21232) and incorporated herein by reference.
Note 8 Filed as Exhibit 99.2 to the Company's Report on Form 8-K, dated July
19, 1996 (File No. 0-21232) and incorporated herein by reference.
Note 9 Incorporated by reference to Appendix 1 to the Company's proxy
statement, (File - 021232) for it's annual meeting of shareholders on
April 25, 1996.
Note 10 Incorporated by reference to Appendix 2 to the Company's proxy
statement, (File - 021232) for it's annual meeting of shareholders
held on April 25, 1996.
+ The Company has requested confidential treatment of portions of such
exhibit.
TT Management Contracts
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
RECOVERY ENGINEERING, INC.
(in thousands)
Additions
-------------------------------
Balance at Charged to
Beginning of Costs and Charged to Other Balance at End
Description Period Expenses Accounts Deductions of Period
- ------------ ------------ ---------- ---------------- ---------- --------------
YEAR ENDED DECEMBER 31, 1996
Reserves & allowances deducted from
asset accounts:
Allowance for uncollectible accounts $ 57 $315 $160(1) $212
Reserve for inventory obsolescence $112 $430 $316(2) $226
YEAR ENDED DECEMBER 31, 1995
Reserves & allowances deducted from
asset accounts:
Allowance for uncollectible accounts $ 32 $119 $ 94(1) $ 57
Reserve for inventory obsolescence $ -- $112 $ -- $112
YEAR ENDED DECEMBER 31, 1994
Reserves & allowances deducted from
asset accounts:
Allowance for uncollectible accounts $ 24 $ 16 $ 8(1) $ 32
(1) Uncollectible accounts written off, net of recoveries.
(2) Inventory written off