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United States Filter Corporation Annual Report 1979 United States Filter is positioned tor large potential growth. It has a strong and growing capability in the two technical fields that should fig ure prominently in industry and government concerns and spending in the 1980s--energy-related products and services and environmental con trol. The merger with The Riley Company brings together an excel lent fit of the products and services of two technology oriented compa nies which together will serve these two vital growth industries. < l-'nur Kilny Stoknr cnnllili'i] sir.mi yjrnn.itnis proV iilr llir slium t< if I lie (.nopor Sitiilli (liirnliiuj I'nhlu SnA ir.r At ll linril v's \\ mu.ill Si.iiidti nr;M` (imryr* Inu ii. Snut li (!,m i| in,i. Tllr tu wt d uni! is t-.np.ihli* n|'pru1 ini in;.; lun mtllicin p<muds n! s'r.un pi] Imtir. RS4)02399 1/17/02 NUECES United States Filter Corporation Annual Report 1979 Net Sales Net Income Earnings Per Share Primary Fully Diluted Cash Dividends on Common Stock Shareholders' Equity Cash, Cash Equivalents and Marketable Securities 1979 $611,551,000 22,477,000 1978 $540,815,000 16,076,000 1977 $423,657,000 13,877,000 1976 $358,177000 12,712,000 1975 $246,402,000 10,690,000* 2.01 1.79 .34 264,654,000 1.55 1.51 .30 250,602,000 1.70 1.70 .28 140,452,000 1.57 1.56 .24 128,745,000 1.32' 1.32* .20 117,937,000 234,760,000 139,106,000 40,626,000 53,220,000 47,606,000 'After extraordinary credit, net of taxes, of $746,000 ($.09 per share). Contents Letter to Shareholders Markets, Products and Services Review of Operations Power Generation Segment Energy/Technology Segment Natural Resources Segment Environmental Systems Segment Specialty Chemicals Segment Investment in Koehring Company Financial Information Operations Information Corporate Information 2 6 8 12 16 18 22 26 27 44 45 RS-002400 1/17/02 NUECES Board of Directors ' * to right: Louis Siegel, Earl E Slick, Raymond A. Rich-Chairman, v. Van Denbergh, Jr. and George EH. Nelson. ft to right: Joseph A. Frates, Albert L Butler, Jr., David R. Williams, Jr. 1 Purmort. RS-002401 1/17/02 NUECES o To Our Shareholders Sales of United States Filter Cor poration were $611,551,000, up 13.0 percent from the $540,815,000 reported last year. Net income was $22,477,000, or $2.01 per share in 1979 compared to $16,076,000 in 1978 or $1.55 per share, an increase of 40 percent, and 30 percent respectively. By all counts--profits, sales, and financial strength--1979 was a year of significant progress. All the Com pany's segments--Energy/Technology, Specialty Chemicals, Environmental Systems, and Natu ral Resources--contributed to the earnings improvement. Also, effec tive cost-control programs, which continued through the year, had an impact on earnings results. At the close of 1979, our backlog, including The Riley Company, was $564 million, an increase of 115 per cent above the $262 million total at the end of the previous year. Yearend cash, cash equivalents, and marketable securities were $235 mil lion. After repayment of short-term borrowings in connection with the acquisition of The Riley Company, our adjusted cash and short-term investments would have neen approximately S175 million As a result of the Riley acquisi tion, our annual sales rate could approach $1 billion by the end of the first quarter of 1980. We believe we are in a good posi tion to take advantage of opportuni ties based on our liquidity and financial strengths. Acquisition of The Riley Company On December 4,1979, stockholders of The Riley Company approved the agreement to merge that company into U.S. Filter Corporation, in a transaction valued at approximately $116 million, which includes capital ized acquisition costs. The addition of Riley should make U.S. Filter in 1980, about 20 times what it was in 1970, just before current manage ment took charge. We think the merger is an excel lent fit of two technology-oriented companies serving two of the vital growth industries of the 19803energy generation and environmen tal controls. Becoming our fifth major busi ness segment, Riley is engaged pri marily in the design, fabrication, kand servicing of steam generating ind auxiliary equipment for electric utilities and industry. The company is also engaged in the design and installation of flue gas desulfuriza tion and gas cleaning systems; fabricates heavy metal, chemical processing tanks and large-capacity fuel storage tanks; and manufactures noise control devices, electronic annunciators, water desalinators, and regulating valves. U.S. Filter will benefit from the merger in several ways. Overall, our strategic positioning is bolstered for significant growth in markets served, revenues, profits, and opportunities. The compatibility of Riley with U.S. Filters existing business seg ments should strengthen our prod uct and service capabilities and create many opportunities for prof itable synergism. U.S. Filter's domi nant "people business"--exemplified by our engineering depth--is now backed by Riley's proven know-how kin manufacturing for the energy "industry. The result is a well- rounded mix of resources--tangible and intangible, human, and hardware. Also, a stronger profit balance between our domestic and overseas operations has been achieved through this acquisition. In the past, foreign sales and services repre sented more than half of our profits. Now, over 75 percent of our busi ness should originate in the United States. Even more importantly, some 95 percent of our tangible assets are in the United States, centering the bulk of our business activities in this country. The management that has shaped Riley for the past several years will continue to operate the company as an integral part of the U.S. Filter team. With the support of U.S. Filter's resources, Riley should become an even stronger company kthan it is today. We expect Riley to add further support to our excellent financial stability, liquidity, and balance sheet strength. In addition, we expect the Riley acquisition will help us build a larger company with diversified resources and profits. This has been a key management goal for a number of years. Dividends On October 30th, the Board of Directors voted to increase the semi annual dividend payable December 14,1979, on its common stock from 16 cents to 18 cents per share. This brought 1979 cash dividend pay ments to 34 cents per common share, and indicated a 1980 annual dividend rate of 36 cents per share. The action marked the fifth increase in cash dividends voted in the past six years. Since the present Board initiated cash dividend pay ments in 1973, the annual dividend rate has risen from 10 cents a share paid in 1973 to the 1980 indicated rate of 36 cents per common share. Operating Segments Energy/Technology Through the year, our engineering companies, on a combined basis, enjoyed an upturn in business and were ahead of 1978 in sales and profits. This healthy increase was significandy assisted by improved operating efficiency and by contin ued strict adherance to expense reduction programs. A significant capital expenditure increased our Atlas Foundry & Machine Co. plant capacity by onethird. This expansion reinforced Adas' position as a leader in the production of high quality alloy steel castings for the energy and other industries. In 1979, the Energy/Technology Segment posted sales of $266,981,000 and operating income of $6,972,000 compared to sales of $260,645,000 and operating income of $6,004,000 in 1978. In operations and maintenance, our position was strengthened by renewal of our contract as operator of the Naval Petroleum Reserve at Elk Hills Field, California, and by being part of a joint venture drilling program for the Strategic Petroleum Reserve in New Orleans. In another joint venture project, one of our engineering firms, Holmes & Narver, is performing a feasibility study for a new city in Libya, in North Africa. This project is planned to create all the necessary elements for a city of approximately 40,000 people. Still another joint venture contract was awarded by the U.S. Department of the Navy to support the expansion of the Royal Saudi Arabian Naval Forces. Further, an important design and engineering contract was received for the Anheuser-Busch brewery expansion in Van Nuys, California. Specialty Chemicals The Specialty Chemicals Segment, which provides products and serv ices to industry and to marine ship ping worldwide, marked another year of substantial progress. In 1979, the Specialty Chemicals Segment posted sales of $97,991,000 and operating income of $9705,000 as compared to sales of $82,921,000 and operating income of $7,844,000 in 1978. During 1979, this business seg ment introduced new instruments and products, and expanded its sup ply, distribution, and manufacturing capabilities. A new detection instru ment was developed and marketed to identify industrial energy loss and to cut downtime due to bacte rial slime growths in water systems. Another instrument was introduced to assist industry in maintaining production and conserving energy by monitoring the corrosion and fouling potential of water systems. Two new chemical products, designed specifically for motorship fuel programs, assist ship operators in obtaining maximum energy ben efits from fuel, while minimizing corrosion formation. Our Specialty Chemicals Segment also was more active in the sale of defoamers to industries utilizing process water systems. Environmental Systems Our Environmental Systems Seg ment provides technology, hard ware, and systems for air and water environmental control. In 1979, Environmental Systems' sales were $116,397,000 and operating income was $8,104,000. This was a substan tial improvement over 1978 sales of RS402402 1/17/02 NUECES 3 $95,924,000 and operating income of $6,543,000 in 1978. The segment continued its leader ship in the development of new products and innovative technology. One of these was the design and installation of the first commercial full-scale dry sulfur dioxide removal system in the United States. Also, significant work was done in the areas of odor reduction, emission control, solid waste disposal, and in making garbage and sludge inciner ation environmentally acceptable. Other development work was carried out in such energy related fields as the filtration of solvent refined coal and supplying fuel and waste handling for fluidized-bed coal combustion technology. In water and other liquid filtra tion, 1979 marked a high increase of new orders for pressure leaf and media filter equipment. Through the development and design of new fab rics, the segment maintained its leadership in the field of water and other liquid/solid separation. Natural Resources Segment The Natural Resources Segment-- Filtrol Corporation--produces cracking catalysts and adsorbents, mines and processes coal and clay, and manufactures cement. Another excellent year was posted by this segment of our busi ness, with sales of $130,182,000 and operating income of $16,021,000, substantially ahead of 1978 sales of $101,325,000 and operating income of $11,876,000. Sales of fluid catalytic cracking catalysts exceeded the 1978 volume primarily due to technologically improved catalysts and to increased refinery usage following sharply escalating crude oil prices. Simi larly, orders for adsorbents from food oil processors accelerated dur ing the year. Under a grant from the U.S. Department of Energy, the company is developing special catalysts for use in the cracking and cleaning of oils from such sources as tar sands, shale, and coal. The Cement Division enjoyed another good year because of an increase in construction activities in its market areas. Power Generation Segment The Power Generation Segment-- The Riley Company--provides steam generating equipment and systems and pressure vessels, as well as process instrumentation and pollution control devices, to the util ity, chemical, petrochemical and other industries. The Riley Company did not con tribute to the sales and earnings of U.S. Filter because the merger did not take place until December 1979. During the year, Riley received two utility boiler contracts and intro duced an atmospheric fluidized bed combustion boiler. Additionally, the Company is part of a consortium that is building a solar power plant under a contract with the U. S. Department of Energy. Further, sales of process vessels to the petrochemi cal industry increased during the year. Settlement of Filtrol Litigation In mid-1979, public shareholders of our subsidiary, Filtrol Corporation, exchanged their stock for $19 a share in cash. The action took place as part of a court-approved settle ment of litigation brought by minor ity Filtrol shareholders who had asserted claims arising out of our 1978 tender offer for Filtrol stock. The Filtrol shareholders who had tendered and sold their stock for $18 a share to U.S. Filter in 1978 received an additional 40 cents for each such share. As a result of the settlement, Filtrol Corporation became a 100 percent-owned sub sidiary of U.S. Filter. Koehring Investment Koehring Company, a New York Stock Exchange listed company, in which we hold approximately 23 percent of the outstanding common shares, manufactures equipment for the construction and natural resource industries. Included are water-well drilling equipment and services; compacting equipment, cranes, excavators, pile hammers, and other construction industry components. For the fiscal year ended November 30,1979, Koehring's sales were approximately $477 million, and net earnings of approx- RS-002403 1/17/02 NUECES imately $14.3 million were 21 per cent ahead of last year. Gains were attributable to vigorous construc tion markets worldwide, increased demand, and improvements in operations. Losses in certain prob lem areas were substantially reduced. Our current position in Koehring is for investment purposes, with which we continue to be pleased. The Flick Group Investment The Flick Group's $100 million cash investment, which constitutes approximately 35.3 percent of the voting stock of U.S. Filter, remains in the trust created as of October 26, 1978. We were advised by The Flick Group that the trustee will continue to hold, manage, and vote the pref erence shares, and that he will sell them within two years after the October 26,1978 date, unless prior to such sale, our Filtrol subsidiary disposes of its petroleum cracking and hydrocarbon purification cata lysts business. In that event, the trust will then terminate, and the trustee will transfer the preference shares to The Flick Group. Alternate Fuel Sources The nation's constant demand for energy and the ever increasing price of petroleum and natural gas have created a growing awareness of the need for alternate fuel sources. Through several of its subsidiaries and affiliates, U.S. Filter is helping to identify and solve some of the technical problems associated with the utilization of these alternate fuels. For example, underground gasifi cation of coal and lignite, which can produce fuel or chemical feed stock, is a goal of several programs conducted by the Company. Work ing with both the Department of Energy and industrial clients, we are studying the process of utilizing the gases produced by burning unminable coal underground with out handling it. This process facili tates cost-effective conversion of low-grade coal into a usable fuel I and in an environmentally accept- " able fashion. Coal gasification is an effective way to convert solid fuel into gaseous fuel which can be transported to markets through con- ventional pipeline systems. Cur rently, work is underway in both Texas and Wyoming to commercial ize the gasification process. While design and construction of largescale commercial plants may be several years off, U.S.T dter is exam ining other applications of coal gasi fication technology. Another attractive alternate fuel source with which we are involved is biomass, a product of solar energy. This conversion of sunlight into wood or other organic matter, and the direct use of the matter as fuel, is becoming economically feas ible. As a renewable source, bio mass appears to hold great potential. As a subcontractor work ing with the Department of Energy, we are involved in assessing mining technology for all solid fuels. While this primarily involves coal, other minable fuel sources will be included. The technical programs include underground mining, sur face mining, coal preparation, and unconventional hydrocarbon min ing. One of the alternate fuels being studied is peat. Our Williams Brothers Engineering Company is assisting the Gas Research Institute to prepare an economic analysis for producing fuel gas from peat deposits. The solvent refining process of coal offers another interesting alter nate fuel source and opportunity for U.S. Filter. This technique removes pollutants such as sulfur and ash to produce a clean burning coal for heating purposes and for conversion to electricity. Over the past two years, one of our subsidiaries has been research ing solvent refined coal (SRC). As a result, the Company has developed a pilot filter which is being used in an SRC test facility for the removal of mineral residue. Also, in England, another subsidiary is building a filter for one SRC pilot plant, and is preparing estimates for a second 6,000 tons-per-day plant. All these projects demonstrate how industry and government have become increasingly aware of the urgent need to develop effective uti lization of alternate energy sources. The Future U.S. Filter has a strong and growing position in the two technical fields that should figure prominently in industry and government concerns and spending in the 1980s--energyrelated products and services, and environmental controls. We are advantageously posi tioned to make a significant contri bution to the global needs for air and water pollution control, power generation, specialty chemicals, and energy technology--our major busi ness areas. Whatever energy policy eventu ally evolves for the United States, coal should increasingly supplement and then supplant oil and gas as the predominant fuel for steam genera tion. Such a development should benefit several U.S. Filter subsidiaries. The United States has abundant coal deposits, but before it can be used to generate power, the coal must be mined, processed to make it environmentally clean, transported either in bulk or liquefied form, and burned. U.S. Filter has capabilities at each step in the process. The increasing importance of conventional coal deposits in the nations energy profile will create new markets for our engineering and manufacturing skills. As such, our subsidiaries will no doubt be heavily involved in converting coal to a viable, nonpolluting energy source. Our Natural Resources Segment mines coal, while our Environmen tal Systems Segment produces scrubbers that make coal burning environmentally clean. The segment also designs, engineers, and manu factures fugitive emission controls, and fluidized bed combustion sys tems. Riley, too, makes some compo nents for these coal related systems. Another major emphasis of gov ernments and industry in the 1980s will be technology and products that provide for a cleaner environment.The Environmental Protection Agency has estimated the total cost of the effort to meet national envir onmental goals at $360 billion for the period 1977-1986. In this market, too, U.S. Filter is firmly established. Today, U.S. Filter is in the strong est position it has ever been. In terms of people and products, tech nology and resources, cash and liq uidity, we believe we are truly positioned for growth and for profit. We are achieving our goal of becoming a billion dollar corporation. We will continue to grow through internal expansion, sound acquisi tions, tested and seasoned manage ment, and prudent fiscal judgment and controls. Our next target is to reach total revenues of $1.5 billion with a rela tive increase in net income. With the active dedication and coopera tion of almost 11,000 employees in our worldwide organization, we are confident that we will attain this goal. American Stock Exchange According to an article which appeared in the February 25,1980 edition of Fortune magazine, "1979 was a spectacular year for the stocks listed on the American Stock Exchange. The Amex's market-value index jumped 64 percent, vaulting high above the No. 2 gainer, the NASDAQ composite, which advanced 28 percent.The more widely used benchmarks of `the market' lagged far behind: the New York Stock Exchange composite was up only 15.5 percent, the S. & P. 500 only 12.3 percent, and the Dow Jones industrial average just trudged along, with a 4 percent gain." It is interesting to note that U.S. Filters stock price on the last day of trading in 1978, closed at 10% and on the last day of trading in 1979, closed at 15%, a 50 percent increase. In conclusion, we want to extend our appreciation to our loyal employees and shareholders for their continued support and encour agement--without which we could not succeed. Raymond A. Rich Chairman and President March 3,1980 RS-002404 1/17/02 NUECES 5 The merger of The Riley Company and United States Filter Corporation is an excellent fit of products and services of two technology oriented companies. The presentation below shows graphically the synergistic effect of this merger in the markets served by the Riley Divisions and the United States Filter Companies which are represented by colored dots, where applicable, under the heading Company Code. The Riley Company Riley stoker Group Riley-Beaird Group Process Instruments Group The Riley Division Cashco, Incorporated Environeering. Inc. Panalarm and Panellit Riley-Beaird, Inc. Riley-Stoker Corporation Company Code Markets ***** *Chemical Processing ******** Industrial Boilers **Iron and Steel Industry ********Mining and Mineral Processing *******Pulp and Paper Industry **Synthetic Fuels ********* ****Utilities *******Water and Waste Treatment ***** *Chemical Processing ******* *Food Processing ******** ***Industrial Boilers ********Mining and Mineral Processing ****** ***Petroleum Industry *******Pulp and Paper Industry Transportation ********* *Utilities * *Cement Industry ****** **Food Processing ******** **Industrial Boilers ******Iron and Steel Industry ***** ***Petroleum Industry *******___ _______ ___________ Pulp and Paper Industry *******____________________ ______ Synthetic Fuels __________ l**t** *** * * * Utilities Water and Waste Treatment U.S. Filter Companies Atlas Foundry & Machine Co. Drew Chemical Corporation Ducon Company, Inc. Ducon Fluid Transport Filtrol Corporation Holmes & Narver, Inc. Menardi-Southern Corporation MikroPuI Corporation USF Fluid Systems Corporation Williams Brothers Engineering Company R8-002405 1/17/02 NUECES Products Cyclones for separation of solids Adsorbents for food industry and gases Annunciators to monitor and control tem Defoamers for industries that utilize pro perature and pressure cess water Antisealants for marine and industrial Desalinators to purify sea water applications Dry scrubbers for removal of particulates Bio-MaticTM water analyzers Dry sulfur dioxide removal systems for Biocides for process water purification industrial and utility boilers Cement Electrostatic precipitators for air Coal pollution control Control panels for power plants and Fabric filter systems for removal of industrial applications particulates Corrosion inhibitors for marine and indus Filter media for air and water pollution trial applications control systems Fluid catalytic cracking catalysts for refineries Fluid control valves for industry Fluidized-bed combustion coal fired boil ers for steam generation Flotation cells for separation of oil from water Fuel additives for more efficient combustion Granular bed filters for water purification Heat recovery equipment for diesel engines Hydrodesulfurization catalysts for the petroleum industry United States Filter Corporation Specialty Chemicals Company Code Markets Food Processing Industrial Boilers Marine Boilers Petroleum Industry Transportation Energy Technology Environmental Systems 1 Natural Resources Cement Chemical Processing Food Processing Governmental Services Mining and Mineral Processing Petroleum Industry Synthetic Fuels Transportation Utilities Water and Waste Treatment Aluminum Processing Cement Chemical Processing Food Processing Industrial Boilers Iron and Steel Industry Mining and Mineral Processing Petroleum Industry Pulp and Paper Industry Synthetic Fuel Utilities Construction Food Processing Industrial Boilers Petroleum Industry Utilities Industrial boilers for steam generation Pulverizers for industrial and medical Pipeline engineering Industrial coal gasification units applications Process plant design Industrial monitoring and control devices Skid mounted crude oil refineries Project management Industrial silencers for noise limit control Steel castings Remote camp design Iron castings for industrial applications Utility boilers for steam generation Reprocessed municipal waste system Oil spill dispersants Wet scrubbers for air pollution control design Packing and jointings material for the Synthetic fuel process design marine industry Services Water resource management neumatic conveying equipment for solids Architectural engineering Waste water treatment system design handling Evaluation of nonferrous mineral deposits Pressure regulators for process control Pressure vessels for the industrial and Mine development Oil field operation RS-002406 1/17/02 transportation industries Operation and maintenance of govern NUECES PulseTM water analyzer ment and industrial facilities 7 Power Generation Segment Steam generation and related equipment to meet the changing energy needs of our society--Efficient and environmentally acceptable coal fired systems--Equipment to generate synthetic fuels from low cost coal--Preci sion fabricated metal hardware for the expanding petroleum, defense, and transportation industry. Above: Aerial view of Consumers Power Company plant at Bay City. Michigan served by Riley steam generating equipment. Opposite Page: This Riley-built propylene tower weighs approxi mately 400 tons and is over 200 feet long; it is one of the largest struc tures of its kind. The Riley Company--the newest member of the U.S. Filter family-- provides steam generating equip ment and pressure vessels, as well as process instrumentation and pol lution control devices to the utility, chemical, petrochemical, and other industries. Energy and the integrity of the environment are the company's major areas of involvement. Riley operates through three prin cipal units--Riley Stoker, RileyBeaird, and the Process Instruments Group--and nine plants in the United States and Canada. Riley Stoker has two major busi nesses: steam generating and related equipment, and flue gas scrubbers for utilities and industry which are designed and installed by Environeering, Inc., a Riley subsidiary. During 1979, both the utility and industrial market for large boiler systems climbed above the depressed levels of 1976 and 1977. Major orders received during the year included a $30,000,000 contract for a 400-megawatt coal-fired boiler from a midwestern utility, and a $25,000,000 contract for a 380megawatt coal-fired boiler from a utility in the Southwest. Riley Stoker also is intensifying its mar keting activities overseas, and has received an order totalling about $20,000,000 for two 400-megawatt gas and oil-fired boilers to be erected in the Middle East. A potentially significant product brought to the market last year was the atmospheric fluidized-bed com bustion boiler. This development eliminates the need for flue gas desulfurization sys tems for industrial boilers, and results in lower total system costs. During 1979, Riley Stoker entered into an agreement with Babcock Contractors, Inc., a unit of Babcock & Wilcox Ltd. of the United King dom, for the design, manufacture and sale of the new boilers. Riley Stoker also is participating in a consortium that is building a 10-megawatt solar power plant in California under a contract with the U.S. Department of Energy. The Group is providing engineering services on the central receiver steam generator portion of this pio neering project. At its Worcester, Massachusetts R & D facility, Riley Stoker also is conducting tests involving gasification of lignite coal; an evaluation is expected to be com pleted in early 1980. Environeering, Inc. continued to maintain its market position in tra ditional particulate wet scrubbing systems. The "New Source Perform ance Standards" issued pursuant to the Clean Air Act Amendments of 1977 necessitate the extensive use of flue gas desulfurization in many coal burning plants. As more utili ties switch from oil to coal under federal energy programs, the market for such systems should grow substantially. RS-002407 1/17/02 NUECES RS-002409 1/17/02 NUECES Riley-Beaird fabricates heavy second Maxim distillate fuel sys metal products, including large pres tem went into full-scale operation sure vessels for refineries and chem in early 1979. ical plants, industrial gas storage The Process Instruments Group vessels, and machined products and produces annunciator components weldments of all types. Its proprie and systems, together with related tary products include Maxim desal industrial monitoring control inators and industrial silencers, devices. Through its Cashco, Inc. crude oil refineries, and natural gas unit, a broad line of pressure regu scrubbers. These products are sold lating and fluid control valves are primarily to the hydrocarbon pro marketed to industry. cessing industries. Additional indus The Group includes Panalarm tries served include pulp and paper, Division, which makes annunciators transportation, aerospace, fossil and and related equipment; Panellit nuclear electric power, mining, Service Corporation, which services cement, brewing, aluminum, and and maintains industrial instrumen others. tation; the Panellit Division, which Sales of process vessels to the pet develops auxiliary equipment for rochemical industry increased dur boilers, and two overseas organiza ing 1979. This was made possible, in tions: SIOC, Limited, serving the part, by Riley-Beaird's experience Canadian market, and SCAMA, and capability in building large pro Ltd., a subsidiary serving the British cess vessels which require heavy Isles market. metal forming, welding and han Applications of the Process dling equipment. Instruments Group's products and During 1979, the successful opera services now span a wide range of tion of a second Maxim distillate energy and environmental markets fuel system enhanced its marketa including petroleum refining, iron bility. Enabling diesel engines and and steel processing, electric power turbines to use crude oil processed generation, water and waste treat on site as their fuel, the system elim ment, chemical processing, and the inates the towers and other elabo production of food, paper, cement, rate refinery equipment used and other commodities. previously to produce high-quality distillate fuel. As a result, the system is far less costly than other methods. The future for this mobile unit appears to be very promising. Overseas sales continued strong. Maxim land-based sea water de salination plants were launched in the Middle East. In the Far East, a Top: This schematic shows how the unique design of the Riley Ttirbo Furnace increases the efficiency of steam production and, at the same time, minimizes the formation of oxides of nitrogen. Above: A Riley-built PANALARM* panel provides systems monitoring in the engineering control room of ships. Opposite Page: This bench model gasifier is in operation in the labo ratory of the first full size pilot model of the Riley-Morgan coal gasifier near the Research and Development Laboratory in Worcester, Massachusetts. RS402410 1/17/02 NUECES Energy/Technology Segment International engineering and project management capability--Oil, gas, water, and slurry pipeline expertise--Cost-effective process designs and construction for the mining, cement, and beverage industries--Proven worldwide logistical support capability--High technology steel castings for the petroleum, chemical, and nuclear industry. Top: Removing slag from eight tons of molten steel. Above: Charging molten steel into the Argon Oxygen Decarburization vessel for refining. Opposite Page: Tapping refined steel from the Argon Oxygen Decarburization vessel. The Energy/Technology Segment operates through four principal units: The Resource Sciences Cor poration; Williams Brothers Engi neering Company (Williams Brothers); Holmes & Narver, Inc. (H&N); and Atlas Foundry & Machine Co. (Atlas). These compa nies provide systems-engineering, project management services, and high-quality steel castings for cus tomers and clients engaged in oil and natural gas production and pro cessing, mining, pipeline transport, and the manufacture of valves and pumps for nuclear and conventional power plants. Williams Brothers' primary busi ness is furnishing energy-related technical and management services to governments and industry. New projects in such service areas as: marine pipeline engineering, water pipeline, grassroots refinery work, and overseas oil and gas reservoir evaluations have grown over the past year. Our expanded marine engineering capability has been increased because of major projects in Abu Dhabi and Brazil. The com pany continues to aggressively pur sue large, emerging markets for its services. In one such opportunity, the People's Republic of China invited Williams Brothers execu tives for several visits and presenta tions to two government ministries. The Strategic Petroleum Reserve Drilling program, operated through a joint venture, also represented increased penetration by Williams Brothers of this growing market. Looking ahead to 1980, we antici pate that the proposed Northern Tier crude oil pipeline from Port Angeles, Washington, to Clearbrook, Minnesota, will meet environmental considerations, so it can generate significant new work for the future. Williams Brothers continued as contract-operator for the Naval Petroleum Reserve Elk Hills Field in California. An on-location staff of more than 400 is involved in deve lopmental drilling, as well as in operations and maintenance. Holmes & Narver, Inc., our other engineering firm, provides complete engineering, procurement and con struction services for industrial and government facilities as well as spe cialized engineering services and logistical and support operations worldwide. Holmes & Narver, Inc. is engaged in the design and engineer ing of a 125,000 barrels-perweek expansion program for the Anheuser-Busch brewery in Van Nuys, California. This project is the latest in a series of engineering assignments undertaken for this client since 1952, when Holmes & Narver designed the original award winning brewery at the same loca tion. The current expansion includes site and yard, grain han dling facilities, brewhouse, power plant, finished beer cellars, as well as beer packaging and shipping buildings. RS-002411 1/17/02 NUECES Additionally, as part of a joint venture project, H&N, a fifty percent participant, was awarded the first two phases of a multi-phase con tract for a new city development in Libya. Work has begun on the proj ect, named Brega New Town, which will be located 400 miles east of the capital, Tripoli. It will provide all the necessary elements for a city of approximately 40,000 persons. In association with two other major companies, H&N became part of the HBH Company, a joint ven ture which was awarded a $670 million contract from the U.S. Department of the Navy to support the expansion of the Royal Saudi Naval Forces. Holmes & Narver per sonnel will operate and maintain a ship repair facility at Jubail, manage the Saudi Navy logistics system, and inspect the constructed facilities. HBH will train Saudi Naval person nel to maintain their ships and to operate and maintain their facilities. Holmes & Narver engineered and is the construction manager for a copper solvent extraction-elec trowinning plant at Centromin's Cerro de Pasco Mine in Peru. H&N has a services contract for this proj ect, which will recover 18 metric tons-per-day at a mine located 14,000 feet above sea level, using Holmes & Narvers patented "LowProfile" design. "Low-Profile" is a proven solvenT'ektraction mixersettler design concept that affords lower investment costs. Having completed a successful solvent extraction-electrowinning plant at Miami, Arizona for Cities Service Company, H&N was awarded a con tract for engineering, procurement, and construction of a similar plant in Pinto Valley, Arizona. Also incor porating Holmes & Narvers patented "Low-Profile" concept in its design, the plant will process 6,000 gallons-per-minute of copperbearing solution yielding approxi mately 10 million pounds of cathode copper per year. In Wyoming, Holmes & Narver has completed the design, procure ment, and construction and is cur rently operating a 25-tons-per-day uranium thin layer (TL) leach pilot plant. Capable of recovering both uranium and vanadium, the pilot plant project expands the use of Holmes & Narvers proprietary TL leach process from the processing of copper to the processing of uranium. Output at Atlas increased by 13 percent over 1978, despite a soften ing in the subsidiary's traditional energy markets. Atlas is a recog nized leader in supplying high-integrity steel and stainless steel pressure castings to equipment manufacturers serving the utility, petroleum, and other energy related markets. Early in the year, Atlas completed a multimillion dollar capital expan sion program, which has increased plant capacity by one-third. New facilities include an Argon Oxygen Decarburization metal refining pro cess which enables Atlas to offer steel castings with the highest qual ity possible in the industry. The radiographic examination facility permits Atlas to meet the most rigid internal quality standards on cast ing thickness up to 20 inches. Historically, Atlas clients have been concentrated on the West Coast. A major 1979 marketing thrust into the Eastern, North Cen tral, and Gulf Coast regions of the United States, areas where signifi cant volumes of high-quality cast ings are purchased, has enabled Atlas to increase its production vol ume. This marketing program should result in additional new business. The present combination of plant capacity, technological capability, and a highly skilled and experi enced organization positions Atlas to capitalize on the increasing demand anticipated in the potential energy markets of the 1980s. R8-002413 1/17/02 NUECES Top: This Blind Shaft Borer (BSB) is a mechanical shaft sinking system designed to bore and line .1 coal mine shaft. The Department of Energy, Division of Solid Fuel Extraction, is developing the BSB to help the coal mining industry reduce the time required for shaft sinking. Williams Brothers Engineering Company is the assistant to the technical project office. Above: Holmes & Narver is engaged in the design and engineering of a 125,000 barrels-per-week expansion program for Anheuser-Busch's Van Nuys, California brewery. Right: As operator of Naval Petroleum Reserve No. 1 in Tupman. California, Williams Brothers is developing this government holding to ultimately produce 400,000 barrels per day of crude oil. Natural Resources Segment Products to enhance petroleum processing--Washed coal to meet clean air requirements--Adsorbents for the food processing industry--Cement for the growing needs of the Pacific Northwest and Ohio Valley--All are proc essed from raw materials mined by the natural resources segment. Filtrol Corporation, in which U.S. Filter now owns a 100 percent inter est, consists of three operating units--the Catalysts and Adsorbents, the Cement, and Coal Divisions. In 1979, sales of fluid catalytic cracking (FCC) catalysts exceeded 1978 volume, despite a sluggish mar ket in the early part of the year. This improvement was due partly to new and improved catalysts developed by Filtrol, and partly to increased refinery usage following the onset of the "gasoline crunch." Catalysts play a critical role in the economical con version of crude petroleum to usable gasoline and oil products and in enhancing the value of certain chemicals. Sales of hydrodesulfurization (HDS) catalysts were relatively con stant throughout the year and about equal to 1978 volume. HDS catalysts are used in petroleum refining to remove sulfur, nitrogen, and other impurities from both liquid and gaseous hydrocarbons. In the adsorbents market, food oil processors which are the major cus tomer for these products continued to increase their usage throughout the year. Consequently, our adsor bents plants operated at near max imum capacity. Filtrol's research program made considerable progress during the year. Under a grant from the U.S. Department of Energy, the company is developing special catalysts for use in the cracking and cleaning of oils from such sources as tar sands, shale, and coal. The Cement Division enjoyed another good year in 1979. Both the Bellingham, Washington and Zanes ville, Ohio plants operated at max imum capacity and as a result the Cement Division reported net sales and net income ahead of 1978. Major capital improvements and maintenance projects were begun during 1979 at both locations which should increase the reliability and profitability of future operations. The Coal Division experienced a continued disappointing year for two reasons: first, a softening in coal prices, and second, the reluctance of industry to accelerate, what we think is the inevitable, the conver sion to coal from oil and gas. At year-end, pricing was trending upward, and the demand for washed coal in particular was increasing. Our washed coal, which has been reduced in sulfur content, is showing a slow but steady upturn in price and demand. Washed coal results in less contamination when used for fuel than "as mined" coal. RS-002416 1/17/02 NUECES 1/ Above: A view of Filtrol's Columbia Cement Plant at Zanesville, Ohio during nighttime operations. Left: Coal is mined in Ohio, processed to remove a large portion of the contami nants that cause pollution, and stored for use by industry. RS-002416 1117/02 NUECES Environmental Systems Segment Engineered systems and products for control of air and water pollution-- Filtration and treatment of liquids--Innovations to reduce the cost of sulfur dioxide and particulate removal--Equipment and systems for product recovery, transport, and size reductions. Above: A high capacity pressure pneumatic flv ash removal system designed and supplied by our Ducon Fluid Transport Division for a coal-fired boiler. Opposite Page: U.S. Filter "MaxiFlo" filter station removes sediment from in situ uranium leach solution prior to separation of the dissolved uranium content for further processing. Our Environmental Systems Segment provides technology, hard ware, and systems for environmen tal control and related industrial needs. These are broadly classified into the following areas: air pollu tion control and product recovery, water and waste treatment, and filter media for air and liquid sys tems. The Segment is also involved in pneumatic and hydraulic solids transport; pulverizing and air clas sification of solids; and the manu facture of liquid filtration equipment. The Environmental Systems Seg ment operates through its MikroPul, Ducon, Fluid Systems, Fluid Trans port, and Menardi-Southern units in the United States, as well as six foreign subsidiaries and numerous licensees worldwide. MikroPul's latest and most techni cally advanced dry scrubbing system is being installed on a 78.000 tons-per-year aluminum smelter in Iceland. This recent con tract culminates ten years of techno logical progress within the various units of the Environmental Systems Segment. The year also marked the start-up of the nation's first full-scale com mercial dry sulfur dioxide removal system--designed and installed by MikroPul. The application of this pollution control system, on a coalfired industrial boiler, should prove particularly significant when the Environmental Protection Agency's (EPA's) proposed "New Source Per formance Standard." for this class of boiler, comes into effect in 1980. This new system can help shift the nation's dependence away from oil to coal, and also reduce indus try's rising cost for fuel. In the liquid filtration area. 1979 was marked by a high level of new orders for our pressure leaf screen ing process and media filter equip ment. In addition, the Fluid Systems unit successfully completed mechanical revisions of its test filter at the Solvent Refined Coal project at Wilsonville, Alabama. The sol vent refining process, which removes pollutants such as sulfur and ash, can produce a clean burn ing coal for industrial use and can be used by utility companies for conversion to electricity. The appli cation of flotation cells to treat poultry waste-water, which resulted in an influx of orders, was another Fluid Systems "first" during the year. The Ducon unit is responding to new requirements for odor and emission control for the disposal or utilization of solid waste, garbage, and sludge in an environmentally acceptable manner. The Fluid Trans port unit designs pneumatic convey ing and chemical handling systems for treating both waste-water and the increasing volume of power plant sludge. This unit also is in the fore front in supplying fuel and waste handling for the emerging fluidizedbed coal combustion technology. RS-002417 1/17/02 NUECES During the year, our MikroPul pulverizing equipment line made significant inroads in two separate applications. First, in the demanding Kaolin clay industry, where success ful use of this equipment resulted in a better product at higher efficiency and a lower cost, compared to industry standards. The second application was the supply of pul verizing systems to competing pollu tion control companies. These systems are designed to accurately pulverize and disperse conditioning agents into boiler flue gas. The tech nique upgrades the collection effi ciency of electrostatic precipitators and allows the plant to meet environmental codes. Menardi-Southern is the recog nized leader in production and sales of filter media for wet and dry filtra tion in both industrial processing and pollution control. A number of basic industries, such as foods, chemicals, metals, cement, and power, require some filtration of their products, and Menardi- South ern works with companies in all of them. It should be noted that the energy shortage has created a greater rent.'s.- of the need by both elec tric utilities and industrial concerns to burn coal while maintaining air quality standards. For many of these coal-burning units, the best solution has been Menardi-Southern's Tuflex-treated glass fiber filter which has demonstrated excellent performance in maintaining air quality standards. Other product applications include Menardi's Monofilter woven polypropylene for soil ero sion control in the civil construction industry and Aquascreen, a patented product with the capacity to kill and control shoreline weeds. Since no other nonchemical materi als are available for the latter, Aquascreen has enjoyed increasing acceptance. For example, during 1979, the City of Seattle installed more than five acres of our screen ing material in Lake Washington. Above: Ducon-MikroPul Australia's installation of an air cleaning system on an iron ore dryer in Cliff West, Australia. The system consists of twin high efficiency, abrasive resistant lined Ducon cyclones followed by twin Ducon type UW4 dynamic scrubbers. MikroPul's first industrial dry SOzand particulate removal system in operation on a base loaded pulverized coal fired boiler in the U.S.A. MikroPul spray dryer on the right is vented to a Mikro Pulsaire Fabric Filter on the left. RS402420 1/17/02 NUECES O-i Specialty Chemicals Segment Proprietary products to reduce fuel consumption and high cost of boiler and cooling system maintenance--Cost saving products for treatment of water and waste--Technical services and specialized instrumentation to identify and solve marine and industrial process water related problems. Above: Shown above is the engine room space where the boiler and turbine are housed in a Very Large Crude Carrier (VLCC).The high pressure steam generators require exacting water treatment products and supervisory control programs. The application of Drew's ULTRAMARINE program provides for optimum operating efficiency, mini mum operating expense, increased equipment reliability and reduced maintenance expenses. Opposite Page: Drew maintains product supply and technical serv ice capability in over 140 ports world-wide. Fuel treatments to improve combustion and increase energy efficiency represent an important part of Drew's sales. Drew Chemical Corporation, which forms U.S. Filter's Specialty Chemi cals Segment, provides products and services to industry and to marine shipping, worldwide. Con serving energy, enhancing environ mental quality, and facilitating production through the treatment of water and fuel, its products and services combat the problems of scaling, foaming, corrosion, and fouling in water, enhance fuel sys tem operation, and provide for improved equipment maintenance. During the year, Drew introduced new products and instruments, an outgrowth of ongoing and extensive research and development activities; expanded supply, distribution and manufacturing capabilities; and broadened overseas sales coverage. One of the factors which causes energy and productivity losses is the formation of bacterial slime in industrial water systems. During 1979, Drew introduced its BIOMATICTM analyzer to assist industry in coping with this problem. Devel oped in conjunction with Baylor College of Medicine, this instrument makes available for the first time, an accurate and immediate method for bacterial counting. As a result, a water system's tendencies toward bacterial fouling can be determined almost instantly, thus avoiding costly plant shutdowns. This instru ment has been well received, and the sale of Drew's biocide and water treatment products should be enhanced through its use. Another instrument to assist industry in maintaining production and conserving energy was devised by Drew in conjunction with Ore gon State University. The PULSETM analyzer is used to monitor the cor rosion and fouling potential of a water system and thus provide a rapid alert and response to system upsets. On-site detection capability interacts with Drew's main frame computer at its Boonton, New Jersey headquarters, permitting immediate assessment and response to water corrosion and fouling problems. During the year, Drew was awarded a National Science Foundation grant to study fouling characteris tics of cooling water using the PULSE analyzer. The PULSE analyzer should have a positive impact on the sale of Drew's water treatment products. Two new chemical products developed by Drew, Bunkersol-DTM Sludge Control and L/T Soot ReleaseTM were designed specifically for motorship fuel programs. Through the use of these new prod ucts, Drew is assisting ship opera tors in obtaining the maximum energy potential from fuel, while minimizing operating difficulties such as corrosion and deposit formation. Working with ship oper ators and diesel engine manufac- RS-002421 1/17/02 NUECES RS-002422 1/17/02 turers, Drew is developing sophisti cated programs to meet the fuel problems expected in coming years. As a result of escalating fuel prices and lower fuel quality, the sales of these treatment products increased during 1979. Drew's improved oil spill dispers ant, OSD/LXTM was introduced in 1979 and has been accepted or authorized for use by major regula tory bodies around the world. The introduction of Drew's Packings & Jointings Inventory Control System resulted in increased sales to marine vessels. This system utilized con trolled inventory storage of packings and jointings materials with inven tory replenishment at the various ports-of-call and results in lower vessel operating and maintenance costs. Drew launched its Motorgard XTM service program to the worldwide shipping community during the year. This program for motor vessels provides reduced operating and maintenance costs and improved fuel efficiency. Our Specialty Chemicals Seg ment was increasingly active in the sale of defoamers to industries that utilize process water systems including potato and sugar beet processors as well as markets in Europe and the Far East. New water-based defoamers were intro duced into the aqueous industrial coatings and pulp and paper fields. In addition, bulk distribution of cor rosion inhibitors, biocides, defoamers, antisealants, and fuel treatments to industrial plants, mills as well as to remote oil field loca tions were intensified in the South west and in California. Worldwide sales activities were expanded. Drew participated in the Incheba exposifion-in Bratislava, Czechoslovakia. Sales and service capabilities were enlarged in East ern Europe and Yugoslavia to sup port the rapidly growing business in this region. Drew broadened its cov erage of the People's Republic of China by signing an agency agree ment with Shanghai Ocean Ship ping Company. The agreement calls for complete product and service capability in the Port of Shanghai for both domestic and foreign flag vessels. Intensifying its efforts in the Middle East, Drew established a dis tributorship in Saudi Arabia in order to provide products and tech nical service in both water and fuel treatment. Seminars on all phases of water and fuel treatment and processing additives were conducted through out the United States, Europe, the Middle East, and the Far East. Above: The phosphoric acid plant shown above is illustrative of the many industries utilizing process water. Drew is expanding its sales of defoamers and surfactants to these industries, to provide for more efficient productivity. Opposite Page: The treatment of cooling water systems for the pre vention of scaling, corrosion and biological growths requires techni cal supervision by Drew's field service engineers. The cooling tower shown is representative of the many systems world-wide uti lizing Drew's products and services. NUECES Investment in Koehring Company Koehring is a manufacturer of specialized machinery and equipment for the construction and natural-resources industries--cranes and excavators, compaction equipment, waterwell drills, light construction equipment, and farm equipment. The company also manufactures hydraulic components and systems. Top: Koehring's 1266D Hydraulic Excavator loading coal near Big Horn, Wyoming. Above: Koehring's Lorain LRT-500 Rough Terrain Hydraulic Crane installing power lines near Knox ville. Tennessee. The Koehring Company, in which U.S. Filter owns approximately 23 percent of the outstanding common stock, is a multinational machinery manufacturer serving customers in the construction, hydraulic compo nent, farm, woodlands, water-well drilling, and related markets. For the fourth consecutive year, Koehring posted new highs for both shipments and net earnings in its fiscal year ended November 30, 1979. The gains were attributable to vigorous construction markets in various parts of the world, strong product demand, and improvements in operations brought about during the past several years. The world economy was favor able for Koehring's business in 1979. United States construction activity-- both residential and commercialsustained the momentum of 1978 for the greater part of the year. Improved economic conditions, mainly in Europe, the Middle East, and the Far East, provided a good sales climate. Overall demand for Koehring's varied lines of construction and other equipment, was strong for most of fiscal 1979. Net shipments worldwide also advanced. Ship ments and operating profits for Machinery and Equipment opera tions improved, as did shipments and profits for Hydraulic equipment. As in the past, U. S. Filter con tinues to have confidence in its investment and in the management of Koehring. RS-002425 1/17/02 NUECES United States Filter Corporation Five Year Summary of Operations (In thousands) Net sales Cost of sales Other operating expenses Interest income Interest expense Other income--net Provision for income taxes Equity in earnings of Koehring Company. Equity in earnings of Filtrol Corporation Minority interest in Filtrol Corporation Extraordinary credit, net of taxes, ($.09 per share) Net income Preferred dividends Preference dividends Net income applicable to common shares Earnings per share Primary Fully diluted Average number of shares Primary Fully diluted Cash dividends on common stock 1979 $611,551 460,810 117,730 13,568 14,743 1,447 13,313 2,691 -- 184 -- 22,477 23 6,003 $ 16,451 $2.01 $1.79 8,215 12,586 $ .34 Year ended December 31, 1978 1977 1976 $540,815 410,697 104,591 7,150 11,780 1,788 7,549 2,173 -- 1,233 $423,657 310,255 93,334 2,637 6,502 1,533 7,300 436 3,005 -- $358,177 252,930 84,386 2,364 6,088 1,730 8,600 -- 2,445 -- -- 16,076 23 3,487 $ 12,566 -- 13,877 23 - $ 13,854 -- 12,712 23 - $ 12,689 $1.55 $1.51 8,171 10,708 $ .30 $1.70 $1.70 8,198 8,198 $ .28 $1.57 $1.56 8,140 8,184 $ .24 1975 $246,402 162,009 69,758 2,321 5,326 2,545 5,340 -- 1,109 -- 746 10,690 30 $ 10,660 $1.32 $1.32 8,123 8,123 $ .20 Notes to Five Year Summary of Operations As of July 1,1975, the Company purchased Atlas Foundry & Machine Co. and the summary includes the results of operations from date of acquisition. Had the acquired cor poration been included for the full year of 1975, net income would have increased $1,871,000 ($.24 per share). The Company accounted for its 50.7% ownership in Filtrol Corporation on the equity method through December 31, 1977. During 1978, the Company increased its ownership to approximately 86% and, accordingly, included the accounts of Filtrol in its 1978 consolidated financial state ments, effective January 1,1978. As a result of the Com pany's additional investment during 1979, Filtrol became a wholly-owned subsidiary. In December 1979, the Company purchased The Riley Company for approximately $116,000,000 in cash and notes, including capitalized acquisition costs. No results of operations for Riley are included in the Company's con solidated statement of income for 1979. Pertinent informa tion relating to this acquisition is furnished in "The Riley Company" note to the consolidated financial statements. RS-002427 1/17/02 NUECES Financial Review Management's Discussion and Analysis of the Summary of Operations As indicated in the notes to the consolidated financial statements included herein, the accounts of Filtrol have been included in the consolidated financial statements of the Company effective January 1,1978. During 1977 and prior, the Company accounted for Filtrol under the equity method. In December 1979, the Company purchased The Riley Company. No results of operations for The Riley Company are included for 1979. Net Sales Net sales increased by $70,736,000 (13%) during 1979, and $117,158,000 (28%) during 1978. The inclusion of Filtrol's sales for the full year of 1978 represented 86% of the 1978 increase. Sales by the Engineering Services subsegment of the Energy/Technology segment increased slightly, result ing from new jobs started in 1979, despite lower revenues from a major government contract. This compares to 1978 when the Engineering Services subsegment experienced higher revenues from a major government contract and lengthy start-up delays in other new jobs. Major new jobs were also started by the Environmental Systems segment during 1979 while the Specialty Chemicals segment expe rienced a resurgence of world-wide marine shipping activ ity. Higher sales by the Natural Resources segment resulted from increased demand for catalysts and adsorbents, cement and coal. Price increases accounted for the bal ance of the 1979 and 1978 sales increases, and were neces sary to counter the effect of increased costs of labor and materials. Cost of Sales Cost of sales increased by $50,113,000 (12%) in 1979 and $100,442,000 (32%) in 1978 with the inclusion of Filtrol causing 81% of the total 1978 increase. The 1979 increase, and the balance of the 1978 increases, are represented by manufacturing costs, principally raw materials, payroll and related costs and repairs and maintenance expenses. In addition, the decrease in revenues during 1979 from a major government contract which has a lower gross mar gin, caused an improvement in the percentage relationship of cost of sales to sales. Other Operating Expenses Other operating expenses increased by $13,139,000 (13%) in 1979 and $11,257,000 (12%) in 1978. Generally, expense increases in this category are volume related and subject to the effects of inflation, especially in the areas of insur ance and payroll and related costs. Through cost reduction and cost postponement programs, the Company has been able to minimize percentage increases in other operating expenses which have remained constant as a percentage of net sales. Interest Income Interest income increased by $6,418,000 (90%) in 1979 and $4,513,000 (171%) in 1978, which resulted from higher investments in cash equivalents made by the Company of cash resources resulting from the preference stock issuance on June 2,1978. The 1979 increase reflects the full year's effect of greater investments at higher interest rates. Interest Expense Interest expense increased by $2,963,000 (25%) in 1979 and $5,278,000 (81%) in 1978. The 1979 increase resulted from increased short-term borrowings and foreign borrowings at higher prevailing interest rates. Of the 1978 increase, approximately 48% resulted from the inclusion of Filtrol. The balance of the 1978 increase resulted from additional borrowings and the increase in the Company's capitalized leases. Other Income--Net Other income--net decreased $341,000 (19%) in 1979 and increased $255,000 (17%) in 1978. In 1979 exchange losses were experienced resulting principally from the devalua tion of the Brazilian cruzeiro which was offset somewhat by increased royalty income and improved earnings of joint ventures. The 1978 increase was due principally to higher royalty income and the inclusion of Filtrol but was somewhat offset by a reduction in equity in earnings of joint ventures. Provision for Income Taxes The provision for income taxes increased $5,764,000 (76%) in 1979 and $249,000 (3%) in 1978. The provision for income taxes and the effective tax rate are affected princi pally by changes in the level of taxable income and because of changes in the relationship of income from United States and foreign operations, deductions for per centage depletion and investment tax credits. Equity in Earnings of Koehring Company The Company's equity in earnings of Koehring Company increased $518,000 (24%) in 1979 and $1,737,000 (398%) in 1978. The 1979 increase resulted from higher sales volume and better profit margins in Koehring's major product lines. The 1978 increase reflects the first full year of the Company's equity in Koehring's earnings. Net Income and Primary Earnings Per Share Net income increased $6,401,000 (40%) in 1979 and $2,199,000 (16%) in 1978 while primary earnings per share increased $.46 (30%) in 1979 and decreased $.15 (9%) in 1978. In the computation of primary earnings per share the inclusion of the preference dividends on the Series A Con vertible Preference Stock causes the percentage change in primary earnings per share to be less than the change in net income. For 1978, however, preference dividends are included in the computation only from June 2,1978, the date of the preference stock issuance. RS-002428 1/17/02 NUECES United States Filter Corporation _ ___ , Consolidated Statement of Income and Retained Earnings Net sales Costs and expenses Cost of sales Selling, general and administrative Research and development Other income (expenses) Interest income Interest expense Other--net Provision for income taxes Equity in earnings of Koehring Company Minority interest in Filtrol Corporation Net income Retained earnings at beginning of year Cash dividends Preferred stock Preference stock Common stock--$.34 per share ($.30 in 1978) Retained earnings at end of year Earnings per share Primary Fully diluted Unaudited Quarterly Financial Data Net sales Cost of sales Equity in earnings of Koehring Net income Earnings per share Primary Fully diluted 1979 1978 1979 1978 1979 1978 1979 1978 1979 1978 1979 1978 First Quarter $134,572 121,650 102,148 93,131 365 126 3,381 864 .23 .11 .23 .11 Year Ended December 31, 1979 1978 (In thousands) $611,551 $540,815 460,810 113,061 4,669 578,540 33,011 410,697 100,084 4,507 515,288 25,527 13,568 (14,743) 1,447 272 33,283 13,313 19,970 2,691 (184) 22,477 52,719 7,150 (11,780) 1,788 (2,842) 22,685 7,549 15,136 2,173 (1,233) 16,076 ^ 42,535 (23) (6,003) (2,708) $ 66,462 (23) (3,487) (2,382) $ 52,719 $2.01 $1.79 $1.55 $1.51 RS-002429 i/i nv* NUECES Second Third Quarter Quarter (In thousands) $147,512 130,300 $161,169 144,662 111,682 97,648 121,052 110,223 829 739 669 642 5,339 4,078 6,689 5,717 Fourth Quarter $168,298 144,203 125,928 109,695 758 736 7,068 5,417 Ml, .47 .63 .43 .51 .43 .53 .43 .45 .68 .50 .56 .45 United States Filter Corporation_______ Consolidated Balance Sheet Assets Current assets Cash and cash equivalents Marketable securities, at cost (approximates market) Accounts and notes receivable, less allowance for doubtful accounts of $3,195,000 ($1,782,000 in 1978) Unbilled receivables and net costs incurred on uncompleted contracts Inventories Other current assets Total current assets Investments and advances, including Koehring Company $22,343,000 ($19,151,000 in 1978) Property, plant and equipment--net Cost in excess of net assets of companies acquired Other assets Liabilities and Shareholders' Equity Current liabilities Notes payable to banks Accounts payable Contract advances and progress billings in excess of costs incurred Salaries and fringe benefit Other accrued expenses Income taxes Current installments of long-term debt Total current liabilities Long-term debt Deferred income taxes Total liabilities Minority interest in Filtrol Corporation Shareholders' equity Capital stock Preferred stock, 5% cumulative, $10 par value, redeemable at par, authorized, 200,000 shares; 46,944 shares outstanding Preference stock, without par value; authorized 5,000,000 shares; Series A convertible, stated value $1; $1.38 cumulative annual dividend, 4,350,000 shares outstanding, liquidating value $100,050,000 Common stock, without par value, stated value $1; authorized 20,000,000 shares; 7,974,892 shares outstanding (7,946,892 in 1978) Paid-in capital Retained earnings Total shareholders' equity See accompanying notes. December 31, 1979____________________ 1978 (In thousands) $184,790 49,970 161,336 35,105 80,037 3,830 515,068 25,738 189,936 68,457 20,757 $819,956 $139,106 89,467 14,881 40,435 2,626 286,515 21,325 114,567 56,694 5,831 $484,932 $ 75,542 75,686 129,012 20,498 33,535 23,142 12,977 370,392 175,429 9,481 555,302 -- $ 12,163 41,365 2,043 12,166 20,640 7,525 6,230 102,132 119,063 7,417 228,612 5,718 469 4,350 7,975 185,398 66,462 264,654 $819,956 RS-002430 1/17/02 NUECES 469 4,350 7,947 185,117 52,719 250,602 $484,932 United States Filter Corporation Consolidated Statement of Changes in Financial Position Sources of working capital Operations Net income Items not affecting working capital Depreciation, depletion and amortization Equity in undistributed earnings of Koehring Company and other investments Deferred income taxes Minority interest in Filtrol Corporation Funds provided from operations Net current assets upon consolidation of Filtrol Corporation Net proceeds from issuance of preference stock Long-term debt Notes issued in connection with The Riley Company acquisition Other Net book value of property, plant and equipment sold Total sources of working capital Uses of working capital Acquisition of The Riley Company Property, plant and equipment Intangible assets Note receivable Cost in excess of net assets acquired Long-term debt Other--net Additional investment in Filtrol Corporation Additional investment in Koehring Company Additions to property, plant and equipment Reduction in long-term debt Cash dividends Other-net Total uses of working capital Increase (decrease) in working capital Increase (decrease) in components of working capital Cash, cash equivalents and marketable securities Receivables and net costs incurred Inventories and other current assets Notes payable and current installments of long-term debt Contract advances and progress billings in excess of costs incurred Accounts payable and other liabilities Income taxes Increase (decrease) in working capital See accompanying notes. Year Ended December 31, 1979 (In thousands) 1978 $22,477 10,598 (2,713) 1,618 184 32,164 -- -- 53,089 5,789 1,654 92,696 69,906 10.CC0 5.192 11,955 (6,511) (853) 89,689 7,943 1,020 15,882 9,023 8,734 112 132,403 $(39,707) $95,654 92,093 40,806 (70,126) (126,969) (55,548) (15,617) $(39,707) $ 16,076 9,161 (2,078) 1,185 1,233 25,577 13,617 99,625 30,323 624 169,766 ( - - -- - -- 17,062 153 18,468 6,581 5,892 1,221 49,377 $120,389 $ 98,480 31,210 16,913 (7,758) 394 (21,211) 2,361 $120,3891# RS-002431 1/17/0* NUECES United States Filter Corporation Notes to Consolidated Financial Statements Long-Term Contracts The percentage-of-completion method is used to account for long-term contracts. All of the following notes are an integral part of the Com pany's financial statements. In recent years, the Financial Accounting Standards Board and the Securities and Exchange Commission have issued various requirements for increased disclosure of data. This information, which is considered technical in nature, is included on pages 37, 42 and 43 of this annual report. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and all of its subsidiaries. Investments in 50% and lesser-owned companies, includ ing joint ventures, are stated at cost plus equity in undis tributed earnings. The net assets of The Riley Company (Riley), acquired in December 1979, are included in the Company's December 31,1979 consolidated balance sheet. No results of operations for Riley are included in the Com pany's consolidated statement of income for 1979. Inventories Inventories are stated generally at average or first-in, firstout cost not in excess of market. A portion of the cement inventories of Filtrol, which are not material to consoli dated inventories, are accounted for on the last-in, firstout basis. Depreciation, Depletion and Amortization Depreciation is computed for buildings and improvements principally on the straight-line method over useful lives ranging from seven to fifty years and for machinery and equipment on the straight-line and declining balance methods over useful lives of two to thirty years. Amortiza tion of capitalized leased properties is computed on a straight-line basis over the term of the lease. Clay and mineral deposits, including mine development costs, are depleted or amortized using the unit-of-production method based on the estimated quantity of future production. Maintenance and repairs are charged to operations as incurred and renewals and betterments are capitalized. The net book value of property, plant and equipment retired or otherwise disposed of is generally removed from the accounts and the resulting gains and losses are included in operations. Cost in excess of net assets of companies acquired is being amortized on the straight-line method, generally over forty years, except for excess cost related to acquisitions prior to October 31,1970 which is not being amortized and has not diminished in value. In order to apply this method, total contract costs must be estimated. Certain contracts provide for the escalation of the sales price based on the future level of economic indi ces, as specified in the contract, and in such cases total contract revenue must also be estimated in applying the percentage-of-completion method. The percentage-of-completion is determined by relating the actual cost of work performed to date to the current estimated total cost of the respective contracts. When the estimate on a contract indi cates a loss, the Company's practice is to record the entire loss. Unbilled receivables on uncompleted contracts repre sents the excess of costs incurred and profits recognized to date on the percentage-of-completion accounting method, over billings to date on certain contracts. Con tract advances and progress billings in excess of costs incurred represents the excess of billings to date over costs incurred and profits recognized to date on the per centage-of-completion accounting method on the remain ing contracts. The Company does not charge selling and general and administrative expenses to inventory or net costs incurred. Pension Plans The Company has several pension plans covering substan tially all of its employees. For most of its plans, the Com pany provides in its accounts normal cost plus interest on unfunded prior service costs. For the remaining plans, the Company provides in its accounts an amount equal to its funding. Funding for all plans, is based on normal cost plus amortization of unfunded past service cost over periods of ten to forty years. Income Taxes Provision has not been made for additional taxes that might result from the distribution to the Company of undistributed earnings of certain subsidiaries which are intended to be permanently reinvested in those sub sidiaries' activities and are not considered available for distribution. The Company accounts for the investment tax credit on the flow-through method. Percentage depletion on clay and mineral deposits is deducted in calculating federal and state income taxes. This depletion is substantially in excess of the cost deple tion for financial reporting purposes. Earnings Per Share Primary earnings per share are based on the average number of common shares outstanding and the common equivalent shares issuable upon conversion of the 5% secured convertible note, the awards of shares under the Key Executive Stock Incentive Plan and the exercise of stock options. Fully diluted earnings per share also assumes conversion of the 4,350,000 Series A convertible preference shares outstanding. RS-002432 1/17/02 NUECES 33 Cash and Cash Equivalents Cash and cash equivalents includes the following: Cash Certificates of deposit and time deposits December 31. 1979 1978 (In thousands) $ 33,893 150,897 $ 18,652 120,454 $184,790 $139,106 Inventories Inventories include the following: Finished goods Work in process Raw materials Parts and supplies December 31 lanuarv 1 1979 1978 1978 (In thousands) $27,668 18^29 26,836 7,304 $14,085 7,720 12,277 6,353 $13,118 8,209 11,449 4,922 $80,037 $40,435 $37,698 The above inventories are used in the computation of cost of sales, except $30,564,000 attributable to Riley at December 31,1979. In connection with the increased ownership of Filtrol in 1979 and 1978, the apportioned fair values for the cement inventories exceeded the tax basis for such inventories by $384,000 and $274,000 at December 31,1979 and 1978, respectively and, in accordance with APB Opinion No. 16, are reflected in consolidated inventories. Property, Plant and Equipment Property, plant and equipment, at cost, at December 31, is :s rohows1 Land and improvements Clay and mineral deposits Buildings and improvements Capitalized leased properties Machinery and equipment Less accumulated depreciation, depletion and amortization 1979 1978 (In thousands) $ 9,995 4^02 41,231 57,100 134,270 $ 7,817 3,918 27,595 22,876 100,472 246,798 162,678 56,862 $189,936 48,111 $114,567 The Riley Company In December 1979, the Company purchased Riley for approximately $116,000,000 in cash and notes, including capitalized acquisition costs. The net assets of Riley are included in the Company's December 31,1979 consoli dated balance sheet. No results of operations for Riley are included in the Company's consolidated statement of income for 1979. The excess of the purchase price over Riley's net book value of the tangible assets acquired is $56,040,000. Of this amount $44,085,000 has been allo cated to certain assets and liabilities based on their fair values at the acquisition date. The balance is included in cost in excess of net assets of companies acquired and will be amortized over 40 years. If the acquisition of Riley had occurred as of January 1, 1978, net sales on an unaudited pro forma basis would have been $881,094,000 and $79^410,000 for the years ended December 31,1979 and lu78, respectively. The impact of this acquisition on p;^ forma net income and primary earnings per share would not have been material for either 1979 or 1978, after reflecting adjustments for such items as interest expense and depreciation and amor tization of the fair values of acquired assets and goodwill. Filtrol Corporation During 1979, the Company increased its ownership in Filtrol from 86% to 100% at a cost of approximately $8,000,000. Had the Company obtained 100 percent own ership of Filtrol effective January 1,1978, the effect on earnings for 1979 and 1978 would not have been material. The Company's investments in Filtrol have been allocated to certain tangible assets based on their fair values exist ing as of the respective acquisition dates of the invest ments, except for $50,175,000 of the original 1969 investment, which is included in cost in excess of net assets of companies acquired and is not being amortized since, in the opinion of management, it has not diminished in value. Koehring Company The Company currently holds approximately a 23% equity interest in the common shares of Koehring Company (Koehring) at a cost of approximately $17,100,000. In October, 1979 the Company acquired 30,000 Series H con vertible preferred voting shares of Koehring at a cost of $1,020,000 (quoted market value at December 31,1979 was $900,000). Equity in the net assets of Koehring exceeds the cost of the Company's common stock investment by approximately $3,000,000. The quoted market value of the common stock investment was $13,570,000 at December 31,1979. A condensed summary of the financial position and results of the operations of Koehring for its fiscal years ended November 30, as reported, follows: Current assets Other assets 1979 1978 (In thousands) $215,977 128,209 $203,710 112,237 $344,186 $315,947 Current liabilities Long-term debt Other liabilities Shareholders' equity including preferred stock issues of $26,715,000 ($27,145,000 in 1978) $111,265 72,793 26,478 210536 133,650 $344,186 $100,910 69,521 21,560 191,991 123,956 $315,947 Revenues Expenses Income before taxes Income taxes Net income $476,882 449,945 26,937 12,639 $ 14,298 $416,721 392,041 24,680 12,887 $ 11,793 RS-002433 1/17/02 NUECES Debt Long-term debt exclusive of current installments is as follows: December 31 1979 1978 (In thousands) 10% promissory notes of a subsidiary due 1994 $ 53,089 9%% promissory notes due 1995 26,000 8M note payable in annual installments through 1991 12,000 10% promissory notes payable in installments through 1993 14,733 5% secured convertible note of a subsidiary pay- able 1981 3,000 10% secured subordinated note of a subsidiary payable 1981 3,000 9r/m% note of a subsidiary payable in annual installments through 1991 18,200 Obligations of subsidiaries under capitalized leases due in various monthly installments 31,643 Other with varying maturities to 2001 13,764 $26,000 13,000 15,867 3,000 3,000 19,800 21,718 16,678 $175,429 $119,063 In October 1979, in connection with the Riley acquisition, the Company entered into a secured credit agreement with certain banks under which it may borrow up to $60,000,000. Under this agreement, interest is payable at the prime rate. The provisions of the agreement require a committment fee of V4% per year of the undrawn balance. Repayment of any outstanding borrowings thereunder is scheduled during February and March 1980, and corre sponds to $60,000,000 of time deposit maturities pledged as security for the loan. The balance sheet caption "Notes payable to banks" includes $46,600,000 borrowed under this agreement. In connection with the Riley acquisition, a subsidiary of the Company issued its promissory notes guaranteed by the Company aggregating $54,173,000 at 10% due December 4,1994, with 2% of the principal amount due in 1980. In December 1978, the Company entered into a revolving credit and term loan agreement with certain banks under which it may borrow up to $30,000,000. Under this agree ment, interest is payable at 107% of the prime rate to December 1,1982 and 107% of the sum of the prime rate plus V4% to December 1,1984, and 107% of the sum of the prime rate plus V4% to December 1,1986. The provisions of the agreement require a commitment fee of V4% per year of the undrawn balance to December 1,1982. On December 1, 1982, any outstanding borrowings may be converted into a term loan repayable in quarterly installments through December 1,1986. This agreement replaced a prior revolv ing credit and term loan agreement for up to $20,000,000 with the same banks. The balance sheet caption "Notes payable to banks" includes $20,000,000 and $8,000,000 at December 31,1979 and 1978, respectively under this agreement. Under a revolving credit and term loan agreement with a bank, Filtrol may borrow up to $10,000,000 on or before March 31,1982. Interest is payable at the prime rate to March 31,1981 and at the prime rate plus V4% through March 31,1982. The provisions of the agreement require that Filtrol pay a commitment fee of V4% per year of the undrawn balance to March 31,1982. On March 31,1982 the revolving credit agreement may be converted into a term loan repayable in quarterly installments through March 31,1986. Outstanding borrowings thereunder shall be at an interest rate of prime plus V4% to March 31,1983 and thereafter at prime plus M.%. The balance sheet cap tion "Notes payable to banks" includes $8,000,000 and $2,000,000 at December 31,1979 and 1978 respectively bor rowed under this agreement. Several of the debt instruments of the Company as well as certain of its subsidiaries contain requirements and restrictions covering borrowings, sale and lease of assets, working capital and dividends. At December 31,1979, retained earnings of approximately $16,400,000 are avail able for payment of dividends by the Company. A portion of the stock of a wholly-owned subsidiary is pledged as collateral on the 5% secured convertible note and the 10% secured subordinated note. The aggregate maturities of long-term debt during each of the next five years, inclusive of capitalized lease obliga tions are as follows: 1980 1981 1982 1983 1984 $12,977,000 $14,673,000 $ 9,571,000 $ 7,539,000 $ 8,363,000 Pension Plans Pension expense for the years 1979 and 1978 aggregated $5,063,000 and $4,683,000, respectively. The amount by which the actuarially computed value of vested benefits at the most recent actuarial valuation dates exceeds the mar ket value of fund assets and balance sheet accruals at December 31,1979 is $3,127,000. Unfunded past service cost at the most recent actuarial valuation dates amounted to approximately $17,600,000. NUECES Capital Stock compensation expense charged to operations in 1979 and Preference Stock 1978 was $339,000 and $220,000, respectively. Common The Company has outstanding shares of Series A Convert stock increased by $15,000 and $8,000 and paid-in capital ible Preference Stock which was issued June 2,1978. The increased by $178,000 and $80,000 in 1979 and 1978, Series A stock has one vote per share and is convertible on respectively. a share for share basis at any time into common shares. In connection with this issuance, paid-in-capital was increased by $95,275,000, the difference between the stated value of $1 per share and the purchase price of $23 per share, net of expenses incurred with respect to the issuance thereof. There are no mandatory sinking fund or repurchase requirements. However, the Company may redeem all or part of the Series A stock after June 2,1985 at a redemption price of $24.38 per share decreasing in equal increments each year to $23 in 1990 and each year thereafter. Stock Options The Company has common stock options outstanding to officers and key employees. The options are exercisable in specific amounts over various periods, principally no later than five to ten years from dates of grant. Options for 184,450 shares, with exercise prices at market value at dates of grant, were outstanding at December 31,1979. Options under existing plans have been granted since 1971. Changes during 1978 and 1979 in shares of common stock reserved for issuance in connection with these options were as follows: Common Stock At December 31,1979, in addition to shares reserved under the Key Executive Stock Incentive Plan and for stock options, the Company has reserved 4,350,000 shares 1978: Reserved, beginning of year Number of Option Price Shares Per Share Aggregate 387,650 for the conversion of the Series A Preference Stock and Available for future grants (130,850) 200,000 shares of common stock in connection with the 5% secured convertible note payable in 1981. Outstanding, beginning of year 256,800 !S 4-87-S16.25 $2,380,000 Key Executive Stock Incentive Plan Under the Key Executive Stock Incentive Plan (the Plan), awards of common shares are made to key executive officers and senior management personnel of the Com pany and its subsidiaries. The maximum number of shares of the Company's common stock which may be issued under the Plan is 450,000 shares, less any shares of com mon stock issued pursuant to stock options exercised Options granted Options exercised Options terminated or cancelled Options surrendered in con nection with Key Execu tive award issuances Options outstanding, end of year 13,000 12.25- 14.50 (24,000) 4.87- 9.25 (19,250) 7.50- 9.25 184,000 (198.000) (169.000) (7,600) 8.88- 11.13 (69,000) 218,950 4.87- 16.25 2,128,000 under the Company's stock option plan. Authorized but unissued shares available pursuant to the Plan, not subject to outstanding options under the Company's stock option plan, are reserved under the Plan. The exercise of an out standing stock option or the issuance of common shares pursuant to the Plan, granted to the same participant, automatically terminates the other to the extent of the number of common shares exercised or issued, as the case may be. Shares awarded under the Plan are issued in installments over a period of time not exceeding eight years. Awards for a total of 196,500 shares and 144,900 shares 1979: Options granted Options exercised Options terminated or cancelled Options surrendered in con nection with Key Execu tive award issuances Options outstanding, end of year Available for future grants Reserved, end of year (356,050 in 1978) 12,500 11.63-12.75 (12,500) 4.87- 8.88 (19,900) 8.88-16.25 149,000 (109,000) (206,000) (14,600) 8.88-11.13 (133,000) 184,450 144,500 328,950 8.88-14.50 $1,829,000 RS-002436 1/17/02 NUECES were outstanding at December 31,1979 and 1978, respec During 1979, options for 8,500 shares at prices of $9.25 to tively under the Plan. During 1979, 82,000 shares were $14.50 became exercisable amounting to $112,000 with awarded, 14,900 shares were surrendered or cancelled and market prices of $11.50 to $14.75 and an aggregate market 15,500 shares were issued pursuant to the Plan as com value of $107,000 at the exercisable dates. In 1978, options pared to 7,600 shares issued in 1978. Shares totaling for 9750 shares at prices of $4.87-$16.25 became exercis 193,600 and 187,100 were reserved at December 31,1979 able amounting to $108,000 with market prices of $10.50 to and 1978, respectively. Compensation costs related to the $15.38 and an aggregate market value of $117,000 at the award of such shares are expensed over the period of time exercisable dates. Options for 152,950 shares and 187,700 during which the restrictions on transfer and risk of forfeit shares were exercisable at December 31,1979 and 1978, ure are in effect (not exceeding eight years). As a result, respectively. No charges have been made to income in connection with these options. The exercise of options, in 1979 and 1978, increased common stock by $13,000 and $24,000, and paid-in capital by $103,000 and $229,000, respectively, and had market values on the dates exercised of $11.50-14.88 per share aggregating $152,000 in 1979 and $12.00-17.13 per share aggregating $354,000 in 1978. Long-Term Contracts Short-Term Borrowings and Compensating Balances The component elements of billed accounts receivable The following information relates to short-term debt and from long-term contracts which have increased substan lines of credit for the years indicated: tially as a result of the 1979 purchase of Riley, and which are included in the balance sheet caption "Accounts and notes receivable," are as follows: December 31 1979 1978 (In thousands) Commercial Customers Amounts billed and currently due Retainage, due upon completion of contracts LT.S. Government Amounts billed and currently due Retainage, due upon completion of contracts December 31. 1979 1978 (In thousands) $32,857 12,425 5,063 266 $50,611 $3,006 830 2,624 189 $6,649 As of year-end: Amount of borrowings Weighted average interest rate Unused lines of credit For the year ended: Maximum amount of month-end borrowings Average amount of borrowings Wfeighted average interest rate $75342 16.0% $65,056 $12,163 12.9% $39,450 $75,542 $12,854 13.9% $12,163 $ 4,280 13.7% At December 31,1979, the Company is expected to main tain average compensating balances equivalent to 10% of Substantially, all customer retainages are normally col the commitment in connection with a $30,000,000 revolv lected within one year. ing credit and term loan agreement, balances equivalent Included in the balance sheet caption "Unbilled receivables and net costs incurred on uncompleted contracts" is approximately $2,800,000 of costs incurred in excess of $6,400,000 of progress billings. to 10% of the commitment plus 10% of the borrowings thereunder in connection with the $10,000,000 Filtrol revolving credit and term loan agreement and other domestic lines of credit totaling $5,000,000. In addition, foreign lines of credit are maintained principally in con Leases nection with bank overdraft and note facilities. The Company over the years has entered into leases for the rental of office space and manufacturing facilities. Accumulated amortization of capitalized leased proper ties was $3,175,000 and $1,926,000 in 1979 and 1978, respectively. Amortization of capitalized leased properties of $1,618,000 and $1,205,000 in 1979 and 1978, respec tively, is included with depreciation expense. Interest expense on capitalized leases was $2,982,000 and $2,421,000 in 1979 and 1978, respectively. Future mini mum lease payments under capitalized leases and min imum rental commitments under existing non-cancellable operating leases at December 31,1979 are: Capitalized Operating The requirements to maintain compensating balances are informal and not legally restrictive. At December 31,1979, these compensating balances, after adjustment for net float, amounted to approximately $4,400,000. While the Company is complying with the compensating balance requirements, it is managements opinion that no penalty may be imposed if they are not met. Unaudited Supplementary Information on Changing Prices Unaudited Supplementary Information on Changing Prices is presented on pages 42 and 43 of this annual report. Leases Leases (In thousands) 1980 1981 1982 1983 1984 Thereafter $ 4,550 4,480 4,348 4,248 4,133 51,656 $ 4,323 2,847 1,872 1,343 1,161 4,481 Total minimum lease payments Less estimated executory costs Net minimum lease payments Imputed interest (rates from 7% to 12%) 73,415 286 73,129 40,248 $16,027 Present value of net minimum lease payments Less current installments of capital lease obligations 32,881 1,238 Long-term capital lease obligations included in long-term debt $31,643 Rental expense under operating leases, net of minor sub lease income, for the years ended December 31,1979 and 1978 was $8,749,000 and $7,063,000, respectively. NUECES Income Taxes Income tax expense consists of the following: Report of Certified Public Accountants 1979: Federal Foreign State and local Current Deferred Total (In thousands) $ 6,748 2,702 1,289 $10,739 $2,726 (152) - $2,574 $ 9,474 2,550 1,289 $13,313 The Board of Directors and Shareholders United States Filter Corporation 1978: Federal Foreign State and local $ 1,714 2,409 830 $ 4,953 $2,680 (84) - $2,596 $ 4,394 2,325 830 $ 7,549 We have examined the accompanying consolidated balance sheet of United States Filter Corporation at December 31,1979 and 1978, and the related consolidated statements of income and retained earnings and changes in financial position for the years then ended. Our exami Deferred income tax amounts result principally from tim ing differences in the recognition of revenue and expense for tax and financial statement purposes. The sources of these differences and the tax effect of each are as follows: nations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing proce dures as we considered necessary in the circumstances. Utilization of foreign tax credits Utilization of investment tax credits 1979 1978 (In thousands) $ 251 156 $ 533 959 The financial statements of Koehring Company, a corpora tion in which the Company has approximately a 23% com mon equity interest, have been examined by other independent auditors; insofar as our opinion on the con Depreciation and expenses related to longterm leases Income related to certain long-term contracts Other-net 373 601 1,193 $22574 532 551 21 $2,596 solidated financial statements relates to data included for Koehring Company, it is based solely on their report. In the consolidated financial statements, the Company's investment in Koehring Company was $22,343,000 and $19,151,000, respectively at December 31,1979 and 1978, Components of the difference between the U.S. statutory federal income tax rate and the effective tax rate to the Company (expressed as a percentage of pre-tax income and the Company's equity in the net income of Koehring Company was $2,691,000 and $2,173,000, respectively for the years then ended. before equity in Koehring Company) are as follows: In our opinion, based on our examinations and the report 1979 Statutory federal income tax rate Foreign income not subject to tax Foreign operations without tax benefit Excess of percentage depletion over cost depletion Investment tax credit Other--net 46% (5) 1 (4) (3) 5 Effective tax rate 40% 1978 of the other independent auditors, the consolidated finan 48% cial statements mentioned above present fairly the con (8) solidated financial position of United States Filter 4 Corporation at December 31,1979 and 1978, and the (6) related consolidated results of operations and changes in (3) financial position for the years then ended, in conformity (2) with generally accepted accounting principles applied on 33% a consistent basis during the period. Unremitted earnings of certain subsidiaries which are intended to be permanently reinvested, exclusive of those amounts which, if remitted in the near future, would result in little or no tax, aggregated $26,600,000 at December 31,1979. Information Relating to the Company's Business Segments Information concerning the Company's business segments included in the 1979 and 1978 financial statements and the extent of operations in different geographic areas is pre sented on pages 39, 40 and 41 of this annual report. New York, New York February 26,1980 Contingencies The Company is subject to various risks inherent in its business and is involved in several claims, suits and com plaints by and against the Company arising in the ordi nary course of business. In the opinion of management of the Company, the outcome of these matters will not have a material effect on the Company's financial position. RS-002437 1/17/02 NUECES Information Relating to the Company's Business Segments The Company's business is comprised of five principal segments. The Energy/Technology segment, through its Engineering Services subsegment, is engaged principally in providing engineering services to the energy industry through the engineering and management of projects for the development, transportation and conversion of energy resources and other related businesses. Through its Nuclear and Other Metal Castings subsegment, the Energy/Technology segment also provides products, prin cipally castings, built to customers' specifications for use principally in the energy production field for application in oil and gas pipelines, nuclear, and conventional power plants, and turbines and compressors. The quality man ufacturing provided by this subsegment involves extensive non-destructive examination, testing and upgrading. The Specialty Chemicals segment is a major supplier of products and services for water management and spe cialty chemicals for the industrial and marine markets. Summary of Net Sales and Operating Income The Environmental Systems segment designs, manufac tures, sells and installs a wide range of air and water pol lution control equipment and systems. The Natural Resources segment has three subsegments, Catalysts and Adsorbents, Cement and Coal, the names of which are descriptive of the products or product lines from which the revenues of each such subsegment is derived. Clay and minerals are mixed and processed into products which are supplied to several basic areas of United States industry. In December 1979, the Company acquired The Riley Com pany. The Riley Company represents the Company's Power Generation segment which is engaged in the design, man ufacture, marketing and servicing of products relating to steam generation and fuel burning equipment, heavy metal fabrication and annunciator components and sys tems related industrial control monitoring devices (elec tronic systems). Net sales Energy/Technology Engineering services Nuclear and other metal castings Specialty chemicals Environmental systems Natural resources Catalysts and adsorbents Cement Coal Other 1979 $236,724 30,257 97,991 116,397 71,585 49,956 8,641 $611,551 Year ended December 31, 1978 1977 (In thousands) 1976 $234,260 26,385 82,921 95,924 53,189 42,783 5,353 - $540,815 $234,800 24,378 74,220 89,009 _ - - 1,250 $423,657 $179,906 20,838 65,910 85,165 _ -- -- 6,358 $358,177 1975 $ 87,097 10,932 56,425 87,056 -- - 4,892 $246,402 Operating income Energy/Technology Engineering services Nuclear and other metal castings Specialty chemicals Environmental systems Natural resources Catalysts and adsorbents Cement Coal Other Segment totals Interest income Interest expense General corporate expenses Equity in earnings of other investments Income before taxes, minority interest in Filtrol and equity in earnings of Koehring and prior to 1978, Filtrol $ 3,412 3,560 9,705 8,104 10,677 8,022 (2,678) - 40,802 13,568 (14,743) (7,082) 738 $ 33/283 $ 1,312 4,692 7,844 6,543 5,939 5,675 262 32,267 7,150 (11,780) (5,365) 413 $ 22,685 $ 6,892 4,217 8,794 6,497 -- - 244 26,644 2,637 (6,502) (5,483) 440 $ 17,736 $ 8,051 3,781 8,529 5,978 -- -- 163 26,502 2,364 (6,088) (5,326) 1,415 $ 18,867 $ 6,282 1.376 6,679 5,089 -- - (30) 19,396 2,321 (5,326) (3,505) 1,289 $ 14,175 Notes: 1. The Riley Company, acquired in December 1979, represents the Company's Power Generation segment. See note to consolidated financial statements entitled "The Riley Company". 2. The Natural Resources segment was consolidated effective January 1, 1978. 3. Intrasegment sales of Coal to the Cement subsegment for purposes of its energy needs amounted to $2,810,000 in 1979 and $2,665,000 in 1978. These sales are priced at the approximate prevailing market value for the products involved. 4. The Engineering Services subsegment and Environmental Systems segment use the percentage of completion method to account for long term contracts. The Company had sales to the United States Govern ment and its agencies in the amount of $151,000,000 ($173,400,000 in 1978). A major government contract with the Engineering Services subsegment accounts for a substantial portion of these sales. RS-002438 1/17/02 NUECES Information About The Company's Operations In Different Geographic Areas 1979 Sales to Unaffiliated Customers United States and Canada Europe Brazil Other Interarea Sales United States and Canada Europe Brazil Other Eliminations $523,417 54,461 26,125 7,548 611,551 1,753 389 437 2,158 (4,737) -- $611351 Operating Income United States and Canada Europe Brazil Other $ 31,768 6,188 2315 331 $ 40,802 1978 (In thousands) $471,162 43,363 20,065 6,225 540,815 924 626 144 2,132 (3,826) - $540,815 $ 26,097 3,328 2,875 (33) $ 32267 1977 $364,386 38,313 15,499 5,459 423,657 1,352 496 240 2,093 (4,181) $423,657 $ 21,891 2,976 1,935 (158) $ 26,644 Identifiable Assets United States and Canada Europe Brazil Other Notes: The Company's foreign operations consist of the production and sale of its products and the offering of its services through a combination of foreign subsidiaries (most of which are 100% owned), agents and licen sees. The Company's foreign operations are subject to fluctuations in foreign currency exchange rates and changes in governmental policies and nationalization. Due to the internal strife in Iran, for example, the Company's operations on the National Iranian Gas Company IGAT-II gas pipeline project have been suspended since 1978. During 1979, the Company made appropriate provision against the realization of certain $521,087 38,286 18,197 5,103 $582,673 $284,495 32,928 15224 4,317 $336,964 $129,031 27,147 11,048 5,078 $172,304 assets connected with this project. Transfers between geographic areas are accounted for at cost plus a service charge. Equity in net assets of foreign operations (excluding Canada) was $36,025,000 in 1979 and $27,438,000 in 1978. Net exchange losses aggre gated $391,000 in 1979 compared to net exchange gains of $463,000 in 1978. Export sales totaled approximately $60,000,000 ($55,000,000 in 1978 and $48,000,000 in 1977). Quarterly Stock Price and Dividend Data 1979 Price High Low 1st $13% $10% 2nd 14 11 3rd 16V4 12% 4th 15% 11 Dividend $.16 -- .18 1978 1st 2nd 3rd 4 th rS-002439 1/17/02 NUECES Price High $13% 16 17% 15% Low $10% 11% 12% 9% Dividend $~ 1 .14 -- .16 Additional Business Segment Information Identifiable Assets Energy/Technology Engineering services Nuclear and other metal castings Specialty chemicals Environmental systems Natural resources (See Note) Catalysts and adsorbents Cement Coal Power generation (See Note) Steam generation and fuel burning equipment Heavy metal fabrication Electronic systems Segment totals General corporate assets, principally cash and cash equivalents Investment in Koehring and in 1977, Filtrol Note: Represents cost in excess of net assets of the acquired segment. Capital Expenditures Energy/Technology Engineering services Nuclear and other metal castings Specialty chemicals Environmental systems Natural resources Catalysts and adsorbents Cement Coal Other Depreciation, Depletion & Amortization Energy/Technology Engineering services Nuclear and other metal castings Specialty chemicals Environmental systems Natural resources Catalysts and adsorbents Cement Coal Other 1979 $ 70,395 22,019 71,482 63,812 50,175 42,199 51,996 10,195 11,955 101,255 61,515 25,675 582,673 214,940 22,343 $819,956 1978 (In thousands) $ 61,029 19,274 64,839 56,512 50,175 33,764 40,919 10,452 - -- - - 336,964 128,817 19,151 $484,932 1977 $ 53,298 15,272 55,164 48,570 -- -- -- - 172,304 30,827 88,036 $291,167 $ 3,172 2,402 1^98 703 4,810 2,622 575 $ 15,882 $ 1420 398 2,198 968 1,790 2,778 946 $ 10498 $ 588 4,249 5,829 1,157 3,432 2,426 787 $ 18,468 $ 1,435 294 1,823 1,037 1,270 2,481 821 - $ 9,161 $ 8,176 690 9,575 1,974 -- - 53 $ 20,468 $ 896 267 1,239 1,024 - 182 $ 3,608 rSjj02440 Nueces United States Filter Corporation Unaudited Supplementary Information on Changing Prices General Background The effect of rising price levels on the computation of busi ness costs and profits which, in accordance with generally accepted accounting principles, have traditionally reflected historical costs and dollars of varying purchasing power, has under the persistent and severe inflation of the past decade, been debated heavily. The following information, which is presented in compli ance with Financial Accounting Standard No. 33 ("FAS 33") "Financial Reporting and Changing Prices," repre sents an approach to solving the inflation dilemma by pro viding certain measurements of the effects of inflation on the Company's operations and financial information about the Company, adjusted for the effects of inflation. While it may be important for financial statement users to develop an understanding of the more significant impacts of inflation, in the Company's opinion, much of this data is subjective in nature. Therefore, the dominant focus should continue to be upon financial statements based upon transaction oriented historical prices. Selected infla tion data should remain on a supplementary basis pend ing an extensive experimentation period for both the preparers and the users of financial statements. Methods of Measuring Effects of Changing Prices The two different methods prescribed by FAS 33 for mea suring the effects of changing prices were used in calculat ing the information which follows. The first method provides data adjusted for "general inflation" using the Consumer Price Index for all Urban Consumers as the broad-based measure of the general inflation rate.The objective of this approach is to provide financial information in dollars of equivalent value or pur chasing power (constant dollars), so that revenues for each year are matched with expenses expressed in corresponding units. In addition, financial data presented for a series of years are made more comparable by reporting the amounts for each year in terms of a common unit of mea sure of purchasing power. The second method of measurement adjusts for "changes in specific prices." The objective of this method is to reflect th.e effects of changes in the specific prices (current costs) of the resources actually used in the Company's opera tions, so that measures of these resources and their con sumption reflect the current costs of replacing these resources, rather than the historical cost amounts actually expended to acquire them. Adjustments for changes in specific prices of property, plant, and equipment, invento ries and cost of sales are based on external price indices specifically or closely related to the resources being mea sured and on independent appraisals. Both of these methods inherently involve the use of assumptions, approximations, and estimates, and there fore, the resulting measurements should be viewed in that context and not as precise indicators of the effects of inflation. Review of Information Presented Statement of Income Adjusted for Changing Prices The amounts reported in the primary financial statements have been adjusted only for depreciation expense and cost of sales, in arriving at the net income amounts adjusted for general inflation and changes in specific prices. Revenues and all other operating expenses are considered to reflect the average price levels for the year, and, accordingly, have not been adjusted. Unaudited Statement of Income Adjusted for Changing Prices For the Year Ended December 31,1979 (In thousands) RS-002441 1/17/02 NUECES Net sales Cost of sales, excluding related depreciation expense Other operating expenses, excluding related depreciation expense Depreciation, depletion and amortization Interest (income) expense, net Provision for income taxes Equity in earnings of Koehring Company Minority interest in Filtrol Corporation Net income As Reported in the Primary Financial Statements $611,551 454.260 112,235 10,598 1,175 13,313 591,581 19,970 2,691 (184) $ 22,477 Adjusted for General Inflation $611,551 458,370 112,235 13,653 1,175 13,313 598,746 12,805 2,691 (184) $ 15,312 Adjusted for Changes in Specific Prices (Current Costs) $611,551 457,495 112,235 17,304 1,175 13,313 601,522 10,029 2,691 (184) $ 12,536 Loss from decline in purchasing power of net monetary assets $ 1,790 $ 1,790 Increase in general price level of inventories and property, plant and equipment held during the year Less effect of increase in specific prices (current cost)* Excess of increase in general price level over increase in specific prices $ 31,547 18,637 $ 12,910 *At December 31,1979 current cost of inventory was $83,445,000 and current cost of property, plant, and equipment, net of accumulated depredation, was $269,348,000. Although the adjustments for depreciation expense and cost of sales affect the pretax income amounts for general inflation and changes in specific prices, no adjustments have been made to the respective provisions for income taxes because present income tax laws do not allow deductions for higher depreciation adjustments for the effects of inflation. The adjustments to depreciation and cost of sales, exclu sive of depreciation, included in the adjusted net income amounts are as follows: Depreciation, depletion and amortization expenses Cost of sales, exclusive of depreciation Total adjustment to net income Adjustment for Adjustment for General Changes in Inflation Specific Prices (In thousands) $3,055 4,110 $7,165 $6,706 3,235 $9,941 The depreciation adjustments decrease net income in both cases, since the Company's property, plant, and equipment under both methods have been adjusted upwards consid erably, reflecting the replacement of old historical dollars by dollars measured by the "constant dollar" method and the "current cost" method. The cost of sales adjustments also decrease net income in both cases. The higher cost of sales arises when recogniz ing the higher cost required to replace inventory con sumed. The higher cost increment (during an inflationary period) covers the time span between the actual manufac ture of goods and the delivery to customers. Inflationary impact on the Company's cost of sales is minimized at our Energy/Technology segment and at certain operations of our Environmental Systems segment where fixed price and cost plus fixed fee contracts constitute a significant portion of sales. The Consumer Price Index has been used to adjust costs and related depletion of the Company's unprocessed natu ral resources for both the "constant dollar" and "current cost" presentations. Inflation also affects monetary assets, such as cash and receivables which lose purchasing power during inflation ary periods since these assets will purchase fewer goods or services in time. Conversely, holders of liabilities benefit during such periods because less purchasing power will be required to satisfy their obligations. The Company's mone tary assets exceeded its monetary liabilities during the year resulting in a net loss from inflation. The increase in the current costs of the Company's inven tories and property, plant and equipment is less than the increase in general inflation. This is attributable to the dif ference between the specific Producer Price Indices used to adjust these assets and the higher Consumer Price Index. Five-Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices The five-year comparison shows the effect of adjusting his torical revenues to dollar amounts expressed in terms of average 1979 dollars, as measured by the Consumer Price Index. Revenues for 1975-1978 are higher, while the increase in revenues for each of those years to 1979 is correspondingly less. The market price per share and the cash dividend amounts indicate a similar trend of less growth from each of the earlier years to 1979. The net assets of The Riley Company have been included in the computations of year-end net assets at average 1979 dollars, which are lower than their fair values at date of acquisition. Unaudited Five-Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices (thousands of average 1979 dollars) Net sales--historical Net sales-average 1979 Dollars Historical Cost/Constant Dollar Data Net income Net income per common share Net assets at year-end Current Cost Data Net income Net income per common share Net assets at year-end Decrease in specific prices, net of inflation ^^Loss from decline in purchasing power of net monetary assets ^^Cash dividends declared per common share Market price per common share at year-end Average consumer price index 1979 $611,551 $611,551 $ 15,312 $ 1.14 $295,129 $ 12,536 $ .80 $326,771 $ 12,910 $ 1,790 $ .33 $ 14.53 217.4 1978 $540,815 $601,705 $ .33 $ 10.98 195.4 1977 $423,657 $507,456 $ .34 $ 14.75 181.5 1976 $358,177 $456,701 1975 $246,402 $332,308 rS-002442 NUECES $ .31 $ 16.37 170.5 $ .27 $ 11.28 161.2 Operations Information Power Generation Energy/Technology Natural Resources Environmental Systems Specialty Chemicals Investment United States Riley Corporation Corporate Headquarters 1500 Higgins Road Park Ridge, Illinois 60068 Telephone: (312) 692-5050 President: Howard C. Warren Riley-Beaird Division United States Riley Corporation 601 Benton Kelly Street Shreveport, Louisiana 71130 Telephone: (318) 865-6351 President: William E. Adams The Resource Sciences Corporation 6600 South Yale Avenue Tulsa, Oklahoma 74177 Telephone: (918) 496-5000 Chairman and President: David R. Williams, Jr. Williams Brothers Engineering Company 6600 South Yale Avenue Tulsa. Oklahoma 74177 Telephone: (918) 496-5020 President: Peter DeMay Filtrol Corporation 5959 West Century Boulevard Los Angeles, California 90045 Telephone: (213) 649-5650 President: Ward F. Moore USF Environmental Systems Corp. 275 Broadhollow Road Melville, New York 11747 Telephone: (516) 752-9800 President: Karel A. Wfeits USF Fluid Systems Corporation-- Whittier. California MikroPul Corporation--Summit, New |ersey The Ducon Company. Inc.--Mineola. New York Ducon Fluid Transport- King of Prussia. Pennsylvania Ducon-MikroPuI Limited--Toronto, Canada Drew Chemical Corporation One Drew Chemical Plaza Boonton. New Jersey 07005 Telephone: (201) 263*-7600 President: John J. Sweeney Koehring Company 200 Executive Drive Brookfield, Wisconsin 53005 Telephone: (414) 784-5800 Chairman and President: Richard T Lindgren Riley Stoker Corporation 9 Neponset Street Worcester. Massachusetts 01613 Telephone: (617) 852-7100 President: James J. Farrell Process Instruments Group 7401 North Hamlin Avenue Skokie, Illinois 60076 Telephone: (312) 675-2500 President: Roscoe H. Garrett Holmes & Narver, Inc. 999 Town & Country Road Orange. California 92668 Telephone: (714) 973-1100 President: James R. Johnson Atlas Foundry & Machine Co. 3021 South Wilkeson Street Tacoma, Washington 98411 Telephone: (206) 475-4600 President: Leo H. Long. Sr. MikroPul Ducon Limited-- Shoeburyness. England MikroPul GmbH--Cologne. Germany MikroPul Ducon Equip. Ind. Lida.-- Sao Paulo. Brazil Ducon-MikroPul Aust. Pty. Ltd.-- Smithfield, Australia Menardi-Southern Corporation 1853 Milledgeville Road Augusta, Georgia 30903 Telephone: (404) 724-8241 President: Harland H. Reid RS-ooa*** 111710*. Nuece* Corporation Information Board of Directors Albert L. Butler. Jr. President nnd Treasurer. The Arista Companv (real estate holding and data processing service bureau) Joseph A. Frates Chairman of the board. The Frates Company (real estate investment) George F H. Nelson Financial Consultant: Director. Surveyor Fund. Inc. (mutual fund) Louis E. Purmort Vice Chairman of the Board of United Slates jjilter Corporation Raymond A. Rich Chairman of the Board, President and Member of the Executive Committee of United States Filter Corporation: Chairman of the Board of Patagonia Corporation (holding companv for bank, savings and loan association and other financial service companies) Louis Siegel Senior Executive Vice President, Retired of and a Consultant to Union Bank Earl F Slick ^ ,Investor: Member of the Executive Committee 1 1 if United States Filler Corporation ' Frederick A. Van Denbergh. Jr. Senior Partner. Saul. Ewing. Remiek & Saul. Attorneys, and General Counsel to United States Filter Corporation David R. Williams. Jr. Member of the Executive Committee of United States Filter Corporation: Chairman of the )ard and President of The Resource Sciences rporalion (engineering, management and ipport services), a subsidiary of United Stales Filter Corporation General Counsel Saul. Ewing, Remiek & Saul Philadelphia. Pennsylvania Auditors Arthur Young & Company New York. New York Officers . Raymond A. Rich Chairman of the Board. President and Chief Executive Officer Louis E. Purmort Vice Chairman of the Board Edwin T. Veith Executive Vice President Charles R. Bechtle. |r. Senior Vice President John L. Farrell, [r. Senior Vice President --i.aw/Administration, and Corporate Secretary Morgan A. Greenwood Senior Vice President-Government Relations. and Assistant to the Chairman of the Board Ronald E. Gustafson Vice President--Emplnvce Relations James P. Kressler Vice President-Finance and Chief Finanei.il Officer Paul (. Miller Vice President--Corporate Planning anil Development Robert E. Millet- Vice President--Government Affairs Arthur F. Parent Vice President Frank J. Schmidt Vice President--Financial Services Francis [. Boyle Treasurer Allan E. Johnson Controller J. Hugh Murphy General Counsel Jean W. Dickerson Assistant Secretary Sally L. Irving Assistant Treasurer Richard E. Nugent Associate General Counsel Salvatore M. Quadrino Assistant Controller Michael Rosenberg Associate General Counsel Annual Report on Form 10-K Shareholders may obtain a copy of the Comp.mvs Annual Report on Form 10-K for the year ended December 31. 1979 by writing to: John E Drum. Manager of Financial Relations. United Slates Filter Corporation, 522 Fifth Avenue. New York. New York 10036. Shareholder Communications transfer Agent. Registrar and Dividend Dis bursing Agent-The First National Bank of Bos ton. All Shareholder correspondence regarding sin li mailers as receipt or non-receipt of divi dends, address changes, and changes of stock ownership should lie directed to: Mr. I lenry D. Flemming Assisi.mi Vice President 'Die First National Bank of Boston IV sl C Hficc !in\ 044 Huston. Miissiichusntts 02102 Duplicate Mailings Wlieii shares owned by one shareholder are held in ilillereiit forms of that name (John R. Doe. |. R. Doe. and |. Richard Doe), duplicate mailing of shareholder information results. The i.oiiipnny. by law. is required lo mail to each name on the shareholder list unless the share holder requests that duplicate mailings he eliminalnl. Such requests should fie directed to: Mr. I lenry I). Flemming. The First National Bank of Boston, at the address immediately above. If husband, wife, anil children own sloek in their own names, reporls will lie sent to each unless the shareholder helps to eliminate this duplica tion by requesting only one copy. Please send information indicating which name you wish to keep on Ihe list and which names should be deli'ti'il. This will not affect dividend or proxy mailings. Any onmmunionlions regarding all other phases of our business should be directed to: Mr. John K Drum Manager of Financial Relations United Slates Filler Corporation 523 Fifth Avenue New York. New York 10026 Stock Listing American Stock Exchange (Slock Symbol: USE) Transfer Agent, Registrar and Divi dend Disbursing Agent The First National Bank of Boston Post Office Box 644 Boston. Massachusetts 02102 AN EQUAL OPPORTUNITY EMPLOYER Corporate Offices United States Filter Corporation 522 Fifth Avenue New York. New York 10036 Telephone (212) 575-6800 RS-002444 1/17/02 NUECES United States Filter CorpojtVuon RS-002446 1/17/02 NUECES