<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-K

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended October 31, 1996

                          COMMISSION FILE NUMBER 0-588

                           COMMERCIAL INTERTECH CORP.
             (Exact name of registrant as specified in its charter)

             Ohio                                        34-0159880
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                        Identification No.)

1775 Logan Avenue, Youngstown, Ohio                         44501
(Address of principal executive offices)                  (Zip Code)

                                 (216) 746-8011
               Registrant's telephone number, including area code

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                          NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
         COMMON STOCK, PAR VALUE $1 PER SHARE
                    (Title of class)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days. Yes X No

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     As of January 2, 1997, 13,596,108 common shares were outstanding, and the
aggregate market value of the common shares (based upon the last price on that
date) was approximately $186,946,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Certain portions of the documents of the Registrant listed below have been
incorporated by reference into the indicated parts of this Annual Report on Form
10-K.

     Notice of Annual Meeting of Shareholders March 26, 1997 and
Proxy Statement filed January 21, 1997. . . Part III, Items 10-13
                                            Part IV, Item 14


     The exhibit index is located on page 61.


                                       -1-

<PAGE>   2





                                     Part I
ITEM I.  BUSINESS

         (a)   General development of business:

         Commercial Intertech Corp. (formerly Commercial Shearing, Inc.) was
incorporated in Ohio in 1920. The Company is engaged in the design, manufacture
and sale of products in two business groups: hydraulic systems and building
systems and metal products. In 1986, the Company acquired Cuno, Incorporated
("Cuno"), a manufacturer of fluid purification products. The Company made a 100%
spin-off of the common stock of the Cuno business in 1996. Therefore, the
hydraulic systems and building systems and metal products account for all of the
Company's business. Unless otherwise noted, all references in this report of the
Registrant relate to the continuing businesses.

         (b)   Financial information about industry segments:

         See Note I - Segment Reporting - to the Notes to Consolidated Financial
Statements on pages 49 and 50.

         (c)   Narrative description of business:

HYDRAULIC SYSTEMS

         Hydraulic systems consist primarily of gear pumps and motors, control
valves and telescopic cylinders for use generally on heavy-duty mobile equipment
such as dump trucks, cranes, refuse vehicles, front-end loaders, backhoes and
mining machines. Other products manufactured by the Company include hydraulic
test equipment for military and industrial applications, hydraulic steer
transmissions for military vehicles, mobile electrical power generators,
hydraulic tilt and trim mechanisms for recreational boating and axial piston
pumps and motors for industrial and marine applications. The Company's gear
pumps and motors, control valves and telescopic cylinders are sold primarily to
original equipment manufacturers by the Company's hydraulic sales organization
consisting of approximately 76 persons in the United States and Canada and
approximately 75 persons outside North America. A portion of the Company's sales
is made to independent distributors for resale primarily to the replacement
market.

         In June 1996, the Company acquired the assets of Component Engineering
Company, a manufacturer of cartridge valves and integrated circuits. The Company
continues to operate the business from its location in Chanhassen, Minn.

         The Company acquired the stock of ORSTA Hydraulik in May 1994. ORSTA
Hydraulik, a former East German state-owned enterprise, is a manufacturer of
hydraulic cylinders, piston and gear pumps, power packs, and hydraulic testing
equipment.

         The Company acquired the assets of Kenart EMC, Inc., formerly doing
business as Teknar EMC, Inc. in February, 1991. Teknar manufactures a line of
electronic motion control products. The Company relocated operations to an
existing production facility in Minneapolis, Minnesota.

                                      -2-
<PAGE>   3


ITEM I.  BUSINESS (Continued)

         The Company acquired Cylinder City, Inc., a manufacturer and marketer
of hydraulic cylinders located in Minneapolis, Minnesota in June, 1990.

         The Company believes that it is the largest supplier of gear pumps and
is among the leading single-source suppliers of hydraulic systems for mobile
equipment in the United States. The market for hydraulic components is highly
competitive.

BUILDING SYSTEMS AND METAL PRODUCTS

         The building systems and metal products operations consist of two
units: metal stampings and Astron (custom-engineered metal buildings). The
Company produces custom and standard metal stampings, including tank ends and a
wide variety of other stamped steel products, such as wheels for tracked
vehicles, components for railcar brake activators, couplings and covers for
mechanical power transmission applications, large circuit breaker covers, and
circular closures for a broad variety of vessels and containers produced in
sized from 4 inches to 24 feet. Also known as tank ends or tank heads, this
product line is the most comprehensive and extensive in the U.S., serving
thousands of customers from three manufacturing locations and seven
strategically located Distribution Centers.

         The Domestic Metals' Distribution Center concept is unique to the
industry, and has successfully served both large and small vessel fabricators
for over 35 years providing 48 hour delivery service. The Distribution Center
concept remains a major contributor to the success of Domestic Metals
operations. The sales and marketing activities for metal stampings are conducted
in North America with exports to Pacific Rim and South America by a sales
organization of approximately 23 persons. The metal stamping unit competes
successfully for specialty custom designed and formed products in a variety of
shapes and sizes with regional domestic companies that often have lower freight
producing costs. Additionally, standard products are offered for sale from seven
fast service distribution centers in Saginaw, Texas; Atlanta, Georgia; Chicago,
Illinois; Hagerstown, Maryland; Seattle, Washington; Middleboro, Massachusetts
and Orange, California.

         Domestic Metals purchased the former Hall F&D Head Company in Saginaw,
Texas, in 1995 now known as the Southern Metals Division. This Division along
with the Orange County facility produces specialty medium and large diameter
products in a broad variety of circular shapes for the storage tank and pressure
vessel industries.

                                      -3-
<PAGE>   4




ITEM I.  BUSINESS (Continued)

         Astron, the European market leader in metal building systems, produces
single and multi story buildings that serve as aircraft hangars, indoor athletic
facilities, automobile showrooms, offices, supermarkets, factories and
warehouses. Astron buildings are sold throughout the twelve countries of the
European Economic Community, in Scandinavia and in Eastern Europe, as well as in
China and South Korea. This division developed its own computerized building
pricing and proposal system, known as Cyprion, that tailors buildings to
customers' precise dimension and design requirements. Through Cyprion, Astron's
nearly 400 qualified builder/dealers can provide pricing and building plans in a
fraction of traditional architectural time. The builder/dealers are supported by
Astron's sales force of nearly 91 persons. Additionally, Astron has developed
state of the art work stations utilizing computer design technology which
automatically configures optimum parameters for more efficient use of material
maximizing manufacturing technology.

         Four years ago Astron entered into a joint venture with Arbed, Europe's
fifth largest steel producer, and is now producing multistory steel buildings
for European markets. Commercial acquired the remaining interest from Arbed
effective November 1, 1995. In addition, in 1992 the Astron Division licensed
Geoyang Development Co., Ltd. of South Korea, to manufacture, sell and erect
Astron buildings in Korea. Geoyang now know as POSEC, is also cooperating with
the Company's Luxembourg location for marketing and manufacturing throughout the
Pacific Rim. POSEC is a Division of Posco Steel, the world's second largest
steel producer.


MANUFACTURING

         The Company manufactures hydraulic systems in 16 plants and building
systems and metal products in five plants worldwide. The Company's hydraulic
manufacturing operation is highly integrated and the Company purchases few
components from independent suppliers. The Company has developed tooling for a
substantial number of its fabricated metal products, which enables a reduction
in the costs and time of manufacturing.


                                      -4-
<PAGE>   5



ITEM I.  BUSINESS (Continued)

RESEARCH AND PRODUCT DEVELOPMENT

         The Company conducts research and development primarily for its
hydraulics systems products. In fiscal 1996 the Company expended $5,897,000 for
research and development of various hydraulic products as compared to $5,966,000
and $5,409,000 in 1995 and 1994, respectively. The Company intends to continue
substantial expenditures on research and development in this area in order to
bring developmental products to market.

PATENTS AND TRADEMARKS

         The Company currently holds registered trademarks and patents
associated with certain existing products and has filed applications for
additional patents covering certain of its newer products. Although the Company
considers patents and trademarks significant factors in all of its businesses,
it does not consider the ownership of patents essential to the operation of its
hydraulic systems and building systems and metal products groups. The Company
relies on product quality and features, the strength of its marketing and
distribution network and on new product introductions rather than on its
existing patents to protect and improve its market position in the hydraulic
systems and building systems and metal products groups.


SEASONALITY

         Because sales of certain hydraulic systems and custom-engineered metal
buildings are related to the construction industry, this portion of the
Company's business is affected by the seasonality of that industry.

EMPLOYEES

         The Company employs approximately 3,340 full-time employees worldwide.
The Company believes that its labor relations are generally satisfactory.

BACKLOG

         The backlog of orders believed to be firm at the end of fiscal 1996 was
approximately $142,000,000. Backlogs at the end of fiscal years 1995 and 1994
were $155,000,000 and $142,000,000, respectively. Registrant expects a
substantial portion of its order backlog at the end of 1996 will be shipped
during fiscal 1997.

         (d)  Financial information about foreign and domestic
operations and export sales.

         See Note I - Segment Reporting - to the Notes to Consolidated Financial
Statements on pages 49 and 50.


                                      -5-
<PAGE>   6

ITEM 2.  PROPERTIES

         The principal plants of the Registrant and its subsidiaries by industry
segments are located in:

Owned:
                                     Building Systems and
Hydraulic Systems                    Metal Products
--------------------                 --------------
Youngstown, Ohio                     Youngstown, Ohio
Hicksville, Ohio                     Diekirch, Luxembourg
Kings Mountain, N. Carolina          Orange, California
Benton, Arkansas                     Saginaw, Texas
Mairinque, Brazil                    Sternbeck, Czech Republic
Grantham, England
Minneapolis, Minnesota
Chanhassen, Minnesota
Port Melbourne, Australia
Warwick, England
Chemnitz, Germany
Geringswalde, Germany


LEASED:
-------

Building Systems and
Metal Products
--------------------
Hagerstown, Maryland
Chicago, Illinois
Atlanta, Georgia
Seattle, Washington
Middleboro, Massachusetts


         Properties of Registrant and its subsidiaries are suitably constructed
and maintained for their respective uses.



                                      -6-
<PAGE>   7



ITEM 3.  LEGAL PROCEEDINGS

         As of the date hereof there is no pending litigation of a material
nature, other than ordinary routine litigation incidental to the business, to
which the Registrant or any of its subsidiaries is a party or which may affect
the income from, title to, or possession of, any of their respective properties.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

         Information regarding executive officers of the Registrant is presented
in Part III below and incorporated herein by reference.

                                    Part II

ITEM 5.  COMPANY COMMON STOCK

         The Company's common stock is traded on the New York Stock Exchange
under the ticker symbol TEC. The following is the range of high and low sales
prices and cash dividends paid per share for fiscal 1996 and 1995 by quarters.

<TABLE>
<CAPTION>
                             RANGE OF SALES
                                 PRICES         
                             --------------     DIVIDENDS
                             HIGH       LOW     PER SHARE
                             ----       ---     ---------
<S>                         <C>       <C>        <C>
    1996:
         First quarter. . . $19 3/8   $16 1/2    $.135
         Second quarter . .  20        18         .135
         Third quarter. . .  30        18         .135
         Fourth quarter . .  26 3/4    10 11/16   .135
                                                 -----
                                                 $.540
                                                 =====

    1995:
         First quarter . . .$19 5/8   $15 3/4    $.125
         Second quarter. . . 22 3/8    18 3/4     .125
         Third quarter . . . 22 3/4    15 7/8     .125
         Fourth quarter* . . 20 3/4    16 7/8     .135
                                                 -----
                                                 $.510
                                                 =====

<FN>
         * Shares prices include periods before and after the 100% spin-off of
Cuno Incorporated on September 10, 1996 which had a market value of $15 per
share.
</TABLE>

         As of October 31, 1996, there were 3,718 shareholders of record of
Common Stock.

                                      -7-

<PAGE>   8

<TABLE>

ITEM 6.  SELECTED FINANCIAL DATA
<CAPTION>

SUMMARY OF FINANCIAL DATA, 1986 - 1996
Commercial Intertech Corp. and Subsidiaries

(in thousands, except per-share data and ratios)  1996       1995      1994      1993      1992      1991
                                                  ----       ----      ----      ----      ----      ----
<S>                                             <C>        <C>       <C>       <C>       <C>       <C>     
INCOME DATA - Note A
  Net sales. . . . . . . . . . . . . . . . .    $465,209   $459,137  $373,820  $317,806  $322,413  $305,942
  Gross profit . . . . . . . . . . . . . . .     124,216    122,015   106,832    88,243    94,550    90,801
  Interest expense . . . . . . . . . . . . .       7,083      6,238     4,262     5,472     4,650     4,549
  Income from continuing operations before
     income taxes and extraordinary items. .      23,738     30,379    25,760    23,151    28,163    32,150
  Income taxes . . . . . . . . . . . . . . .       8,382      6,097     7,948     8,435     9,402    13,242
  Income from continuing operations before
     extraordinary items . . . . . . . . . .      15,356     24,282    17,812    14,716    18,761    18,908
  Discontinued operations - CUNO                   6,083      6,101     7,269      (701)   (4,300)    1,209
  Net income . . . . . . . . . . . . . . . .      17,395     30,383    25,081    14,015    17,436    11,103
Earnings per share - Note B
     Primary:
        Income from continuing operations
          before extraordinary items. . . . .        .87      1.42      1.03       .84        .97       .85
        Net income. . . . . . . . . . . . . .       1.01      1.82      1.50       .79        .88       .32
     Fully diluted:
        Income from continuing operations
           before extraordinary items. . . . .       .83      1.35       .98       .80        .92       .80
        Net income . . . . . . . . . . . . .         .95      1.72      1.41       .76        .84       .32
     Dividends per share of common stock:
     Cash. . . . . . . . . . . . . . . . . .         .54       .51       .48       .45        .45       .45
     Stock . . . . . . . . . . . . . . . . .         --        --        50%       --         --        --

OTHER FINANCIAL DATA - Note A
  Total assets . . . . . . . . . . . . . . .    $337,116  $402,679  $370,595  $302,295   $301,734  $289,712
  Current assets . . . . . . . . . . . . . .     190,403   182,859   172,760   114,082    113,209   102,330
  Less current liabilities - . . . . . . . .     116,223   117,420    99,482    78,934     76,040    62,383
     Net working capital - . . . . . . . . .      74,180    65,439    73,278    35,148     37,169    39,947
  Net plant investment . . . . . . . . . . .      96,620    94,795    77,105    65,426     70,586    71,753
  Gross capital expenditures . . . . . . . .      17,712    31,709    19,236     6,194      7,387    11,543
  Long-term debt . . . . . . . . . . . . . .      93,415    69,869    71,846    72,479     79,974    48,268
  Redeemable preferred stock . . . . . . . .           0         0         0         0          0    38,491
  Shareholders' equity . . . . . . . . . . .      87,161   176,593   147,982   120,106    117,405   112,608
  Shareholders' equity per share - Note C. .        5.94     11.07      9.44      7.74       7.74      7.59
  Actual number of shares outstanding
     at year-end . . . . . . . . . . . . . .      13,560    15,440    15,199    15,056     14,864    14,686
  Average number of shares outstanding
     during the year . . . . . . . . . . . .      15,256    15,582    15,327    15,096     14,863    14,888

RATIOS - Note A
  Gross profit to net sales. . . . . . . . .       26.7%     26.6%     28.6%     27.8%      29.3%     29.7%
  Income from continuing operations before
     extraordinary items to net sales. . . .        3.3%      5.3%      4.8%      4.6%       5.8%      6.2%
  Effective income tax rate. . . . . . . . .       35.3%     20.1%     30.9%     36.4%      33.4%     41.2%
  Income from continuing operations before
     extraordinary items to average
     shareholders' equity. . . . . . . . . .       11.6%     15.0%     13.3%     12.4%      16.3%     15.9%
  Ratio of current assets to
     current liabilities . . . . . . . . . .      1.64:1    1.56:1    1.74:1    1.45:1     1.49:1    1.60:1
  Ratio of long-term debt to
     shareholders' equity plus
     long-term debt. . . . . . . . . . . . .       51.7%     28.3%     32.7%     37.6%      40.5%     30.0%
<FN>
Note A - All years have been restated to reflect the 100% spin-off of CUNO
         Incorporated as of September 10, 1996. Fiscal years 1991-1996 have been
         computed in accordance with Employers' Accounting for Postretirement
         Benefits Other Than Pensions, SFAS No. 106. Fiscal years 1992-1996 have
         been computed in accordance with Accounting for Income Taxes, SFAS No.
         109. Prior years have not been restated.

Note B - Based on weighted average number of shares outstanding adjusted for
         all subsequent share dividends.

Note C - Based on actual number of shares outstanding at end of period
         adjusted for all subsequent share dividends.
</TABLE>

                                      -8-
<PAGE>   9

<TABLE>
<CAPTION>


ITEM 6.  SELECTED FINANCIAL DATA

SUMMARY OF FINANCIAL DATA, 1986 - 1996
Commercial Intertech Corp. and Subsidiaries

(in thousands, except per-share data and ratios)      1990      1989      1988      1987      1986
                                                      ----      ----      ----      ----      ----
<S>                                                 <C>       <C>       <C>       <C>       <C>     
INCOME DATA - Note A
  Net sales. . . . . . . . . . . . . . . . . .      $322,167  $300,640  $279,369  $227,185  $207,394
  Gross profit . . . . . . . . . . . . . . . .       101,061    96,180    83,072    66,352    60,890
  Interest expense . . . . . . . . . . . . . .         4,592     6,168     7,576     7,713     7,417
  Income from continuing operations before
     income taxes and extraordinary items. . .        41,636    42,085    27,944    15,623    15,474
  Income taxes . . . . . . . . . . . . . . . .        17,809    16,251    11,552     6,193     6,399
  Income from continuing operations before
     extraordinary items . . . . . . . . . . .        23,827    25,834    16,392     9,430     9,075
  Discontinued operations - CUNO . . . . . . .         3,780    (1,715)      372     1,794     1,542
  Net income . . . . . . . . . . . . . . . . .        27,607     6,730    16,564    11,224    10,616
Earnings per share - Note B
     Primary:
        Income from continuing operations
          before extraordinary items  . . . . .         1.14      1.45       .98       .57       .55
        Net income  . . . . . . . . . . . . . .         1.36       .38       .99       .68       .64
     Fully diluted:
        Income from continuing operations
           before extraordinary items . . . . .         1.10      1.39       .94       .57       .55
        Net income. . . . . . . . . . . . . . .         1.31       .38       .95       .67       .64
     Dividends per share of common stock:
     Cash . . . . . . . . . . . . . . . . . . .          .44       .40       .38       .37       .37
     Stock. . . . . . . . . . . . . . . . . . .           --        --        --        --        --

OTHER FINANCIAL DATA - Note A
          Total assets  . . . . . . . . . . . .     $315,617  $298,252  $279,073  $255,773  $249,678
  Current assets. . . . . . . . . . . . . . . .      124,936   109,474   100,129    85,773    79,955
  Less current liabilities -. . . . . . . . . .       70,775    74,423    61,981    43,253    36,943
     Net working capital -. . . . . . . . . . .       54,161    35,051    38,148    42,520    43,012
  Net plant investment. . . . . . . . . . . . .       71,376    58,166    51,628    52,509    52,618
  Gross capital expenditures. . . . . . . . . .       16,432    12,056     7,145     5,408    10,810
  Long-term debt. . . . . . . . . . . . . . . .       64,871    39,175    57,429    69,910    80,910
  Redeemable preferred stock. . . . . . . . . .       37,594         0         0         0         0
  Shareholders' equity. . . . . . . . . . . . .      124,891   170,463   146,828   131,664   121,626
  Shareholders' equity per share - Note C . . .         8.45      8.96      8.85      7.99      7.39
  Actual number of shares outstanding
     at year-end. . . . . . . . . . . . . . . .       14,781    19,030    16,585    16,487    16,456
  Average number of shares outstanding
     during the year. . . . . . . . . . . . . .       16,994    17,852    16,664    16,565    16,493

RATIOS - Note A
  Gross profit to net sales . . . . . . . . . .        31.4%     32.0%     29.7%     29.2%     29.4%
  Income from continuing operations before
     extraordinary items to net sales . . . . .         7.4%      8.6%      5.9%      4.2%      4.4%
  Effective income tax rate . . . . . . . . . .        42.8%     38.6%     41.3%     39.6%     41.4%
  Income from continuing operations before
     extraordinary items to average
     shareholders' equity . . . . . . . . . . .        16.1%     16.3%     11.8%      7.4%      7.7%
  Ratio of current assets to
     current liabilities. . . . . . . . . . . .       1.77:1    1.47:1    1.62:1    1.98:1    2.16:1
  Ratio of long-term debt to
     shareholders' equity plus
     long-term debt . . . . . . . . . . . . . .        34.2%     18.7%     28.1%     34.7%     39.9%
<FN>
Note A - All years have been restated to reflect the 100% spin-off of CUNO
         Incorporated as of September 10, 1996. Fiscal years 1991-1996 have been
         computed in accordance with Employers' Accounting for Postretirement
         Benefits Other Than Pensions, SFAS No. 106. Fiscal years 1992-1996 have
         been computed in accordance with Accounting for Income Taxes, SFAS No.
         109. Prior years have not been restated.

Note B - Based on weighted average number of shares outstanding adjusted for
         all subsequent share dividends.

Note C - Based on actual number of shares outstanding at end of period adjusted 
         for all subsequent share dividends.
</TABLE>

                                      -9-
<PAGE>   10

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS 1994-1996

RESULTS OF OPERATIONS
---------------------
CONSOLIDATED RESULTS

         On July 29, 1996, the Company announced that the Board of Directors had
voted to declare a dividend to Commercial Intertech Corp.'s common shareholders
of 100 percent of the common stock of CUNO Incorporated ("CUNO"), the fluid
purification segment of the business. New shares of CUNO Incorporated were
issued on the basis of one common share for each Commercial Intertech common
share outstanding, payable to holders of record as of the close of business on
August 9, 1996. Each holder of record of Commercial Intertech common shares at
the close of business on September 10, 1996, the payable date for the
Distribution, received one share of CUNO Common Stock for every one share of
Commercial Intertech common share. The financial results and net assets of CUNO
have been restated and presented as a discontinued operation in the accompanying
consolidated financial statements for all periods presented.

         CUNO and Commercial Intertech entered into a Distribution and Interim
Services Agreement (the "Services Agreement") providing for, among other things,
the principal corporate transactions required to effect the separation of CUNO
from Commercial Intertech, the distribution, and certain other arrangements
governing the relationship between CUNO and Commercial Intertech with respect to
or in consequence of the Distribution. Subject to certain exceptions, the
Services Agreement provides for cross-indemnities to place financial
responsibility for the liabilities of the CUNO business with CUNO, and financial
responsibility for the liabilities of the Commercial Intertech remaining
businesses with Commercial Intertech.


                                       -10-

<PAGE>   11



ITEM 7. (CONTINUED)

CONSOLIDATED RESULTS (CONTINUED)
--------------------------------

         The Services Agreement provides for the allocation of benefits between
the companies under existing insurance policies after the distribution date and
sets forth procedures for the administration of insured claims. The Services
Agreement provides that, in general, all costs and expenses related to the
distribution will be paid by CUNO. The Services Agreement also provides that
certain services, including tax, accounting, payroll, employee benefit and legal
services, which had historically been provided to CUNO by the Company would
continue to be provided following the distribution date, at rates specified in
such agreement for a period up to twelve months.

         Through the distribution date, the results of the operations of CUNO
have been and will be included in Commercial Intertech's domestic and foreign
income tax returns. As part of the distribution, CUNO and the Company entered
into a Tax Allocation Agreement ("Tax Agreement") which provided, among other
things, for the allocation between the parties thereto of federal, state, local
and foreign tax liabilities for all periods through the distribution date. The
Tax Agreement also allocates between CUNO and Commercial Intertech any liability
for taxes which arise in the event the distribution does not qualify as tax-free
under Section 355 of the Internal Revenue Code. Under the Tax Allocation
Agreement, if the Distribution is determined to be taxable because a change of
control of Commercial Intertech occurs, then the resulting tax liability shall
be borne solely by Commercial Intertech. If the Distribution is determined to be
taxable because of a change of control of CUNO, then the resulting tax liability
shall be borne solely by CUNO. If a tax liability arises in connection with the
Distribution for any reason not set forth above, then such liability shall be
borne equally by Commercial Intertech and CUNO. For purposes of the Tax
Allocation Agreement "a change of control" means a greater than 50% change in
stock ownership, measured by vote and value of either company.



                                      -11-
<PAGE>   12



ITEM 7. (CONTINUED)

CONSOLIDATED RESULTS (CONTINUED)
--------------------------------


         The spin-off of CUNO has been reflected as a discontinued operation by
the Company. Continuing operations include the Company's remaining Hydraulics
Systems and Building Systems and Metal Products segments. The remaining
discussion relates to the Company's continuing operations and excludes CUNO's
historical
results.

         During the third quarter of 1996, the Company received an unsolicited
tender offer from United Dominion Industries, Ltd., which the Board of Directors
voted unanimously as inadequate and confirmed the Company's strategic plan to
spin-off to shareholders 100 percent of its wholly-owned CUNO Incorporated
filtration subsidiary. In addition, the Board of Directors approved a program to
repurchase up to 2.5 million common shares. The cost of $8.2 million associated
with the successful defense against the hostile takeover attempt and the cost to
further reorganize the remaining core businesses of the Company are recorded as
nonrecurring defense and reorganization costs.

         Softness in the U.S. economy offset with improved business conditions
in Europe and the United Kingdom resulted in improved sales and earnings after
adjusting for nonrecurring defense and reorganization costs. Income from
continuing operations before extraordinary items of $15.4 million was nearly
identical to last year's income of $24.3 million and 33 percent higher than 1994
after adjusting for the $7.1 million (net of income taxes) nonrecurring charges.
Results in 1994 included an after-tax charge of $3.8 million to close and
consolidate certain operations in Europe. Net income of $25.1 million in 1994
includes a $5.5 million noncash gain from the reversal of tax accruals no longer
required in connection with a discontinued operation.


                                      -12-
<PAGE>   13


ITEM 7.  (CONTINUED)

CONSOLIDATED RESULTS (CONTINUED)
--------------------------------


         Consolidated sales of $465.2 million were higher than those in 1995 and
1994 by 2 percent and 20 percent, respectively, after adjusting for the effects
of exchange rate differences on foreign sales reported in U.S. dollars. Most of
the three year improvement resulted from increased volume as price increases
have been relatively modest during the period. Revenues of the Corporation's
U.S. operations decreased slightly as the economy softened during the latter
half of fiscal 1996 following an all-time high of $254.5 million in 1995, but
surpassed those in 1994 by 16 percent.

         Domestic operations accounted for 54 percent of the Company's total
sales in 1996 versus 55 percent in 1995 and 58 percent in 1994. Revenues for the
Company's overseas operations increased by 3 percent over those in 1995 on a
parity-adjusted basis. Most of the year-over-year gain occurred in the United
Kingdom reflecting increased demand for the Company's products serving that
region. Sales were generally higher in Europe and Australia but lower in Brazil
as business conditions were flat in these regions.

         Operating income of $27.2 million was lower than 1995 and 1994 by 21
percent and 9 percent, respectively, before adjusting for the $8.2 million
nonrecurring defense and reorganization costs incurred in 1996. Operating income
before the nonrecurring charges was $35.4 million compared to $34.3 million in
1995 and $29.8 million in 1994. Operating income decreased by 19 percent for the
Hydraulic Systems Group following four consecutive years of advances, while
increasing by 57 percent in the Building Systems and Metal Products Group.
Domestic metal stamping divisions improved for the second consecutive year and
the Astron Division in Europe also reported significant improvements over 1995
and 1994.


                                      -13-



<PAGE>   14



ITEM 7.  (CONTINUED)

CONSOLIDATED RESULTS (CONTINUED)
--------------------------------

         Included in operating income for the three years are the financial
results of the ORSTA Hydraulik operations which were acquired in 1994. Shares of
ORSTA Hydraulik were acquired from the former Treuhandanstalt ("THA"), the
regulatory agency of the Federal Republic of Germany responsible for the
privatization of former East German state-owned enterprises. Under terms of the
Purchase Agreement, Commercial Intertech tendered no financial consideration to
acquire the shares received. In addition to the net assets of the companies,
cash contributions were received from the THA to fund pre-existing capital
investment programs and cover estimated operating losses over a period of two
years. The loss indemnification was recorded as a deferred credit (negative
goodwill) and was amortized to income through cost of products sold in
accordance with a predetermined schedule of projected losses in each fiscal
quarter over the two-year period. The combined German operations represented by
this acquisition incurred operating losses of $7.8 million in 1996, after
amortization of the deferred credit, on sales of $38.2 million and losses of
$2.2 million after amortization of the deferred credit in 1995 on sales of $35.8
million. The impact on operating income in 1994 was negligible (see Note K for
further details).

         Following the acquisition of ORSTA Hydraulik during the latter half of
1994, the Company announced strategic plans to close certain Hydraulic
facilities in Europe, phase out some nonperforming products manufactured at
those facilities, and consolidate the remaining core businesses with the ORSTA
operation in Germany and other existing operations located in the United
Kingdom. Included in cost of products sold for 1994 were charges of $4.2 million
for the separation of employees, closure of facilities, writedown of
unrecoverable fixed assets, and other incremental costs necessary to complete
this consolidation effort. The program was executed in phases with two out of
three segments being completed during 1995 and the final phase completed in
1996. This program will improve the Corporation's operating results over time
through reduced employment costs, more effective utilization of plant and
equipment, and lower depreciation expense.


                                      -14-

<PAGE>   15



ITEM 7.  (CONTINUED)


INDUSTRY SEGMENTS
- HYDRAULIC SYSTEMS

         The Hydraulic Systems segment accounted for 63 percent of the Company's
total sales and 55 percent of total operating income (excluding the nonrecurring
charges) in 1996. Revenues in this segment increased by $8.7 million or 3
percent over last year, while operating income as reported was lower by $4.7
million. Most of the erosion occurred in the domestic units as the prolonged
softness in demand from key industry segments lasted almost the entire fiscal
year. Revenues remained flat during the year, however income suffered from
higher material costs, expenses to re-engineer manufacturing processes and
administrative systems, and the costs incurred to develop and launch a range of
fluid power components for the automotive industry. The U.S. Cylinder Division
and Oildyne, a manufacturer of miniature hydraulic systems, reported significant
increases during the fourth quarter of 1996 in revenues and operating income
compared with the corresponding period last year. Financial performance was
favorable in the foreign segment during 1996 while results were flat except in
the United Kingdom which reported strong demand for their products. The
operations in Germany reported improved revenue in 1996 compared to 1995 but
reported a combined operating loss of $7.8 million for the year. Improvements in
efficiencies and productivity has been slower than expected, and operating
results were further reduced by the start-up costs incurred in moving into the
new cylinder facility and the sluggish economy in Europe.



                                      -15-



<PAGE>   16

ITEM 7.  (CONTINUED)

INDUSTRY SEGMENTS (CONTINUED)
-----------------------------

         In June of 1996, the Hydraulics Systems Group reported it acquired the
assets of Component Engineering Company, a manufacturer of cartridge type
hydraulic valves which are manifold mounted for both mobile and industrial
applications. The manifold style valves complement the Company's existing lines
of stack type valves. Subsequent to the year end, the Hydraulic Group also
announced the stock purchase of Ultra Hydraulics Limited located near
Gloucester, England, by its wholly-owned subsidiary in the United Kingdom. Ultra
Hydraulics serves the mobile equipment market in the United Kingdom, Europe, the
United States and the Far East. Major customers include manufacturers of
material handling, turf care, construction, transportation and compaction
equipment. Ultra's products complement and extend the range of pumps, motors and
valves now offered by the Company.

         Capital expenditures amounted to $13.9 million for this segment in 1996
versus expenditures of $28.1 million in 1995 and $16.5 million in 1994. Included
in the total for the current year are expenditures of $1.8 million for
completion of a new cylinder facility in the United States as well as $1.3
million for part of the plant expansion for the valve facility in Hicksville,
Ohio, and expenditures of $4.5 million for the continuing upgrades at our
facilities located in Germany. Funding for most of these German projects was
provided by the THA in accordance with the terms of the purchase. The majority
of the remaining expenditures in 1996 pertain to ongoing equipment purchases in
the U.S. to upgrade manufacturing performance and to outfit specialized
machining cells for the manufacture of new products.

         Incoming orders for the Hydraulic Systems Group ended the year even
with 1995. The backlog of unfilled orders to start the new fiscal year was about
the same as last year, after adjusting for currency differences.


                                      -16-


<PAGE>   17




ITEM 7.  (CONTINUED)

- BUILDING SYSTEMS AND METAL PRODUCTS

         The revenues were down slightly for this group in 1996 compared to
1995, but 28 percent higher than 1994. Operating income improved by 57 percent
over 1995 and by 56 percent over 1994 as the overseas rebounded near the end of
1996. Sales for the Astron Division were higher than last year by 2 percent on a
parity-adjusted basis, but earnings improved significantly following three years
of continued decline. Increased pricing of products, lower operating costs at
the satellite manufacturing operation in the Czech Republic and increased demand
for our products were the main reason for the improvement. Sales were 3 percent
lower than 1995 but 17 percent higher than 1994 for the Metal Stamping Division
in the U.S. However, results remained at the same level as 1995. The continued
strong demand comes from the transportation and home building industries. Sales
were enhanced in 1996 and 1995 by the acquisition of a small manufacturer of
large diameter steel heads located in Saginaw, Texas. The division's
distribution center program, which has six locations in the U.S. continued
strong performance in 1996. Operating income for the combined metal stamping
operations in the U.S. was higher than 1995 and 1994 by 14 percent and 69
percent, respectively.

         Capital expenditures for this segment amounted to $3.9 million in 1996
versus $3.6 million in 1995 and $2.7 million in 1994. Nearly two-thirds of the
1996 expenditures pertained to upgrade production equipment, equipment for the
satellite facility in the Czech Republic, and other office automation for the
Astron Division. The balance of the spending in 1996 related to upgrades and
replacement of production equipment in the U.S. General upgrades of Astron's
facilities and production capabilities accounted for the majority of the capital
expenditures in 1995 and 1994.



                                      -17-




<PAGE>   18




ITEM 7.  (CONTINUED)

INDUSTRY SEGMENTS (CONTINUED)
-----------------------------

         Incoming orders for domestic operations were higher in the fourth
quarter of 1996 compared to last year reflecting a somewhat stronger economy.
The Astron Division also reported good bookings in the fourth quarter, but
somewhat lower than in 1995 which included one large order shipped in early
1996. The backlog of unfilled orders to start the new year is lower by 18
percent from a year ago in the U.S., while the Astron backlog is off 14 percent
after adjusting for foreign currency differences.

NONOPERATING INCOME AND EXPENSE

         Interest received from investments decreased from $1.8 million in 1995
to $1.0 million in 1996, due primarily, to available funds used to support the
repurchase of common stock and to successfully defend against a hostile takeover
attempt. Investment yields were marginally higher than those in previous
periods.

         Approximately 90 percent of total interest expense incurred on borrowed
funds in 1996 resulted from long-term obligations. Most of the long-term
interest expense derived from the 1992 issuance of $45.0 million of 8.2 percent
senior notes as part of a capital restructuring program. The senior notes were
refinanced during the fourth quarter of 1996 with a bridge facility that also
funded the Company's program to repurchase 2.0 million common shares. The
interest on this new bridge financing was 8.5 percent. Remaining interest
expense primarily pertains to long-term debt to fund major construction
projects, equipment leases, and short-term borrowings to support current
operations. Recorded as a credit to interest expense in 1994 is a $1.3 million
reversal of an unrealized interest obligation accrued in prior years. Effective
interest rates paid by the Company on long-term debt have increased slightly
over the three-year period, primarily due to the bridge financing incurred
during the fourth quarter of 1996. Short-term rates have fluctuated on an
interim basis.



                                      -18-


<PAGE>   19




ITEM 7.  (CONTINUED)

NONOPERATING INCOME AND EXPENSE (CONTINUED)

         Foreign currency exchange and translation gains and losses are included
in other nonoperating expense. These amounts totaled $0.3 million gain in 1996,
and losses of $0.3 million in 1995 and $1.8 million in 1994. The Company
utilizes foreign currency forward contracts to hedge the principal and interest
due on loans which are periodically made with foreign subsidiaries. Deferred
gains and losses from such hedging activities were negligible at the end of the
current fiscal year (see Note J).

         Other nonoperating income for 1996 includes $1.6 million gain on the
sale of fixed assets. The unused assets were principally located in the United
Kingdom and Germany.

TAXES

         The Company's effective tax rate increased to 35 percent in 1996
compared to 20 percent in 1995 primarily as the result of nonrecurring defense
costs in 1996 and reduced utilization of tax loss carryforwards acquired with
the ORSTA business in 1994 to shelter earnings of the Company's other German
operations, including those of an Astron subsidiary. Remaining ORSTA net
operating losses of approximately $120.2 million, may be carried forward
indefinitely and are expected to provide tax relief on income earned by all
operations in Germany for a number of years. Effective rates are also reduced by
the favorable tax impact of reserve contracts and the exercise of stock options.
Partially offsetting these benefits were the tax consequences of repatriating
foreign earnings and state and local taxes levied on domestic income.

EXTRAORDINARY ITEMS

         The Company recorded an extraordinary charge of $4.0 million during the
fourth quarter of 1996 for losses associated with early retirements of debt.


                                      -19-



<PAGE>   20




ITEM 7.  (CONTINUED)

ACCOUNTING STANDARDS

         In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 96-1, "Environmental Remediation Liabilities." The SOP does not make
changes to existing accounting rules, but it clarifies how existing
authoritative guidance on loss contingencies should be applied in determining
environmental liabilities. The Company does not believe the SOP will have any
material impact on future operations. The Company will be required to report
under the SOP in financial statements for 1998.

         In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement No. 123, "Accounting for Stock-Based Compensation" governing
financial accounting and reporting standards for compensation plans which award
employees in the form of stock options, restricted stock, performance shares,
etc. As permitted by this Statement, the Company intends to continue to account
for such compensation using the intrinsic value method in accordance with APB
No. 25. Adoption of the new standard in this form will have no impact of
reported income in future years. Pro forma disclosures as required by this
pronouncement will apply to stock-based awards on or after November 1, 1995 and
will first be disclosed in financial statements for 1997.





                                      -20-





<PAGE>   21





ITEM 7.  (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES

         Liquidity is generally defined as the ability to generate cash, by
whatever means available, to satisfy the short- and long-term needs of the
Company. With respect to cash flow in 1996, the balance of cash and cash
equivalents decreased from $32.9 million at the end of 1995 to $27.6 million at
the end of 1996, after adjusting for the 100 percent spin-off of CUNO
Incorporated as a discontinued operation. The ORSTA acquisition made in 1994
continues to be a consumer of Company funds. Under terms of the ORSTA Purchase
Agreement, Commercial Intertech received cash contributions from the THA and
other German regulatory agencies to cover operating losses for a period of two
years and fund pre-existing capital expenditures programs of the acquired
businesses (see Note K). Contributions received since the acquisition date in
accordance with the Agreement have aggregated to $47.1 million in 1995 and 1994,
while cash consumed for operating requirements (inclusive of working capital
needs) and capital investments has amounted to $28.2 million and $19.0 million,
respectively. The ORSTA operations generated a net cash flow of $14.3 million in
1994 but consumed $5.2 million in 1996 and $9.3 million in 1995.

         Cash generated from Commercial Intertech's total continuing operations
amounted to $45.6 million in 1996, representing an increase of $36.1 million
from the previous year. A decrease in accounts receivable and a reduced amount
of deferred credit amortization were the principal factors in the year-over-year
increase. Income from discontinued operations and amortization of deferred
credit are noncash in nature and therefore had no effect on cash flow in these
periods.




                                      -21-


<PAGE>   22


ITEM 7.  (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

         Cash used in investing activities amounted to $25.8 million in 1996.
Capital expenditures totaled $18.0 million for the year versus $31.8 million in
1995 and $19.4 million in 1994 (see Note I). More than 50 percent of the current
year spending pertained to expansion of production capacity, equipment upgrades
to improve manufacturing performance, machine tools for the manufacture of new
product introductions, construction of a new manufacturing facility, and
purchase of advanced computer systems to support manufacturing processes and
administrative functions. Completion of a new manufacturing facility,
investments in technologically advanced production equipment, and other
operating improvements for the ORSTA units accounted for most of the capital
spending overseas during 1996 and 1995. Production equipment for the new Astron
satellite facility in the Czech Republic accounted for part of the overseas
expenditures. Construction of a new manufacturing facility, capacity expansion,
equipment upgrades, and office automation in the U.S. accounted for the majority
of the capital expenditures in the two preceding years. Authorized but unspent
capital expenditure programs totaled $8.6 million at October 31, 1996. Major
projects include the completion of the new valve plant expansion, on-going
state-of-the-art production equipment for the Hydraulic Group, upgraded
production equipment to improve efficiency and increase capacity for the Metal
Products Group. Proceeds were received during 1996 from the sale of idle
property and equipment located in the United Kingdom and Germany.

         Cash used in financing activities totaled $32.3 million. Principal
activities included the refinancing of the Company's debt during the hostile
takeover attempt by obtaining bridge financing to fund the repurchase of 2.0
million common shares, to purchase the ESOP senior notes, and to retire the
$45.0 million senior notes that were outstanding. The bridge financing was
replaced with a new $125.0 million senior revolving credit and $60.0 million
term loan facilities. Other activities include the payment of reserve contract
premiums, losses on early retirements of debt, dividend from CUNO Incorporated
in connection with the spin-off, and the distribution of dividends to
shareholders. Dividends totaled $10.2 million in 1996, of which $8.1 million
were paid to shareholders of common stock.

                                      -22-

<PAGE>   23




ITEM 7.  (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

         As part of a restructuring program completed in 1990, the Company
established two leveraged employee stock ownership plans (the ESOPs) and sold
Series B cumulative preferred shares to the plans for approximately $25.0
million. The ESOPs borrowed funds to purchase the Series B shares. During 1993,
the ESOPs completed a refinancing program whereby a floating rate loan was
replaced with a $23.4 million, 7.8 percent, 17-year term loan privately placed
with a group of insurance companies. During 1996, the Company purchased the
outstanding loan from the group. This program provides permanent financing for
the remaining life of the benefit plan.

         In November 1996, the Company reported it acquired all of the
outstanding common stock of Ultra Hydraulics Limited through its wholly-owned
subsidiary, Commercial Intertech Limited, located in the United Kingdom. Ultra
Hydraulics is headquartered near Gloucester, England and employs more than 300
men and women in the United Kingdom and the United States. Commercial Intertech
will account for the stock acquisition of Ultra as a purchase. The initial
purchase price of Ultra is approximately $43.0 million and is subject to
adjustments based upon audit. The funds were provided as part of the new senior
revolving credit and term loan agreement entered into at the end of October,
1996.

         Internal cash flows are expected to be sufficient to provide the
capital resources necessary to support operating needs and finance capital
expenditure programs in the coming year. The Company has a $51.0 million
(excluding the funds related to the purchase of Ultra Hydraulics Limited) credit
facility available which expires in 2001. The funds available to the Company
under this agreement may be used for any general corporate purpose. Including
this facility, total credit lines of $91.1 million, denominated in both domestic
and foreign currencies, were available to the Company at fiscal year-end.
Borrowing rates to start the new year were generally lower than the same period
a year ago, reflecting prevailing market conditions.


                                      -23-

<PAGE>   24





ITEM 7.  (CONTINUED)

IMPACT OF INFLATION AND CHANGING PRICES

         Rates of inflation were approximately the same as the previous year,
ranging from 2 to 4 percent in most instances. Manufacturing and operating costs
generally advanced in line with inflation, but the continuing trend of
competitive pressures and price resistance in the marketplace limited the extent
to which cost increases could be passed along to customers in 1996. Selling
price increases were implemented to cover rising costs for wages, benefits, raw
materials, purchased components and other manufacturing costs. Consequently, the
Corporation relied upon volumetric efficiencies, productivity improvements and
cost saving measures to offset the shortfall in pricing and successfully
maintain or improve profit margins in most business units. Margins improved for
the Astron Division where weak industry prices and price discounting in certain
market segments have adversely affected profitability over the previous two
years.

         The ability to recover cost increases and maintain margins continues to
be a major challenge for most operating units, and the Company relies upon cost
containment, aggressive purchasing, quality initiatives and cost-saving capital
investments to combat profit erosion and remain competitive.


BUSINESS OUTLOOK

         The consolidated backlog of unfilled orders amounted to $142.0 million
at the end of the year which, after adjusting for the effects of exchange rate
differences on foreign segments, represents a decrease of 6 percent over the
previous fiscal year-end. Substantially all of the consolidated backlog is
deliverable in 1997.


                                      -24-




<PAGE>   25
ITEM 7.  (CONTINUED)

BUSINESS OUTLOOK (CONTINUED)

         Business conditions to start the new fiscal year for the Company's
domestic operations are uneven but early signs indicate that demand will
increase in most of our core product lines for 1997. Recent reports suggest that
economic growth in the U.S. will continue as consumer confidences are high and
interest rates remain low. First quarter earnings for the Company's domestic
operations are expected to be seasonally lower, but profit improvements are
anticipated for the entire year. The Company intends to realize benefits from
major 1996 capital investments to improve productivity and also stands to
benefit from the added business volume of the recent acquisitions of Component
Engineering and Ultra Hydraulics. The production inefficiencies and development
costs associated with start-ups of a number of new hydraulic products, including
small displacement pumps, pressure compensated valves, and the introduction of a
new line of piston pumps, are now behind us. These new products, all of which
enhance our competitive position and open new markets to us, as well as the
continued growth in miniature and specialized hydraulics, are expected to
contribute to improved results.

         Prospects are mixed for the Company's overseas operations to start the
year. Ongoing efforts to reorganize and make profitable the hydraulic operations
in Germany will continue to adversely impact earnings early in the new year, but
significant improvements are expected in 1997 from strengthening of market
conditions, additional volume from new product introduction, and successful
negotiations with agencies of the German government to extend operating
subsidies for one of the business units acquired from the former Treuhandanstalt
(THA) in 1994. Conditions are brighter for the Astron Division as demand is
expected to increase in major European markets, with particular strength in
Eastern Europe. Pricing should remain similar to the level of 1996 while
manufacturing costs will hold steady as a result of full manufacturing status at
the Czech Republic facility and continuation of a favorable trend in material
costs. Elsewhere, the outlook is excellent for continued economic growth in the
United Kingdom, coupled with the new acquisition of Ultra Hydraulics. Continued
growth is again expected in Australia and Brazil.

                                      -25-

<PAGE>   26

ITEM 7.  (CONTINUED)

BUSINESS OUTLOOK (CONTINUED)

         The Company continues to invest in capital improvements, identify and
implement strategic initiatives, and reduce overheads where possible to lower
operating costs and improve profitability. The competitive advantages which
these programs provide, our ability to meet the challenges of globalization and
increased international competition, and continuation of moderate growth in
world economies cause us to anticipate strong consolidated results again in
1997.

FORWARD LOOKING INFORMATION

         Because Commercial Intertech wants to provide shareholders with more
meaningful and useful information, this Annual Report contains certain
statements which reflect the Company's current expectations regarding the future
results of operations, performance and achievements. Commercial Intertech Corp.
has tried, wherever possible, to identify these "forward looking statements by
using words such as "anticipate," "believe," "estimate," "expect" and similar
expressions. These statements reflect the Company's current beliefs and are
based on information currently available to it. Accordingly, these statements
are subject to risks and uncertainties which could cause the Company's actual
results, performance or achievements to differ materially from those expressed
in, or implied by these statements. These risks and uncertainties include the
following: the effectiveness of the Company's program to reduce general
corporate and operating unit overhead; volumes of shipments of the Company's
products, changes in the Company's product mix and product pricing; costs of raw
materials; the rate of economic and industry growth in the United States and the
other countries in which the Company conducts its business; economic and
political conditions in the foreign countries in which the Company conducts a
substantial part of its operations and other risks associated with international
operations including taxation policies, exchange rate fluctuations and the risk
of expropriation; the Company's ability to protect its technology, proprietary
products and manufacturing techniques; changes in technology, changes in
industrial requirements and risks generally associated with new product
introductions and applications; and domestic and international competition in
the Company's global markets. The Company is not obligated to update or revise
these "forward looking" statements to reflect new events or circumstances.

                                      -26-

<PAGE>   27

<TABLE>
<CAPTION>
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STATEMENTS OF CONSOLIDATED INCOME
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES

YEAR ENDED OCTOBER 31,                        1996      1995        1994
                                            --------  --------    --------
                                         (IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S>                                         <C>       <C>         <C>     
Net sales.................................  $465,209  $459,137    $373,820
Less costs and expenses:
   Cost of products sold..................   340,993   337,122     271,228
   Selling, administrative and
     general expenses.....................    88,799    87,670      72,799
   Nonrecurring defense and
     reorganization costs.................     8,202         0           0
                                            --------- ---------   ---------
                                             437,994   424,792     344,027
                                            --------- ---------   ---------
Operating income..........................    27,215    34,345      29,793

Nonoperating income (expense):
   Interest income........................     1,031     1,837       1,321
   Interest expense.......................    (7,083)   (6,238)     (4,262)
   Gain on sale of assets.................     1,603       204         123
   Other..................................       972       231      (1,215)
                                            ---------  --------   ---------
                                              (3,477)   (3,966)     (4,033)
Income from continuing operations before
   income taxes and extraordinary items...    23,738    30,379      25,760

Provision for income taxes:
   Current................................    10,875     5,706       8,458
   Deferred...............................    (2,493)      391        (510)
                                            ---------  --------   ---------
                                               8,382     6,097       7,948
                                            ---------  --------   ---------
Income from continuing operations before
   extraordinary items....................    15,356    24,282      17,812
Income from discontinued operations (net
   of income taxes of $4,857 in 1996,
   $3,462 in 1995 and $236 in 1994).......     6,083     6,101       7,269
Extraordinary items (losses on early
   retirement of debt, net of income
   tax benefits of $2,694)................    (4,044)        0           0
                                            ---------  --------   ---------

Net income................................  $ 17,395  $ 30,383    $ 25,081
                                            ========= =========   =========

Preferred stock dividends and adjustments.    (2,058)   (2,084)     (2,097)
                                            --------- ---------   ---------

Net income applicable to common stock.....  $ 15,337  $ 28,299    $ 22,984
                                            ========= =========   =========

Earnings per share of common stock:
    Primary:
     Income from continuing operations
       before extraordinary items.........    $0.87     $1.42       $1.03
     Income from discontinued operations..     0.40      0.40        0.47
     Extraordinary items..................    (0.26)     0.00        0.00
     Net income...........................     1.01      1.82        1.50
    Fully diluted:
     Income from continuing operations
       before extraordinary items.........    $0.83     $1.35       $0.98
     Income from discontinued operations..     0.36      0.37        0.43
     Extraordinary items..................    (0.24)     0.00        0.00
     Net income...........................     0.95      1.72        1.41


See notes to consolidated financial statements.
</TABLE>

                                      -27-
<PAGE>   28

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS

COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES

                                                           OCTOBER 31,
                                                        1996       1995
                                                     --------------------
                                                        (in thousands)
<S>                                                  <C>         <C>  
ASSETS
   CURRENT ASSETS
      Cash (including equivalents of $19,291
         in 1996 and $23,656 in 1995) . . . . . . .  $ 27,552    $ 32,949
      Accounts and notes receivable, less
         allowances for doubtful accounts of
         $1,724 in 1996 and $2,306 in 1995. . . . .    70,399      81,540
      Inventories . . . . . . . . . . . . . . . . .    58,129      51,719
      Deferred income tax benefits. . . . . . . . .    15,515      11,639
      Prepaid expenses and other current assets . .     4,012       5,012
      Dividend receivable from discontinued
         operations . . . . . . . . . . . . . . . .     4,612           0
      Receivable from discontinued operations . . .    10,184           0
                                                     --------    --------
                               TOTAL CURRENT ASSETS   190,403     182,859
   NONCURRENT ASSETS
      Intangible assets . . . . . . . . . . . . . .     9,051       2,098
      Pension assets. . . . . . . . . . . . . . . .    37,371      32,478
      Net assets of discontinued operations . . . .         0      86,883
      Other noncurrent assets . . . . . . . . . . .     3,671       3,566
                                                     --------    --------
                            TOTAL NONCURRENT ASSETS    50,093     125,025
                                                     --------    --------

   PROPERTY, PLANT AND EQUIPMENT
      Land and land improvements. . . . . . . . . .     6,379       7,400
      Buildings . . . . . . . . . . . . . . . . . .    51,353      45,527
      Machinery and equipment . . . . . . . . . . .   130,314     121,932
      Construction in progress. . . . . . . . . . .     8,863      12,198
                                                     --------    --------
                                                      196,909     187,057
      Less allowance for depreciation . . . . . . .   100,289      92,262
                                                     --------    --------
                                                       96,620      94,795
                                                     --------    --------

                                       TOTAL ASSETS  $337,116    $402,679
                                                     ========    ========
</TABLE>


                                      -28-
<PAGE>   29




ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)


<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS

COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES

                                                          October 31,
                                                       1996        1995
                                                     --------------------
                                                          (in thousands)
<S>                                                  <C>         <C>     
LIABILITIES AND SHAREHOLDERS' EQUITY
   CURRENT LIABILITIES
      Bank loans. . . . . . . . . . . . . . . . . .  $  2,745    $  9,285
      Accounts payable. . . . . . . . . . . . . . .    51,648      47,697
      Accrued payrolls and related taxes. . . . . .    17,116      20,564
      Accrued expenses. . . . . . . . . . . . . . .    37,175      32,637
      Dividends payable . . . . . . . . . . . . . .     2,449       2,788
      Accrued income taxes. . . . . . . . . . . . .     4,385       3,216
      Current portion of long-term debt . . . . . .       705       1,233
                                                     ---------   ---------
                          TOTAL CURRENT LIABILITIES   116,223     117,420

   NONCURRENT LIABILITIES
      Long-term debt. . . . . . . . . . . . . . . .    93,415      69,869
      Deferred income taxes . . . . . . . . . . . .    15,495      14,112
      Postretirement benefits . . . . . . . . . . .    24,822      20,954
      Deferred credit . . . . . . . . . . . . . . .         0       3,731
                                                     ---------   ---------
                       TOTAL NONCURRENT LIABILITIES   133,732     108,666

   SHAREHOLDERS' EQUITY
      Preferred stock, no par value:
         Authorized:  10,000,000 shares
         Series A participating preferred shares. .         0           0
         Series B ESOP convertible preferred shares
            Issued:  1996 - 1,039,657 shares
                     1995 - 1,053,508 shares. . . .    24,172      24,494
      Common stock, $1 par value:
         Authorized:  30,000,000 shares
            Issued:  1996 - 13,559,579 shares
              (excluding 2,211,868 in treasury)
                     1995 - 15,439,514 shares
              (excluding 149,043 in treasury) . . .    13,560      15,440
      Capital surplus . . . . . . . . . . . . . . .         0      38,396
      Retained earnings . . . . . . . . . . . . . .    67,808     112,907
      Deferred compensation . . . . . . . . . . . .   (17,594)    (18,851)
      Translation adjustment. . . . . . . . . . . .      (785)      4,207
                                                     ---------   ---------
                         TOTAL SHAREHOLDERS' EQUITY    87,161     176,593
                                                     ---------   ---------
         TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY  $337,116    $402,679
                                                     =========   =========


See notes to consolidated financial statements.

</TABLE>
                                      -29-
<PAGE>   30


<TABLE>

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Commercial Intertech Corp. and Subsidiaries
<CAPTION>
                                                Year Ended October 31,
                                                1996      1995      1994
                                            -------------------------------
                                         (in thousands, except per-share data)
<S>                                         <C>         <C>        <C>     
PREFERRED STOCK (Series B)
   Balance at beginning of year. . . . .    $ 24,494    $ 24,631   $ 24,758
   Shares converted. . . . . . . . . . .        (322)       (137)      (127)
                                            ---------   ---------  ---------
   Balance at end of year. . . . . . . .      24,172      24,494     24,631

COMMON STOCK
   Balance at beginning of year. . . . .      15,440      15,199     10,038
   Shares issued:
      Employee Stock Ownership Plan. . .          99          34         25
      Stock option and award plans . . .          65         207         63
   Shares issued as of September 1, 1994
      in stock split effected in the form
      of a 50% share dividend. . . . . .           0           0      5,073
   Repurchase program. . . . . . . . . .      (2,044)          0          0
                                            ---------   ---------  ---------
   Balance at end of year. . . . . . . .      13,560      15,440     15,199

CAPITAL SURPLUS
   Balance at beginning of year. . . . .      38,396      35,844     39,034
   Employee Stock Ownership Plan . . . .       1,458         631        112
   Stock option and award plans. . . . .       1,110       1,921      1,771
   Par value transferred to common stock
      in connection with stock split
      effected in form of share dividend           0           0     (5,073)
   Repurchase program. . . . . . . . . .     (56,937)          0          0
   Transfer from retained earnings . . .      15,973           0          0
                                            ---------   ---------  ---------
   Balance at end of year. . . . . . . .           0      38,396     35,844

RETAINED EARNINGS
   Balance at beginning of year. . . . .     112,907      91,649     75,087
   Net income for the year . . . . . . .      17,395      30,383     25,081
                                            ---------   ---------  ---------
                                             130,302     122,032    100,168
   Less:
     Dividends:
      Common (per share:  1996 - $0.54;
         1995 - $0.51; 1994 - $0.48) . .       7,847       7,862      7,239
      Preferred Series B . . . . . . . .       2,055       2,082      2,095
                                            ---------   ---------  ---------
                                               9,902       9,944      9,334
     Other preferred stock adjustments .        (811)       (819)      (815)
     Stock distribution -
      CUNO Incorporated. . . . . . . . .      37,430           0          0
     Transfer to capital surplus . . . .      15,973           0          0
                                           ----------   ---------   --------
   Balance at end of year. . . . . . . .      67,808     112,907     91,649

DEFERRED COMPENSATION. . . . . . . . . .     (17,594)    (18,851)   (20,108)

TRANSLATION ADJUSTMENT . . . . . . . . .        (785)      4,207        767
                                           ----------   ---------  ---------

      Total shareholders' equity . . . .    $ 87,161    $176,593   $147,982
                                           =========    =========  =========
Shareholders' equity per share of common
   stock . . . . . . . . . . . . . . . .      $ 5.94      $11.07     $ 9.44

See notes to consolidated financial statements.
</TABLE>


<PAGE>   31

<TABLE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (CONTINUED)
STATEMENTS OF CONSOLIDATED CASH FLOWS
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
<CAPTION>


                                                           Year Ended October 31,
                                                           1996    1995      1994
                                                        ----------------------------
                                                               (in thousands)
<S>                                                     <C>       <C>       <C>     
OPERATING ACTIVITIES:
   Net income . . . . . . . . . . . . . . . . . . . . . $ 17,395  $ 30,383  $ 25,081
   Adjustments to reconcile net income to net
      cash provided by operating activities:
         Discontinued operations. . . . . . . . . . . .   (6,083)   (6,101)   (7,269)
         Provision for depreciation and amortization. .   12,566    11,276     9,808
         Amortization of deferred credit. . . . . . . .   (3,634)  (16,095)   (6,466)
         Extraordinary losses on early retirement
            of debt . . . . . . . . . . . . . . . . . .    6,738         0         0
         Postretirement benefits. . . . . . . . . . . .    2,205       634       383
         Pension plan credits . . . . . . . . . . . . .   (2,524)   (2,872)   (3,207)
         Change in deferred income taxes. . . . . . . .     (969)      278      (884)
         Change in current assets and liabilities:
            Decrease (increase) in accounts receivable.   10,446   (15,999)   (3,858)
            (Increase) in inventories . . . . . . . . .   (6,998)   (9,073)   (5,775)
            Decrease (increase) in prepaid expenses
               and other current assets . . . . . . . .      903    (2,843)   (1,187)
            Increase in accounts payable and accrued
               expenses . . . . . . . . . . . . . . . .   12,780    14,545    19,220
            Increase (decrease) in accrued income
               taxes. . . . . . . . . . . . . . . . . .    2,727     5,270    (6,301)
                                                        --------- --------- ---------
   Net cash provided by continuing operations . . . . .   45,552     9,403    19,545
   Net cash provided by discontinued operations . . . .    8,356     3,128     6,772
                                                        --------- --------- ---------
   Net cash provided by operating activities. . . . . .   53,908    12,531    26,317

INVESTING ACTIVITIES:
   Proceeds from sale of fixed assets . . . . . . . . .    2,934       374       176
   Business acquisitions. . . . . . . . . . . . . . . .  (10,731)     (886)   11,140
   Installments received -- acquisition . . . . . . . .        0    17,146    18,833
   Investments in intangibles . . . . . . . . . . . . .      (25)      (46)     (243)
   Capital expenditures . . . . . . . . . . . . . . . .  (17,950)  (31,794)  (19,446)
                                                        --------- --------- ---------
   Net cash (used) provided by investing activities . .  (25,772)  (15,206)   10,460

FINANCING ACTIVITIES:
   Proceeds from long-term debt . . . . . . . . . . . .  268,500         0         0
   Principal payments on long-term debt . . . . . . . . (245,435)   (2,800)   (2,015)
   Net borrowings under bank loan agreements. . . . . .   (6,328)     (251)   (2,134)
   Repurchase of common shares. . . . . . . . . . . . .  (58,980)        0         0
   Debt early retirement. . . . . . . . . . . . . . . .   (6,738)        0         0
   Proceeds from reserve contracts. . . . . . . . . . .    2,136     2,089       830
   Purchase of reserve contracts. . . . . . . . . . . .   (3,566)   (3,475)   (3,430)
   Conversion of other assets . . . . . . . . . . . . .   (1,706)     (661)      621
   Dividend from CUNO Incorporated. . . . . . . . . . .   30,000         0         0
   Dividends paid . . . . . . . . . . . . . . . . . . .  (10,177)   (9,666)   (9,094)
                                                        --------- --------- ---------
        Net cash (used) by financing activities . . . .  (32,294)  (14,764)  (15,222)

Effect of exchange rate changes on cash and cash
   equivalents . . . . . . . . . . . . . . . .  . . . .   (1,239)    2,130     3,590
                                                        --------- --------- ---------        
Net (decrease)increase in cash and cash equivalents . .   (5,397)  (15,309)   25,145
Cash and cash equivalents at beginning of year. . . . .   32,949    48,258    23,113
                                                        --------- --------- ---------
Cash and cash equivalents at end of year. . . . . . . . $ 27,552  $ 32,949  $ 48,258
                                                        ========= ========= =========
Supplemental disclosures:
Cash paid during the year for:
   Interest . . . . . . . . . . . . . . . . . . . . . . $  6,829  $  7,055   $ 6,612
   Income taxes . . . . . . . . . . . . . . . . . . . .   12,852     4,899    16,282

See notes to consolidated financial statements.

</TABLE>

                                      -31-
<PAGE>   32



ITEM 8.  (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commercial Intertech Corp. and Subsidiaries


NOTE A - ACCOUNTING POLICIES

Organization:
      Commercial Intertech Corp. ("Commercial Intertech" or the
"Company") is a multinational manufacturer of Hydraulic Systems
and Building Systems and Metal Products.  The Company operates
twenty-seven facilities in nine countries.

Discontinued Operations
      On July 29, 1996 the Board of Directors of Commercial Intertech Corp.
approved a plan to spin-off the Company's fluid purification business by
declaring a dividend distribution of 100% of the common stock of CUNO
Incorporated ("CUNO") on a pro-rata basis to the holders of Commercial Intertech
common shares (the "Distribution"). Each holder of record of Commercial
Intertech common shares at the close of business on September 10, 1996, the
payable date for the Distribution, received one share of CUNO Common Stock for
every one share of Commercial Intertech common share. No fractional shares of
CUNO were issued. The net assets and operating results of CUNO are presented in
the accompanying consolidated financial statements as a discontinued operation
through the distribution date. The CUNO revenues through the distribution date
were $147,934,000 in 1996, $162,699,000 in 1995 and $143,111,000 in 1994.

      In connection with the spin-off, the Board of Directors of Commercial
Intertech declared a dividend of approximately $35,675,000 payable from the CUNO
locations to Commercial Intertech, and immediately prior to the Distribution,
CUNO assumed $30,000,000 of Commercial Intertech's debt in the form of a
dividend.

      The Company and CUNO have entered into a Tax Allocation Agreement in
connection with the distribution. In addition, the Company and CUNO have entered
into a Distribution and Interim Services Agreement which provides that certain
services which have historically been provided to CUNO by the Company will
continue to be provided following the Distribution Date, at rates specified in
such agreement, for a period of up to twelve months.

Consolidation:
      The accounts of the Company and its subsidiaries are included in the
consolidated financial statements. Intercompany accounts and transactions are
eliminated upon consolidation. All statements and amounts presented have been
restated to reflect the 100% spin-off of CUNO Incorporated as a discontinued
operation.


                                      -32-
<PAGE>   33

ITEM 8.  (Continued)

NOTE A - ACCOUNTING POLICIES (Continued)

      Distribution and reorganization costs incurred to successfully defend
against a hostile takeover attempt and to further reorganize the remaining core
businesses have been reported in operating income under the caption nonrecurring
defense and reorganization costs.


Inventories:
      Inventories are stated at the lower of cost or market. Inventories in the
United States are primarily valued on the last-in, first-out (LIFO) cost method.
The method used for all other inventories is first-in, first-out (FIFO).
Approximately 53 percent (52 percent in 1995) of worldwide inventories are
accounted for using the LIFO method. Inventories as of October 31 consisted of
the following:

<TABLE>
<CAPTION>
                                            1996     1995
                                            ----     ----    
                                            (in thousands)
<S>                                       <C>       <C>    
       Raw materials . . . . . . . .      $21,090   $14,919
       Work in process . . . . . . .       27,353    27,677
       Finished goods. . . . . . . .        9,686     9,123
                                          -------   -------
                                          $58,129   $51,719
                                          =======   =======
</TABLE>

      If all inventories were priced using the FIFO method, which approximates
replacement cost, inventories would have been $14,603,000 higher in 1996 and
$14,371,000 higher in 1995.


<TABLE>
<CAPTION>
Intangibles:
      Intangible assets at October 31 are summarized as follows:
<CAPTION>

                                            1996     1995
                                            ----     ----
                                            (in thousands)
     <S>                                  <C>       <C>
     Goodwill, less accumulated
        amortization (1996 - $1,280,000;
           1995 - $912,000). . . . . . .  $ 8,495   $ 1,091
     Other intangibles, less accumulated
        amortization (1996 - $443,000;
           1995 - $2,213,000). . . . . .      556     1,007
                                          --------  -------
                                          $ 9,051   $ 2,098
                                          =======   =======
</TABLE>

      The excess cost over the fair value of net assets acquired (or goodwill)
generally is amortized on a straight-line basis over 20 years.

      Other intangibles, including patents, know-how and trademarks, are carried
at their appraised value on the acquisition date less accumulated amortization,
which is provided using the straight-line method over 10 to 25 years.

                                      -33-
<PAGE>   34



ITEM 8.  (Continued)

NOTE A - ACCOUNTING POLICIES (Continued)


      The deferred credit represents negative goodwill from an acquisition and
is fully amortized at October 31, 1996 (see Note K).

Properties and Depreciation:
      Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided on the straight-line method over the following
estimated useful lives:

     Buildings and improvements         20 - 35 years
     Machinery and equipment             5 - 10 years
     Furniture and fixtures              3 - 15 years


Impairment of Long-Lived Assets:
      In the event that facts and circumstances indicate that the carrying value
of intangibles and long-lived assets or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flow associated with the asset would be
compared to the asset's carrying amount to determine if a write-down is 
required.

Income Taxes:
      The Company uses the liability method in measuring the provision for
income taxes and recognizing deferred tax assets and liabilities. Deferred
income tax assets and liabilities principally arise from differences between the
tax basis of the asset or liability and its reported amount in the consolidated
financial statements. Deferred tax balances are determined by using provisions
of the enacted tax laws; the effects of future changes in tax laws or rates are
not anticipated.

      Provisions are made for appropriate income taxes on undistributed earnings
of foreign subsidiaries which are expected to be remitted to the parent company
in the near term. The cumulative amount of unremitted earnings of subsidiaries,
which aggregated approximately $64,314,000 at October 31, 1996, is deemed to be
indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries. Determination of the
amount of unrecognized deferred U.S. tax liability is not practicable because of
the complexities associated with its hypothetical calculation; however,
unrecognized foreign tax credit carryforwards would be available to reduce some
portion of the U.S. liability.


                                      -34-
<PAGE>   35

ITEM 8.  (Continued)

NOTE A - ACCOUNTING POLICIES (Continued)


Translation of Foreign Currencies:
      The financial statements of foreign entities are translated in accordance
with Financial Accounting Standards Board (FASB) Statement No. 52, except for
those entities located in highly inflationary countries. Under this method,
revenue and expense accounts are translated at the average exchange rate for the
year while asset and liability accounts are translated into U.S. dollars at the
current exchange rate. Resulting translation adjustments are recorded as a
separate component of shareholders' equity and do not affect income 
determination.

Earnings Per-Share Amounts:
      Income per share of common stock is computed using the weighted-average
number of shares outstanding for each year. The preferred stock issuances were
determined not to be common stock equivalents for primary earnings per common
share. In computing primary earnings per common share, the Series B preferred
dividends reduce income available to common shareholders.

      In computing fully diluted earnings per share, dilution is determined by
dividing net earnings by the weighted average number of common shares
outstanding during each year after giving effect to dilutive preferred stock
assumed converted to common stock. The dilutive calculation assumes conversion
of Series B preferred stock to common shares and the subsequent adjustment for
dividend rates to arrive at income available to common shareholders.

Cash Equivalents:
      The Company considers all highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents.

Investment in Reserve Contracts:
      The Company holds corporate owned life insurance contracts on most
domestic employees. The contracts are recorded at cash surrender value, net of
policy loans, in other noncurrent assets. The net contract expense, including
interest expense, is included in selling, administrative and general expenses in
the Statements of Consolidated Income. The related interest expense was
$7,715,000 in 1996, $7,973,000 in 1995, and $6,320,000 in 1994 which in each
year is reduced for contract benefits and net amortization of contract premiums
and cash surrender value.


                                      -35-

<PAGE>   36


ITEM 8.  (Continued)

NOTE A - ACCOUNTING POLICIES (Continued)

Concentration of Credit Risks:
      The Company sells products and extends credit based on an evaluation of
the customer's financial condition, generally without requiring collateral.
Exposure to losses on receivables is principally dependent on each customer's
financial condition. The Company monitors its exposure for credit losses and
maintains allowances for anticipated losses.

Use of Estimates:
      The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes.  Actual
results could differ from those estimates.

Revenue Recognition:
     Revenue is recognized when the earning process is complete and the risks
and rewards of ownership have transferred to the customer, which is generally
considered to have occurred upon shipment of the finished product.

Advertising:
      The Company expenses all advertising cost as incurred. Advertising expense
incurred during the period was immaterial.

Newly Issued Accounting Standards:
     In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," was issued. As permitted by this
statement, the Company intends to continue to account for such compensation,
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25. Adoption of the new standard in this form will have no impact on
reported income in future years. Pro forma disclosures as required by this
pronouncement will apply to stock-based awards granted on or after November 1,
1995 and will first be disclosed in financial statements for 1997.

      In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 96-1, "Environmental Remediation Liabilities." The SOP is effective for
fiscal years beginning after December 15, 1996. The SOP does not make changes to
existing accounting rules, but it clarifies how existing authoritative guidance
on loss contingencies should be applied in determining environmental
liabilities. The Company does not believe the SOP will have any material impact
on future operations. The Company will be required to report under the SOP in
financial statements for 1998.


                                      -36-
<PAGE>   37



ITEM 8.  (Continued)
<TABLE>
<CAPTION>

NOTE B - DEBT

Long-term debt obligations are summarized below:

                                            1996     1995
                                            ----     ----
                                            (in thousands)
<S>                                       <C>      <C>
Revolving credit and term
   loan agreement. . . . . . . . . . .    $91,000   $   -0-
Senior notes . . . . . . . . . . . . .        -0-    45,000
Other. . . . . . . . . . . . . . . . .      3,120     4,420
                                          -------   -------
                                           94,120    49,420
Less current portion . . . . . . . . .        705     1,233
                                          -------   -------
                                           93,415    48,187
Guarantee of employee stock ownership
   plan loan . . . . . . . . . . . . .       -0-     21,682
                                          -------   -------
                                          $93,415   $69,869
                                          =======   =======
</TABLE>

      During the third and fourth quarter of fiscal 1996, the Company entered
into a $190.0 million bridge loan agreement to fund the repurchase of 2.0
million common shares, to purchase the outstanding loans of the Company's
Employee Stock Ownership Plan ("ESOP") and to retire the $45.0 million senior
notes outstanding. Following the spin-off of CUNO Incorporated, $55.0 million of
the loan was available to CUNO Incorporated. The Company then replaced the
credit facility with a $125.0 million aggregate senior unsecured revolving
credit and $60.0 million senior unsecured term loan facilities. Losses
associated with the early retirement of debt are recorded as extraordinary
items.

      The new senior revolving credit and term loan agreement was used to
repay all outstanding debt associated with the bridge financing and is available
for up to $50.0 million for the subsequent purchase (including working capital)
of Ultra Hydraulics Limited and other general purposes. The revolving credit
facility matures 5 years from the closing date (October 31, 1996) while the term
loan's final maturity is 3.25 years. The Company pays a variable per annum fee
on the unused amount of the commitment, payable quarterly in arrears. The rate
at October 31, 1996 was 0.15 percent. The agreement has interest options
determinable by the Company based upon prime interest or LIBOR rates plus an
applicable margin. The margin was 0.5 percent at October 31, 1996. The original
draw down of the loan was at prime, which was converted to LIBOR on November 5,
1996 when the LIBOR rate was 5.9 percent. The credit agreement also has a
competitive bid option feature, which under certain conditions provides lower
interest rates. The credit agreement includes covenants which require the
maintenance of certain financial ratios. The Company was in compliance with
these covenants at October 31, 1996. Additionally, under the most restrictive
provisions of the agreement, approximately $17.6 million of unrestricted
retained earnings is available for future dividend payments or share purchases.


                                      -37-
<PAGE>   38


ITEM 8.  (Continued)

NOTE B - DEBT (Continued)


      The Company established the Employee Stock Ownership Plan (ESOP) in
February 1990. The ESOP is presently financed by 7.08 percent senior notes due
December 31, 2009. In 1996, the notes were purchased by the Company with
proceeds from the revolving credit and term loan agreement. Since the debt is
now owned and also guaranteed by the Company, it is no longer included in
long-term debt. However, deferred compensation related to the ESOP is recorded
in Shareholders' Equity. As Company contributions and dividends on the shares
held by the ESOP are used to meet interest and principal payments to the
Company, shares are released for allocation to eligible employees.

     Principal payments due in the five years after October 31, 1996 are:

                        (in thousands)

                       1997   -   $   705
                       1998   -    20,924
                       1999   -    31,452
                       2000   -     8,980
                       2001   -    31,119

     The Company had available unused lines of credit in various countries
totaling approximately $40.1 million short-term and $94.0 million long-term at
October 31, 1996.

      Outstanding bank loans at October 31, 1996 and 1995 had weighted average
interest rates of 5.4 percent and 6.5 percent, respectively.

                                      -38-
<PAGE>   39



ITEM 8.  (Continued)


NOTE C - FOREIGN CURRENCY TRANSLATION


     The cumulative effects of foreign currency translation gains and losses are
reflected in the translation adjustment section of Shareholders' Equity.

     Foreign currency transaction gains and losses, which include U.S. dollar
translation losses in Brazil, are reflected in income. Foreign currency gains
and losses have increased (decreased) income from continuing operations before
income taxes and extraordinary items as follows:

                       (in thousands)

                     1996   -   $   266
                     1995   -      (330)
                     1994   -    (1,818)


NOTE D - STOCK OPTIONS AND AWARDS


     Under the Company's stock option and award plans, approximately 1,835,300
shares of common stock are reserved for issuance to key employees as of October
31, 1996. The options are exercisable at various dates and expire ten years from
the date of grant. Stock options granted during 1996 totaled 142,000 shares. A
total of 47,250 options were forfeited during the year. Stock appreciation
rights may be granted as part of a stock option or as a separate right to the
holders of any options previously granted. The present plan also provides for
awards of restricted and performance shares of common stock to key employees.
There were 42,380 restricted shares awarded in 1996 and 43,800 restricted shares
awarded in 1995. Awards of performance shares totaled 900 in 1996 and 130,650 in
1995. When rights, options or awards are granted, associated compensation
expense is accrued from date of grant to the date such options or awards are
exercised.

      During 1996, terms of the outstanding stock option grants were amended to
offset the dilution created by the September 10, 1996 distribution of the common
stock of CUNO Incorporated to the shareholders of Commercial Intertech common
stock. The amendments, which applied to stock options outstanding as of the
distribution date, included a pro-rata reduction in the exercise price per
option and an increase in the number of shares under option, thereby restoring
option holders to the same economic position which existed prior to the
distribution. The number of options outstanding as of October 31, 1996 increased
by 591,200 shares as a result of this adjustment and no compensation expense was
charged to earnings.

                                      -39-

<PAGE>   40

ITEM 8.  (Continued)

NOTE D  STOCK OPTIONS AND AWARDS (Continued)


<TABLE>
<CAPTION>

     A summary of the activity follows for 1996 and 1995:

                                      Number   Option Price Range
                                    of Shares       Per Share
                                    ---------  ------------------
<S>                                 <C>        <C>   

Options outstanding at October 31:
   1996. . . . . . . . . . . .      1,067,473     $4.68 - $ 9.76
   1995. . . . . . . . . . . .        617,051      9.83 -  21.88

Options exercised during the year:
   1996. . . . . . . . . . . .        235,547     $9.83 - $21.88
   1995. . . . . . . . . . . .         86,536     $6.50 - $14.83

Options exercisable at October 31:
   1996. . . . . . . . . . . .        485,709     $4.68 - $ 9.76
   1995. . . . . . . . . . . .        340,376      9.83 -  15.58

</TABLE>

     Shares available for future grants amounted to approximately 767,760 and
796,550 as of October 31, 1996 and 1995, respectively.


NOTE E - BENEFIT PLANS

     The Company and its subsidiaries have a number of noncontributory defined
benefit pension plans covering most U.S. employees. Pension benefits for the
hourly employees covered by these plans are expressed as a percentage of average
earnings over a ten-year period times years of continuous service or as a flat
benefit rate times years of continuous service. Benefits for salaried employees
are based upon a percentage of the employee's average compensation during the
preceding ten years, reduced by 50 percent of the Social Security Retirement 
Benefit. The Company's funding policy is to contribute amounts to the plans
sufficient to meet the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, plus such additional amounts as may be
deemed appropriate from time to time.

     The Company also sponsors defined contribution pension plans for the hourly
employees of its operations in Benton, Arkansas; Kings Mountain, North Carolina;
and Minneapolis, Minnesota. Contributions and expense for these plans are
computed at 3 percent of annual employee compensation or at a discretionary rate
as determined each year by the Company. Hourly employees at the Orange,
California facility are covered by a multiemployer plan which provides benefits
in a manner similar to a defined contribution arrangement.


                                      -40-

<PAGE>   41

ITEM 8.  (Continued)

NOTE E  BENEFIT PLANS (Continued)


     The Company accounts for pension costs under the provisions of FASB
Statement No. 87 for contributory defined benefit pension plans covering its
employees in the United Kingdom. Benefits under these plans are generally based
on years of service and compensation during the years immediately preceding
retirement. Funding is predicated on minimum contributions as required by local
laws and regulations plus additional amounts, if any, as may be deemed
appropriate. Some employees of other foreign operations also participate in
postemployment benefit arrangements not subject to the provisions of FASB
Statement No. 87.

<TABLE>
<CAPTION>
     A summary of the various components of net periodic pension cost for
defined benefit plans and cost information for other plans for the three-year
period is shown below:

                                      1996      1995      1994
                                      ----      ----      ----
<S>                                  <C>      <C>       <C>     
                                           (in thousands)
Defined benefit plans:
   Service cost. . . . . . . . . .   $ 2,338  $  1,829  $  1,959
   Interest cost . . . . . . . . .     7,942     7,483     6,653
   Actual return on plan assets. .   (29,778)  (24,410)   (3,662)
   Net amortization and deferral .    18,299    13,526    (6,349)
                                      ------    ------    ------  
   Net pension (income). . . . . .    (1,199)   (1,572)   (1,399)

Other plans:
   Defined contribution plans. . .       463       388       356
   Multiemployer plan. . . . . . .        73        70        81
   Foreign plans . . . . . . . . .       396       367       415
   Termination benefit . . . . . .     1,639         0         0
                                      ------    ------    ------ 

   Total pension expense (income).  $  1,372  $   (747) $   (547)
                                    ========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
Assumptions used in the accounting for the defined benefit plans as of October
31 were:

                                                    1996    1995    1994
                                                    ----    ----    ----
<S>                                                 <C>     <C>     <C> 
   Weighted-average discount rate . . . . . . . . . 7.75%   7.25%   8.5%
   Rates of increase in compensation levels . . . . 5.0 %   4.5 %   4.5%
   Expected long-term rate of return on assets. . .10.0 %  10.0 %  10.0%

</TABLE>


                                      -41-
<PAGE>   42



ITEM 8.  (CONTINUED)

NOTE E  BENEFIT PLANS (CONTINUED)


     The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at October 31, 1996 and 1995 for the Company's
U.S. and foreign defined benefit pension plans. Other foreign pension plans do
not determine net assets or the actuarial present value of accumulated benefits
as calculated and disclosed herein:
<TABLE>
<CAPTION>

                                           1 9 9 6                       1 9 9 5
                                ----------------------------  ----------------------------
                                 Plans Whose    Plans Whose    Plans Whose    Plans Whose
                                Assets Exceed   Accumulated   Assets Exceed   Accumulated
                                 Accumulated     Benefits      Accumulated     Benefits
                                   Benefits    Exceed Assets     Benefits    Exceed Assets
                                -------------  -------------  -------------  -------------
<S>                             <C>            <C>            <C>            <C>      
                                                       (in thousands)

Actuarial present value of 
  benefit obligations:
  Vested benefit obligation. . . . $(84,866)     $ (6,190)       $(51,207)      $(35,841)
                                   =========     =========       =========      =========
  Accumulated benefit obligation . $(88,304)     $ (6,194)       $(53,236)      $(37,204)
                                   =========     =========       =========      =========

Projected benefit obligation . . . $(99,738)     $ (6,719)       $(57,085)      $(43,779)
Market value of plan assets. . . .  146,732         2,956          89,627         35,805
                                   ---------     ---------       ---------      ---------       

Projected benefit obligation less
   than or (in excess of) plan
   assets. . . . . . . . . . . . .   46,994        (3,763)         32,542         (7,974)
Unrecognized net (gain) loss . . .  (22,504)          643          (1,040)         4,996
Unrecognized prior service cost. .    5,309           696           2,479          1,429
Unrecognized net (asset) obligation   1,872           657          (4,528)           200
Additional liability . . . . . . .        0        (1,471)              0            (87)
                                   ---------     ---------       ---------      ---------     

Net pension asset (liability)
   recognized in the Consolidated
   Balance Sheet . . . . . . . . . $ 31,671      $ (3,238)       $ 29,453       $ (1,436)
                                   =========     =========       =========      =========
</TABLE>

     Plan assets at October 31, 1996 are invested in publicly traded and
restricted mutual funds, various corporate and government bonds, guaranteed
income contracts and listed stocks, including common stock of the Company having
a market value of $2,179,000 at that date.

     In addition to pension benefits, the Company sponsors other defined benefit
postretirement plans in the U.S. which provide medical and life insurance
benefits for certain hourly and salaried employees. Benefits are provided on a
noncontributory basis for those salaried retirees who have attained the age of
55 with 15 years of service and those hourly retirees who have attained the age
of 60 with 15 years of service or 30 years of service with no age restriction,
up to 65 years of age. Coverage is also provided for surviving spouses of hourly
retirees. Medical plans for both employee groups incorporate deductibles and
coinsurance features. The plans are unfunded, and postretirement benefit claims
and premiums are paid as incurred. Company-sponsored postretirement benefits are
not available to employees of foreign subsidiaries.


                                      -42-
<PAGE>   43

ITEM 8.  (CONTINUED)

NOTE E  BENEFIT PLANS (CONTINUED)


     Components of net periodic postretirement benefit cost are shown below. 
Net periodic cost associated with retiree life insurance benefits amounted to
$190,000 in 1996, $269,000 in 1995, and $314,000 in 1994.

<TABLE>
<CAPTION>

                                            1996    1995    1994
                                            ----    ----    ----
                                               (in thousands)
<S>                                       <C>      <C>      <C>   
Service cost. . . . . . . . . . . . . . . $   396  $   386  $  419
Interest cost . . . . . . . . . . . . . .   1,294    1,463   1,357
Actual return on plan assets. . . . . . .       0        0       0
Amortization of transition obligation . .       0        0       0
Net amortization and deferral . . . . . .     (47)     (11)     49
                                          -------  -------  ------
Net periodic postretirement benefit cost. $ 1,643  $ 1,838  $1,825
                                          ======== ======== =======

</TABLE>

     The following table shows the aggregated funded status of the benefit plans
reconciled with amounts recognized in the Company's Consolidated Balance Sheets.
The accrued postretirement cost associated with retiree life insurance benefits
amounted to $3,429,000 and $3,410,000 as of October 31, 1996 and 1995,
respectively.

<TABLE>
<CAPTION>

                                                       OCTOBER 31,
                                                       -----------
                                                      1996       1995
                                                      ----       ----
                                                       (in thousands)
<S>                                                 <C>        <C>
Accumulated postretirement benefit obligations:
   Retirees. . . . . . . . . . . . . . . . .        $ (7,833)  $ (7,897) 
   Fully eligible active plan participants .          (3,553)    (3,462) 
   Other active plan participants. . . . . .          (5,849)    (7,269) 
                                                    ---------  --------- 
                                                     (17,235)   (18,628) 
 Plan assets at fair value. . . . . . . . . .              0          0  
Accumulated postretirement benefit                                       
   obligation (in excess of) plan assets . .         (17,235)   (18,628) 
Unrecognized net (gain) loss . . . . . . . .            (772)       771  
Unrecognized prior service (asset) . . . . .            (471)         0  
Unrecognized transition obligation . . . . .               0          0  
                                                    ---------  --------  
                                                                         
(Accrued) postretirement benefit cost. . . .        $(18,478)  $(17,857) 
                                                    =========  ========= 
                                                                         

</TABLE>
                                      -43-

<PAGE>   44



ITEM 8.  (CONTINUED)

NOTE E  BENEFIT PLANS(CONTINUED)

     The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits in the medical plans, or health care cost trend rate, was
9.5 percent for 1996 and 10.0 percent for 1995. The trend rate is assumed to
decrease gradually from 9.0 percent in 1997 to 5.5 percent in the year 2004 and
remain at that level thereafter. Increasing the assumed health care cost trend
rate by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of October 31, 1996 by $1,635,500 and the
aggregate of service and interest cost components of net periodic postretirement
benefit cost for 1996 by $189,000. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7.75 percent
and 7.25 percent at October 31, 1996 and 1995, respectively. The annual assumed
rate of salary increase for retiree life insurance is 5.0 percent and 4.5
percent at October 31, 1996 and October 31, 1995, respectively.

<TABLE>
NOTE F - INCOME TAXES

     The components of income from continuing operations before income taxes and
extraordinary items and the provision for income taxes are summarized as
follows:
<CAPTION>

                                        1996     1995     1994
                                        ----     ----     ----
                                            (in thousands)
<S>                                    <C>      <C>      <C>    
Income from continuing operations
   before income taxes and
   extraordinary items
      Domestic . . . . . . . . . . . . $ 8,466  $20,717  $21,170
      Foreign  . . . . . . . . . . . .  15,272    9,662    4,590
                                       -------- -------- -------
                                        23,738   30,379   25,760
Provision for income taxes
   Current
      Domestic-Federal . . . . . . . .   6,261    6,258    5,988
              -State and local . . . .   1,294      374    1,780
      Foreign. . . . . . . . . . . . .   4,242    2,053    2,782
                                       -------- -------- -------
                                        11,797    8,685   10,550
   Deferred
      Domestic-Federal . . . . . . . .  (2,687)    (699)    (266)
              -State and local . . . .    (510)    (177)    (126)
      Foreign. . . . . . . . . . . . .     704    1,267     (118)
                                       -------- -------- --------
                                        (2,493)     391     (510)
   Benefit of operating loss
      carryforwards. . . . . . . . . .    (922)  (2,979)  (2,092)
                                       -------- -------- --------
                                         8,382    6,097    7,948
Income from continuing operations
  before extraordinary items
      Domestic . . . . . . . . . . . .   4,108   14,961   13,794
      Foreign. . . . . . . . . . . . .  11,248    9,321    4,018
                                       -------- -------- -------
                                       $15,356  $24,282  $17,812
                                       ======== ======== ========
</TABLE>

<PAGE>   45

ITEM 8.  (Continued)

NOTE F - INCOME TAXES (CONTINUED)

<TABLE>
<CAPTION>
     A reconciliation of the effective tax rate to the U.S. statutory rate
follows:

                                                    1996   1995   1994
                                                    ----   ----   ----
<S>                                                 <C>    <C>    <C>  
   Statutory U.S. federal income tax rate. . . . .  35.0%  35.0%  35.0%
   State and local taxes on income net of
     domestic income tax benefit . . . . . . . . .   2.4     .4    4.2
   (Decrease) increase in effective rate due
     to impact of foreign subsidiaries . . . . . .  (1.7)   (.2)   4.1
   Benefit of operating loss carryforwards . . . .  (3.9)  (9.8)  (8.1)
   Repatriation of foreign earnings. . . . . . . .   5.1    1.2     .4
   Nonrecurring defense costs. . . . . . . . . . .   8.0      0      0
   Reserve contracts . . . . . . . . . . . . . . .  (7.8)  (7.2)  (5.4)
   Stock options exercised . . . . . . . . . . . .  (2.4)   (.4)   (.7)
   Goodwill with no U.S. tax benefit . . . . . . .    .6     .6     .5
   All other . . . . . . . . . . . . . . . . . . .     0     .5     .9
                                                    -----  -----  ----

     Effective income tax rate . . . . . . . . . .  35.3%  20.1%  30.9%
                                                    =====  =====  =====
</TABLE>


<TABLE>
<CAPTION>
Significant components of the Company's deferred income tax liabilities and
assets as of October 31, are as follows:

                                                          
                                                    1996      1995     1994
                                                    ----      ----     ----
                                                        (in thousands)    
<S>                                                <C>      <C>      <C>    
   Deferred income tax liabilities:
      Tax over book depreciation. . . . . . . . .  $ 8,512  $ 8,215  $ 7,920
      Prepaid pension asset . . . . . . . . . . .   12,615   11,555   10,502
      United Kingdom property sale. . . . . . . .    1,400    1,360    1,407
      Other . . . . . . . . . . . . . . . . . . .      387      383       93
                                                   -------- -------  -------
         Total deferred income tax liabilities. .   22,914   21,513   19,922
   Deferred income tax assets:
      Postretirement benefits . . . . . . . . . .    7,248    7,032    6,769
      Employee benefits . . . . . . . . . . . . .    6,241    5,404    5,019
      Net operating loss carryforwards. . . . . .   54,047   65,037   55,308
      Inventory valuation . . . . . . . . . . . .    1,222    1,504      952
      Product liability . . . . . . . . . . . . .    4,237    3,484    2,575
      Other . . . . . . . . . . . . . . . . . . .    3,986    1,616    2,524
                                                   -------- -------  -------
         Total deferred income tax assets . . . .   76,981   84,077   73,147

      Valuation allowance for deferred income tax
         assets . . . . . . . . . . . . . . . . .   54,047   65,037   55,308
                                                   -------- -------  -------
         Net deferred income tax assets . . . . .   22,934   19,040   17,839
                                                   -------- -------  -------  
         Net deferred income tax (assets)
           liabilities. . . . . . . . . . . . . .  $   (20) $ 2,473  $ 2,083
                                                   ======== =======  =======

</TABLE>


                                      -45-
<PAGE>   46



ITEM 8.  (CONTINUED)

NOTE F - INCOME TAXES (CONTINUED)

     The valuation allowance has decreased by $10,990,000 in 1996, and increased
by $9,729,000 in 1995 and $55,308,000 in 1994. The decrease in fiscal 1996 is
the result of tax audits on years prior to the acquisition of ORSTA Hydraulik.
At October 31, 1996, the Company also had unused foreign tax credit carryovers
of approximately $4,432,000 of which $672,000 will expire in 1998, $1,603,000 in
1999, and the balance will expire in the year 2001.

     Tax benefits from operating loss carryforwards relate to the ORSTA
Hydraulik operations acquired in 1994 which are available indefinitely.


                                      -46-
<PAGE>   47


<TABLE>
<CAPTION>

ITEM 8.  (CONTINUED)

NOTE G - QUARTERLY DATA (UNAUDITED)

                     1996                                 First        Second        Third          Fourth         total
--------------------------------------------------------------------------------------------------------------------------
                                                          (in thousands, except per-share amounts)

<S>                                                     <C>           <C>           <C>           <C>            <C>     
Net sales.........................................      $106,962      $112,227      $121,009      $125,011       $465,209
Gross profit......................................        26,853        28,960        32,299        36,104        124,216
Income from continuing operations
   before extraordinary items ....................         3,402         4,392         3,199         4,363         15,356
Income from discontinued operations ..............         1,851         3,251           630           351          6,083
Extraordinary items ..............................             0             0             0        (4,044)        (4,044)
Net income .......................................         5,253         7,643         3,829           670         17,395
Earnings per share:
   Primary:
     Income from continuing operations
        before extraordinary items ...............      $   0.18      $   0.25      $   0.17      $   0.28       $   0.87
     Income from discontinued operations .........          0.12          0.21          0.05          0.02           0.40
     Extraordinary items .........................          0.00          0.00          0.00         (0.29)         (0.26)
     Net Income ..................................          0.30          0.46          0.22          0.01           1.01
   Fully diluted:
     Income from continuing operations
        before extraordinary items ...............          0.18          0.24          0.17          0.26           0.83
     Income from discontinued operations .........          0.11          0.19          0.04          0.02           0.36
     Extraordinary items .........................          0.00          0.00          0.00         (0.25)         (0.24)
     Net Income ..................................          0.29          0.43          0.21          0.01           0.95

Dividends per common share .......................          0.135         0.135         0.135         0.135          0.540
</TABLE>

<TABLE>
<CAPTION>

                     1995                                 First        Second        Third          Fourth         total
--------------------------------------------------------------------------------------------------------------------------
                                                          (in thousands, except per-share amounts)

<S>                                                     <C>           <C>           <C>           <C>            <C>     
Net sales.........................................      $ 97,594      $114,335      $119,261      $127,947       $459,137
Gross profit .....................................        27,526        30,291        31,355        32,843        122,015
Income from continuing operations ................         4,704         6,066         6,974         6,538         24,282
Income from discontinued operations ..............         1,416         1,241         1,419         2,025          6,101
Net income .......................................         6,120         7,307         8,393         8,563         30,383
Earnings per share:
   Primary:
     Income from continuing operations ...........      $   0.27      $   0.35      $   0.41      $   0.39       $   1.42
     Income from discontinued
       operations ................................          0.09          0.08          0.09          0.13           0.40
     Net income ..................................          0.36          0.43          0.50          0.52           1.82

   Fully diluted:
     Income from continuing operations ...........          0.26          0.34          0.39          0.37           1.35
     Income from discontinued
       operations ................................          0.08          0.07          0.08          0.12           0.37
     Net income ..................................          0.34          0.41          0.47          0.49           1.72


Dividends per common share .......................          0.125         0.125         0.125         0.135          0.510
</TABLE>

                                      -47-
<PAGE>   48



ITEM 8.  (CONTINUED)

NOTE G - QUARTERLY DATA (UNAUDITED) (CONTINUED)


      The Company incurred charges of $3,637,000 or $.21 per share during the
third quarter of 1996 and $3,452,000 or $.21 per share (net of tax) during the
fourth quarter to successfully defend itself against a hostile takeover attempt
and to further reorganize the remaining core business of the Company following
the September 10, 1996 spin-off of CUNO Incorporated. The Company also recorded
extraordinary charges of $4,044,000 or $.24 per share in the fourth quarter of
1996 for losses associated with early retirement of debt.

      Gains on the sale of assets were recorded during the fiscal year,
principally related to assets located in Germany and the United Kingdom.
After tax gains were as follows:

        First quarter  - $241,000 or $0.01 per share;
        Second quarter - $320,000 or $0.02 per share and
        Third quarter  - $906,000 or $0.05 per share of fiscal 1996

      Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share does not
necessarily equal the total for the year.


NOTE H - PRODUCT DEVELOPMENT COSTS

     The Company maintains ongoing development programs at various facilities to
formulate, design and test new products and product alternatives, and to further
develop and significantly improve existing products. The Company intends to
continue substantial expenditures on research and development in this area.
Costs associated with these activities, which the Company expenses as incurred,
are shown below:

<TABLE>
<CAPTION>

                                    1996      1995      1994
                                    ----      ----      ----
                                            (in thousands)
<S>                               <C>       <C>       <C>    
     Research and Development. . .$ 5,897   $ 5,966   $ 5,409
     Engineering . . . . . . . . . 12,885    11,885     8,548
                                  -------   -------   -------
                                  $18,782   $17,851   $13,957
                                  =======   =======   =======

     Percent of net sales. . . . .  4.0%      3.9%      3.7%
                                    ====      ====      ====
</TABLE>


                                      -48-

<PAGE>   49



ITEM 8.  (CONTINUED)

NOTE I - SEGMENT REPORTING

     The Company is engaged in the design, manufacture and sale of products
in two segments:  Hydraulic Systems and Building Systems and Metal Products.

     Operating income represents total revenue less total operating expenses.
Identifiable assets are those assets used in the operations of each business
segment or geographic area or which are allocated when used jointly. Corporate
assets are principally cash and cash equivalents, and receivables from
discontinued operations.

<TABLE>
<CAPTION>
INDUSTRY SEGMENTS
(in thousands)                               Building
                                              Systems  Nonrecurring
                                                And      Defense &
                                   Hydraulic   Metal  Reorganization
     1996                           Systems   Products    Costs       Total
----------------------------------------------------------------------------
<S>                                <C>        <C>       <C>         <C>     
Net sales. . . . . . . . . . . . . $294,337   $170,872  $      0    $465,209
Operating income . . . . . . . . .   19,624     15,793    (8,202)     27,215
Interest expense . . . . . . . . .                                     7,083
Other income - net . . . . . . . .                                     3,606
Income from continuing operations
   before income taxes and
   extraordinary items . . . . . .                                    23,738
Identifiable assets. . . . . . . .  213,790     79,596         0     293,386
Corporate assets . . . . . . . . .                                    43,730
Total assets . . . . . . . . . . .                                   337,116
Depreciation and amortization. . .    9,241      2,935         0      12,176
Capital expenditures . . . . . . .   13,851      3,861         0      17,712

     1995
----------------------------------------------------------------------------
Net sales. . . . . . . . . . . . . $285,679   $173,458  $      0    $459,137
Operating income . . . . . . . . .   24,308     10,037         0      34,345
Interest expense . . . . . . . . .                                     6,238
Other income - net . . . . . . . .                                     2,272
Income from continuing operations
   before income taxes . . . . . .                                    30,379
Identifiable assets. . . . . . . .  194,746     88,569         0     283,315
Corporate assets . . . . . . . . .                                   119,364
Total assets . . . . . . . . . . .                                   402,679
Depreciation and amortization. . .    7,932      3,088         0      11,020
Capital expenditures . . . . . . .   28,110      3,599         0      31,709

     1994
----------------------------------------------------------------------------
Net sales. . . . . . . . . . . . . $240,830   $132,990  $      0    $373,820
Operating income . . . . . . . . .   19,666     10,127         0      29,793
Interest expense . . . . . . . . .                                     4,262
Other income - net. . . . . . . .                                        229
Income from continuing operations
   before income taxes . . . . . .                                    25,760
Identifiable assets. . . . . . . .  171,295     65,734         0     237,029
Corporate assets . . . . . . . . .                                   133,566
Total assets . . . . . . . . . . .                                   370,595
Depreciation and amortization. . .    6,724      2,604         0       9,328
Capital expenditures . . . . . . .   16,540      2,696         0      19,236
</TABLE>

                                      -49-
<PAGE>   50

ITEM 8.  (CONTINUED)

NOTE I - SEGMENT REPORTING (CONTINUED)

     In the following table, data in the column labeled "Europe" pertains to
subsidiaries operating within the European Economic Community. Data for all
remaining overseas subsidiaries is shown in the column marked "Other."
<TABLE>
<CAPTION>

GEOGRAPHIC AREA
(in thousands)
                                                    Eliminations
                                                        and
                          United                     Corporate
     1996                 States   Europe     Other    Items     Consolidated
-----------------------------------------------------------------------------
<S>                     <C>       <C>       <C>       <C>        <C>     
Sales to customers. . . $252,414  $190,919  $ 21,876                $465,209
Inter-area sales. . . .    6,855     6,826       918  $ 14,599
                        -----------------------------------------------------
Total sales . . . . . .  259,269   197,745    22,794    14,599       465,209
Operating income. . . .   28,501     5,503     1,413     8,202        27,215
Identifiable assets . .  150,795   133,661     8,930         0       293,386


     1995
-----------------------------------------------------------------------------
Sales to customers. . . $254,533  $180,335  $ 24,269                $459,137
Inter-area sales. . . .    9,803     5,465     1,326  $ 16,594
                        -----------------------------------------------------
Total sales . . . . . .  264,336   185,800    25,595    16,594       459,137
Operating income. . . .   29,193     3,222     1,930         0        34,345
Identifiable assets . .  126,864   146,318    10,133         0       283,315

     1994
-----------------------------------------------------------------------------
Sales to customers. . . $218,397  $139,007  $ 16,416                $373,820
Inter-area sales. . . .    8,604     2,944     1,337  $ 12,885
                        -----------------------------------------------------
Total sales . . . . . .  227,001   141,951    17,753    12,885       373,820
Operating income. . . .   27,704        86     2,003         0        29,793
Identifiable assets . .   90,102   138,014     8,913         0       237,029

</TABLE>

     Net assets of foreign subsidiaries at October 31, 1996 and 1995 were
$85,708,000 and $71,483,000, respectively, of which net current assets were
$50,517,000 and $52,859,000, also respectively.


                                      -50-

<PAGE>   51

ITEM 8.  (CONTINUED)

NOTE J - FAIR VALUES OF FINANCIAL INSTRUMENTS

     The following methods and assumptions were used by the Company in
estimating its fair value disclosures of financial instruments:

     Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate fair value.

     Long and short-term debt: The carrying amounts of the Company's borrowings
under its short-term credit agreements approximate their fair value. The fair
values of the long-term debt are estimated using discounted cash flow analysis,
based on the Company's incremental borrowing rates for similar types of
borrowing arrangements.

     Foreign currency exchange contracts: The Company utilizes foreign currency
exchange contracts to minimize the impact of currency fluctuations on
transactions. At October 31, 1996 and 1995, the Company held contracts for
$2,100,000 and $8,978,000 respectively, with fair values of $2,051,000 and
$8,908,000, also respectively. The fair values of these foreign currency
exchange contracts are estimated based on quoted exchange rates at October 31,
1996 and 1995.

     The carrying amounts and fair values of the Company's financial instruments
at October 31 are as follows:
<TABLE>
<CAPTION>

                                 1996                  1995
                            ----------------     ------------------
(IN THOUSANDS)              CARRYING   FAIR      CARRYING     FAIR
                             AMOUNT    VALUE      AMOUNT      VALUE
                            --------   -----     --------    ------
<S>                         <C>       <C>        <C>       <C>     
Cash and cash equivalents.. $ 27,552  $ 27,552   $ 32,949  $ 32,949
Short-term debt............    2,745     2,745      9,285     9,285

Long-term debt:
  Revolving credit and
    term loan.............. $ 91,000  $ 91,000   $      0  $      0
  Senior notes.............        0         0     45,000    47,667
  Industrial revenue loans.    1,315     1,340      3,533     3,596
  Other....................    1,805     1,662        887       912
                            --------- ---------  --------- --------
                              94,120    94,002     49,420    52,175
  ESOP guarantee...........        0         0     21,682    22,440
                            --------- ---------- --------- --------
                            $ 94,120  $ 94,002   $ 71,102  $ 74,615
                            ========= =========  ========= ========

</TABLE>

     From time to time, the Company makes loans to its foreign subsidiaries
denominated in the subsidiaries' functional currencies. Generally, these loans
are made when the Company can borrow at lower interest rate spreads than are
available to the subsidiary in its local market. Foreign currency forward
contracts are used to hedge the Company's receipt of principal and interest due
from the loans. The forward contracts are an effective hedge against
fluctuations in the value of the foreign currency. Therefore, the contracts have
no income statement impact.


                                      -51-
<PAGE>   52

ITEM 8.  (CONTINUED)

NOTE K - ACQUISITIONS



COMPONENT ENGINEERING COMPANY

      Effective June 28, 1996, the Company acquired the assets of Component
Engineering Company, a manufacturer of cartridge type hydraulic valves based in
Chanhassen, Minnesota. The acquisition was accounted for as a purchase
transaction, and therefore, included in the accompanying financial statements
since the acquisition date. Pro forma financial results are not provided herein
because the impact of sales and net earnings on consolidated amounts is
immaterial.

HALL F&D HEAD COMPANY

     Effective January 31, 1995, the Company acquired the assets of Hall F&D
Head Company, a producer of medium and large diameter bump and spun metal
products, located in Saginaw, Texas. The acquisition was accounted for as a
purchase transaction, and therefore, included in the accompanying financial
statements since the acquisition date.

ORSTA HYDRAULIK

     Effective May 3, 1994 (the "acquisition date"), the Company acquired the
stock of Sachsenhydraulik Chemnitz GmbH ("SHC") and its wholly owned subsidiary
(Hydraulik Rochlitz GmbH), which are known as ORSTA Hydraulik. ORSTA is a
manufacturer of hydraulic cylinders, piston and gear pumps and industrial
valves. The stock was acquired from the Treuhandanstalt, the regulatory agency
of the Federal Republic of Germany responsible for the privatization of the
former East German state-owned enterprises. The acquisition has been accounted
for as a purchase transaction; therefore, the accounts are included in the
accompanying financial statements since the acquisition date.


                                      -52-
<PAGE>   53


ITEM 8.  (CONTINUED)

NOTE K - ACQUISITIONS (CONTINUED)

     Under terms of the Agreement, the Company tendered no financial
consideration to acquire the stock of SHC and its wholly owned subsidiary but
received, in addition to the net business assets of the two companies, cash
contributions of 59.0 million Deutsche marks (approximately U.S. $36.0 million)
to fund pre-existing capital investment programs and to cover estimated
operating losses over a period of two years. This additional consideration was
negotiated with the Treuhandanstalt based on the financial position of the
acquired companies as of January 1, 1994 (the "measurement date"). Cash
contributions available to the Company on the acquisition date were adjusted for
funds consumed by the operations during the interim period between the
measurement and acquisition dates. Details of investment on the acquisition date
are as follows:
<TABLE>
<CAPTION>

                                             (in thousands)
                                             --------------
<S>                                             <C>     
     Fair value of assets acquired,
        other than cash and cash equivalents    $ 31,836
     Liabilities assumed                         (19,333)
     Deferred credit - operating loss
        indemnification                          (23,643)
                                                 ------- 

     Cash and cash equivalents acquired         $ 11,140
                                                ========
</TABLE>

     In addition to the cash acquired at the acquisition date, a balance of 44.1
million Deutsche marks (approximately U.S. $28.5 million) was received from the
Treuhandanstalt in regard to the original cash contribution during fiscal 1995
and 1994. Of the funds provided by the Treuhandanstalt since the acquisition
date, 39.1 million Deutsche marks (approximately U.S. $26.2 million) were
consumed by operating losses from May 3, 1994 to April 30, 1996 and 27.7 million
Deutsche marks (approximately U.S. $19.0 million) were used to fund the
pre-existing capital investment program.

     The Company agreed to the following obligations and guarantees with respect
to the operation of the acquired businesses:

     a)  to maintain a minimum employment level for a period
         of three years; the level stipulated by the Agreement
         is considered by the Company to be reasonable and
         necessary for the intended use of the business,

     b)  to invest 39.0 million Deutsche marks (approximately
         U.S. $23.6 million) in capital programs over a period
         of four years,

     c)  to continue to operate the businesses for a minimum
         of five years, and

     d)  to refrain from selling or transferring acquired land
         and buildings for a period of six years.


                                      -53-

<PAGE>   54



ITEM 8.  (CONTINUED)

NOTE K - ACQUISITIONS (CONTINUED)

     Of the total 59.0 million Deutsche mark cash contribution received (as
calculated on the measurement date of January 1, 1994), 51.5 million Deutsche
marks was designed as an indemnification of estimated operating losses over a
period of two years from acquisition. The amount of operating loss
indemnification available to the Company was adjusted for cash consumed by the
ORSTA operations between the measurement date and the acquisition date. The
operating loss indemnification is being amortized based on estimated operating
results of the ORSTA Hydraulik operations as determined on May 3, 1994. The
quarterly amortization value was translated from Deutsche marks into U.S.
dollars at the average exchange rate for the period. The deferred credit on the
balance sheet was translated at the end-of-period rate.
<TABLE>
<CAPTION>

     Negative Goodwill Amortization:

Fiscal Quarters               Deutsche Marks  U.S. Dollars
---------------               --------------  ------------
<S>                           <C>             <C>     
                                     (in thousands)
Amounts Amortized
-----------------
FISCAL 1994
   Third quarter              DM   3,297        $  2,044
   Fourth quarter                  7,015           4,422
                                 -------        --------
      TOTAL FISCAL 1994       DM  10,312           6,466

FISCAL 1995
   First quarter              DM   6,855           4,419
   Second quarter                  6,500           4,470
   Third quarter                   5,410           3,879
   Fourth quarter                  4,745           3,327
                                 -------        --------
      TOTAL FISCAL 1995       DM  23,510          16,095

FISCAL 1996
   First quarter              DM   3,745           2,617
   Second quarter                  1,504           1,017
                              ----------        --------
      TOTAL FISCAL 1996       DM   5,249           3,634
                              ----------        --------

        TOTAL AMORTIZED       DM  39,071        $ 26,195
                              ==========        ========
</TABLE>



                                      -54-
<PAGE>   55



ITEM 8.  (CONTINUED)

NOTE K - ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>

     ORSTA Hydraulik income statement for the years ended October 31, 1996 and
1995 follows:

                                             1996        1995
                                             ----        ----
                                              (in thousands)

        <S>                                <C>         <C>
        Sales                              $ 38,181    $ 35,846
        Cost of products sold                40,165      41,918
        Less:  negative goodwill             (3,634)    (16,095)
                                           ---------   ---------
           Total cost of products sold       36,531      25,823
                                           ---------   --------
        Gross profit                          1,650      10,023
        Selling, administrative and
           general expense                    9,443      12,234
                                           ---------   --------
        Operating loss                     $  7,793    $  2,211
                                           =========   ========

</TABLE>

NOTE L - PREFERRED STOCK

     The Company has two separate series of preferred shares:

Series A Participating Preferred Shares
---------------------------------------

     The Series A Participating Preferred Shares (the Series A) and related
Shareholder Rights Plan (the Plan) are designed to protect shareholders from the
disruptions created by market accumulators and certain abusive takeover
practices. The Plan provides for the distribution of one preferred share
purchase right as a dividend for each outstanding share of common stock. Each
right, when exercisable, entitles shareholders to buy one one-hundredth of a
share of the Series A preferred stock for $75. Each one one-hundredth of a share
of preferred stock is intended to be the practical economic equivalent of a
share of common stock and will have one one-hundredth of a vote on all matters
submitted to a vote of shareholders of the Company. Until the rights become
exercisable, they have no dilutive effect on earnings per share.

     The rights may be exercised, in general, only if a person or group acquires
20 percent or more of the common stock without the prior approval of the Board
of Directors of the Company or announces a tender or exchange offer that would
result in ownership of 20 percent or more of the common stock. In the event of
the acquisition of 20 percent or more of the common stock without the prior
approval of the Board, all rights holders except the acquirer may purchase the
common stock of the Company having a value of twice the exercise price of the
rights. If the Company is acquired in a merger, after the acquisition of 20
percent of the voting power of the Company, rights holders except the acquirer
may purchase shares in the acquiring company at a similar discount. The Plan was
not adopted in response to any pending takeover proposal, and the rights will
expire on November 29, 1999.


                                      -55-
<PAGE>   56
ITEM 8.  (CONTINUED)

NOTE L - PREFERRED STOCK (CONTINUED)


Series B ESOP Convertible Preferred Stock
-----------------------------------------

     During 1990, the Company established two newly-formed leveraged employee
stock ownership plans (the ESOPs) and sold to the ESOPs 1,074,107 shares of a
newly created cumulative ESOP Convertible Preferred Stock Series B (the Series
B) for a total of $24,973,000. The ESOPs currently cover most domestic salaried
employees and certain domestic hourly employees. The remaining Series B shares
are convertible into 3,142,615 shares of common stock at any time (3.023 shares
of common stock for each Series B share), subject to anti-dilution adjustments.
The Series B shares are entitled to one vote per share and will vote together
with the common stock as a single class. The Series B shares are held by a
trustee which votes the allocated shares as directed by Plan participants.
Unallocated shares held by the trustee are voted in the same proportion as are
the allocated shares. Annual dividends are $1.97625 per share. The ESOPs have
borrowed to purchase the Series B shares, and the Company guaranteed the
repayment of the remaining outstanding balance of that loan.

     The Company paid to the ESOPs $2,061,000 in 1996 ($2,084,000 in 1995 and
$2,097,000 in 1994) in preferred stock dividends and accrued or paid an
additional $1,907,000 in 1996, ($1,787,000 in 1995 and $1,310,000 in 1994) in
Company match of employees' contributions to the plan and to cover amounts
sufficient to meet the debt service. These expenses were determined on the
shares allocated method. In turn, the ESOPs made debt service payments of
$2,362,000 in 1996 ($2,364,000 in 1995, and $2,366,000 in 1994) primarily for
interest charges.

      The number of ESOP shares outstanding at October 31 are as follows:
<TABLE>
<CAPTION>

                                        1996      1995
                                        ----      ----
                                        (in thousands)
<S>                                      <C>       <C>
     Allocated shares.................   283       242

     Committed-to-be-released
        shares........................    54        54

     Suspense shares..................   703       758
                                       -----     -----
        TOTAL ESOP SHARES............. 1,040     1,054
                                       =====     =====

</TABLE>



                                      -56-


<PAGE>   57



ITEM 8.  (CONTINUED)

NOTE M - SUBSEQUENT EVENT

      On November 18, 1996, the Company reported it acquired all of the
outstanding common stock of Ultra Hydraulics Limited through its wholly-owned
subsidiary, Commercial Intertech Limited, located in the United Kingdom. Ultra
Hydraulics is headquartered near Gloucester, England and employs more than 300
men and women in the United Kingdom and the United States. Commercial Intertech
will account for the stock acquisition of Ultra as a purchase. The initial
purchase price for the stock of Ultra is approximately $43.0 million and is
subject to adjustments based upon audit.

      Ultra Hydraulics Limited serves the mobile equipment market primarily in
the United Kingdom, Europe, the United States and the Far East. Major customers
include manufacturers of material handling, turf care, construction,
transportation and compaction equipment. Ultra's products complement and extend
the range of pumps, motors and valves now offered by Commercial.


                                      -57-
<PAGE>   58




ITEM 8. (CONTINUED)

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS



Shareholders and Board of Directors
Commercial Intertech Corp.
Youngstown, Ohio

We have audited the accompanying consolidated balance sheets of Commercial
Intertech Corp. and subsidiaries as of October 31, 1996 and 1995, and the
related statements of consolidated income, shareholders' equity and cash flows
for each of the three years in the period ended October 31, 1996. Our audits
also included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Commercial
Intertech Corp. and subsidiaries at October 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended October 31, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.


                                                  /s/Ernst & Young LLP

Cleveland, Ohio
December 9, 1996



                                      -58-
<PAGE>   59






ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
           ACCOUNTING AND FINANCIAL DISCLOSURE.

                N/A

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Regarding the directors of the Registrant, reference is made to the
information set forth under the caption "Election of Directors" in the company's
definitive Proxy Statement filed January 21, 1997, which information is
incorporated by reference herein.

      The principal executive officers of the Company and their recent business
experience are as follows:

       NAME                      OFFICE HELD                      AGE
       ----                      -----------                      ---

Paul J. Powers. . . . . . . Chairman of the Board of the          61
                               Board of Directors, President
                               and Chief Executive Officer

Steven J. Hewitt. . . . . . Senior Vice President and Chief       47
                               Financial Officer

Bruce C. Wheatley . . . . . Senior Vice President-Administration  55

Robert A. Calcagni. . . . . Group Vice President-Building         56
                               Systems and Metal Products

John Gilchrist. . . . . . . Group Vice President-Hydraulic        51
                               Systems

Gilbert M. Manchester . . . Vice President and General Counsel    52

Kenneth E. Stumbaugh . . .  Controller                            50



      None of the officers are related and they are elected from year to year or
until their successors are duly elected and qualified.

      All of the Executive Officers have been continuously employed by the
Company for more than five years except Mr. Bruce Wheatley.

      Mr. Wheatley became an employee of Commercial Intertech Corp. in July of 
1992. Before joining Commercial, Mr. Wheatley's experience includes, Senior
Vice President of Marketing and Public Affairs of The PIE Mutual Insurance
Company and President of Dix & Eaton/Public Relations.


                                      -59-
<PAGE>   60


PART III - (Continued)


ITEM 11.  EXECUTIVE COMPENSATION

      Reference is made to the information set forth under the caption
"Executive Compensation" appearing in the Company's definitive Proxy Statement
filed January 21, 1997, which information is incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT

      Reference is made to the information contained under the captions
"Security Ownership of Board of Directors and named Executives" and "Security
Ownership of Certain Beneficial Owners" in the Company's definitive Proxy
Statement filed January 21, 1997, which information is incorporated herein by
reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Reference is made to the information contained under the caption
"Compensation of Directors" in the Company's definitive Proxy Statement filed
January 21, 1997, which information is incorporated herein by reference.


                                      -60-
   
<PAGE>   61




                                     Part IV


ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

           (A)  DOCUMENTS FILED AS PART OF THIS REPORT:

           (1)  The following consolidated financial statements of Commercial 
                Intertech Corp. and Subsidiaries are included in Item 8:

                                                         Page Number
                                                        In This Report
                                                        --------------

           Statements of Consolidated Income - Years
             ended October 31, 1996, 1995 and 1994. . .      27
           Consolidated Balance Sheets as of
             October 31, 1996 and 1995. . . . . . . . .   28 and 29
           Statements of Consolidated Shareholders'
             Equity - Years ended October 31, 1996,
             1995, and 1994 . . . . . . . . . . . . . .      30
           Statements of Consolidated Cash Flows -
             Years ended October 31, 1996, 1995,
             and 1994 . . . . . . . . . . . . . . . . .      31
           Notes to Consolidated Financial Statements .   32 - 57
           Report of Independent Auditors . . . . . . .      58


           (2)  The following consolidated financial statement
                schedule of Commercial Intertech Corp. and
                Subsidiaries are included in Item 14(d):

           Schedule II Valuation and Qualifying
             Accounts . . . . . . . . . . . . .. . . . .     S-1

      All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.


                                      -61-
<PAGE>   62



PART IV (Continued)

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
          (Continued)

     (3)  Exhibits

          3 -- Articles of Incorporation Filed as of April 17, 1992
               (Incorporated by reference to Exhibit I to the Company's Annual
               Report on Form 10-K for the year ended October 31, 1992)

         10 -- Material Contracts

               Exhibits

               10.18  Employment Agreement - Paul J. Powers dated July 27, 1994
                      - (Incorporated by reference to Exhibit 18 filed with
                      Registrant's Form 10-K for the year ended October 31,
                      1994.

               10.19 Termination and Change of Control Agreement
                      - Paul J. Powers dated October 1, 1996

               10.20 Termination and Change of Control Agreement
                      - Bruce C. Wheatley dated October 1, 1996

               10.21 Termination and Change of Control Agreement
                      - Steven J. Hewitt dated December 1, 1996

               10.22 Termination and Change of Control Agreement
                      - John Gilchrist dated October 1, 1996

               10.23 Termination and Change of Control Agreement
                      - Robert A. Calcagni dated October 1, 1996

               10.24 Termination and Change of Control Agreement
                      - Gilbert M. Manchester dated October 1, 1996

               10.25 Termination and Change of Control Agreement
                      - Kenneth E. Stumbaugh dated October 1, 1996

               10.26 Form of Distribution and Interim Service Agreement
                      by and between CUNO Incorporated and
                      Commercial Intertech Corp., incorporated by
                      reference to Exhibit 10.4 to the Form 10 of
                      CUNO Incorporated (as filed with Amendment No. 2
                      thereto dated August 20, 1996) (File No. 0-21109)


               10.27 Form of Tax Sharing Agreement by and between
                      CUNO Incorporated and Commercial Intertech Corp.,
                      incorporated by reference to Exhibit 10.5 to the
                      Form 10 of CUNO Incorporated (as filed with
                      Amendment No. 2 thereto dated August 20, 1996)
                      (File No. 0-21109)

                                      -62-
<PAGE>   63


PART IV (Continued)

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K


               10.28  Form of Employee Benefits and Compensation Allocation
                      Agreement by and between CUNO Incorporated and Commercial
                      Intertech Corp., incorporated by reference to Exhibit 10.6
                      to the Form 10 of CUNO Incorporated (as filed with
                      Amendment No. 2 thereto dated August 20, 1996) (File No.
                      0-21109)


          Additional information relating to management contracts and
          renumerative plans is contained in Note D - Stock Options and Awards
          of the Notes to Consolidated Financial Statements on pages 39 and 40.


          11 -- Statement re: Computation of Per Share Earnings

          21 -- Subsidiaries of The Registrant

          23 -- Consent of Independent Auditors

          27 -- Financial Data Schedule


    (B)   Form 8-K - Date of Report - September 10, 1996

          Item 2.  Acquisition or Disposition of Assets
                   a)  Reported spin-off of CUNO Incorporated

          Item 7.  Pro Forma Financial Information
                   a)  Pro Forma Consolidated Condensed Balance
                        Sheet as of July 31, 1996
                   b)  Pro Forma Consolidated Condensed Statement
                        of Income for the Nine Months Ended
                        July 31, 1996
                   c)  Pro Forma Consolidated Condensed Statement
                        of Income for the Year Ended
                        October 31, 1995


                                      -63-

<PAGE>   64



                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                          Commercial Intertech Corp.

Dated:  January 22, 1997



/s/ Paul J. Powers                            /s/ Steven J. Hewitt
Paul J. Powers                                Steven J. Hewitt
Chairman of the Board of                      Senior Vice President and
Directors, President and                      Principal Financial Officer
Principal Executive Officer


          Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated above.

           NAME                  TITLE                 DATE
           ----                  -----                 ----


/s/ William J. Bresnahan       
    William J. Bresnahan       Director               January 22, 1997


/s/ Charles B. Cushwa III     
    Charles B. Cushwa III      Director               January 22, 1997


/s/ William W. Cushwa         
    William W. Cushwa          Director               January 22, 1997


/s/ John M. Galvin           
    John M. Galvin             Director               January 22, 1997


/s/ Richard J. Hill       
    Richard J. Hill            Director               January 22, 1997


/s/ Neil D. Humphrey         
    Neil D. Humphrey           Director               January 22, 1997


/s/ William E. Kassling      
    William E. Kassling        Director               January 22, 1997


/s/ Gerald C. McDonough     
    Gerald C. McDonough        Director               January 22, 1997

                        
/s/ C. Edward Midgley          
    C. Edward Midgley          Director               January 22, 1997


/s/ George M. Smart        
    George M. Smart            Director               January 22, 1997


/s/ Don E. Tucker           
    Don E. Tucker              Director               January 22, 1997
 

                                      -64-
<PAGE>   65

<TABLE>




                                              SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                                 COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
                                                 YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994

<CAPTION>
==================================================================================================================================
              COLUMN A                COLUMN B                COLUMN C                 COLUMN D           COLUMN E
----------------------------------------------------------------------------------------------------------------------------------
                                      BALANCE AT                                                                    
            DESCRIPTION               BEGINNING               ADDITIONS                                   
                                      OF PERIOD    ------------------------------     DEDUCTIONS         BALANCE AT  
                                                      CHARGED TO    CHARGED TO                           END OF    
                                                      COSTS AND       OTHER                              PERIOD    
                                                       EXPENSES     ACCOUNTS-                                                    
                                                                     DESCRIBE                                       
==================================================================================================================================
<S>                                   <C>             <C>           <C>              <C>                <C>        
Year ended October 31, 1996 
  Deducted from asset accounts:
   Allowance for doubtful accounts
     receivable                       $ 2,306,479     $  850,085    $          0     $ 1,432,954 (A)    $ 1,723,610
                                      ============    ===========   =============    ============       ===========

   Valuation allowance for deferred                                                   10,068,000 (E)
     income tax assets                $65,037,000     $        0    $          0     $   922,000 (C)    $54,047,000
                                      ============    ===========   =============    ============       ===========

Year ended October 31, 1995 
  Deducted from asset accounts:
   Allowance for doubtful accounts
     receivable                       $ 2,016,320     $  745,451    $          0     $   455,292 (A)    $ 2,306,479 (A)
                                      ============    ===========   =============    ============       ============


   Valuation allowance for deferred
     income tax assets                $55,308,000     $        0    $ 12,708,000 (D) $ 2,979,000 (C)    $65,037,000
                                      ============    ===========   =============    ============       ===========

Year ended October 31, 1994 
  Deducted from asset accounts:
   Allowance for doubtful accounts
     receivable                       $ 1,062,701     $  796,780    $  2,384,000 (B) $ 2,227,161 (A)    $ 2,016,320
                                      ============    ===========   =============    ============       ===========

Valuation allowance for deferred                                    $ 10,060,000 (D)
   income tax assets                  $         0     $        0    $ 47,340,000 (B) $ 2,092,000 (C)    $55,308,000
                                      ============    ===========   =============    ============       ===========


<FN>
(A) Uncollectible accounts written off.
(B) Represents beginning balance acquired with the ORSTA Hydraulik acquisition.
(C) Net operating loss carryforwards utilized or expired. 
(D) (Decrease) increase in net operating loss carryforwards for the year.
(E) Decrease due to German tax audits.

</TABLE>


                                      S-1