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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
Commission File Number 1-6706
BADGER METER, INC.
----------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-0143280
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4545 West Brown Deer Road, Milwaukee, Wisconsin 53223
- - ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 355-0400
--------------
None
---------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
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 such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 17, 1996
- - ------------------------------------ -------------------------------
Common Stock, $1.00 par value 1,211,117
Class B Common Stock, $.10 par value 562,785
<PAGE> 2
BADGER METER, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I.Financial Information:
Item 1 Financial Statements:
Consolidated Condensed Balance Sheets - -
September 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Operations - -
Three and Nine Months Ended September 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows - -
Nine Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 6(a)Exhibits 8
Item 6(b)Reports on Form 8-K 8
Exhibit Index 10
</TABLE>
-2-
<PAGE> 3
Part I - Financial Information
BADGER METER, INC.
Item 1 Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 187 $ 1,177
Receivables 16,790 13,661
Inventories:
Finished goods 3,198 3,403
Work in process 7,839 6,750
Raw materials and purchased parts 5,603 5,681
------------ ------------
Total inventories 16,640 15,834
Prepaid expenses 689 745
------------ -------------
Total current assets 34,306 31,417
Property, plant and equipment 55,436 55,101
Less accumulated depreciation (37,331) (37,714)
------------ -------------
18,105 17,387
Intangible assets, at cost less accumulated amortization 962 1,217
Pension asset 6,079 5,821
Deferred income taxes 1,729 1,536
Deferred charges and other assets 3,243 3,149
------------ -------------
Total assets $ 64,424 $ 60,527
============ =============
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $ 2,799 $ 5,515
Payables 7,330 4,922
Accrued liabilities 5,015 4,577
Income taxes 930 226
------------ -------------
Total current liabilities 16,074 15,240
Accrued non-pension postretirement benefits 8,287 8,396
Other accrued employee benefits 3,810 3,728
Long-term debt 1,107 1,000
Shareholders' equity:
Common Stock 1,569 1,552
Less: Treasury stock (358) (358)
------------ -------------
1,211 1,194
Class B Common Stock 56 56
Capital in excess of par value 8,140 7,832
Reinvested earnings 27,159 24,552
Less: Employee benefit stock (1,051) (1,102)
Pension liability adjustment (369) (369)
------------ -------------
Total shareholders' equity 35,146 32,163
------------ -------------
Total liabilities and shareholders' equity $ 64,424 $ 60,527
============ =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-3-
<PAGE> 4
BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995* 1996 1995*
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 30,542 $ 25,856 $ 87,719 $ 82,363
Operating costs and expenses:
Cost of sales 19,219 16,362 55,672 53,141
Marketing and administrative 7,236 6,091 20,876 18,913
Research and engineering 1,678 1,678 4,805 4,851
---------- --------- --------- ---------
28,133 24,131 81,353 76,905
---------- --------- --------- ---------
Operating earnings 2,409 1,725 6,366 5,458
Interest expense 102 225 323 711
Other deductions 51 17 167 245
---------- --------- --------- ---------
Earnings before income taxes 2,256 1,483 5,876 4,502
Provision for income taxes 826 568 2,169 1,679
---------- --------- --------- ---------
Net earnings $ 1,430 $ 915 $ 3,707 $ 2,823
========== ========= ========= =========
Per share amounts:
Net earnings:
Primary $ .78 $ .52 $ 2.02 $ 1.61
========== ========= ========= =========
Fully Diluted $ .77 * $ 2.00 *
========== ========= ========= =========
Dividends declared - Common Stock $ .2200 $ .2000 $ .6400 $ .5815
========== ========= ========= =========
Dividends declared - Class B
Common Stock $ .200 $ .182 $ .582 $ .529
========== ========= ========= =========
Shares used in computation:
Primary 1,838,630 1,754,925 1,832,494 1,753,503
========== ========= ========= =========
Fully Diluted 1,847,416 * 1,856,285 *
========== ========= ========= =========
</TABLE>
* In 1995, dilution was less than 3%.
Earnings per share is 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.
See accompanying notes to consolidated condensed financial statements.
-4-
<PAGE> 5
BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Operating activities:
Net earnings $ 3,707 $ 2,823
Adjustments to reconcile net
earnings to net cash provided
by (used for) operations:
Depreciation 2,799 2,714
Amortization 598 593
Noncurrent employee benefits (243) (172)
Deferred income taxes (193) (232)
Other 26 111
Changes in:
Receivables (3,129) (1,759)
Inventory (806) 287
Current liabilities 3,470 626
Prepaid expenses 56 131
---------- ----------
Total adjustments 2,578 2,299
---------- ----------
Net cash provided by (used for) operations 6,285 5,122
---------- ----------
Investing activities:
Property, plant and equipment (3,378) (3,001)
Other - net (416) (158)
---------- ----------
Net cash provided by (used for) investing activities (3,794) (3,159)
---------- ----------
Financing activities:
Bank borrowings (repayments) (2,716) (1,182)
Treasury stock 5 --
Dividends (1,100) (990)
Exercised stock options 330 66
---------- ----------
Net cash provided by (used for)
financing activities (3,481) (2,106)
---------- ----------
Increase (decrease) in cash (990) (143)
Beginning of year 1,177 365
---------- ----------
End of period $ 187 $ 222
========== ==========
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Income taxes $ 1,658 $ 1,481
========== ==========
Interest $ 281 $ 694
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-5-
<PAGE> 6
BADGER METER, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the consolidated
condensed financial position at September 30, 1996 and the results of
operations for the three and nine-month periods ended September 30, 1996
and 1995 and the cash flows for the nine-month periods ended September 30,
1996 and 1995. The results of operations for the nine-month period ended
September 30, 1996 are not necessarily indicative of the results to be
expected for the full year. The consolidated condensed balance sheet at
December 31, 1995 was derived from amounts included in the Annual Report
to Shareholders which was incorporated by reference in the Company's
annual report on Form 10-K for the year ended December 31, 1995.
2. In October, 1995, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 123 "Accounting for Stock-Based
Compensation" (FAS 123), effective for fiscal years beginning after
December 15, 1995. As allowed by FAS 123, the company intends to use
prior standards (APB 25) for determining annual compensation charges and
will disclose the impact of fair value.
-6-
<PAGE> 7
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
Record sales caused receivables to increase 23%, or $3,129,000, from the
seasonally low December 31, 1995 balance. Inventories increased 5%, or
$806,000, primarily to support future sales needs. Payables increased 49%, or
$2,408,000, due to increased inventory purchases, reserves for after-sale costs
and other trade payables since December 31, 1995. Reduced cash balances of
$990,000, combined with funds generated by net earnings, were used to pay down
short-term debt by $2,716,000 and also to fund the net working capital
requirements. Capitalized computer equipment leases increased long-term debt by
$107,000 and accrued liabilities by $59,000.
As of September 30, 1996, the company had approximately $27,000,000 of credit
lines with domestic and foreign banks of which $2,799,000 was in use. This
compares to $9,255,000 in use at September 30, 1995 and $5,515,000 at December
31,1995. The company believes that the present lines of credit are adequate to
meet operating requirements.
Results of Operations
Net sales for the third quarter of 1996 of $30,542,000 reflect an 18% increase
over sales of $25,856,000 for the same period in 1995. The increase was
primarily related to higher unit volumes and favorable pricing. For the first
nine months of 1996, sales were $87,719,000, a 6.5% increase over sales of
$82,363,000 for the same period in 1995, due primarily to pricing and product
mix.
The gross profit margin improved from 36.7% for the third quarter of 1995 to
37.1% for the third quarter of 1996. It also improved from 35.5% for the first
nine months of 1995 to 36.5% for the same period in 1996. These increases were
due primarily to increased manufacturing efficiencies and favorable pricing.
Marketing and administrative costs increased 18.8% for the quarter and 10.4%
for the nine months ended September 30, 1996 as compared to the same periods of
1995. The increase was primarily due to the development of an international
group, various incentive accruals and the provision for a new long-term
compensation plan. Research and engineering expenses were comparable between
the periods. Interest expense decreased $123,000 for the quarter and $388,000
for the nine months ended September 30, 1996 as compared to the same periods of
1995, due to lower interest rates and lower debt balances outstanding. Other
deductions decreased for the nine months ended September 30, 1996 as compared
to the same period of 1995 due primarily to favorable foreign exchange
transactions.
The effective tax rate for the third quarter of 1996 was estimated to be 36.6%,
which is lower than the 38.3% used for the third quarter of 1995, due to
changes in estimated deductions and tax credits for 1996. These same factors
caused the 1996 year-to-date tax rate of 36.9% to decrease from the 37.3% rate
used for the same period of 1995.
Earnings for the third quarter of 1996 of $1,430,000 have increased 56% over
third quarter 1995 earnings of $915,000, due primarily to the higher sales,
improved margins and lower interest costs. The 1996 year-to-date earnings of
$3,707,000 increased 31% over the same period of 1995 earnings of $2,823,000
due to the same factors. Earnings per share percentage increases were slightly
lower for both periods due to the impact of dilutive options in 1996.
-7-
<PAGE> 8
Other
On October 16, 1996, the company received a letter from a not-for-profit
environmental organization indicating that it believes the company may be in
violation of California's Proposition 65. The letter states that certain
meters manufactured and sold by the company may be contributing to unacceptable
levels of lead in a source of drinking water and that the company may not have
provided adequate public notice of lead exposure. The organization states that
it is prepared to start civil enforcement action as permitted under Proposition
65, but has offered to begin negotiations toward a settlement. Management does
not believe that meters sold by the company in California violate Proposition
65 and, as such, management does not anticipate any material liability arising
from this action. Management has not yet responded to this letter.
No other risks or uncertainties were identified that could have a material
impact on operations and no long-lived assets have become permanently impaired
in value.
Part II - Other Information
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
(11.0) Computation of fully diluted earnings per share
(27.0) Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended
September 30, 1996.
-8-
<PAGE> 9
SIGNATURE
Pursuant to the requirements 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.
BADGER METER, INC.
Dated: October 17, 1996 By /S/ Richard A. Meeusen
--------------------------
Richard A. Meeusen
Vice President - Finance and Treasurer
Chief Financial Officer
By /S/ William J. Shinners
--------------------------
William J. Shinners
Vice President - Controller
-9-
<PAGE> 10
EXHIBIT INDEX
Page Number
(11.0) Computation of fully diluted earnings per share 11
(27.0) Financial Data Schedule
-10-
<PAGE> 1
EXHIBIT (11.0)
BADGER METER, INC.
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(1)(3) (2) (1)(3) (2)
<S> <C> <C> <C> <C>
PRIMARY
Shares
Average shares outstanding 1,773,707 1,754,925 1,768,182 1,753,503
Shares issuable upon exercise of
stock options 64,923 43,455 64,312 36,116
--------- --------- --------- ---------
Total 1,838,630 1,798,380 1,832,494 1,789,619
========= ========= ========= =========
Earnings
Net earnings applicable to adjusted
common shares $ 1,430 $ 915 $ 3,707 $ 2,823
========= ========= ========= =========
Per share amounts
Net earnings per share (3) $ .78 $ .51 $ 2.02 $ 1.58
========= ========= ========= =========
FULLY DILUTED
Shares
Average shares outstanding 1,773,707 1,754,925 1,768,182 1,753,503
Shares issuable upon exercise of
stock options 73,709 46,642 88,103 46,642
--------- --------- --------- ---------
Total 1,847,416 1,801,567 1,856,285 1,800,145
========= ========= ========= =========
Earnings
Earnings applicable to adjusted
common shares $ 1,430 $ 915 $ 3,707 $ 2,823
========= ========= ========= =========
Per share amounts
Net earnings per share (3) $ .77 $ .51 $ 2.00 $ 1.57
========= ========= ========= =========
Percentage dilution (1) 4.0% 2.5% 4.7% 2.6%
========= ========= ========= =========
</TABLE>
(1) In 1996, earnings per share for financial statement purposes includes
Common stock equivalents since dilution is 3%.
(2) In 1995, earnings per share for financial statement purposes does not
include Common stock equivalents since dilution is less than 3%.
(3) Earnings per share is 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.
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from the Company's
Quarterly report on Form 10-Q and is qualified in its entirety by reference to
such 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 187
<SECURITIES> 0
<RECEIVABLES> 16,790
<ALLOWANCES> 0
<INVENTORY> 16,640
<CURRENT-ASSETS> 34,306
<PP&E> 55,436
<DEPRECIATION> (37,331)
<TOTAL-ASSETS> 64,424
<CURRENT-LIABILITIES> 16,074
<BONDS> 0
0
0
<COMMON> 1,267
<OTHER-SE> 33,879
<TOTAL-LIABILITY-AND-EQUITY> 64,424
<SALES> 87,719
<TOTAL-REVENUES> 87,719
<CGS> 55,672
<TOTAL-COSTS> 81,353
<OTHER-EXPENSES> 167
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 323
<INCOME-PRETAX> 5,876
<INCOME-TAX> 2,169
<INCOME-CONTINUING> 3,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,707
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.00
</TABLE>
|
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