<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the fiscal year ended DECEMBER 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from____________to____________
Commission file number 1-6706
BADGER METER, INC.
(Exact name of registrant as specified in charter)
WISCONSIN 39-0143280
(State of Incorporation) (I.R.S. Employer Identification No.)
4545 W. BROWN DEER ROAD
MILWAUKEE, WISCONSIN 53223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 414 - 355-0400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of class: on which registered:
Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 and (2) has been subject to such filing
requirements for 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. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $53,619,000 as of February 28, 1997. At February 28, 1997, the
registrant had 1,213,904 shares of Common Stock outstanding and 562,785 shares
of Class B Common Stock outstanding. After the effect of the two-for-one stock
split payable April 18, 1997, the February 28, 1997 shares outstanding would be
2,427,808 of Common Stock and 1,125,570 of Class B Common Stock. All share and
per share data in this Form 10-K and in the company's Annual Report to
Shareholders have been restated for effect of this stock split.
Documents Incorporated by Reference:
Parts I and II incorporate information by reference from the company's
1996 Annual Report to Shareholders.
Part III incorporates information by reference from the definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on April 25, 1997
[to be filed with the Securities and Exchange Commission under Regulation 14A
within 120 days after the end of the registrant's fiscal year].
<PAGE> 2
Part I
Item 1. Business
Badger Meter, Inc. (the company) is a marketer and manufacturer of
products using flow measurement and control technology serving markets
worldwide. The company's markets are within a single business segment. The
company was incorporated in 1905.
Markets and Products
The company serves the flow measurement and control market with
products including water meters and related meter reading technologies,
wastewater meters, industrial meters, small valves and natural gas meters and
related instrumentation. The company's products are assigned to three operating
units: Utility, Industrial and International. The Utility and Industrial
divisions market their products in the U.S. and Canada, while the International
Division markets both utility and industrial products in other countries
throughout the world.
The company's products are sold to water and natural gas utilities,
original equipment manufacturers and various industrial customers primarily
operating in the following markets: energy and petroleum; food and beverage;
pharmaceutical; chemical; water, wastewater and process waters; and concrete.
Principal products include disc meters; turbo and compound meters; automated
and automatic remote meter reading systems; ultrasonic flowmeters; precision
control valves; natural gas meters and related instrumentation; oscillating
piston meters; flow tubes; lube meters; and process controllers.
The company's products are primarily manufactured in the company's
Milwaukee, Wisconsin and Tulsa, Oklahoma facilities. Custom molded plastic
products are also produced in a facility in Rio Rico, Arizona for use as
components in the company's products and for sale to original equipment
manufacturers. Products are also assembled in facilities in Nogales, Mexico and
Stuttgart, Germany.
Badger Meter's products are sold throughout the world through various
selling arrangements including direct sales managers, distributors and
independent sales representatives. There is only a moderate seasonal impact on
sales, primarily relating to slightly higher sales of certain utility products
during the spring and summer months. No single customer accounts for more than
10% of the company's sales.
Competition
There are several competitors in each of the markets in which the
company sells its products, and the competition varies from moderate to
intense. Major competitors include Sensus Technologies, Inc., Schlumberger
Industries, Inc. and ABB-Kent Meters, Inc. A number of the company's
competitors in certain markets have greater financial resources. The company
believes it currently provides the leading technology in certain types of
automated and automatic meter reading systems, high precision valves, energy
instruments and ultrasonic flowmeters. As a result of significant research and
development activities, the company enjoys favorable patent positions for many
of its products.
Backlog
The dollar amount of the company's total backlog of unshipped orders at
December 31, 1996 and 1995 was $21,262,000 and $13,012,000, respectively. The
1996 backlog includes orders related to a large water meter project which is
expected to be completed over several years. As such, it is estimated that
$16,002,000 of the December 31, 1996 backlog will be shipped in 1997, with the
balance shipped in subsequent years.
3
<PAGE> 3
Raw Materials
Raw materials used in the manufacture of the company's products include
metal or alloys (such as bronze, aluminum, stainless steel, cast iron, brass
and stellite), plastic resins, glass, microprocessors and other electronic
subassemblies. There are multiple sources for these raw materials, but the
company purchases bronze castings and certain electronic subassemblies from
single suppliers. The company believes these items would be available from
other sources, but that the loss of its current suppliers would result in
higher cost of materials, delivery delays, short-term increases in inventory
and higher quality control costs. Prices may also be affected by world
commodity markets.
Research and Development
Expenditures for research and development activities relating to the
development of new products, the improvement of existing products and
manufacturing process improvements were $3,851,000 during 1996, as compared to
$3,858,000 during 1995 and $3,278,000 during 1994. Research and development
activities are primarily sponsored by the company. The company also engages in
some joint research and development with other companies.
Intangible Assets
The company owns or controls many patents, trademarks, tradenames and
license agreements, in the United States and other countries, related to its
products and technologies. No single patent, trademark, tradename or license is
material to the company's business as a whole.
Environmental Protection
The company is subject to contingencies relative to compliance with
Federal, State and local provisions and regulations relating to the protection
of the environment. Currently the company is in the process of resolving
several cases relative to Superfund sites, as well an action brought under
California's Proposition 65 (see Item 3). Provision has been made for any
known settlement costs. Expenditures during 1996 and 1995 for compliance with
environmental control provisions and regulations were not material and the
company does not anticipate any material future expenditures.
To insure compliance with all environmental regulations at all company
sites, the Board of Directors has a Compliance Committee which monitors the
company's compliance with various regulatory authorities in regard to, among
other things, environmental matters.
Employees
The company and its subsidiaries employed 940 persons at December 31,
1996, of which 238 employees are covered by a collective bargaining agreement
with District 10 of the International Association of Machinists. Effective
November 1, 1996, the company negotiated a new contract with the union covering
a four year period. The company has good relations with the union and all of
its employees.
Foreign Operations and Export Sales
The company has distributors throughout the world. Additionally, the
company has a sales, assembly, and distribution facility in Stuttgart, Germany,
a sales and customer service office in Mexico City and an assembly facility in
Nogales, Sonora, Mexico. The company exports products manufactured in
Milwaukee, WI., Tulsa, OK., and Rio Rico, AZ. In January 1996, a Vice
President - International was hired. His responsibility will be to manage the
company's activities in all countries outside of the United States and Canada.
Information about the company's foreign operations and export sales is
included on page 26 of the company's 1996 Annual Report to Shareholders and
such information is incorporated herein by reference.
Financial Information About Industry Segments
The company operates in one industry segment as a marketer and
manufacturer of various flow measurement products.
4
<PAGE> 4
Item 2. Properties
The principal facilities utilized by the company at December 31, 1996,
are listed below. Except as indicated, all of such facilities are owned in fee
simple by the company.
<TABLE>
<CAPTION>
Approximate Area
Location Principal Use (Square Feet)
----------- ----------------------------------- ------------------
<S> <C> <C>
Brown Deer,
Wisconsin Manufacturing and offices 287,000
Tulsa,
Oklahoma Manufacturing and offices 89,500(1)
Rio Rico,
Arizona Manufacturing and offices 36,000
Nogales,
Mexico Assembly, manufacturing and offices 41,700(2)
Stuttgart,
Germany Assembly, manufacturing and offices 8,253(3)
</TABLE>
(1) Includes 30,000 sq. ft. leased facility. Lease term expires December 31,
1997.
(2) Leased facility. Lease term expires January 31, 1998.
(3) Leased facility. Lease term expires December, 1998.
In addition to the foregoing facilities, the company leases several
sales offices. The company believes that its facilities are generally well
maintained and have sufficient capacity for its current needs.
Item 3. Legal Proceedings
There are currently no material legal proceedings pending with relation
to the company, except as discussed below.
In February, 1997, the company, along with other major manufacturers of
water meters, was named as a defendant in a California lawsuit filed by the
Natural Resources Defense Council. The lawsuit claims that the meter
manufacturers are violating the standards established by California's
Proposition 65 by selling bronze water meters in California that allegedly
leach lead in excess of the Proposition 65 limits.
The company believes that its meters are in compliance with national
standards established by the American Water Works Association and that the
meters fully comply with the Federal Safe Drinking Water Act. The California
standards are unique to California and are set at a level of one one-thousandth
of the point of observable effect. Substantially all of the company's sales of
residential water meters in California are to, and in response to
specifications issued by, water utilities which are exempt from compliance with
the Proposition 65 regulation. Also, since 1972 Badger Meter has been the only
meter manufacturer to continuously offer a plastic meter as an option to
utility customers. The plastic meter fully complies with the Federal Safe
Drinking Water Act, as certified by the National Sanitation Foundation. The
utilities had the opportunity to specify the plastic meter, as many of them
did. As such, the company disputes the claims of the lawsuit and does not
believe the ultimate resolution of the lawsuit will have a material adverse
effect on the results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the company's shareholders
during the quarter ended December 31, 1996.
5
<PAGE> 5
Executive Officers of the Company
The following table sets forth certain information regarding the executive
officers of the company.
<TABLE>
<CAPTION>
Age at
Name Position 2/28/97
------------------------ --------------------------------------- -------
<S> <C> <C>
James L. Forbes President and Chief 64
Executive Officer
Robert D. Belan Vice President - Utility Division 56
William H. Vander Heyden Vice President - Industrial Division 60
Theodore N. Townsend Vice President - International 52
Ronald H. Dix Vice President - Administration 52
and Human Resources
Deirdre C. Elliott Vice President - Corporate Counsel 40
and Secretary
Richard A. Meeusen Vice President - Finance, Treasurer and 42
Chief Financial Officer
William J. Shinners Vice President - Controller 62
</TABLE>
There are no family relationships between any of the executive officers.
All of the officers are elected annually at the first meeting of the Board of
Directors held after each annual meeting of the shareholders. Each officer
holds office until his successor has been elected or until his death,
resignation or removal. There is no arrangement or understanding between any
executive officer and any other person pursuant to which he was elected as an
officer.
Mr. Forbes has served as President and Chief Executive Officer for more
than five years.
Mr. Belan was elected Vice President - Utility Division in March 1992. In
October 1991, he was appointed President of the Utility Division and currently
also serves in that capacity.
Mr. Vander Heyden was elected Vice President - Industrial Division in
April 1983. From April 1989 to April 1993, Mr. Vander Heyden was also
Executive Vice President and Chief Technical Officer. Mr. Vander Heyden was
appointed President of the Industrial Division in 1990 and currently also
serves in that capacity.
Mr. Townsend joined the company and was elected Vice President -
International in February 1996. From 1993 to 1995, Mr. Townsend was Managing
Director of International Gas Measurement, based in London, England for twelve
companies related to Elster/Kromshroder and American Meter Companies. From
1990 to 1992, Mr. Townsend was a Vice President of American Meter Company.
Mr. Dix has served as Vice President of Administration and Human Resources
for more than five years.
Ms. Elliott was elected Vice President - Corporate Counsel and Secretary
in December 1993. From October 1991 to December 1993, she served as Vice
President - Corporate Counsel. Ms. Elliott joined the company in February 1991
as Corporate Counsel.
Mr. Meeusen joined the company and was elected Vice President - Finance
and elected Chief Financial Officer in November 1995 and was elected Treasurer
in January 1996. Prior to joining the company, Mr. Meeusen was Vice President
- - Finance and Treasurer for Zenith Sintered Products for more than five years.
Mr. Shinners was elected Vice President-Controller of the company in April
1989.
6
<PAGE> 6
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The information set forth on page 26 in the company's 1996 Annual
Report to Shareholders is incorporated herein by reference in response
to this Item.
Item 6. Selected Financial Data
The information set forth on pages 1 and 28 in the company's 1996
Annual Report to Shareholders is incorporated herein by reference in
response to this Item.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information set forth on pages 14, 15 and 16 in the company's 1996
Annual Report to Shareholders is incorporated herein by reference in
response to this Item.
Item 8. Financial Statements and Supplementary Data
Consolidated financial statements of the company at December 31, 1996
and 1995 and for each of the three years in the period ended December
31, 1996 and the auditor's report thereon and the company's unaudited
quarterly financial data for the two-year period ended December 31,
1996 are incorporated herein by reference from the 1996 Annual Report
to Shareholders, pages 17 through 26.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Information required by this Item with respect to directors is included
under the headings "Nomination and Election of Directors" and "Other
Matters" in the company's definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on April 25, 1997, and is
incorporated herein by reference.
Information concerning the executive officers of the company is
included in Part I of this Form 10-K.
Item 11. Executive Compensation
Information required by this Item is included under the headings
"Nomination and Election of Directors - Director Compensation" and
"Executive Compensation" in the company's definitive Proxy Statement
relating to the Annual Meeting of Shareholders to be held on April 25,
1997, and is incorporated herein by reference; provided, however, that
the subsection entitled "Executive Compensation-Board Management
Review Committee Report on Executive Compensation" shall not be
deemed to be incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this Item is included under the heading "Stock
Ownership of Management and Others" in the company's definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on
April 25, 1997, and is incorporated herein by reference.
7
<PAGE> 7
Item 13. Certain Relationships and Related Transactions
Information required by this Item is included under the headings
"Management Review Committee Interlocks and Insider Participation" and
"Certain Transactions" in the company's definitive Proxy Statement
relating to the Annual Meeting of Shareholders to be held on April 25,
1997, and is incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) Documents filed
1.and 2. Financial Statements and Financial
Statement Schedule. See index to Financial Statements
and Financial Statement Schedule on page F-0 which is
incorporated herein by reference.
3. Exhibits. See the Exhibit Index included
as the last pages of this report which is incorporated
herein by reference.
(b) Reports on Form 8-K
No report on Form 8-K was required to be filed by the Registrant
during the quarter ended December 31, 1996.
8
<PAGE> 8
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BADGER METER, INC.
Registrant
By: /s/ Richard A. Meeusen
--------------------------------------
Richard A. Meeusen
Vice President - Finance and Treasurer
Chief Financial Officer
February 14, 1997
By: /s/ William J. Shinners
--------------------------------------
William J. Shinners
Vice President - Controller
Chief Accounting Officer
February 14, 1997
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 dates indicated:
/s/ James O. Wright /s/ James L. Forbes
- ------------------------- ------------------------
James O. Wright James L. Forbes
Director and Chairman Director, President and
February 14, 1997 Chief Executive Officer
February 14, 1997
/s/ Robert M. Hoffer /s/ Pamela B. Strobel
- ------------------------- ------------------------
Robert M. Hoffer Pamela B. Strobel
Director Director
February 14, 1997 February 14, 1997
/s/ Charles F. James, Jr. /s/ Andrew J. Policano
- ------------------------- ------------------------
Charles F. James, Jr. Andrew J. Policano
Director Director
February 14, 1997 February 14, 1997
/s/ Donald J. Schuenke /s/ Kenneth P. Manning
- ------------------------- ------------------------
Donald J. Schuenke Kenneth P. Manning
Director Director
February 14, 1997 February 14, 1997
/s/ John J. Stollenwerk /s/ James O. Wright, Jr.
- ------------------------- ------------------------
John J. Stollenwerk James O. Wright, Jr.
Director Director
February 14, 1997 February 14, 1997
9
<PAGE> 9
BADGER METER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Page References
Annual Report
to
Shareholders Form 10-K
Page Number Page Number
------------- -----------
Item 14(a) 1
------------
Financial statements:
Consolidated balance sheets at
December 31, 1996 and 1995 18
Consolidated statements of operations
for each of the three years in the
period ended December 31, 1996 17
Consolidated statements of cash flows
for each of the three years in the
period ended December 31, 1996 19
Consolidated statements of shareholders'
equity for each of the three years in
the period ended December 31, 1996 20
Notes to consolidated financial
statements 21 - 26
Item 14(a) 2
------------
Financial statement schedules:
Consolidated schedules for each of
the three years in the period ended
December 31, 1996:
II - Valuation and qualifying accounts F-1
All other schedules are omitted since the required information is not present
or is not present in amounts sufficient to require submission of the schedules,
or because the information required is included in the financial statements and
the notes thereto.
F-0
10
<PAGE> 10
BADGER METER, INC.
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance
beginning charged to from at end
of year earnings allowances of year
<S> <C> <C> <C> <C>
Allowance for doubtful receivables:
1996 $ 216,000 $ 115,000 $ 89,000(a) $ 242,000
========== =========== ========== ==========
1995 $ 135,000 $ 137,000 $ 56,000(a) $ 216,000
========== =========== ========== ==========
1994 $ 99,000 $ 62,000 $ 26,000(a) $ 135,000
========== =========== ========== ==========
Warranty/after-sale cost reserve:
1996 $ 691,000 $ 2,735,000 $1,497,000 $1,929,000
========== =========== ========== ==========
1995 $ 260,000 $2,154,,000 $1,723,000 $ 691,000
========== =========== ========== ==========
1994 $ 0 $ 1,229,000 $ 969,0000 $ 260,000
========== =========== ========== ==========
</TABLE>
Note:
(a) Accounts receivable written off, less recoveries, against the
allowance.
F-1
11
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description Page No.
- ----------- ------------------- ---------
<S> <C> <C>
(3.0) Restated Articles of Incorporation effective April 23, 1993. [Incorporated --
by reference from Exhibit (4.3) to the Registrant's Form S-8 Registration
Statement (Registration No. 33-65618)].
(3.1) Restated By-Laws as amended February 14, 1997. Included
(4.0) Loan Agreement, as amended April 30, 1988, between the Registrant and --
the M&I Marshall & Ilsley Bank relating to the Registrant's revolving credit loan.
[Incorporated by reference from Exhibit (4.0) to the Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 1988].
(4.1) Loan Agreement between the Firstar Bank Milwaukee, N.A. and the Badger --
Meter Employee Savings and Stock Ownership Plan and Trust, dated
December 1, 1995. [Incorporated by reference from Exhibit (4.3) to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995].
(9.0) Badger Meter, Inc. Voting Trust Agreement dated June 1, 1953 as amended. --
[Incorporated by reference from Exhibit (13) to the Registrant's Form 10 dated
April 28, 1967].
(9.1) Badger Meter Officers' Voting Trust Agreement dated December 18, 1991. --
[Incorporated by reference from Exhibit (9.1) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991].
(10.0) * Badger Meter, Inc. Restricted Stock Plan, as amended. [Incorporated by --
reference from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement
(Registration No. 33-27649)].
(10.1) * Badger Meter, Inc. 1989 Stock Option Plan. [Incorporated by reference from --
Exhibit (4.1) to the Registrant's Form S-8 Registration Statement
(Registration No. 33-27650)].
(10.2) * Badger Meter, Inc. 1993 Stock Option Plan. [Incorporated by reference --
from Exhibit (4.3) to the Registrant's Form S-8 Registration Statement
(Registration No. 33-65618)].
(10.3) * Badger Meter, Inc. Deferred Compensation Plan. [Incorporated by --
reference from Exhibit (10.5) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993].
(10.4) * Badger Meter, Inc. 1995 Stock Option Plan [Incorporated by reference --
from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement
(Registration No. 033-62239)].
</TABLE>
*A management contract or compensatory plan or arrangement.
12
<PAGE> 12
EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description Page No.
- ----------- ------------------- ---------
<S> <C> <C>
(10.5) Badger Meter, Inc. Employee Savings and Stock Ownership Plan --
[Incorporated by reference from Exhibit (4.1) to the Registrant's
Form S-8 Registration Statement (Registration No. 033-62241)].
(10.6) * Long-Term Incentive Plan. [Incorporated by reference from Exhibit (10.6) --
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995].
(10.7) * Badger Meter, Inc. Supplemental Non-Qualified Unfunded Pension Plan. --
[Incorporated by reference from Exhibit (10.7) to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995].
(11.0) Computation of fully diluted earnings per share. Included
(13.0) Portions of the Annual Report to Shareholders that are incorporated by reference. Included
(21.0) Subsidiaries of the Registrant. Included
(23.0) Consent of Ernst & Young LLP, Independent Auditors. Included
(27.0) Financial Data Schedule. Included
(99.0) Definitive Proxy Statement for the Annual Meeting of Shareholders to be held --
April 25, 1997. [To be filed with the Securities and Exchange
Commission under Regulation 14A within 120 days after the end of the Registrant's
fiscal year. With the exception of the information incorporated by reference
into Items 10, 11, 12 and 13 of this Form 10-K, the definitive Proxy Statement
is not deemed filed as part of this report].
</TABLE>
13
<PAGE> 1
Exhibit (3.1)
RESTATED BY-LAWS
OF
BADGER METER, INC.
(AS AMENDED FEBRUARY 14, 1997)
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of shareholders of the
Corporation shall be held on the second Saturday in April of each year, at the
registered office of the Corporation in Brown Deer, Wisconsin, or at such other
time or place as may be designated by the directors, for the purpose of electing
directors and for the transaction of such other business as may be brought
before the meeting.
Section 2. Special Meetings. Special meetings of the shareholders of
the Corporation may be called by the Chairman, the President or the Board of
Directors, and shall be called by the Secretary on a written request to him
signed by the holders of record of one-tenth of all the outstanding shares
entitled to vote at the meeting. In the event a meeting is called on request of
shareholders as aforesaid, the Secretary shall designate a date not more than
fifteen (15) days following the receipt by him of such written request as the
date of the meeting. Special meetings shall be held at such place in Brown
Deer, Wisconsin or elsewhere, and at such time as the Chairman, the President or
Board of Directors may designate; and in case the Chairman, the President or
Board of Directors shall fail or neglect to make such designation, the Secretary
shall designate the time and place of such meeting.
Section 3. Notice of Meeting. Written notice stating the place, day
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) days nor more than fifty (50) days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman, the President, or
the Secretary, or other officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting unless a different period
is required by law or the Articles of Incorporation. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock record
books of the Corporation with postage thereon prepaid.
Section 4. Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors shall fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than seventy (70) days and not less then
ten (10) days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall be applied to any
adjournment thereof except that no such adjourned meeting shall be held more
than seventy (70) days after the date fixed for such determination of
shareholders.
Section 5. Voting Lists. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make a complete list of
the shareholders entitled to vote at such meeting, or any adjournment thereof,
with the address of and the number of shares held by each, which list shall be
produced and kept open at the offices of the Corporation and shall be subject to
the inspection of any shareholder during the period beginning two (2) business
days after notice of the meeting for which the list was prepared was given and
continuing to the date of the meeting.
14
<PAGE> 2
The original stock transfer books shall be prima facie evidence as to who are
the shareholders entitled to examine such list or transfer books or to vote at
any meeting of shareholders. Failure to comply with the requirements of this
section shall not affect the validity of any action taken at such meeting.
Section 6. Quorum. Except as otherwise provided in the Articles of
Incorporation, a majority of votes represented by shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. Once a share is represented for any purpose at the meeting, other
than for the purpose of objecting to holding the meeting or transacting business
at the meeting, it is considered present for purposes of determining whether a
quorum exists for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is set or must be set for the adjourned
meeting. If a quorum is present, the affirmative vote of the majority of the
votes represented by shares at the meeting and entitled to vote on the subject
matter shall be the act of the shareholders unless the vote of a greater number
or voting by classes is required by law or the Articles of Incorporation.
Though less than a quorum of the outstanding shares are represented at a
meeting, a majority of the votes represented by the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 7. Voting of Shares. Each outstanding share shall be entitled
to one vote upon each matter submitted to a vote at a meeting of shareholders,
except to the extent that the voting rights of the shares of any class or
classes are enlarged, limited or denied by the Articles of Incorporation.
Section 8. Proxies. At all meetings of shareholders, a shareholder
entitled to vote may vote in person or by proxy appointed in writing by the
shareholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the Secretary of the Corporation before or at the time of the
meeting. Unless otherwise provided in the proxy, a proxy may be revoked at any
time before it is voted, either by written notice filed with the Secretary or
the acting secretary of the meeting or by oral notice given by the shareholder
to the presiding officer during the meeting. The presence of a shareholder who
has filed his proxy shall not of itself constitute a revocation. No proxy shall
be valid after eleven months from the date of its execution, unless otherwise
provided in the proxy. The Board of Directors shall have the power and
authority to make rules establishing presumptions as to the validity and
sufficiency of proxies.
Section 9. Acceptance of Instruments Showing Shareholder Action. If
the name signed on a vote, consent, waiver or proxy appointment corresponds to
the name of a shareholder, the Corporation, if acting in good faith, may accept
the vote, consent, waiver, or proxy appointment and give it effect as the act of
a shareholder. If the name signed on a vote, consent, waiver, or proxy
appointment does not correspond to the name of a shareholder, the Corporation,
if acting in good faith, may accept the vote, consent, waiver, or proxy
appointment and give it effect as the act of the shareholder if any of the
following apply:
(a) The shareholder is an entity and the name signed purports to
be that of an officer or agent of the entity.
(b) The name purports to be that of a personal representative,
administrator, executor, guardian or conservator representing the shareholder
and, if the corporation requests, evidence of fiduciary status acceptable to the
corporation is presented with respect to the vote, consent, waiver or proxy
appointment.
(c) The name signed purports to be that of a receivor or trustee
in bankruptcy of the shareholder and, if the corporation requests, evidence of
the status acceptable to the corporation is presented with respect to the vote,
consent, waiver or proxy appointment.
(d) The name signed purports to be that of a pledgee, beneficial
owner, or attorney-in-fact of the shareholder and, if the corporation requests,
evidence acceptable to the corporation of the signatory's authority to sign for
the shareholder is presented with respect to the vote, consent, waiver or proxy
appointment.
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(e) Two or more persons are the shareholders as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all
co-owners.
The corporation may reject a vote, consent, waiver or proxy appointment
if the Secretary or other officer or agent of the Corporation authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
Section 10. Waiver of Notice by Shareholders. Whenever any notice
whatever is required to be given to any shareholder of the Corporation under the
Articles of Incorporation or By-laws or any provision of law, a waiver thereof
in writing, signed at any time, whether before or after the time of meeting, by
the shareholder entitled to such notice, shall be deemed equivalent to the
giving of such notice; provided that such waiver in respect to any matter of
which notice is required under any provisions of the Wisconsin Business
Corporation Law, shall contain the same information as would have been required
to be included in such notice, except the time and place of meeting.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers and Number. All corporate powers of the
Corporation shall be exercised by or under the authority of, and the business
and affairs of the Corporation managed under, the direction of its Board of
Directors, which shall consist of ten (10) directors. The Board of Directors
shall elect one of its members as Chairman, who, when present, shall preside at
all meetings of the shareholders and Board of Directors.
Section 2. Tenure and Qualifications. Each director shall hold office
until the next annual meeting of shareholders and until his successor shall have
been elected, or until his prior death, resignation or removal. A director may
be removed from office by affirmative vote of a majority of the outstanding
shares entitled to vote for the election of such director, taken at a meeting of
shareholders called for that purpose. A director shall not be eligible to
stand for re-election at the next annual meeting of shareholders following his
70th birthday, except that any directors who are over 70 years old and hold
office before February 19, 1993, may be entitled to be re-elected without
limitation and to hold office until death, resignation or removal. A director
may resign at any time by delivering written notice which complies with the
Wisconsin Business Corporation Law to the Board of Directors, to the Chairman of
the Board, if any, or to the corporation. A director's resignation is effective
when such notice is delivered unless the notice specifies a later date.
Directors need not be residents of the State of Wisconsin or shareholders of the
Corporation.
Section 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this By-law immediately after,
and at the same place as, the annual meeting of shareholders, and each adjourned
session thereof. The Board of Directors may provide, by resolution, the time
and place, either within or without the State of Wisconsin, for the holding of
additional regular meetings without other notice than such resolution.
Section 4. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman, the President,
Secretary or any two directors. The person or persons calling any special
meeting of the Board of Directors may fix any place, either within or without
the State of Wisconsin, as the place for holding any special meeting of the
Board of Directors called by them, and if no other place is fixed, the place of
meeting shall be the principal business office of the Corporation in the State
of Wisconsin.
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Section 5. Notice; waiver. Notice of each meeting of the Board of
Directors (unless otherwise provided in or pursuant to Section 4, Article II)
shall be given by written notice delivered personally or given by telegram,
teletype, facsimile or other form of wire or wireless communication not less
than twenty-four (24) hours prior to the meeting or mailed or delivered by
private carrier not less than forty-eight (48) hours prior to the meeting to
each director at his business address or at such other address as such director
shall have designated in writing filed with the Secretary. If mailed or
delivered by a private carrier, such notice shall be deemed to be delivered when
deposited in the United States mail or delivered to the private carrier so
addressed, with postage or delivery cost thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. If notice be given by teletype, facsimile
or other form of wire or wireless communication, such notice shall be deemed to
be delivered when evidence of its transmittal is received. Whenever any notice
whatever is required to be given to any director of the Corporation under the
Articles of Incorporation or By-laws or any provision of law, a waiver thereof
in writing, signed at any time, whether before or after the time of meeting, by
the director entitled to such notice, shall be deemed equivalent to the giving
of such notice. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting and
objects thereat to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 6. Quorum. A majority of the directors shall constitute a
quorum for the transaction of business; and, except as otherwise provided by law
or by the Articles of Incorporation or these By-laws, a majority of the votes
cast at any meeting of the Board of Directors at which a quorum is present shall
be decisive of any action. A majority of the directors present at a meeting,
though less than quorum, may adjourn the meeting from time to time without
further notice.
Section 7. Vacancies. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled until the next succeeding annual election by the affirmative vote of a
majority of the directors then in office, though less than a quorum of the Board
of Directors; provided, that in case of a vacancy created by the removal of a
director by vote of the shareholders, the shareholders shall have the right to
fill such vacancy at the same meeting or any adjournment thereof.
Section 8. Compensation. The Board of Directors, by affirmative vote
of a majority of the directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation of all
directors for services to the Corporation as directors, officers or otherwise,
or may delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or to delegate authority to
an appropriate committee to provide for reasonable pensions, disability or death
benefits, and other benefits or payments, to directors, officers and employees
and to their estates, families, dependents or beneficiaries on account of prior
services rendered by such directors, officers and employees to the Corporation.
Section 9. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors or a committee thereof of which
he is a member at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
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Section 10. Committees. The Board of Directors by resolution adopted
by the affirmative vote of a majority of the number of directors set forth in
Section 1 of this Article II may designate one or more committees, each
committee to consist of three or more directors elected by the Board of
Directors, which shall have and may exercise, when the Board of Directors is not
in session, the powers of the Board of Directors in the management of the
business and affairs of the Corporation, in the committee's designated area of
responsibility, except action in respect to dividends to shareholders, election
of the principal officers or the filling of vacancies on the Board of Directors
or committees created pursuant to this section, with respect to the approval or
proposal of actions that the law requires to be approved by the shareholders,
amendment of the Articles of Incorporation, the adoption, amendment or repeal
of the by-laws, the approval of a plan of merger not requiring shareholder
approval, the authorization or approval of the re-acquisition of shares other
than according to a method prescribed by the Board of Directors, and the
authorization for approval of the issuance or sale or contract for sale of
shares, or the determination of the designation and relative rights, preferences
and limitations of a class or series of shares, unless authorized to do so by
the Board of Directors within prescribed limits. The Board of Directors may
elect one or more of its members as alternate members of any such committee who
may take the place of any absent member or members at any meeting of such
committee, upon request by the Chairman or upon request by the chairman of such
meeting. Each such committee shall fix its own rules governing the conduct of
its activities and shall make such reports to the Board of Directors of its
activities as the Board of Directors may request.
Section 11. Unanimous Consent Without Meeting. Any action required or
permitted by the Articles of Incorporation or By-laws or any provision of law to
be taken by the Board of Directors at a meeting or by resolution may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors then in office.
Section 12. Telephonic Meetings. Notwithstanding any place set forth
in the notice of the meeting or these By-laws, members of the Board of Directors
may participate in regular or special meetings of the Board of Directors and all
Committees of the Board of Directors by or through the use of any means of
communication by which all directors participating may simultaneously hear each
other, such as by conference telephone; provided, however, that the Chairman of
the Board or the chairman of the respective Committee and the Board or other
person or persons calling a meeting may determine that the directors cannot
participate by such means, in which case the notice of the meeting, or other
notice to directors given prior to the meeting, shall state that each director's
physical presence shall be required. If a meeting is conducted through the use
of such means of communication, then at the commencement of such meeting all
participating directors shall be informed that a meeting is taking place at
which official business may be transacted. A director participating in a
meeting by such means shall be deemed present in person at such meeting.
ARTICLE III
OFFICERS
Section 1. General Officers. The general officers of the Corporation
shall be the President, one or more Vice Presidents, a Secretary, a Treasurer, a
Controller, and one or more Assistant Secretaries and one or more Assistant
Treasurers, each of whom shall be elected annually by the Board of Directors and
shall hold office until his or her successor shall have been duly elected and
qualified. The President shall be chief executive officer of the Corporation
and shall exercise general supervision of the business and affairs of the
Corporation subject to the directives of the Board of Directors. Further, each
general officer shall have such powers and duties as generally pertain to his or
her respective office; provided, that such powers and duties may from time to
time be modified, enlarged, restricted or augmented by the Board of Directors.
Section 2. Additional Officers. The Board of Directors may appoint
such additional corporate officers as it may deem necessary, each of whom shall
have such powers and duties as from time to time may be conferred by the Board
of Directors, and shall serve for such terms as the Board may fix.
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Section 3. Removal of Officers. Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board of Directors
whenever in its judgment, the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
Section 4. Vacancies. A vacancy in any principal office because of
death, resignation, removal, disqualification or otherwise, shall be filled by
the Board of Directors for the unexpired portion of the term. The resignation
of an officer by the delivery of written notice to the President or Secretary of
the Corporation is effective upon delivery of the notice, unless the notice
specifies a later date and the Corporation accepts the later date.
ARTICLE IV
SPECIAL CORPORATE ACTS
Section 1. Voting of Securities Owned by This Corporation. Subject
always to the specific directions of the Board of Directors, (a) any shares or
other securities issued by any other corporation and owned or controlled by this
Corporation may be voted at any meeting of security holders of such other
corporation by the Chairman of this Corporation if he be present, or in his
absence by the President or any Vice President of this Corporation who may be
present, and (b) whenever, in the judgment of the Chairman, or in his absence,
of the President or any Vice President, it is desirable for this Corporation to
execute a proxy or give a shareholder's consent in respect to any shares or
other securities issued by any other corporation and owned by this Corporation,
such proxy or consent shall be executed in the name of this Corporation by the
Chairman, or the President or one of the Vice Presidents of this Corporation
without necessity of any authorization by the Board of Directors, affixation of
corporate seal or countersignature or attestation by another officer. Any
person or persons designated in the manner above stated as the proxy or proxies
of this Corporation shall have full right, power and authority to vote the share
or shares of stock issued by such other corporation and owned by this
Corporation the same as such share or shares might be voted by this Corporation.
Section 2. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute or deliver
any instrument in the name of and on behalf of the Corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages, and instruments of assignment or
pledge made by the Corporation shall be executed in the name of the Corporation
by the Chairman or the President or one of the Vice Presidents and by the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer; the
Secretary or an Assistant Secretary, when necessary or required, shall affix the
corporate seal thereto; and when so executed no other party to such instrument
or any third party shall be required to make any inquiry into the authority of
the signing officer or officers.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares
of the Corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the Chairman or the President
or a Vice President and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except as provided in Section 6 of this Article V.
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Section 2. Facsimile Signatures and Seal. The seal of the corporation
on any certificates for shares may be a facsimile. The signatures of the
Chairman or President or Vice President and the Secretary or Assistant Secretary
upon a certificate may be facsimiles if the certificate is countersigned by a
transfer agent, or registered by a registrar, other than the Corporation itself
or an employee of the Corporation.
Section 3. Signature by Former Officers. In case any officer, who has
signed or whose facsimile signature has been placed upon any certificate for
shares, shall have ceased to be such officer before such certificate is issued,
it may be issued by the Corporation with the same effect as if he were such
officer at the date of its issue.
Section 4. Transfer of Shares. Prior to due presentment of a
certificate for shares for registration of transfer the Corporation may treat
the registered owner of such shares as the person exclusively entitled to vote,
to receive notifications and otherwise to exercise all the rights and powers of
an owner. Where a certificate for shares is presented to the Corporation with a
request to register for transfer, the Corporation shall not be liable to the
owner or any other person suffering loss as a result of such registration of
transfer if (a) there were on or with the certificate the necessary
endorsements, and (b) the Corporation had no duty to inquire into adverse claims
or has discharged any such duty. The Corporation may require reasonable
assurance that said endorsements are genuine and effective and in compliance
with such other regulations as may be prescribed under the authority of the
Board of Directors.
Section 5. Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the Corporation upon the transfer of such shares.
Section 6. Lost, Destroyed or Stolen Certificates. Where the owner
claims that his certificate for shares has been lost, destroyed or wrongfully
taken, then a new certificate shall be issued in place thereof if the owner (a)
so requests before the Corporation has notice that such shares have been
acquired by a bona fide purchaser, and (b) files with the Corporation a
sufficient indemnity bond, and (c) satisfied such other reasonable requirements
as the Board of Directors may prescribe.
Section 7. Consideration for Shares. The shares of the Corporation may
be issued for such consideration as shall be fixed from time to time by the
Board of Directors, provided that any shares having a par value shall not be
issued for a consideration less than the par value thereof. The consideration
to be paid for shares may be paid in whole or in part, in money, in other
property, tangible or intangible, or in labor or services actually performed for
the Corporation. When payment of the consideration for which shares are to be
issued shall have been received by the Corporation, such shares shall be deemed
to be fully paid and nonassessable by the Corporation. No certificate shall be
issued for any share until such share is fully paid.
Section 8. Stock Regulations. The Board of Directors shall have the
power and authority to make all such further rules and regulations not
inconsistent with the statutes of the State of Wisconsin as it may deem
expedient concerning the issue, transfer and registration of certificates
representing shares of the Corporation.
ARTICLE VI
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation
and the state of incorporation and the words, "Corporate Seal".
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ARTICLE VII
AMENDMENTS
Section 1. By Shareholders. These By-laws may be altered, amended,
repealed, augmented and new By-laws may be adopted by the shareholders by
affirmative vote of not less than a majority of the votes represented by the
shares present or represented at any annual or special meeting of the
shareholders at which a quorum is in attendance.
Section 2. By Directors. These By-laws may also be altered, amended,
repealed, augmented and new By-laws may be adopted by the Board of Directors by
affirmative vote of a majority of the number of directors present at any meeting
at which a quorum is in attendance; but no By-law adopted by the shareholders
shall be amended or repealed by the Board of Directors if the By-law so adopted
so provides.
Section 3. Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the
By-laws then in effect but is taken or authorized by affirmative vote of not
less than the number of shares or the number of directors required to amend the
By-laws so that the By-laws would be consistent with such action, shall be given
the same effect as though the By-laws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so taken
or authorized.
ARTICLE VIII
INDEMNIFICATION
Section 1.01. Certain Definitions. All capitalized terms used in this
Article VIII and not otherwise hereinafter defined in this Section 1.01 shall
have the meaning set forth in Section 180.0850 of the Statute (as hereinafter
defined). The following capitalized terms (including any plural forms thereof)
used in this Article VIII shall be defined as follows:
(a) "Affiliate" shall include, without limitation, any corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise
that directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Corporation.
(b) "Authority" shall mean the entity selected by the Director or
Officer to determine his or her right to indemnification pursuant to Section
1.04 of this Article.
(c) "Board" shall mean the entire then elected and serving board of
directors of the Corporation, including all members thereof who are Parties to
the subject Proceeding or any related Proceeding.
(d) "Breach of Duty" shall mean the Director or Officer breached or
failed to perform his or her duties to the Corporation and his or her breach of
or failure to perform those duties is determined, in accordance with Section
1.04 of this Article, to constitute misconduct under Section 180.0851 (2) (a)
1, 2, 3 or 4 of the Statute.
(e) "Corporation, " as used herein and as defined in the Statute and
incorporated by reference into the definitions of certain capitalized terms used
herein, shall mean this Corporation, including, without limitation, any
successor corporation or entity to the Corporation by way of merger,
consolidation or acquisition of all or substantially all of the capital stock or
assets of this Corporation.
(f) "Director or Officer" shall have the meaning set forth in the
Statute; provided, that, for purposes of this Article, it shall be conclusively
presumed that any Director or Officer serving as a director, officer, partner,
trustee, member of any governing or decision-making committee, employee or agent
of an Affiliate shall be so serving at the request of the Corporation.
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(g) "Disinterested Quorum" shall mean a quorum of the Board who are not
Parties to the subject Proceeding or any related Proceeding.
(h) "Party" shall have the meaning set forth in the Statute; provided,
that, for purposes of this Article, the term "Party" shall also include any
Director, Officer or employee who is or was a witness in a Proceeding at a time
when he or she has not otherwise been formally named a Party thereto.
(i) "Proceeding" shall have the meaning set forth in the Statute;
provided, that, for purposes of this Article, "Proceeding" shall include all
Proceedings (i) brought under (in whole or in part) the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, their respective
state counterparts, and/or any rule or regulation promulgated under any of the
foregoing; (ii) brought before an Authority or otherwise to enforce rights
hereunder; (iii) any appeal from a Proceeding; and (iv) any Proceeding in which
the Director or Officer is a plaintiff or petitioner because he or she is a
Director or Officer, provided, however, that such Proceeding is authorized by a
majority vote of a Disinterested Quorum.
(j) "Statute" shall mean Sections 180.0850 through 180.0859, inclusive,
of the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin
Statutes, including any amendments thereto, but, in the case of any such
amendment, only to the extent such amendment permits or requires the Corporation
to provide broader indemnification rights than the Statute permitted or required
the Corporation to provide prior to such amendment.
Section 1.02. Mandatory Indemnification. To the fullest extent
permitted or required by the Statute, the Corporation shall indemnify a Director
or Officer against all Liabilities incurred by or on behalf of such Director or
Officer in connection with a Proceeding in which the Director or Officer is a
Party because he or she is a Director or Officer.
Section 1.03. Procedural Requirements.
(a) A Director or Officer who seeks indemnification under Section 1.02
of this Article shall make a written request therefor to the Corporation.
Subject to Section 1.03 (b) of this Article, within sixty days of the
Corporation's receipt of such request, the Corporation shall pay or reimburse
the Director or Officer for the entire amount of Liabilities incurred by the
Director or Officer in connection with the subject Proceeding (net of any
Expenses previously advanced pursuant to Section 1.05 of this Article).
(b) No indemnification shall be required to be paid by the Corporation
pursuant to Section 1.03 (a) of this Article if, within such sixty-day period:
(i) a Disinterested Quorum, by a majority vote thereof, determines that the
Director or Officer requesting indemnification engaged in misconduct
constituting a Breach of Duty; or (ii) a Disinterested Quorum cannot be
obtained.
(c) In either case of nonpayment pursuant to Section 1.03 (b) of this
Article, the Board shall immediately authorize by resolution that an Authority,
as provided in Section 1.04 of this Article, determine whether the Director's or
Officer's conduct constituted a Breach of Duty and, therefore, whether
indemnification should be denied hereunder.
(d) (i) If the Board does not authorize an Authority to determine the
Director's or Officer's right to indemnification hereunder within such sixty-day
period and/or (ii) if indemnification of the requested amount of Liabilities is
paid by the Corporation, then it shall be conclusively presumed for all purposes
that a Disinterested Quorum has determined that the Director or Officer did not
engage in misconduct constituting a Breach of Duty and, in the case of
subsection (i) above (but not subsection (ii)), indemnification by the
Corporation of the requested amount of Liabilities shall be paid to the Officer
or Director immediately.
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Section 1.04. Determination of Indemnification.
(a) When the Board authorized an Authority to determine a Director's or
Officer's right to indemnification pursuant to Section 1.03 of this Article,
then the Director or Officer requesting indemnification shall have the absolute
discretionary authority to select one of the following as such Authority:
(i) An independent legal counsel; provided, that such counsel shall be
mutually selected by such Director or Officer and by a majority vote of a
Disinterested Quorum or, if a Disinterested Quorum cannot be obtained, then by a
majority vote of the Board;
(ii) A panel of three arbitrators selected from the panels of
arbitrators of the American Arbitration Association in Milwaukee, Wisconsin;
provided, that (A) one arbitrator shall be selected by such Director or
Officer, the second arbitrator shall be selected by a majority vote of a
Disinterested Quorum or, if a Disinterested Quorum cannot be obtained, then by a
majority vote of the Board, and the third arbitrator shall be selected by the
two previously selected arbitrators; and (B) in all other respects, such panel
shall be governed by the American Arbitration Association's then existing
Commercial Arbitration Rules; or
(iii) A court pursuant to and in accordance with Section 180.0854 of the
Statute.
(b) In any such determination by the selected Authority there shall exist a
rebuttable presumption that the Director's or Officer's conduct did not
constitute a Breach of Duty and that indemnification against the requested
amount of Liabilities is required. The burden of rebutting such a presumption
by clear and convincing evidence shall be on the Corporation or such other party
asserting that such indemnification should not be allowed.
(c) The Authority shall make its determination within sixty days of being
selected and shall submit a written opinion of its conclusion simultaneously to
both the Corporation and the Director or Officer.
(d) If the Authority determines that indemnification is required hereunder,
the Corporation shall pay the entire requested amount of Liabilities (net of any
Expenses previously advanced pursuant to Section 1.05 of this Article),
including interest thereon at a reasonable rate, as determined by the Authority,
within ten days of receipt of the Authority's opinion; provided, that, if it is
determined by the Authority that a Director or Officer is entitled to
indemnification as to some claims, issues or matters, but not as to other
claims, issues or matters, involved in the subject Proceeding, the Corporation
shall be required to pay (as set forth above) only the amount of such requested
Liabilities as the Authority shall deem appropriate in light of all of the
circumstances of such Proceeding.
(e) The determination by the Authority that indemnification is required
hereunder shall be binding upon the Corporation regardless of any prior
determination that the Director or Officer engaged in a Breach of Duty.
(f) All Expenses incurred in the determination process under this Section
1.04 by either the Corporation or the Director or Officer, including, without
limitation, all Expenses of the selected Authority, shall be paid by the
Corporation.
Section 1.05. Mandatory Allowance of Expenses.
(a) The Corporation shall pay or reimburse, within ten days after the
receipt of the Director's or Officer's written request therefor, the reasonable
Expenses of the Director or Officer as such Expenses are incurred, provided the
following conditions are satisfied:
(i) The Director or Officer furnishes to the Corporation an executed
written certificate affirming his or her good faith belief that he or she has
not engaged in misconduct which constitutes a Breach of Duty; and
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(ii) The Director or Officer furnishes to the Corporation an unsecured
executed written agreement to repay any advances made under this Section 1.05 if
it is ultimately determined by an Authority that he or she is not entitled to be
indemnified by the Corporation for such Expenses pursuant to Section 1.04 of
this Article.
(b) If the Director or Officer must repay any previously advanced Expenses
pursuant to this Section 1.05, such Director or Officer shall not be required to
pay interest on such amounts.
Section 1.06. Indemnification and Allowance of Expenses of Certain Others.
(a) The Corporation shall indemnify a director or officer of an Affiliate
(who is not otherwise serving as a Director or Officer) against all Liabilities,
and shall advance the reasonable Expenses, incurred by such director or officer
in a Proceeding to the same extent hereunder as if such director or officer
incurred such Liabilities because he or she was a Director or Officer, if such
director or officer is a Party thereto because he or she is or was a director or
officer of the Affiliate.
(b) Except as hereinafter provided, the Corporation shall indemnify each
employee of the Corporation or an Affiliate of the Corporation acting within the
scope of his or her duties as such, against all Liabilities, and shall advance
Reasonable Expenses, incurred by or on behalf of such employee in connection
with a Proceeding in which he or she is a Party by virtue of being an employee
of the Corporation or an Affiliate of the Corporation, to the same extent and in
the same manner as a Director or Officer hereunder. The foregoing provision
shall not apply, and the Corporation shall not indemnify any employee, with
respect to any Liability to the extent covered by insurance maintained by or on
behalf of such employee (other than insurance maintained by the Corporation or
an Affiliate of the Corporation).
(c) The Board may, in its sole and absolute discretion as it deems
appropriate, pursuant to a majority vote thereof, indemnify against Liabilities
incurred by, and/or provide for the allowance of reasonable Expenses of, an
authorized agent of the Corporation acting within the scope of his or her duties
as such and who is not otherwise a Director or Officer.
Section 1.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of a Director, Officer and/or any individual who is or was
an authorized employee or agent of the Corporation against any Liability
asserted against or incurred by such individual in his or her capacity as such
or arising from his or her status as such, regardless of whether the Corporation
is required or permitted to indemnify against any such Liability under this
Article.
Section 1.08. Notice to the Corporation. A Director, Officer or employee
shall promptly notify the Corporation in writing when he or she has actual
knowledge of a Proceeding which may result in a claim or indemnification against
Liabilities or allowance of Expenses hereunder, but the failure to do so shall
not relieve the Corporation of any liability to the Director, Officer or
employee hereunder unless the Corporation shall have been irreparably prejudiced
by such failure (as determined by an Authority).
Section 1.09. Report to Shareholders. In the event that the Corporation
indemnifies or advances expenses to a Director or Officer in connection with a
proceeding brought in the right of the Corporation, the Corporation shall report
the indemnification or advance in writing to shareholders with or before the
notice of the next meeting of shareholders. The report shall be delivered to
shareholders who are entitled to receive notice of the next meeting of
shareholders.
Section 1.10. Severability. If any provision of this Article shall be
deemed invalid or inoperative, or if a court of competent jurisdiction
determines that any of the provisions of this Article contravene public policy,
this Article shall be construed so that the remaining provisions shall not be
affected, but shall remain in full force and effect, and any such provisions
which are invalid or inoperative or which contravene public policy shall be
deemed, without further action or deed by or on behalf of the Corporation, to
be modified, amended and/or limited, but only to the extent necessary to render
the same valid and enforceable.
24
<PAGE> 12
Section 1.11. Nonexclusivity of this Article. The rights of a
Director, Officer or employee (or any other person) granted under this Article
shall not be deemed exclusive of any other rights to indemnification against
Liabilities or advancement of Expenses which the Director, Officer or employee
(or such other person) may be entitled to under any written agreement, Board
resolution, vote of shareholders of the Corporation or otherwise, including
without limitation under the Statute. Nothing contained in this Article
shall be deemed to limit the Corporation's obligations to indemnify a Director,
Officer or employee under the Statute.
Section 1.12. Contractual Nature of this Article; Repeal or Limitation
of Rights. This Article shall be deemed to be a contract between the
Corporation and each Director, Officer and employee and any repeal or other
limitation of this Article or any repeal or limitation of the Statute or any
other applicable law shall not limit any rights of indemnification against
Liabilities or allowance of Expenses then existing or arising out of events,
acts or omissions occurring prior to such repeal or limitation, including,
without limitation, the right of indemnification against Liabilities or
allowance of Expenses for Proceedings commenced after such repeal or limitation
to enforce this Article with regard to acts, omissions or events arising prior
to such repeal or limitation.
Section 1.13. Subrogation Rights. Notwithstanding any provision to the
contrary set forth herein, the Corporation's obligations hereunder are not
intended to constitute, and shall not constitute, a waiver of any right to
subrogation which the Corporation may have against any person or entity.
25
<PAGE> 1
Exhibit (11.0)
BADGER METER, INC.
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
(Restated for impact of two-for-one split effective April 18, 1997)
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
PRIMARY (1) (1)
<C> <C> <C> <C>
Shares
Average shares outstanding 3,539,728 3,508,450 3,461,530
Shares issuable upon exercise of
stock options 158,735 74,384 59,120
------------------------------------
Total 3,698,463 3.582.834 3,520,650
====================================
Net Earnings $5,126,655 $3,718,679 $3,215,527
====================================
Net Earnings per share $ 1.39 $ 1.04 $ .91
====================================
FULLY DILUTED
Shares
Average shares outstanding 3,539,728 3,508,450 3,461,530
Shares issuable upon exercise of
stock options 242,052 95,498 65,452
------------------------------------
Total 3,781,780 3,603,948 3,526,982
====================================
Net Earnings $5,126,655 $3,718,679 $3,215,527
====================================
Net Earnings per share $ 1.36 $ 1.03 $ .91
====================================
Percentage dilution 6.4% 2.6% 1.9%
</TABLE>
(1) Earnings per share for 1995 and 1994 financial statement purposes does not
include common stock equivalants since dilution was less than 3%.
26
<PAGE> 1
Exhibit (13.0)
Portions of Annual Report to Shareholders that are incorporated by reference.
27
<PAGE> 2
(Page 1 of Annual Report to Shareholders)
BADGER METER, INC.
F I N A N C I A L H I G H L I G H T S
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995 %CHANGE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net sales $116,018,000 $108,644,000 6.8
Net earnings $ 5,127,000 $ 3,719,000 37.9
- ---------------------------------------------------------------------------------------------
PER SHARE
Net earnings:
Primary $ 1.39 $ 1.06 31.1
Fully diluted $ 1.36 $ 1.06 28.3
Cash dividends declared:
Common Stock $ .4300 $ .3908 10.0
Class B Common Stock $ .3910 $ .3555 10.0
Net book value $ 10.32 $ 9.16 12.7
- ---------------------------------------------------------------------------------------------
YEAR-END FINANCIAL POSITION
Working capital $ 17,645,000 $ 16,178,000 9.1
Current ratio 2.0 to 1 2.1 to 1 (4.8)
Long-term debt $ 1,091,000 $ 1,000,000 9.1
Shareholders' equity $ 36,638,000 $ 32,163,000 13.9
Net earnings as a percent of equity 14.0% 11.6% 20.7
=============================================================================================
OTHER
Number of employees 940 904 4.0
Number of shareholders:
Common Stock:
In employee plans 695 678 2.5
Of record 579 608 (4.8)
Class B Common Stock 9 9 0
Shares outstanding:
Common Stock 2,426,376 2,387,214 1.6
Class B Common Stock 1,125,570 1,125,570 0
=============================================================================================
</TABLE>
28
<PAGE> 3
(Page 14 to 16 of Annual Report to Shareholders)
MANAGEMENT'S DISCUSSION AND ANALYSIS
BUSINESS DESCRIPTION
Badger Meter, Inc. serves the flow measurement and control market worldwide
with products including water meters and related meter reading technologies,
wastewater meters, industrial meters, small valves and natural gas meters and
related instrumentation. The company operates in one business segment with
three internal operating units: Utility, Industrial and International. The
Utility and Industrial divisions market their products in the U.S. and Canada,
while the International Division markets both utility and industrial products
in other countries throughout the world. The company has continued to see
growth in both its domestic and international markets.
RESULTS OF OPERATIONS
SALES
Badger Meter's sales increased $7,374,000 and $9,489,000, or 6.8% and 9.6% in
1996 and 1995, respectively. Sales trends are primarily affected by new
product sales and general market conditions. Residential water meter sales for
the past several years have been impacted by a general industry movement away
from manually-read meters to automated meter reading technologies.
Both years were favorably affected by increased unit sales of the TRACE
radio-frequency automated meter reading system and increased European sales of
lubrication meters. In addition, the 1996 sales increase was impacted by
favorable pricing of meter products, improved channels of distribution and
increased sales of primary flow elements. The 1995 sales increase was also
favorably affected by increased sales volumes of large Recordall meters and
Research Control valves.
Badger Meter continues to improve existing products and develop new products,
primarily in the areas of meter reading technologies, ultrasonic meters,
residential and commercial meters, lubrication meters, valves and natural gas
instrumentation. Increases in sales of new products depends upon the rate of
acceptance of the new technologies, both domestically and internationally, and
overall market conditions. Sales of mature product lines are directly related
to the strength of the various markets utilizing those products and the
development of products to replace them.
International sales are comprised primarily of sales of industrial metering
products in Europe and sales of automated meter reading technologies in
Mexico. Major sales of TRACE radio-frequency meter reading systems under a
single contract to Mexico contributed significantly to 1994 and 1995 sales. In
1996, these sales decreased as this contract neared completion. However, this
impact was partially offset by additional sales to Mexico through expansion of
the original contract . The company continues to pursue new business
opportunities in Mexico, as well as worldwide. Because the company does
business in Mexico in U.S. dollars, Badger Meter experienced no currency losses
on Mexican business in 1994, 1995 or 1996.
The company's sales growth is derived from both new products and alliances that
have been, and continue to be developed with other companies. Badger Meter's
strategy is to meet customers' metering needs with its proprietary technologies
or other technologies available through alliances in the marketplace. Both
alternatives enable the company to sell its products either as part of a
proprietary technology or as components that interface with systems developed
by other companies. For example, Badger Meter has a long-term distribution
agreement with American Meter Company and in 1996 added to that by obtaining
worldwide distribution rights to the TRACE technology for the water market.
Related to ultrasonic flowmeters, the company entered into a joint marketing
agreement in 1996 with ADS Environmental Services.
The company also formed a joint venture in 1996 with Instromet International
for marketing and selling gas measurement products.
GROSS PROFIT MARGINS
Gross profit margins were 36.7%, 36.0% and 36.7% for 1996, 1995 and 1994,
respectively. These margin variations result primarily from changes in
product mix between years. The decrease in margins from 1994 to 1995 was due
primarily to increased sales of lower-margin meter reading technology products.
Although sales of meter reading technology products again increased in 1996,
manufacturing cost improvements have increased the margins on these products
and enabled the company to maintain stable margins in total.
29
<PAGE> 4
In 1995, the company experienced price increases in castings, plastic resin,
glass, electronic components and cartons. Increases in raw material prices
were more moderate in 1996. Competitive marketing conditions make it somewhat
difficult to pass along all of the raw material cost increases through higher
selling prices. Offsetting the increased raw material prices are cost
reductions resulting from capital investment to improve manufacturing equipment
and systems and from continued savings achieved from the company's cost
improvement programs. Higher unit volumes in the meter reading technology
product line also offset some of the raw material price increases.
OTHER FACTORS
Marketing and administrative costs increased 6.6% in 1996 and 4.7% in 1995,
which were both less than the percentage increases in sales for each year. The
higher 1996 increase was due primarily to increased incentive compensation
costs and costs associated with the formation of the International Division in
1996.
Research and engineering costs increased 9.4% from 1994 to 1995, but were
essentially flat between 1995 and 1996. The increased expenditures in 1995
related primarily to expansion of the meter reading technology products,
development of a new line of large utility meters and the continued upgrade and
expansion of the ultrasonic and natural gas instrumentation product lines. In
1996, work continued in all of these areas but the engineering expenditures
leveled off as certain product development cycles reached successful conclusion.
Interest expense decreased in both 1995 and 1996 due to a combination of lower
interest rates and lower debt balances. Other expenses increased in 1995 due
primarily to foreign currency translation losses, but decreased in 1996 as
hedging activities eliminated any such losses. The company uses a combination
of foreign currency forward contracts and lines of credit with foreign banks to
reduce the impact of changes in the value of its existing foreign currency
commitments and net asset positions.
INCOME TAXES
Income tax as a percentage of earnings before income taxes was 37.2%, 37.1% and
35.3% for 1996, 1995 and 1994, respectively. The increase in the percentage
from 1994 to 1995 was due to a reduction in the amount of the tax benefit of
the company's foreign sales corporation ("FSC"). In 1996, the FSC benefit
increased again, but was offset by higher taxes on foreign operations.
The company currently has a net deferred tax asset of approximately $1,257,000,
reflecting the net temporary differences between financial reporting and tax
reporting. The majority of this net asset relates to deferred payments for
employee benefit plans and is expected to reverse as future payments exceed
expenses.
NET EARNINGS AND EARNINGS PER SHARE
The 1996 record earnings resulted from the increased sales, improved margins,
level research and engineering expenditures and lower interest and other
expenses. The 1995 earnings improvement reflected the increased sales and
reduced interest expense. This was partially offset by a decrease in gross
profit margins and increased research and engineering expenditures.
Net earnings increased 15.6% from 1994 to 1995, while primary earnings per
share increased at a lower rate, 14%, due to an increase in the shares
outstanding between the periods. For both 1995 and 1994, the per share
information was computed using the average number of share outstanding without
consideration of the impact of stock options because the dilution from such
options was less than 3%. For 1996, dilution exceeded 3% and therefore the
impact of stock options outstanding was factored into the calculation. As a
result, while net earnings increased 37.9% from 1995 to 1996, primary earnings
per share increased 31.1%, due to increased shares outstanding and the impact
of stock options outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations increased from $6.3 million in 1994 to $12 million
in 1995, due to increased earnings and reduced inventory and receivable
balances. In 1996, cash provided by operations decreased to $9.9 million as
inventory and receivable balances increased to support higher sales levels,
partially offset by increased earnings and higher payables related to increased
purchasing activity.
30
<PAGE> 5
Capital expenditures were $5.4 million in 1996, $4.5 million in 1995 and $3.6
million in 1994. These increased levels of expenditures enabled the company to
continue to expand production capacity to meet higher sales requirements,
improve manufacturing processes to achieve higher quality and lower costs, and
to improve facilities for marketing and administrative personnel.
The company used cash provided by operations to reduce its debt levels by $2.9
million in 1996, $4.9 million in 1995 and $2.1 million in 1994. Total debt at
December 31, 1996 was $3.7 million, compared to $6.5 million at December 31,
1995 and $11.6 million at December 31, 1994. Total indebtedness at December
31, 1996 consisted of commercial paper, bank debt and a capital lease. During
1994 and 1995, the company had an interest rate swap agreement to minimize
exposure to short-term interest rate fluctuations. Due to the reduced risk as
a result of decreased debt levels, this agreement was terminated during 1996.
Other significant changes in balance sheet accounts during 1996 include an
increase in other accrued liabilities, primarily due to provisions for other
after-sale costs. Intangible assets (primarily patents) decreased due to
normal annual amortization, and the prepaid pension asset increased due to
payments in excess of the pension provision. As a result of the merger of its
overfunded and underfunded pension plans as of December 31, 1996, the company
eliminated its minimum pension liability adjustment to equity.
The company's financial condition remains strong. The company believes that
its cash, other liquid assets, operating cash flows and available borrowing
capacity of over $24 million at December 31, 1996, provide adequate resources
to fund ongoing operating requirements and future capital expenditures related
to expansion of capacity and development of new products.
ENVIRONMENTAL MATTERS
The company's domestic and international operations are subject to
various environmental statutes and regulations. The company believes it is in
compliance with such existing domestic and foreign environmental statutes and
regulations. Currently, the company is in the process of resolving a case
relative to a landfill site, as well as litigation alleging violation of
California's Proposition 65. The company believes the ultimate resolution of
these claims will not have a material adverse effect on the results of
operations. Provision has been made for known settlement costs.
31
<PAGE> 6
(Page 17 of Annual Report to Shareholders)
BADGER METER, INC.
C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $116,018,255 $108,644,001 $99,154,839
Operating costs and expenses:
Cost of sales 73,489,917 69,499,606 62,806,600
Marketing and administrative 27,347,697 25,643,624 24,501,650
Research and engineering 6,426,063 6,479,329 5,923,735
- ----------------------------------------------------------------------------------------
107,263,677 101,622,559 93,231,985
- ----------------------------------------------------------------------------------------
Operating earnings 8,754,578 7,021,442 5,922,854
Other deductions:
Interest expense 367,728 721,250 829,643
Other - net 220,185 389,513 119,684
- ----------------------------------------------------------------------------------------
587,913 1,110,763 949,327
- ----------------------------------------------------------------------------------------
Earnings before income taxes 8,166,665 5,910,679 4,973,527
Provision for income taxes (Note 8) 3,040,000 2,192,000 1,758,000
- ----------------------------------------------------------------------------------------
Net earnings $ 5,126,665 $ 3,718,679 $ 3,215,527
========================================================================================
Earnings per share:
Primary $ 1.39 $ 1.06 $ .93
Fully diluted * $ 1.36 $ 1.06 $ .93
- ----------------------------------------------------------------------------------------
Weighted average shares used in computation of:
Primary 3,698,462 3,508,450 3,461,530
Fully diluted * 3,781,780 3,508,450 3,461,530
========================================================================================
</TABLE>
* Dilution was not significant in 1995 and 1994.
See accompanying notes.
32
<PAGE> 7
(Page 18 of Annual Report to Shareholders)
BADGER METER, INC.
C O N S O L I D A T E D B A L A N C E S H E E T S
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,123,145 $ 1,176,947
Receivables (Note 3) 15,498,461 13,661,094
Inventories:
Finished goods 3,577,268 3,403,329
Work in process 8,466,296 6,750,432
Raw materials and purchased parts 5,462,619 5,680,616
- ------------------------------------------------------------------------------------------------------------------
Total inventories 17,506,183 15,834,377
Prepaid expenses 917,761 744,989
- ------------------------------------------------------------------------------------------------------------------
Total current assets 35,045,550 31,417,407
Property, plant and equipment, at cost:
Land and improvements 2,770,286 2,759,230
Buildings and improvements 12,270,624 11,354,085
Machinery and equipment 42,070,255 40,987,455
- ------------------------------------------------------------------------------------------------------------------
57,111,165 55,100,770
Less accumulated depreciation (37,751,230) (37,714,079)
- ------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 19,359,935 17,386,691
Intangible assets, at cost less accumulated amortization 877,621 1,216,645
Prepaid pension (Note 7) 7,102,215 5,821,221
Deferred income taxes (Note 8) 1,256,917 1,536,120
Deferred charges and other assets (Note 7) 2,491,032 3,148,437
- ------------------------------------------------------------------------------------------------------------------
$ 66,133,270 $ 60,526,521
==================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (Notes 4 and 6) $ 2,634,326 $ 5,515,320
Payables 7,102,025 4,230,517
Accrued compensation and employee benefits 4,762,988 4,249,643
Other accrued liabilities 1,928,701 690,857
Income and other taxes 972,400 553,355
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 17,400,440 15,239,692
Accrued non-pension postretirement benefits (Note 7) 8,106,000 8,396,000
Other accrued employee benefits (Notes 5 and 7) 2,898,538 3,727,880
Long-term debt (Notes 6 and 7) 1,090,608 1,000,000
Commitments and contingencies (Note 6)
Shareholders' equity: (Notes 2, 5 and 7)
Common Stock, $1 par; authorized 5,000,000 shares;
issued 3,154,566 shares in 1996 and 1,551,912 shares in 1995 3,154,566 1,551,912
Class B Common Stock, $.10 par; authorized 5,000,000 shares;
issued 1,125,570 shares in 1996 and 562,785 shares in 1995 112,557 56,278
Capital in excess of par value 6,802,690 7,831,877
Reinvested earnings 28,199,737 24,552,011
Less:Employee benefit stock (1,052,596) (1,101,846)
Pension liability adjustment (Note 7) 0 (368,978)
Treasury stock, at cost, 728,190 shares in 1996 and 358,305 in 1995 (579,270) (358,305)
- ------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 36,637,684 32,162,949
- ------------------------------------------------------------------------------------------------------------------
$ 66,133,270 $ 60,526,521
==================================================================================================================
</TABLE>
See accompanying notes.
33
<PAGE> 8
(Page 19 of Annual Report to Shareholders)
BADGER METER, INC.
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net earnings $ 5,126,665 $ 3,718,679 $ 3,215,527
Adjustments to reconcile net earnings to net cash
provided by operations:
Depreciation 3,521,521 3,522,944 3,467,618
Amortization 597,888 874,683 968,585
Noncurrent employee benefits (882,718) (205,529) (154,947)
Deferred income taxes 279,203 (209,380) (325,740)
Other 37,634 200,329 94,346
Changes in:
Receivables (1,837,367) 771,123 (2,868,621)
Inventories (1,671,805) 2,632,889 (482,246)
Current liabilities other than short-term debt 4,879,818 730,336 2,431,359
Prepaid expenses (172,774) (9,637) (3,655)
- -----------------------------------------------------------------------------------------------
Total adjustments 4,751,400 8,307,758 3,126,699
- -----------------------------------------------------------------------------------------------
Net cash provided by operations 9,878,065 12,026,437 6,342,226
- -----------------------------------------------------------------------------------------------
Investing activities:
Property, plant and equipment (5,381,505) (4,492,690) (3,553,186)
Other - net (548,303) (597,490) (276,364)
- -----------------------------------------------------------------------------------------------
Net cash used for investing activities (5,929,808) (5,090,180) (3,829,550)
- -----------------------------------------------------------------------------------------------
Financing activities:
Bank borrowings (repayments) (2,941,280) (4,921,220) (2,145,303)
Dividends (1,478,939) (1,331,276) (1,194,722)
Stock options and ESSOP 639,125 128,600 317,926
Purchase of treasury stock (220,965) 0 0
- -----------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (4,002,059) (6,123,896) (3,022,099)
- -----------------------------------------------------------------------------------------------
Increase (decrease) in cash (53,802) 812,361 (509,423)
Cash - beginning of year 1,176,947 364,586 874,009
- -----------------------------------------------------------------------------------------------
Cash - end of year $ 1,123,145 $ 1,176,947 $ 364,586
===============================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 2,348,337 $ 2,141,821 $ 2,382,320
Interest $ 377,931 $ 767,189 $ 851,533
Non-cash transaction (Note 7)
===============================================================================================
</TABLE>
See accompanying notes.
34
<PAGE> 9
(Page 20 of Annual Report to Shareholders)
BADGER METER, INC.
C O N S O L I D A T E D S T A T E M E N T S O F S H A R E H O L D E R S'
E Q U I T Y
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Class B Capital in Employee Pension
Common Common excess of Reinvested benefit liability Treasury
Stock Stock par value earnings stock adjustment stock
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $1,498,609 $ 56,278 $ 6,693,011 $20,143,803 $(1,663,968) $(295,304) $(358,305)
Net earnings 3,215,527
Cash dividends, $.3548 per Common share (831,726)
Cash dividends, $.3225 per Class B Common
share (362,996)
Restricted stock plan (Note 5):
Amortization of unearned compensation 66,471
Shares canceled (1,000) (17,750) 18,750
Tax benefit on vested restricted stock 37,000
Employee stock ownership plan (Note 7):
Amortization of unearned compensation 200,000
Stock options exercised (Note 5) 18,570 299,356
Tax benefit on stock options (Note 5) 55,000
Treasury stock issued 30,733 614,660
Tax benefit on dividends (Notes 5 and 7) 27,000
Pension liability adjustment (Note 7) (92,969)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 1,546,912 56,278 7,708,277 22,164,608 (1,378,747) (388,273) (358,305)
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings 3,718,679
Cash dividends, $.3908 per Common share (931,136)
Cash dividends, $.3555 per Class B Common
share (400,140)
Restricted stock plan (Note 5):
Amortization of unearned compensation 76,901
Tax benefit on vested restricted stock 4,000
Employee stock ownership plan (Note 7):
Amortization of unearned compensation 200,000
Stock options exercised (Note 5) 5,000 81,600
Tax benefit on stock options (Note 5) 11,000
Tax benefit on dividends (Notes 5 and 7) 27,000
Pension liability adjustment (Note 7) 19,295
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,551,912 56,278 7,831,877 24,552,011 (1,101,846) (368,978) (358,305)
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings 5,126,665
Cash dividends, $.430 per Common share (1,038,841)
Cash dividends, $.391 per Class B Common
share (440,098)
Restricted stock plan (Note 5):
Amortization of unearned compensation 39,875
Shares Canceled (500) (8,875) 9,375
Tax benefit on vested restricted stock 13,000
Stock options exercised (Note 5) 24,600 428,935
Tax benefit on stock options (Note 5) 103,000
Tax benefit on dividends (Notes 5 and 7) 27,000
Pension liability adjustment (Note 7) 368,978
Shares purchased by ESSOP Participants 1,271 36,394
Treasury stock issued 4,921 210
Treasury stock purchased (221,175)
Two-for-one stock split 1,577,283 56,279 (1,633,562)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $3,154,566 $112,557 $ 6,802,690 $28,199,737 $(1,052,596) $ (0) $(579,270)
==================================================================================================================================
</TABLE>
See accompanying notes.
35
<PAGE> 10
(Pages 21 to 26 of Annual Report to Shareholders)
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 1996, 1995 and 1994
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROFILE Badger Meter is a leading marketer and manufacturer of products
using flow measurement and control technology. It operates in one business
segment. Its products are used to measure and control the flow of liquids and
gases in a variety of applications.
The company serves the flow measurement and control market worldwide with
products including water meters and associated systems, wastewater meters,
industrial meters, small valves and natural gas meters and related
instrumentation.
CONSOLIDATION The consolidated financial statements include the accounts
of the company and its wholly owned subsidiaries.
REVENUE RECOGNITION Revenues are recognized from product sales upon
shipment. The company estimates and records provisions for warranties and
other after-sale costs in the period the sale is reported. Such provisions are
included in other accrued liabilities.
INVENTORIES Inventories are valued at the lower of cost (first-in,
first-out method), or market.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at
cost. Depreciation has been provided principally by the straight-line method.
INTANGIBLE ASSETS Costs of purchased patents are amortized over the lives
of the patents. Accumulated amortization at December 31, 1996 and 1995, was
$2,512,000 and $2,173,000, respectively.
TREASURY STOCK Treasury stock is stated at cost. In 1996, the Board of
Directors authorized the repurchase of up to 350,000 shares of stock. During
1996, the company purchased 12,000 shares, which were added to treasury stock.
RESEARCH AND DEVELOPMENT Research and development costs are charged to
expense as incurred and amounted to $3,851,000, $3,858,000 and $3,278,000 in
1996, 1995 and 1994, respectively.
EARNINGS PER SHARE For 1995 and 1994, earnings per share is based on the
weighted-average shares outstanding during each period. Dilution from common
stock equivalents was less than 3% in both years. For 1996, earnings per share
is based on the weighted-average common and common equivalent shares (stock
options) outstanding during the year.
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.
FOREIGN CURRENCY TRANSLATION The company's functional currency for all of
its foreign subsidiaries is the U.S. dollar. Translation adjustments and
transaction gains and losses are recognized in consolidated income as incurred.
These amounts are reflected in Other-net in the Statements of Operations and
have not been material.
PROSPECTIVE ACCOUNTING CHANGES In October 1996, the Accounting Standards
Executive Committee issued Statement of Position 96-1 (SOP), to be effective in
1997. The SOP provides guidance for determining when an environmental
liability should be recorded. The company believes that future adoption of the
SOP will have no material effect on results of operations or financial
position.
36
<PAGE> 11
RECLASSIFICATIONS Certain reclassifications have been made to the 1995
consolidated balance sheet to conform to the 1996 presentation.
2 COMMON STOCK
On February 14, 1997, the Board of Directors declared a two-for-one stock
split on the company's Common Stock and Class B Common Stock effected in the
form of a 100% stock dividend, payable on April 18, 1997, to shareholders of
record at the close of business on March 27, 1997. In this report, all per
share amounts and numbers of shares have been restated to reflect this stock
split. In addition, Common Stock, Class B Common Stock and capital in excess
of par value as of December 31, 1996, have been restated to reflect this split.
Holders of Class B Common Stock are restricted in their ability to
transfer such shares although they may convert their shares of Class B Common
Stock into shares of Common Stock at any time. Holders of Common Stock are
entitled to cash dividends per share equal to 110% of all dividends declared
and paid on each share of the Class B Common Stock. Holders of Class B Common
Stock are entitled to ten votes per share on any matters brought before the
shareholders of the company while holders of Common Stock are entitled to one
vote per share. Liquidation rights are the same for both classes of stock.
3 TRANSACTIONS WITH AFFILIATED COMPANY
The company carries its 15% interest in a Mexican company, Medidores
Azteca, S.A. (Azteca) at cost ($75,000). During 1996, 1995 and 1994, the
company sold approximately $1,175,000, $441,000 and $974,000 of goods to
Azteca. Trade receivables from Azteca at December 31, 1996 and 1995, were
$541,000 and $615,000, respectively.
4 SHORT-TERM DEBT AND CREDIT LINES
Short-term debt at December 31, 1996 and 1995, consisted of:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------
<S> <C> <C>
Notes payable to banks $1,439,040 $1,057,320
Commercial paper 1,135,000 4,458,000
Current portion of capital lease (Note 6) 60,286 0
-----------------------------------------------------------------
TOTAL $2,634,326 $5,515,320
=================================================================
</TABLE>
The company has $26,948,000 of short-term credit lines with domestic banks
and a foreign bank which includes a
$5,000,000 commercial paper line of credit. At December 31, 1996, $2,574,040
of these lines was used, which included $1,135,000 of commercial paper. The
weighted-average interest rate on the outstanding balance was 5.22% and 5.81%
at December 31, 1996 and 1995.
5 RESTRICTED STOCK AND STOCK OPTION PLANS
A. RESTRICTED STOCK PLAN
The company's Restricted Stock Plan (The Plan) provided for the award of
up to 200,000 shares of the company's Common Stock to certain officers and key
employees and for the reimbursement to certain participants for the personal
income tax liability resulting from such awards. The company provides for any
income tax liability ratably throughout the restricted period. Plan
participants are entitled to cash dividends and to vote their respective
shares. The sale or transfer of the shares is limited during the restricted
period, not exceeding eight years. All eligible shares have been issued. The
value of such stock was established by the market price on the date of grant.
Restrictions on 6,000 shares expired during 1996 and 1,000 shares were
canceled.
Unearned compensation was charged for the market value of the restricted
shares as these shares were issued in accordance with The Plan. The unearned
compensation is shown as a reduction of shareholders' equity in the
accompanying consolidated balance sheets and is being amortized ratably over
the restricted period. During 1996, 1995 and 1994, $43,000, $82,000 and
$101,000 was charged to expense relating to The Plan.
37
<PAGE> 12
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
B. STOCK OPTION PLANS
The company has three stock option plans which provide for the issuance of
options to key employees and directors of the company. Each plan authorizes
the issuance of options to purchase up to an aggregate of 200,000 shares of
Common Stock, with vesting periods of up to three years and maximum option
terms of ten years. As of December 31, 1996, options to purchase approximately
68,000 shares are available for issue.
The following table summarizes the transactions of the company's stock
option plans for the three year period ended December 31, 1996:
<TABLE>
<CAPTION>
Weighted-Average
Number of Shares Exercise Price
- ---------------------------------------------------------------------------------
<S> <C> <C>
Unexercised options outstanding -
December 31, 1993 320,600 $ 9.06
Options granted 4,200 $ 9.57
Options exercised (37,140) $ 8.57
Options forfeited (9,000) $ 8.72
- ---------------------------------------------------------------------------------
Unexercised options outstanding -
December 31, 1994 278,660 $ 9.14
Options granted 84,200 $11.25
Options exercised (10,000) $ 8.66
Options forfeited (3,600) $ 8.57
- ---------------------------------------------------------------------------------
Unexercised options outstanding -
December 31, 1995 349,260 $ 9.64
Options granted 144,168 $12.96
Options exercised (49,200) $ 9.22
Options forfeited (8,468) $10.67
- ---------------------------------------------------------------------------------
Unexercised options outstanding -
December 31, 1996 435,760 $10.77
Price range $8.38-$12.88
(weighted-average contractual life
of 7.1 years) 403,760 $10.43
Price range $14.82-$15.82
(weighted-average contractual life
of 9.4 years) 32,000 $15.00
- ---------------------------------------------------------------------------------
Exercisable options -
December 31, 1994 200,400 $ 9.03
December 31, 1995 230,060 $ 9.11
December 31, 1996 241,610 $ 9.39
================================================================================
</TABLE>
Statement of Financial Accounting Standard No. 123 "Accounting for
Stock-Based Compensation" (FAS 123) became effective for the company in 1996.
As allowed by FAS 123, the company has elected to continue to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) in accounting for its stock option plans. Under APB 25, the company
does not recognize compensation expense on the issuance of its stock options
because the option terms are fixed and the exercise price equals the market
price of the underlying stock on the grant date.
As required by FAS 123, the company has determined the pro-forma
information as if the company had accounted for stock options granted since
January 1, 1995, under the fair value method of FAS 123. The Black-Scholes
option pricing model was used with the following weighted-average assumptions
for 1996 and 1995: risk-free interest rates of 5.5% and 7.4%; dividend yield of
3%; expected Common Stock market price volatility factor of .168; and a
weighted-average expected life of the options of three to five years. The
weighted-average fair value of options granted in 1996 and 1995 were $2.11 and
$2.36 per share, respectively. The pro-forma effect of these options on net
earnings, primary and fully diluted earnings per share was not material. These
pro-forma calculations only include the effects of 1995 and 1996 grants. As
such, the impacts are not necessarily indicative of the effects on reported net
income of future years.
38
<PAGE> 13
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
6 COMMITMENTS AND CONTINGENCIES
A. COMMITMENTS
The company leases equipment and facilities under operating leases, some
of which contain renewal options. In 1996, the company also leased certain
computer equipment under a capital lease. The leased asset is included in
machinery and equipment and the lease obligation is included in short and
long-term debt in the accompanying consolidated balance sheets. Future minimum
lease payments consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
Operating Capital Total
Leases Lease Leases
---------------------------------------------------------------------------
<S> <C> <C> <C>
1997 $314,472 $ 65,100 $379,572
1998 161,321 65,100 226,421
1999 49,041 28,210 77,251
2000 44,910 0 44,910
2001 and thereafter 45,494 0 45,494
---------------------------------------------------------------------------
Total minimum lease payments 615,238 158,410 773,648
Less: amount representing interest 0 (7,516) (7,516)
---------------------------------------------------------------------------
Present value of net minimum lease payments 615,238 150,894 766,132
Less: current portion 0 (60,286) (60,286)
---------------------------------------------------------------------------
Lease obligationss $615,238 $ 90,608 $705,846
===========================================================================
</TABLE>
Total rental expense charged to operations under all operating leases was
approximately $1,294,000, $1,362,000 and $1,332,000 in 1996, 1995 and 1994,
respectively.
B. CONTINGENCIES
In the normal course of business, the company is named in legal
proceedings. There are currently no material legal proceedings pending with
respect to the company.
The company is subject to contingencies relative to environmental laws and
regulations. Currently the company is in the process of resolving several
cases relative to landfill sites, as well as alleged violation of California's
Proposition 65. The company does not believe the ultimate resolution of these
actual or potential claims will have a material adverse effect on the results
of operations. Provision has been made for known settlement costs.
The company has evaluated its worldwide operations to determine if any
risks and uncertainties exist that could severely impact its operations in the
near-term. In general the company does not believe that it is at risk.
However, the company does rely on single suppliers for certain castings and
components in several of its product lines. Although alternate sources of
supply exist for these items, loss of certain suppliers could disrupt
operations. The company attempts to mitigate these risks by working closely
with key suppliers and by purchasing business interruption insurance where
appropriate.
7 EMPLOYEE BENEFIT PLANS
A. PENSION PLANS
The company maintains non-contributory defined benefit pension plans
covering substantially all domestic employees. Benefits for salaried
employees are based on compensation and years of service while benefits for
hourly employees are generally based on years of service. It is the company's
policy to fund at least the minimum contribution required by ERISA. As of
December 31, 1996, the company merged its various pension plans into one
pension plan.
39
<PAGE> 14
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The following data is provided for the pension plans:
<TABLE>
Components of Net Periodic Pension Credit
- -----------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost - benefits earned during the year $ 1,043,802 $ 850,072 $ 940,006
Interest cost on projected benefit obligations 2,248,932 2,148,189 1,904,504
Actual (return) loss on plan assets (3,081,757) (6,409,454) 736,097
Net amortization and deferral (323,409) 3,175,733 (3,885,874)
- -----------------------------------------------------------------------------------------
Net periodic pension credit $ (112,432) $ (235,460) $ (305,267)
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Funded Status DECEMBER 31,
- ------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------
ASSETS ASSETS ACCUMULATED
EXCEED EXCEED BENEFITS
ACCUMULATED ACCUMULATED EXCEED
BENEFITS BENEFITS ASSETS
- ------------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $28,460,986 $15,563,014 $ 8,135,305
Non-vested benefit obligation 522,827 296,236 139,133
- ------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $28,983,813 $15,859,250 $ 8,274,438
=====================================================================================================
Projected benefit obligation $32,202,537 $21,711,321 $ 8,274,438
Plan assets at fair value 37,345,758 27,862,175 6,481,265
- ------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 5,143,221 6,150,854 (1,793,173)
Unrecognized net loss 6,482,703 1,728,524 644,041
Unrecognized prior service cost (credit) (2,834,660) 14,101 946,850
Unrecognized transition asset (1,693,057) (2,072,258) (44,063)
Adjustment required to recognize
minimum liability 0 0 (1,546,828)
- ------------------------------------------------------------------------------------------------------
Prepaid pension cost 7,098,207 5,821,221 (1,793,173)
Contribution payable 4,008 0 0
- ------------------------------------------------------------------------------------------------------
Prepaid pension asset (liability)
included in balance sheet $ 7,102,215 $ 5,821,221 $(1,793,173)
=====================================================================================================
</TABLE>
The provisions of FAS No. 87, "Employers' Accounting for Pensions",
require the recognition of an additional minimum liability for each defined
benefit plan for which the accumulated benefit obligation exceeds plan assets.
As a result of the December 31, 1996 merger of the plans, no additional minimum
liability was required as of that date. For December 31, 1995, a minimum
liability adjustment of $1,546,828 was recognized. However, the asset
recognized may not exceed the amount of unrecognized prior service cost of
$946,850. Therefore, a balance of $599,978, net of tax benefits of $231,000,
or $368,978 was recognized as a reduction of shareholders' equity as of
December 31, 1995.
40
<PAGE> 15
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The actuarial assumptions used in the preparation of the above information
were 7.5%, 9.0% and 5.0% for both years for the discount rate, long-term rate
of return and rate of compensation increases, respectively. Plan assets are
primarily invested in corporate and government bonds and listed common stocks.
Effective January 1, 1997, a new cash balance program was established for
domestic non-represented employees. Pension benefits under the previous
formulas were fixed and used as a starting basis for the new plan. Future
benefits will generally be based on a percentage of current salary (which
varies with years of service). Transition provisions were included in the new
plan for existing employees based on years of service and benefits provided by
the current plan.
B. OTHER POSTRETIREMENT BENEFITS
In addition to providing pension benefits for its domestic employees, the
company has certain
postretirement plans that provide medical benefits for retirees and eligible
dependents. Substantially all of the company's domestic employees may become
eligible for these benefits if they reach normal retirement age while working
for the company.
It is the company's current policy to fund health care benefits on a cash
basis. The plans are coordinated with Medicare when a retiree reaches age 65
and the plans require retiree contributions which equaled approximately 5.7% of
non-pension postretirement benefits costs for both 1996 and 1995.
The following tables provide information on the plan status as of December
31,
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 4,618,000 $ 7,626,000
Fully eligible active plan participants 859,000 1,042,000
Other active participants 1,736,000 1,757,000
- ------------------------------------------------------------------------------------
Total 7,213,000 10,425,000
Unrecognized prior service credit 2,534,000 0
Unrecognized net loss (1,641,000) (2,029,000)
- ------------------------------------------------------------------------------------
Accrued postretirement benefit cost
recognized in the accompanying
consolidated balance sheet $ 8,106,000 $ 8,396,000
====================================================================================
</TABLE>
The discount rate used to measure the accumulated postretirement benefit
obligation (APBO) was 7.5% for both years. The assumed health care cost trend
rate used in measuring the APBO as of December 31, 1995, was 8.6% decreasing to
5.7%. The impact of a 1% increase in the health care cost trend rate would have
increased the APBO by 8.2% at December 31, 1995, and would have increased
benefit costs by 3.6% for 1996, 8.3% for 1995 and 8.0% for 1994. During 1996,
the company changed certain benefits for retiree health care, establishing
fixed contribution amounts. As such, future health care cost trends will no
longer impact the company's accruals or provisions. This change contributed to
the decrease in the accumulated postretirement benefit obligation and the
related unrecognized prior service credit, as shown above.
41
<PAGE> 16
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Net periodic postretirement benefit cost for the years ending December 31,
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost, benefits attributed for service
of active employees for the period $103,000 $ 93,000 $102,000
Interest cost on the accumulated
postretirement benefit obligation 656,000 771,000 695,000
Unrecognized prior service credit (59,000) 0 0
Unrecognized loss 21,000 26,000 29,000
- ------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $721,000 $890,000 $826,000
==========================================================================================
</TABLE>
C. BADGER METER EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
In 1991, the company formed The Badger Meter Employee Savings and Stock
Ownership Plan (The ESSOP) and guaranteed a loan made to The ESSOP which had
been used to purchase Common Stock of the company from shares held in Treasury.
The company is obligated to contribute sufficient cash to The ESSOP to enable
it to repay the loan principal and interest. Each payment releases shares of
Common Stock (5,626, 22,856 and 22,856 shares in 1996, 1995 and 1994) for
allocation to participants in The ESSOP.
In 1995, The ESSOP renegotiated the terms of the loan. The new terms
allow variable payments of principal with the final principal and interest
payment due December 1, 2001. The principal amount due on the loan was
$1,000,000 at December 31, 1996 and 1995. Interest may be charged at either
Prime Rate or at LIBOR plus 1.5%. As of
December 31, 1996, the LIBOR-based loan had an interest rate of 7%.
The ESSOP includes a voluntary 401(k) savings plan which allows domestic
employees to defer up to 15% of their income on a pretax basis. The company
matches 25% of each employee's contribution, with the match percentage applying
to a maximum of 6%, 6% and 5% of the employee's salary for 1996, 1995 and 1994,
respectively. The match is paid in company stock. For 1996, 1995 and 1994,
respectively, 16,038, 22,062 and 18,204 shares of Common Stock released through
principal and interest payments on The ESSOP debt were allocated to
participants.
In addition to the match, the company may, at the discretion of the Board
of Directors, allocate additional available shares to non-represented
participants who are not covered by a collective bargaining agreement. An
additional 1,016 and 4,652 shares were allocated for 1996 and 1994,
respectively. No additional shares were allocated for 1995.
The obligation related to The ESSOP has been recorded as long-term debt
and a like amount of unearned compensation has been recorded as a reduction of
shareholders' equity in the accompanying consolidated balance sheets. Charges
to expense were $239,000, $230,000 and $200,000 in 1996, 1995 and 1994,
respectively. The company paid interest on the ESSOP loan of $33,000, $51,000
and $40,000 which was net of dividends on unallocated ESSOP shares of $37,000,
$44,000 and $48,000 for 1996, 1995 and 1994, respectively. These amounts are
included in interest expense in the accompanying consolidated statements of
operations.
42
<PAGE> 17
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
8 INCOME TAX EXPENSE
Details of earnings (loss) before income taxes and the related provision
for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings (loss) before income taxes:
Domestic $7,824,746 $ 5,730,814 $ 5,053,140
Foreign 341,919 179,865 (79,613)
- ------------------------------------------------------------------------------------------------------
Total $8,166,665 $ 5,910,679 $ 4,973,527
======================================================================================================
Income taxes:
Current:
Federal $2,286,000 $ 1,956,000 $ 1,658,000
State 434,000 339,000 300,000
Foreign 41,000 106,000 41,000
Deferred:
Federal 195,000 (145,000) (199,000)
State (57,000) (12,000) 21,000
Foreign 141,000 (52,000) (63,000)
- -----------------------------------------------------------------------------------------------------
Total $3,040,000 $ 2,192,000 $ 1,758,000
=====================================================================================================
</TABLE>
The components of the net deferred tax asset as of December 31, were as follows:
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS: 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Receivables $ 82,000 $ 62,000
Inventories 275,000 292,000
Accrued compensation 702,000 695,000
Other payables 708,000 266,000
Non-pension postretirement benefits 3,112,000 3,231,000
Accrued employee benefits 1,174,000 1,132,000
Operating loss carryforward 84,000 218,000
- -------------------------------------------------------------------------------------------
Total deferred tax assets 6,137,000 5,896,000
DEFERRED TAX LIABILITIES:
- -------------------------------------------------------------------------------------------
Depreciation 1,995,000 1,928,000
Prepaid pension 2,744,000 2,328,000
Other 141,000 104,000
- -------------------------------------------------------------------------------------------
Total deferred tax liabilities 4,880,000 4,360,000
- -------------------------------------------------------------------------------------------
Net deferred tax asset included in balance sheet $1,257,000 $1,536,000
===========================================================================================
</TABLE>
43
<PAGE> 18
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
A prior year operating loss at a Mexican subsidiary may be carried forward
for ten years and there is no limitation on the carryforward of a prior year
operating loss at a German subsidiary.
The provision for income tax differs from the amount which would be
provided by applying the statutory
U.S. corporate income tax rate of 34% in each year due to the following items:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------------
<S> <C> <C> <C>
Provision at statutory rates $2,776,000 $2,010,000 $1,691,000
State income taxes, net
of federal tax benefit 312,000 216,000 212,000
Foreign income taxes 66,000 (7,000) 5,000
Tax benefit of FSC (201,000) (119,000) (243,000)
Other 87,000 92,000 93,000
------------------------------------------------------------------
Actual provision $3,040,000 $2,192,000 $1,758,000
==================================================================
</TABLE>
No provision for federal income taxes is made on the earnings of foreign
subsidiaries that are considered permanently invested or would be offset by
foreign tax credits upon distribution. Such undistributed earnings at December
31, 1996, were $475,921.
9 FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable and accounts payable are reflected in the
financial statements at fair value. Short-term debt is comprised of notes
payable drawn against the company's lines of credit and commercial paper.
Because of the short-term nature of these instruments, the carrying value
reflects the fair value. Long-term debt primarily relates to the company's
guarantee of The ESSOP debt, which is offset by a similar value in
shareholders' equity.
44
<PAGE> 19
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
10 INDUSTRY SEGMENTS
The company operates in one industry segment as a marketer and
manufacturer of various flow measurement products.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Exports to non-affiliated companies to consolidated net sales 11% 11% 11%
Net sales by foreign subsidiaries to consolidated net sales 7% 7% 7%
Assets of foreign subsidiaries to consolidated assets 7% 7% 7%
Operating profits (loss) for foreign subsidiaries ($000) $ 346 $ 244 $ (63)
======================================================================================
</TABLE>
11 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED), COMMON STOCK PRICE AND
DIVIDENDS
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- --------------------------------------------------------------------------------------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1996
Net sales $26,635 $30,542 $30,542 $28,299
Gross profit $ 9,921 $10,803 $11,323 $10,481
Net earnings $ 888 $ 1,389 $ 1,430 $ 1,420
Earnings per share:
Primary $ .25 $ .38 $ .39 $ .38
Fully diluted $ .25 $ .38 $ .39 $ .38
Dividends declared:
Common $ .10 $ .11 $ .11 $ .11
Class B $ .09 $ .10 $ .10 $ .10
Stock price:
High $ 14.44 $ 15.75 $ 16.81 $ 20.81
Low $ 12.38 $ 13.25 $ 13.50 $ 16.00
Quarter-end close $ 13.50 $ 14.00 $ 15.94 $ 19.19
- --------------------------------------------------------------------------------------
1995
Net sales $27,928 $28,579 $25,856 $26,281
Gross profit $ 9,737 $ 9,991 $ 9,494 $ 9,922
Net earnings $ 857 $ 1,051 $ 915 $ 896
Earnings per share:
Primary $ .25 $ .30 $ .26 $ .26
Dividends declared:
Common $ .09 $ .10 $ .10 $ .10
Class B $ .08 $ .09 $ .09 $ .09
Stock price:
High $ 12.06 $ 13.19 $ 13.38 $ 13.50
Low $ 11.06 $ 11.50 $ 11.56 $ 11.44
Quarter-end close $ 11.69 $ 11.81 $ 13.13 $ 13.25
======================================================================================
</TABLE>
Badger Meter, Inc. Common Stock is listed on the American Stock Exchange under
the symbol BMI. There is no market for Badger Meter Class B Common Stock due
to transfer restrictions. Class B Common Stock is equivalent in value to
Common Stock. Earnings per share is computed independently for each quarter.
As such, the annual per share amount may not equal the sum of the quarterly
amounts due to rounding. There are no fully diluted amounts shown for 1995
because dilution was less than 3%. Shareholders of record as of December 31,
1996 and 1995, totaled 579 and 608 for Common Stock and 9 and 9 for Class B
Stock, respectively. Voting trusts are counted as single shareholders for this
purpose.
45
<PAGE> 20
(Page 27 of Annual Report to Shareholders)
BADGER METER, INC.
R E P O R T O F I N D E P E N D E N T A U D I T O R S
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
and Shareholders
Badger Meter, Inc.
We have audited the accompanying consolidated balance sheets of Badger
Meter, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Badger Meter,
Inc. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Milwaukee, Wisconsin
January 29, 1997,
except for the first paragraph
of Note 2, as to which the
date is February 14, 1997.
46
<PAGE> 21
(Page 28 of Annual Report to Shareholders)
BADGER METER, INC.
T E N Y E A R S U M M A R Y O F S E L E C T E D D A T A
Years ended December 31 (Thousands of dollars except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 116,018 108,644 99,155 84,497 82,106 78,417 77,100 72,266
Research and development $ 3,851 3,858 3,278 3,642 4,119 4,046 3,863 3,614
Earnings before income taxes $ 8,167 5,911 4,974 3,306 1,160 2,419 3,507 3,798
Earnings before changes in
accounting $ 5,127 3,719 3,216 2,164 802 1,648 2,332 2,375
Cumulative effect of changes
in accounting $ 0 0 0 0 (4,684) 0 0 0
Net earnings (loss) $ 5,127 3,719 3,216 2,164 (3,882) 1,648 2,332 2,375
Earnings to sales * 4.4% 3.4% 3.2% 2.6% 1.0% 2.1% 3.0% 3.3%
- -------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Earnings before changes in
accounting $ 1.39 1.06 .93 .64 .24 .49 .73 .77
Cumulative effect of changes
in accounting $ 0 0 0 0 (1.38) 0 0 0
Primary earnings (loss) $ 1.39 1.06 .93 .64 (1.14) .49 .73 .77
Cash dividends declared:
Common Stock $ .43 .39 .35 .32 .30 .30 .30 .29
Class B Common Stock $ .39 .36 .32 .29 .28 .28 .28 .26
Price range - high $ 20.81 13.50 14.00 11.00 8.88 9.00 9.94 11.44
Price range - low $ 12.38 11.06 9.50 8.88 7.38 6.81 6.50 8.00
Closing price $ 19.19 13.25 11.94 9.56 8.75 7.69 6.94 9.81
Book value $ 10.32 9.16 8.38 7.66 7.31 8.61 8.29 8.39
- -------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
Common Stock 2,426,376 2,387,214 2,377,214 2,280,608 2,282,008 2,279,608 2,274,408 1,938,314
Class B Common Stock 1,125,570 1,125,570 1,125,570 1,125,570 1,125,570 1,125,570 1,125,570 1,148,770
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 17,645 16,178 14,569 12,010 9,876 9,842 18,365 13,803
Current ratio 2.0 to 1 2.1 to 1 1.7 to 1 1.6 to 1 1.6 to 1 1.6 to 1 3.3 to 1 2.1 to 1
Net cash provided by
operations $ 9,878 12,026 6,342 2,969 3,833 5,410 5,132 3,342
Capital expenditures $ 5,382 4,493 3,553 3,121 3,496 3,335 4,901 4,376
Total assets $ 66,133 60,527 61,993 57,627 53,895 51,199 50,670 46,672
Long-term debt $ 1,091 1,000 1,200 1,400 1,700 1,900 10,400 5,183
Shareholders' equity $ 36,638 32,163 29,351 26,074 24,894 29,303 28,168 25,897
Debt to total capitalization 9.2% 16.8% 28.4% 34.9% 34.2% 28.7% 30.5% 29.2%
Return on shareholders' equity * 14.0% 11.6% 11.0% 8.3% 3.2% 5.6% 8.3% 9.2%
Price/earnings ratio * 13.8 12.5 12.8 15.1 37.2 15.9 9.6 12.7
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1988 1987
- --------------------------------------------------------
<S> <C> <C>
OPERATING RESULTS
Net sales 71,150 66,737
Research and development 3,077 2,896
Earnings before income taxes 3,359 3,072
Earnings before changes in
accounting 2,071 1,799
Cumulative effect of changes
in accounting 0 0
Net earnings (loss) 2,071 1,799
Earnings to sales * 2.9% 2.7%
- --------------------------------------------------------
PER COMMON SHARE
Earnings before changes in
accounting .69 .61
Cumulative effect of changes
in accounting 0 0
Primary earnings (loss) .69 .61
Cash dividends declared:
Common Stock .28 .28
Class B Common Stock .25 .25
Price range - high 10.13 12.13
Price range - low 6.00 5.31
Closing price 9.06 6.31
Book value 7.89 7.45
- --------------------------------------------------------
SHARES OUTSTANDING
Common Stock 1,865,314 1,736,170
Class B Common Stock 1,174,770 1,234,770
- --------------------------------------------------------
FINANCIAL POSITION
Working capital 13,599 14,186
Current ratio 2.4 to 1 2.5 to 1
Net cash provided by
operations 5,846 3,631
Capital expenditures 2,904 1,545
Total assets 41,787 41,454
Long-term debt 5,267 7,050
Shareholders' equity 23,975 22,118
Debt to total capitalization 25.9% 32.9%
Return on shareholders' equity * 8.6% 8.1%
Price/earnings ratio * 13.1 10.4
- --------------------------------------------------------
</TABLE>
* PRIOR TO ACCOUNTING CHANGES
47
<PAGE> 1
Exhibit (21.0)
BADGER METER, INC.
SUBSIDIARIES OF THE REGISTRANT
The company's subsidiaries are listed below. All of the subsidiaries of the
company listed below are included in the consolidated financial statements.
Percentage State or Country
Name of ownership in which organized
---- ------------ ------------------
Badger Meter Europe, GmbH 100% Federal
Republic
of Germany
Badger Meter International
Sales, Inc. (a DISC) 100% Delaware
Badger Meter de Mexico, S.A. de C.V. 100% Mexico
Badger Meter Limited 100% U.K.
Badger Meter de Las Americas, S.A. de C.V. 100% Mexico
Badger Meter Export, Inc. 100% Virgin Islands
(a large FSC) (U.S.)
Badger/Instromet LLC 50% Wisconsin
Badger Meter, Canada 100% Canada
48
<PAGE> 1
Exhibit (23.0)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form 10-K
of Badger Meter, Inc., of our report dated January 29, 1997 (except for the
first paragraph of Note 2, as to which the date is February 14, 1997), included
in the 1996 Annual Report to Shareholders of Badger Meter, Inc.
Our audits also included the financial statement schedule of Badger Meter, Inc.
listed in Item 14(a). This schedule is the responsibility of the company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-27649,
33-27650, 33-65618, 33-62239 and 33-62241) pertaining to the Badger Meter, Inc.
1989 Stock Option Plan, Badger Meter, Inc. Restricted Stock Plan, Badger Meter,
Inc. 1993 Stock Option Plan, Badger Meter, Inc. 1995 Stock Option Plan and
Badger Meter, Inc. Employee Savings and Stock Ownership Plan of our report
dated January 29, 1997 (except for the first paragraph of Note 2, as to which
the date is February 14, 1997), with respect to the consolidated financial
statements and schedule of Badger Meter, Inc. included or incorporated by
reference in the Annual Report (Form 10-K) for the year ended December 31,
1996.
Ernst & Young LLP
Milwaukee, Wisconsin
March 24, 1997
49
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from the Company's Annual
Report ot Shareholders for the year ended December 31, 1996 incorporated by
reference in the Annual Report on Form 10K and is qualified in its entirety by
reference to such 10K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,123
<SECURITIES> 0
<RECEIVABLES> 15,498
<ALLOWANCES> 0
<INVENTORY> 17,506
<CURRENT-ASSETS> 35,046
<PP&E> 57,111
<DEPRECIATION> (37,751)
<TOTAL-ASSETS> 66,133
<CURRENT-LIABILITIES> 17,400
<BONDS> 0
0
0
<COMMON> 2,688
<OTHER-SE> 33,950
<TOTAL-LIABILITY-AND-EQUITY> 66,133
<SALES> 116,018
<TOTAL-REVENUES> 116,018
<CGS> 73,490
<TOTAL-COSTS> 107,264
<OTHER-EXPENSES> 220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 368
<INCOME-PRETAX> 8,167
<INCOME-TAX> 3,040
<INCOME-CONTINUING> 5,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,127
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.36
</TABLE>
