<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-6706
BADGER METER, INC.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0143280
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
<TABLE>
<S> <C>
4545 West Brown Deer Road, Milwaukee, Wisconsin 53223
- ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 355-0400
</TABLE>
None
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(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 17, 1997
- --------------------------- -------------------------------
Common Stock, $1.00 par value 2,443,493
Class B Common Stock, $.10 par value 1,125,570
<PAGE> 2
BADGER METER, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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Part I. Financial Information:
Item 1 Financial Statements:
<S> <C>
Consolidated Condensed Balance Sheets - -
September 30, 1997 and December 31, 1996 3
Consolidated Condensed Statements of Operations - -
Three and Nine Months Ended September 30, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows - -
Nine Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information:
Item 6(a) Exhibits 9
Item 6(b) Reports on Form 8-K 9
Exhibit Index 11
</TABLE>
<PAGE> 3
Part I - Financial Information
BADGER METER, INC.
Item 1 Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets September 30, December 31,
------ 1997 1996
-------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 307 $ 1,123
Receivables 18,622 15,498
Inventories:
Finished goods 4,011 3,577
Work in process 11,288 8,466
Raw materials and purchased parts 7,032 5,463
-------- --------
Total inventories 22,331 17,506
Prepaid expenses 791 918
-------- --------
Total current assets 42,051 35,045
Property, plant and equipment, at cost 61,285 57,111
Less accumulated depreciation (39,948) (37,751)
-------- --------
21,337 19,360
Intangible assets, at cost less accumulated amortization 707 878
Prepaid pension 6,844 7,102
Deferred income taxes 1,249 1,257
Deferred charges and other assets 3,119 2,491
-------- --------
Total assets $ 75,307 $ 66,133
=========== ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Short-term debt $ 4,143 $ 2,634
Payables 9,157 7,102
Accrued compensation and employee benefits 4,759 4,763
Other accrued liabilities 3,301 1,929
Income and other taxes 1,702 972
-------- --------
Total current liabilities 23,062 17,400
Accrued non-pension postretirement benefits 7,952 8,106
Other accrued employee benefits 3,586 2,899
Long-term debt 946 1,091
Shareholders' equity:
Common Stock 3,236 3,154
Class B Common Stock 112 112
Capital in excess of par value 7,591 6,803
Reinvested earnings 31,996 28,200
Less: Employee benefit stock (926) (1,053)
Treasury stock, at cost (2,248) (579)
-------- --------
Total shareholders' equity 39,761 36,637
-------- --------
Total liabilities and shareholders' equity $ 75,307 $ 66,133
=========== ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 4
BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 33,207 $ 30,542 $ 99,013 $ 87,719
Operating costs and expenses:
Cost of sales 20,727 19,219 62,431 55,672
Marketing and administrative 7,398 7,236 22,329 20,876
Research and engineering 2,046 1,678 5,846 4,805
----------- ----------- ---------- ----------
30,171 28,133 90,606 81,353
----------- ----------- ---------- ----------
Operating earnings 3,036 2,409 8,407 6,366
Interest expense 74 102 272 323
Other deductions 72 51 150 167
----------- ----------- ---------- ----------
Earnings before income taxes 2,890 2,256 7,985 5,876
Provision for income taxes 1,069 826 2,954 2,169
----------- ----------- ---------- ----------
Net earnings $ 1,821 $ 1,430 $ 5,031 $ 3,707
=========== =========== ========== ==========
Per share amounts: *
Net earnings:
Primary $ .46 $ .39 $ 1.28 $ 1.01
=========== =========== ========== ==========
Fully Diluted $ .46 $ .39 $ 1.24 $ 1.00
=========== =========== ========== ==========
Dividends declared -
Common Stock $ .12 $ .11 $ .36 $ .32
=========== =========== ========== ==========
Dividends declared -
Class B Common Stock $ .11 $ .10 $ .33 $ .29
=========== =========== ========== ==========
Shares used in computation:
Primary 3,934,655 3,677,260 3,916,588 3,664,988
=========== =========== ========== ==========
Fully Diluted 3,950,815 3,694,832 4,044,176 3,712,570
=========== =========== ========== ==========
</TABLE>
* All per share amounts and number of shares data have been restated to reflect
the 2-for-1 stock split paid April 18, 1997. Earnings per share is computed
independently for each of the quarters presented. Therefore, the sum of the
quarterly earnings per share does not necessarily equal the total for the year.
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 5
BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net earnings $ 5,031 $ 3,707
Adjustments to reconcile net
earnings to net cash provided
by (used for) operations:
Depreciation 2,918 2,799
Amortization 533 598
Noncurrent employee benefits 818 (243)
Deferred income taxes 8 (193)
Other 58 26
Changes in:
Receivables (3,124) (3,129)
Inventory (4,825) (806)
Current liabilities other than short-term debt 4,471 3,470
Prepaid expenses 127 56
---------- -----------
Total adjustments 984 2,578
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Net cash provided by (used for) operations 6,015 6,285
---------- -----------
Investing activities:
Property, plant and equipment (4,997) (3,378)
Other - net (1,078) (416)
---------- -----------
Net cash provided by (used for) investing activities (6,075) (3,794)
---------- -----------
Financing activities:
Bank borrowings (repayments) 1,509 (2,716)
Dividends (1,235) (1,100)
Stock options and ESSOP 639 330
Treasury stock transactions (1,669) 5
---------- -----------
Net cash provided by (used for)
financing activities (756) (3,481)
---------- -----------
Increase (decrease) in cash (816) (990)
Beginning of year 1,123 1,177
---------- -----------
End of period $ 307 $ 187
========== ============
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Income taxes $ 2,149 $ 1,658
========== ============
Interest $ 284 $ 281
========== ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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<PAGE> 6
BADGER METER, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the consolidated
condensed financial position at September 30, 1997 and the results of
operations for the three- and nine-month periods ended September 30, 1997
and 1996 and the cash flows for the nine-month periods ended September 30,
1997 and 1996. The results of operations for any interim period are not
necessarily indicative of the results to be expected for the full year.
2. The consolidated condensed balance sheet at December 31, 1996, was derived
from amounts included in the Annual Report to Shareholders which was
incorporated by reference in the Company's annual report on Form 10-K for
the year ended December 31, 1996. Refer to the footnotes in those reports
for a description of the accounting policies, which have been continued
without change, and additional details of the Company's financial
condition. The details in those notes have not changed except as a result
of normal transactions in the interim.
3. During the nine months ended September 30, 1997, the Company repurchased
65,780 shares of common stock for an aggregate purchase price of $1,669,000.
4. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which is required to be adopted
on December 31, 1997. At that time, the company will be required to change
the method currently used to compute earnings per share and to restate all
prior periods. Among other provisions, the dilutive effect of stock options
must be excluded under the new requirements for calculating basic earnings
per share, which will replace primary earnings per share. The impact is
expected to result in an increase in basic earnings per share from primary
earnings per share for the quarter ended September 30, 1997 from $.46 to
$.51 per share and an increase for the nine months ended September 30, 1997
from $1.28 to $1.41 per share. The impact of Statement No. 128 on the
calculation of diluted earnings per share is not expected to be material.
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<PAGE> 7
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
Strong sales caused receivables to increase 20%, or $3,124,000, from the
seasonally low December 31, 1996 balance. Inventories increased 28%, or
$4,825,000, primarily to support future product demand. Deferred charges and
other assets increased 25%, or $628,000, due to payments made to fund employee
benefits plans and deposits made in connection with alliance partner programs.
Intangible assets decreased $171,000 due to regular patent amortization.
Payables increased 29%, or $2,055,000, due to increased inventory purchases and
other trade payables since December 31, 1996. Other accrued liabilities
increased 71%, or $1,372,000, due primarily to additional reserves for
after-sale costs. Income and other taxes payable increased $730,000 due to tax
accruals related to increased profits, partially offset by increased estimated
tax payments.
Short-term debt increased $1,509,000 since December 31, 1996. These
borrowings, along with funds generated by net earnings, were used to fund the
net working capital requirements, capital additions of $4,997,000, and treasury
stock repurchases of $1,669,000. These cash requirements also resulted in a
net reduction in cash of $816,000 during the first nine months of 1997.
Prepaid pensions decreased $258,000 and other accrued employee benefits
increased $687,000 since December 31, 1996, as normal pension and benefit
accruals exceeded funding requirements. Accrued non-pension postretirement
benefits decreased $154,000 as benefit payments exceeded required accruals.
As of September 30, 1997, the company had approximately $27,000,000 of credit
lines with domestic and foreign banks of which $4,143,000 was in use. This
compares to $2,799,000 in use at September 30, 1996 and $2,574,000 at December
31, 1996. The company believes that the present lines of credit are adequate
to meet operating requirements.
Results of Operations
Net sales for the third quarter of 1997 increased 9%, or $2,665,000, over sales
for the third quarter of 1996. For the first nine months of 1997, sales
increased 13%, or $11,294,000, over the same period in 1996. These increases
were primarily related to higher unit sales of residential, commercial and
industrial water meters, and lubrication meters. Both periods were favorably
affected by increased unit sales of the TRACE(R) radio-frequency automated meter
reading system, particularly to the Mexican market.
Gross profit margins for both the quarter and the nine-month periods remained
relatively stable compared to the same periods in 1996, as improved
manufacturing efficiencies were offset by changes in product mix.
Marketing and administrative costs increased 2% for the quarter and 7% for the
nine-month period ended September 30, 1997, as compared to the same periods of
1996 due to general wage and cost increases. Research and engineering expenses
increased 22% for both the quarter and the nine-month periods ended September
30, 1997, as compared to the same periods of 1996, due to costs associated with
continued product development initiatives.
The effective tax rates for the third quarter of 1997 and for the first nine
months of 1997 were estimated to be 37.0%, which are approximately equal to the
rates for the same periods in 1996.
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<PAGE> 8
Earnings for the third quarter of 1997 were $1,821,000, an increase of 27% over
third quarter 1996 earnings of $1,430,000. The 1997 year-to-date earnings of
$5,031,000 increased 36% over the same period of 1996 earnings of $3,707,000.
Increases for both periods were primarily due to increased sales, while fixed
costs increased at significantly lower rates. The percentage increases in
earnings per share were lower for both periods due to the impact of dilutive
options in 1997.
Other Matters
The company is subject to contingencies relative to environmental laws and
regulations. Currently, the company is in the process of resolving a suit
alleging violation of California's Proposition 65. The company does not
believe the ultimate resolution of this suit will have a material adverse
effect on the company's financial position or results of operations. Provision
has been made for estimated settlement costs. No other risks or uncertainties
were identified that could have a material impact on operations and no
long-lived assets have become permanently impaired in value.
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<PAGE> 9
Part II - Other Information
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
(11.0) Computation of fully diluted earnings per share
(27.0) Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended
September 30, 1997.
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<PAGE> 10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BADGER METER, INC.
Dated: October 22, 1997 By /S/ Richard A. Meeusen
----------------------------------
Richard A. Meeusen
Vice President - Finance and Treasurer
Chief Financial Officer
By /S/ Beverly L.P. Smiley
----------------------------------
Beverly L.P. Smiley
Corporate Controller
-10-
<PAGE> 11
EXHIBIT INDEX
Page Number
(11.0) Computation of fully diluted earnings per share 12
(27.0) Financial Data Schedule
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<PAGE> 1
Exhibit (11.0)
BADGER METER, INC.
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE *
(Dollars in thousands except per share amounts)
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<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
PRIMARY
- -------
Shares
<S> <C> <C> <C> <C>
Average shares outstanding 3,573,882 3,547,414 3,599,694 3,536,364
Shares issuable upon exercise of
stock options 360,773 129,846 316,894 128,624
----------- ----------- ---------- ----------
Total 3,934,655 3,677,260 3,916,588 3,664,988
=========== =========== ========== ==========
Earnings
Net earnings applicable to adjusted
common shares $ 1,821 $ 1,430 $ 5,031 $ 3,707
=========== =========== ========== ==========
Per share amounts
Net earnings per share $ .46 $ .39 $ 1.28 $ 1.01
=========== =========== ========== ==========
FULLY DILUTED
- -------------
Shares
Average shares outstanding 3,573,882 3,547,414 3,599,694 3,536,364
Shares issuable upon exercise of
stock options 376,933 147,418 444,482 176,206
----------- ----------- ---------- ----------
Total 3,950,815 3,694,832 4,044,176 3,712,570
=========== =========== ========== ==========
Earnings
Earnings applicable to adjusted
common shares $ 1,821 $ 1,430 $ 5,031 $ 3,707
=========== =========== ========== ==========
Per share amounts $ .46 $ .39 $ 1.24 $ 1.00
=========== =========== ========== ==========
</TABLE>
*All per share amounts and number of shares data have been restated to reflect
the 2-for-1 stock split paid April 18, 1997. Earnings per share is computed
independently for each of the quarters presented. Therefore, the sum of the
quarterly earnings per share does not necessarily equal the total for the year.
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 307
<SECURITIES> 0
<RECEIVABLES> 18,622
<ALLOWANCES> 0
<INVENTORY> 22,331
<CURRENT-ASSETS> 42,051
<PP&E> 61,285
<DEPRECIATION> (39,948)
<TOTAL-ASSETS> 75,307
<CURRENT-LIABILITIES> 23,062
<BONDS> 0
0
0
<COMMON> 3,348
<OTHER-SE> 36,413
<TOTAL-LIABILITY-AND-EQUITY> 75,307
<SALES> 99,013
<TOTAL-REVENUES> 99,013
<CGS> 62,431
<TOTAL-COSTS> 90,606
<OTHER-EXPENSES> 150
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 272
<INCOME-PRETAX> 7,985
<INCOME-TAX> 2,954
<INCOME-CONTINUING> 5,031
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,031
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.24
</TABLE>
