<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
For the fiscal year ended DECEMBER 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from____________to____________
Commission file number 1-6706
BADGER METER, INC.
(Exact name of registrant as specified in 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. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $97,952,000 as of February 27, 1998. At February 27, 1998, the
registrant had 2,502,383 shares of Common Stock outstanding and 1,125,570 shares
of Class B Common Stock outstanding.
Documents Incorporated by Reference:
Parts I and II incorporate information by reference from the company's
1997 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 24,
1998 [to be filed with the Securities and Exchange Commission under Regulation
14A within 120 days after the end of the registrant's fiscal year].
1
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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's products are sold to water 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.
The company has eight major product lines: residential and large
commercial/industrial water meters (with related technologies), lubrication
meters, ultrasonic flowmeters, small valves, natural gas instrumentation, flow
tubes and industrial meters. Water meters and related systems produce the
majority of the company's sales. A "water meter system" generally consists of a
water meter, a register (some with an interface technology for communicating the
reading), a packaging system and the monitoring or computerized management
system used to collect and relay the reading.
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, to a limited extent, for sale to
original equipment manufacturers. Assembly and some light manufacturing is done
in the Stuttgart, Germany facility. Products are also assembled in facilities in
Nogales, Mexico.
Badger Meter's products are sold throughout the world through
various selling arrangements including direct sales representatives,
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
water meter systems, high precision valves and energy instruments. 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, 1997 and 1996 was $27,884,000 and $21,262,000,
respectively. It is estimated that $21,429,000 of the December 31, 1997 backlog
will be shipped in 1998, with the balance shipped in subsequent years. The 1997
backlog includes orders related to a large water meter project which is expected
to be completed over several years.
2
<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 $4,397,000 during 1997, as compared to
$3,851,000 during 1996 and $3,858,000 during 1995. 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
addressing litigation alleging a violation of California's environmental
regulation Proposition 65 (see Item 3). Expenditures during 1997 and 1996 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 972 persons at December
31, 1997, of which 240 employees are covered by a collective bargaining
agreement with District 10 of the International Association of Machinists. The
company is currently operating under a four year contract with the union which
expires on October 31, 2000. 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, light manufacturing and distribution facility
in Stuttgart, Germany, a sales and customer service office in Mexico City and
two assembly facilities in Nogales, Sonora, Mexico. The company exports products
manufactured in Milwaukee, WI, Tulsa, OK, and Rio Rico, AZ. The company has
international personnel with responsibility for managing 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 Note 10 in the Notes to Consolidated Financial Statements
of the company's 1997 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 and control products.
3
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Item 2. Properties
The principal facilities utilized by the company at December 31,
1997, 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>
Milwaukee, Wisconsin Manufacturing and offices 256,000
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)
Nogales, Mexico Assembly, manufacturing and storage 18,350 (3)
Stuttgart, Germany Assembly, manufacturing and offices 11,883 (4)
</TABLE>
(1) Includes 30,000 sq. ft. leased facility. Lease term expires December 31,
1998.
(2) Leased facility. Lease term expires January 31, 2000.
(3) Leased facility. Lease term expires October 31, 1999.
(4) Leased facility. Lease term expires December 31, 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. The company
is in the process of constructing a 67,000 square foot addition to its
Milwaukee, Wisconsin facility. The addition is estimated to cost approximately
$9 million and will house a new engineering laboratory, design facility, offices
and expanded manufacturing operations. The addition is expected to be completed
in early 1999 and will address future capacity requirements.
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 no 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. A motion for summary judgment on the basis of the
public utility exemption is currently pending. 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, 1997.
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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 2/27/98
- ---- -------- -------
<S> <C> <C>
James L. Forbes President and Chief 65
Executive Officer
Robert D. Belan Vice President - Utility Division 57
William H. Vander Heyden Vice President - Industrial Division 61
Theodore N. Townsend Vice President - International Division 53
Ronald H. Dix Vice President - Administration 53
and Human Resources
Deirdre C. Elliott Vice President - Corporate Counsel 41
and Secretary
Richard A. Meeusen Vice President - Finance, Treasurer and 43
Chief Financial Officer
Beverly L.P. Smiley Corporate Controller 48
</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 and President of the Utility Division in October 1991.
Mr. Vander Heyden was elected Vice President - Industrial Division
in April 1983 and President of the Industrial Division in April 1990.
Mr. Townsend joined the company and was elected Vice President -
International Division in February 1996 and President of the International
Division in April 1997. 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.
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.
Ms. Smiley was elected Corporate Controller of the company in
April 1997. Prior to that date, Ms. Smiley served as Accounting Manager of the
company for more than five years.
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Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The information set forth on page 29 in the company's 1997 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 31 in the company's 1997
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 17, 18 and 19 in the company's
1997 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,
1997 and 1996 and for each of the three years in the period ended
December 31, 1997 and the auditor's report thereon and the
company's unaudited quarterly financial data for the two-year
period ended December 31, 1997 are incorporated herein by
reference from the 1997 Annual Report to Shareholders, pages 20
through 30.
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
24, 1998, 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 24, 1998, 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 24, 1998, and is incorporated
herein by reference.
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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 24, 1998, 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, 1997.
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<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 13, 1998
By: /s/ Beverly L.P. Smiley
--------------------------
Corporate Controller
February 13, 1998
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 13, 1998 Chief Executive Officer
February 13, 1998
/s/ Robert M. Hoffer /s/ Pamela B. Strobel
- -------------------------- --------------------------
Robert M. Hoffer Pamela B. Strobel
Director Director
February 13, 1998 February 13, 1998
/s/ Charles F. James, Jr. /s/ Andrew J. Policano
- -------------------------- --------------------------
Charles F. James, Jr. Andrew J. Policano
Director Director
February 13, 1998 February 13, 1998
/s/ Donald J. Schuenke /s/ Kenneth P. Manning
- -------------------------- --------------------------
Donald J. Schuenke Kenneth P. Manning
Director Director
February 13, 1998 February 13, 1998
/s/ John J. Stollenwerk /s/ James O. Wright, Jr.
- -------------------------- --------------------------
John J. Stollenwerk James O. Wright, Jr.
Director Director
February 13, 1998 February 13, 1998
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BADGER METER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page References
Annual Report
to
Shareholders Form 10-K
Page Number Page Number
------------- -----------
<S> <C> <C>
Item 14(a) 1
Financial statements:
Consolidated balance sheets at
December 31, 1997 and 1996 21
Consolidated statements of operations
for each of the three years in the
period ended December 31, 1997 20
Consolidated statements of cash flows
for each of the three years in the
period ended December 31, 1997 22
Consolidated statements of shareholders'
equity for each of the three years in
the period ended December 31, 1997 23
Notes to consolidated financial
statements 24 - 30
Item 14(a) 2
Financial statement schedules:
Consolidated schedules for each of
the three years in the period ended
December 31, 1997
II - Valuation and qualifying accounts F-1
</TABLE>
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
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BADGER METER, INC.
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1997, 1996, and 1995
<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:
1997 $ 242,000 $ 119,000 $ 53,000(a) $ 308,000
========== ========== ========== ==========
1996 $ 216,000 $ 115,000 $ 89,000(a) $ 242,000
========== ========== ========== ==========
1995 $ 135,000 $ 137,000 $ 56,000(a) $ 216,000
========== ========== ========== ==========
Warranty/after-sale cost reserve:
1997 $1,929,000 $3,352,000 $1,651,000 $3,630,000
========== ========== ========== ==========
1996 $ 691,000 $2,735,000 $1,497,000 $1,929,000
========== ========== ========== ==========
1995 $ 260,000 $2,154,000 $1,723,000 $ 691,000
========== ========== ========== ==========
</TABLE>
Note:
(a) Accounts receivable written off, less recoveries, against the allowance.
F-1
10
<PAGE> 11
The following have been additional exhibits of this Form 10-K as filed with the
Securities and Exchange Commission. Copies of these exhibits are available upon
request at a charge of 20 cents per page, plus postage. There is no charge for
Exhibit (13), 1997 Annual Report to Shareholders or Exhibit (99.0), the
Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
April 24, 1998.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
- ----------- -------------------
<S> <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. [Incorporated by
reference from Exhibit (3.1) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996].
(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. 1995 Stock Option Plan [Incorporated by reference
from Exhibit (4.1) to the Registrant's Form S-8 Registration
Statement (Registration No. 33-62239)].
(10.4)* Badger Meter, Inc. 1997 Stock Option Plan. [Incorporated by
reference from Exhibit (4.1) to the Registrant's Form S-8
Registration Statement (Registration No. 333-28617)].
</TABLE>
*A management contract or compensatory plan or arrangement.
11
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EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
- ----------- -------------------
<S> <C>
(10.5)* 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].
(10.6) 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)].
(10.7)* 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].
(10.8)* 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].
(13.0) Portions of the Annual Report to Shareholders that are incorporated
by reference.
(21.0) Subsidiaries of the Registrant.
(23.0) Consent of Ernst & Young LLP, Independent Auditors.
(27.0) Financial Data Schedule.
(99.0) Definitive Proxy Statement for the Annual Meeting of Shareholders to
be held April 24, 1998. [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>
*A management contract or compensatory plan or arrangement.
12
<PAGE> 1
Exhibit (13.0)
Portions of Annual Report to Shareholders that are incorporated by reference.
13
<PAGE> 2
(Page 1 of Annual Report to Shareholders)
BADGER METER, INC.
FINANCIAL HIGHLIGHTS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996 % CHANGE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS (in thousands)
Net sales $ 130,771 $ 116,018 12.7
Net earnings $ 6,522 $ 5,127 27.2
- ----------------------------------------------------------------------------------------
PER SHARE
Net earnings:
Basic $ 1.83 $ 1.46 25.3
Diluted $ 1.65 $ 1.39 18.7
Cash dividends declared:
Common Stock $ .48 $ .43 11.6
Class B Common Stock $ .44 $ .39 12.8
Net book value $ 11.62 $ 10.32 12.6
- ----------------------------------------------------------------------------------------
YEAR-END FINANCIAL POSITION (in thousands)
Working capital $ 13,870 $ 17,645 (21.4)
Current ratio 1.5 to 1 2.0 to 1 (25.0)
Long-term debt $ 928 $ 1,091 (14.9)
Shareholders' equity $ 41,467 $ 36,638 13.2
Net earnings as a percent of equity 15.7% 14.0% 12.1
========================================================================================
OTHER
Number of employees 972 940 3.4
Number of shareholders:
Common Stock:
In employee plans 770 695 10.8
Of record 596 579 2.9
Class B Common Stock 12 9 33.3
Shares outstanding at December 31:
Common Stock 2,444,274 2,426,376 .7
Class B Common Stock 1,125,570 1,125,570 0
========================================================================================
</TABLE>
14
<PAGE> 3
(Page 17 to 19 of Annual Report to Shareholders)
MANAGEMENT'S DISCUSSION AND ANALYSIS
BUSINESS DESCRIPTION
Badger Meter, Inc. operates in one business segment, serving the flow
measurement and control market worldwide. The company has eight major product
lines: residential and large commercial/industrial water meters (with related
technologies), lubrication meters, ultrasonic flowmeters, small valves, natural
gas instrumentation, flow tubes and industrial meters. Water meters and related
systems produce the majority of the company's sales. A "water meter system"
generally consists of a water meter, a register (some with an interface
technology for communicating the reading), a packaging system and the monitoring
or computerized management system used to collect and relay the reading. Badger
Meter's strategy is to solve customers' metering needs with its proprietary
meter reading systems or other systems 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.
RESULTS OF OPERATIONS
SALES
Badger Meter's sales increased $14.8 million and $7.4 million, or 12.7% and 6.8%
in 1997 and 1996, 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 continued industry movement away
from manual-read meters to automated meter reading technologies.
The 1997 sales increase included major product shipments as part of a large
metering contract for the City of Philadelphia and international sales for
projects in Manila and Mexico City. The year was also favorably impacted by
increased sales of TRACE radio-frequency automated meter reading systems, large
water meters and lubrication meters. The 1996 sales increase included increased
sales of TRACE radio-frequency automated meter reading systems, lubrication
meters in Europe and primary flow elements.
Badger Meter continues to improve existing products and to develop and acquire
new products. In 1997, the company acquired a line of electromagnetic
flowmeters. New product developments primarily relate to the areas of meter
reading systems, large water meters, lubrication meters, valves and natural gas
instrumentation. Increases in sales of new products depend 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 lubrication meters and
valves in Europe, sales of automated meter reading technologies in Mexico, and
sales of water meters to Manila. In Europe, sales are made in both U.S. dollars
and German marks. The company is able to partially hedge its German mark
exposure. Sales to Mexico and Manila are made in U.S. dollars; therefore, Badger
Meter experiences no currency losses on those sales.
The company's sales growth is derived from both new products and alliances that
have been, and continue to be, developed with other companies. In 1997, Badger
Meter expanded its alliance with American Meter Company and H. Meinecke AG and
entered into an agreement with Cellnet Data Systems.
GROSS PROFIT MARGINS
Gross profit margins were 37.3%, 36.7% and 36.0% for 1997, 1996 and 1995,
respectively. These margins have steadily increased as higher sales volumes have
enabled the company to leverage its fixed manufacturing costs. In addition,
significant cost reductions have resulted from capital investment to improve
manufacturing processes and systems and from the company's cost improvement
programs.
15
<PAGE> 4
OTHER FACTORS
Marketing and administrative costs increased 10.7% in 1997 and 6.6% in 1996,
which were both less than the percentage increases in sales for each year. Both
years were impacted by higher incentive compensation costs and costs associated
with the formation and development of the international sales organization.
Research and engineering costs increased 16.5% in 1997, but were approximately
flat between 1996 and 1995. The increased expenditures in 1997 related primarily
to the development of products in connection with the market alliances
previously discussed, acquisitions of new product lines, and the continued
upgrade and expansion of the meter reading technologies, research control valves
and natural gas instrumentation product lines.
Interest expense decreased in 1996 due to a combination of lower interest rates
and lower debt balances, but increased again in 1997 as debt balances increased
to support expanded business activity.
INCOME TAXES
Income tax as a percentage of earnings before income taxes was 36.1%, 37.2% and
37.1% for 1997, 1996 and 1995, respectively. The decrease in the percentage from
1996 to 1997 was due primarily to lower taxes on foreign operations and
favorable settlements of tax examinations.
NET EARNINGS AND EARNINGS PER SHARE
Higher sales and improved margins generated record earnings for 1997. The 1996
and 1995 earnings resulted from the increased sales, improved margins, level
research and engineering expenditures, and lower interest and other expenses.
Net earnings increased 27.2% in 1997 and 37.9% in 1996. Basic earnings per share
increased at a slightly lower rate, 25.3% in 1997 and 37.7% in 1996, due to an
increase in the shares outstanding between the periods. Diluted earnings per
share were lower due to the impact of dilutive stock options outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations decreased from $9.9 million in 1996 to $5.2 million
in 1997 due to increased inventory, receivables and deferred tax asset balances,
which offset higher earnings. Cash provided by operations decreased from $12
million in 1995 to $9.9 million in 1996, as inventory and receivable balances
increased to support higher sales levels, partially offset by increased earnings
and higher payables related to increased purchasing activity.
Receivables increased 23.8% during 1997, due to the 12.7% increase in sales and
extended collections under several large contracts. Inventories increased 23.4%
during 1997 due to higher sales and increased inventories in Europe related to
increased assembly activities and the acquisition of an electromagnetic
flowmeter line.
Capital expenditures were $8.3 million in 1997, $5.4 million in 1996 and $4.5
million in 1995. These increased levels of expenditures enabled the company to
continue to expand production capacity to meet higher sales requirements, to
improve manufacturing processes to achieve higher quality and lower costs, and
to improve facilities for marketing, engineering and administrative personnel.
The 1997 expenditures include $1.3 million related to the construction of a
building addition to the Milwaukee facility. When completed, the addition is
estimated to cost approximately $9 million and will house a new engineering
laboratory, design facility and expanded manufacturing operations.
In addition to the capital expenditures, the company also made approximately
$3.6 million in other investments during 1997, increasing the total deferred
charges and other assets to $6.1 million as of December 31, 1997. These
investments primarily related to funds deposited in escrow in connection with
the acquisition of a fire service product line, which was in process as of
December 31, 1997. The acquisition is expected to be completed in 1998, at which
time these funds will be allocated to the appropriate inventory, equipment and
intangibles accounts.
During 1997, Badger Meter spent $1.8 million to acquire treasury stock at an
average price of $25.97 per share. This expenditure was partially offset by $1.6
million collected from the exercise of stock options during 1997.
16
<PAGE> 5
In 1997, capital expenditures and other investing activities exceeded cash
generated by operations, causing the company to increase bank borrowings by $8.5
million. In 1995 and 1996, the company used cash provided by operations to
reduce its debt levels, decreasing total debt to $3.7 million at December 31,
1996. Total indebtedness at December 31, 1997, was $12.2 million, consisting of
commercial paper, bank debt and a capital lease.
Other significant changes in balance sheet accounts during 1997 include a
decrease in intangible assets of $228,000 due primarily to normal patent
amortization. Prepaid pension decreased $351,000 due to the recording of normal
pension expense with no funding payments required in 1997 due to the overfunded
status of the plan.
Accrued compensation and employee benefits increased $576,000 in 1997 due to
higher incentive compensation accrued related to higher sales and net income
levels. Other accrued liabilities increased $1.7 million during 1997, primarily
due to provisions for after-sale costs. Current income taxes increased $287,000
due to increased taxable income. The $299,000 decrease in accrued non-pension
postretirement benefits was related to normal retiree medical expenditures
exceeding amounts required to be accrued under accounting rules. Other accrued
employee benefits increased $528,000 due primarily to increased employee
deferred compensation. The $163,000 reduction in long-term debt was primarily
due to regular payments on the debt relating to the Employee Savings and Stock
Ownership Plan. Accordingly, the equity account for employee benefit stock
decreased $136,000 during 1997.
The company has a net deferred tax asset of approximately $2,264,000, reflecting
the net temporary differences between financial reporting and tax reporting. The
majority of this net asset relates to deferred payments to employee benefit
plans and is expected to reverse as future payments exceed expenses. The
increase in the deferred tax asset of approximately $1 million during 1997
relates to the increased accruals for employee benefit plans and after-sale
costs.
The company's financial condition remains strong. The company believes that its
operating cash flows, available borrowing capacity and ability to raise capital
through sale of common stock provide adequate resources to fund ongoing
operating requirements and future capital expenditures related to expansion of
capacity and development of new products.
OTHER MATTERS
The company believes it is in compliance with the various environmental statutes
and regulations to which the company's domestic and international operations are
subject. Currently, the company is in the process of addressing litigation
alleging a violation of California's environmental regulation Proposition 65.
The company does not believe the ultimate resolution of these claims will have a
material adverse effect on the results of operations.
The company has reviewed its exposure to potential computer software problems
relating to the advent of the year 2000. Management believes that the company
has adequately addressed this issue in the software incorporated into the
products that it sells. Regarding internal information systems, many of the
software programs used by Badger Meter are already compliant with the
requirements of year 2000 processing. The remaining systems are currently being
upgraded to new vendor versions which, in addition to providing increased
functionality, will address the year 2000 issue. These upgrades are expected to
be completed by the end of 1998, which will be prior to any anticipated impact
of the year 2000 on the company's operations. Management does not expect to
incur any significant costs in addressing the year 2000 issue in excess of the
normal software upgrade costs.
17
<PAGE> 6
(Page 20 of Annual Report to Shareholders)
BADGER METER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $130,771 $116,018 $108,644
Operating costs and expenses:
Cost of sales 82,034 73,490 69,500
Marketing and administrative 30,281 27,347 25,644
Research and engineering 7,488 6,426 6,479
- -----------------------------------------------------------------------------------------
119,803 107,263 101,623
- -----------------------------------------------------------------------------------------
Operating earnings 10,968 8,755 7,021
Other deductions:
Interest expense 455 368 721
Other - net 308 220 389
- -----------------------------------------------------------------------------------------
763 588 1,110
- -----------------------------------------------------------------------------------------
Earnings before income taxes 10,205 8,167 5,911
Provision for income taxes 3,683 3,040 2,192
- -----------------------------------------------------------------------------------------
Net earnings $ 6,522 $ 5,127 $ 3,719
=========================================================================================
Earnings per share:
Basic $ 1.83 $ 1.46 $ 1.06
Diluted $ 1.65 $ 1.39 $ 1.04
=========================================================================================
Weighted-average shares used in computation of:
Basic 3,560 3,511 3,508
Impact of dilutive stock options 401 187 74
- -----------------------------------------------------------------------------------------
Diluted 3,961 3,698 3,582
=========================================================================================
</TABLE>
See accompanying notes.
18
<PAGE> 7
(Page 21 of Annual Report to Shareholders)
BADGER METER, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,055 $ 1,123
Receivables (Note 3) 19,193 15,498
Inventories:
Finished goods 4,095 3,577
Work in process 10,871 8,466
Raw materials and purchased parts 6,632 5,463
- ----------------------------------------------------------------------------------------------
Total inventories 21,598 17,506
Prepaid expenses 693 918
- ----------------------------------------------------------------------------------------------
Total current assets 42,539 35,045
Property, plant and equipment, at cost:
Land and improvements 2,792 2,770
Buildings and improvements 12,902 12,271
Machinery and equipment 48,713 42,070
- ----------------------------------------------------------------------------------------------
64,407 57,111
Less accumulated depreciation (40,423) (37,751)
- ----------------------------------------------------------------------------------------------
Net property, plant and equipment 23,984 19,360
Intangible assets, at cost less accumulated amortization 650 878
Prepaid pension (Note 7) 6,751 7,102
Deferred income taxes (Note 8) 2,264 1,257
Deferred charges and other assets (Note 7) 6,109 2,491
- ----------------------------------------------------------------------------------------------
$ 82,297 $ 66,133
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (Notes 4 and 6) $ 11,245 $ 2,634
Payables 7,196 7,102
Accrued compensation and employee benefits 5,339 4,763
Other accrued liabilities 3,630 1,929
Income and other taxes 1,259 972
- ----------------------------------------------------------------------------------------------
Total current liabilities 28,669 17,400
Accrued non-pension postretirement benefits (Note 7) 7,807 8,106
Other accrued employee benefits (Notes 5 and 7) 3,426 2,898
Long-term debt (Notes 6 and 7) 928 1,091
Commitments and contingencies (Note 6)
Shareholders' equity: (Notes 2, 5 and 7)
Common Stock, $1 par; authorized 5,000,000 shares;
issued 3,240,263 shares in 1997 and 3,154,566 shares in 1996 3,240 3,155
Class B Common Stock, $.10 par; authorized 5,000,000 shares;
issued 1,125,570 shares in 1997 and 1996 112 112
Capital in excess of par value 8,315 6,803
Reinvested earnings 33,057 28,200
Less: Employee benefit stock (917) (1,053)
Treasury stock, at cost, 795,989 shares in 1997
and 728,190 shares in 1996 (2,340) (579)
- ----------------------------------------------------------------------------------------------
Total shareholders' equity 41,467 36,638
- ----------------------------------------------------------------------------------------------
$ 82,297 $ 66,133
==============================================================================================
</TABLE>
See accompanying notes
19
<PAGE> 8
(Page 22 of Annual Report to Shareholders)
BADGER METER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net earnings $ 6,522 $ 5,127 $ 3,719
Adjustments to reconcile net earnings to net cash
provided by operations:
Depreciation 3,725 3,522 3,523
Amortization 228 598 875
Noncurrent employee benefits 614 (883) (206)
Deferred income taxes (1,007) 279 (209)
Changes in:
Receivables (3,695) (1,838) 771
Inventories (4,092) (1,672) 2,633
Current liabilities other than short-term debt 2,658 4,880 730
Prepaid expenses and other 225 (135) 190
- ------------------------------------------------------------------------------------------------------------------------
Total adjustments (1,344) 4,751 8,307
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 5,178 9,878 12,026
- ------------------------------------------------------------------------------------------------------------------------
Investing activities:
Property, plant and equipment (8,349) (5,382) (4,493)
Other - net (3,616) (548) (597)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (11,965) (5,930) (5,090)
- ------------------------------------------------------------------------------------------------------------------------
Financing activities:
Bank borrowings (repayments) 8,548 (2,941) (4,921)
Dividends (1,665) (1,479) (1,331)
Stock options and ESSOP 1,597 639 128
Purchase of treasury stock (1,761) (221) 0
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 6,719 (4,002) (6,124)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (68) (54) 812
Cash - beginning of year 1,123 1,177 365
- ------------------------------------------------------------------------------------------------------------------------
Cash - end of year $ 1,055 $ 1,123 $ 1,177
========================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 3,419 $ 2,348 $ 2,142
Interest $ 441 $ 378 $ 767
========================================================================================================================
</TABLE>
See accompanying notes.
20
<PAGE> 9
(Page 23 of Annual Report to Shareholders)
BADGER METER, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Class B Capital in Employee Pension
Common Common excess of Reinvested benefit liability Treasury
(In thousands except per share amounts) Stock Stock par value earnings stock adjustment stock
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $1,547 $56 $7,708 $22,165 $(1,379) $(388) $ (358)
Net earnings 3,718
Cash dividends, $.39 per Common share (931)
Cash dividends, $.36 per Class B Common share (400)
Restricted stock plan (Note 5):
Amortization of unearned compensation 77
Tax benefit on vested restricted stock 4
Employee stock ownership plan (Note 7):
Amortization of unearned compensation 200
Stock options exercised (Note 5) 5 82
Tax benefit on stock options (Note 5) 11
Tax benefit on dividends (Notes 5 and 7) 27
Pension liability adjustment (Note 7) 19
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,552 56 7,832 24,552 (1,102) (369) (358)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 5,127
Cash dividends, $.43 per Common share (1,039)
Cash dividends, $.39 per Class B Common share (440)
Restricted stock plan (Note 5):
Amortization of unearned compensation 40
Shares canceled (9) 9
Tax benefit on vested restricted stock 13
Stock options exercised (Note 5) 25 429
Tax benefit on stock options (Note 5) 103
Tax benefit on dividends (Notes 5 and 7) 27
Pension liability adjustment (Note 7) 369
Shares purchased by ESSOP participants 1 36
Treasury stock issued 5
Treasury stock purchased (221)
Two-for-one stock split 1,577 56 (1,633)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 3,155 112 6,803 28,200 (1,053) 0 (579)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 6.522
Cash dividends, $.48 per Common share (1,172)
Cash dividends, $.44 per Class B Common share (493)
Restricted stock plan (Note 5):
Amortization of unearned compensation 36
Tax benefit on vested restricted stock 150
Employee stock ownership plan (Note 7):
Amortization of unearned compensation 100
Stock options exercised (Note 5) 81 761
Tax benefit on stock options (Note 5) 511
Tax benefit on dividends (Notes 5 and 7) 23
Shares purchased by ESSOP participants 4 67
Treasury stock purchased (1,761)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $3,240 $112 $8,315 $33,057 $(917) $ 0 $(2,340)
====================================================================================================================================
</TABLE>
See accompanying notes.
21
<PAGE> 10
(Pages 24 to 30 of Annual Report to Shareholders)
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
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 instrumentation.
CONSOLIDATION The consolidated financial statements include the accounts
of the company and its wholly owned subsidiaries.
REVENUE RECOGNITION Revenues are recognized upon shipment of product. 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, 1997 and 1996, was
$2,521,000 and $2,512,000, 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
1997 and 1996, the company repurchased 67,799 and 12,000 shares, which were
added to treasury stock. As of December 31, 1997, the company has repurchased
79,799 shares or 23% of the authorized amount.
RESEARCH AND DEVELOPMENT Research and development costs are charged to
expense as incurred and amounted to $4,397,000, $3,851,000 and $3,858,000 in
1997, 1996 and 1995, respectively.
EARNINGS PER SHARE In February 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards Number 128 (SFAS
128) "Earnings per Share." The company has computed both basic and diluted
earnings per share in compliance with SFAS 128, including restatement of
earnings per share for all prior periods presented. As required by SFAS 128,
basic earnings per share is computed based on the weighted-average shares
outstanding during each period. Diluted earnings per share is based on
weighted-average shares, plus shares outstanding upon the presumed exercise of
dilutive stock options.
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.
22
<PAGE> 11
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS
131 "Disclosures About Segments of an Enterprise and Related Information," which
addresses segment disclosures effective in 1998. Since the company operates in
only one segment, it believes that SFAS 131 will have no material effect on its
disclosures.
Also in June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
Income," which requires disclosure of certain comprehensive income items
starting in 1998. The company had no such items in 1997. As discussed in Note 7,
in 1996 and 1995 the company had a minimum pension liability, which is defined
by SFAS 130 as a component of comprehensive income. The company will adopt the
disclosure requirements of SFAS 130 in 1998.
RECLASSIFICATIONS Certain reclassifications have been made to the 1996
consolidated financial statements to conform to the 1997 presentation.
2 COMMON STOCK
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 1997, 1996 and 1995, the company
sold approximately $1,500,000, $1,175,000, and $441,000 of product to Azteca.
Trade receivables from Azteca at December 31, 1997 and 1996, were $608,000 and
$541,000, respectively.
4 SHORT-TERM DEBT AND CREDIT LINES
Short-term debt at December 31, 1997 and 1996, consisted of:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Notes payable to banks $ 1,617 $ 1,439
Commercial paper 9,565 1,135
Current portion of capital lease (Note 6) 63 60
- ------------------------------------------------------------------------
TOTAL $11,245 $ 2,634
========================================================================
</TABLE>
The company has $38,333,000 of short-term credit lines with domestic banks
and a foreign bank which includes a $25,000,000 commercial paper line of credit.
At December 31, 1997, $26,993,000 was unused and available to the company under
the lines. The weighted-average interest rate on the outstanding balance was
5.81% and 5.22% at December 31, 1997 and 1996.
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.
23
<PAGE> 12
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
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
32,000 shares expired during 1997.
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 1997, 1996 and 1995, $35,000, $43,000 and $82,000 was charged to
expense relating to The Plan.
B. STOCK OPTION PLANS
The company has four 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 five years and maximum option terms of ten
years. As of December 31, 1997, options to purchase approximately 102,000 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, 1997:
<TABLE>
<CAPTION>
Weighted-
Average
Number of Exercise
Shares Price
- --------------------------------------------------------------------------
<S> <C> <C>
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
Options granted 173,696 $ 22.36
Options exercised (81,742) $ 10.31
Options forfeited (7,628) $ 12.59
- --------------------------------------------------------------------------
Unexercised options outstanding -
December 31, 1997 520,086 $ 14.68
Price range $8.38 - $12.38
(weighted-average contractual life 320,190 $ 10.51
of 6.2 years)
Price range $14.81 - $22.50
(weighted-average contractual life 199,896 $ 21.37
of 9.2 years)
==========================================================================
Exercisable options -
December 31, 1995 230,060 $ 9.11
December 31, 1996 241,610 $ 9.39
December 31, 1997 243,282 $ 10.35
==========================================================================
</TABLE>
24
<PAGE> 13
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
SFAS 123 "Accounting for Stock-Based Compensation" became effective for
the company in 1996. As allowed by SFAS 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 SFAS 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 SFAS 123. The Black-Scholes
option pricing model was used with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 6.5% 5.5% 7.4%
Dividend yield 1% 3% 3%
Volatility factor 23% 17% 17%
Weighted-average expected life 8.2 years 4.6 years 5.0 years
- ------------------------------------------------------------------------
</TABLE>
The weighted-average fair value of options granted in 1997, 1996 and 1995
were $8.92, $2.11 and $2.36 per share, respectively. If the company had
recognized compensation expense based on these values, the company's pro-forma
net earnings and both basic and diluted earnings per share would have been
reduced by $299,000 or $.08 per share for 1997. The pro-forma effect of these
options on 1996 and 1995 was not material. These pro-forma calculations only
include the effects of options granted since January 1, 1995. As such, the
impacts are not necessarily indicative of the effects on reported net income of
future years.
6 COMMITMENTS AND CONTINGENCIES
A. COMMITMENTS
The company leases equipment and facilities under operating leases, some
of which contain renewal options, and certain computer equipment under a capital
lease. Future minimum lease payments consisted of the following at December 31,
1997:
<TABLE>
<CAPTION>
Operating Capital Total
(In thousands) Leases Lease Leases
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $ 620 $65 $ 685
1999 337 28 365
2000 101 0 101
2001 42 0 42
2002 and thereafter 0 0 0
- -------------------------------------------------------------------------------------------------
Total minimum lease payments 1,100 93 1,193
Less: amount representing interest 0 (2) (2)
- -------------------------------------------------------------------------------------------------
Present value of net minimum lease payments 1,100 91 1,191
Less: current portion 0 63 63
- -------------------------------------------------------------------------------------------------
Lease obligations $1,100 $28 $1,128
=================================================================================================
</TABLE>
Total rental expense charged to operations under all operating leases was
approximately $1,447,000, $1,294,000 and $1,362,000 in 1997, 1996 and 1995,
respectively.
The company is in the process of constructing a building addition to its
Wisconsin facility at an estimated total cost of approximately $9,000,000.
Certain purchase commitments have been made in connection with this project.
25
<PAGE> 14
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
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 addressing litigation
alleging a violation of California's environmental regulation Proposition 65.
The company does not believe the ultimate resolution of these claims will have a
material adverse effect on the results of operations.
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.
The company reevaluates its exposures on a periodic basis and makes
adjustments to reserves as appropriate.
7 EMPLOYEE BENEFIT PLANS
A. PENSION PLAN
The company maintains a non-contributory defined benefit pension plan
covering substantially all domestic employees. Prior to 1997, benefits for
salaried employees were based on compensation and years of service while
benefits for hourly employees were generally based on years of service.
Effective January 1, 1997, a new cash balance plan 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. Benefits are now generally
based on current salary multiplied by a percent 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.
It is the company's policy to fund at least the minimum contribution required by
ERISA.
26
<PAGE> 15
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following data is provided for the pension plan:
Components of Net Periodic Pension Credit for the year ended December 31,
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 1,616 $ 1,044 $ 850
Interest cost on projected benefit obligations 2,415 2,249 2,148
Actual return on plan assets (6,187) (3,082) (6,409)
Net amortization and deferral 2,507 (323) 3,176
- ----------------------------------------------------------------------------------------------------------
Net periodic pension cost (credit) $ 351 $ (112) $ (235)
==========================================================================================================
</TABLE>
Reconciliation of Funded Status, as of September 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(In thousands) 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 31,623 $ 28,461
Non-vested benefit obligation 490 523
- ----------------------------------------------------------------------------
Accumulated benefit obligation $ 32,113 $ 28,984
============================================================================
Projected benefit obligation $ 34,653 $ 32,203
Plan assets at fair value 42,168 37,346
- ----------------------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 7,515 5,143
Unrecognized net loss due to changes in
actuarial assumptions and experience 3,179 6,483
Unrecognized prior service credit (2,673) (2,835)
Unrecognized transition asset (1,270) (1,693)
- ----------------------------------------------------------------------------
Prepaid pension cost 6,751 7,098
Contribution payable 0 4
- ----------------------------------------------------------------------------
Prepaid pension asset
included in balance sheet $ 6,751 $ 7,102
============================================================================
</TABLE>
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.
The provisions of SFAS 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. A minimum
pension liability of $369,000 (net of tax) was recognized as a component of
shareholders' equity as of December 31, 1995 but was eliminated during 1996 as a
result of the December 31, 1996 merger of the company's three plans into a
single plan.
27
<PAGE> 16
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 9.7% of
non-pension postretirement benefits costs for both 1997 and 1996.
The following tables provide information on the plan status as of December
31,
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 4,757 $ 4,618
Fully eligible active plan participants 753 859
Other active participants 1,525 1,736
- ---------------------------------------------------------------------------------
Total 7,035 7,213
Unrecognized prior service credit 2,298 2,534
Unrecognized net loss (1,526) (1,641)
- ---------------------------------------------------------------------------------
Accrued postretirement benefit cost
recognized in the accompanying
Consolidated Balance Sheet $ 7,807 $ 8,106
=================================================================================
</TABLE>
The discount rate used to measure the accumulated postretirement benefit
obligation was 7.5% for both years. The company has established fixed
contribution amounts for retiree health care benefits. As such, future health
care cost trends do not impact the company's accruals or provisions.
Net periodic postretirement benefit cost for the years ending December 31,
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost, benefits attributed for service
of active employees for the period $ 111 $ 103 $ 93
Interest cost on the accumulated
postretirement benefit obligation 515 656 771
Unrecognized prior service credit (236) (59) 0
Unrecognized net loss 54 21 26
- --------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 444 $ 721 $ 890
============================================================================================
</TABLE>
28
<PAGE> 17
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (11,428, 5,626 and 22,856 shares in 1997, 1996 and 1995) for allocation to
participants in The ESSOP.
The terms of the loan allow variable payments of principal with the final
principal and interest payment due December 1, 2001. The principal amount due on
the loan was $900,000 at December 31, 1997 and $1,000,000 at December 31, 1996.
Interest may be charged at either Prime Rate or at LIBOR plus 1.5%. As of
December 31, 1997, the LIBOR-based loan had an interest rate of 7.4%.
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 7%, 6% and 6% of the employee's salary for 1997, 1996 and 1995,
respectively. The match is paid in company stock. For 1997, 1996 and 1995,
respectively, 11,428, 16,038 and 22,062 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 1,797 and 1,016 shares were allocated for 1997 and 1996,
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 $132,000, $239,000 and $230,000 in 1997, 1996 and 1995,
respectively. The company paid interest on the ESSOP loan of $19,000, $33,000
and $51,000 which was net of dividends on unallocated ESSOP shares of $47,000,
$37,000 and $44,000 for 1997, 1996 and 1995, respectively. These amounts are
included in interest expense in the accompanying Consolidated Statements of
Operations.
29
<PAGE> 18
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8 INCOME TAX EXPENSE
Details of earnings before income taxes and the related provision for
income taxes are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before income taxes:
Domestic $ 9,953 $ 7,825 $ 5,731
Foreign 252 342 180
- -------------------------------------------------------------------------------------
Total $ 10,205 $ 8,167 $ 5,911
=====================================================================================
Income taxes:
Current:
Federal $ 3,301 $ 2,286 $ 1,956
State 672 434 339
Foreign 56 41 106
Deferred:
Federal (344) 195 (145)
State (61) (57) (12)
Foreign 59 141 (52)
- -------------------------------------------------------------------------------------
Total $ 3,683 $ 3,040 $ 2,192
=====================================================================================
</TABLE>
The components of the net deferred tax asset as of December 31, were as
follows (in thousands):
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS: 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Receivables $ 110 $ 82
Inventories 292 275
Accrued compensation 772 702
Other payables 1,442 708
Non-pension postretirement benefits 3,005 3,112
Accrued employee benefits 1,551 1,174
- -------------------------------------------------------------------------------------------
Total deferred tax assets 7,172 6,053
DEFERRED TAX LIABILITIES:
- -------------------------------------------------------------------------------------------
Depreciation 1,960 1,995
Prepaid pension 2,600 2,744
Other 348 57
- -------------------------------------------------------------------------------------------
Total deferred tax liabilities 4,908 4,796
- -------------------------------------------------------------------------------------------
Net deferred tax asset included in balance sheet $2,264 $1,257
===========================================================================================
</TABLE>
30
<PAGE> 19
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision at statutory rates $ 3,470 $ 2,776 $ 2,010
State income taxes, net
of federal tax benefit 403 312 216
Foreign income taxes 30 66 (7)
Tax benefit of FSC (190) (201) (119)
Other (30) 87 92
- ---------------------------------------------------------------------------------
Actual provision $ 3,683 $ 3,040 $ 2,192
=================================================================================
</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, 1997, were $644,000.
9 FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, receivables and payables 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 amount in shareholders' equity.
10 INDUSTRY SEGMENTS
The company operates in one industry segment as a marketer and
manufacturer of various flow measurement products.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Exports to non-affiliated companies to consolidated net sales 14% 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 for foreign subsidiaries ($000) $362 $346 $244
===================================================================================================================
</TABLE>
31
<PAGE> 20
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED), COMMON STOCK PRICE AND DIVIDENDS
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ----------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1997
Net sales $ 31,702 $ 34,104 $ 33,207 $ 31,758
Gross profit $ 11,478 $ 12,624 $ 12,480 $ 12,155
Net earnings $ 1,310 $ 1,900 $ 1,821 $ 1,491
Earnings per share:
Basic $ .37 $ .53 $ .51 $ .42
Diluted $ .35 $ .50 $ .46 $ .38
Dividends declared:
Common $ .11 $ .12 $ .12 $ .12
Class B $ .10 $ .11 $ .11 $ .11
Stock price:
High $ 24.00 $ 31.50 $ 57.50 $ 50.00
Low $ 18.13 $ 21.00 $ 29.25 $ 36.88
Quarter-end close $ 23.25 $ 29.63 $ 49.06 $ 40.75
- ----------------------------------------------------------------------------------------------------
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:
Basic $ .25 $ .39 $ .40 $ .40
Diluted $ .24 $ .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
- ----------------------------------------------------------------------------------------------------
</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. Shareholders of record as of December 31, 1997 and 1996, totaled
596 and 579 for Common Stock and 12 and 9 for Class B Stock, respectively.
Voting trusts are counted as single shareholders for this purpose.
32
<PAGE> 21
BADGER METER, INC.
REPORT OF INDEPENDENT AUDITORS
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, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Milwaukee, Wisconsin
January 28, 1998.
33
<PAGE> 22
(Page 31 of Annual Report to Shareholders)
BADGER METER, INC.
TEN YEAR SUMMARY OF SELECTED DATA
Years ended December 31 (in thousands except per share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $130,771 116,018 108,644 99,155 84,497 82,106
Research and development $ 4,397 3,851 3,858 3,278 3,642 4,119
Earnings before income taxes $ 10,205 8,167 5,911 4,974 3,306 1,160
Earnings before changes in
accounting $ 6,522 5,127 3,719 3,216 2,164 802
Cumulative effect of changes
in accounting $ 0 0 0 0 0 (4,684)
Net earnings (loss) $ 6,522 5,127 3,719 3,216 2,164 (3,882)
Earnings to sales * 5.0% 4.4% 3.4% 3.2% 2.6% 1.0%
- -------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Basic earnings before changes in
accounting $ 1.83 1.46 1.06 .93 .64 .24
Cumulative effect of changes
in accounting $ 0 0 0 0 0 (1.38)
Basic earnings (loss) $ 1.83 1.46 1.06 .93 .64 (1.14)
Cash dividends declared:
Common Stock $ .48 .43 .39 .35 .32 .30
Class B Common Stock $ .44 .39 .36 .32 .29 .28
Price range - high $ 57.50 20.81 13.50 14.00 11.00 8.88
Price range - low $ 18.13 12.38 11.06 9.50 8.88 7.38
Closing price $ 40.75 19.19 13.25 11.94 9.56 8.75
Book value $ 11.62 10.32 9.16 8.38 7.66 7.31
- -------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
Common Stock 2,444 2,426 2,387 2,377 2,281 2,282
Class B Common Stock 1,126 1,126 1,126 1,126 1,126 1,126
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 13,870 17,645 16,178 14,569 12,010 9,876
Current ratio 1.5 to 1 2.0 to 1 2.1 to 1 1.7 to 1 1.6 to 1 1.6 to 1
Net cash provided by
operations $ 5,178 9,878 12,026 6,342 2,969 3,833
Capital expenditures $ 8,349 5,382 4,493 3,553 3,121 3,496
Total assets $ 82,297 66,133 60,527 61,993 57,627 53,895
Long-term debt $ 928 1,091 1,000 1,200 1,400 1,700
Shareholders' equity $ 41,467 36,638 32,163 29,351 26,074 24,894
Debt to total capitalization 22.7% 9.2% 16.8% 28.4% 34.9% 34.2%
Return on shareholders' equity * 15.7% 14.0% 11.6% 11.0% 8.3% 3.2%
Price/earnings ratio * 22.3 13.1 12.5 12.8 15.1 37.2
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Net sales 78,417 77,100 72,266 71,150
Research and development 4,046 3,863 3,614 3,077
Earnings before income taxes 2,419 3,507 3,798 3,359
Earnings before changes in
accounting 1,648 2,332 2,375 2,071
Cumulative effect of changes
in accounting 0 0 0 0
Net earnings (loss) 1,648 2,332 2,375 2,071
Earnings to sales * 2.1% 3.0% 3.3% 2.9%
- ---------------------------------------------------------------------------------------
PER COMMON SHARE
Basic earnings before changes in
accounting .49 .73 .77 .69
Cumulative effect of changes
in accounting 0 0 0 0
Basic earnings (loss) .49 .73 .77 .69
Cash dividends declared:
Common Stock .30 .30 .29 .28
Class B Common Stock .28 .28 .26 .25
Price range - high 9.00 9.94 11.44 10.13
Price range - low 6.81 6.50 8.00 6.00
Closing price 7.69 6.94 9.81 9.06
Book value 8.61 8.29 8.39 7.89
- ---------------------------------------------------------------------------------------
SHARES OUTSTANDING
Common Stock 2,280 2,274 1,938 1,865
Class B Common Stock 1,126 1,126 1,149 1,175
- ---------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital 9,842 18,365 13,803 13,599
Current ratio 1.6 to 1 3.3 to 1 2.1 to 1 2.4 to 1
Net cash provided by
operations 5,410 5,132 3,342 5,846
Capital expenditures 3,335 4,901 4,376 2,904
Total assets 51,199 50,670 46,672 41,787
Long-term debt 1,900 10,400 5,183 5,267
Shareholders' equity 29,303 28,168 25,897 23,975
Debt to total capitalization 28.7% 30.5% 29.2% 25.9%
Return on shareholders' equity * 5.6% 8.3% 9.2% 8.6%
Price/earnings ratio * 15.9 9.6 12.7 13.1
- ---------------------------------------------------------------------------------------
</TABLE>
* PRIOR TO ACCOUNTING CHANGES
34
<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.
<TABLE>
<CAPTION>
Percentage State or Country
Name of ownership in which organized
- ---- ------------ ------------------
<S> <C> <C>
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
</TABLE>
35
<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 28, 1998, included in the
1997 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, 33-62241 and
333-28617) pertaining to the Badger Meter, Inc. Restricted Stock Plan, Badger
Meter, Inc. 1989 Stock Option Plan, Badger Meter, Inc. 1993 Stock Option Plan,
Badger Meter, Inc. 1995 Stock Option Plan, Badger Meter, Inc. Employee Savings
and Stock Ownership Plan, and Badger Meter, Inc. 1997 Stock Option Plan, of our
report dated January 28, 1998, 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, 1997.
Ernst & Young LLP
Milwaukee, Wisconsin
March 23, 1998
36
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S ANNUAL
REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,055
<SECURITIES> 0
<RECEIVABLES> 19,193
<ALLOWANCES> 0
<INVENTORY> 21,598
<CURRENT-ASSETS> 42,539
<PP&E> 64,407
<DEPRECIATION> (40,423)
<TOTAL-ASSETS> 82,297
<CURRENT-LIABILITIES> 28,669
<BONDS> 0
0
0
<COMMON> 1,012
<OTHER-SE> 40,455
<TOTAL-LIABILITY-AND-EQUITY> 82,297
<SALES> 130,771
<TOTAL-REVENUES> 130,771
<CGS> 82,034
<TOTAL-COSTS> 119,803
<OTHER-EXPENSES> 308
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 455
<INCOME-PRETAX> 10,205
<INCOME-TAX> 3,683
<INCOME-CONTINUING> 6,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,522
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.65
</TABLE>
