<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 March 31, 1998
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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
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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.)
4545 West Brown Deer Road, Milwaukee, Wisconsin 53223
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 355-0400
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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
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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 April 22, 1998
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Common Stock, $1.00 par value 2,503,982
Class B Common Stock, $.10 par value 1,125,570
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BADGER METER, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. Financial Information:
Item 1 Financial Statements:
Consolidated Condensed Balance Sheets - -
March 31, 1998 and December 31, 1997 3
Consolidated Condensed Statements of Operations - -
Three Months Ended March 31, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows - -
Three Months Ended March 31, 1998 and 1997 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>
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Part I - Financial Information
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BADGER METER, INC.
Item 1 Financial Statements
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CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets March 31, December 31,
------ 1998 1997
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 958 $ 1,055
Receivables 18,721 19,193
Inventories:
Finished goods 4,386 4,095
Work in process 10,686 10,871
Raw materials and purchased parts 6,465 6,632
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Total inventories 21,537 21,598
Prepaid expenses 783 693
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Total current assets 41,999 42,539
Property, plant and equipment, at cost 66,738 64,407
Less accumulated depreciation (41,713) (40,423)
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25,025 23,984
Intangible assets, at cost less accumulated amortization 617 650
Prepaid pension 6,606 6,751
Deferred income taxes 2,261 2,264
Deferred charges and other assets 5,751 6,109
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Total assets $ 82,259 $ 82,297
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Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Short-term debt $ 8,780 $ 11,245
Payables 7,639 7,196
Accrued compensation and employee benefits 4,001 5,339
Other accrued liabilities 3,749 3,630
Income and other taxes 1,896 1,259
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Total current liabilities 26,065 28,669
Accrued non-pension postretirement benefits 7,630 7,807
Other accrued employee benefits 3,691 3,426
Long-term debt 812 928
Shareholders' equity:
Common Stock 3,303 3,240
Class B Common Stock 112 112
Capital in excess of par value 9,832 8,315
Reinvested earnings 34,109 33,057
Less: Employee benefit stock (814) (917)
Treasury stock, at cost (2,481) (2,340)
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Total shareholders' equity 44,061 41,467
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Total liabilities and shareholders' equity $ 82,259 $ 82,297
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
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BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1998 1997
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<S> <C> <C>
Net sales $ 33,499 $ 31,702
Operating costs and expenses:
Cost of sales 20,056 20,224
Marketing and administrative 8,619 7,447
Research and engineering 2,087 1,851
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30,762 29,522
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Operating earnings 2,737 2,180
Interest expense 144 101
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Earnings before income taxes 2,593 2,079
Provision for income taxes 996 769
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Net earnings $ 1,597 $ 1,310
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Per share amounts: *
Net earnings:
Basic $ .44 $ .37
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Diluted $ .41 $ .35
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Dividends declared -
Common Stock $ .15 $ .11
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Dividends declared -
Class B Common Stock $ .14 $ .10
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Weighted-average shares used in computation:
Basic 3,613,471 3,557,737
Impact of dilutive stock
options 301,208 204,982
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Diluted 3,914,679 3,762,719
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</TABLE>
* 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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BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
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<S> <C> <C>
Operating activities:
Net earnings $ 1,597 $ 1,310
Adjustments to reconcile net
earnings to net cash provided
by (used for) operations:
Depreciation 1,290 960
Amortization 33 57
Noncurrent employee benefits 336 221
Deferred income taxes 3 5
Changes in:
Receivables 472 (4,353)
Inventory 61 (640)
Current liabilities other than short-term debt (139) 481
Prepaid expenses (90) (173)
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Total adjustments 1,966 (3,442)
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Net cash provided by (used for) operations 3,563 (2,132)
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Investing activities:
Property, plant and equipment (2,331) (1,138)
Other - net 358 (55)
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Net cash provided by (used for) investing activities (1,973) (1,193)
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Financing activities:
Bank borrowings (repayments) (2,581) 3354
Dividends (545) (380)
Stock options and ESSOP 1,580 352
Treasury stock transactions (141) (587)
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Net cash provided by (used for)
financing activities (1,687) 2,739
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Increase (decrease) in cash (97) (586)
Beginning of year 1,055 1,123
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End of period $ 958 $ 537
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Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Income taxes $ 699 $ 61
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Interest $ 168 $ 96
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
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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 March 31, 1998 and the results of
operations for the three-month periods ended March 31, 1998 and 1997 and
the cash flows for the three-month periods ended March 31, 1998 and 1997.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full year. Certain
reclassifications have been made to the 1997 data to conform with the 1998
presentation.
2. The consolidated condensed balance sheet at December 31, 1997, 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, 1997. 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 three months ended March 31, 1998, the company repurchased 3,822
shares of common stock for an aggregate purchase price of $141,000.
4. In February of 1998, the company entered into an interest rate swap
agreement which fixes the interest rate on $5 million of commercial paper
at 5.7% for three years.
5. The company continues to address the year 2000 software issues as discussed
in the company's Annual Report to Shareholders for the year ended
December 31, 1997. All upgrades are expected to be completed by the end of
1998 and management does not expect to incur any significant costs in
excess of normal software upgrade costs.
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Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
Sales increased 5.5% in the first quarter of 1998 compared to the fourth quarter
of 1997. However, receivables decreased 2.5%, or $472,000, from the December 31,
1997 balance due to improved collections and lower international sales, which
tend to have extended payment terms. Inventories remained stable during the
quarter, as increased production requirements were balanced through efficient
inventory management. Prepaid expenses increased $90,000 during the quarter due
to annual insurance payments and intangible assets decreased $33,000 due to
regular patent amortization. Property, plant and equipment (at cost) increased
$2,331,000 due to regular payments in connection with the Milwaukee facility
expansion plus other equipment purchases.
Prepaid pension decreased $145,000 due to the recording of normal pension
expense with no funding payments required during the quarter due to the
overfunded status of the plan. Deferred charges and other assets decreased 6%,
or $358,000, due to a partial return of funds deposited in escrow in connection
with the acquisition of a fire service product line. The acquisition of a fire
service product line will be completed in the second quarter of 1998, at which
time the remaining amount in deferred charges will be allocated to the
inventory, equipment and intangibles accounts.
Payables increased 6%, or $443,000, due to increases in general trade payables
since December 31, 1997. Accrued compensation and employee benefits decreased
25%, or $1,338,000, due primarily to payments of 1997 incentive compensation
during the first quarter of 1998. Other accrued liabilities increased 3%, or
$119,000, due primarily to additional reserves for after-sale costs. Income and
other taxes payable increased $637,000 due to tax accruals related to increased
profits and timing of estimated tax payments. Accrued non-pension postretirement
benefits decreased $177,000 since December 31, 1997 and other accrued employee
benefits increased $265,000 due to timing of benefit payments. Long-term debt
decreased $116,000 due primarily to a $100,000 regular payment made on the debt
related to the Employee Savings and Stock Ownership Plan ("the ESSOP").
Short-term debt decreased $2,465,000 since December 31, 1997. Cash generated by
net earnings and proceeds from the sale of stock to the ESSOP was sufficient to
fund working capital needs, fixed asset additions, increased dividend
requirements and debt reductions during the first quarter.
As of March 31, 1998, the company had approximately $38,000,000 of credit lines
with domestic and foreign banks of which $8,780,000 was in use. This compares to
$5,943,000 in use at March 31, 1997 and $11,245,000 at December 31, 1997. The
company believes that the present lines of credit are adequate to meet operating
requirements.
Results of Operations
Net sales for the first quarter of 1998 increased 5.7%, or $1,797,000, over
sales for the first quarter of 1997. Higher sales of valves and lubrication
meters contributed to the increase, as well as increased sales of residential
water meters. Strong domestic water meter sales resulted from shipments of
residential water meters to the City of Philadelphia for integration with the
Itron automated meter reading system. These and other domestic sales offset a
decrease in international water meter sales for the quarter.
Gross profit margins increased from 36.2% in first quarter 1997 to 40.1% in
first quarter 1998 due to favorable pricing and greater plant utilization
resulting from increased manufacturing efficiencies.
Marketing and administrative costs increased 15.7% for the first quarter of 1998
as compared to the first quarter of 1997 due to general wage and cost increases,
plus additional staffing to support increased sales. Research and engineering
expenses increased 12.7% for the first quarter of 1998 compared to the same
quarter of 1997 due to increased staffing and other costs associated with
continued product development initiatives. Interest expense increased between
the periods due to higher debt balances.
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The effective tax rate increased from 37% for the first quarter of 1997 to 38.4%
for the first quarter of 1998 due to reduced tax benefits on lower international
sales and other changes in tax credit estimates.
Earnings for the first quarter of 1998 were $1,597,000, an increase of 21.9%
over first quarter 1997 earnings of $1,310,000, due primarily to increased sales
and improved margins. The percentage increases in earnings per share were lower
due to the impact of dilutive options and increased shares outstanding.
Other Matters
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 company's financial position or results of
operations. 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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Part II - Other Information
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Item 6 Exhibits and Reports on Form 8-K
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(a) Exhibits:
(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 March
31, 1998.
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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: April 22, 1998 By /S/ Richard A. Meeusen
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Richard A. Meeusen
Vice President - Finance and Treasurer
Chief Financial Officer
By /S/ Beverly L.P. Smiley
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Beverly L.P. Smiley
Corporate Controller
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EXHIBIT INDEX
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Page Number
(27.0) Financial Data Schedule
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<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 ENTIRELY BY REFERENCE TO
SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 958
<SECURITIES> 0
<RECEIVABLES> 18,721
<ALLOWANCES> 0
<INVENTORY> 21,537
<CURRENT-ASSETS> 41,999
<PP&E> 66,738
<DEPRECIATION> (41,713)
<TOTAL-ASSETS> 82,259
<CURRENT-LIABILITIES> 26,065
<BONDS> 0
0
0
<COMMON> 934
<OTHER-SE> 43,127
<TOTAL-LIABILITY-AND-EQUITY> 82,259
<SALES> 33,499
<TOTAL-REVENUES> 33,499
<CGS> 20,056
<TOTAL-COSTS> 30,762
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 2,593
<INCOME-TAX> 996
<INCOME-CONTINUING> 1,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,597
<EPS-PRIMARY> .44
<EPS-DILUTED> .41
</TABLE>
