<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, 1998
[ ] 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 $94,691,712 as of February 26, 1999. At February 26, 1999, the
registrant had 2,587,164 shares of Common Stock outstanding and 1,081,846 shares
of Class B Common Stock outstanding.
Documents Incorporated by Reference:
Parts I and II incorporate information by reference from the company's
1998 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 23,
1999 [to be filed with the Securities and Exchange Commission under Regulation
14A within 120 days after the end of the registrant's fiscal year].
2
<PAGE> 2
Part I
Item 1. Business
Badger Meter, Inc. (the "company") is a marketer and manufacturer
of products using flow measurement and control technology serving markets
worldwide. The company 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), automotive fluid
meters, ultrasonic flowmeters, small valves, natural gas instrumentation, flow
tubes and industrial process 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. Products are also assembled in facilities in
Nogales, Mexico. Assembly and some light manufacturing are done in the
Stuttgart, Germany facility.
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, 1998 and 1997 was $32,290,000 and $27,884,000,
respectively. Substantially, the entire December 31, 1998 backlog is expected to
be shipped in 1999.
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.
3
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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 $6,105,000 during 1998, as compared to
$4,397,000 during 1997 and $3,851,000 during 1996. Research and development
activities are primarily sponsored by the company. The company also engages in
some joint research and development with other companies.
Intangible Assets
The company owns or controls many patents, trademarks, tradenames
and license agreements, in the United States and other countries, related to its
products and technologies. No single patent, trademark, tradename or license is
material to the company's business as a whole.
Environmental Protection
The company is subject to contingencies relative to compliance
with Federal, State and local provisions and regulations relating to the
protection of the environment. Currently the company is in the process of
resolving an issue relative to a landfill site and a suit alleging a violation
of Proposition 65, California's environmental regulation (see Item 3). The
company is also involved in litigation filed by the owner of property near one
of the company's plants, alleging damage to property value by virtue of spillage
from past company operations. The company believes that this suit is without
merit. The company does not believe the ultimate resolution of any of these
claims will have a material adverse effect on the results of operations.
Expenditures during 1998 and 1997 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 that monitors
the company's compliance with various regulatory authorities in regard to
environmental matters, among other things.
Employees
The company and its subsidiaries employed 956 persons at December
31, 1998, of which 247 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 and sales representatives 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, 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 1998 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.
4
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Item 2. Properties
The principal facilities utilized by the company at December 31,
1998, are listed below. Except as indicated, the company owns all of such
facilities in fee simple.
<TABLE>
<CAPTION>
Approximate Area
Location Principal Use (Square Feet)
- -------- ------------- -------------
<S> <C> <C>
Milwaukee, Wisconsin Manufacturing and offices 323,000
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 23,000 (4)
</TABLE>
(1) Includes 30,000 sq. ft. leased facility. Lease term expires December 31,
1999.
(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, 2005.
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 nearing completion of the construction of a 67,000 square foot addition to
its Milwaukee, Wisconsin facility. The addition is estimated to cost
approximately $12 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-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. 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 Proposition 65 and 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, 1998.
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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 2/26/99
- ---- -------- -------
<S> <C> <C>
James L. Forbes President and Chief 66
Executive Officer
Robert D. Belan Executive Vice President 58
William H. Vander Heyden Vice President - Industrial 62
Theodore N. Townsend Vice President - International 54
Ronald H. Dix Vice President - Administration 54
and Human Resources
Deirdre C. Elliott Vice President - Corporate Counsel 42
and Secretary
Richard A. Meeusen Vice President - Finance, Treasurer and 44
Chief Financial Officer
Beverly L.P. Smiley Corporate Controller 49
</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 Executive Vice President in April 1998. From
1992 to 1998, Mr. Belan was Vice President - Utility.
Mr. Vander Heyden has served as Vice President - Industrial for
more than five years.
Mr. Townsend joined the company and was elected Vice President -
International in February 1996. From 1993 to 1995, Mr. Townsend was Managing
Director of International Gas Measurement, based in London, England for twelve
companies related to Elster/Kromshroder and American Meter Companies.
Mr. Dix has served as Vice President - Administration and Human
Resources for more than five years.
Ms. Elliott has served as Vice President - Corporate Counsel and
Secretary for more than five years.
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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<PAGE> 6
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The information set forth on page 27 in the company's 1998 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 29 in the company's 1998
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 15, 16 and 17 in the company's
1998 Annual Report to Shareholders is incorporated herein by
reference in response to this Item.
Item 7.a. Quantitative and Qualitative Disclosures of Market Risk
The information set forth on page 17 in the company's 1998 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,
1998 and 1997 and for each of the three years in the period ended
December 31, 1998 and the auditor's report thereon and the
company's unaudited quarterly financial data for the two-year
period ended December 31, 1998 are incorporated herein by
reference from the 1998 Annual Report to Shareholders, pages 18
through 28.
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 Section 16(a) "Beneficial Ownership Reporting Compliance" in
the company's definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on April 23, 1999, 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 23, 1999, 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.
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<PAGE> 7
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 23, 1999, and is incorporated
herein by reference.
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 23, 1999, 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, 1998.
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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 12, 1999
By: /s/ Beverly L.P. Smiley
----------------------
Corporate Controller
February 12, 1999
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 12, 1999 Chief Executive Officer
February 12, 1999
/s/ Robert M. Hoffer /s/ Pamela B. Strobel
- ------------------- ---------------------
Robert M. Hoffer Pamela B. Strobel
Director Director
February 12, 1999 February 12, 1999
/s/ Charles F. James, Jr. /s/ Andrew J. Policano
- ------------------------- ----------------------
Charles F. James, Jr. Andrew J. Policano
Director Director
February 12, 1999 February 12, 1999
/s/ Donald J. Schuenke /s/ Kenneth P. Manning
- ---------------------- ----------------------
Donald J. Schuenke Kenneth P. Manning
Director Director
February 12, 1999 February 12, 1999
/s/ John J. Stollenwerk /s/ James O. Wright, Jr.
- ----------------------- ------------------------
John J. Stollenwerk James O. Wright, Jr.
Director Director
February 12, 1999 February 12, 1999
9
<PAGE> 9
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
----------- -----------
Item 14(a) 1
- ------------
<S> <C> <C>
Financial statements:
Consolidated balance sheets at
December 31, 1998 and 1997 19
Consolidated statements of operations
for each of the three years in the
period ended December 31, 1998 18
Consolidated statements of cash flows
for each of the three years in the
period ended December 31, 1998 20
Consolidated statements of shareholders'
equity for each of the three years in
the period ended December 31, 1998 21
Notes to consolidated financial
statements 22 - 29
Item 14(a) 2
- ------------
Financial statement schedules:
Consolidated schedules for each of
the three years in the period ended
December 31, 1998
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
<PAGE> 10
BADGER METER, INC.
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance
beginning charged to from at end
of year earnings allowances of year
<S> <C> <C> <C> <C> <C>
Allowance for doubtful receivables:
1998 $308,000 $151,000 $ 90,000(a) $369,000
======== ======== =========== ========
1997 $242,000 $119,000 $ 53,000(a) $308,000
======== ======== =========== ========
1996 $216,000 $115,000 $ 89,000(a) $242,000
======== ======== =========== ========
Warranty/after-sale cost reserve:
1998 $3,630,000 $2,783,000 $2,027,000 $4,386,000
========== ========== ========== ==========
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
======== ========== ========== ==========
</TABLE>
Note:
(a) Accounts receivable written off, less recoveries, against the
allowance.
F-1
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
- ----------- -------------------
<S> <C>
(3.0) Restated Articles of Incorporation effective April 24, 1998. [Incorporated
by reference from Exhibit (3.0) (i) to the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1998].
(3.1) Restated By-Laws as amended August 14, 1998. [Incorporated by reference
from Exhibit (3.0) (ii) to the Registrant's Quarterly Report on
Form 10-Q for the period ended September 30, 1998].
(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].
(4.2) Loan Agreement, as amended December 21, 1998, between the Firstar Bank
Milwaukee, N.A. and the Badger Meter Employee Savings and Stock Ownership Plan and Trust.
(4.3) Rights Agreement, dated May 26, 1998, between Registrant and Firstar Trust Company.
[Incorporated by reference to Exhibit (4.1) to the Registrant's Registration Statement on Form 8-A
(Commission File No. 1-6706)].
(9.0) Badger Meter, Inc. Voting Trust Agreement dated June 1, 1953 as amended.
[Incorporated by reference from Exhibit (13) to the Registrant's Quarterly Report on
Form 10-Q 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.
12
<PAGE> 12
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 23, 1999. [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.
13
<PAGE> 1
EXHIBIT (4.2)
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement is dated as of the 21 day of
December, 1998 by and between First Wisconsin National Bank Milwaukee now known
as Firstar Bank Milwaukee, N.A. (herein called the "BANK") and the Badger Meter
Employee Savings and Stock Ownership Plan and Trust (herein known as the
"ESSOP").
RECITALS
WHEREAS, the Bank has previously provided to the ESSOP a One Million
Dollar ($1,000,00.00) Revolving Loan pursuant to a Loan Agreement dated as of
December 1, 1995 (the "LOAN AGREEMENT") for the purpose of acquiring from time
to time the common stock of Badger Meter, Inc. for the benefit of the
participants of the ESSOP (the "LOAN"); and
WHEREAS, the Loan Agreement is guaranteed by Badger Meter, Inc. (herein
called the "GUARANTOR") pursuant to a Guaranty dated as of December 1, 1995 (the
"GUARANTOR"); and
WHEREAS, the ESSOP and Guarantor have requested the Bank to increase
the amount of the Loan from One Million Dollars ($1,000,000.00) to Two Million
Six Hundred Thousand Dollars ($2,600,000.00).
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Loan Agreement is hereby
amended and restated as follows:
1. The term "NOTE" shall mean the Revolving Credit Note attached
hereto as Exhibit A which amends and restates the existing
$1,000,000 Promissory Note dated as of December 1, 1995, issued
under the Loan Agreement.
2. The term "LIBOR RATE" shall mean the per annum offered rate for
deposits in United States dollars for one, two, three and six
month interest periods (the "INTEREST PERIODS") which appear on
the Bloomberg electronic rate terminals at the Bank's money
center, as of 11:00 AM, London time, each Banking Day. If the
appropriate Bloomberg Rate Screen is not accessible, the
applicable LIBOR Rate will be determined by the Lender on the
basis of other electronic information and other broker's quotes or
offered rates for deposits in United States dollars. As used
herein, "BANKING DAY" shall mean any day Bank's money center is
open for business.
3. Section 2.1 "Stock Acquisition Loan" shall be amended in its
entirety to read as follows:
"From time to time prior to December 31, 2005 (the "MATURITY
DATE") or the earlier termination of this Loan Agreement, the
ESSOP may borrow from the Bank for purposes of financing the
acquisition of Badger Meter, Inc. common stock for the benefit of
the participants of the ESSOP up to the aggregate principal amount
outstanding at any one time of Two Million Six Hundred Thousand
Dollar ($2,600,000.00) (the "LOAN AMOUNT"). All Loans hereunder
will be evidenced by a single promissory note of ESSOP payable to
the order the Bank in the principal amount of the Loan Amount (the
"NOTE") provided that ESSOP will be obligated to pay only the
amounts actually disbursed and outstanding thereunder, together
with accrued interest thereon, at the rates and dates specified
herein and therein. Notwithstanding the foregoing, the Loan Amount
will be automatically reduced by the amount of any principal
payments made by ESSOP on the Note at any time, and the face
amount of the Note shall be automatically reduced in an equal
amount on said date, without further amendment by the parties."
4. Section 2.2 "Interest", Subsection (a) shall be amended by
deleting the first three sentences thereof and inserting the
following:
14
<PAGE> 2
"The unpaid outstanding principal balance of the Note shall bear
interest at rate equal to, at ESSOP's option, one or more of the
following: (a) The prime rate of interest as announced and in
effect from time to time at the Bank, with the rate hereon
changing as and when such rate changes (such a loan a "PRIME RATE
LOAN" and such a rate a "PRIME RATE"); or (b) 1.50% per annum in
excess of the LIBOR Rate (such a loan a "EURODOLLAR LOAN" and such
a rate a "LIBOR RATE"). In the event that ESSOP fails to select a
LIBOR Rate at the end of any LIBOR Rate Interest Period, such loan
shall automatically convert to a Prime Rate Loan at the then
prevailing Prime Rate. No more than ten Eurodollar Loans may be in
effect at any one time and each Eurodollar Loan shall be at a
minimum principal amount of $100,000. Interest shall be computed
for the actual number of days principal is unpaid, using a daily
factor obtained by dividing the stated interest rate by 365."
5. Section 2.2 "Interest", Subsection (c) shall be amended in its
entirety as follows:
"The Note may be prepaid in whole or in part, at the option of the
ESSOP at any time, provided however, that the ESSOP shall give the
Bank at least one day prior written notice of any such prepayment.
Accrued interest on the amount prepaid shall also be paid on the
date of prepayment. In the event of prepayment of less than all of
the outstanding balance of such Note, such prepayment shall be in
the minimum principal amount of Five Thousand Dollars ($5,000.00)
or a multiple thereof. To the extent at the time of any prepayment
there exists both a Prime Rate Loan and a Eurodollar Loan, the
prepayment shall be applied to the Prime Rate Loan first, until
there is no outstanding principal balance thereon, and the
remainder, if any, applied to the oldest outstanding Eurodollar
Loan. There shall be no prepayment indemnity for any prepayment of
a Prime Rate Loan. In the event any Eurodollar Loan is prepaid
prior to the end of the Interest Period, the ESSOP hereby agrees
to indemnify the Bank against any funding loss or expense's which
the Bank may sustain or incur by reason of the liquidation or
re-employment of deposits or other funds acquired by the Bank to
fund or maintain any Eurodollar Loan as reasonably determined by
Bank."
6. The following are conditions precedent to the effectiveness of
this Amendment:
A. Bank's receipt of a Reaffirmation of Guaranty from Badger Meter,
Inc.;
B. Bank's receipt of an updated Borrowing Resolution from the ESSOP
evidencing its authority to borrow up to Two Million Six Hundred
Thousand Dollar ($2,600,000.00) from Bank;
C. An Updated legal opinion from the ESSOP's counsel that the ESSOP
is duly authorized to enter into this Loan Amendment, to borrow
the additional funds available thereunder, and to otherwise
perform its obligations hereunder;
D. Bank's receipt of a First Amendment to Pledge Agreement executed
by ESSOP; and
E. Payment to Bank by the Guarantor of a $2,000 closing fee (1/8 of
1% of $1,600,000).
7. Except as specifically amended hereby, the Loan Agreement shall
remain in full force and effect in accordance with its terms. All
warranties and representations contained therein are hereby
reconfirmed as of the date hereof. All collateral previously given
to secure the Loan Agreement continues as security and all
guarantees of the obligations under the Loan Agreement remain in
full force and effect. This is an amendment, not a novation.
8. This First Amendment shall not be construed as or be deemed to be
a waiver by the Bank of existing defaults by ESSOP, whether known
or undiscovered. All agreements, representations and warranties
made herein shall survive the execution of this Amendment.
9. Pursuant to the Guaranty, the Guarantor shall be responsible for
payment of all fees and out-of-pocket disbursements incurred by
the Bank in connection with the preparation, execution, delivery,
administration and enforcement of the Agreement, including all
costs of collection, and including, without limitation, the fees
and disbursements of counsel (including inside counsel) for the
Bank.
10. This First Amendment shall only become effective upon execution by
the ESSOP and the Bank, and approval by all guarantors and any
other third party required by the Bank.
15
<PAGE> 3
11. This First Amendment shall be governed by and construed in
accordance with the internal laws of the State of Wisconsin.
12. This First Amendment may be signed in any number of counterparts,
each of which shall be considered an original, but when taken
together, shall constitute one document.
13. The ESSOP represents and warrants that the execution, delivery and
performance of the Agreement and this First Amendment and the
documents referenced herein are within the authority of the ESSOP.
Dated as of the 21 day of December, 1998.
BADGER METER EMPLOYEE SAVINGS AND
STOCK OWNERSHIP PLAN AND TRUST
BY: MARSHALL & ILSLEY TRUST COMPANY,
SOLELY AS TRUSTEE
By:
----------------------------------------
Name and Title:
---------------------------
ATTESTED:
By:
----------------------------------------
Name and Title:
---------------------------
FIRSTAR BANK MILWAUKEE, N.A.
By:
----------------------------------------
Name and Title:
---------------------------
16
<PAGE> 4
FIRST AMENDMENT TO PLEDGE AGREEMENT
This First Amendment to Pledge Agreement is dated as of the 21 day of
December, 1998 by and between Firstar Bank Milwaukee, N.A. and Badger Meter
Employee Savings and Stock Ownership Plan and Trust (the "ESSOP").
RECITALS
WHEREAS, the Bank has previously provided to the ESSOP an One Million
Dollar ($1,000,000.00) Revolving Loan pursuant to a Loan Agreement dated as of
December 1, 1995 (the "LOAN AGREEMENT") for the purpose of acquiring from time
to time the common stock of Badger Meter, Inc. for the benefit of the
participants of the ESSOP (the "LOAN"); and
WHEREAS, the ESSOP has requested the Bank to increase the amount of the
Loan from One Million Dollars ($1,000,000.00) to Two Million Six Hundred
Thousand Dollar ($2,600,000.00).
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Pledge Agreement is hereby
amended as follows:
1. A new paragraph 1 shall be added as follows:
"Effective as of December 21, 1998, all common stock of Badger
Meter, Inc. acquired by the ESSOP with the proceeds from the Loan
as increased to $2,600,000 (the "ESSOP STOCK"), shall be deemed
Pledged Stock hereunder, and shall be subject to this Pledge
Agreement upon their acquisition. All ESSOP Stock shall be held as
Pledge Shares by Firstar Trust Company in a collateral pledge
account in the name of the Bank for the benefit of the ESSOP, and
shall be promptly delivered to Firstar Trust Company so as to
maintain their identity and status as Pledged Stock hereunder, and
to preserve Bank's rights vis-a-vis such Pledged Stock as proved
for herein. As such Pledged Stock is acquired, the original
certificates and a properly completed irrevocable stock power
shall be promptly delivered to Firstar Trust Company as provided
herein."
2. The remaining numbered paragraphs shall be renumbered starting
with (2), et seq.
In all other respects, the Pledge Agreement remains unchanged and
in full force and effect.
BADGER METER EMPLOYEE SAVINGS AND
STOCK OWNERSHIP PLAN AND TRUST
BY: MARSHALL & ILSLEY TRUST COMPANY,
SOLELY AS TRUSTEE
By:
----------------------------------------
Name and Title:
----------------------------
ATTESTED:
By:
----------------------------------------
Name and Title:
----------------------------
17
<PAGE> 5
ACKNOWLEDGMENT OF GUARANTOR
The undersigned acknowledges and agrees to all of the foregoing and
agree that its Guaranty of Specific Transaction dated December 1, 1995 continues
to guarantee the obligations of the Borrower to the Bank as amended hereby and
by any prior amendments.
Dated as of December 21, 1998.
BADGER METER, INC.
----------------------------------------
By:
-------------------------------------
Name and Title:
-------------------------
18
<PAGE> 6
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$2,600,000 December 21, 1998
FOR VALUE RECEIVED, the undersigned borrower (the "BORROWER"), promises
to pay to the order of Firstar Bank Milwaukee, N.A. (the "BANK"), at its main
office in Milwaukee, Wisconsin, the principal sum of Two Million Six Hundred
Thousand and 00/100 Dollars ($2,600,000.0), payable December 31, 2005 (the
"MATURITY DATE").
Interest. The unpaid outstanding principal balance of the Note shall
bear interest at rate equal to, at Borrower's option, one or more of the
following: (a) The prime rate of interest as announced and in effect from time
to time at the Bank, with the rate hereon changing as and when such rate changes
(such a loan a "PRIME RATE LOAN" and such a rate a "PRIME RATE"); or (b) 1.50%
per annum in excess of the LIBOR Rate (such a loan a "EURODOLLAR LOAN" and such
a rate a "LOAN RATE").
Interest on the outstanding principal amount of the Note shall be
payable per the Loan Agreement described below, with a final payment of any
accrued interest due at the Maturity Date, or the earlier termination of the
Loan Agreement.
Principal. The unpaid principal balance of this Note as may be
outstanding from time to time hereunder, may be paid in the Borrowers sole
discretion, at any time subject to the provisions of the Loan Agreement
described below, but in any event, the entire unpaid principal balance shall be
due and payable on December 31, 2005.
Interest shall be computed for the actual number of days principal is
unpaid, using a daily factor obtained by dividing the stated interest rate by
365. Principal and interest not paid when due shall bear interest from and after
the due date until paid at a rate of 2% per annum plus the rate otherwise
payable hereunder.
In no event will the interest rate hereunder exceed that permitted by
applicable law. If any interest or other charge is finally determined by a court
of competent jurisdiction to exceed the maximum amount permitted by law, the
interest or charge shall be reduced to the maximum permitted by law, and the
Bank may credit any excess amount previously collected against the balance due
or refund the amount to the Borrower.
Without affecting the liability of any Borrower, endorser, surety or
guarantor, the Bank may, without notice, renew or extend the time for payment,
accept partial payments, release or impair any collateral security for the
payment of this Note, or agree not to sue any party liable on it.
This Amendment and Restated Revolving Credit Note constitutes the Note
issued under a certain Loan Agreement dated as of December 1, 1995 between the
Borrower and the Bank, to which Agreement reference is hereby made for a
statement of the terms and conditions under which loans evidenced hereby were or
may be made and a description of the terms and conditions upon which the
maturity of this Note may be accelerated, and for a description of the
collateral securing this Note.
This Revolving Credit Note is an amendment and restatement in its
entirety of that certain One Million Dollar ($1,000,000.00) Promissory Note
issued under the Loan Agreement (the "ORIGINAL LOAN"); and this Revolving Credit
Note is intended to evidence a continuation and restatement of that Original
Note, is not intended as a refinancing or substitution of such Original Note.
19
<PAGE> 7
BADGER METER EMPLOYEE SAVINGS AND
STOCK OWNERSHIP PLAN AND TRUST
BY: MARSHALL & ILSLEY TRUST COMPAY,
SOLELY AS TRUSTEE
By:
---------------------------------------
Name and Title:
---------------------------
ATTESTED:
By:
---------------------------------------
Name and Title:
---------------------------
20
<PAGE> 8
REAFFIRMATION OF GUARANTY
To: Firstar Bank Milwaukee, N.A. (THE "BANK")
The undersigned (the "GUARANTOR", whether one or more) has executed
Continuing Guarant(ies) (Unlimited), Continuing Guarant(ies) (Limited), or
Guarant(ies) of Specific Transaction dated December 1, 1995 (collectively the
"GUARANTY") guaranteeing all of the obligations of Badger Meter Employee Savings
and Stock Ownership Plan and Trust (the "BORROWER") to the Bank, whether
currently existing or arising in the future.
The Bank will be extending a new loan to the Borrower, or renewing,
restructuring or otherwise amending an existing loan to the Borrower, as
evidenced by the following documents, among others:
Amended and Restated Revolving Credit Note; First Amendment to Loan
Agreement
The Guarantor hereby confirms that the guaranty remains in full force
and effect, and the definition of "Obligations" in the Guaranty specifically
includes the obligations identified above, as well as any renewals, amendments
or refinancing thereto (including an increase in the principal amount of the
loan).
This Reaffirmation is not intended to affect or limit the continuing
and unlimited nature of the Guaranty, and the Guarantor reaffirms that consent
by the Guarantor to any additional loans, refinancings, amendments and other
changes in any agreements between the Bank and the Borrower is not necessary, as
described in the Guaranty. All collateral securing the Guaranty also continues
as security, and all other terms of the Guaranty are hereby reaffirmed.
The Guarantor represents that the Guarantor has reviewed the Borrower's
financial condition prior to executing this Reaffirmation; and the Guarantor
specifically relieves the Bank of any obligation to advise the Guarantor of the
Borrower's current financial condition, or any changes in the Borrower's
financial condition in the future.
The Guarantor hereby acknowledges the receipt of a copy of this Guaranty,
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR
ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.
YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
THIS NOTICE SHALL ALSO BE EFFECTIVE WITH RESPECT TO ALL OTHER CREDIT AGREEMENTS
NOW IN EFFECT BETWEEN YOU AND THIS LENDER. A MODIFICATION OF ANY OTHER CREDIT
AGREEMENTS NOW IN EFFECT BETWEEN YOU AND THIS LENDER, WHICH OCCURS AFTER RECEIPT
BY YOU OF THIS NOTICE, MAY BE MADE ONLY BY ANOTHER WRITTEN INSTRUMENT. ORAL OR
IMPLIED MODIFICATIONS TO SUCH CREDIT AGREEMENTS ARE NOT ENFORCEABLE AND SHOULD
NOT BE RELIED UPON.
Dated as of: December 21, 1998
----------------------
(Individual Guarantor) Badger Meter, Inc.
-------------------------------------------
Guarantor Name (Corporation or Partnership)
(SEAL) a
- ---------------------------- ----------------------------------------
Guarantor Name By:
------------- ----------------------------------------
Name and Title:
----------------------------
(SEAL) By:
- ---------------------------- ----------------------------------------
Guarantor Name Name and Title:
-------------- ----------------------------
21
<PAGE> 1
EXHIBIT (13.0)
Portions of Annual Report to Shareholders that are incorporated by reference.
22
<PAGE> 2
(Page 1 of Annual Report to Shareholders)
BADGER METER, INC.
FINANCIAL HIGHLIGHTS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997 % CHANGE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS (in thousands)
Net sales $ 143,813 $ 130,771 10.0
Net earnings $ 8,247 $ 6,522 26.4
- -------------------------------------------------------------------------------------------------------------------
PER SHARE
Net earnings:
Basic $ 2.28 $ 1.83 24.6
Diluted $ 2.12 $ 1.65 28.5
Cash dividends declared:
Common Stock $ .60 $ .48 25.0
Class B Common Stock $ .54 $ .44 22.7
Net book value $ 13.13 $ 11.62 13.0
- -------------------------------------------------------------------------------------------------------------------
YEAR-END FINANCIAL POSITION (in thousands)
Working capital $ 10,776 $ 13,870 (22.3)
Current ratio 1.3 to 1 1.5 to 1 (13.3)
Long-term debt $ 2,600 $ 928 180.2
Shareholders' equity $ 47,848 $ 41,467 15.4
Net earnings as a percent of equity 17.2% 15.7% 9.6
===================================================================================================================
OTHER
Number of employees 956 972 (1.6)
Number of shareholders:
Common Stock:
In employee plans 810 770 5.2
Of record 576 596 (3.4)
Class B Common Stock 12 12 0
Shares outstanding at December 31:
Common Stock 2,538,077 2,444,274 3.8
Class B Common Stock 1,107,840 1,125,570 (1.6)
===================================================================================================================
</TABLE>
23
<PAGE> 3
(Page 15 to 17 of Annual Report to Shareholders)
MANAGEMENT'S DISCUSSION AND ANALYSIS
BUSINESS DESCRIPTION
Badger Meter is a leading marketer and manufacturer of products using flow
measurement and control technology developed both internally and with other
technology companies. Its products are used to measure and control the flow of
liquids and gases in a variety of applications. The company has eight primary
product lines: residential and commercial/industrial water meters (with related
technologies), automotive fluid meters, ultrasonic flowmeters, small valves,
natural gas instrumentation, flow tubes and industrial process 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
a digital 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 within the marketplace. In both alternatives, the company provides the
meter that generates a mechanical signal and the device that converts the signal
into a digital form. That signal may then be read by either a propriety meter
reading system or systems developed by other technology companies.
RESULTS OF OPERATIONS
SALES
Badger Meter's sales increased $13.0 million and $14.8 million, or 10.0% and
12.7% in 1998 and 1997, 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 both privatizations of water
services and a continued industry movement away from manual-read meters to
automated meter reading technologies.
Both the 1998 and 1997 sales increases included major product shipments as part
of a large metering contract for the City of Philadelphia. 1997 sales also
included international sales for projects in Manila and Mexico City, but 1998
saw a significant decrease in these sales as a result of the international
financial situation and the anticipated end of the Mexico City contract. This
decrease in international water meter sales was more than offset by increased
domestic sales of radio-frequency automated meter reading systems and
commercial/industrial water meters, and worldwide sales of automotive fluid
meters.
Badger Meter continues to improve existing products and to develop and acquire
new products. In 1998, the company completed the acquisition of a fire service
product line. In late 1997, the company acquired a line of electromagnetic
flowmeters. New product developments primarily relate to the areas of meter
reading systems, commercial/industrial water meters, automotive fluid 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, overall market conditions and competition. 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 automotive fluid meters
and valves in Europe, sales of automated meter reading technologies in Mexico,
and sales of valves and other metering products throughout the world. In Europe,
sales are made in both U.S. dollars and German marks. All other international
sales are made in U.S. dollars. The company is able to partially hedge its
German mark exposure.
GROSS PROFIT MARGINS
Gross profit margins were 39.9%, 37.3% and 36.7% for 1998, 1997 and 1996,
respectively. These margins have steadily increased as higher sales volumes have
enabled the company to leverage its fixed manufacturing costs. In 1998,
production of certain product lines neared capacity levels, resulting in even
higher margins. In addition, significant cost reductions over the past several
years have resulted from capital investment to improve manufacturing processes
and systems and from the company's cost improvement programs.
24
<PAGE> 4
OTHER FACTORS
Selling, engineering and administrative costs increased 13.8% in 1998 and 12.0%
in 1997. Both years reflect increased research and engineering costs primarily
related to the development of products in connection with market alliances,
acquisition of new product lines, and the continued upgrade and expansion of
existing product lines. Also, 1997 was affected by higher incentive compensation
costs and costs associated with the formation and development of the
international sales organization.
Interest expense increased in both 1998 and 1997 as a result of higher debt
balances primarily due to the funding of the Milwaukee facility expansion and
product line acquisitions, as well as general working capital needs related to
the increased business activity. The impact of increased debt balances was
partially offset by lower average interest rates.
INCOME TAXES
Income tax as a percentage of earnings before income taxes was 38.3%, 36.1% and
37.2% for 1998, 1997 and 1996, respectively. The increase from 1997 to 1998 was
primarily due to decreased foreign sales resulting in a corresponding reduction
in tax credits and increased tax rates on foreign operations. 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 both 1998 and
1997. Net earnings increased 26.4% in 1998 and 27.2% in 1997. Diluted earnings
per share increased 28.5% in 1998 and 18.7% in 1997. While there was an increase
in shares outstanding in each period, the principal reason for the variance from
the net earnings percentage increases is the decrease from 1997 to 1998 in
dilutive stock options outstanding with relatively higher exercise prices.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations increased from $5.2 million in 1997 to $14.7 million
in 1998 due primarily to higher earnings. In 1997, cash provided by operations
decreased from 1996 due to increased inventory, receivables and deferred tax
asset balances, which offset higher earnings. The impact of these items on 1998
was considerably less, due to efforts made to balance inventory levels and due
to reduced international receivables, which typically have a longer collection
period.
Receivables increased only 3.2% during 1998, even though sales increased 10%.
Again, the lower increase in receivables was primarily related to reduced
international receivables. Inventories increased only 3.7% due to efforts made
to balance inventory levels, as previously mentioned.
Capital expenditures included $9.8 million in 1998 and $1.3 million in 1997
related to the Milwaukee facility addition. The remaining expenditures were made
to continue expansion of 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.
In addition to the capital expenditures, the company also made approximately
$3.6 million in other investments during 1997, increasing the total 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 was
completed in 1998, at which time the funds were allocated to the appropriate
inventory, equipment and intangibles accounts.
Badger Meter spent $2.7 million in 1998 and $1.8 million in 1997 to acquire
treasury stock. These expenditures were offset by funds generated through the
issuance of stock related to the exercise of stock options. Also during 1998,
the Badger Meter Employee Savings and Stock Ownership Plan (the ESSOP) borrowed
an additional $1.9 million from a local bank and used those funds to purchase
stock from the company.
25
<PAGE> 5
In 1998 and 1997, capital expenditures and other investing activities exceeded
cash generated by operations, causing the company to increase bank borrowings in
those years. Total short-term debt at December 31, 1998, was $14.3 million,
consisting of commercial paper and bank debt. Long-term debt also increased to
$2.6 million at December 31, 1998, due to the increase in the ESSOP debt. This
resulted in a corresponding increase in the employee benefit stock balance in
the company's equity accounts.
Other significant changes in balance sheet accounts during 1998 include an
increase in intangible assets of $802,000 due to intangibles associated with the
fire service product line acquisition. Prepaid pension decreased $489,000 as a
result of normal pension expense with no funding payments required in 1998 due
to the overfunded status of the plan. Other assets decreased $2.9 million due to
the allocation of the product line acquisition costs previously discussed.
Badger Meter has a net deferred tax asset of $2.9 million, 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 $666,000 during 1998 relates to the
increased accruals for employee benefit plans and after-sale costs.
Payables increased $3.0 million during 1998 due to increased business activity
and amounts due in connection with the Milwaukee facility addition. Other
accrued liabilities increased $756,000 during 1998, primarily due to provisions
for after-sale costs. Current income taxes decreased $779,000 due to the timing
of estimated tax payments. The $348,000 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 $736,000 due primarily to increased employee
deferred compensation.
Reinvested earnings increased during 1998 due to net income, partially offset by
dividend payments. Common stock and capital in excess of par value both
increased during 1998 due to stock issued in connection with the exercise of
stock options and ESSOP transactions.
Badger Meter's financial condition remains strong. The company believes that its
operating cash flows, available borrowing capacity and ability to raise capital
through the 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.
ENVIRONMENTAL 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 two
environmental issues as well as litigation alleging a violation of Proposition
65, California's environmental regulation. The company does not believe the
ultimate resolution of any of these claims will have a material adverse effect
on the results of operations.
YEAR 2000 MATTERS
Badger Meter 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. The company has also reviewed internal non-information
technology systems and is in the process of testing and upgrading those systems,
as necessary.
Regarding information technology 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 will address the year 2000 issue in addition to providing
increased functionality. These remaining upgrades are expected to be completed
during the summer of 1999 prior to any anticipated impact of the year 2000 on
the company's operations. Testing will begin as soon as the implementation is
complete.
26
<PAGE> 6
If the year 2000 issue is not properly addressed by the company and its vendors,
the company could incur additional transaction processing costs and there could
be interruptions in the company's supply chain, resulting in increased costs as
the company moves to alternate vendors. However, the company does not expect to
have any significant problems with its products, systems or vendors as a result
of this issue. Total expected costs (in excess of the normal software upgrade
costs) are less than $100,000.
MARKET RISK
In the ordinary course of business, the company is exposed to various market
risks, including commodity prices, foreign currency rates and interest rates.
The company manages these risks through a combination of interest rate swaps and
foreign loans. The company does not hold or issue derivative instruments for
trading purposes.
Badger Meter's foreign currency risk relates to the sale of products to foreign
customers, specifically European customers as all other foreign sales are made
in U.S. dollars. The company uses lines of credit with German banks to offset
currency exposure related to European receivables and other monetary assets. The
company's exposure to European currency fluctuations has been further reduced by
the stabilization of inter-European currencies through the introduction of the
Euro. As of December 31, 1998 and 1997, the company's foreign currency net
monetary assets were fully offset by comparable debt, resulting in no exposure.
As of December 31, 1998 and 1997, the company had only floating-rate debt.
Although the company occasionally uses interest rate swap agreements to hedge
the effects of changes in interest rates on a portion of the company's debt,
there were no such agreements existing as of December 31, 1998 or 1997. Without
any interest rate swap agreements in place, the company's future annual interest
costs will fluctuate based on short-term interest rates.
FORWARD LOOKING STATEMENTS
Certain statements in this report, as well as other information provided from
time to time by the company or its employees, may contain forward looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from those in the forward looking statements. The words
"anticipate", "believe", "estimate", "expect", "think", and "objective" or
similar expressions are intended to identify forward looking statements. The
forward looking statements are based on the company's current views and
assumptions and involve risks and uncertainties that include, among other
things: the success or failure of new product developments; the actions of
competitors; changes in the domestic economic conditions, including housing
starts; changes in foreign economic conditions, including currency fluctuations;
changes in laws and regulations; changes in customer demand and fluctuations in
the prices of and availability of purchased raw materials and parts. Some or all
of these factors are beyond the company's control.
27
<PAGE> 7
(Page 18 of Annual Report to Shareholders)
BADGER METER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $143,813 $130,771 $116,018
Cost of sales 86,502 82,034 73,490
- -------------------------------------------------------------------------------------------------------------------
Gross margin 57,311 48,737 42,528
Selling, engineering and administration 43,317 38,077 33,993
- -------------------------------------------------------------------------------------------------------------------
Operating earnings 13,994 10,660 8,535
Interest expense 630 455 368
- -------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 13,364 10,205 8,167
Provision for income taxes 5,117 3,683 3,040
- -------------------------------------------------------------------------------------------------------------------
Net earnings $8,247 $6,522 $5,127
===================================================================================================================
Earnings per share:
Basic $2.28 $1.83 $1.46
Diluted $2.12 $1.65 $1.39
===================================================================================================================
Shares used in computation of:
Basic 3,624 3,560 3,511
Impact of dilutive stock options 272 401 187
- -------------------------------------------------------------------------------------------------------------------
Diluted 3,896 3,961 3,698
===================================================================================================================
</TABLE>
See accompanying notes.
28
<PAGE> 8
(Page 19 of Annual Report to Shareholders)
BADGER METER, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,371 $ 1,055
Receivables (Note 3) 19,814 19,193
Inventories:
Finished goods 5,270 4,095
Work in process 10,089 10,871
Raw materials 7,044 6,632
- -------------------------------------------------------------------------------------------------------------------
Total inventories 22,403 21,598
Prepaid expenses 1,064 693
- -------------------------------------------------------------------------------------------------------------------
Total current assets 45,652 42,539
Property, plant and equipment:
Land and improvements 2,965 2,792
Buildings and improvements 18,360 12,902
Machinery and equipment 58,609 48,713
- -------------------------------------------------------------------------------------------------------------------
79,934 64,407
Less accumulated depreciation (42,523) (40,423)
- -------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 37,411 23,984
Intangible assets, at cost less accumulated amortization 1,452 650
Prepaid pension (Note 7) 6,262 6,751
Deferred income taxes (Note 8) 2,930 2,264
Other assets (Note 7) 3,238 6,109
- -------------------------------------------------------------------------------------------------------------------
Total assets $96,945 $82,297
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (Note 4) $14,315 $11,245
Payables 10,174 7,196
Accrued compensation and employee benefits 5,521 5,339
Other accrued liabilities 4,386 3,630
Income and other taxes 480 1,259
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 34,876 28,669
Accrued non-pension postretirement benefits (Note 7) 7,459 7,807
Other accrued employee benefits (Notes 5 and 7) 4,162 3,426
Long-term debt (Note 7) 2,600 928
Commitments and contingencies (Note 6)
Shareholders' equity: (Notes 2, 5 and 7)
Common Stock, $1 par; authorized 5,000,000 shares;
issued 3,391,941 shares in 1998 and 3,240,263 shares in 1997 3,392 3,240
Class B Common Stock, $.10 par; authorized 5,000,000 shares;
issued 1,107,840 shares in 1998 and 1,125,570 in 1997 111 112
Capital in excess of par value 12,732 8,315
Reinvested earnings 39,198 33,057
Less: Employee benefit stock (2,606) (917)
Treasury stock, at cost, 853,864 shares in 1998
and 795,989 shares in 1997 (4,979) (2,340)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 47,848 41,467
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $96,945 $82,297
===================================================================================================================
</TABLE>
See accompanying notes.
29
<PAGE> 9
(Page 20 of Annual Report to Shareholders)
BADGER METER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net earnings $ 8,247 $ 6,522 $ 5,127
Adjustments to reconcile net earnings to net cash
provided by operations:
Depreciation 4,499 3,725 3,522
Amortization 176 228 598
Noncurrent employee benefits 1,088 614 (883)
Deferred income taxes (666) (1,007) 279
Changes in:
Receivables (621) (3,695) (1,838)
Inventories (805) (4,092) (1,672)
Current liabilities other than short-term debt 3,137 2,658 4,880
Prepaid expenses and other (371) 225 (135)
- -------------------------------------------------------------------------------------------------------------------
Total adjustments 6,437 (1,344) 4,751
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 14,684 5,178 9,878
- -------------------------------------------------------------------------------------------------------------------
Investing activities:
Property, plant and equipment (17,926) (8,349) (5,382)
Other - net 1,893 (3,616) (548)
- -------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (16,033) (11,965) (5,930)
- -------------------------------------------------------------------------------------------------------------------
Financing activities:
Bank borrowings (repayments) 2,842 8,548 (2,941)
Dividends (2,106) (1,665) (1,479)
Stock options and ESSOP 4,586 1,597 639
Purchase of treasury stock (2,657) (1,761) (221)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 2,665 6,719 (4,002)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 1,316 (68) (54)
Cash - beginning of year 1,055 1,123 1,177
- -------------------------------------------------------------------------------------------------------------------
Cash - end of year $ 2,371 $ 1,055 $ 1,123
===================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 6,466 $ 3,419 $ 2,348
Interest (including $208 of interest capitalized
during facility construction in 1998) $ 864 $ 441 $ 378
===================================================================================================================
</TABLE>
See accompanying notes.
30
<PAGE> 10
(Page 21 of Annual Report to Shareholders)
BADGER METER, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Class B Capital in Employee
Common Common excess of Reinvested benefit stock/ Treasury
(In thousands except per share amounts) Stock Stock par value earnings adjustments stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $1,552 $56 $7,832 $24,552 $(1,471) $(358) $32,163
Net earnings 5,127
Pension liability adjustment 369
Comprehensive income 5,496
Cash dividends, $.43 per Common share (1,039) (1,039)
Cash dividends, $.39 per Class B Common share (440) (440)
Restricted stock plan (Note 5):
Amortization of unearned compensation 40 40
Shares canceled (9) 9 0
Tax benefit on vested restricted stock 13 13
Stock options exercised (Note 5) 25 429 454
Tax benefit on stock options (Note 5) 103 103
Tax benefit on dividends (Notes 5 and 7) 27 27
Shares purchased by ESSOP participants 1 36 37
Treasury stock issued 5 5
Treasury stock purchased (221) (221)
Two-for-one stock split 1,577 56 (1,633) 0
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 3,155 112 6,803 28,200 (1,053) (579) 36,638
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 6,522 6,522
Cash dividends, $.48 per Common share (1,172) (1,172)
Cash dividends, $.44 per Class B Common share (493) (493)
Restricted stock plan (Note 5):
Amortization of unearned compensation 36 36
Tax benefit on vested restricted stock 150 150
Employee stock ownership plan (Note 7):
Amortization of unearned compensation 100 100
Stock options exercised (Note 5) 81 761 842
Tax benefit on stock options (Note 5) 511 511
Tax benefit on dividends (Notes 5 and 7) 23 23
Shares purchased by ESSOP participants 4 67 71
Treasury stock purchased (1,761) (1,761)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 3,240 112 8,315 33,057 (917) (2,340) 41,467
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 8,247 8,247
Cash dividends, $.60 per Common share (1,501) (1,501)
Cash dividends, $.54 per Class B Common share (605) (605)
Restricted stock plan (Note 5):
Amortization of unearned compensation 11 11
Tax benefit on vested restricted stock 109 109
Employee stock ownership plan (Note 7):
Amortization of unearned compensation 100 100
Stock options exercised (Note 5) 54 564 618
Tax benefit on stock options (Note 5) 268 268
Tax benefit on dividends (Notes 5 and 7) 55 55
Shares purchased by ESSOP participants 98 3,437 3,535
Treasury stock purchased (1) (2,657) (2,658)
Treasury stock issued (16) 18 2
ESSOP Loan (1,800) (1,800)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $3,392 $111 $12,732 $39,198 $(2,606) $(4,979) $47,848
====================================================================================================================================
</TABLE>
See accompanying notes.
31
<PAGE> 11
(Page 22 to 28 of Annual Report to Shareholders)
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROFILE Badger Meter (the company) is a leading marketer and manufacturer
of products using flow measurement and control technology developed both
internally and with other technology companies. Its products are used to measure
and control the flow of liquids and gases in a variety of applications. The
company's products include water meters and associated systems, wastewater
meters, industrial process meters, automotive fluid meters, small valves and
natural gas instruments.
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 is provided over the estimated useful lives of the respective
assets, 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, 1998 and 1997, was
$2,697,000 and $2,521,000, 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
1998 and 1997, the company repurchased 75,605 and 67,799 shares respectively,
which were added to treasury stock. As of December 31, 1998, the company has
repurchased 155,404 shares or 44% of the authorized amount.
RESEARCH AND DEVELOPMENT Research and development costs are charged to
expense as incurred and amounted to $6,105,000, $4,397,000, and $3,851,000 in
1998, 1997 and 1996, respectively.
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.
ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities," which will
become effective for 2000. The company's hedging activities are discussed in
Note 4. The company does not believe that SFAS 133 will have a material effect
on its results of operations, financial position or disclosures.
During 1998, the company adopted Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use",
which requires that certain computer software costs be capitalized. The impact
was not material.
RECLASSIFICATIONS Certain reclassifications have been made to the 1997 and
1996 consolidated financial statements to conform to the 1998 presentation.
32
<PAGE> 12
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
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.
On May 15, 1998, the Board of Directors of the company adopted a
Shareholder Rights Plan declaring a dividend of one right for each share of the
company's common stock outstanding. In the event a person or group acquires or
seeks to acquire 20% or more of the outstanding common stock of the company, the
rights may be exercised (except by the acquiring person whose rights are
canceled). Upon exercise, each right entitles the holder to purchase from the
company one share of common stock at an initial exercise price of $140 (subject
to adjustment) or, upon the occurrence of certain events, common stock of the
company or the acquiring company having a market value equivalent to two times
the exercise price. Subject to certain conditions, the rights are redeemable by
the Board of Directors for $.01 per right and are exchangeable for shares of
common stock. The rights have no voting power and expire on May 26, 2008.
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 1998, 1997 and 1996, the company
sold approximately $996,000, $1,500,000, and $1,175,000 of product to Azteca.
Trade receivables from Azteca at December 31, 1998 and 1997, were $486,000 and
$608,000, respectively.
4 SHORT-TERM DEBT AND CREDIT LINES
Short-term debt at December 31, 1998 and 1997, consisted of:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to banks $1,786 $1,617
Commercial paper 12,501 9,565
Other 28 63
- --------------------------------------------------------------------------------
Total $14,315 $11,245
================================================================================
</TABLE>
The company has $39,790,000 of short-term credit lines with domestic and
foreign banks which includes a $25,000,000 commercial paper line of credit. At
December 31, 1998, $25,503,000 was unused and available to the company under the
lines. The weighted-average interest rate on the outstanding balance was 5.46%
and 5.81% at December 31, 1998 and 1997. The company occasionally uses interest
rate swap agreements to hedge the effects of changes in the interest rates on
the company's outstanding commercial paper, although no such agreements existed
as of December 31, 1998 or 1997.
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.
33
<PAGE> 13
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
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 11,000 shares expired during 1998.
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 1998, 1997 and 1996, $11,000, $36,000, and $40,000 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, 1998, options to purchase approximately 74,000 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, 1998:
<TABLE>
<CAPTION>
Weighted-Average
Number of Shares Exercise Price
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
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
Options granted 32,600 $35.56
Options exercised (53,486) $11.54
Options forfeited (4,600) $19.97
- ----------------------------------------------------------------------------------------------------
Unexercised options outstanding -
December 31, 1998 494,600 $16.35
====================================================================================================
Price range $8.38 - $12.38
(weighted-average contractual life of 272,004 $10.48
5.2 years)
Price range $14.81 - $22.50
(weighted-average contractual life of 172,896 $21.25
8.2 years)
Price range $24.13 - $35.57
(weighted-average contractual life of 49,700 $31.42
9.0 years)
====================================================================================================
Exercisable options -
December 31, 1996 241,610 $9.39
December 31, 1997 243,282 $10.35
December 31, 1998 319,040 $12.50
====================================================================================================
</TABLE>
34
<PAGE> 14
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
As allowed by SFAS 123, "Accounting for Stock-Based Compensation", 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 upon 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. 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>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.7% 6.5% 5.5%
Dividend yield 1% 1% 3%
Volatility factor 34% 23% 17%
Weighted-average expected life 5.0 years 8.2 years 4.6 years
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The weighted-average fair value of options granted in 1998, 1997 and 1996
were $12.89, $8.92 and $2.11 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 $336,000 or $.09 per share for 1998 and $299,000 or $.08 per share
for 1997. The pro-forma effect of these options on 1996 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. Future minimum lease payments consisted of the
following at December 31, 1998:
<TABLE>
<CAPTION>
(In thousands)
-------------------------------------------------------------
<S> <C>
1999 $643
2000 272
2001 207
2002 161
2003 and thereafter 484
-------------------------------------------------------------
Total minimum lease payments $1,767
=============================================================
</TABLE>
Total rental expense charged to operations under all operating leases was
approximately $1,561,000, $1,447,000 and $1,294,000 in 1998, 1997 and 1996,
respectively.
35
<PAGE> 15
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
B. CONTINGENCIES
In the normal course of business, the company is named in legal
proceedings. There are currently no material legal proceedings pending with
respect to the company.
The company is subject to contingencies relative to environmental laws and
regulations. Currently the company is in the process of resolving an issue
relative to a landfill site and a suit alleging violation of Proposition 65,
California's environmental regulation. The company is also involved in
litigation filed by the owner of property near one of the company's plants,
alleging damage to property value by virtue of spillage from past company
operations. The company believes that this suit is without merit. Further, the
company does not believe the ultimate resolution of any 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. The company does not believe that there are any significant risks.
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 temporarily 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.
36
<PAGE> 16
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
7 EMPLOYEE BENEFIT PLANS
A. PENSION PLAN
The company maintains a non-contributory defined benefit pension plan for
its employees. The following table sets forth the components of net periodic
pension expense for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $1,734 $1,616 $1,044
Interest cost on projected benefit obligations 2,659 2,415 2,249
Expected return on plan assets (3,532) (3,324) (3,086)
Net amortization and deferral (373) (356) (319)
- -------------------------------------------------------------------------------------------------------------------
Net periodic pension cost (credit) $488 $351 $ (112)
===================================================================================================================
</TABLE>
The following table provides a reconciliation of benefit obligations, plan
assets and funded status:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $34,653 $32,202
Service cost 1,734 1,616
Interest cost 2,659 2,415
Actuarial (gain) loss 1,506 (211)
Benefits paid (2,719) (1,369)
- --------------------------------------------------------------------------------------------------
Projected benefit obligation
as of September 30 $37,833 $34,653
- -------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets as of
beginning of year $42,168 $37,346
Actual return on plan assets 1,530 6,187
Company contributions 0 4
Benefits paid (2,719) (1,369)
- --------------------------------------------------------------------------------------------------
Fair value of plan assets as of
September 30 $40,979 $42,168
- -------------------------------------------------------------------------------------------------
Reconciliation:
Funded status as of September 30 $3,146 $7,515
Unrecognized net transition asset (847) (1,270)
Unrecognized prior service cost (2,511) (2,673)
Unrecognized net actuarial loss 6,474 3,179
- -------------------------------------------------------------------------------------------------
Prepaid pension asset
as of September 30 and December 31 $6,262 $6,751
=================================================================================================
</TABLE>
Actuarial assumptions used in the preparation of the above data:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.0% 7.5%
Expected return on plan assets 9.0% 9.0%
Rate of compensation increase 5.0% 5.0%
=================================================================================================
</TABLE>
37
<PAGE> 17
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
B. OTHER POSTRETIREMENT BENEFITS
The company has certain postretirement plans that provide medical benefits
for retirees and eligible dependents. The following table sets forth the
components of net periodic postretirement medical expense for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost, benefits attributed for service
of active employees for the period $100 $111 $103
Interest cost on the accumulated
postretirement benefit obligation 501 515 656
Unrecognized prior service credit (236) (236) (59)
Unrecognized net loss 57 54 21
- -------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $422 $444 $721
===================================================================================================================
</TABLE>
The following table provides a reconciliation of benefit obligations. It
is the company's policy to fund health care benefits on a cash basis. Since
there are no plan assets, the plan is unfunded.
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $7,035 $7,213
Service cost 100 111
Interest cost 501 515
Actuarial (gain) loss (33) (360)
Benefits paid (770) (444)
- --------------------------------------------------------------------------------------------------
Projected benefit obligation and
unfunded status as of December 31 6,833 7,035
Unrecognized prior service credit 2,062 2,298
Unrecognized net actuarial loss (1,436) (1,526)
- --------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost
as of December 31 $7,459 $7,807
=================================================================================================
</TABLE>
The discount rate used to measure the accumulated postretirement benefit
obligation was 7.0% for 1998 and 7.5% for 1997. Since the company has
established fixed company contribution amounts for retiree health care benefits,
future health care cost trends do not impact the company's accruals or
provisions.
38
<PAGE> 18
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
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 (22,856, 11,428 and 5,626 shares in 1998, 1997 and 1996) for allocation to
participants in the ESSOP.
The principal amount due on the original loan was $700,000 at December 1,
1998 and $900,000 at December 31, 1997. In December of 1998, the ESSOP
refinanced the loan and increased it by $1,900,000 to the December 31, 1998
balance of $2,600,000. The terms of the loan allow variable payments of
principal with the final principal and interest payment due December 31, 2005.
Interest may be charged at either Prime Rate or at LIBOR plus 1.5%. As of
December 31, 1998, the LIBOR-based loan had an interest rate of 6.6%.
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%, 7% and 6% of the employee's salary for 1998, 1997 and 1996,
respectively. The match is paid in company stock. For 1998, 1997 and 1996,
respectively, 11,428, 11,428 and 16,038 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.
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 $200,000, $132,000 and $239,000 in 1998, 1997 and 1996,
respectively. The company also incurred interest on the ESSOP loan of $5,000,
$19,000 and $33,000 which was net of dividends on unallocated ESSOP shares of
$45,000, $47,000 and $37,000 for 1998, 1997 and 1996, respectively. These
amounts are included in interest expense in the accompanying Consolidated
Statements of Operations.
39
<PAGE> 19
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
8 INCOME TAX EXPENSE
Details of earnings before income taxes and the related provision for
income taxes are as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before income taxes:
Domestic $13,107 $9,953 $7,825
Foreign 257 252 342
- ----------------------------------------------------------------------------------------------------------
Total $13,364 $10,205 $8,167
==========================================================================================================
Income taxes:
Current:
Federal $4,180 $3,301 $2,286
State 878 672 434
Foreign 167 56 41
Deferred:
Federal (60) (344) 195
State (18) (61) (57)
Foreign (30) 59 141
- ----------------------------------------------------------------------------------------------------------
Total $5,117 $3,683 $3,040
==========================================================================================================
</TABLE>
The components of the net deferred tax asset as of December 31, were as
follows (in thousands):
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS: 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Receivables $166 $110
Inventories 394 292
Accrued compensation 752 772
Other payables 2,079 1,442
Non-pension postretirement benefits 2,885 3,005
Accrued employee benefits 1,732 1,551
- ----------------------------------------------------------------------------------------------------------
Total deferred tax assets 8,008 7,172
DEFERRED TAX LIABILITIES:
- ----------------------------------------------------------------------------------------------------------
Depreciation 2,331 1,960
Prepaid pension 2,422 2,600
Other 325 348
- ----------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 5,078 4,908
- ----------------------------------------------------------------------------------------------------------
Net deferred tax asset included in balance sheet $2,930 $2,264
==========================================================================================================
</TABLE>
40
<PAGE> 20
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
The provision for income tax differs from the amount which would be
provided by applying the statutory U.S. corporate income tax rate in each year
due to the following items:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision at statutory rate $4,544 $3,470 $2,776
State income taxes, net
of federal tax benefit 568 403 312
Foreign income taxes 50 30 66
Tax benefit of FSC (78) (190) (201)
Other 33 (30) 87
- ----------------------------------------------------------------------------------------------------------
Actual provision $5,117 $3,683 $3,040
==========================================================================================================
</TABLE>
No provision for federal income taxes is made on the earnings of foreign
subsidiaries that are considered permanently invested or that would be offset by
foreign tax credits upon distribution. Such undistributed earnings at December
31, 1998, were $669,000.
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 approximates the fair value. Long-term
debt relates to the company's guarantee of the ESSOP debt, which is offset by a
similar amount in shareholders' equity.
10 INDUSTRY SEGMENT
The company is a marketer and manufacturer of flow measurement and control
instruments, which comprise one reportable segment due to similarities in the
nature of the products, production processes, customers and methods of
distribution. Information regarding geographic areas is as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
United States $127,371 $105,811 $94,207
Foreign $16,442 $24,960 $21,811
Long-Lived Assets:
United States $46,899 $36,420 $29,129
Foreign $1,464 $1,074 $702
==========================================================================================================
</TABLE>
41
<PAGE> 21
BADGER METER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
11 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED), COMMON STOCK PRICE AND
DIVIDENDS
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE DATA)
1998
Net sales $ 33,499 $ 36,430 $ 39,370 $ 34,514
Gross margin $ 13,443 $ 14,267 $ 15,743 $ 13,858
Net earnings $ 1,597 $ 2,295 $ 2,404 $ 1,951
Earnings per share:
Basic $ .44 $ .63 $ .66 $ .54
Diluted $ .41 $ .59 $ .62 $ .50
Dividends declared:
Common $ .15 $ .15 $ .15 $ .15
Class B $ .14 $ .14 $ .14 $ .14
Stock price:
High $ 40.50 $ 38.13 $ 40.63 $ 39.50
Low $ 30.00 $ 35.13 $ 25.00 $ 26.00
Quarter-end close $ 35.88 $ 35.44 $ 29.25 $ 35.63
- -------------------------------------------------------------------------------------------------------------------
1997
Net sales $ 31,702 $ 34,104 $ 33,207 $ 31,758
Gross margin $ 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
- -------------------------------------------------------------------------------------------------------------------
</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, 1998 and 1997,
totaled 576 and 596 for Common Stock and 12 and 12 for Class B Stock,
respectively. Voting trusts are counted as single shareholders for this purpose.
42
<PAGE> 22
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, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Milwaukee, Wisconsin
January 27, 1999.
43
<PAGE> 23
(Page 29 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>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $143,813 130,771 116,018 108,644 99,155 84,497 82,106 78,417 77,100 72,266
Research and development $ 6,105 4,397 3,851 3,858 3,278 3,642 4,119 4,046 3,863 3,614
Earnings before income taxes $ 13,364 10,205 8,167 5,911 4,974 3,306 1,160 2,419 3,507 3,798
Earnings before changes in
accounting $ 8,247 6,522 5,127 3,719 3,216 2,164 802 1,648 2,332 2,375
Cumulative effect of changes
in accounting $ 0 0 0 0 0 0 (4,684) 0 0 0
Net earnings (loss) $ 8,247 6,522 5,127 3,719 3,216 2,164 (3,882) 1,648 2,332 2,375
Earnings to sales * 5.7% 5.0% 4.4% 3.4% 3.2% 2.6% 1.0% 2.1% 3.0% 3.3%
- -----------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Basic earnings before changes
in accounting $ 2.28 1.83 1.46 1.06 .93 .64 .24 .49 .73 .77
Cumulative effect of changes
in accounting $ 0 0 0 0 0 0 (1.38) 0 0 0
Basic earnings (loss) $ 2.28 1.83 1.46 1.06 .93 .64 (1.14) .49 .73 .77
Cash dividends declared:
Common Stock $ .60 .48 .43 .39 .35 .32 .30 .30 .30 .29
Class B Common Stock $ .54 .44 .39 .36 .32 .29 .28 .28 .28 .26
Price range - high $ 40.63 57.50 20.81 13.50 14.00 11.00 8.88 9.00 9.94 11.44
Price range - low $ 25.00 18.13 12.38 11.06 9.50 8.88 7.38 6.81 6.50 8.00
Closing price $ 35.63 40.75 19.19 13.25 11.94 9.56 8.75 7.69 6.94 9.81
Book value $ 13.13 11.62 10.32 9.16 8.38 7.66 7.31 8.61 8.29 8.39
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
Common Stock 2,538 2,444 2,426 2,387 2,377 2,281 2,282 2,280 2,274 1,938
Class B Common Stock 1,108 1,126 1,126 1,126 1,126 1,126 1,126 1,126 1,126 1,149
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 10,776 13,870 17,645 16,178 14,569 12,010 9,876 9,842 18,365 13,803
Current ratio 1.3 to 1 1.5 to 1 2.0 to 1 2.1 to 1 1.7 to 1 1.6 to 1 1.6 to 1 1.6 to 1 3.3 to 1 2.1 to 1
Net cash provided by
operations $ 14,684 5,178 9,878 12,026 6,342 2,969 3,833 5,410 5,132 3,342
Capital expenditures $ 17,926 8,349 5,382 4,493 3,553 3,121 3,496 3,335 4,901 4,376
Total assets $ 96,945 82,297 66,133 60,527 61,993 57,627 53,895 51,199 50,670 46,672
Long-term debt $ 2,600 928 1,091 1,000 1,200 1,400 1,700 1,900 10,400 5,183
Shareholders' equity $ 47,848 41,467 36,638 32,163 29,351 26,074 24,894 29,303 28,168 25,897
Debt to total capitalization 26.1% 22.7% 9.2% 16.8% 28.4% 34.9% 34.2% 28.7% 30.5% 29.2%
Return on shareholders' equity * 17.2% 15.7% 14.0% 11.6% 11.0% 8.3% 3.2% 5.6% 8.3% 9.2%
Price/earnings ratio * 15.6% 22.3 13.1 12.5 12.8 15.1 37.2 15.9 9.6 12.7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* PRIOR TO ACCOUNTING CHANGES
44
<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 de Mexico, S.A. de C.V. 100% Mexico
Badger Meter Limited 100% United Kingdom
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>
45
<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 27, 1999, included in the
1998 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 27, 1999, 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, 1998.
Ernst & Young LLP
Milwaukee, Wisconsin
March 22, 1999
46
<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, 1998 incorporated by
reference in the Annual Report on Form 10-K and is qualified in its entirety by
reference to such 10-K.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,371
<SECURITIES> 0
<RECEIVABLES> 19,814
<ALLOWANCES> 0
<INVENTORY> 22,403
<CURRENT-ASSETS> 45,652
<PP&E> 79,934
<DEPRECIATION> (42,523)
<TOTAL-ASSETS> 96,945
<CURRENT-LIABILITIES> 34,876
<BONDS> 0
0
0
<COMMON> 3,503
<OTHER-SE> 44,345
<TOTAL-LIABILITY-AND-EQUITY> 96,945
<SALES> 143,813
<TOTAL-REVENUES> 143,813
<CGS> 86,502
<TOTAL-COSTS> 129,819
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 630
<INCOME-PRETAX> 13,364
<INCOME-TAX> 5,117
<INCOME-CONTINUING> 8,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,247
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.12
</TABLE>
