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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-6706
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BADGER METER, INC.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0143280
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4545 West Brown Deer Road, Milwaukee, Wisconsin 53223
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 355-0400
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None
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(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 13, 2000
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Common Stock, $1.00 par value 3,367,016
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BADGER METER, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. Financial Information:
Item 1 Financial Statements:
Consolidated Condensed Balance Sheets - -
September 30, 2000 and December 31, 1999 3
Consolidated Condensed Statements of Operations - -
Three and Nine Months Ended September 30, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows - -
Nine Months Ended September 30, 2000 and 1999 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information:
Item 6(a) Exhibits 9
Item 6(b) Reports on Form 8-K 9
Exhibit Index 11
</TABLE>
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Part I - Financial Information
BADGER METER, INC.
Item 1 Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets September 30, December 31,
------ 2000 1999
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(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,262 $ 3,752
Receivables 26,573 24,278
Inventories:
Finished goods 5,196 4,077
Work in process 9,466 8,347
Raw materials and purchased parts 9,301 6,582
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Total inventories 23,963 19,006
Prepaid expenses 1,522 943
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Total current assets 53,320 47,979
Property, plant and equipment, at cost 89,522 87,733
Less accumulated depreciation (46,836) (45,617)
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42,686 42,116
Intangible assets, at cost less accumulated amortization 992 1,095
Prepaid pension 5,363 5,791
Deferred income taxes 2,232 2,213
Other assets 3,647 3,892
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Total assets $ 108,240 $ 103,086
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Liabilities and Shareholders' Equity
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Current liabilities:
Short-term debt $ 17,752 $ 11,702
Current portion of long-term debt 5,156 4,887
Payables 9,287 10,499
Accrued compensation and employee benefits 4,141 5,914
Other accrued liabilities 3,863 3,716
Income and other taxes 2,289 111
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Total current liabilities 42,488 36,829
Accrued non-pension postretirement benefits 6,664 7,014
Other accrued employee benefits 5,074 4,741
Long-term debt 7,292 11,493
Shareholders' equity:
Common Stock 4,594 4,531
Capital in excess of par value 14,167 13,382
Reinvested earnings 50,142 46,445
Less: Employee benefit stock (2,300) (2,600)
Treasury stock, at cost (19,881) (18,749)
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Total shareholders' equity 46,722 43,009
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Total liabilities and shareholders' equity $ 108,240 $ 103,086
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
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BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
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2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 39,508 $ 37,551 $ 112,260 $ 114,460
Cost of sales 25,029 22,660 71,498 69,325
----------- ----------- ----------- -----------
Gross margin 14,479 14,891 40,762 45,135
Selling, engineering and
administration 10,693 10,509 31,917 31,916
----------- ----------- ----------- -----------
Operating earnings 3,786 4,382 8,845 13,219
Interest expense 572 354 1,652 842
Other expense (income), net 123 93 (2,123) 337
----------- ----------- ----------- -----------
Earnings before income taxes 3,091 3,935 9,316 12,040
Provision for income taxes 1,143 1,515 3,477 4,635
----------- ----------- ----------- -----------
Net earnings $ 1,948 $ 2,420 $ 5,839 $ 7,405
=========== =========== =========== ===========
Per share amounts: *
Earnings per share:
Basic $ .59 $ .70 $ 1.76 $ 2.08
=========== =========== =========== ===========
Diluted $ .56 $ .65 $ 1.67 $ 1.95
=========== =========== =========== ===========
Dividends declared -
Common Stock $ .22 $ .18 $ .65 $ .54
=========== =========== =========== ===========
Shares used in computation of:
Basic 3,323,071 3,471,997 3,319,026 3,562,166
Impact of dilutive stock
options 156,410 236,278 175,764 238,271
----------- ----------- ----------- -----------
Diluted 3,479,481 3,708,275 3,494,790 3,800,437
=========== =========== =========== ===========
</TABLE>
* Earnings per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share does not
necessarily equal the total for the year.
See accompanying notes to consolidated condensed financial statements.
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BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
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2000 1999
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<S> <C> <C>
Operating activities:
Net earnings $ 5,839 $ 7,405
Adjustments to reconcile net
earnings to net cash provided
by (used for) operations:
Depreciation 4,477 4,418
Amortization 103 140
Noncurrent employee benefits 711 430
Deferred income taxes (19) 3
Changes in:
Receivables (2,295) (2,899)
Inventory (4,957) 1,748
Current liabilities other than debt (660) 1,124
Prepaid expenses and other (579) (266)
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Total adjustments (3,219) 4,698
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Net cash provided by (used for) operations 2,620 12,103
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Investing activities:
Property, plant and equipment (5,047) (8,253)
Other - net 245 (1,049)
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Net cash provided by (used for) investing activities (4,802) (9,302)
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Financing activities:
Net increase (decrease) in short-term debt 6,050 (5,533)
Issuance of long-term debt 0 15,211
Repayments of long-term debt (3,932) 0
Dividends (2,142) (1,845)
Stock options and ESSOP 848 1,017
Treasury stock transactions (1,132) (13,104)
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Net cash provided by (used for)
financing activities (308) (4,254)
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Increase (decrease) in cash (2,490) (1,453)
Beginning of year 3,752 2,371
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End of period $ 1,262 $ 918
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Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Income taxes $ 1,304 $ 4,189
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Interest $ 1,675 $ 819
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
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BADGER METER, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements of Badger Meter, Inc. (the "Company")
contain all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the consolidated condensed financial position
at September 30, 2000 and the results of operations for the three and
nine-month periods ended September 30, 2000 and 1999 and the cash flows for
the nine-month periods ended September 30, 2000 and 1999. The results of
operations for any interim period are not necessarily indicative of the
results to be expected for the full year. Certain reclassifications have
been made to the 1999 data to conform to the 2000 presentation.
2. The consolidated condensed balance sheet at December 31, 1999, was derived
from amounts included in the Annual Report to Shareholders, which was
incorporated by reference in the Company's annual report on Form 10-K for
the year ended December 31, 1999. Refer to the footnotes in those reports
for a description of the accounting policies, which have been continued
without change, and additional details of the Company's financial
condition. The details in those notes have not changed except as discussed
below and as a result of normal transactions in the interim.
3. Other expense (income), net includes foreign currency gains and losses,
which are recognized as incurred. The Company's functional currency for all
of its foreign subsidiaries is the U.S. dollar. Other income for the first
nine months of 2000 also includes $2,230,000 of business interruption
insurance proceeds related to lost sales and margins as a result of a fire
at a vendor's facility during 1999. The insurance claim was fully settled
during the second quarter of 2000.
4. In the ordinary course of business, the Company enters into various
material purchase agreements with its vendors, some of which contain
minimum purchase quantity commitments extending beyond one year. Future
purchase commitments are not expected to exceed normal usage requirements.
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Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Receivables as of September 30, 2000 increased 9.5%, or $2,295,000, from the
December 31, 1999 balance primarily due to an 8.5% increase in sales for the
third quarter of 2000 compared to the fourth quarter of 1999. Inventories
increased 26.1% as the company increased stocking levels of certain long-lead
electronic items. Property, plant and equipment (at cost) increased $1,789,000
due to normal equipment purchases partially offset by asset retirements. Prepaid
expenses increased $579,000 due to timing of annual payments such as insurance
premiums. Prepaid pension decreased $428,000 since December 31, 1999, due to the
recording of normal pension expense with no funding payments required as a
result of the overfunded status of the plan.
Since December 31, 1999, short-term debt increased $6,050,000 to fund increased
working capital, fixed asset additions and repayment of long-term debt. Accrued
compensation and employee benefits decreased $1,773,000 due primarily to payment
of 1999 incentives during the first quarter of 2000. Income and other taxes
payable increased $2,178,000 due to the timing of estimated tax payments.
Changes in accrued non-pension postretirement benefits and other accrued
employee benefits since December 31, 1999, were primarily due to the timing of
benefit payments. Long-term debt and the current maturities of long-term debt
decreased $3,932,000 due to regular monthly debt repayments.
Since December 31, 1999, common stock and capital in excess of par value both
increased due to new shares issued in connection with stock options exercised
and ESSOP purchases. Treasury stock increased due to shares repurchased during
the period. Employee benefit stock decreased $300,000 due to the regular
repayment of the ESSOP debt.
As of September 30, 2000, the Company had approximately $51,205,000 of credit
facilities with domestic and foreign banks of which $30,048,000 was in use. This
compares to $26,247,000 in use at September 30, 1999 and $28,082,000 at December
31, 1999. The Company believes that the present lines of credit are adequate to
meet operating requirements and future capital needs.
Results of Operations
Net sales for the third quarter of 2000 of $39,508,000 reflect a 5.2% increase
from the third quarter of 1999. This increase was primarily due to increased
sales of water meters to utilities, partially offset by lower sales of
industrial products. For the nine-month period ended September 30, 2000, sales
of $112,260,000 represented a 1.9% decrease from the first nine months of 1999.
This decrease was primarily due to lower sales of both utility and industrial
products due to several factors. A September 1999 fire at the facility of one of
the company's principal vendors continued to negatively impact sales in the
first half of 2000, although the impact of those lost sales on net income was
offset by business interruption insurance proceeds. The six-month Federal
Communications Commission freeze, which ended in December 1999, continued to
have an impact on sales of certain automatic meter reading products due to the
disruption of the sales cycle. In addition, a major automated meter reading
systems alliance partner filed bankruptcy during the first quarter of 2000,
which continues to create confusion in the market place and impact sales
opportunities for products that were under development with that partner.
Competitive market pressures and the stronger dollar had a negative impact on
sales of certain industrial products, particularly in Europe. Increased sales of
water meters to commercial/industrial and submetering customers only partially
offset these negative factors.
Also, a one-time manufacturing problem resulted in increased scrap levels and
reduced margins during the second quarter of 2000. This problem was identified
by the company and corrected during the second quarter, but certain deliveries
of product were delayed while the problem was being addressed.
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Gross margins decreased from 39.7% in the third quarter of 1999 to 36.6% in the
third quarter of 2000 due primarily to a higher mix of international sales of
water meters with lower margins than domestic meter sales. The nine-month
margins for 2000 were 36.3%, down from 39.4% for the first nine months of 1999
due to the increased international water meter sales and a one-time
manufacturing problem during the second quarter of 2000. Also, both the quarter
and year-to-date margins were affected by the higher capacity levels in 2000
compared to 1999, which resulted in less favorable manufacturing variances.
Selling, engineering and administrative costs were up 1.8% for the third quarter
of 2000 compared to the same quarter in 1999, and were relatively flat for the
nine-month period, due to lower incentive accruals and cost controls offsetting
personnel and expense increases. Interest expense increased between the periods
due to higher interest rates and higher debt balances, including new long-term
debt associated with an August 1999 stock repurchase.
Other expense (income), net, for the first nine months of 2000 included
$2,230,000 of business interruption insurance proceeds related to lost sales and
margins as a result of a fire at a vendor's facility in 1999. The claim was
fully settled during the second quarter and, as such, no proceeds are included
in the third quarter results.
The effective tax rate was 37.0% for the third quarter of 2000 and 37.3% for the
nine-month period, down from 38.5% for both the third quarter and nine-month
period in 1999 due primarily to the favorable settlement of a tax audit in late
1999 and certain foreign tax credits.
Earnings for the third quarter of 2000 were $1,948,000, a decrease of 19.5% over
third quarter 1999 earnings of $2,420,000 primarily due to lower margins.
Earnings for the nine-month period decreased 21.1% due to lower sales and
margins.
Other Matters
The Company is subject to contingencies relative to environmental laws and
regulations. Currently, the Company is in the process of resolving issues
relative to two landfill sites. The Company does not believe the ultimate
resolution of these claims will have a material adverse effect on the Company's
financial position or results of operations. Provision has been made for all
known settlement costs. No other risks or uncertainties were identified that
could have a material impact on operations and no long-lived assets have become
permanently impaired in value.
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," "should" 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 offerings; the actions and
financial condition of competitors and alliance partners; changes in domestic
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. Shareholders, potential investors and other readers are urged to
consider these factors carefully in evaluating the forward looking statements
and are cautioned not to place undue reliance on such forward looking
statements. The forward looking statements made herein are made only as of the
date of this document and the Company undertakes no obligation to publicly
update such forward looking statements to reflect subsequent events or
circumstances.
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Part II - Other Information
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
(27.0) Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended
September 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BADGER METER, INC.
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Dated: October 19, 2000 By /S/ Richard A. Meeusen
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Richard A. Meeusen
Vice President - Finance and Treasurer
Chief Financial Officer
By /S/ Beverly L.P. Smiley
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Beverly L.P. Smiley
Vice President - Controller
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EXHIBIT INDEX
Page Number
(27.0) Financial Data Schedule
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