<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, 1999
[ ] 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
COMMON SHARE PURCHASED RIGHTS 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 $88,952,851 as of February 29, 2000. At February 29, 2000, the
registrant had 3,355,876 shares of Common Stock outstanding.
Documents Incorporated by Reference:
Parts I and II incorporate information by reference from the company's
1999 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 14,
2000 [to be filed with the Securities and Exchange Commission under Regulation
14A within 120 days after the end of the registrant's fiscal year].
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Part I
Item 1. Business
Badger Meter, Inc. (the "company") is a marketer and manufacturer of
products, and a provider of services, using flow measurement and control
technologies 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: water, wastewater and process waters; energy and
petroleum; food and beverage; pharmaceutical; chemical; and concrete.
The company has five major product lines: residential and
commercial/industrial water meters (with related technologies), automotive fluid
meters, small precision valves 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, Tulsa, Oklahoma and Rio Rico, Arizona facilities. 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 distribution channels 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 and high precision valves. As a result of significant
research and development activities, the company enjoys favorable patent
positions for several of its products.
Backlog
The dollar amount of the company's total backlog of unshipped orders
at December 31, 1999 and 1998 was $24,985,000 and $32,290,000, respectively.
Substantially, the entire December 31, 1999 backlog is expected to be shipped in
2000. The December 31, 1999 decrease in the company's backlog was partially due
to the 1999 completion of the City of Philadelphia order, which was the largest
domestic automatic meter reading project implementation to date. In addition,
orders during the second half of 1999 were impacted by several factors: a freeze
on radio frequency licenses by the Federal Communications Commission (which was
lifted at the end of 1999 but still impacted new orders in the fourth quarter),
a decrease in orders for industrial meters and valves due to changing market
conditions, and reduced orders due to longer delivery times caused by a
September 1999 fire at the facility of one of the company's principal vendors.
This lower backlog and the aforementioned related factors may have an impact on
first quarter sales in 2000.
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 some bronze castings and certain electronic subassemblies from
single suppliers. The company believes these items would be available from
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other sources, but that the loss of its current suppliers would result in higher
cost of materials, delivery delays, short-term increases in inventory and higher
quality control costs. Prices may also be affected by world commodity markets.
Research and Development
Expenditures for research and development activities relating to
the development of new products, the improvement of existing products and
manufacturing process improvements were $5,971,000 during 1999, as compared to
$6,105,000 during 1998 and $4,397,000 during 1997. 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 issues relative to two landfill sites. Also, the company is in the
process of settling a suit alleging a violation of Proposition 65, California's
environmental regulation (see Item 3). 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 1999 and 1998 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 environmental regulations at company
sites, the Board of Directors has established 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 989 persons at December
31, 1999, of which 251 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, sales and customer service
offices in Mexico City and Singapore, and two assembly facilities in Nogales,
Mexico. The company exports products manufactured in Milwaukee, WI, Tulsa, OK,
and Rio Rico, AZ.
Information about the company's foreign operations and export
sales is included in Note 10 in the Notes to Consolidated Financial Statements
of the company's 1999 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.
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Item 2. Properties
The principal facilities utilized by the company at December 31,
1999, 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 77,500 (1)
Rio Rico, Arizona Manufacturing and offices 36,000
Nogales, Mexico Assembly, manufacturing and offices 41,700 (2)
Nogales, Mexico Assembly, manufacturing and offices 18,350 (3)
Stuttgart, Germany Assembly, manufacturing and offices 23,000 (4)
</TABLE>
(1) Includes 18,000 sq. ft. leased facility. Lease term expires June 30, 2000.
(2) Leased facility. Lease term expires January 31, 2002.
(3) Leased facility. Lease term expires October 31, 2002.
(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. In 1999, the
company completed the construction of a 67,000 square foot addition to its
Milwaukee, Wisconsin facility. The addition houses a new engineering laboratory,
design facility, offices and expanded manufacturing operations, which 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 lawsuit has been resolved with
the plaintiffs and will be scheduled for approval by the court in May 2000,
following a notice period providing water utilities with an opportunity to
object to the terms of the settlement. The terms and conditions of the
settlement do not 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, 1999.
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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 2/29/2000
- ---- -------- ---------
<S> <C> <C>
James L. Forbes Chairman and Chief 67
Executive Officer
Robert D. Belan President and Chief Operating Officer 59
William H. Vander Heyden Vice President - Industrial 63
Robert M. Bullis Vice President - Operations 50
Ronald H. Dix Vice President - Administration 55
and Human Resources
Deirdre C. Elliott Vice President - Corporate Counsel 43
and Secretary
Wayne J. Fleischmann Vice President - Residential Products 46
Richard A. Meeusen Vice President - Finance, Treasurer and 45
Chief Financial Officer
William H. Oberleitner Vice President - Sales 65
Beverly L.P. Smiley Vice President - Controller 50
Theodore N. Townsend Vice President - International 55
Dennis J. Webb Vice President - Engineering and Quality 52
Daniel D. Zandron Vice President - Commercial and 51
Industrial Products
</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 was elected Chairman and Chief Executive Officer in
April 1999. Prior to that date, Mr. Forbes served as President and Chief
Executive Officer for more than five years.
Mr. Belan was elected President and Chief Operating Officer in
April 1999. Mr. Belan served as Executive Vice President from April 1998 to
April 1999. From 1992 to 1998, Mr. Belan served as Vice President - Utility.
Mr. Vander Heyden has served as Vice President - Industrial for
more than five years. Mr. Vander Heyden retired as of January 31, 2000.
Mr. Bullis was elected Vice President - Operations in November
1999. Prior to that date, Mr. Bullis served as Vice President - Operations -
Utility for more than five years.
Mr. Dix has served as Vice President - Administration and Human
Resources for more than five years.
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Ms. Elliott has served as Vice President - Corporate Counsel and
Secretary for more than five years.
Mr. Fleischmann was elected Vice President - Residential Products
in November 1999. From February 1999 to November 1999, Mr. Fleischmann served as
Vice President - Residential Products - Utility. Prior to that date, Mr.
Fleischmann served as Vice President - Residential Business - Utility and
Controller - Utility 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.
Mr. Oberleitner was elected Vice President - Sales in November
1999. Mr. Oberleitner served as Vice President - Sales - Utility from May 1997
to November 1999. From 1991 to 1997, Mr. Oberleitner served as Regional Sales
Manager - Utility.
Ms. Smiley was elected Vice President - Controller in November
1999. Ms. Smiley served as Corporate Controller from April 1997 to November
1999. Prior to that date, Ms. Smiley served as Accounting Manager of the company
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. Webb was elected Vice President - Engineering and Quality in
November 1999. Prior to that date, Mr. Webb served as Vice President -
Engineering and Quality - Utility for more than five years.
Mr. Zandron was elected Vice President - Commercial and Industrial
Products in November 1999. From May 1999 to November 1999, Mr. Zandron served as
Vice President - Commercial and Industrial Products - Utility. Prior to that
date, Mr. Zandron served as Vice President - Commercial and Industrial and
Marketing for more than five years.
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The information set forth on page 29 in the company's 1999 Annual
Report to Shareholders is incorporated herein by reference in
response to this Item.
Item 6. Selected Financial Data
The information set forth on pages 1 and 31 in the company's 1999
Annual Report to Shareholders is incorporated herein by reference
in response to this Item.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information set forth on pages 17, 18 and 19 in the company's
1999 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 19 under the heading "Market
Risk" in the company's 1999 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,
1999 and 1998 and for each of the three years in the period ended
December 31, 1999 and the auditor's report thereon and the
company's unaudited
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quarterly financial data for the two-year period ended December
31, 1999 are incorporated herein by reference from the 1999 Annual
Report to Shareholders, pages 20 through 30.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Information required by this Item with respect to directors is
included under the headings "Nomination and Election of Directors"
and "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 14, 2000, 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 14, 2000, and is incorporated herein by reference;
provided, however, that the subsection entitled "Executive
Compensation-Board Management Review Committee Report on Executive
Compensation" shall not be deemed to be incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this Item is included under the heading
"Stock Ownership of Management and Others" in the company's
definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on April 14, 2000, 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 14, 2000, 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 filed by the registrant during the
quarter ended December 31, 1999.
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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 11, 2000
By: /s/ Beverly L.P. Smiley
-----------------------
Vice President - Controller
February 11, 2000
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 Chairman and
February 11, 2000 Chief Executive Officer
February 11, 2000
/s/ Robert M. Hoffer /s/ Pamela B. Strobel
- -------------------- ---------------------
Robert M. Hoffer Pamela B. Strobel
Director Director
February 11, 2000 February 11, 2000
/s/ Charles F. James, Jr. /s/ Andrew J. Policano
- ------------------------- ----------------------
Charles F. James, Jr. Andrew J. Policano
Director Director
February 11, 2000 February 11, 2000
/s/ Donald J. Schuenke /s/ Kenneth P. Manning
- ---------------------- ----------------------
Donald J. Schuenke Kenneth P. Manning
Director Director
February 11, 2000 February 11, 2000
/s/ John J. Stollenwerk /s/ James O. Wright, Jr.
- ----------------------- ------------------------
John J. Stollenwerk James O. Wright, Jr.
Director Director
February 11, 2000 February 11, 2000
/s/ Robert D. Belan
- -------------------
Robert D. Belan
Director
February 11, 2000
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BADGER METER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page References
Annual Report
to
Shareholders Form 10-K
Page Number Page Number
------------ -----------
Item 14(a) 1
- ------------
<S> <C> <C>
Financial statements:
Consolidated balance sheets at
December 31, 1999 and 1998 21
Consolidated statements of operations
for each of the three years in the
period ended December 31, 1999 20
Consolidated statements of cash flows
for each of the three years in the
period ended December 31, 1999 22
Consolidated statements of shareholders'
equity for each of the three years in
the period ended December 31, 1999 23
Notes to consolidated financial
statements 24 - 30
Report of Ernst & Young LLP,
Independent Auditors 51
Item 14(a) 2
- ------------
Financial statement schedules:
Consolidated schedules for each of
the three years in the period ended
December 31, 1999
II - Valuation and qualifying accounts F-1
</TABLE>
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedules, or
because the information required is included in the financial statements and the
notes thereto.
F-0
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BADGER METER, INC.
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance
beginning charged to from at end
of year earnings allowances of year
<S> <C> <C> <C> <C>
Allowance for doubtful receivables:
1999 $369,000 $95,000 $(32,000) (a) $496,000
======== ======= ============= ========
1998 $308,000 $151,000 $ 90,000(a) $369,000
======== ======== =========== ========
1997 $242,000 $119,000 $ 53,000(a) $308,000
======== ======== =========== ========
Warranty/after-sale cost reserve:
1999 $4,386,000 $1,368,000 $1,919,000 $3,835,000
========== ========== ========== ==========
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
========== ========== ========== ==========
</TABLE>
Note:
(a) Accounts receivable written off, less recoveries, against the
allowance.
F-1
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EXHIBIT INDEX
Exhibit No. Exhibit Description
(3.0) Restated Articles of Incorporation effective September 30, 1999.
[Incorporated by reference from Exhibit (3.0) (i) to the
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1999].
(3.1) Restated By-Laws as amended February 11, 2000.
(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 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 Firstar
Bank Milwaukee, N.A. and the Badger Meter Employee Savings and
Stock Ownership Plan and Trust. [Incorporated by reference from
Exhibit (4.2) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1998].
(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)].
*A management contract or compensatory plan or arrangement.
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EXHIBIT INDEX (CONTINUED)
Exhibit No. Exhibit Description
(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)].
(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].
(10.9) * Forms of the Key Executive Employment and Severance Agreements
between Badger Meter, Inc. and the applicable executive
officers. [Incorporated by reference from Exhibit (10.0) to the
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1999].
(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 14, 2000. [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].
*A management contract or compensatory plan or arrangement.
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Exhibit (3.1)
RESTATED BY-LAWS
OF
BADGER METER, INC.
(AS AMENDED FEBRUARY 11, 2000)
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the
shareholders (the "Annual Meeting") shall be held on the second Saturday in
April of each year, or at such other time and date as may be fixed by resolution
of the Board of Directors. In fixing a meeting date for any Annual Meeting, the
Board of Directors may consider such factors as it deems relevant within the
good faith exercise of its business judgment. At each Annual Meeting, the
shareholders shall elect that number of directors equal to the number of
directors in the class whose term expires at the time of such meeting. At any
such Annual Meeting, only other business properly brought before the meeting in
accordance with Section 12 of Article I of these By-laws may be transacted. If
the election of directors shall not be held on the date designated herein, or
fixed as herein provided, for any Annual Meeting, or any adjournment thereof,
the Board of Directors shall cause the election to be held at a special meeting
of shareholders (a "Special Meeting") as soon thereafter as is practicable.
Section 2. Special Meetings.
(a) A Special Meeting may be called only by (i) the Chairman,
(ii) the Chief Executive Officer or (iii) the Board of Directors and shall be
called by the Chief Executive Officer upon the demand, in accordance with this
Section 2, of the holders of record of shares representing at least 10% of all
the votes entitled to be cast on any issue proposed to be considered at the
Special Meeting.
(b) In order that the Corporation may determine the
shareholders entitled to demand a Special Meeting, the Board of Directors may
fix a record date to determine the shareholders entitled to make such a demand
(the "Demand Record Date"). The Demand Record Date shall not precede the date
upon which the resolution fixing the Demand Record Date is adopted by the Board
of Directors and shall not be more than ten days after the date upon which the
resolution fixing the Demand Record Date is adopted by the Board of Directors.
Any shareholder of record seeking to have shareholders demand a Special Meeting
shall, by sending written notice to the Secretary of the Corporation by hand or
by certified or registered mail, return receipt requested, request the Board of
Directors to fix a Demand Record Date. The Board of Directors shall promptly,
but in all events within ten days after the date on which a valid request to fix
a Demand Record Date is received, adopt a resolution fixing the Demand Record
Date and shall make a public announcement of such Demand Record Date. If no
Demand Record Date has been fixed by the Board of Directors within ten days
after the date on which such request is received by the Secretary, the Demand
Record Date shall be the 10th day after the first date on which a valid written
request to set a Demand Record Date is received by the Secretary. To be valid,
such written request shall set forth the purpose or purposes for which the
Special Meeting is to be held, shall be signed by one or more shareholders of
record (or their duly authorized proxies or other representatives), shall bear
the date of signature of each such shareholder (or proxy or other
representative) and shall set forth all information about each such shareholder
and about the beneficial owner or owners, if any, on whose behalf the request is
made that would be required to be set forth in a shareholder's notice described
in paragraph (a) (ii) of Section 12 of Article I of these By-laws.
(c) In order for a shareholder or shareholders to demand a
Special Meeting, a written demand or demands for a Special Meeting by the
holders of record as of the Demand Record Date of shares representing at least
10% of all the votes entitled to be cast on any issue proposed to be considered
at the Special Meeting must be delivered to the Corporation. To be valid, each
written demand by a shareholder for a Special Meeting shall set forth the
specific purpose or purposes for which the Special Meeting is to be held (which
purpose or purposes shall be limited to the purpose or purposes set forth in the
written request to set a Demand Record Date received by the Corporation pursuant
to paragraph (b) of this Section 2), shall be signed by one or more persons who
as of the Demand Record Date are shareholders of record (or their
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duly authorized proxies or other representatives), shall bear the date of
signature of each such shareholder (or proxy or other representative), and shall
set forth the name and address, as they appear in the Corporation's books, of
each shareholder signing such demand and the class and number of shares of the
Corporation which are owned of record and beneficially by each such shareholder,
shall be sent to the Secretary by hand or by certified or registered mail,
return receipt requested, and shall be received by the Secretary within seventy
days after the Demand Record Date.
(d) The Corporation shall not be required to call a
Special Meeting upon shareholder demand unless, in addition to the documents
required by paragraph (c) of this Section 2, the Secretary receives a written
agreement signed by each Soliciting Shareholder (as defined below), pursuant to
which each Soliciting Shareholder, jointly and severally, agrees to pay the
Corporation's costs of holding the Special Meeting, including the costs of
preparing and mailing proxy materials for the Corporation's own solicitation,
provided that if each of the resolutions introduced by any Soliciting
Shareholder at such meeting is adopted, and each of the individuals nominated by
or on behalf of any Soliciting Shareholder for election as a director at such
meeting is elected, then the Soliciting Shareholders shall not be required to
pay such costs. For purposes of this paragraph (d), the following terms shall
have the meanings set forth below:
(i) "Affiliate" of any Person (as defined
herein) shall mean any Person controlling, controlled by or under
common control with such first Person.
(ii) "Participant" shall have the meaning
assigned to such term in Rule 14a-11 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(iii) "Person" shall mean any individual, firm,
corporation, partnership, joint venture, association, trust,
unincorporated organization or other entity.
(iv) "Proxy" shall have the meaning assigned to
such term in Rule 14a-1 promulgated under the Exchange Act.
(v) "Solicitation" shall have the meaning
assigned to such term in Rule 14a-11 promulgated under the Exchange
Act.
(vi) "Soliciting Shareholder" shall mean, with
respect to any Special Meeting demanded by a shareholder or
shareholders, any of the following Persons:
(A) if the number of shareholders signing
the demand or demands of meeting delivered to the Corporation
pursuant to paragraph (c) of this Section 2 is ten or fewer,
each shareholder signing any such demand;
(B) if the number of shareholders signing
the demand or demands of meeting delivered to the Corporation
pursuant to paragraph (c) of this Section 2 is more than ten,
each Person who either (I) was a Participant in any
Solicitation of such demand or demands or (II) at the time of
the delivery to the Corporation of the documents described in
paragraph (c) of this Section 2 had engaged or intended to
engage in any Solicitation of Proxies for use at such Special
Meeting (other than a Solicitation of Proxies on behalf of the
Corporation); or
(C) any Affiliate of a Soliciting
Shareholder, if a majority of the directors then in office
determine, reasonably and in good faith, that such Affiliate
should be required to sign the written notice described in
paragraph (c) of this Section 2 and/or the written agreement
described in this paragraph (d) in order to prevent the
purposes of this Section 2 from being evaded.
(e) Except as provided in the following sentence, any
Special Meeting shall be held at such hour and day as may be designated by
whichever of the Chief Executive Officer, the Secretary or the Board of
Directors shall have called such meeting. In the case of any Special Meeting
called by the Chief Executive Officer upon the demand of shareholders (a "Demand
Special Meeting"), such meeting shall be held at such hour and day as may be
designated by the Board of Directors; provided, however, that the date of any
Demand Special Meeting shall be not more than seventy days after the Meeting
Record Date (as defined in Section 5 of Article I of these By-laws); and
provided further that in the event that the directors then in office fail to
designate an hour and date for a Demand Special Meeting within ten days after
the date that valid written demands for such meeting by the holders of record as
of the Demand Record Date of shares representing at
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least 10% of all the votes entitled to be cast on each issue proposed to be
considered at the Special Meeting are delivered to the Corporation (the
"Delivery Date"), then such meeting shall be held at 2:00 P.M. local time on the
100th day after the Delivery Date or, if such 100th day is not a Business Day
(as defined below), on the first preceding Business Day. In fixing a meeting
date for any Special Meeting, the Chief Executive Officer, the Secretary or the
Board of Directors may consider such factors as he or it deems relevant within
the good faith exercise of his or its business judgment, including, without
limitation, the nature of the action proposed to be taken, the facts and
circumstances surrounding any demand for such meeting, and any plan of the Board
of Directors to call an Annual Meeting or a Special Meeting for the conduct of
related business.
(f) The Corporation may engage regionally or nationally
recognized independent inspectors of elections to act as an agent of the
Corporation for the purpose of promptly performing a ministerial review of the
validity of any purported written demand or demands for a Special Meeting
received by the Secretary. For the purpose of permitting the inspectors to
perform such review, no purported demand shall be deemed to have been delivered
to the Corporation until the earlier of (i) five Business Days following receipt
by the Secretary of such purported demand and (ii) such date as the independent
inspectors certify to the Corporation that the valid demands received by the
Secretary represent at least 10% of all the votes entitled to be cast on each
issue proposed to be considered at the Special Meeting. Nothing contained in
this paragraph (f) shall in any way be construed to suggest or imply that the
Board of Directors or any shareholder shall not be entitled to contest the
validity of any demand, whether during or after such five Business Day period,
or to take any other action (including, without limitation, the commencement,
prosecution or defense of any litigation with respect thereto).
(g) For purposes of these By-laws, "Business Day" shall
mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of Wisconsin are authorized or obligated by law or
executive order to close.
Section 3. Place of Meeting. The Chairman, the Chief Executive
Officer, the Board of Directors or the Secretary may designate any place, either
within or without the State of Wisconsin, as the place of meeting for an Annual
Meeting or Special Meeting. If no designation is made, the place of meeting
shall be the principal office of the Corporation. Any meeting may be adjourned
to reconvene at any place designated by vote of the Board of Directors or by the
Chief Executive Officer or the Secretary.
Section 4. Notice of Meeting. Written notice stating the date,
time and place of any meeting of shareholders shall be delivered not less than
ten days nor more than sixty days before the date of the meeting (unless a
different time period is provided by the Wisconsin Business Corporation Law (the
"WBCL") or the Articles of Incorporation), either personally or by mail, by or
at the direction of the Chairman, the President or the Secretary, to each
shareholder of record entitled to vote at such meeting and to such other persons
as required by the WBCL. In the event of any Demand Special Meeting, such notice
of meeting shall be sent not more than thirty days after the Delivery Date. If
mailed, notice pursuant to this Section 4 shall be deemed to be effective when
deposited in the United States mail, addressed to the shareholder at his or her
address as it appears on the stock record books of the Corporation, with postage
thereon prepaid. Unless otherwise required by the WBCL or the Articles of
Incorporation, a notice of an Annual Meeting need not include a description of
the purpose for which the meeting is called. In the case of any Special Meeting,
(a) the notice of meeting shall describe any business that the Board of
Directors shall have theretofore determined to bring before the meeting and (b)
in the case of a Demand Special Meeting, the notice of meeting (i) shall
describe any business set forth in the statement of purpose of the demands
received by the Corporation in accordance with Section 2 of Article I of these
By-laws and (ii) shall contain all of the information required in the notice
received by the Corporation in accordance with Section 12(b) of Article I of
these By-laws. If an Annual Meeting or Special Meeting is adjourned to a
different date, time or place, the Corporation shall not be required to give
notice of the new date, time or place if the new date, time or place is
announced at the meeting before adjournment; provided, however, that if a new
Meeting Record Date for an adjourned meeting is or must be fixed, the
Corporation shall give notice of the adjourned meeting to persons who are
shareholders as of the new Meeting Record Date.
Section 5. Fixing of Record Date. The Board of Directors may
fix in advance a date not less than ten days and not more than seventy days
prior to the date of an Annual Meeting or Special Meeting as the record date for
the determination of shareholders entitled to notice of, or to vote at, such
meeting (the "Meeting Record Date"). In the case of any Demand Special Meeting,
(i) the Meeting Record Date shall be not later than the 30th day after the
Delivery Date and (ii) if the Board of Directors fails to fix the Meeting Record
Date within thirty days after the Delivery Date, then the close of business on
such 30th day shall be the Meeting Record Date. The shareholders of record on
the Meeting Record Date shall be the shareholders entitled to notice of and to
vote at the meeting. Except as provided by the WBCL for a court-ordered
adjournment, a determination of shareholders entitled to notice of and to vote
at an Annual Meeting or Special Meeting is effective for any adjournment of such
meeting unless the Board of Directors fixes a new Meeting Record Date, which it
shall do if the meeting is adjourned to a date more than 120 days after the date
fixed for the original meeting. The Board of
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Directors may also fix in advance a date as the record date for the purpose of
determining shareholders entitled to take any other action or determining
shareholders for any other purpose. Such record date shall be not more than
seventy days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. The record date for determining
shareholders entitled to a distribution (other than a distribution involving a
purchase, redemption or other acquisition of the Corporation's shares) or a
share dividend is the date on which the Board of Directors authorizes the
distribution or share dividend, as the case may be, unless the Board of
Directors fixes a different record date.
Section 6. Shareholders' List for Meetings. After a Meeting
Record Date has been fixed, the Corporation shall prepare a list of the names of
all of the shareholders entitled to notice of the meeting. The list shall be
arranged by class or series of shares, if any, and show the address of and
number of shares held by each shareholder. Such list shall be available for
inspection by any shareholder, beginning two business days after notice of the
meeting is given for which the list was prepared and continuing to the date of
the meeting, at the Corporation's principal office or at a place identified in
the meeting notice in the city where the meeting will be held. A shareholder or
his or her agent may, on written demand, inspect and, subject to the limitations
imposed by the WBCL, copy the list, during regular business hours and at his or
her expense, during the period that it is available for inspection pursuant to
this Section 6. The Corporation shall make the shareholders' list available at
the meeting and any shareholder or his or her agent or attorney may inspect the
list at any time during the meeting or any adjournment thereof. Refusal or
failure to prepare or make available the shareholders' list shall not affect the
validity of any action taken at a meeting of shareholders.
Section 7. Quorum and Voting Requirements; Postponements;
Adjournments.
(a) Shares entitled to vote as a separate voting group
may take action on a matter at any Annual Meeting or Special Meeting only if a
quorum of those shares exists with respect to that matter. If the Corporation
has only one class of stock outstanding, such class shall constitute a separate
voting group for purposes of this Section 7. Except as otherwise provided in the
Articles of Incorporation or the WBCL, a majority of the votes entitled to be
cast on the matter shall constitute a quorum of the voting group for action on
that matter. Once a share is represented for any purpose at any Annual Meeting
or Special Meeting, other than for the purpose of objecting to holding the
meeting or transacting business at the meeting, it is considered present for
purposes of determining whether a quorum exists for the remainder of the meeting
and for any adjournment of that meeting unless a new Meeting Record Date is or
must be set for the adjourned meeting. If a quorum exists, except in the case of
the election of directors, action on a matter shall be approved if the votes
cast within the voting group favoring the action exceed the votes cast opposing
the action, unless the Articles of Incorporation or the WBCL requires a greater
number of affirmative votes. Unless otherwise provided in the Articles of
Incorporation, each director to be elected shall be elected by a plurality of
the votes cast by the shares entitled to vote in the election of directors at an
Annual Meeting or Special Meeting at which a quorum is present.
(b) The Board of Directors acting by resolution may
postpone and reschedule any previously scheduled Annual Meeting or Special
Meeting; provided, however, that a Demand Special Meeting shall not be postponed
beyond the 100th day following the Delivery Date. Any Annual Meeting or Special
Meeting may be adjourned from time to time, whether or not there is a quorum,
(i) at any time, upon a resolution by shareholders if the votes cast in favor of
such resolution by the holders of shares of each voting group entitled to vote
on any matter theretofore properly brought before the meeting exceed the number
of votes cast against such resolution by the holders of shares of each such
voting group or (ii) at any time prior to the transaction of any business at
such meeting, by the President or pursuant to a resolution of the Board of
Directors. No notice of the time and place of adjourned meetings need be given
except as required by the WBCL. At any adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 8. Voting of Shares. Each outstanding share shall be
entitled to one vote upon each matter submitted to a vote at an Annual Meeting
or Special Meeting, except to the extent that the voting rights of the shares of
any class or classes are enlarged, limited or denied by the WBCL or the Articles
of Incorporation.
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Section 9. Proxies. At any Annual Meeting or Special Meeting,
a shareholder may vote his or her shares in person or by proxy. A shareholder
may appoint a proxy to vote or otherwise act for the shareholder by signing an
appointment form, either personally or by his or her attorney-in-fact. An
appointment of a proxy is effective when received by the Secretary or other
officer or agent of the Corporation authorized to tabulate votes. An appointment
is valid for eleven months from the date of its signing unless a different
period is expressly provided in the appointment form. Unless otherwise provided,
a proxy may be revoked at any time before it is voted, either by written notice
filed with the Secretary or the acting secretary of the meeting or by oral
notice given by the shareholder to the presiding officer during the meeting. The
presence of a shareholder who has filed his or her appointment of proxy shall
not itself constitute a revocation. The Board of Directors shall have the power
and authority to make rules establishing presumptions as to the validity and
sufficiently of proxies.
Section 10. Acceptance of Instruments Showing Shareholder
Action. If the name signed on a vote, consent, waiver or proxy appointment
corresponds to the name of a shareholder, the Corporation, if acting in good
faith, may accept the vote, consent, waiver or proxy appointment and give it
effect as the act of a shareholder. If the name signed on a vote, consent,
waiver or proxy appointment does not correspond to the name of a shareholder,
the Corporation, if acting in good faith, may accept the vote, consent, waiver
or proxy appointment and give it effect as the act of the shareholder if any of
the following apply:
(a) The shareholder is an entity and the name signed purports
to be that of an officer or agent of the entity.
(b) The name purports to be that of a personal representative,
administrator, executor, guardian or conservator representing the shareholder
and, if the Corporation requests, evidence of fiduciary status acceptable to the
Corporation is presented with respect to the vote, consent, waiver or proxy
appointment.
(c) The name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the Corporation requests,
evidence of this status acceptable to the Corporation is presented with respect
to the vote, consent, waiver or proxy appointment.
(d) The name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the Corporation
requests, evidence acceptable to the Corporation of the signatory's authority to
sign for the shareholder is presented with respect to the vote, consent, waiver
or proxy appointment.
(e) Two or more persons are the shareholders as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all
co-owners.
The Corporation may reject a vote, consent, waiver or proxy appointment if the
Secretary or other officer or agent of the Corporation who is authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
Section 11. Waiver of Notice. A shareholder may waive any
notice required by the WBCL, the Articles of Incorporation or these By-laws
before or after the date and time stated in the notice. The waiver shall be in
writing and signed by the shareholder entitled to the notice, contain the same
information that would have been required in the notice under applicable
provisions of the WBCL (except that the time and place of meeting need not be
stated) and be delivered to the Corporation for inclusion in the corporate
records. A shareholder's attendance at any Annual Meeting or Special Meeting, in
person or by proxy, waives objection to all of the following: (a) lack of notice
or defective notice of the meeting, unless the shareholder at the beginning of
the meeting or promptly upon arrival objects to holding the meeting or
transacting business at the meeting; and (b) consideration of a particular
matter at the meeting that is not within the purpose described in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented.
Section 12. Notice of Shareholder Business and Nomination of
Directors.
(a) Annual Meetings.
(i) Nominations of persons for election to the
Board of Directors of the Corporation and the proposal of business to
be considered by the shareholders may be made at an Annual Meeting (A)
pursuant to the Corporation's notice of meeting, (B) by or at the
direction of the Board of Directors or (C) by any shareholder of the
Corporation who is a shareholder of record at the time of giving of
notice provided for in this By-law and who is entitled to vote at the
meeting and complies with the notice procedures set forth in this
Section 12.
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(ii) For nominations or other business to be
properly brought before an Annual Meeting by a shareholder pursuant to
clause (C) of paragraph (a)(i) of this Section 12, the shareholder must
have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice shall be received by
the Secretary of the Corporation at the principal offices of the
Corporation not less than sixty days nor more than ninety days prior to
the second Saturday in the month of April; provided, however, that in
the event that the date of the Annual Meeting is advanced by more than
thirty days or delayed by more than sixty days from the second Saturday
in the month of April, notice by the shareholder to be timely must be
so received not earlier than the 90th day prior to the date of such
Annual Meeting and not later than the close of business on the later of
(x) the 60th day prior to such Annual Meeting and (y) the 10th day
following the day on which public announcement of the date of such
meeting is first made. Such shareholder's notice shall be signed by the
shareholder of record who intends to make the nomination or introduce
the other business (or his duly authorized proxy or other
representative), shall bear the date of signature of such shareholder
(or proxy or other representative) and shall set forth: (A) the name
and address, as they appear on this corporation's books, of such
shareholder and the beneficial owner or owners, if any, on whose behalf
the nomination or proposal is made; (B) the class and number of shares
of the Corporation which are beneficially owned by such shareholder or
beneficial owner or owners; (C) a representation that such shareholder
is a holder of record of shares of the Corporation entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting
to make the nomination or introduce the other business specified in the
notice; (D) in the case of any proposed nomination for election or
re-election as a director, (I) the name and residence address of the
person or persons to be nominated, (II) a description of all
arrangements or understandings between such shareholder or beneficial
owner or owners and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination is to
be made by such shareholder, (III) such other information regarding
each nominee proposed by such shareholder as would be required to be
disclosed in solicitations of proxies for elections of directors, or
would be otherwise required to be disclosed, in each case pursuant to
Regulation 14A under the Exchange Act, including any information that
would be required to be included in a proxy statement filed pursuant to
Regulation 14A had the nominee been nominated by the Board of Directors
and (IV) the written consent of each nominee to be named in a proxy
statement and to serve as a director of the Corporation if so elected;
and (E) in the case of any other business that such shareholder
proposes to bring before the meeting, (I) a brief description of the
business desired to be brought before the meeting and, if such business
includes a proposal to amend these By-laws, the language of the
proposed amendment, (II) such shareholder's and beneficial owner's or
owners' reasons for conducting such business at the meeting and (III)
any material interest in such business of such shareholder and
beneficial owner or owners.
(iii) Notwithstanding anything in the second
sentence of paragraph (a)(ii) of this Section 12 to the contrary, in
the event that the number of directors to be elected to the Board of
Directors of the Corporation is increased and there is no public
announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at
least seventy days prior to the second Saturday in the month of April,
a shareholder's notice required by this Section 12 shall also be
considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be received by the
Secretary at the principal offices of the Corporation not later than
the close of business on the 10th day following the day on which such
public announcement is first made by the Corporation.
(b) Special Meetings. Only such business shall be
conducted at a Special Meeting as shall have been described in the notice of
meeting sent to shareholders pursuant to Section 4 of Article I of these
By-laws. Nominations of persons for election to the Board of Directors may be
made at a Special Meeting at which directors are to be elected pursuant to such
notice of meeting (i) by or at the direction of the Board of Directors or (ii)
by any shareholder of the Corporation who (A) is a shareholder of record at the
time of giving of such notice of meeting, (B) is entitled to vote at the meeting
and (C) complies with the notice procedures set forth in this Section 12. Any
shareholder desiring to nominate persons for election to the Board of Directors
at such a Special Meeting shall cause a written notice to be received by the
Secretary of the Corporation at the principal offices of the Corporation not
earlier than ninety days prior to such Special Meeting and not later than the
close of business on the later of (x) the 60th day prior to such Special Meeting
and (y) the 10th day following the day on which public announcement is first
made of the date of such Special Meeting and of the nominees proposed by the
Board of Directors to be elected at such meeting. Such written notice shall be
signed by the shareholder of record who intends to make the nomination (or his
duly authorized proxy or other representative), shall bear the date of signature
of such shareholder (or proxy or other representative) and shall set forth: (A)
the name and address, as they appear on the Corporation's books, of such
shareholder and the beneficial owner or owners, if any, on whose behalf the
nomination is made; (B) the class and number of shares of the Corporation which
are beneficially owned by such shareholder or beneficial owner or owners; (C) a
representation that such shareholder is a holder of record of shares of the
Corporation entitled to vote at such
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meeting and intends to appear in person or by proxy at the meeting to make the
nomination specified in the notice; (D) the name and residence address of the
person or persons to be nominated; (E) a description of all arrangements or
understandings between such shareholder or beneficial owner or owners and each
nominee and any other person or persons (naming such person or persons) pursuant
to which the nomination is to be made by such shareholder; (F) such other
information regarding each nominee proposed by such shareholder as would be
required to be disclosed in solicitations of proxies for elections of directors,
or would be otherwise required to be disclosed, in each case pursuant to
Regulation 14A under the Exchange Act, including any information that would be
required to be included in a proxy statement filed pursuant to Regulation 14A
had the nominee been nominated by the Board of Directors; and (G) the written
consent of each nominee to be named in a proxy statement and to serve as a
director of the Corporation if so elected.
(c) General.
(i) Only persons who are nominated in accordance
with the procedures set forth in this Section 12 shall be eligible to
serve as directors. Only such business shall be conducted at an Annual
Meeting or Special Meeting as shall have been brought before such
meeting in accordance with the procedures set forth in this Section 12.
The chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth in this
Section 12 and, if any proposed nomination or business is not in
compliance with this Section 12, to declare that such defective
proposal shall be disregarded.
(ii) For purposes of this Section 12, "public
announcement" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press or comparable national news
service or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d)
of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of
this Section 12, a shareholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 12. Nothing in this Section 12
shall be deemed to limit the Corporation's obligation to include shareholder
proposals in its proxy statement if such inclusion is required by Rule 14a-8
under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers and Number. All corporate powers of the
Corporation shall be exercised by or under the authority of, and the business
and affairs of the Corporation managed under, the direction of its Board of
Directors, which shall consist of eleven (11) directors. The Board of Directors
shall elect one of its members as Chairman, who, when present, shall preside at
all meetings of the shareholders and Board of Directors.
Section 2. Tenure and Qualifications. Each director shall hold office
until the annual meeting of shareholders at which his term expires and until his
successor shall have been elected, or until his prior death, resignation or
removal. A director shall not be eligible to stand for re-election at any annual
meeting of shareholders following his 70th birthday, except that any directors
who are over 70 years old on or before November 1, 1999, may be appointed as
director emeritus to serve until he resigns or his appointment is terminated by
resolution of the Board of Directors, and shall serve in an advisory capacity to
the Board of Directors, shall be entitled to attend meetings of the Board and
its committees, shall be reimbursed for his expense in attending meetings, and
shall receive the same fees and compensation paid to directors, but shall have
no vote and shall not be considered as a director under the Articles of
Incorporation or By-laws of the Corporation except for purposes of officers' and
directors' liability insurance. A director may resign at any time by delivering
written notice which complies with the Wisconsin Business Corporation Law to the
Board of Directors, to the Chairman of the Board, if any, or to the Corporation.
A director's resignation is effective when such notice is delivered unless the
notice specifies a later date. Directors need not be residents of the State of
Wisconsin or shareholders of the Corporation.
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Section 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this By-law immediately after,
and at the same place as, the annual meeting of shareholders, and each adjourned
session thereof. The Board of Directors may provide, by resolution, the time and
place, either within or without the State of Wisconsin, for the holding of
additional regular meetings without other notice than such resolution.
Section 4. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman, the Chief Executive Officer,
Secretary or any two directors. The person or persons calling any special
meeting of the Board of Directors may fix any place, either within or without
the State of Wisconsin, as the place for holding any special meeting of the
Board of Directors called by them, and if no other place is fixed, the place of
meeting shall be the principal business office of the Corporation in the State
of Wisconsin.
Section 5. Notice; waiver. Notice of each meeting of the Board of
Directors (unless otherwise provided in or pursuant to Section 4, Article II)
shall be given by written notice delivered personally or given by telegram,
teletype, facsimile or other form of wire or wireless communication not less
than twenty-four (24) hours prior to the meeting or mailed or delivered by
private carrier not less than forty-eight (48) hours prior to the meeting to
each director at his business address or at such other address as such director
shall have designated in writing filed with the Secretary. If mailed or
delivered by a private carrier, such notice shall be deemed to be delivered when
deposited in the United States mail or delivered to the private carrier so
addressed, with postage or delivery cost thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. If notice be given by teletype, facsimile or
other form of wire or wireless communication, such notice shall be deemed to be
delivered when evidence of its transmittal is received. Whenever any notice
whatever is required to be given to any director of the Corporation under the
Articles of Incorporation or By-laws or any provision of law, a waiver thereof
in writing, signed at any time, whether before or after the time of meeting, by
the director entitled to such notice, shall be deemed equivalent to the giving
of such notice. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting and
objects thereat to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 6. Quorum. A majority of the directors shall constitute a
quorum for the transaction of business; and, except as otherwise provided by law
or by the Articles of Incorporation or these By-laws, a majority of the votes
cast at any meeting of the Board of Directors at which a quorum is present shall
be decisive of any action. A majority of the directors present at a meeting,
though less than quorum, may adjourn the meeting from time to time without
further notice.
Section 7. Vacancies. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled until the next succeeding annual election by the affirmative vote of a
majority of the directors then in office, though less than a quorum of the Board
of Directors; provided, that in case of a vacancy created by the removal of a
director by vote of the shareholders, the shareholders shall have the right to
fill such vacancy at the same meeting or any adjournment thereof.
Section 8. Compensation. The Board of Directors, by affirmative vote of
a majority of the directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation of all
directors for services to the Corporation as directors, officers or otherwise,
or may delegate such authority to an appropriate committee. The Board of
Directors also shall have authority to provide for or to delegate authority to
an appropriate committee to provide for reasonable pensions, disability or death
benefits, and other benefits or payments, to directors, officers and employees
and to their estates, families, dependents or beneficiaries on account of prior
services rendered by such directors, officers and employees to the Corporation.
Section 9. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors or a committee thereof of which
he is a member at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
Section 10. Committees. The Board of Directors by resolution adopted by
the affirmative vote of a majority of the number of directors set forth in
Section 1 of this Article II may designate one or more committees, each
committee to consist of three or more directors elected by the Board of
Directors, which shall have and may exercise, when the Board of
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<PAGE> 9
Directors is not in session, the powers of the Board of Directors in the
management of the business and affairs of the Corporation, in the committee's
designated area of responsibility, except action in respect to dividends to
shareholders, election of the principal officers or the filling of vacancies on
the Board of Directors or committees created pursuant to this section, with
respect to the approval or proposal of actions that the law requires to be
approved by the shareholders, amendment of the Articles of Incorporation, the
adoption, amendment or repeal of the by-laws, the approval of a plan of merger
not requiring shareholder approval, the authorization or approval of the
re-acquisition of shares other than according to a method prescribed by the
Board of Directors, and the authorization for approval of the issuance or sale
or contract for sale of shares, or the determination of the designation and
relative rights, preferences and limitations of a class or series of shares,
unless authorized to do so by the Board of Directors within prescribed limits.
The Board of Directors may elect one or more of its members as alternate members
of any such committee who may take the place of any absent member or members at
any meeting of such committee, upon request by the Chairman or upon request by
the chairman of such meeting. Each such committee shall fix its own rules
governing the conduct of its activities and shall make such reports to the Board
of Directors of its activities as the Board of Directors may request.
Section 11. Unanimous Consent Without Meeting. Any action required or
permitted by the Articles of Incorporation or By-laws or any provision of law to
be taken by the Board of Directors at a meeting or by resolution may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors then in office.
Section 12. Telephonic Meetings. Notwithstanding any place set forth in
the notice of the meeting or these By-laws, members of the Board of Directors
may participate in regular or special meetings of the Board of Directors and all
Committees of the Board of Directors by or through the use of any means of
communication by which all directors participating may simultaneously hear each
other, such as by conference telephone; provided, however, that the Chairman of
the Board or the chairman of the respective Committee and the Board or other
person or persons calling a meeting may determine that the directors cannot
participate by such means, in which case the notice of the meeting, or other
notice to directors given prior to the meeting, shall state that each director's
physical presence shall be required. If a meeting is conducted through the use
of such means of communication, then at the commencement of such meeting all
participating directors shall be informed that a meeting is taking place at
which official business may be transacted. A director participating in a meeting
by such means shall be deemed present in person at such meeting.
ARTICLE III
OFFICERS
Section 1. General Officers. The general officers of the Corporation
shall be the Chief Executive Officer, the President, one or more Vice
Presidents, a Secretary, a Treasurer, a Controller, and one or more Assistant
Secretaries and one or more Assistant Treasurers, each of whom shall be elected
annually by the Board of Directors and shall hold office until his or her
successor shall have been duly elected and qualified. The Chief Executive
Officer of the Corporation shall exercise general supervision of the business
and affairs of the Corporation subject to the directives of the Board of
Directors. Further, each general officer shall have such powers and duties as
generally pertain to his or her respective office; provided, that such powers
and duties may from time to time be modified, enlarged, restricted or augmented
by the Board of Directors.
Section 2. Additional Officers. The Board of Directors may appoint such
additional corporate officers as it may deem necessary, each of whom shall have
such powers and duties as from time to time may be conferred by the Board of
Directors, and shall serve for such terms as the Board may fix.
Section 3. Removal of Officers. Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board of Directors
whenever in its judgment, the best interests of the Corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
Section 4. Vacancies. A vacancy in any principal office because of
death, resignation, removal, disqualification or otherwise, shall be filled by
the Board of Directors for the unexpired portion of the term. The resignation of
an officer by the delivery of written notice to the Chief Executive Officer or
Secretary of the Corporation is effective upon delivery of the notice, unless
the notice specifies a later date and the Corporation accepts the later date.
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ARTICLE IV
SPECIAL CORPORATE ACTS
Section 1. Voting of Securities Owned by This Corporation. Subject
always to the specific directions of the Board of Directors, (a) any shares or
other securities issued by any other corporation and owned or controlled by this
Corporation may be voted at any meeting of security holders of such other
corporation by the Chairman of this Corporation if he be present, or in his
absence by the President or any Vice President of this Corporation who may be
present, and (b) whenever, in the judgment of the Chairman, or in his absence,
of the President or any Vice President, it is desirable for this Corporation to
execute a proxy or give a shareholder's consent in respect to any shares or
other securities issued by any other corporation and owned by this Corporation,
such proxy or consent shall be executed in the name of this Corporation by the
Chairman, or the President or one of the Vice Presidents of this Corporation
without necessity of any authorization by the Board of Directors, affixation of
corporate seal or countersignature or attestation by another officer. Any person
or persons designated in the manner above stated as the proxy or proxies of this
Corporation shall have full right, power and authority to vote the share or
shares of stock issued by such other corporation and owned by this Corporation
the same as such share or shares might be voted by this Corporation.
Section 2. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute or deliver
any instrument in the name of and on behalf of the Corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages, and instruments of assignment or
pledge made by the Corporation shall be executed in the name of the Corporation
by the Chairman or the President or one of the Vice Presidents and by the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer; the
Secretary or an Assistant Secretary, when necessary or required, shall affix the
corporate seal thereto; and when so executed no other party to such instrument
or any third party shall be required to make any inquiry into the authority of
the signing officer or officers.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
the Corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the Chairman or the President or
a Vice President and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and canceled, except as provided in Section 6 of this Article V.
Section 2. Facsimile Signatures and Seal. The seal of the corporation
on any certificates for shares may be a facsimile. The signatures of the
Chairman or President or Vice President and the Secretary or Assistant Secretary
upon a certificate may be facsimiles if the certificate is countersigned by a
transfer agent, or registered by a registrar, other than the Corporation itself
or an employee of the Corporation.
Section 3. Signature by Former Officers. In case any officer, who has
signed or whose facsimile signature has been placed upon any certificate for
shares, shall have ceased to be such officer before such certificate is issued,
it may be issued by the Corporation with the same effect as if he were such
officer at the date of its issue.
Section 4. Transfer of Shares. Prior to due presentment of a
certificate for shares for registration of transfer the Corporation may treat
the registered owner of such shares as the person exclusively entitled to vote,
to receive notifications and otherwise to exercise all the rights and powers of
an owner. Where a certificate for shares is presented to the Corporation with a
request to register for transfer, the Corporation shall not be liable to the
owner or any other person suffering loss as a result of such registration of
transfer if (a) there were on or with the certificate the necessary
endorsements, and (b) the Corporation had no duty to inquire into adverse claims
or has discharged any such duty. The Corporation may require reasonable
assurance that said endorsements are genuine and effective and in compliance
with such other regulations as may be prescribed under the authority of the
Board of Directors.
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Section 5. Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the Corporation upon the transfer of such shares.
Section 6. Lost, Destroyed or Stolen Certificates. Where the owner
claims that his certificate for shares has been lost, destroyed or wrongfully
taken, then a new certificate shall be issued in place thereof if the owner (a)
so requests before the Corporation has notice that such shares have been
acquired by a bona fide purchaser, and (b) files with the Corporation a
sufficient indemnity bond, and (c) satisfied such other reasonable requirements
as the Board of Directors may prescribe.
Section 7. Consideration for Shares. The shares of the Corporation may
be issued for such consideration as shall be fixed from time to time by the
Board of Directors, provided that any shares having a par value shall not be
issued for a consideration less than the par value thereof. The consideration to
be paid for shares may be paid in whole or in part, in money, in other property,
tangible or intangible, or in labor or services actually performed for the
Corporation. When payment of the consideration for which shares are to be issued
shall have been received by the Corporation, such shares shall be deemed to be
fully paid and nonassessable by the Corporation. No certificate shall be issued
for any share until such share is fully paid.
Section 8. Stock Regulations. The Board of Directors shall have the
power and authority to make all such further rules and regulations not
inconsistent with the statutes of the State of Wisconsin as it may deem
expedient concerning the issue, transfer and registration of certificates
representing shares of the Corporation.
ARTICLE VI
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation
and the state of incorporation and the words, "Corporate Seal".
ARTICLE VII
AMENDMENTS
Section 1. By Shareholders. These By-laws may be altered, amended,
repealed, augmented and new By-laws may be adopted by the shareholders by
affirmative vote of not less than a majority of the votes represented by the
shares present or represented at any annual or special meeting of the
shareholders at which a quorum is in attendance.
Section 2. By Directors. These By-laws may also be altered, amended,
repealed, augmented and new By-laws may be adopted by the Board of Directors by
affirmative vote of a majority of the number of directors present at any meeting
at which a quorum is in attendance; but no By-law adopted by the shareholders
shall be amended or repealed by the Board of Directors if the By-law so adopted
so provides.
Section 3. Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the
By-laws then in effect but is taken or authorized by affirmative vote of not
less than the number of shares or the number of directors required to amend the
By-laws so that the By-laws would be consistent with such action, shall be given
the same effect as though the By-laws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so taken
or authorized.
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ARTICLE VIII
INDEMNIFICATION
Section 1.01. Certain Definitions. All capitalized terms used in this
Article VIII and not otherwise hereinafter defined in this Section 1.01 shall
have the meaning set forth in Section 180.0850 of the Statute (as hereinafter
defined). The following capitalized terms (including any plural forms thereof)
used in this Article VIII shall be defined as follows:
(a) "Affiliate" shall include, without limitation, any
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise that directly or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the Corporation.
(b) "Authority" shall mean the entity selected by the Director
or Officer to determine his or her right to indemnification pursuant to Section
1.04 of this Article.
(c) "Board" shall mean the entire then elected and serving
board of directors of the Corporation, including all members thereof who are
Parties to the subject Proceeding or any related Proceeding.
(d) "Breach of Duty" shall mean the Director or Officer
breached or failed to perform his or her duties to the Corporation and his or
her breach of or failure to perform those duties is determined, in accordance
with Section 1.04 of this Article, to constitute misconduct under Section
180.0851 (2) (a) 1, 2, 3 or 4 of the Statute.
(e) "Corporation, " as used herein and as defined in the
Statute and incorporated by reference into the definitions of certain
capitalized terms used herein, shall mean this Corporation, including, without
limitation, any successor corporation or entity to the Corporation by way of
merger, consolidation or acquisition of all or substantially all of the capital
stock or assets of this Corporation.
(f) "Director or Officer" shall have the meaning set forth in
the Statute; provided, that, for purposes of this Article, it shall be
conclusively presumed that any Director or Officer serving as a director,
officer, partner, trustee, member of any governing or decision-making committee,
employee or agent of an Affiliate shall be so serving at the request of the
Corporation.
(g) "Disinterested Quorum" shall mean a quorum of the Board
who are not Parties to the subject Proceeding or any related Proceeding.
(h) "Party" shall have the meaning set forth in the Statute;
provided, that, for purposes of this Article, the term "Party" shall also
include any Director, Officer or employee who is or was a witness in a
Proceeding at a time when he or she has not otherwise been formally named a
Party thereto.
(i) "Proceeding" shall have the meaning set forth in the
Statute; provided, that, for purposes of this Article, "Proceeding" shall
include all Proceedings (i) brought under (in whole or in part) the Securities
Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, their
respective state counterparts, and/or any rule or regulation promulgated under
any of the foregoing; (ii) brought before an Authority or otherwise to enforce
rights hereunder; (iii) any appeal from a Proceeding; and (iv) any Proceeding in
which the Director or Officer is a plaintiff or petitioner because he or she is
a Director or Officer, provided, however, that such Proceeding is authorized by
a majority vote of a Disinterested Quorum.
(j) "Statute" shall mean Sections 180.0850 through 180.0859,
inclusive, of the Wisconsin Business Corporation Law, Chapter 180 of the
Wisconsin Statutes, including any amendments thereto, but, in the case of any
such amendment, only to the extent such amendment permits or requires the
Corporation to provide broader indemnification rights than the Statute permitted
or required the Corporation to provide prior to such amendment.
Section 1.02. Mandatory Indemnification. To the fullest extent
permitted or required by the Statute, the Corporation shall indemnify a Director
or Officer against all Liabilities incurred by or on behalf of such Director or
Officer in connection with a Proceeding in which the Director or Officer is a
Party because he or she is a Director or Officer.
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Section 1.03. Procedural Requirements.
(a) A Director or Officer who seeks indemnification under Section 1.02
of this Article shall make a written request therefor to the Corporation.
Subject to Section 1.03 (b) of this Article, within sixty days of the
Corporation's receipt of such request, the Corporation shall pay or reimburse
the Director or Officer for the entire amount of Liabilities incurred by the
Director or Officer in connection with the subject Proceeding (net of any
Expenses previously advanced pursuant to Section 1.05 of this Article).
(b) No indemnification shall be required to be paid by the Corporation
pursuant to Section 1.03 (a) of this Article if, within such sixty-day period:
(i) a Disinterested Quorum, by a majority vote thereof, determines that the
Director or Officer requesting indemnification engaged in misconduct
constituting a Breach of Duty; or (ii) a Disinterested Quorum cannot be
obtained.
(c) In either case of nonpayment pursuant to Section 1.03 (b) of this
Article, the Board shall immediately authorize by resolution that an Authority,
as provided in Section 1.04 of this Article, determine whether the Director's or
Officer's conduct constituted a Breach of Duty and, therefore, whether
indemnification should be denied hereunder.
(d) (i) If the Board does not authorize an Authority to determine the
Director's or Officer's right to indemnification hereunder within such sixty-day
period and/or (ii) if indemnification of the requested amount of Liabilities is
paid by the Corporation, then it shall be conclusively presumed for all purposes
that a Disinterested Quorum has determined that the Director or Officer did not
engage in misconduct constituting a Breach of Duty and, in the case of
subsection (i) above (but not subsection (ii)), indemnification by the
Corporation of the requested amount of Liabilities shall be paid to the Officer
or Director immediately.
Section 1.04. Determination of Indemnification.
(a) When the Board authorized an Authority to determine a Director's
or Officer's right to indemnification pursuant to Section 1.03 of this Article,
then the Director or Officer requesting indemnification shall have the absolute
discretionary authority to select one of the following as such Authority:
(i) An independent legal counsel; provided, that such counsel
shall be mutually selected by such Director or Officer and by a majority vote of
a Disinterested Quorum or, if a Disinterested Quorum cannot be obtained, then by
a majority vote of the Board;
(ii) A panel of three arbitrators selected from the panels of
arbitrators of the American Arbitration Association in Milwaukee, Wisconsin;
provided, that (A) one arbitrator shall be selected by such Director or Officer,
the second arbitrator shall be selected by a majority vote of a Disinterested
Quorum or, if a Disinterested Quorum cannot be obtained, then by a majority vote
of the Board, and the third arbitrator shall be selected by the two previously
selected arbitrators; and (B) in all other respects, such panel shall be
governed by the American Arbitration Association's then existing Commercial
Arbitration Rules; or
(iii) A court pursuant to and in accordance with Section 180.0854
of the Statute.
(b) In any such determination by the selected Authority there shall
exist a rebuttable presumption that the Director's or Officer's conduct did not
constitute a Breach of Duty and that indemnification against the requested
amount of Liabilities is required. The burden of rebutting such a presumption by
clear and convincing evidence shall be on the Corporation or such other party
asserting that such indemnification should not be allowed.
(c) The Authority shall make its determination within sixty days of
being selected and shall submit a written opinion of its conclusion
simultaneously to both the Corporation and the Director or Officer.
(d) If the Authority determines that indemnification is required
hereunder, the Corporation shall pay the entire requested amount of Liabilities
(net of any Expenses previously advanced pursuant to Section 1.05 of this
Article), including interest thereon at a reasonable rate, as determined by the
Authority, within ten days of receipt of the Authority's opinion; provided,
that, if it is determined by the Authority that a Director or Officer is
entitled to indemnification as to some claims, issues or matters, but not as to
other claims, issues or matters, involved in the subject Proceeding, the
Corporation shall be required to pay (as set forth above) only the amount of
such requested Liabilities as the Authority shall deem appropriate in light of
all of the circumstances of such Proceeding.
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(e) The determination by the Authority that indemnification is required
hereunder shall be binding upon the Corporation regardless of any prior
determination that the Director or Officer engaged in a Breach of Duty.
(f) All Expenses incurred in the determination process under this
Section 1.04 by either the Corporation or the Director or Officer, including,
without limitation, all Expenses of the selected Authority, shall be paid by the
Corporation.
Section 1.05. Mandatory Allowance of Expenses.
(a) The Corporation shall pay or reimburse, within ten days after the
receipt of the Director's or Officer's written request therefor, the reasonable
Expenses of the Director or Officer as such Expenses are incurred, provided the
following conditions are satisfied:
(i) The Director or Officer furnishes to the Corporation an
executed written certificate affirming his or her good faith belief that he or
she has not engaged in misconduct which constitutes a Breach of Duty; and
(ii) The Director or Officer furnishes to the Corporation an
unsecured executed written agreement to repay any advances made under this
Section 1.05 if it is ultimately determined by an Authority that he or she is
not entitled to be indemnified by the Corporation for such Expenses pursuant to
Section 1.04 of this Article.
(b) If the Director or Officer must repay any previously advanced
Expenses pursuant to this Section 1.05, such Director or Officer shall not be
required to pay interest on such amounts.
Section 1.06. Indemnification and Allowance of Expenses of Certain
Others.
(a) The Corporation shall indemnify a director or officer of an
Affiliate (who is not otherwise serving as a Director or Officer) against all
Liabilities, and shall advance the reasonable Expenses, incurred by such
director or officer in a Proceeding to the same extent hereunder as if such
director or officer incurred such Liabilities because he or she was a Director
or Officer, if such director or officer is a Party thereto because he or she is
or was a director or officer of the Affiliate.
(b) Except as hereinafter provided, the Corporation shall indemnify
each employee of the Corporation or an Affiliate of the Corporation acting
within the scope of his or her duties as such, against all Liabilities, and
shall advance Reasonable Expenses, incurred by or on behalf of such employee in
connection with a Proceeding in which he or she is a Party by virtue of being an
employee of the Corporation or an Affiliate of the Corporation, to the same
extent and in the same manner as a Director or Officer hereunder. The foregoing
provision shall not apply, and the Corporation shall not indemnify any employee,
with respect to any Liability to the extent covered by insurance maintained by
or on behalf of such employee (other than insurance maintained by the
Corporation or an Affiliate of the Corporation).
(c) The Board may, in its sole and absolute discretion as it deems
appropriate, pursuant to a majority vote thereof, indemnify against Liabilities
incurred by, and/or provide for the allowance of reasonable Expenses of, an
authorized agent of the Corporation acting within the scope of his or her duties
as such and who is not otherwise a Director or Officer.
Section 1.07. Insurance. The Corporation may purchase and maintain
insurance on behalf of a Director, Officer and/or any individual who is or was
an authorized employee or agent of the Corporation against any Liability
asserted against or incurred by such individual in his or her capacity as such
or arising from his or her status as such, regardless of whether the Corporation
is required or permitted to indemnify against any such Liability under this
Article.
Section 1.08. Notice to the Corporation. A Director, Officer or
employee shall promptly notify the Corporation in writing when he or she has
actual knowledge of a Proceeding which may result in a claim or indemnification
against Liabilities or allowance of Expenses hereunder, but the failure to do so
shall not relieve the Corporation of any liability to the Director, Officer or
employee hereunder unless the Corporation shall have been irreparably prejudiced
by such failure (as determined by an Authority).
Section 1.09. Report to Shareholders. In the event that the Corporation
indemnifies or advances expenses to a Director or Officer in connection with a
proceeding brought in the right of the Corporation, the Corporation shall report
the indemnification or advance in writing to shareholders with or before the
notice of the next meeting of shareholders. The report shall be delivered to
shareholders who are entitled to receive notice of the next meeting of
shareholders.
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Section 1.10. Severability. If any provision of this Article shall be
deemed invalid or inoperative, or if a court of competent jurisdiction
determines that any of the provisions of this Article contravene public policy,
this Article shall be construed so that the remaining provisions shall not be
affected, but shall remain in full force and effect, and any such provisions
which are invalid or inoperative or which contravene public policy shall be
deemed, without further action or deed by or on behalf of the Corporation, to be
modified, amended and/or limited, but only to the extent necessary to render the
same valid and enforceable.
Section 1.11. Nonexclusivity of this Article. The rights of a Director,
Officer or employee (or any other person) granted under this Article shall not
be deemed exclusive of any other rights to indemnification against Liabilities
or advancement of Expenses which the Director, Officer or employee (or such
other person) may be entitled to under any written agreement, Board resolution,
vote of shareholders of the Corporation or otherwise, including without
limitation under the Statute. Nothing contained in this Article shall be deemed
to limit the Corporation's obligations to indemnify a Director, Officer or
employee under the Statute.
Section 1.12. Contractual Nature of this Article; Repeal or Limitation
of Rights. This Article shall be deemed to be a contract between the Corporation
and each Director, Officer and employee and any repeal or other limitation of
this Article or any repeal or limitation of the Statute or any other applicable
law shall not limit any rights of indemnification against Liabilities or
allowance of Expenses then existing or arising out of events, acts or omissions
occurring prior to such repeal or limitation, including, without limitation, the
right of indemnification against Liabilities or allowance of Expenses for
Proceedings commenced after such repeal or limitation to enforce this Article
with regard to acts, omissions or events arising prior to such repeal or
limitation.
Section 1.13. Subrogation Rights. Notwithstanding any provision to the
contrary set forth herein, the Corporation's obligations hereunder are not
intended to constitute, and shall not constitute, a waiver of any right to
subrogation which the Corporation may have against any person or entity.
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EXHIBIT (13.0)
Portions of Annual Report to Shareholders that are incorporated by reference.
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(Page 1 of Annual Report to Shareholders)
BADGER METER, INC.
F I N A N C I A L H I G H L I G H T S
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998 % CHANGE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS (in thousands)
Net sales $ 150,877 $ 143,813 4.9
Net earnings $ 9,700 $ 8,247 17.6
PER SHARE
Net earnings:
Basic $ 2.78 $ 2.28 21.9
Diluted $ 2.60 $ 2.12 22.6
Cash dividends declared:
Common Stock $ .72 $ .60 20.0
Class B Common Stock $ .32 $ .54
Net book value $ 12.88 $ 13.13 (1.9)
YEAR-END FINANCIAL POSITION (in thousands)
Working capital $ 11,150 $ 10,776 3.5
Current ratio 1.3 to 1 1.3 to 1 0
Long-term debt $ 11,493 $ 2,600 342.0
Shareholders' equity $ 43,009 $ 47,848 (10.1)
Net earnings as a percent of equity 22.6% 17.2% 31.4
OTHER
Number of employees 989 956 3.5
Number of shareholders:
Common Stock:
In employee plans 777 810 (4.1)
Of record 550 576 (4.5)
Class B Common Stock 0 12
Shares outstanding at December 31:
Common Stock 3,339,955 2,538,077 31.6
Class B Common Stock 0 1,107,840
==========================================================================================
</TABLE>
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(Page 17 to 19 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 technologies developed both internally and with other
technology companies. Its products are used to measure and control the flow of
liquids in a variety of applications. The company has five primary worldwide
product lines: residential and commercial/industrial water meters (with various
meter reading technology systems), automotive fluid meters, small precision
valves and industrial process meters (with related accessories and
instrumentation).
Water meters and related systems provide 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), packaging 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 proprietary meter
reading system or systems developed by other technology companies.
RESULTS OF OPERATIONS
SALES
Badger Meter's sales increased $7.1 million and $13.0 million, or 4.9% and
10.0%, in 1999 and 1998, respectively. Sales trends are primarily affected by
new product sales, water meter sales to large municipalities 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.
The sales increase from 1998 to 1999 was primarily attributable to increased
sales of radio-frequency automated meter reading systems and
commercial/industrial water meters. These increases offset three major adverse
factors during 1999: a decrease in sales of industrial meters and valves due to
changing market conditions, a freeze on radio frequency licenses by the Federal
Communications Commission (which was lifted at the end of 1999), and lost sales
due to a September 1999 fire at the facility of one of the company's principal
vendors (which was offset by business interruption insurance proceeds).
Also, both the 1998 and 1997 sales included major product shipments as part of a
large metering contract for the City of Philadelphia, which was completed in
February of 1999. The impact of the conclusion of this project was partially
offset in the second half of 1999 by sales to the City of Houston and increased
international water meter sales.
Badger Meter continues to improve existing products and to develop and acquire
new products. During 1999, the company sold its natural gas instrumentation
product line to focus its product development efforts on the core business of
liquid flow measurement. In 1998, the company completed the acquisition of a
fire service product line. In late 1997, the company acquired a line of
electromagnetic flowmeters and recently purchased the assets of the Czech
Republic company that assembles and tests those meters.
International sales are comprised primarily of sales of automotive fluid meters
and small valves in Europe, sales of water meters and related 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. Most 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 39.2%, 39.9% and 37.3% for 1999, 1998 and 1997,
respectively. In 1999, the company invested in additional capacity, resulting in
a slight decrease in margins from the 1998 level. In 1998, production for
certain product lines neared capacity levels, enabling the company to leverage
its fixed manufacturing costs over the higher volumes.
31
<PAGE> 4
OTHER FACTORS
Selling, engineering and administrative costs decreased 1.0% in 1999 compared to
1998, due primarily to cost improvement efforts and staffing reductions
associated with the sale of the natural gas instrumentation product line. These
costs increased 13.7% in 1998 compared to 1997 due to increased research and
engineering costs primarily related to the development of new products and
improvement of existing products.
Interest expense doubled from 1998 to 1999 as a result of a new $15 million
long-term debt borrowing in August of 1999, which was primarily used to
repurchase the company's stock from various trusts and individual shareholders.
Interest expense was also impacted by an increase in the Employee Savings and
Stock Ownership Plan ("ESSOP") debt in December of 1998, as well as generally
higher interest rates during 1999. The increase in interest expense from 1997 to
1998 was due to higher short-term debt balances primarily related to the funding
of the Milwaukee facility expansion and general working capital needs, partially
offset by lower average interest rates.
Other income and expense (net) improved from an expense of $376,000 in 1998 to
an income of $255,000 in 1999 due to $750,000 of pretax income for business
interruption insurance, which offset lost sales and margins associated with a
fire at the facility of one of the company's principal vendors during 1999.
INCOME TAXES
Income tax as a percentage of earnings before income taxes was 38.1%, 38.3% and
36.1% for 1999, 1998 and 1997, respectively. The decrease from 1998 to 1999 was
due to a favorable settlement of a tax audit. 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.
NET EARNINGS AND EARNINGS PER SHARE
Higher sales and reduced selling, engineering and administrative costs generated
record earnings for 1999. Net earnings increased 17.6% in 1999 and 26.4% in
1998. Diluted earnings per share increased 22.6% in 1999 and 28.5% in 1998. The
higher percentage increase in 1999 earnings per share compared to net earnings
for 1999 was due primarily to the repurchase of stock during the year.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations increased 4.8% from 1998 to 1999 due primarily to
higher earnings. The substantial increase from $5.2 million in 1997 to $14.7
million in 1998 was due to higher earnings with lower growth in working capital
requirements.
Receivables increased 22.5% during 1999, due to significantly higher sales in
the last month of the year and higher international water meter sales in the
last quarter, which have extended payment terms. Inventories decreased 15.2%,
again due to the high sales in the last month of 1999, as well as efforts to
control inventory levels throughout the year.
Capital expenditures totaled $10 million in 1999, down from $17.9 million in
1998 due primarily to the expenditure of $9.8 million in 1998 related to the
Milwaukee facility addition. The 1999 and remaining 1998 expenditures related to
expansion of production capacity to meet higher sales requirements, improvement
of manufacturing processes to achieve higher quality and lower costs, and
improvement of facilities for marketing, engineering and administrative
personnel.
Other significant changes in balance sheet accounts during 1999 include a
reduction in intangible assets of $357,000 due to the sale of the natural gas
instrumentation product line and annual amortization of other intangibles.
Prepaid pension decreased $471,000 as a result of normal pension expense with no
funding payments required in 1999 due to the overfunded status of the plan.
Other assets increased $654,000 due primarily to notes receivable in connection
with the sale of the natural gas instrumentation product line.
Badger Meter has a net deferred tax asset of $2.2 million, reflecting the net
temporary differences between financial reporting and tax reporting. The
majority of this net deferred asset relates to deferred payments to employee
benefit plans and is expected to reverse as future payments exceed expenses. The
decrease in the net deferred tax asset of $717,000 during 1999 relates primarily
to the use of accelerated depreciation methods for tax purposes.
32
<PAGE> 5
As previously discussed, the company borrowed $15 million in long-term debt
during 1999, which was used primarily to acquire treasury stock and reduce
short-term debt. This, along with the increased ESSOP debt, resulted in the
$11.5 million long-term debt balance and the $4.9 million current portion of
long-term debt as of December 31, 1999.
Payables increased $325,000 during 1999 due to increased business activity.
Accrued compensation and employee benefits increased $393,000 due to general
salary and benefit accruals. Other accrued liabilities decreased $670,000 due
primarily to lower accruals for after-sale costs. Current income taxes decreased
$369,000 due to the timing of estimated tax payments. The $445,000 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 $579,000 due primarily to
increased employee deferred compensation.
Reinvested earnings increased during 1999 due to net income, partially offset by
dividend payments. In August of 1999, all outstanding shares of Class B Common
Stock converted into shares of Common Stock on a share-for-share basis. Total
stock and capital in excess of par value both increased during 1999 due to stock
issued in connection with the exercise of stock options and ESSOP transactions.
Treasury stock increased due to shares repurchased during the year.
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.
OTHER MATTERS
The company believes it is in compliance with the various environmental statutes
and regulations to which the company's domestic and international operations are
subject. Currently the company is in the process of resolving issues relative to
two landfill sites. Also, the company is in the process of settling a suit
alleging violation of Proposition 65, California's environmental regulation. 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.
The company addressed all known potential computer software problems and system
issues relating to the advent of the year 2000. To date, no significant problems
have been encountered in connection with the year 2000 issue.
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 foreign loans and
interest rate instruments. 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 most 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, 1999 and 1998, the company's foreign currency net
monetary assets were fully offset by comparable debt, resulting in no exposure.
As of December 31, 1998, the company had only floating-rate debt. During 1999,
the company issued $15 million of long-term fixed-rate debt, payable monthly
over a three-year period. As of December 31, 1999, comparable market rates had
increased, resulting in a market value for this debt of $13,429,000, slightly
less than the $13,482,000 carrying value. Remaining debt at December 31, 1999,
was all floating-rate debt with market values approximating carrying values. For
this debt, 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",
33
<PAGE> 6
"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 developments;
the actions of competitors and alliance partners; 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.
34
<PAGE> 7
(Page 20 of Annual Report to Shareholders)
BADGER METER, INC.
C O N S O L I D A T E D S T A T E M E N T S OF O P E R A T I O N S
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $150,877 $143,813 $130,771
Cost of sales 91,722 86,502 82,034
- -------------------------------------------------------------------------------------------------------
Gross margin 59,155 57,311 48,737
Selling, engineering and administration 42,495 42,941 37,769
- -------------------------------------------------------------------------------------------------------
Operating earnings 16,660 14,370 10,968
Interest expense 1,256 630 455
Other expense (income), net (255) 376 308
- -------------------------------------------------------------------------------------------------------
Earnings before income taxes 15,659 13,364 10,205
Provision for income taxes 5,959 5,117 3,683
- -------------------------------------------------------------------------------------------------------
Net earnings $9,700 $8,247 $6,522
=======================================================================================================
Earnings per share:
Basic $2.78 $2.28 $1.83
Diluted $2.60 $2.12 $1.65
=======================================================================================================
Shares used in computation of:
Basic 3,494 3,624 3,560
Impact of dilutive stock options 234 272 401
- -------------------------------------------------------------------------------------------------------
Diluted 3,728 3,896 3,961
=======================================================================================================
</TABLE>
See accompanying notes.
35
<PAGE> 8
(Page 21 of Annual Report to Shareholders)
BADGER METER, INC.
C O N S O L I D A T E D B A L A N C E S H E E T S
December 31, 1999 and 1998
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,752 $ 2,371
Receivables (Note 3) 24,278 19,814
Inventories:
Finished goods 4,077 5,270
Work in process 8,347 10,089
Raw materials 6,582 7,044
- ----------------------------------------------------------------------------------------------------
Total inventories 19,006 22,403
Prepaid expenses 943 1,064
- ----------------------------------------------------------------------------------------------------
Total current assets 47,979 45,652
Property, plant and equipment:
Land and improvements 2,763 2,965
Buildings and improvements 19,547 18,360
Machinery and equipment 65,423 58,609
- ----------------------------------------------------------------------------------------------------
87,733 79,934
Less accumulated depreciation (45,617) (42,523)
- ----------------------------------------------------------------------------------------------------
Net property, plant and equipment 42,116 37,411
Intangible assets, at cost less accumulated amortization 1,095 1,452
Prepaid pension (Note 7) 5,791 6,262
Deferred income taxes (Note 8) 2,213 2,930
Other assets (Note 7) 3,892 3,238
- ----------------------------------------------------------------------------------------------------
Total assets $103,086 $ 96,945
====================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt (Note 4) $ 11,702 $ 14,287
Current portion of long-term debt (Note 7) 4,887 28
Payables 10,499 10,174
Accrued compensation and employee benefits 5,914 5,521
Other accrued liabilities 3,716 4,386
Income and other taxes 111 480
- ----------------------------------------------------------------------------------------------------
Total current liabilities 36,829 34,876
Accrued non-pension postretirement benefits (Note 7) 7,014 7,459
Other accrued employee benefits (Notes 5 and 7) 4,741 4,162
Long-term debt (Note 7 and 9) 11,493 2,600
Shareholders' equity: (Notes 2, 5 and 7)
Common Stock, $1 par; authorized 5,000,000 shares;
issued 4,531,307 shares in 1999 and 3,391,941 shares in 1998 4,531 3,392
Class B Common Stock, $.10 par; authorized 5,000,000 shares;
issued 1,107,840 shares in 1998 0 111
Capital in excess of par value 13,382 12,732
Reinvested earnings 46,445 39,198
Less: Employee benefit stock (2,600) (2,606)
Treasury stock, at cost, 1,191,352 shares in 1999
and 853,864 shares in 1998 (18,749) (4,979)
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity 43,009 47,848
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $103,086 $ 96,945
====================================================================================================
</TABLE>
See accompanying notes.
36
<PAGE> 9
(Page 22 of Annual Report to Shareholders)
BADGER METER, INC.
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net earnings $9,700 $ 8,247 $ 6,522
Adjustments to reconcile net earnings to net cash
provided by operations:
Depreciation 5,276 4,499 3,725
Amortization 357 176 228
Noncurrent employee benefits 611 1,088 614
Deferred income taxes 717 (666) (1,007)
Changes in:
Receivables (4,464) (621) (3,695)
Inventories 3,397 (805) (4,092)
Current liabilities other than short-term debt (321) 3,137 2,658
Prepaid expenses and other 121 (371) 225
- -------------------------------------------------------------------------------------------------------------------
Total adjustments 5,694 6,437 (1,344)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 15,394 14,684 5,178
- -------------------------------------------------------------------------------------------------------------------
Investing activities:
Property, plant and equipment (9,981) (17,926) (8,349)
Other - net (654) 1,893 (3,616)
- -------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (10,635) (16,033) (11,965)
- -------------------------------------------------------------------------------------------------------------------
Financing activities:
Net increase (decrease) in short-term debt (2,585) 2,842 8,548
Issuance of long-term debt 15,396 0 0
Repayments of long-term debt (1,644) 0 0
Dividends (2,453) (2,106) (1,665)
Stock options and ESSOP 1,719 4,586 1,597
Purchase of treasury stock (13,811) (2,657) (1,761)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (3,378) 2,665 6,719
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 1,381 1,316 (68)
Cash - beginning of year 2,371 1,055 1,123
- -------------------------------------------------------------------------------------------------------------------
Cash - end of year $3,752 $ 2,371 $ 1,055
===================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $5,442 $ 6,466 $ 3,419
Interest (including $208 of interest capitalized
during facility construction in 1998) $1,257 $ 864 $ 441
===================================================================================================================
</TABLE>
See accompanying notes.
37
<PAGE> 10
(Page 23 of Annual Report to Shareholders)
BADGER METER, INC.
C O N S O L I D A T E D S T A T E M E N T S O F S H A R E H O L D E R S'
E Q U I T Y
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Class B Capital in
Common Common excess of Reinvested Employee Treasury
(In thousands except per share amounts) Stock Stock par value earnings benefit stock stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 transactions 150 36 186
Stock options exercised (Note 5) 81 761 842
Tax benefit on stock options and dividends 534 534
ESSOP transactions 4 67 100 171
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 transactions 109 11 120
Stock options exercised (Note 5) 54 564 618
Tax benefit on stock options and dividends 323 323
ESSOP transactions 98 3,437 100 3,635
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
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings 9,700 9,700
Cash dividends, $.72 per Common share (2,104) (2,104)
Cash dividends, $.32 per Class B Common share (349) (349)
Restricted stock transactions 62 6 68
Stock options exercised (Note 5) 51 569 620
Tax benefit on stock options and dividends 258 258
ESSOP transactions 21 758 779
Treasury stock purchased (13,811) (13,811)
Exchange of Class B for Common shares 1,067 (111) (997) 41 0
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $4,531 $ 0 $13,382 $46,445 $(2,600) $(18,749) $43,009
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
38
<PAGE> 11
(Page 24 to 30 of Annual Report to Shareholders)
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 1999, 1998 and 1997
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 in a variety of applications. The company's
products include water meters and associated systems, wastewater meters,
industrial process meters, automotive fluid meters and small valves.
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, 1999 and 1998, was
$593,000 and $2,697,000, respectively.
RESEARCH AND DEVELOPMENT Research and development costs are charged to
expense as incurred and amounted to $5,971,000, $6,105,000, and $4,397,000 in
1999, 1998 and 1997, respectively.
OTHER EXPENSE (INCOME), NET Other income and expense 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. For
1999, other income also includes $750,000 of business interruption insurance
proceeds related to lost sales and margins as a result of a fire at a vendor's
facility during the year.
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.
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 the company in 2001. The company does not believe that SFAS
133 will have a material effect on its results of operations, financial position
or disclosures.
RECLASSIFICATIONS Certain reclassifications have been made to the 1998 and
1997 consolidated financial statements to conform to the 1999 presentation.
39
<PAGE> 12
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 1999, 1998 and 1997
2 COMMON STOCK
During 1999, the holders of Class B Common Stock converted all shares held
into Common Stock, resulting in only one class of stock for the company. The
company also has a Shareholder Rights Plan, which grants certain rights to
existing holders of Common Stock. Subject to certain conditions, the rights are
redeemable by the Board of Directors 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 1999, 1998 and 1997, the company
sold approximately $2,602,000, $996,000, and $1,500,000 of product to Azteca.
Trade receivables from Azteca at December 31, 1999 and 1998, were $1,209,000 and
$486,000, respectively.
4 SHORT-TERM DEBT AND CREDIT LINES
Short-term debt at December 31, 1999 and 1998, consisted of:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ----------------------------------------------------------------------
<S> <C> <C>
Notes payable to banks $ 1,907 $ 1,786
Commercial paper 9,795 12,501
- ----------------------------------------------------------------------
Total $11,702 $14,287
======================================================================
</TABLE>
The company has $37,591,000 of short-term credit lines with domestic and
foreign banks which include a $31,000,000 commercial paper line of credit. At
December 31, 1999, $28,479,000 was unused and available to the company under the
lines. The weighted-average interest rate on the outstanding balance was 6.13%
and 5.46% at December 31, 1999 and 1998.
40
<PAGE> 13
5 STOCK OPTION PLANS
The company has five 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 ten years and maximum option terms of ten
years. As of December 31, 1999, options to purchase approximately 236,680 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, 1999:
<TABLE>
<CAPTION>
Weighted-Average
Number of Shares Exercise Price
<S> <C> <C>
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
Options granted 72,200 $40.25
Options exercised (50,852) $12.34
Options forfeited (7,228) $26.90
- -------------------------------------------------------------------------------------------------
Unexercised options outstanding -
December 31, 1999 508,720 $19.99
=================================================================================================
Price range $8.38 - $12.38
(weighted-average contractual life of
4.1 years) 230,004 $10.37
Price range $14.81 - $24.13
(weighted-average contractual life of
7.2 years) 177,216 $21.66
Price range $35.56 - $40.25
(weighted-average contractual life of
9.2 years) 101,500 $38.88
=================================================================================================
Exercisable options -
December 31, 1997 243,282 $10.35
December 31, 1998 319,040 $12.50
December 31, 1999 383,287 $14.46
=================================================================================================
</TABLE>
41
<PAGE> 14
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 1999, 1998 and 1997
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 for options issued in
each year:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.6% 5.7% 6.5%
Dividend yield 3% 1% 1%
Volatility factor 38% 34% 23%
Weighted-average expected life 5.0 years 5.0 years 8.2 years
- ----------------------------------------------------------------------------------------------
</TABLE>
The weighted-average fair values of options granted in 1999, 1998 and 1997
were $12.84, $12.89 and $8.92 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 approximately $306,000 or $.09 per share for 1999, $336,000 or $.09
per share for 1998, and $299,000 or $.08 per share for 1997. These pro-forma
calculations only include the effects of options granted since January 1, 1995.
As such, the impacts are not necessarily indicative of the effects on reported
net income of future years.
6 COMMITMENTS AND CONTINGENCIES
A. COMMITMENTS
The company leases equipment and facilities under operating leases, some
of which contain renewal options and certain computer equipment under capital
lease. Future minimum lease payments consisted of the following at December 31,
1999:
<TABLE>
<CAPTION>
Operating Capital Total
(In thousands) Leases Lease Leases
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $ 751 $ 135 $ 886
2001 490 135 625
2002 188 33 221
2003 161 0 161
2004 and thereafter 0 0 0
-----------------------------------------------------------------------------------------------
Total minimum lease payments 1,590 303 1,893
Less: amount representing interest 0 (5) (5)
------------------------------------------------------------------------------------------------
Present value of net minimum lease payments 1,590 298 1,888
Less: current portion 0 (132) (132)
------------------------------------------------------------------------------------------------
Lease obligations $1,590 $ 166 $1,756
================================================================================================
</TABLE>
Total rental expense charged to operations under all operating leases was
approximately $1,510,000, $1,561,000, and $1,447,000 in 1999, 1998 and 1997,
respectively.
42
<PAGE> 15
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 1999, 1998 and 1997
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 issues
relative to two landfill sites. Also, the company is in the process of settling
a suit alleging violation of Proposition 65, California's environmental
regulation. 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.
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.
43
<PAGE> 16
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 1999, 1998 and 1997
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, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 1,793 $ 1,734 $ 1,616
Interest cost on projected benefit obligations 2,648 2,659 2,415
Expected return on plan assets (3,617) (3,532) (3,324)
Net amortization and deferral (353) (373) (356)
- -------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 471 $ 488 $ 351
===================================================================================================================
</TABLE>
The following table provides a reconciliation of benefit obligations, plan
assets and funded status:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $37,833 $34,653
Service cost 1,793 1,734
Interest cost 2,648 2,659
Actuarial (gain) loss (1,167) 1,506
Benefits paid (3,558) (2,719)
- --------------------------------------------------------------------------------------------------
Projected benefit obligation
as of September 30 $37,549 $37,833
- -------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets as of
beginning of year $40,979 $42,168
Actual return on plan assets 3,655 1,530
Company contributions 0 0
Benefits paid (3,558) (2,719)
- --------------------------------------------------------------------------------------------------
Fair value of plan assets as of
September 30 $41,076 $40,979
- -------------------------------------------------------------------------------------------------
Reconciliation:
Funded status as of September 30 $ 3,527 $ 3,146
Unrecognized net transition asset (423) (847)
Unrecognized prior service cost (2,349) (2,511)
Unrecognized net actuarial loss 5,036 6,474
- -------------------------------------------------------------------------------------------------
Prepaid pension asset
as of September 30 and December 31 $ 5,791 $ 6,262
=================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Actuarial assumptions used in the preparation of the above data:
1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.5% 7.0%
Expected return on plan assets 9.0% 9.0%
Rate of compensation increase 5.0% 5.0%
=================================================================================================
</TABLE>
44
<PAGE> 17
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 1999, 1998 and 1997
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, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost, benefits attributed for service
of active employees for the period $105 $100 $111
Interest cost on the accumulated
postretirement benefit obligation 456 501 515
Unrecognized prior service credit (236) (236) (236)
Unrecognized net loss 53 57 54
- -------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $378 $422 $444
===================================================================================================================
</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) 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $6,833 $7,035
Service cost 105 100
Interest cost 456 501
Actuarial (gain) loss 260 (33)
Benefits paid (770) (770)
- -------------------------------------------------------------------------------------------------
Projected benefit obligation and
unfunded status as of December 31 6,884 6,833
Unrecognized prior service credit 1,826 2,062
Unrecognized net actuarial loss (1,745) (1,436)
- -------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost
as of December 31 $6,965 $7,459
=================================================================================================
</TABLE>
The discount rate used to measure the accumulated postretirement benefit
obligation was 7.5% for 1999 and 7.0% for 1998. 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.
45
<PAGE> 18
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 1999, 1998 and 1997
C. BADGER METER EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
The Badger Meter Employee Savings and Stock Ownership Plan (the ESSOP) has
used proceeds from loans, guaranteed by the company, 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. The principal amount of the loan was $2,600,000 as of December 31,
1999 and 1998. This principal amount 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.
The company made no principal payments in 1999 but paid $200,000 in 1998
and $100,000 in 1997. These payments released shares of Common Stock (22,856 in
1998 and 11,428 shares in 1997) for allocation to participants in the ESSOP. The
ESSOP held unreleased shares of 126,435, 126,435 and 85,808 as of December 31,
1999, 1998 and 1997, respectively.
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% of the employee's salary. The match is paid using company
stock released through the ESSOP loan payments. Compensation expense of
$274,000, $200,000 and $132,000 was recognized for the match for 1999, 1998 and
1997, respectively.
46
<PAGE> 19
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 1999, 1998 and 1997
8 INCOME TAX EXPENSE
Details of earnings before income taxes and the related provision for
income taxes are as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings before income taxes:
Domestic $15,126 $13,107 $ 9,953
Foreign 533 257 252
- ----------------------------------------------------------------------------------------------------------
Total $15,659 $13,364 $10,205
==========================================================================================================
Income taxes:
Current:
Federal $ 3,837 $ 4,180 $ 3,301
State 923 878 672
Foreign 148 167 56
Deferred:
Federal 787 (60) (344)
State 163 (18) (61)
Foreign 101 (30) 59
- ----------------------------------------------------------------------------------------------------------
Total $ 5,959 $ 5,117 $ 3,683
==========================================================================================================
</TABLE>
The components of the net deferred tax asset as of December 31, were as
follows (in thousands):
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS: 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Receivables $177 $166
Inventories 336 394
Accrued compensation 787 752
Other payables 2,242 2,079
Non-pension postretirement benefits 2,730 2,885
Accrued employee benefits 1,919 1,732
- ----------------------------------------------------------------------------------------
Total deferred tax assets 8,191 8,008
DEFERRED TAX LIABILITIES:
Depreciation 3,099 2,331
Prepaid pension 2,254 2,422
Other 625 325
- ----------------------------------------------------------------------------------------
Total deferred tax liabilities 5,978 5,078
- ----------------------------------------------------------------------------------------
Net deferred tax asset included in balance sheet $2,213 $2,930
========================================================================================
</TABLE>
47
<PAGE> 20
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 1999, 1998 and 1997
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) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision at statutory rate $5,355 $4,544 $3,470
State income taxes, net
of federal tax benefit 715 568 403
Foreign income taxes 67 50 30
Tax benefit of FSC (32) (78) (190)
Other (146) 33 (30)
- ----------------------------------------------------------------------------------------------------------
Actual provision $5,959 $5,117 $3,683
==========================================================================================================
</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, 1999, were $545,000.
9 LONG-TERM DEBT AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ESSOP debt (Note 7C) $ 2,600 $2,600
Capital Lease (Note 6A) 298 28
Bank note 13,482 0
- -------------------------------------------------------------------------------------------------
Total debt 16,380 2,628
Less: current maturities 4,887 28
- -------------------------------------------------------------------------------------------------
Net long-term debt $11,493 $2,600
=================================================================================================
</TABLE>
Interest on the ESSOP debt may be charged at either Prime Rate or at LIBOR
plus 1.5%. As of December 31, 1999, the LIBOR-based loan had an interest rate of
7.6%. The terms of the loan allow variable payments of principal with the final
principal and interest payment due December 31, 2005. The interest expense on
the ESSOP debt was $121,000, $5,000 and $19,000 which was net of dividends on
unallocated ESSOP shares of $51,000, $45,000 and $47,000 for 1999, 1998 and
1997, respectively.
In August of 1999, the company borrowed $15,000,000 of long-term,
unsecured debt from a local bank. The debt bears interest at 7.15% and is due in
monthly installments through August, 2002. Principal payments total $4,756,000
for 2000, $5,115,000 for 2001 and $3,610,000 for 2002.
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 related to the company's guarantee of the ESSOP debt is offset by a similar
amount in shareholders' equity. The estimated fair value of the company's
$13,482,000 long-term bank note was $13,429,000 at December 31, 1999, based on
quoted market rates.
48
<PAGE> 21
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 1999, 1998 and 1997
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) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
United States $132,924 $127,371 $105,811
Foreign $ 17,953 $ 16,442 $ 24,960
Long-Lived Assets:
United States $ 51,503 $ 46,899 $ 36,420
Foreign $ 1,390 $ 1,464 $ 1,074
==========================================================================================================
</TABLE>
49
<PAGE> 22
BADGER METER, INC.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 1999, 1998 and 1997
11 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED), COMMON STOCK PRICE AND DIVIDENDS
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1999
Net sales $38,397 $38,512 $37,551 $36,417
Gross margin $14,774 $15,470 $14,891 $14,020
Net earnings $ 2,151 $ 2,834 $ 2,420 $ 2,295
Earnings per share:
Basic $ .58 $ .77 $ .70 $ .70
Diluted $ .55 $ .73 $ .65 $ .65
Dividends declared:
Common $ .18 $ .18 $ .18 $ .18
Class B $ .16 $ .16 $ 0 $ 0
Stock price:
High $ 37.63 $ 37.25 $ 41.00 $ 39.50
Low $ 30.63 $ 29.50 $ 34.25 $ 29.38
Quarter-end close $ 30.69 $ 34.75 $ 34.25 $ 30.13
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Badger Meter, Inc. Common Stock is listed on the American Stock Exchange
under the symbol BMI. 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,
1999 and 1998, totaled 550 and 576 for Common Stock and 0 and 12 for Class B
Stock, respectively. Voting trusts are counted as single shareholders for this
purpose.
50
<PAGE> 23
BADGER METER, INC.
R E P O R T O F I N D E P E N D E N T A U D I T O R S
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, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Milwaukee, Wisconsin
January 31, 2000.
51
<PAGE> 24
(Page 31 of Annual Report to Shareholders)
BADGER METER, INC.
T E N Y E A R S U M M A R Y O F S E L E C T E D D A T A
Years ended December 31 (in thousands except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $150,877 143,813 130,771 116,018 108,644 99,155 84,497 82,106 78,417 77,100
Research and development $ 5,971 6,105 4,397 3,851 3,858 3,278 3,642 4,119 4,046 3,863
Earnings before income taxes $ 15,659 13,364 10,205 8,167 5,911 4,974 3,306 1,160 2,419 3,507
Earnings before changes in
accounting $ 9,700 8,247 6,522 5,127 3,719 3,216 2,164 802 1,648 2,332
Cumulative effect of changes
in accounting $ 0 0 0 0 0 0 0 (4,684) 0 0
Net earnings (loss) $ 9,700 8,247 6,522 5,127 3,719 3,216 2,164 (3,882) 1,648 2,332
Earnings to sales * 6.4% 5.7% 5.0% 4.4% 3.4% 3.2% 2.6% 1.0% 2.1% 3.0%
- -----------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Basic earnings before changes in
accounting $ 2.78 2.28 1.83 1.46 1.06 .93 .64 .24 .49 .73
Cumulative effect of changes
in accounting $ 0 0 0 0 0 0 0 (1.38) 0 0
Basic earnings (loss) $ 2.78 2.28 1.83 1.46 1.06 .93 .64 (1.14) .49 .73
Cash dividends declared:
Common Stock $ .72 .60 .48 .43 .39 .35 .32 .30 .30 .30
Class B Common Stock $ .32 .54 .44 .39 .36 .32 .29 .28 .28 .28
Price range - high $ 41.00 40.63 57.50 20.81 13.50 14.00 11.00 8.88 9.00 9.94
Price range - low $ 29.38 25.00 18.13 12.38 11.06 9.50 8.88 7.38 6.81 6.50
Closing price $ 30.13 35.63 40.75 19.19 13.25 11.94 9.56 8.75 7.69 6.94
Book value $ 12.88 13.13 11.62 10.32 9.16 8.38 7.66 7.31 8.61 8.29
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
Common Stock 3,340 2,538 2,444 2,426 2,387 2,377 2,281 2,282 2,280 2,274
Class B Common Stock 0 1,108 1,126 1,126 1,126 1,126 1,126 1,126 1,126 1,126
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 11,150 10,776 13,870 17,645 16,178 14,569 12,010 9,876 9,842 18,365
Current ratio 1.3 to 1 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
Net cash provided by
operations $ 15,394 14,684 5,178 9,878 12,026 6,342 2,969 3,833 5,410 5,132
Capital expenditures $ 9,981 17,926 8,349 5,382 4,493 3,553 3,121 3,496 3,335 4,901
Total assets $103,086 96,945 82,297 66,133 60,527 61,993 57,627 53,895 51,199 50,670
Long-term debt $ 11,493 2,600 928 1,091 1,000 1,200 1,400 1,700 1,900 10,400
Shareholders' equity $ 43,009 47,848 41,467 36,638 32,163 29,351 26,074 24,894 29,303 28,168
Debt to total capitalization 39.5% 26.1% 22.7% 9.2% 16.8% 28.4% 34.9% 34.2% 28.7% 30.5%
Return on shareholders' equity * 22.6% 17.2% 15.7% 14.0% 11.6% 11.0% 8.3% 3.2% 5.6% 8.3%
Price/earnings ratio * 10.8% 15.6% 22.3 13.1 12.5 12.8 15.1 37.2 15.9 9.6
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* PRIOR TO ACCOUNTING CHANGES
52
<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 Meter Canada 100% Canada
Badger Meter Czech Republic 100% Czech Republic
(a subsidiary of Badger Meter Europe, GmbH)
</TABLE>
53
<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 31, 2000, included in the
1999 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 31, 2000, with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedule included in
this Annual Report (Form 10-K) of Badger Meter, Inc.
Ernst & Young LLP
Milwaukee, Wisconsin
March 28, 2000.
54
<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, 1999 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> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,752
<SECURITIES> 0
<RECEIVABLES> 24,278
<ALLOWANCES> 0
<INVENTORY> 19,006
<CURRENT-ASSETS> 47,979
<PP&E> 87,733
<DEPRECIATION> (45,617)
<TOTAL-ASSETS> 103,086
<CURRENT-LIABILITIES> 36,829
<BONDS> 0
0
0
<COMMON> 4,531
<OTHER-SE> 38,478
<TOTAL-LIABILITY-AND-EQUITY> 103,086
<SALES> 150,877
<TOTAL-REVENUES> 150,877
<CGS> 91,722
<TOTAL-COSTS> 134,217
<OTHER-EXPENSES> (255)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,256
<INCOME-PRETAX> 15,659
<INCOME-TAX> 5,959
<INCOME-CONTINUING> 9,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,700
<EPS-BASIC> 2.78
<EPS-DILUTED> 2.60
</TABLE>
