<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-6706
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BADGER METER, INC.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0143280
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4545 West Brown Deer Road, Milwaukee, Wisconsin 53223
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 355-0400
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None
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(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 14, 2000
----------------------------- ----------------------------
Common Stock, $1.00 par value 3,369,716
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BADGER METER, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. Financial Information:
Item 1 Financial Statements:
Consolidated Condensed Balance Sheets - -
June 30, 2000 and December 31, 1999 3
Consolidated Condensed Statements of Operations - -
Three and Six Months Ended June 30, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows - -
Six Months Ended June 30, 2000 and 1999 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information:
Item 4 Submission of Matters to a Vote of Security Holders 9
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters 9
Item 6(a) Exhibits 10
Item 6(b) Reports on Form 8-K 10
Exhibit Index 12
</TABLE>
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Part I - Financial Information
BADGER METER, INC.
Item 1 Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets June 30, December 31,
------ 2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 1,286 $ 3,752
Receivables 25,912 24,278
Inventories:
Finished goods 5,055 4,077
Work in process 9,495 8,347
Raw materials and purchased parts 10,256 6,582
----------- -----------
Total inventories 24,806 19,006
Prepaid expenses 1,129 943
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Total current assets 53,133 47,979
Property, plant and equipment, at cost 90,286 87,733
Less accumulated depreciation (47,770) (45,617)
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42,516 42,116
Intangible assets, at cost less accumulated amortization 1,028 1,095
Prepaid pension 5,505 5,791
Deferred income taxes 2,241 2,213
Other assets 4,064 3,892
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Total assets $ 108,487 $ 103,086
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term debt $ 18,381 $ 11,702
Current portion of long-term debt 5,065 4,887
Payables 10,056 10,499
Accrued compensation and employee benefits 3,721 5,914
Other accrued liabilities 3,783 3,716
Income and other taxes 1,629 111
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Total current liabilities 42,635 36,829
Accrued non-pension postretirement benefits 6,712 7,014
Other accrued employee benefits 4,885 4,741
Long-term debt 8,624 11,493
Shareholders' equity:
Common Stock 4,591 4,531
Capital in excess of par value 14,139 13,382
Reinvested earnings 48,909 46,445
Less: Employee benefit stock (2,300) (2,600)
Treasury stock, at cost (19,708) (18,749)
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Total shareholders' equity 45,631 43,009
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Total liabilities and shareholders' equity $ 108,487 $ 103,086
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
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BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
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<S> <C> <C> <C> <C>
2000 1999 2000 1999
---- ---- ---- ----
Net sales $ 35,845 $ 38,512 $ 72,752 $ 76,909
Cost of sales 23,851 23,042 46,469 46,665
----------- ----------- ----------- -----------
Gross margin 11,994 15,470 26,283 30,244
Selling, engineering and
administration 10,523 10,530 21,224 21,407
----------- ----------- ----------- -----------
Operating earnings 1,471 4,940 5,059 8,837
Interest expense 565 228 1,080 488
Other expense (income), net (1,530) 105 (2,246) 244
------------ ----------- ----------- -----------
Earnings before income taxes 2,436 4,607 6,225 8,105
Provision for income taxes 902 1,773 2,334 3,120
----------- ----------- ----------- -----------
Net earnings $ 1,534 $ 2,834 $ 3,891 $ 4,985
=========== =========== =========== ===========
Per share amounts: *
Earnings per share:
Basic $ .46 $ .77 $ 1.17 $ 1.35
=========== =========== =========== ===========
Diluted $ .44 $ .73 $ 1.11 $ 1.27
=========== =========== =========== ===========
Dividends declared -
Common Stock $ .22 $ .18 $ .43 $ .36
=========== =========== =========== ===========
Dividends declared -
Class B Common Stock $ .00 $ .16 $ .00 $ .32
=========== =========== =========== ===========
Shares used in computation of:
Basic 3,323,458 3,663,794 3,316,988 3,684,441
Impact of dilutive stock
options 179,942 237,881 186,472 238,234
----------- ----------- ----------- -----------
Diluted 3,503,400 3,901,675 3,503,460 3,922,675
=========== =========== =========== ===========
</TABLE>
* Earnings per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share does not
necessarily equal the total for the year. All of the outstanding Class B Common
Stock was converted to Common Stock on August 17, 1999.
See accompanying notes to consolidated condensed financial statements.
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BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
2000 1999
---- ----
<S> <C> <C>
Operating activities:
Net earnings $ 3,891 $ 4,985
Adjustments to reconcile net
earnings to net cash provided
by (used for) operations:
Depreciation 3,008 3,044
Amortization 67 98
Noncurrent employee benefits 428 204
Changes in:
Receivables (1,634) (1,158)
Inventory (5,800) 1,151
Current liabilities other than debt (1,051) 457
Prepaid expenses and other (214) 23
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Total adjustments (5,196) 3,819
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Net cash provided by (used for) operations (1,305) 8,804
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Investing activities:
Property, plant and equipment (3,408) (6,102)
Other - net (172) (381)
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Net cash provided by (used for) investing activities (3,580) (6,483)
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Financing activities:
Net increase (decrease) in short-term debt 6,679 (2,413)
Issuance of long-term debt 0 244
Repayments of long-term debt (2,691) 0
Dividends (1,427) (1,238)
Stock options and ESSOP 817 642
Treasury stock transactions (959) (1,215)
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Net cash provided by (used for)
financing activities 2,419 (3,980)
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Increase (decrease) in cash (2,466) (1,659)
Beginning of year 3,752 2,371
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End of period $ 1,286 $ 712
============ ============
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Income taxes $ 697 $ 1,974
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Interest $ 1,144 $ 517
=========== ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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BADGER METER, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements of Badger Meter, Inc. (the "Company")
contain all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the consolidated condensed financial position
at June 30, 2000 and the results of operations for the three and six-month
periods ended June 30, 2000 and 1999 and the cash flows for the six-month
periods ended June 30, 2000 and 1999. The results of operations for any
interim period are not necessarily indicative of the results to be expected
for the full year. Certain reclassifications have been made to the 1999
data to conform to the 2000 presentation.
2. The consolidated condensed balance sheet at December 31, 1999, was derived
from amounts included in the Annual Report to Shareholders, which was
incorporated by reference in the Company's annual report on Form 10-K for
the year ended December 31, 1999. Refer to the footnotes in those reports
for a description of the accounting policies, which have been continued
without change, and additional details of the Company's financial
condition. The details in those notes have not changed except as discussed
below and as a result of normal transactions in the interim.
3. Other expense (income), net includes foreign currency gains and losses,
which are recognized as incurred. The Company's functional currency for all
of its foreign subsidiaries is the U.S. dollar. Other income for the second
quarter of 2000 also includes $1,480,000 of business interruption insurance
proceeds related to lost sales and margins as a result of a fire at a
vendor's facility during 1999. When combined with the $750,000 of insurance
proceeds recorded in the fourth quarter of 1999 and the $750,000 recorded
in the first quarter of 2000, the total insurance proceeds related to the
fire were $2,980,000.
4. In the ordinary course of business, the Company enters into various
material purchase agreements with its vendors, some of which contain
minimum purchase quantity commitments extending beyond one year. Future
purchase commitments are not expected to exceed normal usage requirements
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Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
Receivables as of June 30, 2000 increased 6.7%, or $1,634,000, from the December
31, 1999 balance primarily due to extended terms offered to certain customers in
Mexico and high sales in the last month of the quarter. Inventories increased
30.5% as the company increased stocking levels of certain long-lead electronic
items. Property, plant and equipment (at cost) increased $2,553,000 due to
normal equipment purchases of $3,408,000 during the quarter, offset by
retirements. Prepaid expenses increased $186,000 due to timing of annual
payments such as insurance premiums. Prepaid pension decreased $286,000 since
December 31, 1999, due to the recording of normal pension expense with no
funding payments required due to the overfunded status of the plan.
Since December 31, 1999, short-term debt increased $6,679,000 to fund increased
working capital, fixed asset additions and repayment of long-term debt. Accrued
compensation and employee benefits decreased $2,193,000 due primarily to payment
of 1999 incentives during the first quarter of 2000. Income and other taxes
payable increased $1,518,000 due to the timing of estimated tax payments.
Changes in accrued non-pension postretirement benefits and other accrued
employee benefits since December 31, 1999, were primarily due to the timing of
benefit payments. Long-term debt and the current maturities of long-term debt
decreased $2,691,000 due to regular monthly debt repayments.
Since December 31, 1999, common stock and capital in excess of par value both
increased due to new shares issued in connection with stock options exercised
and ESSOP purchases. Treasury stock increased due to shares repurchased during
the period.
As of June 30, 2000, the Company had approximately $52,389,000 of credit
facilities with domestic and foreign banks of which $31,772,000 was in use. This
compares to $11,902,000 in use at June 30, 1999 and $28,082,000 at December 31,
1999. The Company believes that the present lines of credit are adequate to meet
operating requirements and future capital needs.
Results of Operations
Net sales for the second quarter of 2000 of $35,845,000 reflect a 6.9% decrease
from the second quarter of 1999. For the six-month period ended June 30, 2000,
sales of $72,752,000 represented a 5.4% decrease from the first six months of
1999. These decreases were primarily due to lower sales of certain utility
products due to several factors. A September 1999 fire at the facility of one of
the company's principal vendors continued to negatively impact sales in the
first half of 2000, although the impact of those lost sales on net income was
offset by business interruption insurance proceeds. The six-month Federal
Communications Commission freeze, which ended in December 1999, continued to
have an impact on sales of certain automatic meter reading products due to the
disruption of the sales cycle. In addition, a major automated meter reading
systems alliance partner filed bankruptcy during the first quarter of 2000,
which continues to create confusion in the market place and impact sales
opportunities for products that were under development with that partner.
Competitive market pressures and the stronger dollar had a negative impact on
sales of certain industrial products, particularly in Europe. Increased sales of
water meters to commercial/industrial and submetering customers only partially
offset these negative factors.
Also, a one-time manufacturing problem resulted in increased scrap levels and
reduced margins during the second quarter of 2000. This problem was identified
by the company and corrected during the quarter, but certain deliveries of
product were delayed while the problem was being addressed.
Gross margins decreased from 40.2% in the second quarter of 1999 to 33.5% in the
second quarter of 2000 due to the previously mentioned manufacturing problem and
due to a higher mix of international sales of water meters with lower margins
than domestic meters. The six-month margins for 2000 were 36.1%, down from 39.3%
for the first six months of 1999 due to these same factors.
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Selling, engineering and administrative costs were relatively flat for the
second quarter of 2000 compared to the same quarter in 1999, and decreased 0.9%
for the six-month period, due to lower incentive accruals and cost controls
offsetting personnel and expense increases. Interest expense increased between
the periods due to higher interest rates and higher debt balances, including new
long-term debt associated with an August 1999 stock repurchase.
Other expense (income), net, for the second quarter of 2000 included $1,480,000
of business interruption insurance proceeds related to lost sales and margins as
a result of a fire at a vendor's facility in 1999. When combined with the
$750,000 of insurance proceeds recorded in the fourth quarter of 1999 and the
$750,000 recorded in the first quarter of 2000, the total insurance proceeds
related to the fire were $2,980,000.
The effective tax rate for the first quarter of 2000 was 37.0%, down from 38.5%
in 1999 due primarily to the favorable settlement of a tax audit in late 1999
and certain foreign tax credits.
Earnings for the second quarter of 2000 were $1,534,000, a decrease of 45.9%
over second quarter 1999 earnings of $2,834,000. Earnings for the six-month
periods decrease 21.9%. These decreases were primarily due to the decreases in
sales and margins.
Other Matters
During the quarter, the Company settled a suit alleging violation of Proposition
65, California's environmental regulation. All settlement costs had been
previously accrued and the settlement did not have a material impact on the
Company's financial position or results of operations.
The Company is subject to contingencies relative to environmental laws and
regulations. Currently, the Company is in the process of resolving issues
relative to two landfill sites. The Company does not believe the ultimate
resolution of these claims will have a material adverse effect on the Company's
financial position or results of operations. Provision has been made for all
known settlement costs. No other risks or uncertainties were identified that
could have a material impact on operations and no long-lived assets have become
permanently impaired in value.
Forward Looking Statements
Certain statements in this report, as well as other information provided from
time to time by the Company or its employees, may contain forward looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from those in the forward looking statements. The words
"anticipate," "believe," "estimate," "expect," "think," "should" and "objective"
or similar expressions are intended to identify forward looking statements. The
forward looking statements are based on the Company's current views and
assumptions and involve risks and uncertainties that include, among other
things: the success or failure of new product offerings; the actions and
financial condition of competitors and alliance partners; changes in domestic
conditions, including housing starts; changes in foreign economic conditions,
including currency fluctuations; changes in laws and regulations; changes in
customer demand and fluctuations in the prices of and availability of purchased
raw materials and parts. Some or all of these factors are beyond the Company's
control. Shareholders, potential investors and other readers are urged to
consider these factors carefully in evaluating the forward looking statements
and are cautioned not to place undue reliance on such forward looking
statements. The forward looking statements made herein are made only as of the
date of this document and the Company undertakes no obligation to publicly
update such forward looking statements to reflect subsequent events or
circumstances.
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<PAGE> 9
Part II - Other Information
Item 4 Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held April 14, 2000.
(b) 1. The following table represents the aggregate votes related to the
election of directors:
<TABLE>
<CAPTION>
Votes Votes
NAME FOR WITHHELD Not Voted
---- --- -------- ---------
<S> <C> <C> <C>
DIRECTORS ELECTED TO THREE-YEAR
TERMS EXPIRING AT 2003 ANNUAL MEETING
Ulice Payne, Jr. 2,684,241 6,752 664,883
Andrew J. Policano 2,688,426 2,567 664,883
Steven J. Smith 2,686,051 4,942 664,883
</TABLE>
2. DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING AT THE 2001
ANNUAL MEETING
Robert D. Belan
Kenneth P. Manning
Donald J. Schuenke
Pamela B. Strobel
3. DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING AT THE 2002
ANNUAL MEETING
James L. Forbes
Charles F. James, Jr.
John J. Stollenwerk
James O. Wright, Jr.
(c) Not applicable.
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
A shareholder wishing to include a proposal pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934, as amended ("Rule 14a-8"), in the proxy
statement for the 2001 Annual Meeting of Shareholders must forward the proposal
to the company by November 16, 2000. In addition, a shareholder who otherwise
intends to present business at the 2001 Annual Meeting (including nominating
persons for election as directors) must comply with the requirements set forth
in the Company's Restated By-laws. Among other things, to bring business before
an annual meeting, a shareholder must give written notice thereof, complying
with the Restated By-laws, to the Secretary of the Company not less than 60 days
and not more than 90 days prior to the second Saturday in the month of April
(subject to certain exceptions if the annual meeting is advanced or delayed a
certain number of days). Accordingly, if the Company does not receive notice of
a shareholder proposal submitted otherwise than pursuant to Rule 14a-8 prior to
February 12, 2001, then the notice will be considered untimely and the Company
will not be required to present such proposal at the 2001 Annual Meeting. If the
Board of Directors chooses to present such proposal at the 2001 Annual Meeting,
then the persons named in the proxy solicited by the Board of Directors for the
2001 Annual Meeting may exercise discretionary voting power with respect to such
proposal.
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<PAGE> 10
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
(27.0) Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended June
30, 2000.
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<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BADGER METER, INC.
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Dated: July 20, 2000 By /S/ Richard A. Meeusen
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Richard A. Meeusen
Vice President - Finance and Treasurer
Chief Financial Officer
By /S/ Beverly L.P. Smiley
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Beverly L.P. Smiley
Vice President - Controller
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EXHIBIT INDEX
Page Number
(27.0) Financial Data Schedule
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