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, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
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 August 5 , 2002
- ----------------------------- ------------------------------
Common Stock, $1.00 par value 3,193,068
BADGER METER, INC.
INDEX
Page No.
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Part I. Financial Information:
Item 1 Financial Statements:
Consolidated Condensed Balance Sheets - -
June 30, 2002 and December 31, 2001 3
Consolidated Condensed Statements of Operations - -
Three and Six Months Ended June 30, 2002 and 2001 4
Consolidated Condensed Statements of Cash Flows - -
Six Months Ended June 30, 2002 and 2001 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures about Market Risk 10
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 11
Part II. Other Information:
Item 6(a) Exhibits 12
Item 6(b) Reports on Form 8-K 12
Exhibit Index 14
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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,
2002 2001
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(Unaudited)
Current assets:
Cash and cash equivalents $ 2,924 $ 3,410
Receivables 27,742 18,700
Inventories:
Finished goods 9,134 5,260
Work in process 6,422 8,190
Raw materials 9,057 8,037
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Total inventories 24,613 21,487
Prepaid expenses 968 767
Deferred income tax 2,457 2,588
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Total current assets 58,704 46,952
Property, plant and equipment, at cost 96,656 91,443
Less accumulated depreciation (52,396) (50,319)
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Net property, plant and equipment 44,260 41,124
Intangible assets, at cost less accumulated amortization 1,153 227
Prepaid pension 8,364 8,965
Other assets 3,566 3,561
Goodwill 5,143 546
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Total assets $ 121,190 $ 101,375
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $ 8,209 $ 5,129
Current portion of long-term debt 4,996 3,135
Payables 15,737 8,887
Accrued compensation and employee benefits 5,152 2,992
Other accrued liabilities 3,550 3,453
Income and other taxes 2,179 186
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Total current liabilities 39,823 23,782
Deferred income tax 2,539 2,539
Accrued non-pension postretirement benefits 5,733 6,093
Other accrued employee benefits 5,363 5,461
Long-term debt 21,996 20,498
Shareholders' equity:
Common Stock 4,727 4,677
Capital in excess of par value 17,103 16,168
Reinvested earnings 53,084 50,736
Less: Employee benefit stock (1,535) (1,900)
Treasury stock, at cost (27,643) (26,679)
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Total shareholders' equity 45,736 43,002
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Total liabilities and shareholders' equity $ 121,190 $ 101,375
=========== ===========
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 and Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
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2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 43,586 $ 33,949 $ 81,040 $ 69,403
Cost of sales 28,768 23,007 53,462 46,434
----------- ----------- ----------- -----------
Gross margin 14,818 10,942 27,578 22,969
Selling, engineering and
administration 10,838 9,890 20,782 20,096
----------- ----------- ----------- -----------
Operating earnings 3,980 1,052 6,796 2,873
Interest expense 468 394 840 850
Other expense (income), net (57) (171) (88) (221)
----------- ------------ ----------- ------------
Earnings before income taxes 3,569 829 6,044 2,244
Provision for income taxes 1,249 300 2,117 781
----------- ----------- ----------- -----------
Net earnings $ 2,320 $ 529 $ 3,927 $ 1,463
=========== =========== =========== ===========
Per share amounts: *
Earnings per share:
Basic $ .73 $ .17 $ 1.24 $ .46
=========== =========== =========== ===========
Diluted $ .70 $ .16 $ 1.20 $ .44
=========== =========== =========== ===========
Dividends declared: $ .25 $ .25 $ .50 $ .50
=========== =========== =========== ===========
Shares used in computation of:
Basic 3,156,771 3,170,236 3,155,734 3,171,144
Impact of dilutive stock
options 143,564 139,101 128,466 128,180
----------- ----------- ----------- -----------
Diluted 3,300,335 3,309,337 3,284,200 3,299,324
=========== =========== =========== ===========
*Earnings per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share does not
necessarily equal the total for the year.
See accompanying notes to consolidated condensed financial statements.
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BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
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2002 2001
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Operating activities:
Net earnings $ 3,927 $ 1,463
Adjustments to reconcile net
earnings to net cash provided
by (used for) operations:
Depreciation 3,742 3,276
Amortization 37 90
Tax benefit on stock options 118 248
Noncurrent employee benefits 508 738
Changes in:
Receivables (4,140) (3,323)
Inventory 61 (1,982)
Current liabilities other than short-term debt 6,800 4,978
Prepaid expenses and other (181) (480)
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Total adjustments 6,945 3,545
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Net cash provided by (used for) operations 10,872 5,008
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Investing activities:
Property, plant and equipment (2,582) (2,772)
Acquisitions, net of cash acquired (8,277) 0
Other - net (277) 10
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Net cash provided by (used for) investing activities (11,136) (2,762)
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Financing activities:
Net increase (decrease) in short-term debt 3,080 7,029
Repayments of long-term debt (1,626) (9,192)
Dividends (1,579) (1,573)
Stock options and ESSOP 867 434
Treasury stock transactions (964) (1,397)
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Net cash provided by (used for)
financing activities (222) (4,699)
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Increase (decrease) in cash (486) (2,453)
Beginning of year 3,410 4,237
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End of period $ 2,924 $ 1,784
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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, 2002 and the results of operations for the three and six-month
periods ended June 30, 2002 and 2001 and the cash flows for the six-month
periods ended June 30, 2002 and 2001. 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 2001
data to conform to the 2002 presentation.
2. The consolidated condensed balance sheet at December 31, 2001, 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, 2001. 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. In January 2002, the Company borrowed $20 million of long-term, unsecured
debt from a local bank. The purpose of the loan was to replace short-term
borrowings. As a result of obtaining the loan, $20 million of commercial
paper was reclassified to long-term debt for financial statement
presentation at December 31, 2001. The debt bears interest at 6.73% and is
due in quarterly installments through January 2007.
4. Other expense (income), net includes foreign currency gains and losses,
which are recognized as incurred. The Company's functional currency for its
significant foreign subsidiaries is the U.S. dollar.
5. On May 1, 2002, the Company acquired 100% of the outstanding common stock
of Data Industrial Corporation (DIC) of Mattapoisett, Massachusetts, for
$5.1 million net of cash acquired. This amount included direct acquisition
costs. DIC manufactures and markets a line of insertion flow meters that
are sold to commercial and industrial markets.
The Company has not finalized the allocation of the purchase price as of
June 30, 2002. An estimation of this allocation was prepared and is
included as part of these financial statements. The purchase price has been
allocated as follows: $722,000 to receivables, $927,000 to inventory,
$800,000 to property, plant and equipment, $250,000 to intangibles,
$2,911,000 to goodwill, $492,000 to accounts payable, and other assets and
liabilities.
On June 1, 2002, the Company acquired 100% of the outstanding common stock
of MecaPlus Equipements SA (MPE) of Nancy, France, for $3.2 million net of
cash acquired. This amount included direct acquisition costs. MPE purchases
lubrication meters, oil tanks, hoses, reels and other equipment for
assembly into lubrication systems for use in measuring and dispensing
automotive fluids such as oil, grease and transmission fluid. The
acquisition of MPE brings the Company closer to its European automotive
customers by offering a full line of lubrication systems in addition to the
current metering products.
The Company has not finalized the allocation of the purchase price of MPE
as of June 30, 2002. An estimation of this allocation was prepared and is
included as part of these financial statements. The purchase price has been
allocated as follows: $4,180,000 to receivables, $2,260,000 to inventory,
$3,497,000 to property, plant and equipment, $391,000 to intangibles,
$1,686,000 to goodwill, $3,531,000 to accounts payable, $4,984,000 of
assumed debt, and other assets and liabilities.
The acquisitions of DIC and MPE were accounted for under the purchase
method and the results of both have been included in the Company's
consolidated results from the date of acquisition. Both acquisitions were
funded through a combination of internally generated funds and commercial
paper. These acquisitions are part of the Company's strategy to broaden its
line of meters for commercial
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and niche industrial markets. To date, the net results of the acquisitions
have been minimally accretive.
The following preliminary, unaudited proforma information combines
historical results, as if DIC and MPE had been owned by the Company for the
periods presented.
Thousands, except per share amounts
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Three Months Ended Six Months Ended
June 30, June 30,
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2002 2001 2002 2001
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Net sales $ 46,710 $ 39,760 $ 89,276 $ 80,511
Net earnings $ 2,288 $ 691 $ 3,923 $ 1,701
Diluted earnings
per share $ .69 $ .21 $ 1.19 $ .52
The proforma results include amortization of the intangibles mentioned
above and interest expense on debt incurred to finance the purchases. The
proforma results are not necessarily indicative of what would have occurred
if the acquisitions had been completed as of the beginning of each fiscal
period presented, nor are they necessarily indicative of future
consolidated results.
6. 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
In the second quarter of 2002, the Company completed two acquisitions, Data
Industrial Corporation (DIC) and MecaPlus Equipements (MPE). These acquisitions
were accounted for under the purchase accounting method, and as a result, some
of the variances shown since December 31, 2001, were attributable to the assets
acquired and liabilities assumed in the acquisitions. The acquisitions are
further discussed in footnote 5 of the Notes to Consolidated Financial
Statements in this Form 10-Q.
Cash at June 30, 2002, declined nearly $0.5 million. This is the net result of
higher cash flows associated with improved results of operations, the timing of
accounts payable payments, and the utilization of short-term debt and cash for
the acquisitions noted above.
Receivables at June 30, 2002, increased $9.0 million, of which approximately
$5.0 million was associated with receivables from the acquisitions. The
remainder of the increase was due to the increased sales in 2002 compared to
2001. Nearly all of the increase associated with the inventory balances was due
to the acquisitions. Without the acquisitions, inventory levels were very
comparable to those as of December 31, 2001.
Prepaid expenses have increased since December 31, 2001, due to the timing of
the annual insurance payments. Property, plant and equipment and accumulated
depreciation have both increased since December 31, 2001, due principally to
assets acquired in the acquisitions referenced above, as well as normal impacts
of capital expenditures and depreciation expense. The increase in patents was
due principally to assets acquired in the acquisitions.
Goodwill has increased nearly $4.6 million. This was related directly to the
acquisitions of the above-referenced companies. As mentioned in footnote 5, the
Company has not finalized the allocation of the purchase price of either
acquisition as of June 30, 2002. Revisions to the purchase price allocations are
not expected to be material.
Accounts payable has increased since December 31, 2001, due to the timing of
purchases and payment processing. In addition, $4.0 million represents accounts
payable from the acquisitions. Compensation and employee benefits increased $2.2
million, of which $233,000 was associated with the acquisitions. The remainder
was due to the accrual of anticipated incentives. Income and other taxes have
increased nearly $2 million since year-end due to the timing of estimated tax
payments.
Common stock and capital in excess of par value both increased at June 30, 2002,
due to new shares issued in connection with stock options exercised and ESSOP
purchases. Treasury stock increased due to shares repurchased during the period.
Employee benefits stock decreased $365,000 due to the regular repayment of the
ESSOP debt and the related release of shares.
As of June 30, 2002, the Company had approximately $35.5 million of short-term
credit facilities with domestic and foreign banks of which $8.2 million was in
use. The Company believes that the present lines of credit are adequate to meet
operating requirements and future capital needs. The Company also believes it
would have no difficulty securing additional term debt.
Results of Operations
Net sales for the second quarter of 2002 of $43,586,000 reflected a 28.4%
increase compared to the second quarter of 2001. Net sales for the first six
months of 2002 were $81,040,000 compared to $69,403,000, a 16.8% increase. The
second quarter results include $2.5 million of sales associated with the
acquired companies, which is also reflected in the six-month results. In
addition, the six-month results for 2001 include approximately $1.4 million of
sales from product lines that were discontinued.
The balance of the sales increases for both the second quarter and first six
months of 2002 was the result of stronger sales of residential and commercial
water meter products offset somewhat by lower sales of automotive fluid meters,
small precision valves and industrial products. The increase in residential
water meter sales was due to higher volumes in both local manual-read water
meters and automated meter reading technologies. Sales were also affected by
modest price increases in certain automated meter reading technologies and in
local bronze meters.
-8-
Sales of automotive fluid meters, small precision valves and other industrial
products continued to be affected by the economic recession. Many of these
products are sold to customers in the construction, manufacturing, and oil and
gas industries, whose markets remain sluggish.
Gross margins improved for the second quarter of 2002 to 34.0% compared with
32.2% for the second quarter of 2001. For the first six months of 2002, margins
were 34% versus 33.1% for the first six months last year. Increases for both
periods were the net result of increased water meter volumes and modest price
increases to customers, offset by product cost increases and lower volumes and
prices for automotive fluid meters, small precision valves and industrial
products.
Selling, engineering and administration costs increased 9.6% for the second
quarter ended June 30, 2002, and 3.4% for the six months ended June 30, 2002,
compared to the same periods in 2001. The increases for both periods were due
principally to the effects of the acquisitions discussed above. Efforts begun in
2001 to reduce costs have helped offset inflation, wage increases and incentive
accruals.
Interest expense increased for the second quarter of 2002 over the same period
in 2001 due to the effects of the acquisitions. Interest for the six months
ended June 30, 2002, was less than the six months ended June 30, 2001, due to
lower interest rates and less overall pre-acquisition debt.
As a result of the above, earnings for the second quarter of 2002 were
$2,320,000, an increase over the second quarter 2001 earnings of $529,000. On a
diluted earnings per share basis, this equates to $0.70 per share for the second
quarter of 2002 compared to $0.16 for the same period in 2001. Earnings for the
six-month period ended June 30, 2002, were $3,927,000, compared to $1,463,000
for the same period in 2001. On a diluted earnings per share basis, earnings
were $1.20 for the first six months of 2002 compared to $0.44 for the same
period in 2001.
Other Matters
The Company is subject to contingencies relative to environmental laws and
regulations. Currently, the Company is in the process of resolving an issue
relative to a landfill site. The Company is also a defendant in three
multi-party asbestos suits as a result of its membership in certain trade
organizations. The cases are pending in state court in Mississippi. 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.
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Item 3 Quantitative and Qualitative Disclosures about Market Risk
The Company's quantitative and qualitative disclosures about market risk are
incorporated by reference from Item 7A of the Company's Annual Report on Form
10-K for the year ended December 31, 2001, and have not materially changed since
that report was filed.
Forward Looking Statements
Certain statements contained in this document, 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 competitive pricing and bids in the marketplace
- changes in domestic conditions, including housing starts
- changes in foreign economic conditions, including currency fluctuations
- changes in laws and regulations
- changes in customer demand and fluctuations in the prices of and
availability of purchased raw materials and parts.
Some or all of these factors are beyond the Company's control. Shareholders,
potential investors and other readers are urged to consider these factors
carefully in evaluating the forward looking statements and are cautioned not to
place undue reliance on such forward looking statements. The forward looking
statements made herein are made only as of the date of this document and the
Company undertakes no obligation to publicly update such forward looking
statements to reflect subsequent events or circumstances.
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Part II - Other Information
Item 4 Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held April 19, 2002.
(b) 1. The following table represents the aggregate votes related to the
election of directors:
Votes Votes
NAME FOR WITHHELD Not Voted
---- --- -------- ---------
DIRECTORS ELECTED TO THREE-YEAR
TERMS EXPIRING AT 2005 ANNUAL MEETING
James L. Forbes 2,861,166 25,023 304,408
Richard A. Meeusen 2,866,069 20,120 304,408
2. DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING AT THE 2004 ANNUAL
MEETING
Kenneth P. Manning
John J. Stollenwerk
3. DIRECTORS CONTINUING IN OFFICE WITH TERMS EXPIRING AT THE 2003 ANNUAL
MEETING
Ulice Payne, Jr.
Andrew J. Policano
Steven J. Smith
(c) Proxies were solicited for the adoption of the Badger Meter, Inc. 2002
Director Stock Grant Plan. There were no solicitations in opposition to the
proposed adoption of the Plan, and the Plan was adopted with 94.7% votes in
favor of its adoption. The following table represents the aggregate votes
related to the adoption of the 2002 Director Stock Grant Plan:
Votes Votes Votes
FOR AGAINST ABSTAIN
--- ------- -------
2,733,846 123,026 29,317
(d) 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 2003 Annual Meeting of Shareholders must forward the proposal
to the company by November 26, 2002. In addition, a shareholder who otherwise
intends to present business at the 2003 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 11, 2003, then the notice will be considered untimely and the Company
will not be required to present such proposal at the 2003 Annual Meeting. If the
Board of Directors chooses to present such proposal at the 2003 Annual Meeting,
then the persons named in the proxy solicited by the Board of
Directors for the 2003 Annual Meeting may exercise discretionary voting power
with respect to such proposal.
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Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
( 3.1) (ii) Restated By-laws as amended on April 19, 2002
(10.0) Material Contracts
(99.0) Additional Exhibits
(99.1) Written Statement of the Chief Executive Officer
(99.2) Written Statement of the Chief Financial Officer
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended June
30, 2002.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BADGER METER, INC.
Dated: August 9, 2002 By /S/ Richard E. Johnson
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Richard E. Johnson
Vice President -- Finance, Treasurer
and Chief Financial Officer
By /S/ Beverly L.P. Smiley
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Beverly L.P. Smiley
Vice President -- Corporate Controller
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EXHIBIT INDEX
Page Number
(3.0) (ii) Restated By-laws as amended April 19, 2002 15
(10.0) Material Contracts 31
(99.0) Additional Exhibits 33
(99.1) Written Statement of the Chief Executive Officer 42
(99.2) Written Statement of the Chief Financial Officer 43
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