-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Op+kojoZ9MdEirTnRZoo7q5mlA/dSrwRwPG9lInRqMq1eV/7Fiwo3n64rCUtX4gt N2d/kt1/y7tm93vMK9WV+w== 0000950124-98-001559.txt : 19980326 0000950124-98-001559.hdr.sgml : 19980326 ACCESSION NUMBER: 0000950124-98-001559 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980325 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BADGER METER INC CENTRAL INDEX KEY: 0000009092 STANDARD INDUSTRIAL CLASSIFICATION: TOTALIZING FLUID METERS & COUNTING DEVICES [3824] IRS NUMBER: 390143280 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-06706 FILM NUMBER: 98572867 BUSINESS ADDRESS: STREET 1: 4545 WEST BROWN DEER ROAD STREET 2: C/O CORPORATE SECRETARY CITY: MILWAUKEE STATE: WI ZIP: 53223-0099 BUSINESS PHONE: 4143715887 FORMER COMPANY: FORMER CONFORMED NAME: BADGER METER MANUFACTURING CO DATE OF NAME CHANGE: 19710729 10-K405 1 10-K405 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, 1997 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from____________to____________ Commission file number 1-6706 BADGER METER, INC. (Exact name of registrant as specified in charter) WISCONSIN 39-0143280 (State of Incorporation) (I.R.S. Employer Identification No.) 4545 W. BROWN DEER ROAD MILWAUKEE, WISCONSIN 53223 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 414-355-0400 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of class: on which registered: COMMON STOCK AMERICAN STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by nonaffiliates of the registrant was $97,952,000 as of February 27, 1998. At February 27, 1998, the registrant had 2,502,383 shares of Common Stock outstanding and 1,125,570 shares of Class B Common Stock outstanding. Documents Incorporated by Reference: Parts I and II incorporate information by reference from the company's 1997 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 24, 1998 [to be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after the end of the registrant's fiscal year]. 1 2 Part I Item 1. Business Badger Meter, Inc. (the "company") is a marketer and manufacturer of products using flow measurement and control technology serving markets worldwide. The company's markets are within a single business segment. The company was incorporated in 1905. Markets and Products The company's products are sold to water utilities, original equipment manufacturers and various industrial customers primarily operating in the following markets: energy and petroleum; food and beverage; pharmaceutical; chemical; water, wastewater and process waters; and concrete. The company has eight major product lines: residential and large commercial/industrial water meters (with related technologies), lubrication meters, ultrasonic flowmeters, small valves, natural gas instrumentation, flow tubes and industrial meters. Water meters and related systems produce the majority of the company's sales. A "water meter system" generally consists of a water meter, a register (some with an interface technology for communicating the reading), a packaging system and the monitoring or computerized management system used to collect and relay the reading. The company's products are primarily manufactured in the company's Milwaukee, Wisconsin and Tulsa, Oklahoma facilities. Custom molded plastic products are also produced in a facility in Rio Rico, Arizona for use as components in the company's products and, to a limited extent, for sale to original equipment manufacturers. Assembly and some light manufacturing is done in the Stuttgart, Germany facility. Products are also assembled in facilities in Nogales, Mexico. Badger Meter's products are sold throughout the world through various selling arrangements including direct sales representatives, distributors and independent sales representatives. There is only a moderate seasonal impact on sales, primarily relating to slightly higher sales of certain utility products during the spring and summer months. No single customer accounts for more than 10% of the company's sales. Competition There are several competitors in each of the markets in which the company sells its products, and the competition varies from moderate to intense. Major competitors include Sensus Technologies, Inc., Schlumberger Industries, Inc. and ABB-Kent Meters, Inc. A number of the company's competitors in certain markets have greater financial resources. The company believes it currently provides the leading technology in certain types of automated and automatic water meter systems, high precision valves and energy instruments. As a result of significant research and development activities, the company enjoys favorable patent positions for many of its products. Backlog The dollar amount of the company's total backlog of unshipped orders at December 31, 1997 and 1996 was $27,884,000 and $21,262,000, respectively. It is estimated that $21,429,000 of the December 31, 1997 backlog will be shipped in 1998, with the balance shipped in subsequent years. The 1997 backlog includes orders related to a large water meter project which is expected to be completed over several years. 2 3 Raw Materials Raw materials used in the manufacture of the company's products include metal or alloys (such as bronze, aluminum, stainless steel, cast iron, brass and stellite), plastic resins, glass, microprocessors and other electronic subassemblies. There are multiple sources for these raw materials, but the company purchases bronze castings and certain electronic subassemblies from single suppliers. The company believes these items would be available from other sources, but that the loss of its current suppliers would result in higher cost of materials, delivery delays, short-term increases in inventory and higher quality control costs. Prices may also be affected by world commodity markets. 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 $4,397,000 during 1997, as compared to $3,851,000 during 1996 and $3,858,000 during 1995. 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 addressing litigation alleging a violation of California's environmental regulation Proposition 65 (see Item 3). Expenditures during 1997 and 1996 for compliance with environmental control provisions and regulations were not material and the company does not anticipate any material future expenditures. To insure compliance with all environmental regulations at all company sites, the Board of Directors has a Compliance Committee which monitors the company's compliance with various regulatory authorities in regard to, among other things, environmental matters. Employees The company and its subsidiaries employed 972 persons at December 31, 1997, of which 240 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 throughout the world. Additionally, the company has a sales, assembly, light manufacturing and distribution facility in Stuttgart, Germany, a sales and customer service office in Mexico City and two assembly facilities in Nogales, Sonora, Mexico. The company exports products manufactured in Milwaukee, WI, Tulsa, OK, and Rio Rico, AZ. The company has international personnel with responsibility for managing the company's activities in all countries outside of the United States and Canada. Information about the company's foreign operations and export sales is included on Note 10 in the Notes to Consolidated Financial Statements of the company's 1997 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. 3 4 Item 2. Properties The principal facilities utilized by the company at December 31, 1997, are listed below. Except as indicated, all of such facilities are owned in fee simple by the company.
Approximate Area Location Principal Use (Square Feet) - -------- ------------- ---------------- Milwaukee, Wisconsin Manufacturing and offices 256,000 Tulsa, Oklahoma Manufacturing and offices 89,500 (1) Rio Rico, Arizona Manufacturing and offices 36,000 Nogales, Mexico Assembly, manufacturing and offices 41,700 (2) Nogales, Mexico Assembly, manufacturing and storage 18,350 (3) Stuttgart, Germany Assembly, manufacturing and offices 11,883 (4)
(1) Includes 30,000 sq. ft. leased facility. Lease term expires December 31, 1998. (2) Leased facility. Lease term expires January 31, 2000. (3) Leased facility. Lease term expires October 31, 1999. (4) Leased facility. Lease term expires December 31, 1998. In addition to the foregoing facilities, the company leases several sales offices. The company believes that its facilities are generally well maintained and have sufficient capacity for its current needs. The company is in the process of constructing a 67,000 square foot addition to its Milwaukee, Wisconsin facility. The addition is estimated to cost approximately $9 million and will house a new engineering laboratory, design facility, offices and expanded manufacturing operations. The addition is expected to be completed in early 1999 and will address future capacity requirements. Item 3. Legal Proceedings There are currently no material legal proceedings pending with relation to the company, except as discussed below. In February, 1997, the company, along with other major manufacturers of water meters, was named as a defendant in a California lawsuit filed by the Natural Resources Defense Council. The lawsuit claims that the meter manufacturers are violating the standards established by California's Proposition 65 by selling bronze water meters in California that allegedly leach lead in excess of the Proposition 65 limits. The company believes that its meters are in compliance with national standards established by the American Water Works Association and that the meters fully comply with the Federal Safe Drinking Water Act. The California standards are unique to California and are set at a level of one one-thousandth of the point of no observable effect. Substantially all of the company's sales of residential water meters in California are to, and in response to specifications issued by, water utilities which are exempt from compliance with the Proposition 65 regulation. A motion for summary judgment on the basis of the public utility exemption is currently pending. Also, since 1972 Badger Meter has been the only meter manufacturer to continuously offer a plastic meter as an option to utility customers. The plastic meter fully complies with the Federal Safe Drinking Water Act, as certified by the National Sanitation Foundation. The utilities had the opportunity to specify the plastic meter, as many of them did. As such, the company disputes the claims of the lawsuit and does not believe the ultimate resolution of the lawsuit will have a material adverse effect on the results of operations. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the company's shareholders during the quarter ended December 31, 1997. 4 5 Executive Officers of the Company The following table sets forth certain information regarding the executive officers of the company.
Age at Name Position 2/27/98 - ---- -------- ------- James L. Forbes President and Chief 65 Executive Officer Robert D. Belan Vice President - Utility Division 57 William H. Vander Heyden Vice President - Industrial Division 61 Theodore N. Townsend Vice President - International Division 53 Ronald H. Dix Vice President - Administration 53 and Human Resources Deirdre C. Elliott Vice President - Corporate Counsel 41 and Secretary Richard A. Meeusen Vice President - Finance, Treasurer and 43 Chief Financial Officer Beverly L.P. Smiley Corporate Controller 48
There are no family relationships between any of the executive officers. All of the officers are elected annually at the first meeting of the Board of Directors held after each annual meeting of the shareholders. Each officer holds office until his successor has been elected or until his death, resignation or removal. There is no arrangement or understanding between any executive officer and any other person pursuant to which he was elected as an officer. Mr. Forbes has served as President and Chief Executive Officer for more than five years. Mr. Belan was elected Vice President - Utility Division in March 1992 and President of the Utility Division in October 1991. Mr. Vander Heyden was elected Vice President - Industrial Division in April 1983 and President of the Industrial Division in April 1990. Mr. Townsend joined the company and was elected Vice President - International Division in February 1996 and President of the International Division in April 1997. 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. From 1990 to 1992, Mr. Townsend was a Vice President of American Meter Company. Mr. Dix has served as Vice President of Administration and Human Resources for more than five years. Ms. Elliott was elected Vice President - Corporate Counsel and Secretary in December 1993. From October 1991 to December 1993, she served as Vice President - Corporate Counsel. Mr. Meeusen joined the company and was elected Vice President - Finance and elected Chief Financial Officer in November 1995 and was elected Treasurer in January 1996. Prior to joining the company, Mr. Meeusen was Vice President - Finance and Treasurer for Zenith Sintered Products for more than five years. Ms. Smiley was elected Corporate Controller of the company in April 1997. Prior to that date, Ms. Smiley served as Accounting Manager of the company for more than five years. 5 6 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 1997 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 1997 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 1997 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, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 and the auditor's report thereon and the company's unaudited quarterly financial data for the two-year period ended December 31, 1997 are incorporated herein by reference from the 1997 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 "Other Matters" in the company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 24, 1998, 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 24, 1998, 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 24, 1998, and is incorporated herein by reference. 6 7 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 24, 1998, and is incorporated herein by reference. Part IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K. (a) Documents filed 1. and 2. Financial Statements and Financial Statement Schedule. See Index to Financial Statements and Financial Statement Schedule on page F-0 which is incorporated herein by reference. 3. Exhibits. See the Exhibit Index included as the last pages of this report which is incorporated herein by reference. (b) Reports on Form 8-K No report on Form 8-K was required to be filed by the Registrant during the quarter ended December 31, 1997. 7 8 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. BADGER METER, INC. Registrant By: /s/ Richard A. Meeusen -------------------------- Richard A. Meeusen Vice President - Finance and Treasurer Chief Financial Officer February 13, 1998 By: /s/ Beverly L.P. Smiley -------------------------- Corporate Controller February 13, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: /s/ James O. Wright /s/ James L. Forbes - -------------------------- -------------------------- James O. Wright James L. Forbes Director and Chairman Director, President and February 13, 1998 Chief Executive Officer February 13, 1998 /s/ Robert M. Hoffer /s/ Pamela B. Strobel - -------------------------- -------------------------- Robert M. Hoffer Pamela B. Strobel Director Director February 13, 1998 February 13, 1998 /s/ Charles F. James, Jr. /s/ Andrew J. Policano - -------------------------- -------------------------- Charles F. James, Jr. Andrew J. Policano Director Director February 13, 1998 February 13, 1998 /s/ Donald J. Schuenke /s/ Kenneth P. Manning - -------------------------- -------------------------- Donald J. Schuenke Kenneth P. Manning Director Director February 13, 1998 February 13, 1998 /s/ John J. Stollenwerk /s/ James O. Wright, Jr. - -------------------------- -------------------------- John J. Stollenwerk James O. Wright, Jr. Director Director February 13, 1998 February 13, 1998 8 9 BADGER METER, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Page References Annual Report to Shareholders Form 10-K Page Number Page Number ------------- ----------- Item 14(a) 1 Financial statements: Consolidated balance sheets at December 31, 1997 and 1996 21 Consolidated statements of operations for each of the three years in the period ended December 31, 1997 20 Consolidated statements of cash flows for each of the three years in the period ended December 31, 1997 22 Consolidated statements of shareholders' equity for each of the three years in the period ended December 31, 1997 23 Notes to consolidated financial statements 24 - 30 Item 14(a) 2 Financial statement schedules: Consolidated schedules for each of the three years in the period ended December 31, 1997 II - Valuation and qualifying accounts F-1
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 9 10 BADGER METER, INC. SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 1997, 1996, and 1995
Balance at Additions Deductions Balance beginning charged to from at end of year earnings allowances of year Allowance for doubtful receivables: 1997 $ 242,000 $ 119,000 $ 53,000(a) $ 308,000 ========== ========== ========== ========== 1996 $ 216,000 $ 115,000 $ 89,000(a) $ 242,000 ========== ========== ========== ========== 1995 $ 135,000 $ 137,000 $ 56,000(a) $ 216,000 ========== ========== ========== ========== Warranty/after-sale cost reserve: 1997 $1,929,000 $3,352,000 $1,651,000 $3,630,000 ========== ========== ========== ========== 1996 $ 691,000 $2,735,000 $1,497,000 $1,929,000 ========== ========== ========== ========== 1995 $ 260,000 $2,154,000 $1,723,000 $ 691,000 ========== ========== ========== ==========
Note: (a) Accounts receivable written off, less recoveries, against the allowance. F-1 10 11 The following have been additional exhibits of this Form 10-K as filed with the Securities and Exchange Commission. Copies of these exhibits are available upon request at a charge of 20 cents per page, plus postage. There is no charge for Exhibit (13), 1997 Annual Report to Shareholders or Exhibit (99.0), the Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 24, 1998. EXHIBIT INDEX
Exhibit No. Exhibit Description - ----------- ------------------- (3.0) Restated Articles of Incorporation effective April 23, 1993. [Incorporated by reference from Exhibit (4.3) to the Registrant's Form S-8 Registration Statement (Registration No. 33-65618)]. (3.1) Restated By-Laws as amended February 14, 1997. [Incorporated by reference from Exhibit (3.1) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996]. (4.0) Loan Agreement, as amended April 30, 1988, between the Registrant and the M&I Marshall & Ilsley Bank relating to the Registrant's revolving credit loan. [Incorporated by reference from Exhibit (4.0) to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1988]. (4.1) Loan Agreement between the Firstar Bank Milwaukee, N.A. and the Badger Meter Employee Savings and Stock Ownership Plan and Trust, dated December 1, 1995. [Incorporated by reference from Exhibit (4.3) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995]. (9.0) Badger Meter, Inc. Voting Trust Agreement dated June 1, 1953 as amended. [Incorporated by reference from Exhibit (13) to the Registrant's Form 10 dated April 28, 1967]. (9.1) Badger Meter Officers' Voting Trust Agreement dated December 18, 1991. [Incorporated by reference from Exhibit (9.1) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991]. (10.0)* Badger Meter, Inc. Restricted Stock Plan, as amended. [Incorporated by reference from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement (Registration No. 33-27649)]. (10.1)* Badger Meter, Inc. 1989 Stock Option Plan. [Incorporated by reference from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement (Registration No. 33-27650)]. (10.2)* Badger Meter, Inc. 1993 Stock Option Plan. [Incorporated by reference from Exhibit (4.3) to the Registrant's Form S-8 Registration Statement (Registration No. 33-65618)]. (10.3)* Badger Meter, Inc. 1995 Stock Option Plan [Incorporated by reference from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement (Registration No. 33-62239)]. (10.4)* Badger Meter, Inc. 1997 Stock Option Plan. [Incorporated by reference from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement (Registration No. 333-28617)].
*A management contract or compensatory plan or arrangement. 11 12 EXHIBIT INDEX (CONTINUED)
Exhibit No. Exhibit Description - ----------- ------------------- (10.5)* Badger Meter, Inc. Deferred Compensation Plan. [Incorporated by reference from Exhibit (10.5) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993]. (10.6) Badger Meter, Inc. Employee Savings and Stock Ownership Plan [Incorporated by reference from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement (Registration No. 033-62241)]. (10.7)* Long-Term Incentive Plan. [Incorporated by reference from Exhibit (10.6) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995]. (10.8)* Badger Meter, Inc. Supplemental Non-Qualified Unfunded Pension Plan. [Incorporated by reference from Exhibit (10.7) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995]. (13.0) Portions of the Annual Report to Shareholders that are incorporated by reference. (21.0) Subsidiaries of the Registrant. (23.0) Consent of Ernst & Young LLP, Independent Auditors. (27.0) Financial Data Schedule. (99.0) Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 24, 1998. [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. 12 EX-13 2 EXHIBIT 13 1 Exhibit (13.0) Portions of Annual Report to Shareholders that are incorporated by reference. 13 2 (Page 1 of Annual Report to Shareholders) BADGER METER, INC. FINANCIAL HIGHLIGHTS December 31, 1997 and 1996
1997 1996 % CHANGE - ---------------------------------------------------------------------------------------- OPERATIONS (in thousands) Net sales $ 130,771 $ 116,018 12.7 Net earnings $ 6,522 $ 5,127 27.2 - ---------------------------------------------------------------------------------------- PER SHARE Net earnings: Basic $ 1.83 $ 1.46 25.3 Diluted $ 1.65 $ 1.39 18.7 Cash dividends declared: Common Stock $ .48 $ .43 11.6 Class B Common Stock $ .44 $ .39 12.8 Net book value $ 11.62 $ 10.32 12.6 - ---------------------------------------------------------------------------------------- YEAR-END FINANCIAL POSITION (in thousands) Working capital $ 13,870 $ 17,645 (21.4) Current ratio 1.5 to 1 2.0 to 1 (25.0) Long-term debt $ 928 $ 1,091 (14.9) Shareholders' equity $ 41,467 $ 36,638 13.2 Net earnings as a percent of equity 15.7% 14.0% 12.1 ======================================================================================== OTHER Number of employees 972 940 3.4 Number of shareholders: Common Stock: In employee plans 770 695 10.8 Of record 596 579 2.9 Class B Common Stock 12 9 33.3 Shares outstanding at December 31: Common Stock 2,444,274 2,426,376 .7 Class B Common Stock 1,125,570 1,125,570 0 ========================================================================================
14 3 (Page 17 to 19 of Annual Report to Shareholders) MANAGEMENT'S DISCUSSION AND ANALYSIS BUSINESS DESCRIPTION Badger Meter, Inc. operates in one business segment, serving the flow measurement and control market worldwide. The company has eight major product lines: residential and large commercial/industrial water meters (with related technologies), lubrication meters, ultrasonic flowmeters, small valves, natural gas instrumentation, flow tubes and industrial 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. Badger Meter's strategy is to solve customers' metering needs with its proprietary meter reading systems or other systems available through alliances in the marketplace. Both alternatives enable the company to sell its products either as part of a proprietary technology or as components that interface with systems developed by other companies. RESULTS OF OPERATIONS SALES Badger Meter's sales increased $14.8 million and $7.4 million, or 12.7% and 6.8% in 1997 and 1996, respectively. Sales trends are primarily affected by new product sales and general market conditions. Residential water meter sales for the past several years have been impacted by a continued industry movement away from manual-read meters to automated meter reading technologies. The 1997 sales increase included major product shipments as part of a large metering contract for the City of Philadelphia and international sales for projects in Manila and Mexico City. The year was also favorably impacted by increased sales of TRACE radio-frequency automated meter reading systems, large water meters and lubrication meters. The 1996 sales increase included increased sales of TRACE radio-frequency automated meter reading systems, lubrication meters in Europe and primary flow elements. Badger Meter continues to improve existing products and to develop and acquire new products. In 1997, the company acquired a line of electromagnetic flowmeters. New product developments primarily relate to the areas of meter reading systems, large water meters, lubrication meters, valves and natural gas instrumentation. Increases in sales of new products depend upon the rate of acceptance of the new technologies, both domestically and internationally, and overall market conditions. Sales of mature product lines are directly related to the strength of the various markets utilizing those products and the development of products to replace them. International sales are comprised primarily of sales of lubrication meters and valves in Europe, sales of automated meter reading technologies in Mexico, and sales of water meters to Manila. In Europe, sales are made in both U.S. dollars and German marks. The company is able to partially hedge its German mark exposure. Sales to Mexico and Manila are made in U.S. dollars; therefore, Badger Meter experiences no currency losses on those sales. The company's sales growth is derived from both new products and alliances that have been, and continue to be, developed with other companies. In 1997, Badger Meter expanded its alliance with American Meter Company and H. Meinecke AG and entered into an agreement with Cellnet Data Systems. GROSS PROFIT MARGINS Gross profit margins were 37.3%, 36.7% and 36.0% for 1997, 1996 and 1995, respectively. These margins have steadily increased as higher sales volumes have enabled the company to leverage its fixed manufacturing costs. In addition, significant cost reductions have resulted from capital investment to improve manufacturing processes and systems and from the company's cost improvement programs. 15 4 OTHER FACTORS Marketing and administrative costs increased 10.7% in 1997 and 6.6% in 1996, which were both less than the percentage increases in sales for each year. Both years were impacted by higher incentive compensation costs and costs associated with the formation and development of the international sales organization. Research and engineering costs increased 16.5% in 1997, but were approximately flat between 1996 and 1995. The increased expenditures in 1997 related primarily to the development of products in connection with the market alliances previously discussed, acquisitions of new product lines, and the continued upgrade and expansion of the meter reading technologies, research control valves and natural gas instrumentation product lines. Interest expense decreased in 1996 due to a combination of lower interest rates and lower debt balances, but increased again in 1997 as debt balances increased to support expanded business activity. INCOME TAXES Income tax as a percentage of earnings before income taxes was 36.1%, 37.2% and 37.1% for 1997, 1996 and 1995, respectively. The decrease in the percentage from 1996 to 1997 was due primarily to lower taxes on foreign operations and favorable settlements of tax examinations. NET EARNINGS AND EARNINGS PER SHARE Higher sales and improved margins generated record earnings for 1997. The 1996 and 1995 earnings resulted from the increased sales, improved margins, level research and engineering expenditures, and lower interest and other expenses. Net earnings increased 27.2% in 1997 and 37.9% in 1996. Basic earnings per share increased at a slightly lower rate, 25.3% in 1997 and 37.7% in 1996, due to an increase in the shares outstanding between the periods. Diluted earnings per share were lower due to the impact of dilutive stock options outstanding. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations decreased from $9.9 million in 1996 to $5.2 million in 1997 due to increased inventory, receivables and deferred tax asset balances, which offset higher earnings. Cash provided by operations decreased from $12 million in 1995 to $9.9 million in 1996, as inventory and receivable balances increased to support higher sales levels, partially offset by increased earnings and higher payables related to increased purchasing activity. Receivables increased 23.8% during 1997, due to the 12.7% increase in sales and extended collections under several large contracts. Inventories increased 23.4% during 1997 due to higher sales and increased inventories in Europe related to increased assembly activities and the acquisition of an electromagnetic flowmeter line. Capital expenditures were $8.3 million in 1997, $5.4 million in 1996 and $4.5 million in 1995. These increased levels of expenditures enabled the company to continue to expand production capacity to meet higher sales requirements, to improve manufacturing processes to achieve higher quality and lower costs, and to improve facilities for marketing, engineering and administrative personnel. The 1997 expenditures include $1.3 million related to the construction of a building addition to the Milwaukee facility. When completed, the addition is estimated to cost approximately $9 million and will house a new engineering laboratory, design facility and expanded manufacturing operations. In addition to the capital expenditures, the company also made approximately $3.6 million in other investments during 1997, increasing the total deferred charges and other assets to $6.1 million as of December 31, 1997. These investments primarily related to funds deposited in escrow in connection with the acquisition of a fire service product line, which was in process as of December 31, 1997. The acquisition is expected to be completed in 1998, at which time these funds will be allocated to the appropriate inventory, equipment and intangibles accounts. During 1997, Badger Meter spent $1.8 million to acquire treasury stock at an average price of $25.97 per share. This expenditure was partially offset by $1.6 million collected from the exercise of stock options during 1997. 16 5 In 1997, capital expenditures and other investing activities exceeded cash generated by operations, causing the company to increase bank borrowings by $8.5 million. In 1995 and 1996, the company used cash provided by operations to reduce its debt levels, decreasing total debt to $3.7 million at December 31, 1996. Total indebtedness at December 31, 1997, was $12.2 million, consisting of commercial paper, bank debt and a capital lease. Other significant changes in balance sheet accounts during 1997 include a decrease in intangible assets of $228,000 due primarily to normal patent amortization. Prepaid pension decreased $351,000 due to the recording of normal pension expense with no funding payments required in 1997 due to the overfunded status of the plan. Accrued compensation and employee benefits increased $576,000 in 1997 due to higher incentive compensation accrued related to higher sales and net income levels. Other accrued liabilities increased $1.7 million during 1997, primarily due to provisions for after-sale costs. Current income taxes increased $287,000 due to increased taxable income. The $299,000 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 $528,000 due primarily to increased employee deferred compensation. The $163,000 reduction in long-term debt was primarily due to regular payments on the debt relating to the Employee Savings and Stock Ownership Plan. Accordingly, the equity account for employee benefit stock decreased $136,000 during 1997. The company has a net deferred tax asset of approximately $2,264,000, reflecting the net temporary differences between financial reporting and tax reporting. The majority of this net asset relates to deferred payments to employee benefit plans and is expected to reverse as future payments exceed expenses. The increase in the deferred tax asset of approximately $1 million during 1997 relates to the increased accruals for employee benefit plans and after-sale costs. The company's financial condition remains strong. The company believes that its operating cash flows, available borrowing capacity and ability to raise capital through 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 addressing litigation alleging a violation of California's environmental regulation Proposition 65. The company does not believe the ultimate resolution of these claims will have a material adverse effect on the results of operations. The company has reviewed its exposure to potential computer software problems relating to the advent of the year 2000. Management believes that the company has adequately addressed this issue in the software incorporated into the products that it sells. Regarding internal information systems, many of the software programs used by Badger Meter are already compliant with the requirements of year 2000 processing. The remaining systems are currently being upgraded to new vendor versions which, in addition to providing increased functionality, will address the year 2000 issue. These upgrades are expected to be completed by the end of 1998, which will be prior to any anticipated impact of the year 2000 on the company's operations. Management does not expect to incur any significant costs in addressing the year 2000 issue in excess of the normal software upgrade costs. 17 6 (Page 20 of Annual Report to Shareholders) BADGER METER, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 1997, 1996 and 1995
(In thousands except per share amounts) 1997 1996 1995 - ----------------------------------------------------------------------------------------- Net sales $130,771 $116,018 $108,644 Operating costs and expenses: Cost of sales 82,034 73,490 69,500 Marketing and administrative 30,281 27,347 25,644 Research and engineering 7,488 6,426 6,479 - ----------------------------------------------------------------------------------------- 119,803 107,263 101,623 - ----------------------------------------------------------------------------------------- Operating earnings 10,968 8,755 7,021 Other deductions: Interest expense 455 368 721 Other - net 308 220 389 - ----------------------------------------------------------------------------------------- 763 588 1,110 - ----------------------------------------------------------------------------------------- Earnings before income taxes 10,205 8,167 5,911 Provision for income taxes 3,683 3,040 2,192 - ----------------------------------------------------------------------------------------- Net earnings $ 6,522 $ 5,127 $ 3,719 ========================================================================================= Earnings per share: Basic $ 1.83 $ 1.46 $ 1.06 Diluted $ 1.65 $ 1.39 $ 1.04 ========================================================================================= Weighted-average shares used in computation of: Basic 3,560 3,511 3,508 Impact of dilutive stock options 401 187 74 - ----------------------------------------------------------------------------------------- Diluted 3,961 3,698 3,582 =========================================================================================
See accompanying notes. 18 7 (Page 21 of Annual Report to Shareholders) BADGER METER, INC. CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996
(Dollars in thousands) 1997 1996 - ---------------------------------------------------------------------------------------------- ASSETS Current assets: Cash $ 1,055 $ 1,123 Receivables (Note 3) 19,193 15,498 Inventories: Finished goods 4,095 3,577 Work in process 10,871 8,466 Raw materials and purchased parts 6,632 5,463 - ---------------------------------------------------------------------------------------------- Total inventories 21,598 17,506 Prepaid expenses 693 918 - ---------------------------------------------------------------------------------------------- Total current assets 42,539 35,045 Property, plant and equipment, at cost: Land and improvements 2,792 2,770 Buildings and improvements 12,902 12,271 Machinery and equipment 48,713 42,070 - ---------------------------------------------------------------------------------------------- 64,407 57,111 Less accumulated depreciation (40,423) (37,751) - ---------------------------------------------------------------------------------------------- Net property, plant and equipment 23,984 19,360 Intangible assets, at cost less accumulated amortization 650 878 Prepaid pension (Note 7) 6,751 7,102 Deferred income taxes (Note 8) 2,264 1,257 Deferred charges and other assets (Note 7) 6,109 2,491 - ---------------------------------------------------------------------------------------------- $ 82,297 $ 66,133 ============================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt (Notes 4 and 6) $ 11,245 $ 2,634 Payables 7,196 7,102 Accrued compensation and employee benefits 5,339 4,763 Other accrued liabilities 3,630 1,929 Income and other taxes 1,259 972 - ---------------------------------------------------------------------------------------------- Total current liabilities 28,669 17,400 Accrued non-pension postretirement benefits (Note 7) 7,807 8,106 Other accrued employee benefits (Notes 5 and 7) 3,426 2,898 Long-term debt (Notes 6 and 7) 928 1,091 Commitments and contingencies (Note 6) Shareholders' equity: (Notes 2, 5 and 7) Common Stock, $1 par; authorized 5,000,000 shares; issued 3,240,263 shares in 1997 and 3,154,566 shares in 1996 3,240 3,155 Class B Common Stock, $.10 par; authorized 5,000,000 shares; issued 1,125,570 shares in 1997 and 1996 112 112 Capital in excess of par value 8,315 6,803 Reinvested earnings 33,057 28,200 Less: Employee benefit stock (917) (1,053) Treasury stock, at cost, 795,989 shares in 1997 and 728,190 shares in 1996 (2,340) (579) - ---------------------------------------------------------------------------------------------- Total shareholders' equity 41,467 36,638 - ---------------------------------------------------------------------------------------------- $ 82,297 $ 66,133 ==============================================================================================
See accompanying notes 19 8 (Page 22 of Annual Report to Shareholders) BADGER METER, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1997, 1996 and 1995
(In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ Operating activities: Net earnings $ 6,522 $ 5,127 $ 3,719 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation 3,725 3,522 3,523 Amortization 228 598 875 Noncurrent employee benefits 614 (883) (206) Deferred income taxes (1,007) 279 (209) Changes in: Receivables (3,695) (1,838) 771 Inventories (4,092) (1,672) 2,633 Current liabilities other than short-term debt 2,658 4,880 730 Prepaid expenses and other 225 (135) 190 - ------------------------------------------------------------------------------------------------------------------------ Total adjustments (1,344) 4,751 8,307 - ------------------------------------------------------------------------------------------------------------------------ Net cash provided by operations 5,178 9,878 12,026 - ------------------------------------------------------------------------------------------------------------------------ Investing activities: Property, plant and equipment (8,349) (5,382) (4,493) Other - net (3,616) (548) (597) - ------------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (11,965) (5,930) (5,090) - ------------------------------------------------------------------------------------------------------------------------ Financing activities: Bank borrowings (repayments) 8,548 (2,941) (4,921) Dividends (1,665) (1,479) (1,331) Stock options and ESSOP 1,597 639 128 Purchase of treasury stock (1,761) (221) 0 - ------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used for) financing activities 6,719 (4,002) (6,124) - ------------------------------------------------------------------------------------------------------------------------ Increase (decrease) in cash (68) (54) 812 Cash - beginning of year 1,123 1,177 365 - ------------------------------------------------------------------------------------------------------------------------ Cash - end of year $ 1,055 $ 1,123 $ 1,177 ======================================================================================================================== Supplemental disclosures of cash flow information: Cash paid during the year for: Income taxes $ 3,419 $ 2,348 $ 2,142 Interest $ 441 $ 378 $ 767 ========================================================================================================================
See accompanying notes. 20 9 (Page 23 of Annual Report to Shareholders) BADGER METER, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended December 31, 1997, 1996 and 1995
Class B Capital in Employee Pension Common Common excess of Reinvested benefit liability Treasury (In thousands except per share amounts) Stock Stock par value earnings stock adjustment stock - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1994 $1,547 $56 $7,708 $22,165 $(1,379) $(388) $ (358) Net earnings 3,718 Cash dividends, $.39 per Common share (931) Cash dividends, $.36 per Class B Common share (400) Restricted stock plan (Note 5): Amortization of unearned compensation 77 Tax benefit on vested restricted stock 4 Employee stock ownership plan (Note 7): Amortization of unearned compensation 200 Stock options exercised (Note 5) 5 82 Tax benefit on stock options (Note 5) 11 Tax benefit on dividends (Notes 5 and 7) 27 Pension liability adjustment (Note 7) 19 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1995 1,552 56 7,832 24,552 (1,102) (369) (358) - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings 5,127 Cash dividends, $.43 per Common share (1,039) Cash dividends, $.39 per Class B Common share (440) Restricted stock plan (Note 5): Amortization of unearned compensation 40 Shares canceled (9) 9 Tax benefit on vested restricted stock 13 Stock options exercised (Note 5) 25 429 Tax benefit on stock options (Note 5) 103 Tax benefit on dividends (Notes 5 and 7) 27 Pension liability adjustment (Note 7) 369 Shares purchased by ESSOP participants 1 36 Treasury stock issued 5 Treasury stock purchased (221) Two-for-one stock split 1,577 56 (1,633) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1996 3,155 112 6,803 28,200 (1,053) 0 (579) - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings 6.522 Cash dividends, $.48 per Common share (1,172) Cash dividends, $.44 per Class B Common share (493) Restricted stock plan (Note 5): Amortization of unearned compensation 36 Tax benefit on vested restricted stock 150 Employee stock ownership plan (Note 7): Amortization of unearned compensation 100 Stock options exercised (Note 5) 81 761 Tax benefit on stock options (Note 5) 511 Tax benefit on dividends (Notes 5 and 7) 23 Shares purchased by ESSOP participants 4 67 Treasury stock purchased (1,761) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1997 $3,240 $112 $8,315 $33,057 $(917) $ 0 $(2,340) ====================================================================================================================================
See accompanying notes. 21 10 (Pages 24 to 30 of Annual Report to Shareholders) BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PROFILE Badger Meter is a leading marketer and manufacturer of products using flow measurement and control technology. It operates in one business segment. Its products are used to measure and control the flow of liquids and gases in a variety of applications. The company serves the flow measurement and control market worldwide with products including water meters and associated systems, wastewater meters, industrial meters, small valves and natural gas instrumentation. 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 has been provided 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, 1997 and 1996, was $2,521,000 and $2,512,000, respectively. TREASURY STOCK Treasury stock is stated at cost. In 1996, the Board of Directors authorized the repurchase of up to 350,000 shares of stock. During 1997 and 1996, the company repurchased 67,799 and 12,000 shares, which were added to treasury stock. As of December 31, 1997, the company has repurchased 79,799 shares or 23% of the authorized amount. RESEARCH AND DEVELOPMENT Research and development costs are charged to expense as incurred and amounted to $4,397,000, $3,851,000 and $3,858,000 in 1997, 1996 and 1995, respectively. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards Number 128 (SFAS 128) "Earnings per Share." The company has computed both basic and diluted earnings per share in compliance with SFAS 128, including restatement of earnings per share for all prior periods presented. As required by SFAS 128, basic earnings per share is computed based on the weighted-average shares outstanding during each period. Diluted earnings per share is based on weighted-average shares, plus shares outstanding upon the presumed exercise of dilutive stock options. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSLATION The company's functional currency for all of its foreign subsidiaries is the U.S. dollar. Translation adjustments and transaction gains and losses are recognized in consolidated income as incurred. These amounts are reflected in Other-net in the Statements of Operations and have not been material. 22 11 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 PROSPECTIVE ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS 131 "Disclosures About Segments of an Enterprise and Related Information," which addresses segment disclosures effective in 1998. Since the company operates in only one segment, it believes that SFAS 131 will have no material effect on its disclosures. Also in June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income," which requires disclosure of certain comprehensive income items starting in 1998. The company had no such items in 1997. As discussed in Note 7, in 1996 and 1995 the company had a minimum pension liability, which is defined by SFAS 130 as a component of comprehensive income. The company will adopt the disclosure requirements of SFAS 130 in 1998. RECLASSIFICATIONS Certain reclassifications have been made to the 1996 consolidated financial statements to conform to the 1997 presentation. 2 COMMON STOCK Holders of Class B Common Stock are restricted in their ability to transfer such shares although they may convert their shares of Class B Common Stock into shares of Common Stock at any time. Holders of Common Stock are entitled to cash dividends per share equal to 110% of all dividends declared and paid on each share of the Class B Common Stock. Holders of Class B Common Stock are entitled to ten votes per share on any matters brought before the shareholders of the company while holders of Common Stock are entitled to one vote per share. Liquidation rights are the same for both classes of stock. 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 1997, 1996 and 1995, the company sold approximately $1,500,000, $1,175,000, and $441,000 of product to Azteca. Trade receivables from Azteca at December 31, 1997 and 1996, were $608,000 and $541,000, respectively. 4 SHORT-TERM DEBT AND CREDIT LINES Short-term debt at December 31, 1997 and 1996, consisted of:
(In thousands) 1997 1996 - ------------------------------------------------------------------------ Notes payable to banks $ 1,617 $ 1,439 Commercial paper 9,565 1,135 Current portion of capital lease (Note 6) 63 60 - ------------------------------------------------------------------------ TOTAL $11,245 $ 2,634 ========================================================================
The company has $38,333,000 of short-term credit lines with domestic banks and a foreign bank which includes a $25,000,000 commercial paper line of credit. At December 31, 1997, $26,993,000 was unused and available to the company under the lines. The weighted-average interest rate on the outstanding balance was 5.81% and 5.22% at December 31, 1997 and 1996. 5 RESTRICTED STOCK AND STOCK OPTION PLANS A. RESTRICTED STOCK PLAN The company's Restricted Stock Plan (The Plan) provided for the award of up to 200,000 shares of the company's Common Stock to certain officers and key employees and for the reimbursement to certain participants for the personal income tax liability resulting from such awards. The company provides for any income tax liability ratably throughout the restricted period. Plan participants are entitled to cash dividends and to vote their respective shares. 23 12 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 The sale or transfer of the shares is limited during the restricted period, not exceeding eight years. All eligible shares have been issued. The value of such stock was established by the market price on the date of grant. Restrictions on 32,000 shares expired during 1997. Unearned compensation was charged for the market value of the restricted shares as these shares were issued in accordance with The Plan. The unearned compensation is shown as a reduction of shareholders' equity in the accompanying Consolidated Balance Sheets and is being amortized ratably over the restricted period. During 1997, 1996 and 1995, $35,000, $43,000 and $82,000 was charged to expense relating to The Plan. B. STOCK OPTION PLANS The company has four stock option plans which provide for the issuance of options to key employees and directors of the company. Each plan authorizes the issuance of options to purchase up to an aggregate of 200,000 shares of Common Stock, with vesting periods of up to five years and maximum option terms of ten years. As of December 31, 1997, options to purchase approximately 102,000 shares are available for issue. The following table summarizes the transactions of the company's stock option plans for the three-year period ended December 31, 1997:
Weighted- Average Number of Exercise Shares Price - -------------------------------------------------------------------------- Unexercised options outstanding - December 31, 1994 278,660 $ 9.14 Options granted 84,200 $ 11.25 Options exercised (10,000) $ 8.66 Options forfeited (3,600) $ 8.57 - -------------------------------------------------------------------------- Unexercised options outstanding - December 31, 1995 349,260 $ 9.64 Options granted 144,168 $ 12.96 Options exercised (49,200) $ 9.22 Options forfeited (8,468) $ 10.67 - -------------------------------------------------------------------------- Unexercised options outstanding - December 31, 1996 435,760 $ 10.77 Options granted 173,696 $ 22.36 Options exercised (81,742) $ 10.31 Options forfeited (7,628) $ 12.59 - -------------------------------------------------------------------------- Unexercised options outstanding - December 31, 1997 520,086 $ 14.68 Price range $8.38 - $12.38 (weighted-average contractual life 320,190 $ 10.51 of 6.2 years) Price range $14.81 - $22.50 (weighted-average contractual life 199,896 $ 21.37 of 9.2 years) ========================================================================== Exercisable options - December 31, 1995 230,060 $ 9.11 December 31, 1996 241,610 $ 9.39 December 31, 1997 243,282 $ 10.35 ==========================================================================
24 13 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 SFAS 123 "Accounting for Stock-Based Compensation" became effective for the company in 1996. As allowed by SFAS 123, 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 on 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. As required by SFAS 123, 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:
1997 1996 1995 - ------------------------------------------------------------------------ Risk-free interest rate 6.5% 5.5% 7.4% Dividend yield 1% 3% 3% Volatility factor 23% 17% 17% Weighted-average expected life 8.2 years 4.6 years 5.0 years - ------------------------------------------------------------------------
The weighted-average fair value of options granted in 1997, 1996 and 1995 were $8.92, $2.11 and $2.36 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 $299,000 or $.08 per share for 1997. The pro-forma effect of these options on 1996 and 1995 was not material. These pro-forma calculations only include the effects of options granted since January 1, 1995. As such, the impacts are not necessarily indicative of the effects on reported net income of future years. 6 COMMITMENTS AND CONTINGENCIES A. COMMITMENTS The company leases equipment and facilities under operating leases, some of which contain renewal options, and certain computer equipment under a capital lease. Future minimum lease payments consisted of the following at December 31, 1997:
Operating Capital Total (In thousands) Leases Lease Leases - ------------------------------------------------------------------------------------------------- 1998 $ 620 $65 $ 685 1999 337 28 365 2000 101 0 101 2001 42 0 42 2002 and thereafter 0 0 0 - ------------------------------------------------------------------------------------------------- Total minimum lease payments 1,100 93 1,193 Less: amount representing interest 0 (2) (2) - ------------------------------------------------------------------------------------------------- Present value of net minimum lease payments 1,100 91 1,191 Less: current portion 0 63 63 - ------------------------------------------------------------------------------------------------- Lease obligations $1,100 $28 $1,128 =================================================================================================
Total rental expense charged to operations under all operating leases was approximately $1,447,000, $1,294,000 and $1,362,000 in 1997, 1996 and 1995, respectively. The company is in the process of constructing a building addition to its Wisconsin facility at an estimated total cost of approximately $9,000,000. Certain purchase commitments have been made in connection with this project. 25 14 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 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 addressing litigation alleging a violation of California's environmental regulation Proposition 65. The company does not believe the ultimate resolution of these claims will have a material adverse effect on the results of operations. The company has evaluated its worldwide operations to determine if any risks and uncertainties exist that could severely impact its operations in the near-term. In general, the company does not believe that it is at risk. 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 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. 7 EMPLOYEE BENEFIT PLANS A. PENSION PLAN The company maintains a non-contributory defined benefit pension plan covering substantially all domestic employees. Prior to 1997, benefits for salaried employees were based on compensation and years of service while benefits for hourly employees were generally based on years of service. Effective January 1, 1997, a new cash balance plan was established for domestic non-represented employees. Pension benefits under the previous formulas were fixed and used as a starting basis for the new plan. Benefits are now generally based on current salary multiplied by a percent which varies with years of service. Transition provisions were included in the new plan for existing employees based on years of service and benefits provided by the current plan. It is the company's policy to fund at least the minimum contribution required by ERISA. 26 15 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following data is provided for the pension plan: Components of Net Periodic Pension Credit for the year ended December 31,
- ---------------------------------------------------------------------------------------------------------- (In thousands) 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 1,616 $ 1,044 $ 850 Interest cost on projected benefit obligations 2,415 2,249 2,148 Actual return on plan assets (6,187) (3,082) (6,409) Net amortization and deferral 2,507 (323) 3,176 - ---------------------------------------------------------------------------------------------------------- Net periodic pension cost (credit) $ 351 $ (112) $ (235) ==========================================================================================================
Reconciliation of Funded Status, as of September 30, 1997 and December 31, 1996:
- ---------------------------------------------------------------------------- (In thousands) 1997 1996 - ---------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation $ 31,623 $ 28,461 Non-vested benefit obligation 490 523 - ---------------------------------------------------------------------------- Accumulated benefit obligation $ 32,113 $ 28,984 ============================================================================ Projected benefit obligation $ 34,653 $ 32,203 Plan assets at fair value 42,168 37,346 - ---------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation 7,515 5,143 Unrecognized net loss due to changes in actuarial assumptions and experience 3,179 6,483 Unrecognized prior service credit (2,673) (2,835) Unrecognized transition asset (1,270) (1,693) - ---------------------------------------------------------------------------- Prepaid pension cost 6,751 7,098 Contribution payable 0 4 - ---------------------------------------------------------------------------- Prepaid pension asset included in balance sheet $ 6,751 $ 7,102 ============================================================================
The actuarial assumptions used in the preparation of the above information were 7.5%, 9.0% and 5.0% for both years for the discount rate, long-term rate of return and rate of compensation increases, respectively. Plan assets are primarily invested in corporate and government bonds and listed common stocks. The provisions of SFAS 87, "Employers' Accounting for Pensions," require the recognition of an additional minimum liability for each defined benefit plan for which the accumulated benefit obligation exceeds plan assets. A minimum pension liability of $369,000 (net of tax) was recognized as a component of shareholders' equity as of December 31, 1995 but was eliminated during 1996 as a result of the December 31, 1996 merger of the company's three plans into a single plan. 27 16 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS B. OTHER POSTRETIREMENT BENEFITS In addition to providing pension benefits for its domestic employees, the company has certain postretirement plans that provide medical benefits for retirees and eligible dependents. Substantially all of the company's domestic employees may become eligible for these benefits if they reach normal retirement age while working for the company. It is the company's current policy to fund health care benefits on a cash basis. The plans are coordinated with Medicare when a retiree reaches age 65 and the plans require retiree contributions which equaled approximately 9.7% of non-pension postretirement benefits costs for both 1997 and 1996. The following tables provide information on the plan status as of December 31,
(In thousands) 1997 1996 - --------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 4,757 $ 4,618 Fully eligible active plan participants 753 859 Other active participants 1,525 1,736 - --------------------------------------------------------------------------------- Total 7,035 7,213 Unrecognized prior service credit 2,298 2,534 Unrecognized net loss (1,526) (1,641) - --------------------------------------------------------------------------------- Accrued postretirement benefit cost recognized in the accompanying Consolidated Balance Sheet $ 7,807 $ 8,106 =================================================================================
The discount rate used to measure the accumulated postretirement benefit obligation was 7.5% for both years. The company has established fixed contribution amounts for retiree health care benefits. As such, future health care cost trends do not impact the company's accruals or provisions. Net periodic postretirement benefit cost for the years ending December 31,
(In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------------------- Service cost, benefits attributed for service of active employees for the period $ 111 $ 103 $ 93 Interest cost on the accumulated postretirement benefit obligation 515 656 771 Unrecognized prior service credit (236) (59) 0 Unrecognized net loss 54 21 26 - -------------------------------------------------------------------------------------------- Net periodic postretirement benefit cost $ 444 $ 721 $ 890 ============================================================================================
28 17 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS C. BADGER METER EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN In 1991, the company formed The Badger Meter Employee Savings and Stock Ownership Plan (The ESSOP) and guaranteed a loan made to The ESSOP which had been used to purchase Common Stock of the company from shares held in treasury. The company is obligated to contribute sufficient cash to The ESSOP to enable it to repay the loan principal and interest. Each payment releases shares of Common Stock (11,428, 5,626 and 22,856 shares in 1997, 1996 and 1995) for allocation to participants in The ESSOP. The terms of the loan allow variable payments of principal with the final principal and interest payment due December 1, 2001. The principal amount due on the loan was $900,000 at December 31, 1997 and $1,000,000 at December 31, 1996. Interest may be charged at either Prime Rate or at LIBOR plus 1.5%. As of December 31, 1997, the LIBOR-based loan had an interest rate of 7.4%. 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%, 6% and 6% of the employee's salary for 1997, 1996 and 1995, respectively. The match is paid in company stock. For 1997, 1996 and 1995, respectively, 11,428, 16,038 and 22,062 shares of Common Stock released through principal and interest payments on The ESSOP debt were allocated to participants. In addition to the match, the company may, at the discretion of the Board of Directors, allocate additional available shares to non-represented participants who are not covered by a collective bargaining agreement. An additional 1,797 and 1,016 shares were allocated for 1997 and 1996, respectively. No additional shares were allocated for 1995. The obligation related to The ESSOP has been recorded as long-term debt and a like amount of unearned compensation has been recorded as a reduction of shareholders' equity in the accompanying Consolidated Balance Sheets. Charges to expense were $132,000, $239,000 and $230,000 in 1997, 1996 and 1995, respectively. The company paid interest on the ESSOP loan of $19,000, $33,000 and $51,000 which was net of dividends on unallocated ESSOP shares of $47,000, $37,000 and $44,000 for 1997, 1996 and 1995, respectively. These amounts are included in interest expense in the accompanying Consolidated Statements of Operations. 29 18 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8 INCOME TAX EXPENSE Details of earnings before income taxes and the related provision for income taxes are as follows:
(In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------- Earnings before income taxes: Domestic $ 9,953 $ 7,825 $ 5,731 Foreign 252 342 180 - ------------------------------------------------------------------------------------- Total $ 10,205 $ 8,167 $ 5,911 ===================================================================================== Income taxes: Current: Federal $ 3,301 $ 2,286 $ 1,956 State 672 434 339 Foreign 56 41 106 Deferred: Federal (344) 195 (145) State (61) (57) (12) Foreign 59 141 (52) - ------------------------------------------------------------------------------------- Total $ 3,683 $ 3,040 $ 2,192 =====================================================================================
The components of the net deferred tax asset as of December 31, were as follows (in thousands):
DEFERRED TAX ASSETS: 1997 1996 - ------------------------------------------------------------------------------------------- Receivables $ 110 $ 82 Inventories 292 275 Accrued compensation 772 702 Other payables 1,442 708 Non-pension postretirement benefits 3,005 3,112 Accrued employee benefits 1,551 1,174 - ------------------------------------------------------------------------------------------- Total deferred tax assets 7,172 6,053 DEFERRED TAX LIABILITIES: - ------------------------------------------------------------------------------------------- Depreciation 1,960 1,995 Prepaid pension 2,600 2,744 Other 348 57 - ------------------------------------------------------------------------------------------- Total deferred tax liabilities 4,908 4,796 - ------------------------------------------------------------------------------------------- Net deferred tax asset included in balance sheet $2,264 $1,257 ===========================================================================================
30 19 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The provision for income tax differs from the amount which would be provided by applying the statutory U.S. corporate income tax rate of 34% in each year due to the following items:
(In thousands) 1997 1996 1995 - --------------------------------------------------------------------------------- Provision at statutory rates $ 3,470 $ 2,776 $ 2,010 State income taxes, net of federal tax benefit 403 312 216 Foreign income taxes 30 66 (7) Tax benefit of FSC (190) (201) (119) Other (30) 87 92 - --------------------------------------------------------------------------------- Actual provision $ 3,683 $ 3,040 $ 2,192 =================================================================================
No provision for federal income taxes is made on the earnings of foreign subsidiaries that are considered permanently invested or would be offset by foreign tax credits upon distribution. Such undistributed earnings at December 31, 1997, were $644,000. 9 FAIR VALUE OF FINANCIAL INSTRUMENTS Cash, receivables and payables are reflected in the financial statements at fair value. Short-term debt is comprised of notes payable drawn against the company's lines of credit and commercial paper. Because of the short-term nature of these instruments, the carrying value reflects the fair value. Long-term debt primarily relates to the company's guarantee of The ESSOP debt, which is offset by a similar amount in shareholders' equity. 10 INDUSTRY SEGMENTS The company operates in one industry segment as a marketer and manufacturer of various flow measurement products.
DECEMBER 31, ---------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Exports to non-affiliated companies to consolidated net sales 14% 11% 11% Net sales by foreign subsidiaries to consolidated net sales 7% 7% 7% Assets of foreign subsidiaries to consolidated assets 7% 7% 7% Operating profits for foreign subsidiaries ($000) $362 $346 $244 ===================================================================================================================
31 20 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED), COMMON STOCK PRICE AND DIVIDENDS
QUARTER ENDED ---------------------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 - ---------------------------------------------------------------------------------------------------- (IN THOUSANDS EXCEPT PER SHARE DATA) 1997 Net sales $ 31,702 $ 34,104 $ 33,207 $ 31,758 Gross profit $ 11,478 $ 12,624 $ 12,480 $ 12,155 Net earnings $ 1,310 $ 1,900 $ 1,821 $ 1,491 Earnings per share: Basic $ .37 $ .53 $ .51 $ .42 Diluted $ .35 $ .50 $ .46 $ .38 Dividends declared: Common $ .11 $ .12 $ .12 $ .12 Class B $ .10 $ .11 $ .11 $ .11 Stock price: High $ 24.00 $ 31.50 $ 57.50 $ 50.00 Low $ 18.13 $ 21.00 $ 29.25 $ 36.88 Quarter-end close $ 23.25 $ 29.63 $ 49.06 $ 40.75 - ---------------------------------------------------------------------------------------------------- 1996 Net sales $ 26,635 $ 30,542 $ 30,542 $ 28,299 Gross profit $ 9,921 $ 10,803 $ 11,323 $ 10,481 Net earnings $ 888 $ 1,389 $ 1,430 $ 1,420 Earnings per share: Basic $ .25 $ .39 $ .40 $ .40 Diluted $ .24 $ .38 $ .39 $ .38 Dividends declared: Common $ .10 $ .11 $ .11 $ .11 Class B $ .09 $ .10 $ .10 $ .10 Stock price: High $ 14.44 $ 15.75 $ 16.81 $ 20.81 Low $ 12.38 $ 13.25 $ 13.50 $ 16.00 Quarter-end close $ 13.50 $ 14.00 $ 15.94 $ 19.19 - ----------------------------------------------------------------------------------------------------
Badger Meter, Inc. Common Stock is listed on the American Stock Exchange under the symbol BMI. There is no market for Badger Meter Class B Common Stock due to transfer restrictions. Class B Common Stock is equivalent in value to Common Stock. Earnings per share is computed independently for each quarter. As such, the annual per share amount may not equal the sum of the quarterly amounts due to rounding. Shareholders of record as of December 31, 1997 and 1996, totaled 596 and 579 for Common Stock and 12 and 9 for Class B Stock, respectively. Voting trusts are counted as single shareholders for this purpose. 32 21 BADGER METER, INC. REPORT OF INDEPENDENT AUDITORS REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders Badger Meter, Inc. We have audited the accompanying consolidated balance sheets of Badger Meter, Inc. as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Badger Meter, Inc. at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Milwaukee, Wisconsin January 28, 1998. 33 22 (Page 31 of Annual Report to Shareholders) BADGER METER, INC. TEN YEAR SUMMARY OF SELECTED DATA Years ended December 31 (in thousands except per share data)
1997 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Net sales $130,771 116,018 108,644 99,155 84,497 82,106 Research and development $ 4,397 3,851 3,858 3,278 3,642 4,119 Earnings before income taxes $ 10,205 8,167 5,911 4,974 3,306 1,160 Earnings before changes in accounting $ 6,522 5,127 3,719 3,216 2,164 802 Cumulative effect of changes in accounting $ 0 0 0 0 0 (4,684) Net earnings (loss) $ 6,522 5,127 3,719 3,216 2,164 (3,882) Earnings to sales * 5.0% 4.4% 3.4% 3.2% 2.6% 1.0% - ------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE Basic earnings before changes in accounting $ 1.83 1.46 1.06 .93 .64 .24 Cumulative effect of changes in accounting $ 0 0 0 0 0 (1.38) Basic earnings (loss) $ 1.83 1.46 1.06 .93 .64 (1.14) Cash dividends declared: Common Stock $ .48 .43 .39 .35 .32 .30 Class B Common Stock $ .44 .39 .36 .32 .29 .28 Price range - high $ 57.50 20.81 13.50 14.00 11.00 8.88 Price range - low $ 18.13 12.38 11.06 9.50 8.88 7.38 Closing price $ 40.75 19.19 13.25 11.94 9.56 8.75 Book value $ 11.62 10.32 9.16 8.38 7.66 7.31 - ------------------------------------------------------------------------------------------------------------------- SHARES OUTSTANDING Common Stock 2,444 2,426 2,387 2,377 2,281 2,282 Class B Common Stock 1,126 1,126 1,126 1,126 1,126 1,126 - ------------------------------------------------------------------------------------------------------------------- FINANCIAL POSITION Working capital $ 13,870 17,645 16,178 14,569 12,010 9,876 Current ratio 1.5 to 1 2.0 to 1 2.1 to 1 1.7 to 1 1.6 to 1 1.6 to 1 Net cash provided by operations $ 5,178 9,878 12,026 6,342 2,969 3,833 Capital expenditures $ 8,349 5,382 4,493 3,553 3,121 3,496 Total assets $ 82,297 66,133 60,527 61,993 57,627 53,895 Long-term debt $ 928 1,091 1,000 1,200 1,400 1,700 Shareholders' equity $ 41,467 36,638 32,163 29,351 26,074 24,894 Debt to total capitalization 22.7% 9.2% 16.8% 28.4% 34.9% 34.2% Return on shareholders' equity * 15.7% 14.0% 11.6% 11.0% 8.3% 3.2% Price/earnings ratio * 22.3 13.1 12.5 12.8 15.1 37.2 - ------------------------------------------------------------------------------------------------------------------- 1991 1990 1989 1988 - --------------------------------------------------------------------------------------- OPERATING RESULTS Net sales 78,417 77,100 72,266 71,150 Research and development 4,046 3,863 3,614 3,077 Earnings before income taxes 2,419 3,507 3,798 3,359 Earnings before changes in accounting 1,648 2,332 2,375 2,071 Cumulative effect of changes in accounting 0 0 0 0 Net earnings (loss) 1,648 2,332 2,375 2,071 Earnings to sales * 2.1% 3.0% 3.3% 2.9% - --------------------------------------------------------------------------------------- PER COMMON SHARE Basic earnings before changes in accounting .49 .73 .77 .69 Cumulative effect of changes in accounting 0 0 0 0 Basic earnings (loss) .49 .73 .77 .69 Cash dividends declared: Common Stock .30 .30 .29 .28 Class B Common Stock .28 .28 .26 .25 Price range - high 9.00 9.94 11.44 10.13 Price range - low 6.81 6.50 8.00 6.00 Closing price 7.69 6.94 9.81 9.06 Book value 8.61 8.29 8.39 7.89 - --------------------------------------------------------------------------------------- SHARES OUTSTANDING Common Stock 2,280 2,274 1,938 1,865 Class B Common Stock 1,126 1,126 1,149 1,175 - --------------------------------------------------------------------------------------- FINANCIAL POSITION Working capital 9,842 18,365 13,803 13,599 Current ratio 1.6 to 1 3.3 to 1 2.1 to 1 2.4 to 1 Net cash provided by operations 5,410 5,132 3,342 5,846 Capital expenditures 3,335 4,901 4,376 2,904 Total assets 51,199 50,670 46,672 41,787 Long-term debt 1,900 10,400 5,183 5,267 Shareholders' equity 29,303 28,168 25,897 23,975 Debt to total capitalization 28.7% 30.5% 29.2% 25.9% Return on shareholders' equity * 5.6% 8.3% 9.2% 8.6% Price/earnings ratio * 15.9 9.6 12.7 13.1 - ---------------------------------------------------------------------------------------
* PRIOR TO ACCOUNTING CHANGES 34 EX-21 3 EXHIBIT 21 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.
Percentage State or Country Name of ownership in which organized - ---- ------------ ------------------ Badger Meter Europe, GmbH 100% Federal Republic of Germany Badger Meter International Sales, Inc. (a DISC) 100% Delaware Badger Meter de Mexico, S.A. de C.V. 100% Mexico Badger Meter Limited 100% U.K. Badger Meter de Las Americas, S.A. de C.V. 100% Mexico Badger Meter Export, Inc. 100% Virgin Islands (a large FSC) (U.S.) Badger/Instromet LLC 50% Wisconsin Badger Meter, Canada 100% Canada
35 EX-23 4 EXHIBIT 23 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 28, 1998, included in the 1997 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 28, 1998, with respect to the consolidated financial statements and schedule of Badger Meter, Inc. included or incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 1997. Ernst & Young LLP Milwaukee, Wisconsin March 23, 1998 36 EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1997 INCORPORATED BY REFERENCE IN THE ANNUAL REPORT ON FORM 10K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10K. 1,000 12-MOS DEC-31-1997 DEC-31-1997 1,055 0 19,193 0 21,598 42,539 64,407 (40,423) 82,297 28,669 0 0 0 1,012 40,455 82,297 130,771 130,771 82,034 119,803 308 0 455 10,205 3,683 6,522 0 0 0 6,522 1.83 1.65
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