-----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, CmZ8F6HptHyggYu/mwmIfOt+4QtpS6QXfZvwG8szaeAeCdcrgIgioeVhpdZQOARp MUPO4s3koT1+i969xCeHlQ== 0000950124-01-001652.txt : 20010328 0000950124-01-001652.hdr.sgml : 20010328 ACCESSION NUMBER: 0000950124-01-001652 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010327 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: 1580901 BUSINESS ADDRESS: STREET 1: 4545 WEST BROWN DEER ROAD CITY: MILWAUKEE STATE: WI ZIP: 53223 BUSINESS PHONE: 4143715702 MAIL ADDRESS: STREET 1: 4545 W BROWN DEER RD CITY: MILWAUKEE STATE: WI ZIP: 53223 FORMER COMPANY: FORMER CONFORMED NAME: BADGER METER MANUFACTURING CO DATE OF NAME CHANGE: 19710729 10-K405 1 c61152e10-k405.txt FORM 10-K 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, 2000 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________to____________ Commission file number 1-6706 BADGER METER, INC. (Exact name of registrant as specified in charter) WISCONSIN 39-0143280 (State of Incorporation) (I.R.S. Employer Identification No.) 4545 W. BROWN DEER ROAD MILWAUKEE, WISCONSIN 53223 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 414 - 355-0400 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of class: on which registered: COMMON STOCK AMERICAN STOCK EXCHANGE COMMON SHARE PURCHASE RIGHTS AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of voting stock held by nonaffiliates of the registrant was $82,392,016 as of February 28, 2001. At February 28, 2001, the registrant had 3,209,524 shares of Common Stock outstanding. Documents Incorporated by Reference: Parts I and II incorporate information by reference from the company's 2000 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 27, 2001 [to be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after the end of the registrant's fiscal year]. 2 Part I Item 1. Business Badger Meter, Inc. (the "company") is a marketer and manufacturer of products, and a provider of services, using flow measurement and control technologies serving markets worldwide. The company was incorporated in 1905. Markets and Products The company's products are sold to water utilities, original equipment manufacturers and various industrial customers primarily operating in the following markets: water, wastewater and process waters; energy and petroleum; food and beverage; pharmaceutical; chemical; and concrete. The company has five major product lines: residential and commercial/industrial water meters (with related technologies), automotive fluid meters, small precision valves and industrial process meters. Water meters and related systems produce the majority of the company's sales. A "water meter system" generally consists of a water meter, a register (some with an interface technology for communicating the reading), packaging and the monitoring or computerized management system used to collect and relay the reading. The company's products are primarily manufactured and assembled in the company's Milwaukee, Wisconsin, Tulsa, Oklahoma, and Rio Rico, Arizona facilities. Assembly is also done in the company's Nogales, Mexico and Stuttgart, Germany facility. Badger Meter's products are sold throughout the world through various distribution channels including direct sales representatives, distributors and independent sales representatives. There is only a moderate seasonal impact on sales, primarily relating to slightly higher sales of certain utility products during the spring and summer months. No single customer accounts for more than 10% of the company's sales. Competition There are several competitors in each of the markets in which the company sells its products, and the competition varies from moderate to intense. Major competitors include Invensys, Inc., Schlumberger Industries, Inc. and ABB-Kent Meters, Inc. A number of the company's competitors in certain markets have greater financial resources. The company believes it currently provides the leading technology in certain types of automated and automatic water meter systems and high precision valves. As a result of significant research and development activities, the company enjoys favorable patent positions for several of its products. Backlog The dollar amount of the company's total backlog of unshipped orders at December 31, 2000 and 1999 was $20,400,000 and $24,985,000, respectively. The company expects to ship nearly all of the December 31, 2000 backlog in 2001. 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 and components. There are multiple sources for these raw materials, but the company purchases some bronze castings and certain electronic subassemblies from single suppliers. The company believes these items would be available from 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. The company carries business interruption insurance on key suppliers. Prices may also be affected by world commodity markets. 2 3 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 $6,562,000 during 2000, as compared to $6,012,000 during 1999 and $6,105,000 during 1998. 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, trade names and license agreements in the United States and other countries that relate to its products and technologies. No single patent, trademark, trade name or license is material to the company's business as a whole. Environmental Protection The company is subject to contingencies relative to compliance with Federal, State and local provisions and regulations relating to the protection of the environment. Currently the company is in the process of resolving issues relative to two landfill sites. The company does not believe the ultimate resolution of either of these claims will have a material adverse effect on the results of operations. Expenditures during 2000 and 1999 for compliance with environmental control provisions and regulations were not material and the company does not anticipate any material future expenditures. To insure compliance with environmental regulations at company sites, the Board of Directors has established a Compliance Committee that monitors the company's compliance with various regulatory authorities in regard to environmental matters, among other things. Employees The company and its subsidiaries employed 956 persons at December 31, 2000, of which 245 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, 2004. The company has good relations with the union and all of its employees. Foreign Operations and Export Sales The company has distributors and sales representatives throughout the world. Additionally, the company has a sales, assembly and distribution facility in Stuttgart, Germany, sales and customer service offices in Mexico City and Singapore, and two assembly facilities in Nogales, Mexico. The company exports products manufactured in Milwaukee, Wisconsin, Tulsa, Oklahoma, and Rio Rico, Arizona. Information about the company's foreign operations and export sales is included in Note 10 in the Notes to Consolidated Financial Statements of the company's 2000 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, 2000, are listed below. Except as indicated, the company owns all of such facilities in fee simple.
Approximate Area Location Principal Use (Square Feet) - -------- ------------- ---------------- Milwaukee, Wisconsin Manufacturing and offices 323,000 Tulsa, Oklahoma Manufacturing and offices 77,500 (1) Rio Rico, Arizona Manufacturing and offices 36,000 Nogales, Mexico Assembly, manufacturing and offices 41,700 (2) Nogales, Mexico Assembly, manufacturing and offices 18,350 (3) Stuttgart, Germany Assembly, manufacturing and offices 23,000 (4)
(1) Includes 18,000 sq. ft. leased facility. Lease term expires May 1, 2001. (2) Leased facility. Lease term expires January 31, 2002. (3) Leased facility. Lease term expires October 31, 2002. (4) Leased facility. Lease term expires December 31, 2005. In addition to the foregoing facilities, the company leases several sales offices. The company believes that its facilities are generally well maintained and have sufficient capacity for its current needs. Item 3. Legal Proceedings There are currently no material legal proceedings pending with relation to the company. 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, 2000. 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 2/28/2001 - ---- -------- --------- James L. Forbes Chairman, President and Chief 68 Executive Officer Robert D. Belan Executive Vice President - Operations 60 Richard A. Meeusen Executive Vice President - Administration 46 Robert M. Bullis Vice President - Manufacturing 51 Ronald H. Dix Vice President - Human Resources 56 Deirdre C. Elliott Vice President - Corporate Counsel 44 and Secretary Richard E. Johnson Vice President - Finance, Chief Financial 46 Officer and Treasurer Beverly L.P. Smiley Vice President - Controller 51 Kenneth E. Smith Vice President - Industrial Products 52 and International Dennis J. Webb Vice President - Customer Solutions 53 Daniel D. Zandron Vice President - Utility Products 52
There are no family relationships between any of the executive officers. All of the officers are elected annually at the first meeting of the Board of Directors held after each annual meeting of the shareholders. Each officer holds office until his successor has been elected or until his death, resignation or removal. There is no arrangement or understanding between any executive officer and any other person pursuant to which he was elected as an officer. Mr. Forbes was elected Chairman, President and Chief Executive Officer in February 2001. Mr. Forbes served as Chairman and Chief Executive Officer from April 1999 to February 2001. Prior to that date, Mr. Forbes served as President and Chief Executive Officer for more than five years. Mr. Belan was elected Executive Vice President - Operations in February 2001. Mr. Belan served as President and Chief Operating Officer from April 1999 to February 2001. Mr. Belan served as Executive Vice President from April 1998 to April 1999. Prior to that date, Mr. Belan served as Vice President - -- Utility for more than five years. Mr. Meeusen was elected Executive Vice President -- Administration in February 2001. Mr. Meeusen served as Treasurer from January 1996 to February 2001. In addition, Mr. Meeusen served as Vice President -- Finance and Chief Financial Officer from November 1995 to February 2001. Mr. Bullis was elected Vice President -- Manufacturing in February 2001. He served as Vice President -- Operations from November 1999 to February 2001. Prior to that date, Mr. Bullis served as Vice President -- Operations -- Utility for more than five years. Mr. Dix was elected Vice President -- Human Resources in February 2001. Prior to that date, Mr. Dix served as Vice President -- Administration and Human Resources for more than five years. 5 6 Ms. Elliott has served as Vice President -- Corporate Counsel and Secretary for more than five years. Mr. Johnson joined the company and was elected Vice President -- Finance, Chief Financial Officer and Treasurer in February 2001. Prior to joining the company, Mr. Johnson served as Director of Business Support for the Energy Delivery Business of Wisconsin Electric Power Company from 1999 to December 2000. From 1996 to 1999, Mr. Johnson served as the Director of Business Support for the Distribution Operations of Wisconsin Electric Power Company, and from 1994 to 1996, served as the Director of Support Services for Wisconsin Natural Gas. Ms. Smiley was elected Vice President -- Controller in November 1999. Ms. Smiley served as Corporate Controller from April 1997 to November 1999. Prior to that date, Ms. Smiley served as Accounting Manager of the company for more than five years. Mr. Smith was elected Vice President -- Industrial Products and International in November 2000. Mr. Smith served as Vice President -- Industrial and Commercial Products from January 2000 to November 2000. Prior to joining the company, Mr. Smith served as President of Peek Measurement Group for more than five years. Mr. Webb was elected Vice President -- Customer Solutions in April 2000. Mr. Webb served as Vice President -- Engineering and Quality from November 1999 to April 2000. Prior to that date, Mr. Webb served as Vice President -- Engineering and Quality -- Utility for more than five years. Mr. Zandron was elected Vice President -- Utility Products in November 2000. Mr. Zandron served as Vice President -- Commercial and Industrial Products, and a number of similar capacities, from January 2000 to November 2000. From May 1999 to January 2000, Mr. Zandron served as Vice President -- Commercial and Industrial Products -- Utility. Prior to that date, Mr. Zandron served as Vice President -- Commercial and Industrial and Marketing for more than five years. Part II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters The information set forth on page 21 in the company's 2000 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 23 in the company's 2000 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 9, 10 and 11 in the company's 2000 Annual Report to Shareholders is incorporated herein by reference in response to this Item. Item 7.a. Quantitative and Qualitative Disclosures of Market Risk The information set forth on page 11 under the heading "Market Risk" in the company's 2000 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, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 and the auditor's report thereon and the company's unaudited quarterly financial data for the two-year period ended December 31, 2000 are incorporated herein by reference from the 2000 Annual Report to Shareholders, pages 12 through 22. 6 7 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Part III Item 10. Directors and Executive Officers of the Registrant Information required by this Item with respect to directors is included under the headings "Nomination and Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 27, 2001, 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 27, 2001, 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 27, 2001, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information required by this Item is included under the headings "Management Review Committee Interlocks and Insider Participation" and "Certain Transactions" in the company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 27, 2001, and is incorporated herein by reference. Part IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K (a) Documents filed 1. and 2. Financial Statements and Financial Statement Schedule. See Index to Financial Statements and Financial Statement Schedule on page F-0 which is incorporated herein by reference. 3. Exhibits. See the Exhibit Index included as the last pages of this report which is incorporated herein by reference. (b) Reports on Form 8-K No report on Form 8-K was filed by the registrant during the quarter ended December 31, 2000. 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 9, 2001 By: /s/ Beverly L.P. Smiley ----------------------- Beverly L.P. Smiley Vice President -- Controller February 9, 2001 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 L. Forbes /s/ Robert D. Belan - ------------------------------------ -------------------------------------- James L. Forbes Robert D. Belan Chairman and President and Chief Executive Officer Chief Operating Officer February 9, 2001 February 9, 2001 /s/ Steven J. Smith /s/ Ulice Payne, Jr. - ------------------------------------ -------------------------------------- Steven J. Smith Ulice Payne, Jr. Director Director February 9, 2001 February 9, 2001 /s/ Charles F. James, Jr. /s/ Andrew J. Policano - ------------------------------------ -------------------------------------- Charles F. James, Jr. Andrew J. Policano Director Director February 9, 2001 February 9, 2001 /s/ Donald J. Schuenke /s/ Kenneth P. Manning - ------------------------------------ -------------------------------------- Donald J. Schuenke Kenneth P. Manning Director Director February 9, 2001 February 9, 2001 /s/ John J. Stollenwerk /s/ James O. Wright, Jr. - ------------------------------------ -------------------------------------- John J. Stollenwerk James O. Wright, Jr. Director Director February 9, 2001 February 9, 2001
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, 2000 and 1999 13 Consolidated statements of operations for each of the three years in the period ended December 31, 2000 12 Consolidated statements of cash flows for each of the three years in the period ended December 31, 2000 14 Consolidated statements of shareholders' equity for each of the three years in the period ended December 31, 2000 15 Notes to consolidated financial statements 16 -- 21 Report of Ernst & Young LLP, Independent Auditors 22 Item 14(a) 2 Financial statement schedules: Consolidated schedules for each of the three years in the period ended December 31, 2000 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, 2000, 1999 and 1998
Balance at Additions Deductions Balance beginning charged to from at end of year earnings allowances of year Allowance for doubtful receivables: 2000 $496,000 $154,000 $ 24,000 (a) $626,000 ======== ======== =========== ======== 1999 $369,000 $ 95,000 $(32,000)(a) $496,000 ======== ======== =========== ======== 1998 $308,000 $151,000 $ 90,000 (a) $369,000 ======== ======== =========== ======== Warranty/after-sale cost reserve: 2000 $3,835,000 $1,503,000 $2,093,000 $3,245,000 ========== ========== ========== ========== 1999 $4,386,000 $1,368,000 $1,919,000 $3,835,000 ========== ========== ========== ========== 1998 $3,630,000 $2,783,000 $2,027,000 $4,386,000 ========== ========== ========== ==========
Note: (a) Accounts receivable written off, less recoveries, against the allowance. F-1 10 11 EXHIBIT INDEX
Exhibit No. Exhibit Description - ----------- ------------------- (3.0) Restated Articles of Incorporation effective September 30, 1999. [Incorporated by reference from Exhibit (3.0) (i) to the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1999]. (3.1) Restated By-Laws as amended February 9, 2001. (4.0) Loan Agreement, as amended April 30, 1988, between the Registrant and the M&I Marshall & Ilsley Bank relating to the Registrant's revolving credit loan. [Incorporated by reference from Exhibit (4.0) to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1988]. (4.1) Loan Agreement between Firstar Bank Milwaukee, N.A. and the Badger Meter Employee Savings and Stock Ownership Plan and Trust, dated December 1, 1995. [Incorporated by reference from Exhibit (4.3) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995]. (4.2) Loan Agreement, as amended December 21, 1998, between Firstar Bank Milwaukee, N.A. and the Badger Meter Employee Savings and Stock Ownership Plan and Trust. [Incorporated by reference from Exhibit (4.2) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998]. (4.3) Rights Agreement, dated May 26, 1998, between Registrant and Firstar Trust Company. [Incorporated by reference to Exhibit (4.1) to the Registrant's Registration Statement on Form 8-A (Commission File No. 1-6706)]. (9.1) Badger Meter Officers' Voting Trust Agreement dated December 18, 1991. [Incorporated by reference from Exhibit (9.1) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991]. (10.0) * Badger Meter, Inc. Restricted Stock Plan, as amended. [Incorporated by reference from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement (Registration No. 33-27649)]. (10.1) * Badger Meter, Inc. 1989 Stock Option Plan. [Incorporated by reference from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement (Registration No. 33-27650)]. (10.2) * Badger Meter, Inc. 1993 Stock Option Plan. [Incorporated by reference from Exhibit (4.3) to the Registrant's Form S-8 Registration Statement (Registration No. 33-65618)]. (10.3) * Badger Meter, Inc. 1995 Stock Option Plan. [Incorporated by reference from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement (Registration No. 33-62239)].
*A management contract or compensatory plan or arrangement. 11 12 EXHIBIT INDEX (CONTINUED)
Exhibit No. Exhibit Description - ----------- ------------------- (10.4) * Badger Meter, Inc. 1997 Stock Option Plan. [Incorporated by reference from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement (Registration No. 333-28617)]. (10.5) * Badger Meter, Inc. Deferred Compensation Plan. [Incorporated by reference from Exhibit (10.5) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993]. (10.6) Badger Meter, Inc. Employee Savings and Stock Ownership Plan. [Incorporated by reference from Exhibit (4.1) to the Registrant's Form S-8 Registration Statement (Registration No. 033-62241)]. (10.7) * Long-Term Incentive Plan. [Incorporated by reference from Exhibit (10.6) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995]. (10.8) * Badger Meter, Inc. Supplemental Non-Qualified Unfunded Pension Plan. [Incorporated by reference from Exhibit (10.7) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995]. (10.9)* Forms of the Key Executive Employment and Severance Agreements between Badger Meter, Inc. and the applicable executive officers. [Incorporated by reference from Exhibit (10.0) to the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1999]. (10.10)* Badger Meter, Inc. 1999 Stock Option Plan. (10.11)* Badger Meter, Inc. Amendment to Deferred Compensation Plan. (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. (99.0) Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 27, 2001. [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-3.1 2 c61152ex3-1.txt RESTATED BY-LAWS AS AMENDED 2/9/01 1 Exhibit (3.1) RESTATED BY-LAWS OF BADGER METER, INC. (AS AMENDED FEBRUARY 9, 2001) ARTICLE I SHAREHOLDERS Section 1. Annual Meeting. The annual meeting of the shareholders (the "Annual Meeting") shall be held on the second Saturday in April of each year, or at such other time and date as may be fixed by resolution of the Board of Directors. In fixing a meeting date for any Annual Meeting, the Board of Directors may consider such factors as it deems relevant within the good faith exercise of its business judgment. At each Annual Meeting, the shareholders shall elect that number of directors equal to the number of directors in the class whose term expires at the time of such meeting. At any such Annual Meeting, only other business properly brought before the meeting in accordance with Section 12 of Article I of these By-laws may be transacted. If the election of directors shall not be held on the date designated herein, or fixed as herein provided, for any Annual Meeting, or any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of shareholders (a "Special Meeting") as soon thereafter as is practicable. Section 2. Special Meetings. (a) A Special Meeting may be called only by (i) the Chairman, (ii) the Chief Executive Officer or (iii) the Board of Directors and shall be called by the Chief Executive Officer upon the demand, in accordance with this Section 2, of the holders of record of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting. (b) In order that the Corporation may determine the shareholders entitled to demand a Special Meeting, the Board of Directors may fix a record date to determine the shareholders entitled to make such a demand (the "Demand Record Date"). The Demand Record Date shall not precede the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors and shall not be more than ten days after the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors. Any shareholder of record seeking to have shareholders demand a Special Meeting shall, by sending written notice to the Secretary of the Corporation by hand or by certified or registered mail, return receipt requested, request the Board of Directors to fix a Demand Record Date. The Board of Directors shall promptly, but in all events within ten days after the date on which a valid request to fix a Demand Record Date is received, adopt a resolution fixing the Demand Record Date and shall make a public announcement of such Demand Record Date. If no Demand Record Date has been fixed by the Board of Directors within ten days after the date on which such request is received by the Secretary, the Demand Record Date shall be the 10th day after the first date on which a valid written request to set a Demand Record Date is received by the Secretary. To be valid, such written request shall set forth the purpose or purposes for which the Special Meeting is to be held, shall be signed by one or more shareholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareholder (or proxy or other representative) and shall set forth all information about each such shareholder and about the beneficial owner or owners, if any, on whose behalf the request is made that would be required to be set forth in a shareholder's notice described in paragraph (a) (ii) of Section 12 of Article I of these By-laws. (c) In order for a shareholder or shareholders to demand a Special Meeting, a written demand or demands for a Special Meeting by the holders of record as of the Demand Record Date of shares representing at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the Special Meeting must be delivered to the Corporation. To be valid, each written demand by a shareholder for a Special Meeting shall set forth the specific purpose or purposes for which the Special Meeting is to be held (which purpose or purposes shall be limited to the purpose or purposes set forth in the written request to set a Demand Record Date received by the Corporation pursuant to paragraph (b) of this Section 2), shall be signed by one or more persons who as of the Demand Record Date are shareholders of record (or their 13 2 duly authorized proxies or other representatives), shall bear the date of signature of each such shareholder (or proxy or other representative), and shall set forth the name and address, as they appear in the Corporation's books, of each shareholder signing such demand and the class and number of shares of the Corporation which are owned of record and beneficially by each such shareholder, shall be sent to the Secretary by hand or by certified or registered mail, return receipt requested, and shall be received by the Secretary within seventy days after the Demand Record Date. (d) The Corporation shall not be required to call a Special Meeting upon shareholder demand unless, in addition to the documents required by paragraph (c) of this Section 2, the Secretary receives a written agreement signed by each Soliciting Shareholder (as defined below), pursuant to which each Soliciting Shareholder, jointly and severally, agrees to pay the Corporation's costs of holding the Special Meeting, including the costs of preparing and mailing proxy materials for the Corporation's own solicitation, provided that if each of the resolutions introduced by any Soliciting Shareholder at such meeting is adopted, and each of the individuals nominated by or on behalf of any Soliciting Shareholder for election as a director at such meeting is elected, then the Soliciting Shareholders shall not be required to pay such costs. For purposes of this paragraph (d), the following terms shall have the meanings set forth below: (i) "Affiliate" of any Person (as defined herein) shall mean any Person controlling, controlled by or under common control with such first Person. (ii) "Participant" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (iii) "Person" shall mean any individual, firm, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity. (iv) "Proxy" shall have the meaning assigned to such term in Rule 14a-1 promulgated under the Exchange Act. (v) "Solicitation" shall have the meaning assigned to such term in Rule 14a-11 promulgated under the Exchange Act. (vi) "Soliciting Shareholder" shall mean, with respect to any Special Meeting demanded by a shareholder or shareholders, any of the following Persons: (A) if the number of shareholders signing the demand or demands of meeting delivered to the Corporation pursuant to paragraph (c) of this Section 2 is ten or fewer, each shareholder signing any such demand; (B) if the number of shareholders signing the demand or demands of meeting delivered to the Corporation pursuant to paragraph (c) of this Section 2 is more than ten, each Person who either (I) was a Participant in any Solicitation of such demand or demands or (II) at the time of the delivery to the Corporation of the documents described in paragraph (c) of this Section 2 had engaged or intended to engage in any Solicitation of Proxies for use at such Special Meeting (other than a Solicitation of Proxies on behalf of the Corporation); or (C) any Affiliate of a Soliciting Shareholder, if a majority of the directors then in office determine, reasonably and in good faith, that such Affiliate should be required to sign the written notice described in paragraph (c) of this Section 2 and/or the written agreement described in this paragraph (d) in order to prevent the purposes of this Section 2 from being evaded. (e) Except as provided in the following sentence, any Special Meeting shall be held at such hour and day as may be designated by whichever of the Chief Executive Officer, the Secretary or the Board of Directors shall have called such meeting. In the case of any Special Meeting called by the Chief Executive Officer upon the demand of shareholders (a "Demand Special Meeting"), such meeting shall be held at such hour and day as may be designated by the Board of Directors; provided, however, that the date of any Demand Special Meeting shall be not more than seventy days after the Meeting Record Date (as defined in Section 5 of Article I of these By-laws); and provided further that in the event that the directors then in office fail to designate an hour and date for a Demand Special Meeting within ten days after the date that valid written demands for such meeting by the holders of record as of the Demand Record Date of shares representing at 14 3 least 10% of all the votes entitled to be cast on each issue proposed to be considered at the Special Meeting are delivered to the Corporation (the "Delivery Date"), then such meeting shall be held at 2:00 P.M. local time on the 100th day after the Delivery Date or, if such 100th day is not a Business Day (as defined below), on the first preceding Business Day. In fixing a meeting date for any Special Meeting, the Chief Executive Officer, the Secretary or the Board of Directors may consider such factors as he or it deems relevant within the good faith exercise of his or its business judgment, including, without limitation, the nature of the action proposed to be taken, the facts and circumstances surrounding any demand for such meeting, and any plan of the Board of Directors to call an Annual Meeting or a Special Meeting for the conduct of related business. (f) The Corporation may engage regionally or nationally recognized independent inspectors of elections to act as an agent of the Corporation for the purpose of promptly performing a ministerial review of the validity of any purported written demand or demands for a Special Meeting received by the Secretary. For the purpose of permitting the inspectors to perform such review, no purported demand shall be deemed to have been delivered to the Corporation until the earlier of (i) five Business Days following receipt by the Secretary of such purported demand and (ii) such date as the independent inspectors certify to the Corporation that the valid demands received by the Secretary represent at least 10% of all the votes entitled to be cast on each issue proposed to be considered at the Special Meeting. Nothing contained in this paragraph (f) shall in any way be construed to suggest or imply that the Board of Directors or any shareholder shall not be entitled to contest the validity of any demand, whether during or after such five Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto). (g) For purposes of these By-laws, "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Wisconsin are authorized or obligated by law or executive order to close. Section 3. Place of Meeting. The Chairman, the Chief Executive Officer, the Board of Directors or the Secretary may designate any place, either within or without the State of Wisconsin, as the place of meeting for an Annual Meeting or Special Meeting. If no designation is made, the place of meeting shall be the principal office of the Corporation. Any meeting may be adjourned to reconvene at any place designated by vote of the Board of Directors or by the Chief Executive Officer or the Secretary. Section 4. Notice of Meeting. Written notice stating the date, time and place of any meeting of shareholders shall be delivered not less than ten days nor more than sixty days before the date of the meeting (unless a different time period is provided by the Wisconsin Business Corporation Law (the "WBCL") or the Articles of Incorporation), either personally or by mail, by or at the direction of the Chairman, the President or the Secretary, to each shareholder of record entitled to vote at such meeting and to such other persons as required by the WBCL. In the event of any Demand Special Meeting, such notice of meeting shall be sent not more than thirty days after the Delivery Date. If mailed, notice pursuant to this Section 4 shall be deemed to be effective when deposited in the United States mail, addressed to the shareholder at his or her address as it appears on the stock record books of the Corporation, with postage thereon prepaid. Unless otherwise required by the WBCL or the Articles of Incorporation, a notice of an Annual Meeting need not include a description of the purpose for which the meeting is called. In the case of any Special Meeting, (a) the notice of meeting shall describe any business that the Board of Directors shall have theretofore determined to bring before the meeting and (b) in the case of a Demand Special Meeting, the notice of meeting (i) shall describe any business set forth in the statement of purpose of the demands received by the Corporation in accordance with Section 2 of Article I of these By-laws and (ii) shall contain all of the information required in the notice received by the Corporation in accordance with Section 12(b) of Article I of these By-laws. If an Annual Meeting or Special Meeting is adjourned to a different date, time or place, the Corporation shall not be required to give notice of the new date, time or place if the new date, time or place is announced at the meeting before adjournment; provided, however, that if a new Meeting Record Date for an adjourned meeting is or must be fixed, the Corporation shall give notice of the adjourned meeting to persons who are shareholders as of the new Meeting Record Date. Section 5. Fixing of Record Date. The Board of Directors may fix in advance a date not less than ten days and not more than seventy days prior to the date of an Annual Meeting or Special Meeting as the record date for the determination of shareholders entitled to notice of, or to vote at, such meeting (the "Meeting Record Date"). In the case of any Demand Special Meeting, (i) the Meeting Record Date shall be not later than the 30th day after the Delivery Date and (ii) if the Board of Directors fails to fix the Meeting Record Date within thirty days after the Delivery Date, then the close of business on such 30th day shall be the Meeting Record Date. The shareholders of record on the Meeting Record Date shall be the shareholders entitled to notice of and to vote at the meeting. Except as provided by the WBCL for a court-ordered adjournment, a determination of shareholders entitled to notice of and to vote at an Annual Meeting or Special Meeting is effective for any adjournment of such meeting unless the Board of Directors fixes a new Meeting Record Date, which it shall 15 4 do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. The Board of Directors may also fix in advance a date as the record date for the purpose of determining shareholders entitled to take any other action or determining shareholders for any other purpose. Such record date shall be not more than seventy days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. The record date for determining shareholders entitled to a distribution (other than a distribution involving a purchase, redemption or other acquisition of the Corporation's shares) or a share dividend is the date on which the Board of Directors authorizes the distribution or share dividend, as the case may be, unless the Board of Directors fixes a different record date. Section 6. Shareholders' List for Meetings. After a Meeting Record Date has been fixed, the Corporation shall prepare a list of the names of all of the shareholders entitled to notice of the meeting. The list shall be arranged by class or series of shares, if any, and show the address of and number of shares held by each shareholder. Such list shall be available for inspection by any shareholder, beginning two business days after notice of the meeting is given for which the list was prepared and continuing to the date of the meeting, at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder or his or her agent may, on written demand, inspect and, subject to the limitations imposed by the WBCL, copy the list, during regular business hours and at his or her expense, during the period that it is available for inspection pursuant to this Section 6. The Corporation shall make the shareholders' list available at the meeting and any shareholder or his or her agent or attorney may inspect the list at any time during the meeting or any adjournment thereof. Refusal or failure to prepare or make available the shareholders' list shall not affect the validity of any action taken at a meeting of shareholders. Section 7. Quorum and Voting Requirements; Postponements; Adjournments. (a) Shares entitled to vote as a separate voting group may take action on a matter at any Annual Meeting or Special Meeting only if a quorum of those shares exists with respect to that matter. If the Corporation has only one class of stock outstanding, such class shall constitute a separate voting group for purposes of this Section 7. Except as otherwise provided in the Articles of Incorporation or the WBCL, a majority of the votes entitled to be cast on the matter shall constitute a quorum of the voting group for action on that matter. Once a share is represented for any purpose at any Annual Meeting or Special Meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, it is considered present for purposes of determining whether a quorum exists for the remainder of the meeting and for any adjournment of that meeting unless a new Meeting Record Date is or must be set for the adjourned meeting. If a quorum exists, except in the case of the election of directors, action on a matter shall be approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles of Incorporation or the WBCL requires a greater number of affirmative votes. Unless otherwise provided in the Articles of Incorporation, each director to be elected shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at an Annual Meeting or Special Meeting at which a quorum is present. (b) The Board of Directors acting by resolution may postpone and reschedule any previously scheduled Annual Meeting or Special Meeting; provided, however, that a Demand Special Meeting shall not be postponed beyond the 100th day following the Delivery Date. Any Annual Meeting or Special Meeting may be adjourned from time to time, whether or not there is a quorum, (i) at any time, upon a resolution by shareholders if the votes cast in favor of such resolution by the holders of shares of each voting group entitled to vote on any matter theretofore properly brought before the meeting exceed the number of votes cast against such resolution by the holders of shares of each such voting group or (ii) at any time prior to the transaction of any business at such meeting, by the President or pursuant to a resolution of the Board of Directors. No notice of the time and place of adjourned meetings need be given except as required by the WBCL. At any adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 8. Voting of Shares. Each outstanding share shall be entitled to one vote upon each matter submitted to a vote at an Annual Meeting or Special Meeting, except to the extent that the voting rights of the shares of any class or classes are enlarged, limited or denied by the WBCL or the Articles of Incorporation. Section 9. Proxies. At any Annual Meeting or Special Meeting, a shareholder may vote his or her shares in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form, either personally or by his or her attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent of the Corporation authorized to tabulate votes. An appointment is valid for eleven months from the date of its signing unless a different period is expressly provided in the appointment form. Unless otherwise provided, a proxy may be revoked at any time before it is voted, either by written notice filed with the Secretary or the acting 16 5 secretary of the meeting or by oral notice given by the shareholder to the presiding officer during the meeting. The presence of a shareholder who has filed his or her appointment of proxy shall not itself constitute a revocation. The Board of Directors shall have the power and authority to make rules establishing presumptions as to the validity and sufficiently of proxies. Section 10. Acceptance of Instruments Showing Shareholder Action. If the name signed on a vote, consent, waiver or proxy appointment corresponds to the name of a shareholder, the Corporation, if acting in good faith, may accept the vote, consent, waiver or proxy appointment and give it effect as the act of a shareholder. If the name signed on a vote, consent, waiver or proxy appointment does not correspond to the name of a shareholder, the Corporation, if acting in good faith, may accept the vote, consent, waiver or proxy appointment and give it effect as the act of the shareholder if any of the following apply: (a) The shareholder is an entity and the name signed purports to be that of an officer or agent of the entity. (b) The name purports to be that of a personal representative, administrator, executor, guardian or conservator representing the shareholder and, if the Corporation requests, evidence of fiduciary status acceptable to the Corporation is presented with respect to the vote, consent, waiver or proxy appointment. (c) The name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the Corporation requests, evidence of this status acceptable to the Corporation is presented with respect to the vote, consent, waiver or proxy appointment. (d) The name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the Corporation requests, evidence acceptable to the Corporation of the signatory's authority to sign for the shareholder is presented with respect to the vote, consent, waiver or proxy appointment. (e) Two or more persons are the shareholders as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all co-owners. The Corporation may reject a vote, consent, waiver or proxy appointment if the Secretary or other officer or agent of the Corporation who is authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder. Section 11. Waiver of Notice. A shareholder may waive any notice required by the WBCL, the Articles of Incorporation or these By-laws before or after the date and time stated in the notice. The waiver shall be in writing and signed by the shareholder entitled to the notice, contain the same information that would have been required in the notice under applicable provisions of the WBCL (except that the time and place of meeting need not be stated) and be delivered to the Corporation for inclusion in the corporate records. A shareholder's attendance at any Annual Meeting or Special Meeting, in person or by proxy, waives objection to all of the following: (a) lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting or promptly upon arrival objects to holding the meeting or transacting business at the meeting; and (b) consideration of a particular matter at the meeting that is not within the purpose described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. Section 12. Notice of Shareholder Business and Nomination of Directors. (a) Annual Meetings. (i) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareholders may be made at an Annual Meeting (A) pursuant to the Corporation's notice of meeting, (B) by or at the direction of the Board of Directors or (C) by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this By-law and who is entitled to vote at the meeting and complies with the notice procedures set forth in this Section 12. (ii) For nominations or other business to be properly brought before an Annual Meeting by a shareholder pursuant to clause (C) of paragraph (a)(i) of this Section 12, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be received by the Secretary of the Corporation at the principal offices of the Corporation not less than sixty days nor more than ninety days prior to the second Saturday in the month of April; provided, however, that in the event that the date of 17 6 the Annual Meeting is advanced by more than thirty days or delayed by more than days from the second Saturday in the month of April, notice by the shareholder to be timely must be so received not earlier than the 90th day prior to the date of such Annual Meeting and not later than the close of business on the later of (x) the 60th day prior to such Annual Meeting and (y) the 10th day following the day on which public announcement of the date of such meeting is first made. Such shareholder's notice shall be signed by the shareholder of record who intends to make the nomination or introduce the other business (or his duly authorized proxy or other representative), shall bear the date of signature of such shareholder (or proxy or other representative) and shall set forth: (A) the name and address, as they appear on this corporation's books, of such shareholder and the beneficial owner or owners, if any, on whose behalf the nomination or proposal is made; (B) the class and number of shares of the Corporation which are beneficially owned by such shareholder or beneficial owner or owners; (C) a representation that such shareholder is a holder of record of shares of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination or introduce the other business specified in the notice; (D) in the case of any proposed nomination for election or re-election as a director, (I) the name and residence address of the person or persons to be nominated, (II) a description of all arrangements or understandings between such shareholder or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareholder, (III) such other information regarding each nominee proposed by such shareholder as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors and (IV) the written consent of each nominee to be named in a proxy statement and to serve as a director of the Corporation if so elected; and (E) in the case of any other business that such shareholder proposes to bring before the meeting, (I) a brief description of the business desired to be brought before the meeting and, if such business includes a proposal to amend these By-laws, the language of the proposed amendment, (II) such shareholder's and beneficial owner's or owners' reasons for conducting such business at the meeting and (III) any material interest in such business of such shareholder and beneficial owner or owners. (iii) Notwithstanding anything in the second sentence of paragraph (a)(ii) of this Section 12 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least seventy days prior to the second Saturday in the month of April, a shareholder's notice required by this Section 12 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary at the principal offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (b) Special Meetings. Only such business shall be conducted at a Special Meeting as shall have been described in the notice of meeting sent to shareholders pursuant to Section 4 of Article I of these By-laws. Nominations of persons for election to the Board of Directors may be made at a Special Meeting at which directors are to be elected pursuant to such notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any shareholder of the Corporation who (A) is a shareholder of record at the time of giving of such notice of meeting, (B) is entitled to vote at the meeting and (C) complies with the notice procedures set forth in this Section 12. Any shareholder desiring to nominate persons for election to the Board of Directors at such a Special Meeting shall cause a written notice to be received by the Secretary of the Corporation at the principal offices of the Corporation not earlier than ninety days prior to such Special Meeting and not later than the close of business on the later of (x) the 60th day prior to such Special Meeting and (y) the 10th day following the day on which public announcement is first made of the date of such Special Meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. Such written notice shall be signed by the shareholder of record who intends to make the nomination (or his duly authorized proxy or other representative), shall bear the date of signature of such shareholder (or proxy or other representative) and shall set forth: (A) the name and address, as they appear on the Corporation's books, of such shareholder and the beneficial owner or owners, if any, on whose behalf the nomination is made; (B) the class and number of shares of the Corporation which are beneficially owned by such shareholder or beneficial owner or owners; (C) a representation that such shareholder is a holder of record of shares of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination specified in the notice; (D) the name and residence address of the person or persons to be nominated; (E) a description of all arrangements or understandings between such shareholder or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareholder; (F) such other information regarding each nominee proposed by such shareholder as would be required to be disclosed in solicitations of 18 7 proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors; and (G) the written consent of each nominee to be named in a proxy statement and to serve as a director of the Corporation if so elected. (c) General. (i) Only persons who are nominated in accordance with the procedures set forth in this Section 12 shall be eligible to serve as directors. Only such business shall be conducted at an Annual Meeting or Special Meeting as shall have been brought before such meeting in accordance with the procedures set forth in this Section 12. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 12 and, if any proposed nomination or business is not in compliance with this Section 12, to declare that such defective proposal shall be disregarded. (ii) For purposes of this Section 12, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (iii) Notwithstanding the foregoing provisions of this Section 12, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 12. Nothing in this Section 12 shall be deemed to limit the Corporation's obligation to include shareholder proposals in its proxy statement if such inclusion is required by Rule 14a-8 under the Exchange Act. ARTICLE II BOARD OF DIRECTORS Section 1. General Powers and Number. All corporate powers of the Corporation shall be exercised by or under the authority of, and the business and affairs of the Corporation managed under, the direction of its Board of Directors, which shall consist of ten (10) directors. The Board of Directors shall elect one of its members as Chairman, who, when present, shall preside at all meetings of the shareholders and Board of Directors. Section 2. Tenure and Qualifications. Each director shall hold office until the annual meeting of shareholders at which his term expires and until his successor shall have been elected, or until his prior death, resignation or removal. A director shall not be eligible to stand for re-election at any annual meeting of shareholders following his 70th birthday, except that any directors who are over 70 years old on or before November 1, 1999, may be appointed as director emeritus to serve until he resigns or his appointment is terminated by resolution of the Board of Directors, and shall serve in an advisory capacity to the Board of Directors, shall be entitled to attend meetings of the Board and its committees, shall be reimbursed for his expense in attending meetings, and shall receive the same fees and compensation paid to directors, but shall have no vote and shall not be considered as a director under the Articles of Incorporation or By-laws of the Corporation except for purposes of officers' and directors' liability insurance. A director may resign at any time by delivering written notice which complies with the Wisconsin Business Corporation Law to the Board of Directors, to the Chairman of the Board, if any, or to the Corporation. A director's resignation is effective when such notice is delivered unless the notice specifies a later date. Directors need not be residents of the State of Wisconsin or shareholders of the Corporation. Section 3. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this By-law immediately after, and at the same place as, the annual meeting of shareholders, and each adjourned session thereof. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Wisconsin, for the holding of additional regular meetings without other notice than such resolution. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman, the Chief Executive Officer, Secretary or any two directors. The person or persons calling any special meeting 19 8 of the Board of Directors may fix any place, either within or without the State of Wisconsin, as the place for holding any special meeting of the Board of Directors called by them, and if no other place is fixed, the place of meeting shall be the principal business office of the Corporation in the State of Wisconsin. Section 5. Notice; waiver. Notice of each meeting of the Board of Directors (unless otherwise provided in or pursuant to Section 4, Article II) shall be given by written notice delivered personally or given by telegram, teletype, facsimile or other form of wire or wireless communication not less than twenty-four (24) hours prior to the meeting or mailed or delivered by private carrier not less than forty-eight (48) hours prior to the meeting to each director at his business address or at such other address as such director shall have designated in writing filed with the Secretary. If mailed or delivered by a private carrier, such notice shall be deemed to be delivered when deposited in the United States mail or delivered to the private carrier so addressed, with postage or delivery cost thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. If notice be given by teletype, facsimile or other form of wire or wireless communication, such notice shall be deemed to be delivered when evidence of its transmittal is received. Whenever any notice whatever is required to be given to any director of the Corporation under the Articles of Incorporation or By-laws or any provision of law, a waiver thereof in writing, signed at any time, whether before or after the time of meeting, by the director entitled to such notice, shall be deemed equivalent to the giving of such notice. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting and objects thereat to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 6. Quorum. A majority of the directors shall constitute a quorum for the transaction of business; and, except as otherwise provided by law or by the Articles of Incorporation or these By-laws, a majority of the votes cast at any meeting of the Board of Directors at which a quorum is present shall be decisive of any action. A majority of the directors present at a meeting, though less than quorum, may adjourn the meeting from time to time without further notice. Section 7. Vacancies. Any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, may be filled until the next succeeding annual election by the affirmative vote of a majority of the directors then in office, though less than a quorum of the Board of Directors; provided, that in case of a vacancy created by the removal of a director by vote of the shareholders, the shareholders shall have the right to fill such vacancy at the same meeting or any adjournment thereof. Section 8. Compensation. The Board of Directors, by affirmative vote of a majority of the directors then in office, and irrespective of any personal interest of any of its members, may establish reasonable compensation of all directors for services to the Corporation as directors, officers or otherwise, or may delegate such authority to an appropriate committee. The Board of Directors also shall have authority to provide for or to delegate authority to an appropriate committee to provide for reasonable pensions, disability or death benefits, and other benefits or payments, to directors, officers and employees and to their estates, families, dependents or beneficiaries on account of prior services rendered by such directors, officers and employees to the Corporation. Section 9. Presumption of Assent. A director of the Corporation who is present at a meeting of the Board of Directors or a committee thereof of which he is a member at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. Section 10. Committees. The Board of Directors by resolution adopted by the affirmative vote of a majority of the number of directors set forth in Section 1 of this Article II may designate one or more committees, each committee to consist of three or more directors elected by the Board of Directors, which shall have and may exercise, when the Board of Directors is not in session, the powers of the Board of Directors in the management of the business and affairs of the Corporation, in the committee's designated area of responsibility, except action in respect to dividends to shareholders, election of the principal officers or the filling of vacancies on the Board of Directors or committees created pursuant to this section, with respect to the approval or proposal of actions that the law requires to be approved by the shareholders, amendment of the Articles of Incorporation, the adoption, amendment or repeal of the by-laws, the approval of a plan of merger not requiring shareholder approval, the authorization or approval of the re-acquisition of shares other than according to a method prescribed by the Board of Directors, and the authorization for approval of the issuance or sale or 20 9 contract for sale of shares, or the determination of the designation and relative rights, preferences and limitations of a class or series of shares, unless authorized to do so by the Board of Directors within prescribed limits. The Board of Directors may elect one or more of its members as alternate members of any such committee who may take the place of any absent member or members at any meeting of such committee, upon request by the Chairman or upon request by the chairman of such meeting. Each such committee shall fix its own rules governing the conduct of its activities and shall make such reports to the Board of Directors of its activities as the Board of Directors may request. Section 11. Unanimous Consent Without Meeting. Any action required or permitted by the Articles of Incorporation or By-laws or any provision of law to be taken by the Board of Directors at a meeting or by resolution may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors then in office. Section 12. Telephonic Meetings. Notwithstanding any place set forth in the notice of the meeting or these By-laws, members of the Board of Directors may participate in regular or special meetings of the Board of Directors and all Committees of the Board of Directors by or through the use of any means of communication by which all directors participating may simultaneously hear each other, such as by conference telephone; provided, however, that the Chairman of the Board or the chairman of the respective Committee and the Board or other person or persons calling a meeting may determine that the directors cannot participate by such means, in which case the notice of the meeting, or other notice to directors given prior to the meeting, shall state that each director's physical presence shall be required. If a meeting is conducted through the use of such means of communication, then at the commencement of such meeting all participating directors shall be informed that a meeting is taking place at which official business may be transacted. A director participating in a meeting by such means shall be deemed present in person at such meeting. ARTICLE III OFFICERS Section 1. General Officers. The general officers of the Corporation shall be the Chief Executive Officer, the President, one or more Vice Presidents, a Secretary, a Treasurer, a Controller, and one or more Assistant Secretaries and one or more Assistant Treasurers, each of whom shall be elected annually by the Board of Directors and shall hold office until his or her successor shall have been duly elected and qualified. The Chief Executive Officer of the Corporation shall exercise general supervision of the business and affairs of the Corporation subject to the directives of the Board of Directors. Further, each general officer shall have such powers and duties as generally pertain to his or her respective office; provided, that such powers and duties may from time to time be modified, enlarged, restricted or augmented by the Board of Directors. Section 2. Additional Officers. The Board of Directors may appoint such additional corporate officers as it may deem necessary, each of whom shall have such powers and duties as from time to time may be conferred by the Board of Directors, and shall serve for such terms as the Board may fix. Section 3. Removal of Officers. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment, the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Vacancies. A vacancy in any principal office because of death, resignation, removal, disqualification or otherwise, shall be filled by the Board of Directors for the unexpired portion of the term. The resignation of an officer by the delivery of written notice to the Chief Executive Officer or Secretary of the Corporation is effective upon delivery of the notice, unless the notice specifies a later date and the Corporation accepts the later date. 21 10 ARTICLE IV SPECIAL CORPORATE ACTS Section 1. Voting of Securities Owned by This Corporation. Subject always to the specific directions of the Board of Directors, (a) any shares or other securities issued by any other corporation and owned or controlled by this Corporation may be voted at any meeting of security holders of such other corporation by the Chairman of this Corporation if he be present, or in his absence by the President or any Vice President of this Corporation who may be present, and (b) whenever, in the judgment of the Chairman, or in his absence, of the President or any Vice President, it is desirable for this Corporation to execute a proxy or give a shareholder's consent in respect to any shares or other securities issued by any other corporation and owned by this Corporation, such proxy or consent shall be executed in the name of this Corporation by the Chairman, or the President or one of the Vice Presidents of this Corporation without necessity of any authorization by the Board of Directors, affixation of corporate seal or countersignature or attestation by another officer. Any person or persons designated in the manner above stated as the proxy or proxies of this Corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by this Corporation the same as such share or shares might be voted by this Corporation. Section 2. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute or deliver any instrument in the name of and on behalf of the Corporation, and such authorization may be general or confined to specific instances. In the absence of other designation, all deeds, mortgages, and instruments of assignment or pledge made by the Corporation shall be executed in the name of the Corporation by the Chairman or the President or one of the Vice Presidents and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or an Assistant Secretary, when necessary or required, shall affix the corporate seal thereto; and when so executed no other party to such instrument or any third party shall be required to make any inquiry into the authority of the signing officer or officers. ARTICLE V CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 1. Certificates for Shares. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman or the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except as provided in Section 6 of this Article V. Section 2. Facsimile Signatures and Seal. The seal of the corporation on any certificates for shares may be a facsimile. The signatures of the Chairman or President or Vice President and the Secretary or Assistant Secretary upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. Section 3. Signature by Former Officers. In case any officer, who has signed or whose facsimile signature has been placed upon any certificate for shares, shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue. Section 4. Transfer of Shares. Prior to due presentment of a certificate for shares for registration of transfer the Corporation may treat the registered owner of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner. Where a certificate for shares is presented to the Corporation with a request to register for transfer, the Corporation shall not be liable to the owner or any other 22 11 person suffering loss as a result of such registration of transfer if (a) there were on or with the certificate the necessary endorsements, and (b) the Corporation had no duty to inquire into adverse claims or has discharged any such duty. The Corporation may require reasonable assurance that said endorsements are genuine and effective and in compliance with such other regulations as may be prescribed under the authority of the Board of Directors. Section 5. Restrictions on Transfer. The face or reverse side of each certificate representing shares shall bear a conspicuous notation of any restriction imposed by the Corporation upon the transfer of such shares. Section 6. Lost, Destroyed or Stolen Certificates. Where the owner claims that his certificate for shares has been lost, destroyed or wrongfully taken, then a new certificate shall be issued in place thereof if the owner (a) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, and (b) files with the Corporation a sufficient indemnity bond, and (c) satisfied such other reasonable requirements as the Board of Directors may prescribe. Section 7. Consideration for Shares. The shares of the Corporation may be issued for such consideration as shall be fixed from time to time by the Board of Directors, provided that any shares having a par value shall not be issued for a consideration less than the par value thereof. The consideration to be paid for shares may be paid in whole or in part, in money, in other property, tangible or intangible, or in labor or services actually performed for the Corporation. When payment of the consideration for which shares are to be issued shall have been received by the Corporation, such shares shall be deemed to be fully paid and nonassessable by the Corporation. No certificate shall be issued for any share until such share is fully paid. Section 8. Stock Regulations. The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with the statutes of the State of Wisconsin as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of the Corporation. ARTICLE VI CORPORATE SEAL The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the Corporation and the state of incorporation and the words, "Corporate Seal". ARTICLE VII AMENDMENTS Section 1. By Shareholders. These By-laws may be altered, amended, repealed, augmented and new By-laws may be adopted by the shareholders by affirmative vote of not less than a majority of the votes represented by the shares present or represented at any annual or special meeting of the shareholders at which a quorum is in attendance. Section 2. By Directors. These By-laws may also be altered, amended, repealed, augmented and new By-laws may be adopted by the Board of Directors by affirmative vote of a majority of the number of directors present at any meeting at which a quorum is in attendance; but no By-law adopted by the shareholders shall be amended or repealed by the Board of Directors if the By-law so adopted so provides. Section 3. Implied Amendments. Any action taken or authorized by the shareholders or by the Board of Directors, which would be inconsistent with the By-laws then in effect but is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the By-laws so that the By-laws would be consistent with such action, shall be given the same effect as though the By-laws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. 23 12 ARTICLE VIII INDEMNIFICATION Section 1.01. Certain Definitions. All capitalized terms used in this Article VIII and not otherwise hereinafter defined in this Section 1.01 shall have the meaning set forth in Section 180.0850 of the Statute (as hereinafter defined). The following capitalized terms (including any plural forms thereof) used in this Article VIII shall be defined as follows: (a) "Affiliate" shall include, without limitation, any corporation, partnership, joint venture, employee benefit plan, trust or other enterprise that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Corporation. (b) "Authority" shall mean the entity selected by the Director or Officer to determine his or her right to indemnification pursuant to Section 1.04 of this Article. (c) "Board" shall mean the entire then elected and serving board of directors of the Corporation, including all members thereof who are Parties to the subject Proceeding or any related Proceeding. (d) "Breach of Duty" shall mean the Director or Officer breached or failed to perform his or her duties to the Corporation and his or her breach of or failure to perform those duties is determined, in accordance with Section 1.04 of this Article, to constitute misconduct under Section 180.0851 (2) (a) 1, 2, 3 or 4 of the Statute. (e) "Corporation," as used herein and as defined in the Statute and incorporated by reference into the definitions of certain capitalized terms used herein, shall mean this Corporation, including, without limitation, any successor corporation or entity to the Corporation by way of merger, consolidation or acquisition of all or substantially all of the capital stock or assets of this Corporation. (f) "Director or Officer" shall have the meaning set forth in the Statute; provided, that, for purposes of this Article, it shall be conclusively presumed that any Director or Officer serving as a director, officer, partner, trustee, member of any governing or decision-making committee, employee or agent of an Affiliate shall be so serving at the request of the Corporation. (g) "Disinterested Quorum" shall mean a quorum of the Board who are not Parties to the subject Proceeding or any related Proceeding. (h) "Party" shall have the meaning set forth in the Statute; provided, that, for purposes of this Article, the term "Party" shall also include any Director, Officer or employee who is or was a witness in a Proceeding at a time when he or she has not otherwise been formally named a Party thereto. (i) "Proceeding" shall have the meaning set forth in the Statute; provided, that, for purposes of this Article, "Proceeding" shall include all Proceedings (i) brought under (in whole or in part) the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, their respective state counterparts, and/or any rule or regulation promulgated under any of the foregoing; (ii) brought before an Authority or otherwise to enforce rights hereunder; (iii) any appeal from a Proceeding; and (iv) any Proceeding in which the Director or Officer is a plaintiff or petitioner because he or she is a Director or Officer, provided, however, that such Proceeding is authorized by a majority vote of a Disinterested Quorum. (j) "Statute" shall mean Sections 180.0850 through 180.0859, inclusive, of the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin Statutes, including any amendments thereto, but, in the case of any such amendment, only to the extent such amendment permits or requires the Corporation to provide broader indemnification rights than the Statute permitted or required the Corporation to provide prior to such amendment. Section 1.02. Mandatory Indemnification. To the fullest extent permitted or required by the Statute, the Corporation shall indemnify a Director or Officer against all Liabilities incurred by or on behalf of such Director or Officer in connection with a Proceeding in which the Director or Officer is a Party because he or she is a Director or Officer. 24 13 Section 1.03. Procedural Requirements. (a) A Director or Officer who seeks indemnification under Section 1.02 of this Article shall make a written request therefor to the Corporation. Subject to Section 1.03 (b) of this Article, within sixty days of the Corporation's receipt of such request, the Corporation shall pay or reimburse the Director or Officer for the entire amount of Liabilities incurred by the Director or Officer in connection with the subject Proceeding (net of any Expenses previously advanced pursuant to Section 1.05 of this Article). (b) No indemnification shall be required to be paid by the Corporation pursuant to Section 1.03 (a) of this Article if, within such sixty-day period: (i) a Disinterested Quorum, by a majority vote thereof, determines that the Director or Officer requesting indemnification engaged in misconduct constituting a Breach of Duty; or (ii) a Disinterested Quorum cannot be obtained. (c) In either case of nonpayment pursuant to Section 1.03 (b) of this Article, the Board shall immediately authorize by resolution that an Authority, as provided in Section 1.04 of this Article, determine whether the Director's or Officer's conduct constituted a Breach of Duty and, therefore, whether indemnification should be denied hereunder. (d) (i) If the Board does not authorize an Authority to determine the Director's or Officer's right to indemnification hereunder within such sixty-day period and/or (ii) if indemnification of the requested amount of Liabilities is paid by the Corporation, then it shall be conclusively presumed for all purposes that a Disinterested Quorum has determined that the Director or Officer did not engage in misconduct constituting a Breach of Duty and, in the case of subsection (i) above (but not subsection (ii)), indemnification by the Corporation of the requested amount of Liabilities shall be paid to the Officer or Director immediately. Section 1.04. Determination of Indemnification. (a) When the Board authorized an Authority to determine a Director's or Officer's right to indemnification pursuant to Section 1.03 of this Article, then the Director or Officer requesting indemnification shall have the absolute discretionary authority to select one of the following as such Authority: (i) An independent legal counsel; provided, that such counsel shall be mutually selected by such Director or Officer and by a majority vote of a Disinterested Quorum or, if a Disinterested Quorum cannot be obtained, then by a majority vote of the Board; (ii)A panel of three arbitrators selected from the panels of arbitrators of the American Arbitration Association in Milwaukee, Wisconsin; provided, that (A) one arbitrator shall be selected by such Director or Officer, the second arbitrator shall be selected by a majority vote of a Disinterested Quorum or, if a Disinterested Quorum cannot be obtained, then by a majority vote of the Board, and the third arbitrator shall be selected by the two previously selected arbitrators; and (B) in all other respects, such panel shall be governed by the American Arbitration Association's then existing Commercial Arbitration Rules; or (iii) A court pursuant to and in accordance with Section 180.0854 of the Statute. (b) In any such determination by the selected Authority there shall exist a rebuttable presumption that the Director's or Officer's conduct did not constitute a Breach of Duty and that indemnification against the requested amount of Liabilities is required. The burden of rebutting such a presumption by clear and convincing evidence shall be on the Corporation or such other party asserting that such indemnification should not be allowed. (c) The Authority shall make its determination within sixty days of being selected and shall submit a written opinion of its conclusion simultaneously to both the Corporation and the Director or Officer. (d) If the Authority determines that indemnification is required hereunder, the Corporation shall pay the entire requested amount of Liabilities (net of any Expenses previously advanced pursuant to Section 1.05 of this Article), including interest thereon at a reasonable rate, as determined by the Authority, within ten days of receipt of the Authority's opinion; provided, that, if it is determined by the Authority that a Director or Officer is entitled to indemnification as to some claims, issues or matters, but not as to other claims, issues or matters, involved in the subject Proceeding, the Corporation shall be required to pay (as set forth above) only the amount of such requested Liabilities as the Authority shall deem 25 14 appropriate in light of all of the circumstances of such Proceeding. (e) The determination by the Authority that indemnification is required hereunder shall be binding upon the Corporation regardless of any prior determination that the Director or Officer engaged in a Breach of Duty. (f) All Expenses incurred in the determination process under this Section 1.04 by either the Corporation or the Director or Officer, including, without limitation, all Expenses of the selected Authority, shall be paid by the Corporation. Section 1.05. Mandatory Allowance of Expenses. (a) The Corporation shall pay or reimburse, within ten days after the receipt of the Director's or Officer's written request therefor, the reasonable Expenses of the Director or Officer as such Expenses are incurred, provided the following conditions are satisfied: (i) The Director or Officer furnishes to the Corporation an executed written certificate affirming his or her good faith belief that he or she has not engaged in misconduct which constitutes a Breach of Duty; and (ii)The Director or Officer furnishes to the Corporation an unsecured executed written agreement to repay any advances made under this Section 1.05 if it is ultimately determined by an Authority that he or she is not entitled to be indemnified by the Corporation for such Expenses pursuant to Section 1.04 of this Article. (b) If the Director or Officer must repay any previously advanced Expenses pursuant to this Section 1.05, such Director or Officer shall not be required to pay interest on such amounts. Section 1.06. Indemnification and Allowance of Expenses of Certain Others. (a) The Corporation shall indemnify a director or officer of an Affiliate (who is not otherwise serving as a Director or Officer) against all Liabilities, and shall advance the reasonable Expenses, incurred by such director or officer in a Proceeding to the same extent hereunder as if such director or officer incurred such Liabilities because he or she was a Director or Officer, if such director or officer is a Party thereto because he or she is or was a director or officer of the Affiliate. (b) Except as hereinafter provided, the Corporation shall indemnify each employee of the Corporation or an Affiliate of the Corporation acting within the scope of his or her duties as such, against all Liabilities, and shall advance Reasonable Expenses, incurred by or on behalf of such employee in connection with a Proceeding in which he or she is a Party by virtue of being an employee of the Corporation or an Affiliate of the Corporation, to the same extent and in the same manner as a Director or Officer hereunder. The foregoing provision shall not apply, and the Corporation shall not indemnify any employee, with respect to any Liability to the extent covered by insurance maintained by or on behalf of such employee (other than insurance maintained by the Corporation or an Affiliate of the Corporation). (c) The Board may, in its sole and absolute discretion as it deems appropriate, pursuant to a majority vote thereof, indemnify against Liabilities incurred by, and/or provide for the allowance of reasonable Expenses of, an authorized agent of the Corporation acting within the scope of his or her duties as such and who is not otherwise a Director or Officer. Section 1.07. Insurance. The Corporation may purchase and maintain insurance on behalf of a Director, Officer and/or any individual who is or was an authorized employee or agent of the Corporation against any Liability asserted against or incurred by such individual in his or her capacity as such or arising from his or her status as such, regardless of whether the Corporation is required or permitted to indemnify against any such Liability under this Article. Section 1.08. Notice to the Corporation. A Director, Officer or employee shall promptly notify the Corporation in writing when he or she has actual knowledge of a Proceeding which may result in a claim or indemnification against Liabilities or allowance of Expenses hereunder, but the failure to do so shall not relieve the Corporation of any liability to the Director, Officer or employee hereunder unless the Corporation shall have been irreparably prejudiced by such failure (as determined by an Authority). Section 1.09. Report to Shareholders. In the event that the Corporation indemnifies or advances expenses to a Director or Officer in connection with a proceeding brought in the right of the Corporation, the Corporation shall report the indemnification or advance in writing to shareholders with or before the notice of the next meeting of shareholders. The 26 15 report shall be delivered to shareholders who are entitled to receive notice of the next meeting of shareholders. Section 1.10. Severability. If any provision of this Article shall be deemed invalid or inoperative, or if a court of competent jurisdiction determines that any of the provisions of this Article contravene public policy, this Article shall be construed so that the remaining provisions shall not be affected, but shall remain in full force and effect, and any such provisions which are invalid or inoperative or which contravene public policy shall be deemed, without further action or deed by or on behalf of the Corporation, to be modified, amended and/or limited, but only to the extent necessary to render the same valid and enforceable. Section 1.11. Nonexclusivity of this Article. The rights of a Director, Officer or employee (or any other person) granted under this Article shall not be deemed exclusive of any other rights to indemnification against Liabilities or advancement of Expenses which the Director, Officer or employee (or such other person) may be entitled to under any written agreement, Board resolution, vote of shareholders of the Corporation or otherwise, including without limitation under the Statute. Nothing contained in this Article shall be deemed to limit the Corporation's obligations to indemnify a Director, Officer or employee under the Statute. Section 1.12. Contractual Nature of this Article; Repeal or Limitation of Rights. This Article shall be deemed to be a contract between the Corporation and each Director, Officer and employee and any repeal or other limitation of this Article or any repeal or limitation of the Statute or any other applicable law shall not limit any rights of indemnification against Liabilities or allowance of Expenses then existing or arising out of events, acts or omissions occurring prior to such repeal or limitation, including, without limitation, the right of indemnification against Liabilities or allowance of Expenses for Proceedings commenced after such repeal or limitation to enforce this Article with regard to acts, omissions or events arising prior to such repeal or limitation. Section 1.13. Subrogation Rights. Notwithstanding any provision to the contrary set forth herein, the Corporation's obligations hereunder are not intended to constitute, and shall not constitute, a waiver of any right to subrogation which the Corporation may have against any person or entity. 27 EX-10.10 3 c61152ex10-10.txt STOCK OPTION PLAN 1 Exhibit (10.10) BADGER METER, INC. 1999 STOCK OPTION PLAN 1. PURPOSE The purpose of the Badger Meter, Inc. 1999 Stock Option Plan (the "Plan") is to promote the best interests of Badger Meter, Inc. (the "Company") and its shareholders by encouraging directors and key employees of the Company and its subsidiaries to secure or increase on reasonable terms their stock ownership in the Company. The Board of Directors of the Company believes the Plan will promote continuity of management, increased incentive and personal interest in the welfare of the Company by those who are primarily responsible for shaping and carrying out the long-range plans of the Company and its subsidiaries and securing their continued growth and financial success. It is intended that certain of the options issued under the Plan may constitute incentive stock options within the meaning of Section 422 of the Internal Revenue Code ("Incentive Stock Options") and the remainder of the options issued under the Plan will constitute non-qualified stock options ("Non-qualified Stock Options"). 2. EFFECTIVE DATE The Plan shall become effective on the date of adoption by the Board of Directors of the Company (the "Board"), subject to the approval and ratification of the Plan by the shareholders of the Company within twelve (12) months of the date of adoption by the Board, and all options granted prior to such shareholder approval shall be subject to such approval. 3. ADMINISTRATION (a) The Plan shall be administered by the Management Review Committee of the Board (the "Committee") as such Committee may be constituted from time to time. The Committee shall consist of not less than two members of the Board selected by the Board, each of whom shall qualify as a non-employee director within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 ("Exchange Act"), or any successor rule or regulation thereto. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by all of the members of the Committee shall be fully effective as if it had been made by a majority vote at a meeting duly called and held. If at any time the Committee shall not be in existence or not consist of directors who are qualified as "non-employee directors" as defined above, the Board shall administer the Plan. To the extent permitted by applicable law, the Board may, in its discretion, delegate to another committee of the Board or to one or more senior officers of the Company any or all of the authority and responsibility of the Committee with respect to options to participants other than participants who are subject to the provisions of Section 16 of the Exchange Act. To the extent that the Board has delegated to such other committee or one or more officers the authority and responsibility of the Committee, all references to the Committee herein shall include such other committee or one or more officers. (b) Subject to the express provisions of the Plan, the Committee shall have complete authority to select the key employees to whom options shall be granted, to determine the number of shares subject to each option, the time at which the option is to be granted, the type of option, the option period, the option price and the manner in which options become exercisable, and shall establish such other terms and conditions of the options as the Committee may deem necessary or desirable. In making such determinations, the Committee may take into account the nature of the services rendered by the respective employees, their present and potential contribution to the success of their respective organizations and such other factors as the Committee in its discretion shall deem relevant. Subject to the express provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend and rescind the rules and regulations relating to it, to waive any conditions or restriction with respect to any options, and to make all other determinations necessary or advisable for the administration of the Plan. The determinations of the Committee on the matters referred to in this paragraph 3 shall be conclusive. 28 2 4. ELIGIBILITY Any non-employee director ("Director") or key employee ("Employee") of the Company or its present and future subsidiaries, as defined in Section 424(f) of the Internal Revenue Code ("Subsidiaries"), whose judgment, initiative and efforts contribute materially to the successful performance of the Company or its Subsidiaries, shall be eligible to receive options under the Plan. 5. SHARES SUBJECT TO THE PLAN The shares which may be issued pursuant to options under the Plan shall be shares of the Company's Common Stock, $1.00 par value ("Stock"), and may be either authorized and unissued or treasury shares. The total number of shares for which options may be granted and which may be purchased pursuant to options under the Plan shall not exceed an aggregate of 200,000 shares shares, subject to adjustment as provided in the following sentence and in paragraph 12 hereof. If an option granted under the Plan expires, is canceled or terminates unexercised as to any shares of Stock subject thereto, or if shares of Stock are used to satisfy the Company's withholding tax obligations, such shares shall again be available for the granting of additional options under the Plan. 6. OPTION PRICE The option price per share of Stock shall be fixed by the Committee, but shall be not less than 100% in the case of Incentive Stock Options of the fair market value of the Stock on the date the option is granted. Unless otherwise determined by the Committee, the "fair market value" of Stock on the date of grant shall be the closing price for a share of Stock on such date, or, if such date is not a trading date, the next preceding trading date as quoted on the American Stock Exchange Transaction Reporting System. 7. GRANT OF OPTIONS (a) Subject to the terms and conditions of the Plan, the Committee may, from time to time, grant to Employees options to purchase such number of shares of Stock and on such terms and conditions as the Committee may determine. More than one option may be granted to the same Employee. The day on which the Committee approves the granting of an option shall be considered as the date on which such option is granted. (b) Notwithstanding the foregoing, each Director of the Company who is not an employee of the Company or any subsidiary or affiliate thereof, and who first became or becomes a Director after April 23, 1999, shall, upon approval of the Plan by the shareholders of the Company, or at the time of their first election to the Board, subject to adjustments as provided in paragraph 12, automatically receive an option to purchase 6,000 shares of Stock on that date. Any date on which a Director receives an option shall be referred to as a "Grant Date". Such options shall be Non-qualified Stock Options with an expiration date ten (10) years after the Grant Date. The option price per share shall be the closing price for a share of Stock on the Grant Date, or if such day is not a trading day, the next preceding trading day as quoted on the American Stock Exchange Transaction Reporting System. (c) Notwithstanding the foregoing, each Director of the Company who is not an employee of the Company or any subsidiary or affiliate thereof, and who first became or becomes a Director after April 23, 1999, shall, upon approval of the Plan by the shareholders of the Company, or at the time of their first election to the Board, be entitled to receive an option to purchase up to 2,500 shares of Stock on that date with the amount of options granted fixed by the number of options remaining unexercised under the Long-term Incentive Plan approved by the Management Review Committee on January 26, 1999, in order to increase the Directors' stake in the future of the Company. Any date on which a Director receives an option shall be referred to as a Grant Date. Such options shall be Non-qualified Stock Options with an expiration date ten (10) years after the Grant Date. The option price per share shall be the closing price for a share of Stock on the Grant Date, or if such day is not a trading day, the next preceding trading day as quoted on the American Stock Exchange Transaction Reporting System. 29 3 8. OPTION PERIOD Except as set forth in paragraph 7, the Committee shall determine the expiration date of each option, but in the case of Incentive Stock Options such expiration date shall be not later than ten (10) years after the date such option is granted. 9. MAXIMUM PER PARTICIPANT The aggregate fair market value (determined at the time the option is granted pursuant to paragraph 7) of the Stock with respect to which any Incentive Stock Options are exercisable for the first time by a Director or Employee during any calendar year under the Plan or any other such plan of the Company or any Subsidiary shall not exceed $100,000. 10. EXERCISE OF OPTIONS An option may be exercised, subject to its terms and conditions and the terms and conditions of the Plan, in full at any time or in part from time to time by delivery to the Company at its principal office of a written notice of exercise specifying the number of shares with respect to which the option is being exercised. Any notice of exercise shall be accompanied by full payment of the option price of the shares being purchased (a) in cash or its equivalent; or (b) with the consent of the Committee, by delivering to the Company shares of Stock (valued at their fair market value as of the date of exercise, as determined by the Committee consistent with the method of valuation set forth in paragraphs 6 and 7); (c) with the consent of the Committee, by any combination of (a) and (b); or (d) by delivering (including by fax) to the Company or its designated agent an executed irrevocable option exercise form together with irrevocable instructions to a broker/dealer to sell or margin a sufficient portion of the shares of Stock and delivering the sale or margin loan proceeds directly to the Company to pay for the option price. 11. TRANSFERABILITY No option shall be assignable or transferable by a Director or an Employee other than by will or the laws of descent and distribution, and may be exercised during the life of the Director or Employee only by the Director or Employee or his guardian or legal representative, except that an Employee may, to the extent allowed by the Committee and in a manner specified by the Committee, (a) designate in writing a beneficiary to exercise the option after the Employee's death and (b) transfer any option. 12. CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK In the event of a capital adjustment resulting from a stock dividend, stock split, reorganization, recapitalization, merger, consolidation, combination or exchange of shares or the like, the number of shares of Stock subject to the Plan and the aggregate number and class of shares under option in outstanding option agreements shall be adjusted in a manner consistent with such capital adjustment; provided, however, that no such adjustment shall require the Company to sell any fractional shares. The determination of the Committee as to any adjustment shall be final. Notwithstanding the foregoing, options subject to grant or previously granted to Directors under the Plan at the time of any capital adjustments shall be subject only to such adjustments as shall be necessary to maintain the relative proportionate interest of each Director and preserve, without exceeding, the value of such options. 13. CORPORATE MERGERS AND OTHER CONSOLIDATIONS The Committee may also grant options having terms and provisions which vary from those specified in the Plan provided that any options granted pursuant to this paragraph are granted in substitution for, or in connection with the assumption of, existing options granted by another company and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a corporate merger, consolidation, acquisition or other reorganization to which the Company is a party. 14. OPTION AGREEMENTS All options granted under the Plan shall be evidenced by written agreement (which need not be identical) in such form as the Committee shall determine. Each option agreement shall specify whether the option granted thereunder is intended to constitute an Incentive Stock Option or a Non-qualified Stock Option. 30 4 15. TRANSFER RESTRICTIONS Shares of Stock purchased under the Plan and held by any person who is an officer or Director of the Company, or who directly or indirectly controls the Company, may not be sold or otherwise disposed of except pursuant to an effective registration statement under the Securities Act of 1933 or except in a transaction in compliance with Rule 144 under such Act or other transaction which, in the opinion of counsel for the Company, is exempt from registration under such Act. The Committee may waive the foregoing restrictions in whole or in part in any particular case or cases, or may terminate such restrictions, whenever the Committee determines that such restrictions afford no substantial benefit to the Company. 16. AMENDMENT OF PLAN Shareholder approval of any amendment of the Plan shall be obtained if otherwise required by: (i) the rules and/or regulations promulgated under Section 16 of the Exchange Act (in order for the Plan to remain qualified under Rule 16b-3); (ii) the Internal Revenue Code of 1986, as amended, or any rules promulgated thereunder (in order to allow for Incentive Stock Options to be granted under the Plan); or (iii) the listing requirements of the American Stock Exchange or any principal securities exchange or market on which the Stock is then traded (in order to maintain the quotation or listing of the Stock thereon). The provisions of paragraphs 7(b) and 7(c) cannot be amended more than once every six (6) months other than to comport with changes in the Internal Revenue Code of 1986, as amended, the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations thereunder. 17. TERMINATION OF PLAN The Board shall have the right to suspend or terminate the Plan at any time; provided, however, that no Incentive Stock Options may be granted after the tenth (10th) anniversary of the effective date of the Plan as described in paragraph 2 hereof. Termination of the Plan shall not affect the rights of Employees or Directors under options previously granted to them, and all unexpired options shall continue in force and operation after termination of the Plan except as they may lapse or be terminated by their own terms and conditions. 18. TAX WITHHOLDING (a) The Company may deduct and withhold from any cash otherwise payable to an Employee such amount as may be required for the purpose of satisfying the Company's obligation to withhold federal, state or local taxes as the result of the exercise of an option. In the event the amount so withheld is insufficient for such purpose, the Company may require that the Employee pay to the Company upon its demand or otherwise make arrangements satisfactory to the Company for payment of such amount as may be requested by the Company in order to satisfy its obligation to withhold any such taxes. (b) An Employee may be permitted to satisfy the Company's withholding tax requirements by electing to have the Company withhold shares of Stock otherwise issuable to the Employee or to deliver to the Company shares of Stock having a fair market value on the date income is recognized pursuant to the exercise of an option equal to the amount required to be withheld. The election shall be made in writing and shall be made according to such rules and procedures as the Committee may determine. 19. RIGHTS AS A SHAREHOLDER A Director or an Employee shall have no rights as a shareholder with respect to any shares subject to any option until the date the options shall have been exercised, the shares shall have been fully paid and a stock certificate shall have been issued. 20. MISCELLANEOUS The grant of any option under the Plan may also be subject to other provisions as the Committee determines appropriate, including, without limitation, provisions for (a) one or more means to enable Employees to defer recognition of taxable income relating to options; (b) the purchase of Stock under options in installments; and (c) compliance with federal or state securities laws and stock exchange requirements. 31 EX-10.11 4 c61152ex10-11.txt AMENDMENTS TO DEFERRED COMENSATION PLAN 1 Exhibit (10.11) BADGER METER, INC. AMENDMENT TO DEFERRED COMPENSATION PLAN This amendment to the Badger Meter, Inc. Deferred Compensation Plan for Certain Directors (the "Plan") is made as of the first day of May, 2000. The purpose of the amendment is to provide to the participants an option to defer director fees in the form of stock units instead of cash. o The following paragraph is hereby added to the Plan: PARAGRAPH 3A. -- CASH OR STOCK UNIT DEFERRALS A Director may elect to defer fees to which he or she may become entitled after the date of election in two ways: Cash Subaccount. If a Participant elects to defer fees into a Cash Subaccount, the Cash Subaccount is credited with the dollar amount of such fees on the date they would otherwise be payable. Amounts credited to the Cash Subaccount are credited with interest as stated in Paragraph 4 of the Plan. Stock Subaccount. If a Participant elects to defer fees into a Stock Subaccount, the Stock Subaccount is credited with a number of units equivalent to the dollar amount of such fees on the date they would otherwise be payable. Such units will be computed by dividing the deferred fees by the fair market value of the Company's Common Stock. Fair market value is the closing price of the Common Stock on the American Stock Exchange on the last trading day of the quarter preceding the date that the fees would have been paid if no deferral had been made. Amounts credited to the Stock Subaccount are credited with dividends as stated in Paragraph 4a of this document. o The first part of Paragraph 4 is hereby amended to read as follows: "The Cash Subaccount of each Participant shall be credited with interest annually, ..." 32 2 THE FOLLOWING PARAGRAPH IS HEREBY ADDED TO THE PLAN: PARAGRAPH 4A. -- DIVIDENDS The Stock Subaccount of each Participant shall be credited with dividends quarterly, on the last day of each calendar quarter, until the full payment to the participant under paragraph 6 hereof. Such dividends shall be computed by multiplying the number of units in the Participant's stock subaccount on each dividend record date, by the amount of each dividend, to determine the dividend amount. The dividend amount will then be divided by the closing stock price on the dividend record date to determine the number of stock units to be added to the stock subaccount. For example, if a participant has five hundred (500) units in a stock subaccount on the record date of a twenty cent ($.20) dividend declaration, the dividend amount would be one hundred dollars ($100). If the closing price of the stock was $50 on that date, two (2) units would be added to the Participant's stock subaccount. o Paragraph 5a is hereby amended to replace the word "interest" with the phrase "interest and dividends". o The following paragraphs are hereby added to the Plan: PARAGRAPH 5C. -- STOCK SUBACCOUNT VALUATION Upon distribution of any portion or all of a Participant's stock subaccount, the value of the account will be computed by multiplying the number of units in the account on the date of distribution by the closing price of the Company's Common Stock on the last day of the month prior to the distribution. PARAGRAPH 5D. -- CONVERSION OF STOCK SUBACCOUNT TO CASH SUBACCOUNT Upon retirement, a Participant who has a stock subaccount, may elect to convert the stock subaccount balance into a cash subaccount balance. The conversion will be made by multiplying the number of units in the account on the date of conversion by the closing price of the Company's Common Stock on the last day of the month prior to the conversion. After conversion, the new cash subaccount would function in the same manner as all other cash subaccounts. 33 EX-13.0 5 c61152ex13-0.txt PORTIONS OF ANNUAL REPORT 1 Exhibit (13.0) Portions of Annual Report to Shareholders that are incorporated by reference. 34 2 (Page 1 of Annual Report to Shareholders) BADGER METER, INC. F I N A N C I A L H I G H L I G H T S December 31, 2000 and 1999
2000 1999 % CHANGE ---------- ---------- -------- OPERATIONS (in thousands) Net sales $ 146,389 $ 150,877 (3.0) Net earnings $ 6,941 $ 9,700 (28.4) ---------- ---------- ----- PER SHARE Net earnings: Basic $ 2.10 $ 2.78 (24.5) Diluted $ 2.00 $ 2.60 (23.1) Cash dividends declared $ .86 $ .72 19.4 Net book value $ 13.51 $ 12.88 4.9 ---------- ---------- ----- YEAR-END FINANCIAL POSITION (in thousands) Total assets $ 98,710 $ 103,086 (4.2) Total debt (long-term and short-term) $ 28,961 $ 28,082 3.1 Shareholders' equity $ 43,319 $ 43,009 .7 Debt as a percent of total debt and equity 40.1% 39.5% Net earnings as a percent of equity 16.0% 22.6% ========== ========== ===== OTHER Number of employees 956 989 (3.3) Number of shareholders: Common Stock: In employee plans 712 777 (8.4) Of record 530 550 (3.6) Shares outstanding at December 31 Common Stock 3,207,039 3,339,955 (4.0) ========== ========== =====
35 3 (Page 9 to 11 of Annual Report to Shareholders) MANAGEMENT'S DISCUSSION AND ANALYSIS BUSINESS DESCRIPTION Badger Meter is a leading marketer and manufacturer of products using flow measurement and control technologies developed both internally and with other technology companies. Its products are used to measure and control the flow of liquids in a variety of applications. The company has five primary worldwide product lines: residential and commercial/industrial water meters (with various meter reading technology systems), automotive fluid meters, small precision valves and industrial process meters (with related accessories and instrumentation). Water meters and related systems provide the majority of the company's sales. A "water meter system" generally consists of a water meter, a register (some with a digital interface technology for communicating the reading), packaging and the monitoring or computerized management system used to collect and relay the reading. Badger Meter's strategy is to solve customers' metering needs with its proprietary meter reading systems or other systems available through alliances within the marketplace. In both alternatives, the company provides the meter that generates a mechanical signal and the device that converts the signal into a digital form. That signal may then be read by either a proprietary meter reading system or systems developed by other technology companies. RESULTS OF OPERATIONS SALES Badger Meter's sales decreased $4.5 million or 3.0% for 2000 compared to 1999. This decrease was primarily due to lower domestic sales of water meters (as discussed below), lower international sales of industrial products, and lower domestic sales of certain industrial products. Sales trends are primarily affected by new product sales, water meter sales to large municipalities and general market conditions. Residential water meter sales for the past several years have been impacted by both privatizations of water services and a continued industry movement away from manual-read meters to automated meter reading technologies. However, in 2000, many water utilities delayed such conversion activities due to confusion in the marketplace resulting from the financial difficulties of several fixed-base network providers, certain new entrants into the market and various competitive pressures that have lengthened the sales cycle. Sales during the first half of 2000 were also affected by several other factors. A September 1999 fire at the facility of one of the company's principal vendors continued to negatively impact sales in the first half of 2000, although the impact of those lost sales on net income was offset by business interruption insurance proceeds. The six-month Federal Communications Commission freeze, which ended in December 1999, continued to have an impact on sales of certain automatic meter reading products due to the disruption of the sales cycle. Competitive market pressures and the stronger U.S. dollar had a negative impact on sales of certain industrial products, particularly in Europe. Increased sales of water meters to commercial/industrial and submetering customers only partially offset these negative factors. The sales increase from 1998 to 1999 was primarily attributable to increased sales of radio-frequency automated meter reading systems and commercial/industrial water meters. Badger Meter continues to improve existing products and to develop and acquire new products. To better focus its product development efforts on the core business of liquid flow measurement and to eliminate under-performing product lines, the company sold its ultrasonics product line during 2000 and its natural gas instrumentation product line during 1999. Neither sale was material to the financial results. International sales are comprised primarily of sales of automotive fluid meters and small valves in Europe, sales of water meters and related technologies in Mexico, and sales of valves and other metering products throughout the world. In Europe, sales are made in both U.S. dollars and euros. Most other international sales are made in U.S. dollars. The company is able to partially hedge its euro exposure. 36 4 GROSS MARGINS Gross margins were 36.2%, 39.2% and 39.9% for 2000, 1999 and 1998, respectively. In 1999, the company invested in additional capacity, resulting in decreased margins for 2000 and 1999 as compared to the 1998 level. In 1998, production for certain product lines neared capacity levels, enabling the company to leverage its fixed manufacturing costs over the higher volumes. Two other factors also negatively affected margins in 2000. First, margins were impacted by a higher mix of international sales of water meters with lower margins than domestic water meter sales. Also, a one-time manufacturing problem resulted in increased scrap levels and reduced margins during the second quarter of 2000. This problem was identified by the company and corrected during the second quarter. OTHER FACTORS Selling, engineering and administrative costs decreased 1.2% for 2000 compared to 1999, due primarily to reductions of incentive compensation due to lower sales and profits. This decrease was partially offset by increases in marketing and engineering expenses. For 1999 compared to 1998, these costs decreased 1.0% due primarily to cost improvement efforts and staffing reductions associated with the sale of the natural gas instrumentation product line. Interest expense increased $950,000 and $626,000 for 2000 and 1999, respectively, as a result of a new $15 million long-term debt borrowing in August of 1999, which was primarily used to repurchase the company's stock from various trusts and individual shareholders. Interest expense was also impacted by an increase in the Employee Savings and Stock Ownership Plan ("ESSOP") debt in December of 1998, as well as generally higher interest rates during 2000 and 1999. Other income and expense (net) for 2000 and 1999 included $2,230,000 and $750,000 of proceeds, respectively, from business interruption insurance, which offset lost sales and margins associated with a fire at the facility of one of the company's principal vendors during 1999. Without these proceeds, other income and expense (net) for 2000, 1999 and 1998 would have been expenses of $316,000, $495,000 and $376,000, respectively. INCOME TAXES Income tax as a percentage of earnings before income taxes was 35.3%, 38.1% and 38.3% for 2000, 1999 and 1998, respectively. The decrease in 2000 was due to increased Foreign Sales Corporation tax credits, lower taxes on foreign income, credits generated as a result of distributions of foreign subsidiary profits, and a favorable settlement of a tax audit. Most of the foreign credits impacted the fourth quarter of 2000, resulting in a 21.9% average tax rate for that quarter. NET EARNINGS AND EARNINGS PER SHARE For 2000 compared to 1999, the impacts of lower sales, lower margins and increased interest expense were only partially offset by reduced expenses, business interruption insurance proceeds and lower taxes. This resulted in a 28.4% decrease in net earnings and a slightly lower percentage decrease in earnings per share due to stock repurchases during the years. For 1999 compared to 1998, higher sales and reduced selling, engineering and administrative costs resulted in a 17.6% increase in net earnings. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations decreased 15.3% from 2000 to 1999 due to lower earnings, increased inventory and decreased payables, partially offset by lower receivables. For 1999 compared to 1998, cash provided by operations increased 4.3% due primarily to higher earnings. Receivables decreased 21.7% during 2000, due to significantly lower sales in the fourth quarter of 2000 compared to the fourth quarter of 1999, as well as lower foreign receivables due to improved collections during the year. Inventories increased 6.9% in 2000, due to the stocking of certain long lead-time electronic components. 37 5 Capital expenditures totaled $6.4 million in 2000, down from $10 million in 1999 and $17.9 million in 1998. The higher 1999 and 1998 expenditures related to the Milwaukee, Wisconsin facility expansion and the expansion of production capacity at both the Milwaukee and Nogales, Mexico facilities. Prepaid pension decreased $351,000 as a result of normal pension expense with no funding payments required in 2000 due to the overfunded status of the plan. Badger Meter has a net deferred tax asset of $1.4 million at December 31, 2000, reflecting the net temporary differences between financial reporting and tax reporting. The majority of this net deferred asset relates to deferred payments to employee benefit plans and is expected to reverse as future payments exceed expenses. The decrease in the net deferred tax asset of $817,000 from 1999 relates primarily to the use of accelerated depreciation methods for tax purposes, as well as the reduction in certain payables and accruals. Long-term debt, when combined with the current portion, decreased from $16.4 million at December 31, 1999, to $11.2 million at December 31, 2000. This $5.2 million reduction was due to regularly scheduled payments on the 1999 $15 million bank note (which was used primarily to acquire treasury stock) and a $300,000 reduction in the company's ESSOP loan. Payables decreased $3.3 million during 2000 due to decreased purchases related to the lower level of sales activity. Accrued compensation and employee benefits decreased $2.6 million due to lower incentive compensation accruals. Other accrued liabilities decreased $471,000 due primarily to lower accruals for after-sale costs. Current income taxes increased $790,000 in 2000, due to the timing of estimated tax payments. The $345,000 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 $342,000 due primarily to increased employee deferred compensation. Reinvested earnings increased during 2000 due to net income, partially offset by dividend payments. Common stock and capital in excess of par value both increased during 2000 due to stock issued in connection with the exercise of stock options and ESSOP transactions. Employee benefit stock decreased by $300,000 due to shares released as a result of payments made on the ESSOP loan. Treasury stock increased due to shares repurchased during the year. Badger Meter's financial condition remains strong. The company believes that its operating cash flows, available borrowing capacity and ability to raise capital through the sale of common stock provide adequate resources to fund ongoing operating requirements and future capital expenditures related to expansion of capacity and development of new products. OTHER MATTERS The company believes it is in compliance with the various environmental statutes and regulations to which the company's domestic and international operations are subject. Currently, the company is in the process of resolving issues relative to two landfill sites. The company does not believe the ultimate resolution of these issues 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. MARKET RISK In the ordinary course of business, the company is exposed to various market risks, including commodity prices, foreign currency rates and interest rates. The company manages these risks through a combination of foreign loans and interest rate instruments. The company does not hold or issue derivative instruments for trading purposes. Badger Meter's foreign currency risk relates to the sale of products to foreign customers, specifically European customers, as most other foreign sales are made in U.S. dollars. The company uses lines of credit with German banks to offset currency exposure related to European receivables and other monetary assets. The company's exposure to European currency fluctuations has been further reduced by the stabilization of inter-European currencies through the introduction of the euro. As of December 31, 2000 and 1999, the company's foreign currency net monetary assets were substantially offset by comparable debt, resulting in no material exposure. 38 6 During 1999, the company issued $15 million of long-term fixed-rate debt, payable monthly over a three-year period. As of December 31, 2000, comparable market rates had decreased, resulting in a market value for this debt of $8,818,000, slightly more than the $8,726,000 carrying value. Remaining debt at December 31, 2000, was all floating-rate debt with market values approximating carrying values. For this debt, future annual interest costs will fluctuate based on short-term interest rates. FORWARD LOOKING STATEMENTS Certain statements in this report, as well as other information provided from time to time by the company or its employees, may contain forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. The words "anticipate", "believe", "estimate", "expect", "think", "should", and "objective" or similar expressions are intended to identify forward looking statements. The forward looking statements are based on the company's current views and assumptions and involve risks and uncertainties that include, among other things: the success or failure of new product developments; the actions of competitors and alliance partners; changes in domestic economic conditions, including housing starts; changes in foreign economic conditions, including currency fluctuations; changes in laws and regulations; changes in customer demand and fluctuations in the prices of and availability of purchased raw materials and parts. Some or all of these factors are beyond the company's control. 39 7 (Page 12 of Annual Report to Shareholders) BADGER METER, INC. C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S Years ended December 31, 2000, 1999 and 1998
(In thousands except per share amounts) 2000 1999 1998 -------- -------- -------- Net sales $146,389 $150,877 $143,813 Cost of sales 93,375 91,722 86,502 -------- -------- -------- Gross margin 53,014 59,155 57,311 Selling, engineering and administration 41,995 42,495 42,941 -------- -------- -------- Operating earnings 11,019 16,660 14,370 Interest expense 2,206 1,256 630 Other expense (income), net (1,914) (255) 376 -------- -------- -------- Earnings before income taxes 10,727 15,659 13,364 Provision for income taxes 3,786 5,959 5,117 -------- -------- -------- Net earnings $ 6,941 $ 9,700 $ 8,247 ======== ======== ======== Earnings per share: Basic $ 2.10 $ 2.78 $ 2.28 Diluted $ 2.00 $ 2.60 $ 2.12 ======== ======== ======== Shares used in computation of: Basic 3,308 3,494 3,624 Impact of dilutive stock options 162 234 272 -------- -------- -------- Diluted 3,470 3,728 3,896 ======== ======== ========
See accompanying notes. 40 8 (Page 13 of Annual Report to Shareholders) BADGER METER, INC. C O N S O L I D A T E D B A L A N C E S H E E T S December 31, 2000 and 1999
(Dollars in thousands) 2000 1999 --------- --------- ASSETS Current assets: Cash $ 4,237 $ 3,752 Receivables (Note 3) 19,006 24,278 Inventories: Finished goods 4,221 4,077 Work in process 8,428 8,347 Raw materials 7,673 6,582 --------- --------- Total inventories 20,322 19,006 Prepaid expenses 952 943 --------- --------- Total current assets 44,517 47,979 Property, plant and equipment: Land and improvements 2,619 2,763 Buildings and improvements 20,533 19,547 Machinery and equipment 66,564 65,423 --------- --------- 89,716 87,733 Less accumulated depreciation (47,122) (45,617) --------- --------- Net property, plant and equipment 42,594 42,116 Intangible assets, at cost less accumulated amortization 1,097 1,095 Prepaid pension (Note 7) 5,440 5,791 Deferred income taxes (Note 8) 1,396 2,213 Other assets 3,666 3,892 --------- --------- Total assets $ 98,710 $ 103,086 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt (Note 4) $ 17,769 $ 11,702 Current portion of long-term debt (Note 9) 5,248 4,887 Payables 7,188 10,499 Accrued compensation and employee benefits 3,344 5,914 Other accrued liabilities 3,245 3,716 Income and other taxes 901 111 --------- --------- Total current liabilities 37,695 36,829 Accrued non-pension postretirement benefits (Note 7) 6,669 7,014 Other accrued employee benefits 5,083 4,741 Long-term debt (Note 7 and 9) 5,944 11,493 Shareholders' equity: (Notes 2, 5 and 7) Common Stock, $1.00 par; authorized 40,000,000 shares; issued 4,610,140 shares in 2000 and 4,531,307 shares in 1999 4,610 4,531 Capital in excess of par value 14,713 13,382 Reinvested earnings 50,536 46,445 Less: Employee benefit stock (2,300) (2,600) Treasury stock, at cost, 1,403,101 shares in 2000 and 1,191,352 shares in 1999 (24,240) (18,749) --------- --------- Total shareholders' equity 43,319 43,009 --------- --------- Total liabilities and shareholders' equity $ 98,710 $ 103,086 ========= =========
See accompanying notes. 41 9 (Page 14 of Annual Report to Shareholders) BADGER METER, INC. C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands) 2000 1999 1998 ------- -------- -------- Operating activities: Net earnings $ 6,941 $ 9,700 $ 8,247 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation 5,925 5,276 4,499 Amortization 148 357 176 Tax benefit on stock options 387 258 323 Noncurrent employee benefits 648 611 1,088 Deferred income taxes 817 717 (666) Changes in: Receivables 5,272 (4,464) (621) Inventories (1,316) 3,397 (805) Current liabilities other than short-term debt (5,562) (321) 3,137 Prepaid expenses and other (9) 121 (371) -------- -------- -------- Total adjustments 6,310 5,952 6,760 -------- -------- -------- Net cash provided by operations 13,251 15,652 15,007 -------- -------- -------- Investing activities: Property, plant and equipment (6,403) (9,981) (17,926) Other -- net 76 (654) 1,893 -------- -------- -------- Net cash used for investing activities (6,327) (10,635) (16,033) -------- -------- -------- Financing activities: Net increase (decrease) in short-term debt 6,067 (2,585) 2,842 Issuance of long-term debt 0 15,396 0 Repayments of long-term debt (5,188) (1,644) 0 Dividends (2,850) (2,453) (2,106) Stock options and ESSOP 1,023 1,461 4,263 Purchase of treasury stock (5,491) (13,811) (2,657) -------- -------- -------- Net cash provided by (used for) financing activities (6,439) (3,636) 2,342 -------- -------- -------- Increase in cash 485 1,381 1,316 Cash -- beginning of year 3,752 2,371 1,055 -------- -------- -------- Cash -- end of year $ 4,237 $ 3,752 $ 2,371 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Income taxes $ 1,839 $ 5,442 $ 6,466 Interest (including $208 of interest capitalized during facility construction in 1998) $ 2,255 $ 1,257 $ 864 ======== ======== ========
See accompanying notes. 42 10 (Page 15 of Annual Report to Shareholders) BADGER METER, INC. C O N S O L I D A T E D S T A T E M E N T S O F S H A R E H O L D E R S' E Q U I T Y Years ended December 31, 2000, 1999 and 1998
Class B Capital in Common Common excess of Reinvested Employee Treasury (In thousands except per share amounts) Stock Stock par value earnings benefit stock stock Total ------ -------- ---------- ---------- ------------- --------- -------- Balance, December 31, 1997 $ 3,240 $ 112 $ 8,315 $ 33,057 $ (917) $ (2,340) $ 41,467 Net earnings 8,247 8,247 Cash dividends, $.60 per Common share (1,501) (1,501) Cash dividends, $.54 per Class B Common share (605) (605) Restricted stock transactions 109 11 120 Stock options exercised (Note 5) 54 564 618 Tax benefit on stock options and dividends 323 323 ESSOP transactions 98 3,437 100 3,635 Treasury stock purchased (1) (2,657) (2,658) Treasury stock issued (16) 18 2 ESSOP loan (1,800) (1,800) -------- -------- -------- -------- -------- -------- -------- Balance, December 31, 1998 3,392 111 12,732 39,198 (2,606) (4,979) 47,848 -------- -------- -------- -------- -------- -------- -------- Net earnings 9,700 9,700 Cash dividends, $.72 per Common share (2,104) (2,104) Cash dividends, $.32 per Class B Common share (349) (349) Restricted stock transactions 62 6 68 Stock options exercised (Note 5) 51 569 620 Tax benefit on stock options and dividends 258 258 ESSOP transactions 21 758 779 Treasury stock purchased (13,811) (13,811) Exchange of Class B for Common shares 1,067 (111) (997) 41 0 -------- -------- -------- -------- -------- -------- -------- Balance, December 31, 1999 4,531 0 13,382 46,445 (2,600) (18,749) 43,009 -------- -------- -------- -------- -------- -------- -------- Net earnings 6,941 6,941 Cash dividends, $.86 per Common share (2,850) (2,850) Stock options exercised (Note 5) 75 895 970 Tax benefit on stock options and dividends 387 387 ESSOP transactions 4 5 300 309 Treasury stock purchase (5,491) (5,491) Other 44 44 -------- -------- -------- -------- -------- -------- -------- Balance, December 31, 2000 $ 4,610 $ 0 $ 14,713 $ 50,536 $ (2,300) $(24,240) $ 43,319 ======== ======== ======== ======== ======== ======== ========
See accompanying notes. 43 11 (Page 16 to 22 of Annual Report to Shareholders) BADGER METER, INC. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S December 31, 2000, 1999 and 1998 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PROFILE Badger Meter (the company) is a leading marketer and manufacturer of products using flow measurement and control technology developed both internally and with other technology companies. Its products are used to measure and control the flow of liquids in a variety of applications. The company's products include water meters and associated systems, wastewater meters, industrial process meters, automotive fluid meters and small valves. CONSOLIDATION The consolidated financial statements include the accounts of the company and its wholly owned subsidiaries. REVENUE RECOGNITION Revenues are recognized upon shipment of product, which corresponds with the transfer of title. The company estimates and records provisions for warranties and other after-sale costs in the period the sale is reported. Such provisions are included in other accrued liabilities. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out method) or market. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the respective assets, principally by the straight-line method. INTANGIBLE ASSETS Costs of purchased patents are amortized over the lives of the patents. Accumulated amortization at December 31, 2000 and 1999, was $741,000 and $593,000, respectively. RESEARCH AND DEVELOPMENT Research and development costs are charged to expense as incurred and amounted to $6,562,000, $6,012,000 and $6,105,000 in 2000, 1999 and 1998, respectively. OTHER EXPENSE (INCOME), NET Other income and expense includes foreign currency gains and losses, which are recognized as incurred. The company's functional currency for all of its foreign subsidiaries is the U.S. dollar. Other income for 2000 and 1999 also includes $2,230,000 and $750,000, respectively, of business interruption insurance proceeds related to lost sales and margins as a result of a fire at a vendor's facility in 1999. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," which will become effective for the company in 2001. SFAS 133 in its amended form will not have a material effect on the company's results of operations, financial position or disclosures. RECLASSIFICATIONS Certain reclassifications have been made to the 1999 and 1998 consolidated financial statements to conform to the 2000 presentation. 44 12 BADGER METER, INC. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S December 31, 2000, 1999 and 1998 2 COMMON STOCK During 1999, the holders of Class B Common Stock converted all shares held into Common Stock, resulting in only one class of stock for the company. The company also has a Shareholder Rights Plan, which grants certain rights to existing holders of Common Stock. Subject to certain conditions, the rights are redeemable by the Board of Directors and are exchangeable for shares of Common Stock. The rights have no voting power and expire on May 26, 2008. 3 TRANSACTIONS WITH AFFILIATED COMPANY The company carries its 15% interest in a Mexican company, Medidores Azteca, S.A. (Azteca) at cost ($75,000). During 2000, 1999 and 1998, the company sold $654,000, $2,602,000 and $996,000 of product to Azteca. Trade receivables from Azteca at December 31, 2000 and 1999, were $755,000 and $1,209,000, respectively. 4 SHORT-TERM DEBT AND CREDIT LINES Short-term debt at December 31, 2000 and 1999, consisted of:
(In thousands) 2000 1999 ------- ------- Notes payable to banks $ 2,048 $ 1,907 Commercial paper 15,721 9,795 ------- ------- Total $17,769 $11,702 ======= =======
The company has $39,762,000 of short-term credit lines with domestic and foreign banks which include a $31,000,000 commercial paper line of credit. At December 31, 2000, $21,993,000 was unused and available to the company under the lines. The weighted-average interest rate on the outstanding balance was 6.92% and 6.13% at December 31, 2000 and 1999. 45 13 BADGER METER, INC. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S December 31, 2000, 1999 and 1998 5 STOCK OPTION PLANS The company has five stock option plans which provide for the issuance of options to key employees and directors of the company. Each plan authorizes the issuance of options to purchase up to an aggregate of 200,000 shares of Common Stock, with vesting periods of up to ten years and maximum option terms of ten years. As of December 31, 2000, options to purchase 185,160 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, 2000:
Weighted-Average Number of Shares Exercise Price ---------------- ---------------- Unexercised options outstanding -- December 31, 1997 520,086 $14.68 Options granted 32,600 $35.56 Options exercised (53,486) $11.54 Options forfeited (4,600) $19.97 ------- ------ Unexercised options outstanding -- December 31, 1998 494,600 $16.35 Options granted 72,200 $40.25 Options exercised (50,852) $12.34 Options forfeited (7,228) $26.90 ------- ------ Unexercised options outstanding -- December 31, 1999 508,720 $19.99 Options granted 35,200 $32.15 Options exercised (74,168) $13.07 Options forfeited (11,500) $25.90 ------- ------ Unexercised options outstanding -- December 31, 2000 458,252 $21.90 ======= ====== Price range $8.38 -- $12.38 (weighted-average contractual life of 3.2 years) 173,400 $10.40 Price range $14.81 -- $24.13 (weighted-average contractual life of 6.2 years) 152,652 $21.74 Price range $31.75 -- $40.25 (weighted-average contractual life of 8.5 years) 132,200 $37.17 ======= ====== Exercisable options -- December 31, 1998 319,040 $12.50 December 31, 1999 383,287 $14.46 December 31, 2000 397,733 $17.88 ======= ======
46 14 BADGER METER, INC. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S December 31, 2000, 1999 and 1998 As allowed by SFAS 123, "Accounting for Stock-Based Compensation", the company has elected to continue to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), in accounting for its stock option plans. Under APB 25, the company does not recognize compensation expense upon the issuance of its stock options because the option terms are fixed and the exercise price equals the market price of the underlying stock on the grant date. The company has determined the pro-forma information as if the company had accounted for stock options granted since January 1, 1995, under the fair value method of SFAS 123. The Black-Scholes option pricing model was used with the following weighted-average assumptions for options issued in each year:
2000 1999 1998 --------- --------- --------- Risk-free interest rate 6.8% 5.6% 5.7% Dividend yield 3% 3% 1% Volatility factor 30% 38% 34% Weighted-average expected life 6.6 years 5.0 years 5.0 years ========= ========= =========
The weighted-average fair values of options granted in 2000, 1999 and 1998 were $10.12, $12.84 and $12.89 per share, respectively. If the company had recognized compensation expense based on these values, the company's pro-forma net earnings and both basic and diluted earnings per share would have been reduced by approximately $368,000 or $.11 per share for 2000, $306,000 or $.09 per share for 1999, and $336,000 or $.09 per share for 1998. 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 net income of future years. 6 COMMITMENTS AND CONTINGENCIES A. COMMITMENTS The company leases equipment and facilities under operating leases, some of which contain renewal options and certain computer equipment under capital lease. Future minimum lease payments consisted of the following at December 31, 2000:
Operating Capital Total (In thousands) Leases Lease Leases --------- ------- ------ 2001 $ 655 $ 135 $ 790 2002 332 33 365 2003 275 0 275 2004 161 0 161 2005 and thereafter 213 0 213 ------ ----- ------ Total minimum lease payments 1,636 168 1,804 Less: amount representing interest 0 (2) (2) ------ ----- ------ Present value of net minimum lease payments 1,636 166 1,802 Less: current portion 0 (133) (133) ------ ----- ------ Lease obligations $1,636 $ 33 $1,669 ====== ===== ======
Total rental expense charged to operations under all operating leases was $1,586,000, $1,510,000 and $1,561,000 in 2000, 1999 and 1998, respectively. 47 15 BADGER METER, INC. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S December 31, 2000, 1999 and 1998 B. CONTINGENCIES In the normal course of business, the company is named in legal proceedings. There are currently no material legal proceedings pending with respect to the company. The company is subject to contingencies relative to environmental laws and regulations. Currently the company is in the process of resolving issues relative to two landfill sites. The company does not believe the ultimate resolution of these claims will have a material adverse effect on the company's financial position or results of operations. Provision has been made for all known settlement costs. The company makes commitments in the normal course of business. At December 31, 2000, these commitments were not significant individually or in the aggregate. The company has evaluated its worldwide operations to determine if any risks and uncertainties exist that could severely impact its operations in the near term. The company does not believe that there are any significant risks. However, the company does rely on single suppliers for certain castings and components in several of its product lines. Although alternate sources of supply exist for these items, loss of certain suppliers could temporarily disrupt operations. The company attempts to mitigate these risks by working closely with key suppliers and by purchasing business interruption insurance where appropriate. The company reevaluates its exposures on a periodic basis and makes adjustments to reserves as appropriate. 48 16 BADGER METER, INC. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S December 31, 2000, 1999 and 1998 7 EMPLOYEE BENEFIT PLANS A. PENSION PLAN The company maintains a non-contributory defined benefit pension plan for its employees. The following table sets forth the components of net periodic pension expense for the years ended December 31, 2000, 1999 and 1998:
(In thousands) 2000 1999 1998 ------- ------- ------- Service cost -- benefits earned during the year $ 1,758 $ 1,793 $ 1,734 Interest cost on projected benefit obligations 2,816 2,648 2,659 Expected return on plan assets (3,700) (3,617) (3,532) Net amortization and deferral (522) (353) (373) ------- ------- ------- Net periodic pension cost $ 352 $ 471 $ 488 ======= ======= =======
The following table provides a reconciliation of benefit obligations, plan assets and funded status:
(In thousands) 2000 1999 ------- ------- Change in benefit obligation: Benefit obligation at beginning of year $37,549 $37,833 Service cost 1,758 1,793 Interest cost 2,816 2,648 Plan amendments 558 0 Actuarial gain (148) (1,167) Benefits paid (5,212) (3,558) ------- ------- Projected benefit obligation as of September 30 $37,321 $37,549 ------- ------- Change in plan assets: Fair value of plan assets as of beginning of year $41,076 $40,979 Actual return on plan assets 4,466 3,655 Company contributions 0 0 Benefits paid (5,212) (3,558) ------- ------- Fair value of plan assets as of September 30 $40,330 $41,076 ------- ------- Reconciliation: Funded status as of September 30 $3,009 $3,527 Unrecognized net transition asset 0 (423) Unrecognized prior service cost (1,629) (2,349) Unrecognized net actuarial loss 4,060 5,036 ------- ------- Prepaid pension asset as of September 30 and December 31 $ 5,440 $ 5,791 ======= =======
Actuarial assumptions used in the preparation of the above data:
2000 1999 ---- ---- Discount rate 7.5% 7.5% Expected return on plan assets 9.0% 9.0% Rate of compensation increase 5.0% 5.0% ==== ====
49 17 BADGER METER, INC. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S December 31, 1999, 1998 and 1997 B. OTHER POSTRETIREMENT BENEFITS The company has certain postretirement plans that provide medical benefits for retirees and eligible dependents. The following table sets forth the components of net periodic postretirement benefit cost for the years ended December 31, 2000, 1999 and 1998:
(In thousands) 2000 1999 1998 ----- ----- ----- Service cost, benefits attributed for service of active employees for the period $ 96 $ 105 $ 100 Interest cost on the accumulated postretirement benefit obligation 491 456 501 Unrecognized prior service credit (236) (236) (236) Unrecognized net loss 67 53 57 ----- ----- ----- Net periodic postretirement benefit cost $ 418 $ 378 $ 422 ===== ===== =====
The following table provides a reconciliation of benefit obligations. It is the company's policy to fund health care benefits on a cash basis. Since there are no plan assets, the plan is unfunded.
(In thousands) 2000 1999 ------- ------- Change in benefit obligation: Benefit obligation at beginning of year $ 6,884 $ 6,833 Service cost 96 105 Interest cost 491 456 Actuarial (gain) loss (67) 260 Benefits paid (775) (770) ------- ------- Projected benefit obligation and unfunded status as of December 31 6,629 6,884 Unrecognized prior service credit 1,590 1,826 Unrecognized net actuarial loss (1,550) (1,696) ------- ------- Accrued postretirement benefit cost as of December 31 $ 6,669 $ 7,014 ======= =======
The discount rate used to measure the accumulated postretirement benefit obligation was 7.5% for 2000 and 1999. Since the company has established fixed company contribution amounts for retiree health care benefits, future health care cost trends do not impact the company's accruals or provisions. 50 18 BADGER METER, INC. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S December 31, 2000, 1999 and 1998 C. BADGER METER EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN The Badger Meter Employee Savings and Stock Ownership Plan (the ESSOP) has used proceeds from loans, guaranteed by the company, to purchase Common Stock of the company from shares held in treasury. The company is obligated to contribute sufficient cash to the ESSOP to enable it to repay the loan principal and interest. The principal amount of the loan was $2,300,000 as of December 31, 2000 and $2,600,000 as of December 31, 1999. This principal amount has been recorded as long-term debt and a like amount of unearned compensation has been recorded as a reduction of shareholders' equity in the accompanying Consolidated Balance Sheets. The company made principal payments of $300,000, $0 and $200,000 in 2000, 1999 and 1998, respectively. These payments released shares of Common Stock (14,591 in 2000 and 22,856 in 1998) for allocation to participants in the ESSOP. The ESSOP held unreleased shares of 111,844, 126,435 and 126,435 as of December 31, 2000, 1999 and 1998, respectively. Unreleased shares are not considered outstanding for purposes of computing earnings per share. The ESSOP includes a voluntary 401(k) savings plan which allows domestic employees to defer up to 15% of their income on a pretax basis. The company matches 25% of each employee's contribution, with the match percentage applying to a maximum of 7% of the employee's salary. The match is paid using company stock released through the ESSOP loan payments. For ESSOP shares purchased prior to 1993, compensation expense is recognized based on the original purchase price of the shares released and dividends on unreleased shares are used to reduce interest expense on the ESSOP loans. For shares purchased after 1992, expense is based on the market value of the shares on the date released and dividends on unreleased shares are accounted for as additional interest expense. Compensation expense of $291,000, $274,000 and $200,000 was recognized for the match for 2000, 1999, and 1998, respectively. 51 19 BADGER METER, INC. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S December 31, 2000, 1999 and 1998 8 INCOME TAX EXPENSE Details of earnings before income taxes and the related provision for income taxes are as follows:
(In thousands) 2000 1999 1998 ------- ------- ------- Earnings before income taxes: Domestic $10,200 $15,126 $13,107 Foreign 527 533 257 ------- ------- ------- Total $10,727 $15,659 $13,364 ======= ======= ======= Income taxes: Current: Federal $ 2,292 $ 3,837 $ 4,180 State 535 923 878 Foreign 142 148 167 Deferred: Federal 653 787 (60) State 223 163 (18) Foreign (59) 101 (30) ------- ------- ------- Total $ 3,786 $ 5,959 $ 5,117 ======= ======= =======
The components of the net deferred tax asset as of December 31, were as follows (in thousands):
DEFERRED TAX ASSETS: 2000 1999 ------ ------ Receivables $ 242 $ 177 Inventories 137 336 Accrued compensation 667 787 Other payables 1,629 2,242 Non-pension postretirement benefits 2,605 2,730 Accrued employee benefits 2,065 1,919 ------ ------ Total deferred tax assets 7,345 8,191 DEFERRED TAX LIABILITIES: ------ ------ Depreciation 3,636 3,099 Prepaid pension 2,125 2,254 Other 188 625 ------ ------ Total deferred tax liabilities 5,949 5,978 ------ ------ Net deferred tax asset included in balance sheet $1,396 $2,213 ====== ======
52 20 BADGER METER, INC. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S December 31, 2000, 1999 and 1998 The provision for income tax differs from the amount which would be provided by applying the statutory U.S. corporate income tax rate in each year due to the following items:
(In thousands) 2000 1999 1998 ------ ------ ------ Provision at statutory rate $3,648 $5,355 $4,544 State income taxes, net of federal tax benefit 500 715 568 Foreign income taxes (97) 67 50 Tax benefit of FSC (68) (32) (78) Other (197) (146) 33 ------ ------ ------ Actual provision $3,786 $5,959 $5,117 ====== ====== ======
No provision for federal income taxes is made on the earnings of foreign subsidiaries that are considered permanently invested or that would be offset by foreign tax credits upon distribution. Such undistributed earnings at December 31, 2000, were $947,000. 9 LONG-TERM DEBT AND FAIR VALUE OF FINANCIAL INSTRUMENTS Long-term debt consists of the following:
(In thousands) 2000 1999 ------- ------- ESSOP debt (Note 7C) $ 2,300 $ 2,600 Capital lease (Note 6A) 166 298 Bank note 8,726 13,482 ------- ------- Total debt 11,192 16,380 Less: current maturities 5,248 4,887 ------- ------- Net long-term debt $ 5,944 $11,493 ======= =======
Interest on the ESSOP debt may be charged at either Prime Rate or at LIBOR plus 1.5%. As of December 31, 2000, the LIBOR-based loan had an interest rate of 8.1%. The terms of the loan allow variable payments of principal with the final principal and interest payment due December 31, 2005. The interest expense on the ESSOP debt was $125,000, $121,000 and $5,000 which was net of dividends on unallocated ESSOP shares of $57,000, $51,000 and $45,000 for 2000, 1999 and 1998, respectively. In August of 1999, the company borrowed $15,000,000 of long-term, unsecured debt from a local bank. The debt bears interest at 7.15% and is due in monthly installments through August, 2002. Principal payments total $5,115,000 for 2001 and $3,611,000 for 2002. Cash, receivables and payables are reflected in the financial statements at fair value. Short-term debt is comprised of notes payable drawn against the company's lines of credit and commercial paper. Because of the short-term nature of these instruments, the carrying value approximates the fair value. Long-term debt related to the company's guarantee of the ESSOP debt is offset by a similar amount in shareholders' equity. The estimated fair value of the company's $8,726,000 long-term bank note was $8,818,000 at December 31, 2000, based on quoted market rates. 53 21 BADGER METER, INC. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S December 31, 2000, 1999 and 1998 10 INDUSTRY SEGMENT The company is a marketer and manufacturer of flow measurement and control instruments, which comprise one reportable segment due to similarities in the nature of the products, production processes, customers and methods of distribution. Information regarding geographic areas is as follows:
(In thousands) 2000 1999 1998 -------- -------- -------- Revenues: United States $124,402 $132,924 $127,371 Foreign $ 21,987 $ 17,953 $ 16,442 Long-Lived Assets: United States $ 51,060 $ 51,504 $ 46,899 Foreign $ 1,737 $ 1,390 $ 1,464 ======== ======== ========
54 22 BADGER METER, INC. N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S December 31, 2000, 1999 and 1998 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) 2000 Net sales $36,907 $35,845 $39,508 $34,129 Gross margin $14,289 $11,994 $14,479 $12,252 Net earnings $ 2,357 $ 1,534 $ 1,948 $ 1,102 Earnings per share: Basic $ .71 $ .46 $ .59 $ .34 Diluted $ .67 $ .44 $ .56 $ .32 Dividends declared: Common $ .22 $ .22 $ .22 $ .22 Stock price: High $ 36.63 $ 37.38 $ 29.50 $ 28.01 Low $ 30.00 $ 25.00 $ 25.38 $ 23.00 Quarter-end close $ 36.25 $ 25.50 $ 27.63 $ 23.00 ------- ------- ------- ------- 1999 Net sales $38,397 $38,512 $37,551 $36,417 Gross margin $14,774 $15,470 $14,891 $14,020 Net earnings $ 2,151 $ 2,834 $ 2,420 $ 2,295 Earnings per share: Basic $ .58 $ .77 $ .70 $ .70 Diluted $ .55 $ .73 $ .65 $ .65 Dividends declared: Common $ .18 $ .18 $ .18 $ .18 Class B $ .16 $ .16 $ 0 $ 0 Stock price: High $ 37.63 $ 37.25 $ 41.00 $ 39.50 Low $ 30.63 $ 29.50 $ 34.25 $ 29.38 Quarter-end close $ 30.69 $ 34.75 $ 34.25 $ 30.13 ------- ------- ------- -------
Badger Meter, Inc. Common Stock is listed on the American Stock Exchange under the symbol BMI. Earnings per share is computed independently for each quarter. As such, the annual per share amount may not equal the sum of the quarterly amounts due to rounding. Shareholders of record as of December 31, 2000 and 1999, totaled 530 and 550, respectively, for Common Stock. Voting trusts are counted as single shareholders for this purpose. 55 23 BADGER METER, INC. R E P O R T O F I N D E P E N D E N T A U D I T O R S REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders Badger Meter, Inc. We have audited the accompanying consolidated balance sheets of Badger Meter, Inc. as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Badger Meter, Inc. at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Milwaukee, Wisconsin January 30, 2001 56 24 (Page 23 of Annual Report to Shareholders) BADGER METER, INC. T E N Y E A R S U M M A R Y O F S E L E C T E D D A T A Years ended December 31 (in thousands except per share data)
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 --------- -------- -------- -------- -------- -------- -------- -------- -------- -------- OPERATING RESULTS Net sales $ 146,389 150,877 143,813 130,771 116,018 108,644 99,155 84,497 82,106 78,417 Research and development $ 6,562 6,012 6,105 4,397 3,851 3,858 3,278 3,642 4,119 4,046 Earnings before income taxes $ 10,727 15,659 13,364 10,205 8,167 5,911 4,974 3,306 1,160 2,419 Earnings before changes in accounting $ 6,941 9,700 8,247 6,522 5,127 3,719 3,216 2,164 802 1,648 Cumulative effect of changes in accounting $ 0 0 0 0 0 0 0 0 (4,684) 0 Net earnings (loss) $ 6,941 9,700 8,247 6,522 5,127 3,719 3,216 2,164 (3,882) 1,648 Earnings to sales * 4.7% 6.4% 5.7% 5.0% 4.4% 3.4% 3.2% 2.6% 1.0% 2.1% --------- -------- -------- -------- -------- -------- -------- -------- -------- -------- PER COMMON SHARE Basic earnings before changes in accounting $ 2.10 2.78 2.28 1.83 1.46 1.06 .93 .64 .24 .49 Cumulative effect of changes in accounting $ 0 0 0 0 0 0 0 0 (1.38) 0 Basic earnings (loss) $ 2.10 2.78 2.28 1.83 1.46 1.06 .93 .64 (1.14) .49 Cash dividends declared: Common Stock $ .86 .72 .60 .48 .43 .39 .35 .32 .30 .30 Class B Common Stock $ 0 .32 .54 .44 .39 .36 .32 .29 .28 .28 Price range -- high $ 37.38 41.00 40.63 57.50 20.81 13.50 14.00 11.00 8.88 9.00 Price range -- low $ 23.00 29.38 25.00 18.13 12.38 11.06 9.50 8.88 7.38 6.81 Closing price $ 23.00 30.13 35.63 40.75 19.19 13.25 11.94 9.56 8.75 7.69 Book value $ 13.51 12.88 13.13 11.62 10.32 9.16 8.38 7.66 7.31 8.61 --------- -------- -------- -------- -------- -------- -------- -------- -------- -------- SHARES OUTSTANDING Common Stock 3,207 3,340 2,538 2,444 2,426 2,387 2,377 2,281 2,282 2,280 Class B Common Stock 0 0 1,108 1,126 1,126 1,126 1,126 1,126 1,126 1,126 --------- -------- -------- -------- -------- -------- -------- -------- -------- -------- FINANCIAL POSITION Working capital $ 6,822 11,150 10,776 13,870 17,645 16,178 14,569 12,010 9,876 9,842 Current ratio 1.2 to 1 1.3 to 1 1.3 to 1 1.5 to 1 2.0 to 1 2.1 to 1 1.7 to 1 1.6 to 1 1.6 to 1 1.6 to 1 Net cash provided by operations $ 13,251 15,652 15,007 5,178 9,878 12,026 6,342 2,969 3,833 5,410 Capital expenditures $ 6,403 9,981 17,926 8,349 5,382 4,493 3,553 3,121 3,496 3,335 Total assets $ 98,710 103,086 96,945 82,297 66,133 60,527 61,993 57,627 53,895 51,199 Long-term debt $ 5,944 11,493 2,600 928 1,091 1,000 1,200 1,400 1,700 1,900 Shareholders' equity $ 43,319 43,009 47,848 41,467 36,638 32,163 29,351 26,074 24,894 29,303 Debt to total capitalization 40.1% 39.5% 26.1% 22.7% 9.2% 16.8% 28.4% 34.9% 34.2% 28.7% Return on shareholders' equity * 16.0% 22.6% 17.2% 15.7% 14.0% 11.6% 11.0% 8.3% 3.2% 5.6% Price/earnings ratio * 11.0 10.8 15.6 22.3 13.1 12.5 12.8 15.1 37.2 15.9 --------- -------- -------- -------- -------- -------- -------- -------- -------- --------
* PRIOR TO ACCOUNTING CHANGES 57 EX-21.0 6 c61152ex21-0.txt SUBSIDIARIES OF REGISTRANT 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 company's consolidated financial statements.
Percentage State or Country Name of ownership in which organized - ---- ------------ ------------------ Badger Meter Europe, GmbH 100% Federal Republic of Germany Badger Meter de Mexico, S.A. de C.V. 100% Mexico Badger Meter Limited 100% United Kingdom Badger Meter de Las Americas, S.A. de C.V. 100% Mexico Badger Meter Export, Inc. 100% Virgin Islands (a large FSC) (U.S.) Badger Meter Canada 100% Canada Badger Meter Czech Republic 100% Czech Republic (a subsidiary of Badger Meter Europe, GmbH)
58 EX-23.0 7 c61152ex23-0.txt CONSENT OF ERNST & YOUNG LLP 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 30, 2001, included in the 2000 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 30, 2001, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of Badger Meter, Inc. Ernst & Young LLP Milwaukee, Wisconsin March 26, 2001 59 -----END PRIVACY-ENHANCED MESSAGE-----