0000950124-01-503572.txt : 20011026 0000950124-01-503572.hdr.sgml : 20011026 ACCESSION NUMBER: 0000950124-01-503572 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011018 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06706 FILM NUMBER: 1761503 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-Q 1 c65513e10-q.txt QUARTERLY REPORT DATED 09/30/01 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- ---------------- Commission File Number 1-6706 ------ BADGER METER, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Wisconsin 39-0143280 --------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4545 West Brown Deer Road, Milwaukee, Wisconsin 53223 ----------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (414) 355-0400 -------------- None ------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at October 12, 2001 ----------------------------- ------------------------------- Common Stock, $1.00 par value 3,186,687 -1- BADGER METER, INC. INDEX
Page No. -------- Part I. Financial Information: Item 1 Financial Statements: Consolidated Condensed Balance Sheets - - September 30, 2001 and December 31, 2000 3 Consolidated Condensed Statements of Operations - - Three and Nine Months Ended September 30, 2001 and 2000 4 Consolidated Condensed Statements of Cash Flows - - Nine Months Ended September 30, 2001 and 2000 5 Notes to Consolidated Condensed Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3 Quantitative and Qualitative Disclosures about Market Risk 9 Part II. Other Information: Item 6(a) Exhibits 10 Item 6(b) Reports on Form 8-K 10
-2- Part I - Financial Information BADGER METER, INC. (Unaudited) Item 1 Financial Statements CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands)
Assets September 30, December 31, ------ 2001 2000 ---- ---- (Unaudited) Current assets: Cash $ 2,502 $ 4,237 Receivables 21,551 19,006 Inventories: Finished goods 5,686 4,557 Work in process 7,472 8,092 Raw materials 8,855 7,673 ----------- ----------- Total inventories 22,013 20,322 Prepaid expenses 1,315 952 ----------- ----------- Total current assets 47,381 44,517 Property, plant and equipment, at cost 91,199 89,716 Less accumulated depreciation (49,968) (47,122) ------------ ----------- Net property, plant and equipment 41,231 42,594 Intangible assets, at cost less accumulated amortization 805 1,097 Prepaid pension 4,742 5,440 Deferred income taxes 1,383 1,396 Other assets 3,690 3,666 ----------- ----------- Total assets $ 99,232 $ 98,710 =========== =========== Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Short-term debt $ 21,737 $ 17,769 Current portion of long-term debt 431 5,248 Payables 10,862 7,188 Accrued compensation and employee benefits 3,992 3,344 Other accrued liabilities 3,225 3,245 Income and other taxes 1,823 901 ----------- ----------- Total current liabilities 42,070 37,695 Accrued non-pension postretirement benefits 6,368 6,669 Other accrued employee benefits 5,263 5,083 Long-term debt 3,236 5,944 Shareholders' equity: Common Stock 4,663 4,610 Capital in excess of par value 15,454 14,713 Reinvested earnings 50,268 50,536 Less: Employee benefit stock (1,900) (2,300) Treasury stock, at cost (26,190) (24,240) ------------ ----------- Total shareholders' equity 42,295 43,319 ----------- ----------- Total liabilities and shareholders' equity $ 99,232 $ 98,710 =========== ===========
See accompanying notes to consolidated condensed financial statements. -3- BADGER METER, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Per Share Amounts) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- Net sales $ 35,575 $ 39,508 $ 104,978 $ 112,260 Cost of sales 24,207 25,029 70,641 71,498 ----------- ----------- ----------- ----------- Gross margin 11,368 14,479 34,337 40,762 Selling, engineering and administration 9,310 10,693 29,406 31,917 ----------- ----------- ----------- ----------- Operating earnings 2,058 3,786 4,931 8,845 Interest expense 332 572 1,182 1,652 Other expense (income), net 203 123 (18) (2,123) ----------- ----------- ----------- ------------ Earnings before income taxes 1,523 3,091 3,767 9,316 Provision for income taxes 572 1,143 1,353 3,477 ----------- ----------- ----------- ----------- Net earnings $ 951 $ 1,948 $ 2,414 $ 5,839 =========== =========== =========== =========== Per share amounts: * Earnings per share: Basic $ .30 $ .59 $ .76 $ 1.76 =========== =========== =========== =========== Diluted $ .29 $ .56 $ .73 $ 1.67 =========== =========== =========== =========== Dividends declared - Common Stock $ .25 $ .22 $ .75 $ .65 =========== =========== =========== =========== Shares used in computation of: Basic 3,159,880 3,323,071 3,167,350 3,319,026 Impact of dilutive stock options 120,225 156,410 123,535 175,764 ----------- ----------- ----------- ----------- Diluted 3,280,105 3,479,481 3,290,885 3,494,790 =========== =========== =========== ===========
*Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share does not necessarily equal the total for the year. See accompanying notes to consolidated condensed financial statements. -4- BADGER METER, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Nine Months Ended September 30, ------------- 2001 2000 ---- ---- Operating activities: Net earnings $ 2,414 $ 5,839 Adjustments to reconcile net earnings to net cash provided by (used for) operations: Depreciation 4,906 4,477 Amortization 292 103 Tax benefit on stock options 297 315 Noncurrent employee benefits 977 711 Changes in: Receivables (2,545) (2,295) Inventory (1,691) (4,957) Current liabilities other than short-term debt 5,224 (660) Prepaid expenses and other (661) (598) ----------- ----------- Total adjustments 6,799 (2,904) ----------- ----------- Net cash provided by (used for) operations 9,213 2,935 ----------- ----------- Investing activities: Property, plant and equipment (3,543) (5,047) Other - net (24) 245 ----------- ----------- Net cash provided by (used for) investing activities (3,567) (4,802) ----------- ----------- Financing activities: Net increase (decrease) in short-term debt 3,968 6,050 Issuance of long-term debt 1,700 0 Repayments of long-term debt (9,225) (3,932) Dividends (2,371) (2,142) Stock options and ESSOP 497 533 Treasury stock transactions (1,950) (1,132) ----------- ----------- Net cash provided by (used for) financing activities (7,381) (623) ----------- ----------- Increase (decrease) in cash (1,735) (2,490) Beginning of year 4,237 3,752 ----------- ----------- End of period $ 2,502 $ 1,262 =========== =========== Supplemental disclosures of cash flow information: Cash paid (refunded) during the period for: Income taxes $ 663 $ 1,304 ----------- ----------- Interest $ 1,202 $ 1,675 =========== ===========
See accompanying notes to consolidated condensed financial statements. -5- BADGER METER, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of management, the accompanying unaudited consolidated condensed financial statements of Badger Meter, Inc. (the "Company") contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated condensed financial position at September 30, 2001 and the results of operations for the three and nine-month periods ended September 30, 2001 and 2000 and the cash flows for the nine-month periods ended September 30, 2001 and 2000. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the 2000 data to conform to the 2001 presentation. 2. The consolidated condensed balance sheet at December 31, 2000, was derived from amounts included in the Annual Report to Shareholders, which was incorporated by reference in the Company's annual report on Form 10-K for the year ended December 31, 2000. Refer to the footnotes in those reports for a description of the accounting policies, which have been continued without change, and additional details of the Company's financial condition. The details in those notes have not changed except as discussed below and as a result of normal transactions in the interim. 3. Other expense (income), net includes foreign currency gains and losses, which are recognized as incurred. The Company's functional currency for all of its foreign subsidiaries is the U.S. dollar. Other income for the first nine months of 2000 also includes $2,230,000 of business interruption insurance proceeds related to lost sales and margins as a result of a fire at a vendor's facility during 1999. The insurance claim was fully settled during the second quarter of 2000. 4. In the ordinary course of business, the Company enters into various material purchase agreements with its vendors, some of which contain minimum purchase quantity commitments extending beyond one year. Future purchase commitments are not expected to exceed normal usage requirements. 5. In June 2001, the Financial Accounting Standards Board (FASB) issued two new Statements of Financial Accounting Standards: No. 141 (SFAS 141) "Business Combinations" and No. 142 (SFAS 142) "Goodwill and Other Intangible Assets". In October 2001, the FASB issued No. 144 (SFAS 144) "Accounting for the Impairment or Disposal of Long-Lived Assets". Certain provisions of SFAS No. 141 became effective for the Company on July 1, 2001. All other provisions of the above noted statements become effective for the Company beginning January 1, 2002. The Company does not believe any of these recently issued Statements will have a material effect on the Company's results of operations, financial position or disclosures. -6- Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition Cash at September 30, 2001 has declined as compared to the balance at December 31, 2000 because a significant payment was received on the last business day of 2000 and has now been put to use for working capital and other needs. Receivables as of September 30, 2001 increased 13.4%, or $2,545,000, from the December 31, 2000 balance due to the timing of sales. Inventories increased 8.3%, or $1,691,000, as the Company increased stocking levels of certain long-lead electronic items as well as the effect of lower sales volumes. Prepaid expenses increased since December 31, 2000 due to the timing of annual insurance payments. Property, plant and equipment (at cost) increased $1,483,000 due to normal equipment purchases, net of retirements. Prepaid pension decreased as a result of pension expense incurred to date in 2001. Since December 31, 2000, short-term debt increased $3,968,000, a net result of cash generated from operations offset by the Company's decision to utilize short-term debt to reduce higher rate long-term obligations that would have matured in August 2002. As a result of the latter, and the net result of regular long-term debt payments and additional obligations incurred in connection with construction of a new plant in the Czech Republic, long-term debt and the current maturities of long-term debt declined $7,525,000. Payables increased $3,674,000 due to the timing of purchases and payment processing. Accrued compensation and employee benefits increased $648,000 due to the timing of payments. Income and other taxes increased $922,000 since December 31, 2000 due to the timing of estimated tax payments. Common stock and capital in excess of par value both increased at September 30, 2001 due to new shares issued in connection with stock options exercised and ESSOP purchases. Treasury stock increased due to shares repurchased during the period. Employee benefit stock decreased $400,000 due to the regular repayment of the ESSOP debt and the related release of shares. As of September 30, 2001, the Company had approximately $44,000,000 of short-term credit facilities with domestic and foreign banks of which $21,737,000 was in use. The Company believes that the present lines of credit are adequate to meet operating requirements and future capital needs. The Company also believes it would have no difficulty securing additional term debt. Results of Operations Net sales for the third quarter of 2001 of $35,575,000 reflect a 10.0% decrease as compared to the third quarter of 2000. For the nine-month period ended September 30, 2001, net sales decreased $7,282,000, or 6.5%, as compared to the same period in 2000. The decreases were principally due to lower sales of residential and commercial/industrial water meters and related technologies, and lower sales of valves, automotive and other industrial product sales. In addition, the results contain approximately $1,340,000 and $4,317,000 of sales for the three and nine-month periods, respectively, ending September 30, 2000 in sales of product lines that were sold and therefore no longer manufactured after 2000. The decline in overall sales was a result of several factors. The market for the Company's products reflected the effects of the general economic slowdown. For utility products, increased competition and price pressures have also had a negative impact on sales, particularly in higher priced automated meter reading products. These market conditions contributed to utility officials moving cautiously when making decisions on metering system purchases. Customers focused on their short-term needs and avoided long-term investment in new technologies. The economic slowdown has affected the company's other products (research and control valves, automotive and industrial products) as more customers delay purchasing decisions until conditions improve. The terrorist attack on September 11, 2001 had little financial impact on the Company for the periods under discussion. However, it is expected to have future -7- negative impact, particularly in the short-term, as water utilities shift their time and resources to focus on the security of their water systems, and as it further delays economic recovery. Gross margins decreased from 36.6% in the third quarter of 2000 to 32.0% in the third quarter of 2001 due to lower sales of automated meter reading products, which carry higher margins than sales of local read water meter products. Also, the margins for the quarter were affected by several lower-margin projects during the quarter and higher costs associated with underutilized manufacturing capacity. For the nine-month period ended September 30, 2001, gross margins declined to 32.7% from 36.3% in 2000 due to the same reasons discussed above. Selling, engineering and administration costs were down 12.9% for the third quarter of 2001 compared to the same quarter in 2000 and down 7.9% for the nine months ended September 30, 2001, as compared to the same period in 2000. The decreases were due to lower incentive accruals and cost controls offsetting personnel and expense increases, as well as reductions in costs associated with product lines no longer manufactured. Interest expense decreased for both the quarter and on a year-to-date basis due to lower interest rates and reduced overall debt. Other expense (income), net, included $2,230,000, for the nine months ended September 30, 2000, of business interruption insurance proceeds related to lost sales and margins as a result of a fire at a vendor's facility in 1999. The claim was fully settled during the second quarter of 2000 and, as such, no proceeds are included in the 2001 results. The effective tax rates were 37.6% for the third quarter of 2001 and 35.9% for the first nine months of 2001. These rates are less than the statutory rates due to the effect of certain non-taxable items on lower than expected pre-tax income. As a result of the above, earnings for the third quarter of 2001 were $951,000, a decrease of 51.2% from third quarter 2000 earnings of $1,948,000. Earnings for the nine-month period ending September 30, 2001 were $2,414,000, a decline of 58.7% from the same period in 2000. Other Matters The Company is subject to contingencies relative to environmental laws and regulations. Currently, the Company is in the process of resolving issues relative to a landfill site. The Company does not believe the ultimate resolution of this claim will have a material adverse effect on the Company's financial position or results of operations. Provision has been made for all known settlement costs. No other risks or uncertainties were identified that could have a material impact on operations and no long-lived assets have become permanently impaired in value. -8- Item 3 Quantitative and Qualitative Disclosures about Market Risk The Company's quantitative and qualitative disclosures about market risk are incorporated by reference from Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31, 2000, and have not materially changed since that report was filed. Forward Looking Statements Certain statements contained in this document, as well as other information provided from time to time by the Company or its employees, may contain forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. The words "anticipate," "believe," "estimate," "expect," "think," "should" and "objective" or similar expressions are intended to identify forward looking statements. The forward looking statements are based on the Company's current views and assumptions and involve risks and uncertainties that include, among other things: - the success or failure of new product offerings - the actions and financial condition of competitors and alliance partners - changes in competitive pricing and bids in the marketplace - changes in domestic conditions, including housing starts - changes in foreign economic conditions, including currency fluctuations - changes in laws and regulations - changes in customer demand and fluctuations in the prices of and availability of purchased raw materials and parts. Some or all of these factors are beyond the Company's control. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward looking statements and are cautioned not to place undue reliance on such forward looking statements. The forward looking statements made herein are made only as of the date of this document and the Company undertakes no obligation to publicly update such forward looking statements to reflect subsequent events or circumstances. -9- Part II - Other Information Item 6 Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: There were no reports on Form 8-K filed for the three months ended September 30, 2001. -10- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BADGER METER, INC. ------------------ Dated October 18, 2001 By /S/ Richard E. Johnson ----------------------- Richard E. Johnson Vice President - Finance and Treasurer Chief Financial Officer By /S/ Beverly L.P. Smiley ------------------------ Beverly L.P. Smiley Vice President - Controller -11-