EX-13 5 c67956ex13.txt PORTIONS OF THE ANNUAL REPORT EXHIBIT (13.0) Portions of Annual Report to Shareholders that are incorporated by reference. 34 (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, 2001 and 2000
2001 2000 % CHANGE ------------------------------------------------------------------------------------------------------------------- OPERATIONS (dollars in thousands) Net sales $ 138,537 $ 146,389 (5.4) Net earnings $ 3,364 $ 6,941 (51.5) ------------------------------------------------------------------------------------------------------------------- PER SHARE Net earnings: Basic $ 1.06 $ 2.10 (49.5) Diluted $ 1.03 $ 2.00 (48.5) Cash dividends $ 1.00 $ .86 16.3 Net book value $ 13.52 $ 13.51 .1 ------------------------------------------------------------------------------------------------------------------- YEAR-END FINANCIAL POSITION (dollars in thousands) Total assets $ 98,836 $ 98,023 .8 Total debt (long-term and short-term) $ 28,762 $ 28,961 (.7) Shareholders' equity $ 43,002 $ 43,319 (.7) Debt as a percent of total debt and equity 40.1% 40.1% 0 Net earnings as a percent of equity 7.8% 16.0% (51.3) =================================================================================================================== OTHER Number of employees 936 956 (2.1) Number of shareholders: Common Stock: In employee plans 683 712 (4.1) Of record 509 530 (4.0) Shares outstanding at December 31 Common Stock 3,179,641 3,207,039 (.9) ===================================================================================================================
35 (Page 12 to 15 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. The company's significant accounting policies, disclosures and commitments are described in the Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS SALES Badger Meter's sales decreased nearly $7.9 million or 5.4% for 2001 as compared to 2000. The decrease was primarily due to lower sales of automated water meter systems, offset somewhat by volume increases in lower priced local (or manual) read systems. The company's automotive fluid products, small precision valves and industrial products also saw volume declines, offset slightly by higher prices. Another factor in the decline was the discontinuance of certain product lines. Sales related to those lines totaled $1,430,000 in 2001 compared with $5,609,000 in 2000. 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, 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 are influenced 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. The competitive pressures continued in 2001 and were further impacted by the general economic slowdown. For utility products, increased competition and price pressures had a negative impact on sales, particularly on the higher priced automated meter reading products. These market conditions contributed to utility officials moving cautiously when making decisions on automated metering systems. The terrorist attack on September 11, 2001, had some impact on the company's sales in 2001, and may have more negative impact in early 2002 as water utilities shift their time and resources to focus on the security of their water systems. The economic slowdown also affected the company's other products (precision valves, automotive and industrial products) as more customers delayed purchasing decisions until economic conditions improve. 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. International sales are comprised primarily of sales of automotive fluid meters and small valves in Europe, sales of water 36 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 by holding euro-denominated debt. GROSS MARGINS Gross margins were 32.1%, 36.2% and 39.2% for 2001, 2000 and 1999, respectively. In 1999, the company invested in additional capacity, resulting in decreased margins for 2001 and 2000 as compared to the 1999 level as actual sales did not meet expected levels to absorb the costs of the increased capacity. Also, margins were affected by lower sales of automated meter reading products, which have higher margins than manual (or local read) meters. Margins in 2001 and 2000 were also impacted by a higher mix of international sales of water meters with lower margins than domestic water meter sales. A one-time manufacturing problem resulted in increased scrap levels and further reduced margins during the second quarter of 2000. This problem was identified by the company and corrected during the second quarter of that year. OTHER FACTORS Selling, engineering and administration costs decreased 8.5% in 2001 compared to 2000 due to lower incentive accruals and costs controls, as well as reductions in costs associated with discontinued product lines, offsetting personnel and expense increases. Selling, engineering and administration costs decreased 1.2% for 2000 compared to 1999, due primarily to reductions of incentive compensation due to lower sales and profits. This decrease in 2000 was partially offset by increases in marketing and engineering expenses. Interest expense decreased $825,000 in 2001 compared to 2000. The decrease was the result of significantly lower interest rates and the company's prepayment in 2001 of a term loan that had a higher interest rate than commercial paper borrowing. For the majority of 2001, the company used commercial paper at very favorable rates to finance its operations. Interest expense increased $950,000 in 2000 as compared to 1999 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. Other income and expense in 2001 relates primarily to foreign exchange gains. 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 and 1999 would have been expenses of $316,000 and $495,000, respectively. INCOME TAXES Income tax as a percentage of earnings before income taxes was 32.9%, 35.3% and 38.1% for 2001, 2000 and 1999, respectively. The decrease in 2001 from 2000 was due to lower state and foreign taxes on lower pre-tax income, as well as the percentage effects of certain permanent book-to-tax differences on lower pre-tax income in 2001 as compared to 2000. The decrease in 2000 from 1999 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 As a result of the above mentioned items, net earnings were $3,364,000, $6,941,000 and $9,700,000 in 2001, 2000 and 1999, respectively. On a diluted basis, earnings per share were $1.03, $2.00 and $2.60, respectively, for the same periods. Earnings were also impacted by share repurchases that reduced the number of shares used in the calculations. LIQUIDITY AND CAPITAL RESOURCES The main sources of liquidity for the company are cash from operations and borrowing capacity. Cash provided by operations decreased 35.2% in 2001 compared to 2000 primarily as a result of lower earnings, increased inventory and a $4.4 million payment to the company's pension plan, offset partially by increased payables. 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. 37 Receivables decreased 1.6% during 2001, primarily due to lower sales in the fourth quarter of 2001 compared to the fourth quarter of 2000. Inventories increased 9.3% in 2001, primarily due to increased purchases of bronze castings as a result of the timing of orders. Capital expenditures totaled $5.0 million in 2001, down from $6.4 million in 2000 and $10.0 million in 1999. The higher 1999 expenditures related to facility expansions. The company believes it is able to substantially increase production with minimal additional capital expenditures. Prepaid pension increased $3.5 million due to a $4.4 million payment offset by normal pension expense. The company's measurement date for annual pension expense is September 30. Net deferred tax assets declined from 2000 reflecting the net temporary differences between financial reporting and tax reporting, including the effect of the pension payment referenced above. Payables increased $2.4 million during 2001 due to the timing of purchases. Accrued compensation and employee benefits decreased $352,000 due to lower incentive compensation accruals. Current income taxes decreased $715,000 in 2001, due to the tax effects of certain timing differences between book and tax reporting and the timing of certain payments. The $576,000 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 $378,000 due primarily to increased employee deferred compensation. Total outstanding debt at December 31, 2001 decreased $200,000 from December 31, 2000. This decrease was primarily the result of increased operating cash flow requirements offset by a new $1.7 million borrowing to finance a new manufacturing facility in the Czech Republic and a $400,000 repayment of the company's ESSOP loan. During 2001, the company prepaid the remaining balance on the $15 million term loan (of which $8.7 million was outstanding at December 31, 2000). This amount was replaced with commercial paper available at lower interest rates. In January 2002, the company refinanced $20 million of commercial paper borrowings with an unsecured, fixed-rate, five-year term loan. This created additional borrowing capacity for the company as it reduced the amount of commercial paper outstanding under the company's $44.1 million short-term credit lines (of which $31 million may be used for commercial paper borrowings). The company guarantees the outstanding debt of the ESSOP that was recorded in long-term debt, offset by a similar amount in shareholders' equity. The loan amount is collateralized by shares of the company's Common Stock. A payment of $400,000 in 2001 has reduced the loan to $1.9 million at December 31, 2001. The company also guarantees the debt of a trust from which officers may obtain loans in order to purchase shares of the company's Common Stock. The loan amount is collateralized by the company's shares that were purchased with the loan's proceeds. Common stock and capital in excess of par value both increased during 2001 due to stock issued in connection with the exercise of stock options and ESSOP transactions. Employee benefit stock decreased by $400,000 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 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 a landfill site. The company does not believe the ultimate resolution of this issue 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 utilizes its independent auditors primarily for audit services and minimizes the amount of consulting and other services that are performed. The amount of non-audit services as compared to the total payments to the auditors was 21.5% in 2001 and 26.1% in 2000. 38 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 typically does not hold or issue derivative instruments and has a policy specifically prohibiting the use of such instruments for trading purposes. Commodity price risk is managed by keeping abreast of economic conditions and locking in purchase prices for quantities that correspond to the company's forecasted usage. 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, 2001 and 2000, the company's foreign currency net monetary assets were substantially offset by comparable debt, resulting in no material exposure. All of the outstanding debt at December 31, 2001, was floating-rate debt with market values approximating carrying values. In January 2002, the company entered into a $20 million fixed-rate term loan at a 6.73% interest rate, which reduces the amount of floating-rate debt. For the floating rate debt, future annual interest costs will fluctuate based on short-term interest rates. Accordingly, an increase in future interest rates would increase the company's borrowing costs. 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. 39 (Page 16 of Annual Report to Shareholders) BADGER METER, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 2001, 2000 and 1999
(In thousands except per share amounts) 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------- Net sales $ 138,537 $ 146,389 $ 150,877 Cost of sales 94,042 93,375 91,722 ------------------------------------------------------------------------------------------------------------------- Gross margin 44,495 53,014 59,155 Selling, engineering and administration 38,430 41,995 42,495 ------------------------------------------------------------------------------------------------------------------- Operating earnings 6,065 11,019 16,660 Interest expense 1,381 2,206 1,256 Other expense (income), net (326) (1,914) (255) ------------------------------------------------------------------------------------------------------------------- Earnings before income taxes 5,010 10,727 15,659 Provision for income taxes 1,646 3,786 5,959 ------------------------------------------------------------------------------------------------------------------- Net earnings $ 3,364 $ 6,941 $ 9,700 =================================================================================================================== Earnings per share: Basic $ 1.06 $ 2.10 $ 2.78 Diluted $ 1.03 $ 2.00 $ 2.60 =================================================================================================================== Shares used in computation of: Basic 3,163 3,308 3,494 Impact of dilutive stock options 112 162 234 ------------------------------------------------------------------------------------------------------------------- Diluted 3,275 3,470 3,728 ===================================================================================================================
See accompanying notes. 40 (Page 17 of Annual Report to Shareholders) BADGER METER, INC. CONSOLIDATED BALANCE SHEETS December 31, 2001 and 2000
(Dollars in thousands) 2001 2000 ------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash $ 3,410 $ 4,237 Receivables (Note 3) 18,700 19,006 Inventories: Finished goods 5,260 3,870 Work in process 8,190 8,092 Raw materials 8,037 7,673 ------------------------------------------------------------------------------------------------------------------- Total inventories 21,487 19,635 Prepaid expenses 767 952 ------------------------------------------------------------------------------------------------------------------- Total current assets 44,364 43,830 Property, plant and equipment: Land and improvements 2,550 2,619 Buildings and improvements 20,860 20,533 Machinery and equipment 68,033 66,564 ------------------------------------------------------------------------------------------------------------------- 91,443 89,716 Less accumulated depreciation (50,319) (47,122) ------------------------------------------------------------------------------------------------------------------- Net property, plant and equipment 41,124 42,594 Intangible assets, at cost less accumulated amortization 773 1,097 Prepaid pension (Note 7) 8,965 5,440 Deferred income taxes (Note 8) 49 1,396 Other assets 3,561 3,666 ------------------------------------------------------------------------------------------------------------------- Total assets $ 98,836 $ 98,023 =================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt (Note 4) $ 5,129 $ 17,769 Current portion of long-term debt (Note 9) 3,135 5,248 Payables 8,887 6,501 Accrued compensation and employee benefits 2,992 3,344 Other accrued liabilities 3,453 3,245 Income and other taxes 186 901 ------------------------------------------------------------------------------------------------------------------- Total current liabilities 23,782 37,008 Accrued non-pension postretirement benefits (Note 7) 6,093 6,669 Other accrued employee benefits 5,461 5,083 Long-term debt (Notes 7 and 9) 20,498 5,944 Shareholders' equity: (Notes 2, 5 and 7) Common Stock, $1.00 par; authorized 40,000,000 shares; issued 4,676,840 shares in 2001 and 4,610,140 shares in 2000 4,677 4,610 Capital in excess of par value 16,168 14,713 Reinvested earnings 50,736 50,536 Less: Employee benefit stock (1,900) (2,300) Treasury stock, at cost, 1,497,199 shares in 2001 and 1,403,101 shares in 2000 (26,679) (24,240) ------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 43,002 43,319 ------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 98,836 $ 98,023 ===================================================================================================================
See accompanying notes. 41 (Page 18 of Annual Report to Shareholders) BADGER METER, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2001, 2000 and 1999
(Dollars in thousands) 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------- Operating activities: Net earnings $ 3,364 $ 6,941 $ 9,700 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation 6,477 5,925 5,276 Amortization 324 148 357 Tax benefit on stock options 232 387 258 Noncurrent employee benefits (3,323) 648 611 Deferred income taxes 1,347 817 717 Changes in: Receivables 306 5,272 (4,464) Inventories (1,852) (1,529) 3,932 Current liabilities other than short-term debt 1,527 (5,349) (856) Prepaid expenses and other 185 (9) 121 ------------------------------------------------------------------------------------------------------------------- Total adjustments 5,223 6,310 5,952 ------------------------------------------------------------------------------------------------------------------- Net cash provided by operations 8,587 13,251 15,652 ------------------------------------------------------------------------------------------------------------------- Investing activities: Property, plant and equipment (5,007) (6,403) (9,981) Other - net 105 76 (654) ------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (4,902) (6,327) (10,635) ------------------------------------------------------------------------------------------------------------------- Financing activities: Net increase (decrease) in short-term debt (12,640) 6,067 (2,585) Issuance of long-term debt 21,700 0 15,396 Repayments of long-term debt (9,259) (5,188) (1,644) Dividends (3,164) (2,850) (2,453) Stock options and ESSOP 1,290 1,023 1,461 Purchase of treasury stock (2,439) (5,491) (13,811) ------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities (4,512) (6,439) (3,636) ------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash (827) 485 1,381 Cash - beginning of year 4,237 3,752 2,371 ------------------------------------------------------------------------------------------------------------------- Cash - end of year $ 3,410 $ 4,237 $ 3,752 =================================================================================================================== Supplemental disclosures of cash flow information: Cash paid during the year for: Income taxes $ 624 $ 1,839 $ 5,442 Interest (including $40 of interest capitalized during facility construction during 2001) $ 1,430 $ 2,255 $ 1,257 ===================================================================================================================
See accompanying notes. 42 (Page 19 of Annual Report to Shareholders) BADGER METER, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended December 31, 2001, 2000 and 1999
Class B Capital in Employee Common Common excess of Reinvested benefit Treasury (In thousands except per share amounts) Stock Stock par value earnings stock stock Total ------------------------------------------------------------------------------------------------------------------------------------ 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 ------------------------------------------------------------------------------------------------------------------------------------ Net earnings 3,364 3,364 Cash dividends, $1.00 per Common share (3,164) (3,164) Stock options exercised (Note 5) 44 788 832 Tax benefit on stock options and dividends 232 232 ESSOP transactions 23 435 400 858 Treasury stock purchase (2,439) (2,439) ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2001 $4,677 $ 0 $16,168 $50,736 $(1,900) $(26,679) $43,002 ====================================================================================================================================
See accompanying notes. 43 (Page 20 to 26 of Annual Report to Shareholders) BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PROFILE Badger Meter, Inc. (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 costs of shipping are billed to the customer upon shipment and are included in cost of sales. 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, 2001 and 2000, was $355,000 and $741,000, respectively. RESEARCH AND DEVELOPMENT Research and development costs are charged to expense as incurred and amounted to $5,422,000, $6,562,000 and $6,012,000 in 2001, 2000 and 1999, 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 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. RECLASSIFICATIONS Certain reclassifications have been made to the 2000 and 1999 consolidated financial statements to conform to the 2001 presentation. 44 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 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 2001, 2000 and 1999, the company sold $689,000, $654,000 and $2,602,000 of product to Azteca. Trade receivables from Azteca at December 31, 2001 and 2000, were $750,000 and $755,000, respectively. 4 SHORT-TERM DEBT AND CREDIT LINES Short-term debt at December 31, 2001 and 2000, consisted of:
(In thousands) 2001 2000 -------------------------------------------------------------------------------- Notes payable to banks $ 2,213 $ 2,048 Commercial paper 22,916 15,721 -------------------------------------------------------------------------------- Subtotal 25,129 17,769 Reclassification to long-term debt (Note 9) (20,000) 0 -------------------------------------------------------------------------------- Total $ 5,129 $ 17,769 ================================================================================
The company has $44,145,000 of short-term credit lines with domestic and foreign banks which include a $31,000,000 commercial paper line of credit. At December 31, 2001, $25,129,000 was outstanding under these lines with the weighted-average interest rate on the outstanding balance of 2.86% and 6.92% at December 31, 2001 and 2000, respectively. 45 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 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, 2001, options to purchase 129,912 shares are available for grant. The following table summarizes the transactions of the company's stock option plans for the three-year period ended December 31, 2001:
Weighted-Average Number of Shares Exercise Price ------------------------------------------------------------------------------------------------- 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 Options granted 91,000 $28.50 Options exercised (43,504) $12.13 Options forfeited (12,052) $27.18 ------------------------------------------------------------------------------------------------- Unexercised options outstanding - December 31, 2001 493,696 $18.59 ================================================================================================= Price range $8.38 - $12.38 (weighted-average contractual life of 2.5 years) 136,200 $10.53 Price range $14.81 - $24.13 (weighted-average contractual life of 5.2 years) 139,896 $21.67 Price range $28.50 - $40.25 (weighted-average contractual life of 7.6 years) 217,600 $33.58 ================================================================================================= Exercisable options - December 31, 1999 297,843 $12.91 December 31, 2000 251,516 $15.26 December 31, 2001 288,937 $20.65 =================================================================================================
46 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 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:
2001 2000 1999 ---------------------------------------------------------------------------------------------------------- Risk-free interest rate 5.0% 6.8% 5.6% Dividend yield 4% 3% 3% Volatility factor 29% 30% 38% Weighted-average expected life 5.0 years 6.6 years 5.0 years ==========================================================================================================
The weighted-average fair values of options granted in 2001, 2000 and 1999, were $6.28, $10.12 and $12.84 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 $385,000 or $.12 per share for 2001, $368,000 or $.11 per share for 2000, and $306,000 or $.09 per share for 1999. 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. Future minimum lease payments consisted of the following at December 31, 2001:
Total (In thousands) Leases ---------------------------------------------------------------------- 2002 $ 506 2003 458 2004 232 2005 205 2006 and thereafter 0 ---------------------------------------------------------------------- Lease obligations $ 1,401 =======================================================================
Total rental expense charged to operations under all operating leases was $1,447,000, $1,586,000 and $1,510,000 in 2001, 2000 and 1999, respectively. 47 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 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 an issue 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. The company makes commitments in the normal course of business. At December 31, 2001, 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, purchasing minimal amounts from alternative 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 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 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, 2001, 2000 and 1999, based on a September 30 measurement date:
(In thousands) 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 1,798 $ 1,758 $ 1,793 Interest cost on projected benefit obligations 2,799 2,816 2,648 Expected return on plan assets (3,593) (3,700) (3,617) Net amortization and deferral (88) (522) (353) ------------------------------------------------------------------------------------------------------------------- Net periodic pension cost $ 916 $ 352 $ 471 ===================================================================================================================
The following table provides a reconciliation of benefit obligations, plan assets and funded status:
(In thousands) 2001 2000 -------------------------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $ 37,321 $ 37,549 Service cost 1,798 1,758 Interest cost 2,799 2,816 Plan amendments 32 558 Actuarial gain (588) (148) Benefits paid (4,361) (5,212) -------------------------------------------------------------------------------------------------- Projected benefit obligation as of September 30 $ 37,001 $ 37,321 -------------------------------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets as of beginning of year $ 40,330 $ 41,076 Actual return on plan assets (4,782) 4,466 Benefits paid (4,361) (5,212) -------------------------------------------------------------------------------------------------- Fair value of plan assets as of September 30 $ 31,187 $ 40,330 -------------------------------------------------------------------------------------------------- Reconciliation: Funded status as of September 30 $ (5,814) $ 3,009 Unrecognized prior service cost (1,474) (1,629) Unrecognized net actuarial loss 11,812 4,060 Company contribution 4,441 0 -------------------------------------------------------------------------------------------------- Prepaid pension asset as of September 30 and December 31 $ 8,965 $ 5,440 ==================================================================================================
Actuarial assumptions used in the preparation of the above data:
2001 2000 ------------------------------------------------------------------------------------------------- Discount rate 7.5% 7.5% Expected return on plan assets 9.0% 9.0% Rate of compensation increase 5.0% 5.0% =================================================================================================
The fair value of the pension plan assets was $36,901,000 at December 31, 2001. The variation in the fair value of the assets between September 2001 and December 2001, is primarily from the change in the market value of the underlying investments as well as a $4.4 million contribution. 49 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 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, 2001, 2000 and 1999:
(In thousands) 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------- Service cost, benefits attributed for service of active employees for the period $ 97 $ 96 $ 105 Interest cost on the accumulated postretirement benefit obligation 474 491 456 Unrecognized prior service credit (236) (236) (236) Unrecognized net loss 61 67 53 ------------------------------------------------------------------------------------------------------------------- Net periodic postretirement benefit cost $ 396 $ 418 $ 378 ===================================================================================================================
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) 2001 2000 -------------------------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $6,629 $6,884 Service cost 97 96 Interest cost 474 491 Actuarial (gain) loss 217 (67) Benefits paid (971) (775) -------------------------------------------------------------------------------------------------- Projected benefit obligation and unfunded status as of December 31 6,446 6,629 Unrecognized prior service credit 1,354 1,590 Unrecognized net actuarial loss (1,707) (1,550) -------------------------------------------------------------------------------------------------- Accrued postretirement benefit cost as of December 31 $6,093 $6,669 =================================================================================================
The discount rate used to measure the accumulated postretirement benefit obligation was 7.5% for 2001 and 2000. 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 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 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 $1,900,000 as of December 31, 2001, and $2,300,000 as of December 31, 2000. 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 $400,000, $300,000 and $0 in 2001, 2000 and 1999, respectively. These payments released shares of Common Stock (19,451 in 2001, 14,591 in 2000, and 0 in 1999) for allocation to participants in the ESSOP. The ESSOP held unreleased shares of 92,393, 111,844 and 126,435 as of December 31, 2001, 2000 and 1999, 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 charged to retained earnings. 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. At December 31, 2001, the company committed to contribute $365,000 to the ESSOP in 2002 to be used to pay down the existing loan. This commitment releases shares to satisfy the 401(k) match for 2001. Compensation expense of $268,000, $289,000 and $274,000 was recognized for the match for 2001, 2000, and 1999, respectively. 51 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 8 INCOME TAX EXPENSE Details of earnings before income taxes and the related provision for income taxes are as follows:
(In thousands) 2001 2000 1999 ---------------------------------------------------------------------------------------------------------- Earnings before income taxes: Domestic $ 4,656 $ 10,200 $ 15,126 Foreign 354 527 533 ---------------------------------------------------------------------------------------------------------- Total $ 5,010 $ 10,727 $ 15,659 ========================================================================================================== Income taxes: Current: Federal $ 379 $ 2,292 $ 3,837 State (96) 535 923 Foreign 16 142 148 Deferred: Federal 847 653 787 State 354 223 163 Foreign 146 (59) 101 ---------------------------------------------------------------------------------------------------------- Total $ 1,646 $ 3,786 $ 5,959 ==========================================================================================================
The components of the net deferred tax asset as of December 31, were as follows (in thousands):
DEFERRED TAX ASSETS: 2001 2000 ---------------------------------------------------------------------------------------- Receivables $ 227 $ 242 Inventories 272 137 Accrued compensation 589 667 Other payables 1,711 1,629 Non-pension postretirement benefits 2,456 2,605 Accrued employee benefits 2,265 2,065 ---------------------------------------------------------------------------------------- Total deferred tax assets 7,520 7,345 DEFERRED TAX LIABILITIES: ---------------------------------------------------------------------------------------- Depreciation 3,844 3,636 Prepaid pension 3,480 2,125 Other 147 188 ---------------------------------------------------------------------------------------- Total deferred tax liabilities 7,471 5,949 ---------------------------------------------------------------------------------------- Net deferred tax asset included in balance sheet $ 49 $ 1,396 ========================================================================================
52 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 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) 2001 2000 1999 ---------------------------------------------------------------------------------------------------------- Provision at statutory rate $ 1,703 $ 3,648 $ 5,355 State income taxes, net of federal tax benefit 170 500 715 Foreign income taxes (11) (97) 67 Tax benefit of FSC (57) (68) (32) Other (159) (197) (146) ---------------------------------------------------------------------------------------------------------- Actual provision $ 1,646 $ 3,786 $ 5,959 ==========================================================================================================
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, 2001, were $809,000. 9 LONG-TERM DEBT AND FAIR VALUE OF FINANCIAL INSTRUMENTS Long-term debt consists of the following:
(In thousands) 2001 2000 ------------------------------------------------------------------------------------------------- ESSOP debt (Note 7C) $ 1,900 $ 2,300 Capital lease 33 166 Bank note 1,700 8,726 Term loan (Note 4) 20,000 0 ------------------------------------------------------------------------------------------------- Total debt 23,633 11,192 Less: current maturities (3,135) (5,248) ------------------------------------------------------------------------------------------------- Net long-term debt $ 20,498 $ 5,944 =================================================================================================
Interest on the ESSOP debt may be charged at either prime rate or at LIBOR plus 1.5%. As of December 31, 2001, the LIBOR-based loan had an interest rate of 3.4%. 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 $76,000, $125,000 and $121,000, which was net of dividends on unallocated ESSOP shares of $54,000, $57,000 and $51,000 for 2001, 2000 and 1999, respectively. During 2001, the company prepaid the remaining balance on its $15,000,000 long-term loan, of which $8,726,000 was outstanding at December 31, 2000. In July 2001, the company borrowed $1,700,000 in connection with the construction of a new manufacturing facility in the Czech Republic. The debt bears interest at LIBOR plus 1.75% and the rate is set daily. Payments are due in quarterly installments through April 2005. Principal payments total $486,000 per year for 2002, 2003 and 2004, with a final principal payment of $242,000 in 2005. In January 2002, the company borrowed $20,000,000 of long-term, unsecured debt from a local bank. The purpose of the loan is to replace short-term borrowings. As a result of obtaining the loan, $20,000,000 of commercial paper has been reclassified to long-term debt for financial statement presentation. The debt bears interest at 6.73% and is due in quarterly installments through January 2007. Principal payments are as follows: for 2002, $2,616,000; for 2003, $3,661,000; for 2004, $3,915,000; for 2005, $4,191,000; for 2006, $4,484,000; and $1,133,000 thereafter. 53 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 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 $1,700,000 bank note is a term loan with variable interest based upon daily LIBOR rates; accordingly, carrying value approximates the fair market value. The remaining long-term debt of $20,000,000 was obtained in January 2002 at market rates. The company guarantees the bank borrowings made by a trust from which officers may obtain loans in order to purchase shares of the company's Common Stock. The officers' loan amount is collateralized by the company's shares that were purchased with the loan's proceeds. The bank loan balances were $2,167,000 and $2,046,000 at December 31, 2001 and 2000, respectively. 10 INDUSTRY SEGMENT The company is a marketer and manufacturer of flow measurement and control instruments, which comprise one reportable segment. The company manages and evaluates its operations as one segment primarily 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) 2001 2000 1999 ---------------------------------------------------------------------------------------------------------- Revenues: United States $ 120,811 $ 124,402 $ 132,924 Foreign $ 17,726 $ 21,987 $ 17,953 Long-Lived Assets: United States $ 50,961 $ 51,060 $ 51,504 Foreign $ 3,462 $ 1,737 $ 1,390 ==========================================================================================================
54 BADGER METER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001, 2000 and 1999 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) 2001 Net sales $ 35,454 $ 33,949 $ 35,575 $ 33,559 Gross margin $ 12,027 $ 10,942 $ 11,368 $ 10,158 Net earnings $ 934 $ 529 $ 951 $ 950 Earnings per share: Basic $ .29 $ .17 $ .30 $ .30 Diluted $ .28 $ .16 $ .29 $ .29 Dividends declared: Common $ .25 $ .25 $ .25 $ .25 Stock price: High $ 29.24 $ 33.22 $ 29.47 $ 25.04 Low $ 22.80 $ 27.77 $ 23.20 $ 19.76 Quarter-end close $ 28.50 $ 28.75 $ 25.30 $ 22.43 ------------------------------------------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------------------------------------------
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, 2001 and 2000, totaled 509 and 530, respectively, for Common Stock. Voting trusts are counted as single shareholders for this purpose. 55 BADGER METER, INC. REPORT OF INDEPENDENT AUDITORS REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders Badger Meter, Inc. We have audited the accompanying consolidated balance sheets of Badger Meter, Inc. as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. 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, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Milwaukee, Wisconsin January 30, 2002 56 (Page 27 of Annual Report to Shareholders) BADGER METER, INC. TEN YEAR SUMMARY OF SELECTED DATA Years ended December 31 (in thousands except per share data)
2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 ------------------------------------------------------------------------------------------------------------------------------------ OPERATING RESULTS Net sales $ 138,537 146,389 150,877 143,813 130,771 116,018 108,644 99,155 84,497 82,106 Research and development $ 5,422 6,562 6,012 6,105 4,397 3,851 3,858 3,278 3,642 4,119 Earnings before income taxes $ 5,010 10,727 15,659 13,364 10,205 8,167 5,911 4,974 3,306 1,160 Earnings before changes in accounting $ 3,364 6,941 9,700 8,247 6,522 5,127 3,719 3,216 2,164 802 Cumulative effect of changes in accounting $ 0 0 0 0 0 0 0 0 0 (4,684) Net earnings (loss) $ 3,364 6,941 9,700 8,247 6,522 5,127 3,719 3,216 2,164 (3,882) Earnings to sales * 2.4% 4.7% 6.4% 5.7% 5.0% 4.4% 3.4% 3.2% 2.6% 1.0% ------------------------------------------------------------------------------------------------------------------------------------ PER COMMON SHARE Basic earnings before changes in accounting $ 1.06 2.10 2.78 2.28 1.83 1.46 1.06 .93 .64 .24 Cumulative effect of changes in accounting $ 0 0 0 0 0 0 0 0 0 (1.38) Basic earnings (loss) $ 1.06 2.10 2.78 2.28 1.83 1.46 1.06 .93 .64 (1.14) Cash dividends declared: Common Stock $ 1.00 .86 .72 .60 .48 .43 .39 .35 .32 .30 Class B Common Stock $ 0 0 .32 .54 .44 .39 .36 .32 .29 .28 Price range - high $ 33.22 37.38 41.00 40.63 57.50 20.81 13.50 14.00 11.00 8.88 Price range - low $ 19.76 23.00 29.38 25.00 18.13 12.38 11.06 9.50 8.88 7.38 Closing price $ 22.43 23.00 30.13 35.63 40.75 19.19 13.25 11.94 9.56 8.75 Book value $ 13.52 13.51 12.88 13.13 11.62 10.32 9.16 8.38 7.66 7.31 ------------------------------------------------------------------------------------------------------------------------------------ SHARES OUTSTANDING Common Stock 3,180 3,207 3,340 2,538 2,444 2,426 2,387 2,377 2,281 2,282 Class B Common Stock 0 0 0 1,108 1,126 1,126 1,126 1,126 1,126 1,126 ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL POSITION Working capital $ 20,582 6,822 11,150 10,776 13,870 17,645 16,178 14,569 12,010 9,876 Current ratio 1.9 to 1 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 Net cash provided by operations $ 8,587 13,251 15,652 15,007 5,178 9,878 12,026 6,342 2,969 3,833 Capital expenditures $ 5,007 6,403 9,981 17,926 8,349 5,382 4,493 3,553 3,121 3,496 Total assets $ 98,836 98,023 102,186 96,945 82,297 66,133 60,527 61,993 57,627 53,895 Long-term debt $ 20,498 5,944 11,493 2,600 928 1,091 1,000 1,200 1,400 1,700 Shareholders' equity $ 43,002 43,319 43,009 47,848 41,467 36,638 32,163 29,351 26,074 24,894 Debt to total capitalization 40.1% 40.1% 39.5% 26.1% 22.7% 9.2% 16.8% 28.4% 34.9% 34.2% Return on shareholders' equity * 7.8% 16.0% 22.6% 17.2% 15.7% 14.0% 11.6% 11.0% 8.3% 3.2% Price/earnings ratio * 21.2 11.0 10.8 15.6 22.3 13.1 12.5 12.8 15.1 37.2 ------------------------------------------------------------------------------------------------------------------------------------
* PRIOR TO ACCOUNTING CHANGES 57