UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): January 31, 2012
BADGER METER, INC.
(Exact name of Registrant as Specified in Its Charter)
Wisconsin | 001-06706 | 39-0143280 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
4545 W. Brown Deer Road, Milwaukee, Wisconsin 53223
(Address of principal executive offices, including zip code)
Registrants telephone number, including area code: (414) 355-0400
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
This Amendment No. 1 to Current Report on Form 8-K/A is being filed to amend the Current Report on Form 8-K (the Initial 8-K) filed with the Securities and Exchange Commission on February 6, 2012 by Badger Meter, Inc. (the Company) to include the financial information referred to in Item 9.01(a) and (b) with respect to the Companys acquisition of Racine Federated, Inc. (Racine Federated) on January 31, 2012.
This Amendment No. 1 does not reflect events occurring after the filing of the Initial 8-K and, other than amending Item 9.01 of the Initial 8-K, does not modify or update the disclosures in the Initial 8-K in any way.
The Company hereby amends Item 9.01 of the Initial 8-K to provide in its entirety as follows:
Item 9.01 Financial Statements and Exhibits
(a) | Financial statements of business acquired. |
The Consolidated Financial Statements (audited) of Racine Federated as of and for the year ended December 31, 2011 of Racine Federated are filed as Exhibit 99.1 to this report and incorporated herein by reference.
(b) | Pro forma financial information. |
The Unaudited Pro Forma Combined Condensed Balance Sheet as of December 31, 2011 and the Unaudited Pro Forma Combined Condensed Statement of Operations as of and for the fiscal year ended December 31, 2011, showing the pro forma effects of the Companys acquisition of Racine Federated, and related notes are filed as Exhibit 99.2 to this report and incorporated herein by reference.
(d) | Exhibits. |
(23.1) | Consent of CliftonLarsonAllen LLP, independent registered public accounting firm, of Racine Federated, Inc. | |
(99.1) | The Consolidated Financial Statements (audited) of Racine Federated as of and for the year ended December 31, 2011 of Racine Federated. | |
(99.2) | The Unaudited Pro Forma Combined Condensed Balance Sheet as of December 31, 2011 and the Unaudited Pro Forma Combined Condensed Statement of Operations for the fiscal year ended December 31, 2011, showing the pro forma effects of the Companys acquisition of Racine Federated, and related notes. |
SIGNATURES
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 hereunto duly authorized.
BADGER METER, INC. | ||||||
Dated: April 13, 2012 | By: | /s/ Richard E. Johnson | ||||
Richard E. Johnson | ||||||
Senior Vice President Finance, | ||||||
Chief Financial Officer and Treasurer |
EXHIBIT INDEX TO CURRENT REPORT ON FORM 8-K
Dated January 31, 2012
EXHIBIT NO. | EXHIBIT DESCRIPTION | |
(23.1) | Consent of CliftonLarsonAllen LLP, independent registered public accounting firm, of Racine Federated, Inc. | |
(99.1) | The Consolidated Financial Statements (audited) of Racine Federated as of and for the year ended December 31, 2011 of Racine Federated. | |
(99.2) | The Unaudited Pro Forma Combined Condensed Balance Sheet as of December 31, 2011 and the Unaudited Pro Forma Combined Condensed Statement of Operations for the fiscal year ended December 31, 2011, showing the pro forma effects of the Companys acquisition of Racine Federated, and related notes. |
Exhibit (23.1)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Badger Meter, Inc.
Milwaukee, Wisconsin
We consent to the inclusion of our report dated March 15, 2012, with respect to the consolidated balance sheets of Racine Federated, Inc. and its subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders equity, and cash flows for the years then ended, which report appears in the Form 8-K/A of Badger Meter, Inc. dated January 31, 2012.
/s/ CliftonLarsonAllen LLP
Racine, Wisconsin
April 13, 2012
Exhibit (99.1)
Racine Federated, Inc.
and its Subsidiaries
Consolidated Financial Statements as of and for the year ended December 31, 2011, and Report of Independent Registered Public Accounting Firm
TABLE OF CONTENTS
PAGE | ||||
INDEPENDENT AUDITORS REPORT |
1 | |||
FINANCIAL STATEMENTS |
||||
Consolidated Balance Sheets |
2 | |||
Consolidated Statements of Operations |
4 | |||
Consolidated Statements of Stockholders Equity |
5 | |||
Consolidated Statements of Cash Flows |
6 | |||
Notes to Consolidated Financial Statements |
7 |
Independent Auditors Report
Board of Directors and Shareholders
Racine Federated Inc. and its Subsidiaries
Racine, Wisconsin
We have audited the accompanying consolidated balance sheets of Racine Federated Inc. and its subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Racine Federated Inc. and its subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ CliftonLarsonAllen LLP
Racine, Wisconsin
March 15, 2012
1
RACINE FEDERATED INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2011 and 2010
ASSETS
2011 | 2010 | |||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 10,674,428 | $ | 7,527,791 | ||||
Certificate of deposit |
| 1,500,000 | ||||||
Accounts receivable, less allowance for doubtful accounts of $248,000 in 2011 and 2010 |
4,932,409 | 3,926,039 | ||||||
Income tax refunds receivable |
138,260 | | ||||||
Inventories |
7,551,384 | 6,666,407 | ||||||
Prepaid expenses |
206,037 | 229,050 | ||||||
Deferred income tax |
519,200 | 159,100 | ||||||
|
|
|
|
|||||
Total current assets |
24,021,718 | 20,008,387 | ||||||
|
|
|
|
|||||
PROPERTY AND EQUIPMENT |
2,591,857 | 2,442,483 | ||||||
|
|
|
|
|||||
OTHER ASSETS |
||||||||
Patents, less accumulated amortization of $15,807 and $13,158 in 2011 and 2010, respectively |
12,337 | 14,986 | ||||||
Intangible assets |
240,000 | 12,617 | ||||||
Goodwill |
214,225 | | ||||||
|
|
|
|
|||||
Total other assets |
466,562 | 27,603 | ||||||
|
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|
|
|||||
TOTAL ASSETS |
$ | 27,080,137 | $ | 22,478,473 | ||||
|
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2
LIABILITIES
2011 | 2010 | |||||||
CURRENT LIABILITIES |
||||||||
Accounts Payable |
$ | 1,843,552 | $ | 1,314,823 | ||||
Current maturities of long-term liabilities |
846,913 | 20,975 | ||||||
Accrued expenses: |
||||||||
Payroll and related items |
2,795,345 | 1,218,351 | ||||||
Profit sharing and savings plan |
313,925 | 286,084 | ||||||
Income taxes payable |
27,630 | 62,804 | ||||||
Other |
457,531 | 100,878 | ||||||
|
|
|
|
|||||
Total current assets |
6,284,896 | 3,003,915 | ||||||
|
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|
|||||
LONG-TERM LIABILITIES |
||||||||
Long-term liabilities, less current maturities above |
452,746 | 580,146 | ||||||
Deferred income tax |
50,070 | 44,227 | ||||||
|
|
|
|
|||||
Total long-term liabilities |
502,816 | 624,373 | ||||||
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|
|||||
Total liabilities |
6,787,712 | 3,628,288 | ||||||
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STOCKHOLDER EQUITY |
||||||||
Racine Federated Inc. and subsidiary stockholder equity |
||||||||
Common stock, no par value; 2,500,000 and 500,000 shares authorized in 2011 and 2010, respectively; 1,169,310 and 236,112 shares issued and outstanding at December 31, 2011 and 2010, respectively |
683,410 | 677,769 | ||||||
Accumulated other comprehensive income: |
(323,196 | ) | (296,863 | ) | ||||
Retained earnings |
19,932,211 | 18,035,464 | ||||||
|
|
|
|
|||||
Total Racine Federated Inc. and subsidiary stockholders equity |
20,292,425 | 18,416,370 | ||||||
Noncontrolling interest |
| 433,815 | ||||||
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|
|||||
Total stockholders equity |
20,292,425 | 18,850,185 | ||||||
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|||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 27,080,137 | $ | 22,478,473 | ||||
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|
The accompanying notes are an integral part of the consolidated financial statements.
3
RACINE FEDERATED INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
December 31, 2011 and 2010
2011 | 2010 | |||||||
NET SALES |
$ | 42,647,437 | $ | 33,387,465 | ||||
COST OF SALES |
20,764,639 | 16,464,817 | ||||||
|
|
|
|
|||||
Gross profit |
21,882,798 | 16,922,648 | ||||||
SELLING AND ADMINISTRATIVE EXPENSES |
17,253,078 | 12,324,525 | ||||||
|
|
|
|
|||||
Income from operations |
4,629,720 | 4,598,123 | ||||||
OTHER INCOME (EXPENSE) |
||||||||
Interest income, net |
12,425 | 24,403 | ||||||
Deferred charges |
(132,617 | ) | (36,733 | ) | ||||
Other |
(113,847 | ) | (151,128 | ) | ||||
|
|
|
|
|||||
Income before income taxes |
4,395,681 | 4,434,665 | ||||||
PROVISION FOR INCOME TAXES |
1,017,831 | 1,221,985 | ||||||
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|
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NET INCOME |
$ | 3,377,850 | $ | 3,212,680 | ||||
|
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NET INCOME ATTRIBUTABLE TO: |
||||||||
CONTROLLING INTEREST |
$ | 2,127,388 | $ | 2,524,181 | ||||
NONCONTROLLING INTEREST |
1,250,462 | 688,499 | ||||||
|
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|||||
NET INCOME |
$ | 3,377,850 | $ | 3,212,680 | ||||
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|||||
INCOME FROM OPERATIONS PER COMMON SHARE |
$ | 3.94 | $ | 19.34 | ||||
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NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST PER COMMON SHARE |
$ | 1.81 | $ | 10.62 | ||||
|
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|
|
The accompanying notes are an integral part of the consolidated financial statements.
4
RACINE FEDERATED INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
December 31, 2011 and 2010
Cummulative | ||||||||||||||||||||
Common | Translation | Retained | Noncontrolling | |||||||||||||||||
Stock | Adjustment | Earnings | Interest | Total | ||||||||||||||||
Balance, December 31, 2009 |
$ | 667,248 | $ | (440,932 | ) | $ | 15,819,391 | $ | 1,002,500 | $ | 17,048,207 | |||||||||
|
|
|||||||||||||||||||
Net income |
| | 2,524,181 | 688,499 | 3,212,680 | |||||||||||||||
Other comprehensive income: |
||||||||||||||||||||
Currency translation adjustment |
| 144,069 | | | 144,069 | |||||||||||||||
|
|
|||||||||||||||||||
Total comprehensive income |
3,356,749 | |||||||||||||||||||
Issued 200 shares |
17,500 | | | | 17,500 | |||||||||||||||
Redeemed 3,601 shares |
(6,979 | ) | | (308,108 | ) | | (315,087 | ) | ||||||||||||
Dividends |
| | | (1,257,184 | ) | (1,257,184 | ) | |||||||||||||
|
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|
|
|
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|
|
|
|||||||||||
Balance, December 31, 2010 |
677,769 | (296,863 | ) | 18,035,464 | 433,815 | 18,850,185 | ||||||||||||||
Net income |
| | 2,127,388 | 1,250,462 | 3,377,850 | |||||||||||||||
Other comprehensive income: |
||||||||||||||||||||
Currency translation adjustment |
| (26,333 | ) | | | (26,333 | ) | |||||||||||||
|
|
|||||||||||||||||||
Total comprehensive income |
3,351,517 | |||||||||||||||||||
Issued 500 shares |
10,000 | | | | 10,000 | |||||||||||||||
Redeemed 11,750 shares |
(4,359 | ) | | (230,641 | ) | | (235,000 | ) | ||||||||||||
Dividends |
| | | (1,684,277 | ) | (1,684,277 | ) | |||||||||||||
|
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|
|
|
|
|
|
|
|
|||||||||||
Balance, December 31, 2011 |
$ | 683,410 | $ | (323,196 | ) | $ | 19,932,211 | $ | | $ | 20,292,425 | |||||||||
|
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The accompanying notes are an integral part of the consolidated financial statements.
5
RACINE FEDERATED INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 2011 and 2010
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net income |
$ | 3,377,850 | $ | 3,212,680 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
710,777 | 683,421 | ||||||
Provision for doubtful accounts |
49,180 | 18,976 | ||||||
Deferred income taxes |
(354,257 | ) | 254,887 | |||||
Deferred compensation |
52,022 | 62,589 | ||||||
Deferred research and development |
904,706 | | ||||||
Effects of changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(1,055,550 | ) | (761,055 | ) | ||||
Income tax refunds receivable |
(138,260 | ) | 581,948 | |||||
Inventories |
(763,407 | ) | (407,265 | ) | ||||
Prepaid expenses |
23,013 | 67,283 | ||||||
Accounts payable |
528,729 | 570,381 | ||||||
Other |
1,926,314 | 609,831 | ||||||
|
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|
|||||
Net cash provided by operating activities |
5,261,117 | 4,893,676 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Acquisition of product line |
(660,795 | ) | | |||||
Net maturity (purchase) of certificate of deposit |
1,500,000 | (500,000 | ) | |||||
Purchases of property and equipment |
(759,016 | ) | (760,693 | ) | ||||
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|
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Net cash provided by (used in) investing activities |
80,189 | (1,260,693 | ) | |||||
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|
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CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Payments on long-term debt |
(15,975 | ) | (14,415 | ) | ||||
Payments on other long-term liabilities |
(242,215 | ) | (18,451 | ) | ||||
Proceeds from sale of common stock |
10,000 | 17,500 | ||||||
Common stock redemption |
(235,000 | ) | (315,087 | ) | ||||
Dividends paid to owners of affiliate |
(1,684,277 | ) | (1,257,184 | ) | ||||
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|
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Net cash used in financing activities |
(2,167,467 | ) | (1,587,637 | ) | ||||
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EFFECT OF EXCHANGE RATE CHANGES IN CASH |
(27,202 | ) | 145,259 | |||||
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NET INCREASE IN CASH AND CASH EQUIVALENTS |
3,146,637 | 2,190,605 | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
7,527,791 | 5,337,186 | ||||||
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CASH AND CASH EQUIVALENTS, END OF YEAR |
$ | 10,674,428 | $ | 7,527,791 | ||||
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The accompanying notes are an integral part of the consolidated financial statements.
6
RACINE FEDERATED INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2011 and 2010
NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Racine Federated Inc. (the Company) was incorporated in 1970 in the state of Wisconsin and is presently engaged in the manufacture and sale of construction tools and industrial flow meters. The Companys foreign subsidiary engages in the sale and distribution of hydraulic and filtration products within Europe. The Company grants credit on sales of its products to domestic and foreign customers. The Companys fiscal year ends on December 31. Significant accounting policies followed by the Company are presented below.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Premier Control Technologies, Ltd.
The consolidated financial statements are also combined with the financial statements of RFI Exports, Inc., its consolidated affiliate. The entity is owned by a trust whose beneficiaries are related via common ownership with the Company. RFI Exports, Inc. receives commission income based on the Companys foreign sales which is ultimately paid out in the form of dividends to its shareholder. RFI Exports, Inc. is included in these consolidated financial statements under requirements for consolidation of variable interest entities (VIE). If an enterprise is the primary beneficiary of a variable interest entity, the assets, liabilities, noncontrolling interests, and results of the operations of the VIE should be included in the consolidated financial statements of the enterprise. The Company has determined that RFI Exports, Inc. is a VIE and that the Company is the primary beneficiary of RFI Exports, Inc. The Companys ownership interest is presented as a noncontrolling interest in the accompanying consolidated financial statements. In conjunction with and anticipation of the transaction described in Note 21, RFI Exports, Inc. was liquidated as of December 31, 2011.
All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates in Preparing Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents.
7
NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable
Accounts receivable are uncollateralized customer obligations that generally require payment within thirty to sixty days from the invoice date. Payments of accounts receivable are applied to the specific invoices identified on the customers remittance advice or, if unspecified, to the earliest unpaid invoices.
The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts that reflects managements best estimate of amounts that will not be collected. The allowance for doubtful accounts is based on managements assessment of the collectability of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customers credit worthiness or actual defaults are higher than the historical experience, managements estimates of the recoverability of amounts due the Company could be adversely affected. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for doubtful accounts.
Inventories
Inventories are valued at the lower of cost or market, cost being determined principally by the first-in, first-out (FIFO) method, and market on the basis of lower of replacement cost or estimated net proceeds from sale.
Property and Equipment
Property and equipment are stated at cost and are depreciated over the estimated useful lives of the respective assets, using straight-line and accelerated methods. Maintenance, repairs, and minor renewals are charged against earnings when incurred.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Patents
The costs of patents acquired are amortized on a straight-line basis over the remaining legal or economic useful life of the respective patents.
8
NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
Intangible assets are amortized on the appropriate basis over their estimated useful lives. When an intangible asset is determined to be impaired it is written down to its fair value.
Goodwill
Goodwill is initially recorded as the excess of the cost of acquired entities over the net fair value of assets acquired less liabilities assumed and is subsequently reported at the lesser of carrying value or fair value. Goodwill is tested for impairment at least annually to determine if an impairment loss has occurred. Impairment losses, when incurred, are included in other income (expense) in the accompanying consolidated statements of operations. The Company completed the annual goodwill impairment test in 2011 and determined goodwill was not impaired.
Revenue Recognition
The Company recognizes revenues from product sales when the products are shipped or delivered and the title and risk of loss pass to the customer. Provisions for any rebates, sales incentives, promotions and product returns, and discounts to customers are accounted for as reductions in revenues in the same period revenues are recorded.
Research and Development
All costs for research and development are expensed as incurred.
Advertising
The Company expenses advertising costs as incurred.
Self-Insurance
The Company maintains a self-insurance program for hospitalization and medical coverage, generally limited to payment of $70,000 per individual ($80,000 beginning January 1, 2011) per plan year (year ending December 31) through the use of a stop-loss policy. Losses and claims are charged against income as incurred.
Shipping and Handling Costs
The Company classifies shipping and handling costs within cost of sales on the consolidated statements of operations.
Sales Taxes Collected and Remitted
The Company presents sales taxes collected from customers and remitted to governmental authorities on a gross basis, including such amounts in both revenues and cost of sales.
9
NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Deferred income taxes are provided on temporary differences between financial statement and income tax reporting. Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases.
Deferred tax assets are recognized for temporary differences that will be deductible in future years tax returns and for operating loss and tax credit carryforwards. Deferred tax assets are recognized only if it is more likely than not that a tax position will be realized or sustained upon examination by the relevant taxing authority. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information.
Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized. Deferred tax liabilities are recognized for temporary differences that will be taxable in future years tax returns.
NOTE 2INVENTORIES
2011 | 2010 | |||||||
Work in process |
$ | 203,042 | $ | 178,189 | ||||
Finished goods and raw materials |
7,348,342 | 6,488,218 | ||||||
|
|
|
|
|||||
Total inventories |
$ | 7,551,384 | $ | 6,666,407 | ||||
|
|
|
|
NOTE 3PROPERTY AND EQUIPMENT
2011 | 2010 | |||||||
Land |
$ | 1,000,000 | $ | 1,000,000 | ||||
Leasehold improvements |
552,998 | 54,633 | ||||||
Machinery and equipment |
5,703,113 | 5,725,922 | ||||||
Dies, jigs, and fixtures |
2,768,493 | 2,612,406 | ||||||
|
|
|
|
|||||
Total, at cost |
10,024,604 | 9,392,961 | ||||||
Less accumulated depreciation |
7,432,747 | 6,950,478 | ||||||
|
|
|
|
|||||
Total property and equipment |
$ | 2,591,857 | $ | 2,442,483 | ||||
|
|
|
|
Total depreciation expense was $635,511 and $644,038 for 2011 and 2010, respectively.
10
NOTE 4PATENTS
Patent amortization expense was $2,649 for the years ended December 31, 2011 and 2010.
Future estimated amortization expense for patents is as follows:
2012 |
$ | 2,650 | ||
2013 |
2,650 | |||
2014 |
2,650 | |||
2015 |
2,650 | |||
2016 |
1,737 | |||
|
|
|||
Total |
$ | 12,337 | ||
|
|
NOTE 5INTANGIBLE ASSETS
2011 | 2010 | |||||||
Dynasonics, Inc. |
||||||||
Professional fee, net of amortization of $88,500 and $83,584 |
$ | | $ | 4,916 | ||||
J-TEC Associates, Inc. |
||||||||
Consulting agreement, net of amortization of $185,000 and $177,299 |
| 7,701 | ||||||
Eljo Industries |
||||||||
Consulting agreement, net of amortization of $60,000 (see Note 20) |
240,000 | | ||||||
|
|
|
|
|||||
Total intangible assets |
$ | 240,000 | $ | 12,617 | ||||
|
|
|
|
Amortization expense was $72,617 and $36,733 for the years ended December 31, 2011 and 2010, respectively.
NOTE 6NOTE PAYABLE TO BANK
The Company has entered into an agreement establishing a line-of-credit of $3,000,000. Interest is due monthly at the LIBOR rate plus 1.65%, but not less than 4.50% (4.50% at December 31, 2011), and the principal is due in one payment on May 31, 2012. The line-of-credit is unsecured. At December 31, 2011 and 2010, there were no borrowings on this line-of-credit.
11
NOTE 7LONG-TERM LIABILITIES
2011 | 2010 | |||||||||||
Deferred compensation agreements |
(1 | ) | $ | 608,493 | $ | 561,184 | ||||||
Equipment capital lease |
(2 | ) | 23,961 | 39,937 | ||||||||
Research and development agreement |
(3 | ) | 667,205 | | ||||||||
|
|
|
|
|||||||||
Total |
1,299,659 | 601,121 | ||||||||||
Less current maturities |
846,913 | 20,975 | ||||||||||
|
|
|
|
|||||||||
Long-term portion |
$ | 452,746 | $ | 580,146 | ||||||||
|
|
|
|
(1) | The Company has a deferred compensation plan for executives that provide, upon election, compensation, as defined by the plan, to be deferred to an unfunded account for which the Company shall credit interest at a rate equal to the yield on its 401(k) guaranteed portfolio. The entire deferred compensation liability was paid in January 2012 in connection with the transaction described in Note 21 and as a result, is classified as current at December 31, 2011 in the consolidated balance sheets. |
(2) | The Company leases a phone system under a capital lease. The capitalized cost of the phone system is $176,478. Accumulated depreciation on the phone system as of December 31, 2011 and 2010 was $141,400 and $118,190, respectively. Amortization of assets held under capital leases is included with depreciation expense. |
Future minimum lease payments are as follows:
2012 |
$ | 15,974 | ||
2013 |
7,987 | |||
|
|
|||
Present value of net minimum lease payments |
$ | 23,961 | ||
|
|
(3) | As described in Note 19, the Company entered into a research and product development agreement with a third party. A portion of the agreement committed the Company to the payment of $1,000,000, payable with a down payment of $50,000 and four installments of $237,500. Payments of $287,500 were made in 2011. The remaining payments, discounted at a rate of 4.50%, were charged to research and development expense. |
The future payments are as follows:
2012 |
$ | 237,500 | ||
2013 |
237,500 | |||
2014 |
237,500 | |||
|
|
|||
712,500 | ||||
Less amount representing interest |
(45,295 | ) | ||
|
|
|||
Total liability, as discounted |
$ | 667,205 | ||
|
|
12
NOTE 7LONG-TERM LIABILITIES (CONTINUED)
The aggregate principal payments of long-term liabilities, including elected deferred compensation payouts, are as follows:
2012 |
$ | 846,913 | ||
2013 |
225,473 | |||
2014 |
227,273 | |||
|
|
|||
Total |
$ | 1,299,659 | ||
|
|
Total interest expense was $35,949 and $23,413 in 2011and 2010, respectively.
NOTE 8STOCKHOLDERS EQUITY
On November 2, 2010, the Board of Directors declared a five-for-one stock split effective January 1, 2011. To effect the split, the Companys authorized shares increased from 500,000 shares to 2,500,000 shares. Total shares outstanding following the split were 1,180,560.
NOTE 9RETIREMENT PLAN
The Company maintains a salary deferral 401(k) plan which allows employees to defer up to the federal allowable limit. The Company will match the first 3% of salary contributed by the employee at 100%; for the next 2% the Company will match 50%. In addition, the Company may make discretionary profit sharing contributions to this plan for employees that meet certain eligibility requirements. Total contributions by the Company were $578,004 and $519,134 for 2011 and 2010, respectively.
NOTE 10ADVERTISING
Advertising expense amounted to $101,406 and $147,387 for 2011 and 2010, respectively.
NOTE 11RESEARCH AND DEVELOPMENT
Research and development expense was $1,540,422 and $123,611 in 2011 and 2010, respectively.
13
NOTE 12INCOME TAXES
The sources of deferred tax assets and liabilities and the tax effect of each are as follows:
2011 | 2010 | |||||||
Deferred tax assets: |
||||||||
Allowance for doubtful accounts |
$ | 96,700 | $ | 96,700 | ||||
Capitalized inventory costs |
89,000 | 56,000 | ||||||
Limitation on deductibility of accrued liabilities |
115,800 | 62,600 | ||||||
Deferred compensation expense |
237,100 | 218,800 | ||||||
Noncompete and goodwill amortization differences |
48,200 | 64,900 | ||||||
Research and development expense |
260,200 | | ||||||
Nonrefundable tax credits, Wisconsin |
| 3,000 | ||||||
|
|
|
|
|||||
Total deferred tax assets |
847,000 | 502,000 | ||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Property and equipment basis and depreciation differences |
(331,370 | ) | (330,927 | ) | ||||
Prepaid expenses |
(46,500 | ) | (56,200 | ) | ||||
|
|
|
|
|||||
Total deferred tax liabilities |
(377,870 | ) | (387,127 | ) | ||||
|
|
|
|
|||||
Net deferred tax asset |
$ | 469,130 | $ | 114,873 | ||||
|
|
|
|
The net deferred tax asset is presented in the accompanying consolidated balance sheets as follows:
2011 | 2010 | |||||||
Current deferred tax asset |
$ | 519,200 | $ | 159,100 | ||||
Noncurrent deferred tax liability |
(50,070 | ) | (44,227 | ) | ||||
|
|
|
|
|||||
Total deferred tax asset |
$ | 469,130 | $ | 114,873 | ||||
|
|
|
|
The provision for income taxes differs from that computed by applying federal statutory rates to income before income taxes, as indicated in the following analysis:
2011 | 2010 | |||||||
Federal statutory income tax at 34% |
$ | 1,494,500 | $ | 1,507,800 | ||||
Net income attributable to noncontrolling interest |
(425,200 | ) | (234,100 | ) | ||||
Domestic production activities deduction |
(122,900 | ) | (93,400 | ) | ||||
State taxes, net of federal benefit |
114,900 | 31,200 | ||||||
Other |
(43,469 | ) | 10,485 | |||||
|
|
|
|
|||||
$ | 1,017,831 | $ | 1,221,985 | |||||
|
|
|
|
14
NOTE 12INCOME TAXES (CONTINUED)
The provision for income taxes consists of the following components:
2011 | 2010 | |||||||
Current: |
||||||||
Federal |
$ | 1,169,302 | $ | 892,913 | ||||
State |
174,109 | 47,200 | ||||||
United Kingdom |
28,677 | 26,985 | ||||||
Deferred |
(354,257 | ) | 254,887 | |||||
|
|
|
|
|||||
Total provision for income taxes |
$ | 1,017,831 | $ | 1,221,985 | ||||
|
|
|
|
Federal tax credits utilized by the Company were $49,000 for the years ended December 31, 2011 and 2010. Wisconsin tax credits utilized by the Company were $42,000 and $127,000 for the years ended December 31, 2011 and 2010, respectively.
The Company follows the requirements for accounting for uncertain tax positions. The Company has determined that no liability related to uncertain tax positions was required at December 31, 2011 and 2010.
The Company files income tax returns in the U.S. federal jurisdiction and nine states. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2009 or Wisconsin income tax examinations by tax authorities for years before 2011. The Internal Revenue Service (IRS) completed an examination of the Companys income tax return for 2008 during 2010 resulting in no adjustments that would lead to a material change to the Companys financial position. The Wisconsin Department of Revenue (WI-DOR) completed an examination of the Companys sales and use tax returns for the years 2006-2009 as well as the Companys income tax returns for the years 2007-2010 resulting in no adjustments that would lead to a material change to the Companys financial position.
NOTE 13LONG-TERM LEASES
The Company has leases for manufacturing space, automobiles, and data processing equipment with terms ranging from one to fifteen years. The Company pays the property taxes, insurance and maintenance expenses related to the leased property. Total rental expense under operating leases was $949,027 and $1,007,579 for 2011 and 2010, respectively.
Estimated minimum future obligations on operating leases in effect at December 31, 2011 are:
2012 |
$ | 959,872 | ||
2013 |
946,108 | |||
2014 |
901,904 | |||
2015 |
885,000 | |||
2016 |
885,000 | |||
Thereafter |
8,462,145 | |||
|
|
|||
Total |
$ | 13,040,029 | ||
|
|
15
NOTE 14CASH FLOW DISCLOSURES
Cash paid for interest and income taxes was as follows:
2011 | 2010 | |||||||
Interest |
$ | 11,028 | $ | 6,388 | ||||
Income taxes |
1,523,630 | 896,797 |
Dividends paid by RFI Exports, Inc. were $1,684,277 and $1,257,184 for 2011 and 2010, respectively.
During 2010, the Company installed a phone system upgrade in the amount of $47,923 which was financed by a capital lease.
NOTE 15SIGNIFICANT ESTIMATE AND CONCENTRATION OF CREDIT RISK
Generally accepted accounting principles require disclosure of information about certain significant estimates and current vulnerabilities due to certain concentrations. These matters include the following significant estimate:
Reserve for Self-insurance
Under its self-insurance plan, the Company accrues the estimated expense of hospitalization and medical coverage claims costs based on claims filed subsequent to year-end and an additional amount for incurred but not yet reported claims based on prior experience. An accrual for such costs of $200,000 and $240,000 is included in accrued liabilities at December 31, 2011 and 2010, respectively. Claims payments based on actual claims ultimately filed could differ materially from these estimates.
Cash and Cash Equivalents in Excess of the FDIC Limits
The Company maintains its cash and cash equivalents primarily in one commercial bank located in Racine, Wisconsin. Balances on deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to specified limits. Balances in excess of FDIC limits are uninsured.
NOTE 16EARNINGS PER SHARE
Earnings per share were computed on the weighted average of 1,175,435 and 237,787 shares outstanding for 2011 and 2010, respectively.
16
NOTE 17EXCHANGE RATES
The exchange rate used to convert Premier Control Technologies, Ltd.s balance sheets at December 31, 2011 and 2010 from its functional currency, the British pound, to the U.S. dollar was 1.5453 and 1.5471, respectively. Revenue and expense transactions were converted at 1.6039 and 1.5463, which were the average exchange rates for the respective periods.
Currency translation adjustments are included in other comprehensive and accumulated other comprehensive income in the consolidated statements of stockholders equity. Changes in accumulated other comprehensive income for the years ended December 31 are as follows:
2011 | 2010 | |||||||
Balance, at beginning of year |
$ | (296,863 | ) | $ | (440,932 | ) | ||
Foreign currency translation adjustments |
(26,333 | ) | 144,069 | |||||
|
|
|
|
|||||
Balance, at end of year |
$ | (323,196 | ) | $ | (296,863 | ) | ||
|
|
|
|
NOTE 18CONTINGENT LIABILITIES
The Company has a pending legal matter as of December 31, 2011 relating to a product liability suit, which is fully covered under their product liability insurance. The Company does not anticipate any exposure or damages as a result of this case.
NOTE 19COMMITMENTS
The Company has entered into an agreement with an unrelated third party to develop a coriolis mass flow meter for the Companys manufacture and use. In addition to the development fee described in Note 7, the agreement requires various payments for the development of the product line and transition of the product line to the Company as certain milestones are reached. Total milestone payments under this agreement were $300,000 for 2011 and are included in research and development expense. Total future milestone obligations under the agreement are projected to be as follows:
2012 |
$ | 730,000 | ||
2013 |
645,000 | |||
|
|
|||
Total |
$ | 1,375,000 | ||
|
|
Milestone obligations could cease upon the occurrence of several events including the third-party failing to meet and, upon notification by the Company, cure milestone events.
17
NOTE 20ACQUISITION
During 2011, the Company purchased a product line from Eljo Industries for $960,795. The product line relates to concrete screeding equipment. The purchase method of accounting was used to account for the acquisition, and the purchase price was allocated as follows:
Inventory |
$ | 121,570 | ||
Tooling and equipment |
25,000 | |||
Goodwill |
214,225 | |||
Consulting agreement |
600,000 | |||
|
|
|||
Total |
$ | 960,795 | ||
|
|
The Company paid the entire purchase price, less one half of the consulting agreement at the closing. The portion of the consulting agreement paid at closing $(300,000) is being amortized over five years, and is described in Note 5. The remaining portion of the agreement $(300,000) will be expensed as paid, in annual installments of $60,000 ending in December 2015.
NOTE 21SUBSEQUENT EVENTS
Subsequent events were evaluated through March 15, 2012, which is the date the consolidated financial statements were available to be issued. Events or transactions occurring after December 31, 2011, but prior to March 15, 2012, that provided additional evidence about conditions that existed at December 31, 2011, have been recognized in the consolidated financial statements for the year ended December 31, 2011. Events or transactions that provided evidence about conditions that did not exist at December 31, 2011 but arose before the consolidated financial statements were available to be issued have not been recognized in the consolidated financial statements for the year ended December 31, 2011.
In December 2011, the Board of Directors executed an agreement approved by the shareholders to sell the stock of the Company to Badger Meter, Inc. for cash of $57.1 million, subject to post-closing adjustments. The Company will continue and become a wholly-owned subsidiary of Badger Meter, Inc. The transaction was completed after the end of business on January 31, 2012.
This information is an integral part of the accompanying consolidated financial statements.
18
Exhibit (99.2)
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
On January 31, 2012, Badger Meter, Inc. (the Company) completed the acquisition of Racine Federated, Inc. (Racine Federated) in accordance with the terms of the Acquisition Agreement for an aggregate amount of $57.4 million, subject to certain adjustments (the transaction consideration) that include consideration for certain of Racine Federateds shareholders agreeing to certain restrictive covenants, including non-competition, non-solicitation and confidentiality covenants. The transaction consideration is subject to post-closing adjustments based on a determination of closing net working capital and closing indebtedness. In accordance with the Acquisition Agreement, $5.5 million of the transaction consideration has been held back by the Company to support the post-closing working capital and indebtedness adjustments, and to support the indemnification obligations of Racine Federateds shareholders. The purchase price was funded through available cash resources and borrowing facilities.
Racine Federated manufactures and markets flow meters for the water industry, as well as various industrial metering and specialty products. These products complement and expand the Companys existing lines of water application and industrial flow products for the global flow measurement business.
The Unaudited Pro Forma Combined Condensed Statement of Operations combine the historical financial information of the Company and Racine Federated for the year ended December 31, 2011 to illustrate the estimated effect of the acquisition as if it had occurred as of the beginning of the period presented. The Unaudited Pro Forma Combined Condensed Balance Sheet as of December 31, 2011 combines the historical financial information of the Company and Racine Federated to illustrate the estimated effect of the acquisition on the Companys balance sheet as if the acquisition had occurred on December 31, 2011.
The historical financial information has been adjusted to give effect to pro forma matters that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the operating results of the combined company. The Unaudited Pro Forma Combined Condensed Financial Information should be read in conjunction with the accompanying notes to the Unaudited Pro Forma Combined Condensed Financial Information, the audited historical financial statements of the Company as of and for the year ended December 31, 2011 included in its Annual Report on Form 10-K, as well as the audited historical consolidated financial statements of Racine Federated as of and for the year ended December 31, 2011 included as an exhibit to this Current Report on Form 8-K/A.
The Unaudited Pro Forma Combined Condensed Financial Information has been prepared using the acquisition method of accounting under U.S. generally accepted accounting principles. The Unaudited Pro Forma Combined Condensed Financial Information will differ from the final acquisition accounting for a number of reasons, including the fact that the Companys estimates of fair value are preliminary and subject to change when the formal valuation and other studies are finalized. The adjustments that may occur to the preliminary estimates could have a material impact on the accompanying Unaudited Pro Forma Combined Condensed Financial Information.
The Unaudited Pro Forma Combined Condensed Financial Information is presented for information purposes only. It has been prepared in accordance with the regulations of the Securities and Exchange Commission and is not necessarily indicative of what the Companys financial position or results of operations actually would have been had it completed the acquisition at the dates indicated, nor does it purport to project the future financial position or operating results of the combined company.
BADGER METER, INC.
Unaudited Pro Forma Combined Condensed Balance Sheet
As of December 31, 2011
(Dollars in thousands) |
Badger Meter, Inc. |
Racine Federated |
Pro Forma Adjustments (Note 1 & 2) |
Pro Forma Combined |
||||||||||||
Assets |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 4,975 | $ | 10,674 | $ | (9,146 | ) | $ | 6,503 | |||||||
Receivables |
41,168 | 5,071 | | 46,239 | ||||||||||||
Inventories |
49,436 | 7,551 | 192 | 57,179 | ||||||||||||
Prepaid expenses and other current assets |
2,266 | 207 | | 2,473 | ||||||||||||
Deferred income taxes |
3,350 | 519 | 189 | 4,058 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
101,195 | 24,022 | (8,765 | ) | 116,452 | |||||||||||
Net property, plant and equipment |
66,102 | 2,592 | 2,008 | 70,702 | ||||||||||||
Intangible assets, at cost less accumulated amortization |
33,680 | 252 | 29,748 | 63,680 | ||||||||||||
Other assets |
6,259 | | | 6,259 | ||||||||||||
Deferred income taxes |
2,309 | | | 2,309 | ||||||||||||
Goodwill |
9,365 | 214 | 24,008 | 33,587 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 218,910 | $ | 27,080 | $ | 46,999 | $ | 292,989 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities and shareholders equity |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Short-term debt |
$ | 1,790 | $ | | $ | 51,791 | $ | 53,581 | ||||||||
Payables |
11,365 | 3,148 | 5,609 | 20,122 | ||||||||||||
Accrued compensation and employee benefits |
6,734 | 3,109 | (2,500 | ) | 7,343 | |||||||||||
Warranty and after-sale costs |
1,593 | | | 1,593 | ||||||||||||
Income and other taxes |
931 | 28 | | 959 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current liabilities |
22,413 | 6,285 | 54,900 | 83,598 | ||||||||||||
Other long-term liabilities |
1,078 | 453 | | 1,531 | ||||||||||||
Deferred income taxes |
| 50 | 12,391 | 12,441 | ||||||||||||
Accrued non-pension postretirement benefits |
6,103 | | | 6,103 | ||||||||||||
Other accrued employee benefits |
10,035 | | | 10,035 | ||||||||||||
Commitments and contingencies |
||||||||||||||||
Shareholders equity: |
||||||||||||||||
Common Stock, $1 par; authorized 40,000,000 shares; issued 21,292,030 shares in 2011 |
21,292 | | | 21,292 | ||||||||||||
Capital in excess of par value |
39,445 | 683 | (683 | ) | 39,445 | |||||||||||
Reinvested earnings |
166,271 | 19,932 | (19,932 | ) | 166,271 | |||||||||||
Accumulated other comprehensive loss |
(14,566 | ) | (323 | ) | 323 | (14,566 | ) | |||||||||
Less: Employee benefit stock |
(1,485 | ) | | | (1,485 | ) | ||||||||||
Treasury stock, at cost; 6,169,329 shares in 2011 |
(31,676 | ) | | | (31,676 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total shareholders equity |
179,281 | 20,292 | (20,292 | ) | 179,281 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities and shareholders equity |
$ | 218,910 | $ | 27,080 | $ | 46,999 | $ | 292,989 | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes.
2
BADGER METER, INC.
Unaudited Pro Forma Combined Condensed Statement of Operations
For the Fiscal Year Ended December 31, 2011
(In thousands except per share amounts) |
Badger Meter, Inc. |
Racine Federated |
Pro Forma Adjustments (Note 3) |
Pro Forma Combined |
||||||||||||
Net sales |
$ | 262,915 | $ | 42,647 | $ | | $ | 305,562 | ||||||||
Cost of sales |
173,095 | 20,764 | | 193,859 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross margin |
89,820 | 21,883 | | 111,703 | ||||||||||||
Selling, engineering and administration |
62,286 | 17,253 | 828 | 80,367 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating earnings |
27,534 | 4,630 | (828 | ) | 31,336 | |||||||||||
Interest expense (income), net |
185 | 234 | 777 | 1,196 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings before income taxes |
27,349 | 4,396 | (1,605 | ) | 30,140 | |||||||||||
Provision for income taxes |
8,188 | 1,018 | (617 | ) | 8,589 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net earnings |
$ | 19,161 | $ | 3,378 | $ | (988 | ) | $ | 21,551 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | 1.28 | $ | 1.44 | ||||||||||||
|
|
|
|
|||||||||||||
Diluted |
$ | 1.27 | $ | 1.43 | ||||||||||||
|
|
|
|
|||||||||||||
Shares used in computation of earnings per share: |
||||||||||||||||
Basic |
14,971 | 14,800 | ||||||||||||||
Impact of dilutive securities |
78 | 148 | ||||||||||||||
|
|
|
|
|||||||||||||
Diluted |
15,049 | 14,948 | ||||||||||||||
|
|
|
|
See accompanying notes.
3
Note 1 Preliminary Purchase Consideration Allocation
The preliminary total consideration for the acquisition was as follows:
(In thousands) |
January 31, 2012 | |||
Cash consideration |
$ | 57,400 | ||
Working capital purchase adjustments |
614 | |||
|
|
|||
Total assets acquired |
$ | 58,014 | ||
|
|
The final purchase consideration amount is pending, based on the final agreement of the adjustment to the cash consideration related to the level of net working capital transferred at closing. The preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed is based on the estimated fair values at the date of acquisition. The fair values of the assets and liabilities included in the table below are preliminary and subject to change as we are currently in the process of obtaining third-party valuations.
The excess of the purchase consideration over the net tangible and identifiable intangible assets is reflected as goodwill. The amount allocated to intangible assets and goodwill for tax purposes is expected to be tax deductible as a result of the election under Section 338(h)(10) of the Internal Revenue Code.
The following table summarizes the preliminary estimates of fair value of the assets acquired and the liabilities assumed as of the acquisition date:
(In thousands) |
January 31, 2011 | |||
Assets Acquired: |
||||
Cash |
$ | 1,529 | ||
Accounts receivable |
5,202 | |||
Inventories |
7,602 | |||
Prepaid expenses and other current assets |
172 | |||
Current deferred income taxes |
492 | |||
Property, plant and equipment |
4,600 | |||
Intangible assets |
30,000 | |||
Goodwill |
25,045 | |||
|
|
|||
Total assets acquired |
$ | 74,642 | ||
|
|
|||
Liabilities Assumed: |
||||
Accounts payable |
$ | 3,155 | ||
Employee compensation and benefits |
569 | |||
Income taxes |
30 | |||
Deferred income taxes |
12,423 | |||
Other long-term liabilities |
451 | |||
|
|
|||
Total liabilities assumed |
$ | 16,628 | ||
|
|
The determination of fair value for acquired intangible assets is currently underway and includes intangible assets consisting of technology, customer relationships, trademarks and backlog. Of the $55.0 million of intangible assets and goodwill, $30.0 million has been preliminarily assigned to intangible assets which are being amortized over an average weighted life of fifteen years. The determination of the useful life was based upon historical experience, economic factors, and future cash flows of the assets acquired.
Inventories reflect adjustments of $0.2 million to establish the estimated fair market value. Property plant and equipment reflects an adjustment of $2.0 million to establish the estimated fair market value. These adjustments have been reflected on the December 31, 2011 pro forma balance sheet.
For purposes of these Unaudited Pro Forma Combined Condensed Financial Statements, a blended statutory rate of 38.4% has been used. This rate is an estimate and does not take into account any possible future tax planning or events that may occur for the combined company. An estimated deferred tax asset of $0.2 million and an estimated deferred tax liability of $12.4 million related to the tax effect on differences in timing of deductibility was recognized.
4
Note 2 Adjustments to the Unaudited Pro Forma Combined Condensed Balance Sheet
Fair value adjustments were made to certain intangible assets, property, plant and equipment, and inventories. In January 2012, in preparing for their cash-free debt-free acquisition by the Company, Racine Federated paid certain liabilities and paid a dividend that reduced cash accordingly. Adjustments in the pro forma presentation reflect the cash-free debt-free transaction. Inventories have been adjusted to their estimated fair market value and will be charged to cost of sales over a period of three months. Amortizable intangible assets are being amortized over 15 years while property, plant and equipment are being depreciated over the estimated useful lives of the respective assets using the straight-line method for financial reporting. Deferred tax balances have been adjusted to reflect the tax impact of adjustments made to underlying carrying values.
Note 3 Adjustments to the Unaudited Pro Forma Combined Condensed Statement of Operations
Acquisition expenses of $1.1 million were excluded in the combined condensed statement of operations as of December 31,2011. It is expected that acquisition costs after that date will not be significant. The pro forma amounts include additional amortization of intangible assets, depreciation of assets at fair value, interest expense on increased debt levels and the related tax effects of these adjustments.
5