SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number 1-6706 ------ BADGER METER, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Wisconsin 39-0143280 --------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4545 West Brown Deer Road, Milwaukee, Wisconsin 53223 - ----------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (414) 355-0400 -------------- None ------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 12, 2002 ----- ----------------------------- Common Stock, $1.00 par value 3,192,351 -1-
BADGER METER, INC. INDEX <TABLE> <CAPTION> Page No. -------- <S> <C> Part I. Financial Information: Item 1 Financial Statements: Consolidated Condensed Balance Sheets - - March 31, 2002 and December 31, 2001 3 Consolidated Condensed Statements of Operations - - Three Months Ended March 31, 2002 and 2001 4 Consolidated Condensed Statements of Cash Flows - - Three Months Ended March 31, 2002 and 2001 5 Notes to Consolidated Condensed Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3 Quantitative and Qualitative Disclosures about Market Risk 8 Part II. Other Information: Item 6(a) Exhibits 9 Item 6(b) Reports on Form 8-K 9 </TABLE> -2-
Part I - Financial Information BADGER METER, INC. (Unaudited *) Item 1 Financial Statements CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands) <TABLE> <CAPTION> Assets March 31, December 31, ------ 2002* 2001 ----- ---- (Unaudited) <S> <C> <C> Current assets: Cash and cash equivalents $ 5,737 $ 3,410 Receivables 19,838 18,700 Inventories: Finished goods 5,647 5,260 Work in process 8,103 8,190 Raw materials 7,328 8,037 ----------- ----------- Total inventories 21,078 21,487 Prepaid expenses 1,061 767 Deferred income tax 2,588 2,588 ----------- ----------- Total current assets 50,302 46,952 Property, plant and equipment, at cost 92,748 91,443 Less accumulated depreciation (52,019) (50,319) ------------ ----------- Net property, plant and equipment 40,729 41,124 Intangible assets, at cost less accumulated amortization 213 227 Prepaid pension 8,665 8,965 Other assets 3,438 3,561 Goodwill 546 546 ----------- ----------- Total assets $ 103,893 $ 101,375 =========== =========== Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Short-term debt $ 3,386 $ 5,129 Current portion of long-term debt 4,067 3,135 Payables 10,607 8,887 Accrued compensation and employee benefits 3,774 2,992 Other accrued liabilities 3,444 3,453 Income and other taxes 939 186 ----------- ----------- Total current liabilities 26,217 23,782 Deferred income tax 2,539 2,539 Accrued non-pension postretirement benefits 5,881 6,093 Other accrued employee benefits 5,444 5,461 Long-term debt 19,534 20,498 Shareholders' equity: Common Stock 4,703 4,677 Capital in excess of par value 16,552 16,168 Reinvested earnings 51,553 50,736 Less: Employee benefit stock (1,535) (1,900) Treasury stock, at cost (26,995) (26,679) ------------ ----------- Total shareholders' equity 44,278 43,002 ----------- ----------- Total liabilities and shareholders' equity $ 103,893 $ 101,375 =========== =========== </TABLE> See accompanying notes to consolidated condensed financial statements. -3-
BADGER METER, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Per Share Amounts) (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, --------- 2002 2001 ---- ---- <S> <C> <C> Net sales $ 37,454 $ 35,454 Cost of sales 24,694 23,427 ----------- ----------- Gross margin 12,760 12,027 Selling, engineering and administration 9,944 10,206 ----------- ----------- Operating earnings 2,816 1,821 Interest expense 372 456 Other expense (income), net (31) (50) ------------ ----------- Earnings before income taxes 2,475 1,415 Provision for income taxes 868 481 ----------- ----------- Net earnings $ 1,607 $ 934 =========== =========== Per share amounts: * Earnings per share: Basic $ .51 $ .29 =========== =========== Diluted $ .49 $ .28 =========== =========== Dividends declared: $ .25 $ .25 =========== =========== Shares used in computation of: Basic 3,154,686 3,210,104 Impact of dilutive stock options 131,765 121,022 ----------- ----------- Diluted 3,286,451 3,331,126 =========== =========== </TABLE> *Earnings per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share does not necessarily equal the total for the year. See accompanying notes to consolidated condensed financial statements. -4-
BADGER METER, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, --------- 2002 2001 ---- ---- <S> <C> <C> Operating activities: Net earnings $ 1,607 $ 934 Adjustments to reconcile net earnings to net cash provided by (used for) operations: Depreciation 1,701 1,695 Amortization 14 45 Tax benefit on stock options 70 169 Noncurrent employee benefits 436 464 Changes in: Receivables (1,138) (1,408) Inventory 409 (1,696) Current liabilities other than short-term debt 3,176 3,426 Prepaid expenses and other (294) (567) ----------- ----------- Total adjustments 4,374 2,128 ----------- ----------- Net cash provided by (used for) operations 5,981 3,062 ----------- ----------- Investing activities: Property, plant and equipment (1,306) (1,898) Other - net 123 (166) ----------- ----------- Net cash provided by (used for) investing activities (1,183) (2,064) ------------ ----------- Financing activities: Net increase (decrease) in short-term debt (1,743) (703) Repayments of long-term debt (32) (1,679) Dividends (790) (792) Stock options and ESSOP 410 425 Treasury stock transactions (316) (721) ------------ ----------- Net cash provided by (used for) financing activities (2,471) (3,470) ------------ ----------- Increase (decrease) in cash 2,327 (2,472) Beginning of year 3,410 4,237 ----------- ----------- End of period $ 5,737 $ 1,765 =========== =========== </TABLE> See accompanying notes to consolidated condensed financial statements. -5-
BADGER METER, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of management, the accompanying unaudited consolidated condensed financial statements of Badger Meter, Inc. (the "Company") contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated condensed financial position at March 31, 2002 and the results of operations for the three-month periods ended March 31, 2002 and 2001 and the cash flows for the three-month periods ended March 31, 2002 and 2001. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the 2001 data to conform to the 2002 presentation. 2. The consolidated condensed balance sheet at December 31, 2001, was derived from amounts included in the Annual Report to Shareholders, which was incorporated by reference in the Company's annual report on Form 10-K for the year ended December 31, 2001. Refer to the footnotes in those reports for a description of the accounting policies, which have been continued without change, and additional details of the Company's financial condition. The details in those notes have not changed except as discussed below and as a result of normal transactions in the interim. 3. In January 2002, the Company borrowed $20 million of long-term, unsecured debt from a local bank. The purpose of the loan was to replace short-term borrowings. As a result of obtaining the loan, $20 million of commercial paper was reclassified to long-term debt for financial statement presentation at December 31, 2001. The debt bears interest at 6.73% and is due in quarterly installments through January 2007. 4. Other expense (income), net includes foreign currency gains and losses, which are recognized as incurred. The Company's functional currency for all of its foreign subsidiaries is the U.S. dollar. 5. In February 2002, the Company signed a letter of intent to acquire Data Industrial Corporation of Mattapoisett, Massachusetts. The completion of this small acquisition, anticipated in the second quarter of 2002, will broaden the Company's line of meters for the industrial market. 6. In the ordinary course of business, the Company enters into various material purchase agreements with its vendors, some of which contain minimum purchase quantity commitments extending beyond one year. Future purchase commitments are not expected to exceed normal usage requirements. 7. 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 became effective for the Company beginning January 1, 2002. These statements have not had a material effect on the Company's results of operations, financial position or disclosures. -6-
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition Cash at March 31, 2002 increased $2.3 million since December 31, 2001 due to higher cash flows associated with improved results and the timing of accounts payable payments offset somewhat by reductions in short term debt and increased accounts receivable. Receivables at March 31, 2002 increased 6.1%, or $1.1 million, from the December 31, 2001 balance due to increased sales in the first quarter of 2002 as compared to the fourth quarter of 2001. Inventories declined 1.9% from December 31, 2001 levels because of the improved sales levels. Prepaid expenses increased since December 31, 2001 due to the timing of annual insurance payments. Net property, plant and equipment declined nearly $400,000, the result of depreciation expense offset by equipment purchases. Prepaid pension decreased as a result of pension expense incurred to date in 2002. Since December 31, 2001, short-term debt decreased $1.7 million as proceeds from a $20 million long-term unsecured borrowing were used to retire commercial paper maturing in the first quarter. The $20 million was borrowed in January 2002 and was reflected as long-term debt as of December 31, 2001. Payables increased $1.7 million due to the timing of purchases and payment processing. Accrued compensation and employee benefits increased $782,000 due to the accrual of anticipated incentives. Income and other taxes increased $753,000 since December 31, 2001 due to the timing of estimated tax payments. Common stock and capital in excess of par value both increased at March 31, 2002 due to new shares issued in connection with stock options exercised and ESSOP purchases. Treasury stock increased due to shares repurchased during the period. Employee benefit stock decreased $365,000 due to the regular repayment of the ESSOP debt and the related release of shares. As of March 31, 2002, the Company had approximately $35.1 million of short-term credit facilities with domestic and foreign banks of which $3.4 million was in use. The Company believes that the present lines of credit are adequate to meet operating requirements and future capital needs. The Company also believes it would have no difficulty securing additional term debt. Results of Operations Net sales for the first quarter of 2002 of $37,454,000 reflect a 5.6% increase as compared to the first quarter of 2001. The increase is the result of stronger sales of residential water meter products offset somewhat by lower sales in automotive fluid products, small precision valves and industrial products. The increase in residential water meter sales was due to higher volumes in both local manual-read water meters and automatic meter reading technologies offset in part by lower prices on the manual-read meters. Sales were also affected by modest price increases in automated meter reading technologies. Sales of automotive fluid meters, small precision valves and other industrial products continued to be affected by the economic recession. Many of these products are sold to customers in the construction, manufacturing, and oil and gas markets, which continue to lag the economy. In addition, the first quarter of 2001 includes approximately $1.4 million of sales from product lines that were discontinued. Gross margins improved slightly from the first quarter of 2001 with 34.1% versus 33.9% last year. The slight increase is the net result of increased water meter volumes and modest price increases for automated water meters offset by lower volumes and prices for automotive fluid meters, precision valves and industrial products. Selling, engineering and administration costs were down $262,000, or 2.6%, for the first quarter of 2002 compared to the same quarter in 2001. Cost controls put into effect throughout 2001 helped offset inflation, wage increases and incentive accruals. -7-
Interest expense decreased for the first quarter of 2002 due to lower interest rates and reduced overall debt. The effective tax rates were 35.1% and 34.0% for the first quarters of 2002 and 2001, respectively. These rates are less than the statutory rates due to the effect of certain non-taxable items on expected pre-tax income. As a result of the above, earnings for the first quarter of 2002 were $1,607,000, a increase of 72.1% from first quarter 2001 earnings of $934,000. Earnings per share on a diluted basis were $0.49 for the first quarter of 2002 versus $0.28 for the same period last year. Other Matters 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. No other risks or uncertainties were identified that could have a material impact on operations and no long-lived assets have become permanently impaired in value. Item 3 Quantitative and Qualitative Disclosures about Market Risk The Company's quantitative and qualitative disclosures about market risk are incorporated by reference from Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31, 2001, and have not materially changed since that report was filed. Forward Looking Statements Certain statements contained in this document, as well as other information provided from time to time by the Company or its employees, may contain forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. The words "anticipate," "believe," "estimate," "expect," "think," "should" and "objective" or similar expressions are intended to identify forward looking statements. The forward looking statements are based on the Company's current views and assumptions and involve risks and uncertainties that include, among other things: - the success or failure of new product offerings - the actions and financial condition of competitors and alliance partners - changes in competitive pricing and bids in the marketplace - changes in domestic conditions, including housing starts - changes in foreign economic conditions, including currency fluctuations - changes in laws and regulations - changes in customer demand and fluctuations in the prices of and availability of purchased raw materials and parts. Some or all of these factors are beyond the Company's control. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward looking statements and are cautioned not to place undue reliance on such forward looking statements. The forward looking statements made herein are made only as of the date of this document and the Company undertakes no obligation to publicly update such forward looking statements to reflect subsequent events or circumstances. -8-
Part II - Other Information Item 6 Exhibits and Reports on Form 8-K (a) Exhibits: None. (b) Reports on Form 8-K: There were no reports on Form 8-K filed for the three months ended March 31, 2002. -9-
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. <TABLE> <CAPTION> BADGER METER, INC. ------------------ <S> <C> Dated April 17, 2002 By /S/ Richard E. Johnson ----------------------- Richard E. Johnson Vice President - Finance and Treasurer Chief Financial Officer By /S/ Beverly L.P. Smiley ------------------------ Beverly L.P. Smiley Vice President - Corporate Controller </TABLE> -10-